Interserve, the UK support services company, has suspended six senior employees at its industrial services division on suspicion of inflating revenue figures for at least five years. The company lost more than 20 per cent of its market value yesterday after it decided to write down the value of its assets to reflect the accounting irregularity.
Interserve will reduce the value of its assets by £25m. The charge will appear in its first-half results as a prior-year adjustment. The company will report results on 4 September when it hopes to provide more detail about its investigation. Altium Securities described the charge as "hugely significant" because it represents about 50 per cent of the company's estimated 2006 pre-tax profit.
Adrian Ringrose, Interserve's chief executive, and Tim Jones, the group finance director, met investors yesterday to explain that the impact of the alleged fraud is limited to its industrial services division and that the majority of Interserve's business is performing better than expectations. The industrial services division has not performed well over recent years and contributes about 13 per cent of Interserve's overall sales and about 10 per cent of operating profits.
Yet Mr Jones, who joined the company in 2003, has been singled out for criticism. One analyst, who declined to be named, said: "The management team has a mountain to climb to restore its credibility. Why was this allowed to happen for five years? The finance director might not have been there for five years but the buck stops there."
It is alleged that the staff under investigation actively colluded to inflate revenue and debt figures within the division. Interserve has appointed the independent auditors KPMG and, more ominously for the six suspended staff, the law firm Linklaters to conduct a review. Stewart Haggerty, the former managing director of the division, may also come under investigation.
Mr Ringrose said: "The outcome achieved by this circumvention was to flatter the profit-and-loss account." He described the situation as an "anomaly", stressing the issue would not affect its cash position or customer accounts.
He said there was no suggestion that customers paid any money inappropriately or that any cash had left the business as a result of the alleged fraud. However, he said further restructuring charges could arise from the formal investigation.
Mr Ringrose also said no bonuses had been paid on the inflated figures but declined to comment on any motivation of the implicated staff. The Financial Services Authority had been contacted, Mr Ringrose said, but he has not yet involved the Serious Fraud Office. "The priority is to get to the bottom of this quickly. I think it will be a matter of weeks," he said.
The industrial services division, which has clients including BP and BAA, was due to be integrated with the larger facilities services unit after Interserve's £118m acquisition of MacLellan Group earlier this year.
Leslie Kent, an analyst at brokerage JM Finn, said: "This is extremely disappointing news for a company that seemed to be doing all the right things." Interserve shares fell 21 per cent to 281.0p yesterday.Reuse content