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Record order book combines with living wage concerns

Interserve has revealed strong revenue and pre-tax profit increases in its half-year trading results, but says it may have to pay an extra £15m in 2016 because of the new national living wage rate.

It has recorded revenue and pre-tax profit increases of 16% and 19%, respectively, so far this year compared with 2014.

However, chief executive Adrian Ringrose said the new national wage, =announced by George Osborne in his Summer Budget, would cost the business an additional £10m to £15m extra next year within its support services division.

The effect is expected to reduce after next year, he added, as “the change is priced in to relevant contracts”.

Talks with public-sector clients have been initiated to discuss more than 10,000 staff working in UK support services on contracts with an average duration of four years.

Numis has predicted that the additional costs will affect pre-tax profit by 12% in 2016.

Further positive results were revealed by the copany, with figures showing a record order book of £8.3bn and an interim dividend increase of 5% resulting from its revenue growth.

Although performance levels have been positive, the report said that construction margins had not met medium-term expectations.

This had been caused by inflation and a volatile supply chain, combined with the “pressures on contract close-outs in the current challenging contracting environment”.

In support services, the group boosted revenue by 15% to £933.1m, while its total contribution to operating profit grew by 19% to £44m.