New chief executive says £160m provision to get out of sector is not enough
New Interserve chief executive Debbie White shocked the City this morning when she said the £160m it has set aside to cover the cost of getting out of its disastrous foray into the energy from waste market will still not be enough.
The firm originally said in May 2016 that the cost of pulling the plug on the sector would be £90m. It was then forced to revise this figure up to £160m, earlier this year.
But White (pictured), who joined at the beginning of the month, ripped up this figure made by former chief executive Adrian Ringrose and in a trading update, which effectively doubled up as a profit warning, the firm said “the anticipated timing and complexities of completion mean that the Board now considers it likely that the final costs will significantly exceed the £160m currently provided”.
The debacle has dogged the firm for months now and nearly a year ago it was told to leave the job in Glasgow, which it won back in 2012, by its client Viridor because it “repeatedly failed” to meet its delivery milestones.
As well as Glasgow, Interserve has since taken on energy from waste schemes – which involves turning household rubbish into energy – at five other sites including Derby, Rotherham and Peterborough.
White gave no further update on the legal fight over the disputed contracts – it is also involved in legal action on another energy from waste scheme at Kidderminster.
But this morning’s update also said that trading in July and August was “disappointing, particularly in support services, but also in the construction division. As a result of this, the Board now believes that the outturn for the year will be significantly below its previous expectations.”
These were thought to be around £100m pre-tax profit for the year but Cenkos analyst Kevin Cammack admitted: “Heaven knows where the numbers are now. £80m PBT, lower maybe but that looks somewhat academic really now given the bigger picture.”
He added: “[The update] almost certainly paves the way for a major restructuring and possible re-financing.”
Interserve said it “continues to believe that the group will be able to operate within its banking covenants for the year ended 31 December 2017”.
The news immediately increased speculation the firm will begin a firesale to shore up its finances with the firm having already tried to sell equipment services business RMD Kwikform only for Interserve to change its mind last year.
Cammack said: “It does have assets to sell, the obvious one being Equipment Services which…is thought to have been valued in excess of £200m.”
Shares crashed by more than half on this morning’s news to 75.5p. A year ago today, they were trading at 400p.