New chief executive says 拢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 拢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 拢90m. It was then forced to revise this figure up to 拢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 鈥渢he anticipated timing and complexities of completion mean that the Board now considers it likely that the final costs will significantly exceed the 拢160m currently provided鈥�.
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 鈥渞epeatedly failed鈥� to meet its delivery milestones.
As well as Glasgow, Interserve has since taken on energy from waste schemes 鈥� which involves turning household rubbish into energy 鈥� at five other sites including Derby, Rotherham and Peterborough.
White gave no further update on the legal fight over the disputed contracts 鈥� it is also involved in legal action on another energy from waste scheme at Kidderminster.
But this morning鈥檚 update also said that trading in July and August was 鈥渄isappointing, 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.鈥�
These were thought to be around 拢100m pre-tax profit for the year but Cenkos analyst Kevin Cammack admitted: 鈥淗eaven knows where the numbers are now. 拢80m PBT, lower maybe but that looks somewhat academic really now given the bigger picture.鈥�
He added: 鈥淸The update] almost certainly paves the way for a major restructuring and possible re-financing.鈥�
Interserve said it 鈥渃ontinues to believe that the group will be able to operate within its banking covenants for the year ended 31 December 2017鈥�.
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: 鈥淚t does have assets to sell, the obvious one being Equipment Services which鈥s thought to have been valued in excess of 拢200m.鈥�
Shares crashed by more than half on this morning鈥檚 news to 75.5p. A year ago today, they were trading at 400p.
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