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Interserve half-year loss: 5 things we learned

Interserve revealed today that it made a £6m pre-tax loss for the first half of 2018.

The loss was driven by restructuring and energy-from-waste contract costs as chief executive Debbie White continued implementing the firm’s Fit For Growth turnaround programme.

When the stock market opened this morning the company’s share prices plunged 9 per cent before recovering but was still down around 3.5 per cent by midday.

Here are the five key takeaways from Interserve’s half-year results.

EFW is still a problem

Interserve’s problem energy-from-waste projects made an £11.6m loss in the first half of 2018.

The four remaining plants at Derby, Dunbar, Margam and Rotherham are due to be handed over to clients by the end of 2018.

However, even after the plants are commissioned and operational, Interserve could still face liabilities for any problems down the line.

“Risks don’t end after handover,” chief financial officer Mark Whiteling told analysts at this morning’s results presentation.

This contrasts with what the company signalled in April, when Ms White said she hoped a line could be drawn under the EFW projects by the end of 2018.

One potential positive in the EFW saga is that Interserve expects to receive significant insurance payments in the second half of the year, though these will still not cover its losses.

Debt costs higher than expected

Interserve’s net debt jumped £225.9m compared with 12 months ago, from £387.5m to £613.4m.

This was in line with previous guidance from the company, but one analyst said the cost of this financing was “higher than we were expecting”.

Finance expenses more than trebled from £9.6m last year to £31.1m by the end of June 2018. The company is forecasting finance costs of around £80m for the whole of 2018, which it will have to cover with its operating profit.

Exactly how the company will bring down its debt is unclear, but Ms White said at the analysts presentation: “We will be doing a strategic review of what courses we can take to reduce our debt over the course of the year.”

Interserve also revealed it has so far paid £46m in fees to advisers since July 2017 for helping it secure a £834m refinancing package in April.

interserve construction md gordon kew

Interserve construction MD Gordon Kew

UK construction dwindles

Revenue from UK construction work has fallen more than 20 per cent from £502.3m to £396m.

Earlier this year Interserve construction managing director Gordon Kew (pictured) told Construction News the firm would cut back its business. As part of this move, Interserve has exited the London construction market at a cost of £6.5m, it revealed today.

Ms White said the business was now focusing on smaller but more profitable contracts for the future.

This has not yielded the desired results yet as the operating margin for the UK construction business fell from 1.9 per cent to 1.4 per cent for the first half of 2018.

Equipment sales stutter

Interserve’s equipment services business RMD Kwikform has performed well over the past two years while the construction and services arms have struggled.

However, today’s results revealed the division has faced lower demand due to a lack of new UK infrastructure projects and a significant slowdown in work in Qatar due to an ongoing trade blockade.

Revenue for the business was down from £111m to £97.4m, while operating profit dropped 26 per cent from £24.9m to £18.4m.

Ms White said the outlook for the rest of the year was better, however, and that sales had picked up in July.

Khansaheb interserve ajman city centre mall UAE

Khansaheb Interserve Ajman city centre mall UAE

The Ajman city centre mall project, UAE

A tougher market in the Middle East

Interserve said its operations in the region were being affected by “macroeconomic challenges”, most notably the trade blockade of Qatar.

Middle East revenue fell from £310.3m to £268.1m, while operating profit dropped by a third from £19.8m to £14m.

The company said it had “increased confidence” about prospects for the region though, following recent contract wins in the UAE and a recovery in the oil price that fuels investment.

  • Debbie White and Mark Whiteling Interserve

    Interserve half-year loss: 5 things we learned

Readers' comments (4)

  • £80m in interest payments alone this year. No way that'll be covered by profits. I'm afraid that Interserve will be going the same way as Carillion. I won't be doing any work for them that's for sure.

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  • I’ll give them a year maximum but expect the inevitable to happen round the year end - that level of debt and finance/interest charges are unsustainable

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  • There is a £67m benefit taken as a change in pension indexation in Non-underlying items. Without this, the loss would be nearer £100m and the Balance Sheet negative...The affected pension holders will receive reduced pension as a results. The headline should have been "Interserve raid Pension Fund to keep company solvent"? And most amazingly, they are still mid consultation with the affected members, but have booked it anyway!

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  • You do not have to be an accountant or an auditor (thankfully) to perceive that Interserve will run out of cash and go out of business in the first quarter of 2019. They cannot service the financing facility.
    The board of directors does not know how to manage risk and does not have the humility to accept this and their decision to reduce the size of their construction business (where they have know-how and expertise) when revenues are declining in many other market segments is an act of commercial insanity. The only way that Interserve can survive is to seek a merger, or carry out restructuring which means breaking up the business and becoming significantly smaller. What they are doing at the moment does NOT constitute turnaround activity.
    Kind regards,
    Mark

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