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
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
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.
Interserve half-year loss: 5 things we learned