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Interserve investors urge action ahead of prelim results

Outgoing Interserve chief executive Adrian Ringrose this week said no decision had yet been made about who would replace him, as the company was urged by investors to consider cutting costs and scrapping dividends ahead of publishing its full-year results next week.

Mr Ringrose, who announced in November he would be stepping down from his role after more than a decade, faced a grilling from analysts as Interserve revealed that the cost of exiting problem energy-from-waste deals had more than doubled to £160m.

The firm told the City earlier this week that the £70m figure announced in May 2016 was no longer adequate to reflect the losses incurred and anticipated through exiting the EfW market.

Analysts Liberum said in a briefing note after the Interserve update that it had “no confidence the [revised EfW costs] provision is adequate”.

Interserve has a board meeting on Friday 24 February ahead of publishing its preliminary results for the year to 31 December 2016 on Tuesday 28 February.

In a call with investors on Monday, Mati Alon, chief investment officer at investors Alphen Oak Fund, said: “It looks like you are considering the business can handle a dividend but are you considering stopping the dividend? Is [that option] on the table?

“As a large investor I recommend you take it seriously and think about stopping the dividend because we want to see a healthy balance sheet and healthy company and to reduce debt over time.”

Mr Ringrose said the dividend would be discussed by the board on Friday.

Responding to questions about his replacement, he added: “As and when an update is available, the market will be informed. There is a search and recruitment process under way and the outcome will be relayed to the market when there is one.”

Mr Alon asked whether there was any chance of “pretty hard cost-cutting” to strengthen the business’s balance sheet.

Mr Ringrose said: “In the kind of businesses we are in, cost management is always on the agenda but so is the opportunity side.

“In big picture terms what we are trying to do and what we have achieved is to create an environment in which the group can continue to pursue its strategy sensibly with an eye to the short term and the medium term.”

Interserve last year announced it was exiting the EfW sector after a number of its contracts ran into problems.

In November 2016, the company was served with a termination notice on its Glasgow Recycling & Renewable Energy project after client Viridor found the contractor to have “continually and repeatedly failed to meet delivery milestones”.

This week’s trading update said Interserve had consulted its legal advisers about the Glasgow termination and expected “a lengthy period of litigation to ensue”.

In August 2015 Interserve had its civils contract on a £120m EfW project in Kidderminster cancelled, with the project’s main contractor Hitachi Zosen Inova citing significant delays.

Its EfW operations were hit further last July when its main EfW technology supplier, Energos, entered administration.

The company is currently working to complete a £145m EfW plant in Derby, as well as a £50m plant in Rotherham where it is working in JV with Babcock & Wilcox Volund.

Interserve said it expected the construction and commissioning of these two contracts to be completed in 2017.

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