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CN Briefing: Interserve; energy-from-waste; Adrian Ringrose; RMD Kwikform

At the time of writing, Interserve’s share price is up 17.5 per cent following its half-year results, but its chief executive wasn’t losing any sense of perspective when we spoke earlier.

Adrian Ringrose announced today the business would quit the energy-from-waste sector, following a £70m hit on poorly performing contracts including those in Glasgow and Kidderminster.

But the mood around its results was generally upbeat. Net debt has come down from the 2015 year end; clients including the Home Office and BBC have renewed deals; London fit-out is performing well.

Interserve financial director Tim Heywood summarised the situation pretty well in front of analysts this morning: “Excluding the exited businesses, we think this is a good set of results.”

And it would appear the City liked ’em too.

Only thing is, with a £70m whack from six EfW contracts, you’re bound to get a bit tired of people asking you about them even though you would really rather discuss the 20 per cent growth in your fit-out arm.

Mr Ringrose insists the work was drying up in the EfW sector anyway, and that it wouldn’t preclude the company from bidding for work or associated infrastructure in the energy market more widely.

But the group over-estimated its capability and under-estimated some of the complexities in the sector, he admitted, when it entered the sector in 2012.

Revenue was thin on the ground, he said, and Interserve thought it could make it work. To be fair, they weren’t the only ones.

But the Interserve boss was more defensive when I asked about an analyst’s interpretation that Interserve was being backed into a corner with the sale of RMD Kwikform due to its approximate £300m debt.

“One thing I will say with certainty is that we do not need to sell anything… debt is coming down… we see our cash performance as sustainable,” he said.

Mr Heywood said this morning that Interserve had a net debt of 1.6 times EBITDA. He said 2 was where Interserve was comfortable and 3 meant covenants were threatened.

Is 1.6 a sweet spot, or cause for concern as being over-geared, I asked?

Mr Ringrose says attitudes to gearing change over time and he has been criticised for the business being under-geared at debt being 1.5 times EBITDA in the past.

He adds that the business remains ambitious and financing that safely and sustainably as it has with its US private placement will continue.

Do the One Nine Elms problems spell the end for big London commercial jobs?

“We got to the point where for reasons I don’t want to elaborate on we didn’t feel [One Nine Elms] was right and we agreed a sensible, amicable exit from that situation.”

So would Interserve consider bids for similar-sized projects in future?

“I don’t think scale and risk necessarily go hand-in-hand though, so if we feel something is right, potentially yes.”

Having worked with China State Construction Engineering Corporation, its One Nine Elms JV partner, as a client, he also says they would consider working on future UK jobs.

Though it must be said, his answer was cautious in tone, rather than enthusiastic.

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