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Interserve suffers £94m loss after EfW woes

Interserve has suspended its dividend after posting a £94.1m pre-tax loss caused by spiralling costs from its exit from the energy-from-waste market.

The loss for the year to 31 December 2016 compared with a pre-tax profit of £79.5m a year earlier.

Interserve revealed last week that its UK business would be hit by an exceptional charge of £160m from delays and performance issues on a number of energy-from-waste contracts. Investors urged the company then to consider suspending dividends.

Interserve announced last May that it would take a £70m hit from its exit from the EfW market, but this cost has since more than doubled.

Problem jobs include a scheme in Glasgow for client Viridor, which hit Interserve with a termination notice last November, claiming the contractor had “continually and repeatedly failed to meet delivery milestones”.

Interserve chairman Glyn Barker today warned that “it will be some time before [Interserve] has full visibility of the actual final cost of resolution” to the exit from the EfW market, and admitted its work in the sector had been “beset with contractual problems, failures in our supply chain and complex technical issues”.

The firm added that it also expected cash outflows of about £60m over the course of 2017, related to problem EfW jobs.

Chief executive Adrian Ringrose said it had taken the “difficult decision” to temporarily suspend the company’s dividend.

Interserve’s overall revenue rose marginally to £3.24bn, up from £3.20bn in its previous results.

Revenue was up 9 per cent at the group’s UK construction arm to £971.4m.

However, UK construction posted a £3.1m operating loss, compared with a £10.7m operating profit the previous year, and was running at an operating margin of -0.3 per cent.

The group’s UK construction order book was £200m lower than a year earlier at £1.2bn.

Interserve said the drop in its order book was largely down to a more selective bidding process, with the firm now focusing on “low-risk” projects with an average value of less than £10m, alongside more jobs won under framework agreements.

Major contract wins in the year included a place on the Department of Health’s £4bn ProCure22 construction framework, and a place on the £750m Eastern Highways Alliance framework.

International construction posted a stronger performance, with operating profit up by 30 per cent and revenue up by 6 per cent.

In support services, the UK business saw revenue drop by 3 per cent to £1.78bn, while operating profit was down 13 per cent to £87m.

Support services’ order book was up £100m to reach £5.7bn.

Mr Ringrose, who is due to step down this year after 15 years with the company, said the results reflected “a mixed year” for Interserve.

“We delivered a strong cash performance and the majority of our businesses performed well despite political and economic uncertainties, together with the impact of the National Living Wage in the UK,” he said.

“However, the performance of our UK construction business was disappointing, and we are focusing our efforts on improving and re-shaping this business.

“While liquidity available to the group is adequate, having put in place new banking facilities that expand and extend our debt capacity, the board has a medium-term objective to reduce our overall indebtedness and enhance liquidity levels further while continuing to invest in our core businesses.

“We have therefore taken the difficult decision to suspend the dividend temporarily.”

The firm added that the search and selection process for Mr Ringrose’s successor was “nearing its conclusion” with a further announcement expected in the near future.

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