Interserve PLC (LON:IRV) said it would unveil new debt reduction plans next year after the embattled outsourcer reported disappointing performances at its construction and equipment units and said its exit from the energy-from-waste sector was dragging on.
The support services and construction group on Friday said it expects its year-end net debt to be in the range of £625mln-£650mln – up from £614.3mln at the end of June when it guided to full-year net debt of between £575mln-£600mln.
The company, which has been hit by significant delays to a number of the energy from waste plants it is building in the UK, said construction of all the projects was now complete and are close to being handed over.
However, Intersrve said that risks to the programme remain and that the group encountered some additional delays in the third quarter.
The group continues to expect a net cash inflow in the second half following the receipt of certain milestone payments, although additional penalties resulting from these delays means that this inflow is expected to be less than anticipated at the half year at around £15mln.
Given these delays and penalties, the company now expects year-end net debt to be in the range of £625mln-£650mln.
Fit for growth?
Interserve said its fit for growth performance improvement plan remains on track to deliver £15mln of synergies in 2018 and £40-50mln in 2020.
Interserve, which earlier this year completed a refinancing to provide financial stability for the group, said it was looking at all options to deliver the “optimum capital structure for the business” to support its long-term, sustainable development.
This process includes options to bring new capital into the business and, as previously announced, progressing the disposal of non-core businesses, the company said.
In terms of trading, Interserve said it expects its UK construction arm to report a small loss in the second half and that its international construction unit had been hit by lower activity, particularly in Qatar.
Its equipment services business had a challenging first half following the completion of major project activity in 2017 and is expected to report a percentage decline in full year profits similar to the first half of 2018. It said its support services arm had performed well.
"The board remains focused on positioning the group for long-term, sustainable success. This means continuing the operational progress we are making to put legacy issues behind us, particularly in closing out and exiting the Energy from Waste business. It also means reducing debt and putting a strong long-term capital structure in place. To this end we will announce a deleveraging plan for the Group early in 2019,” said CEO Debbie White, who has
Since White joined Interserve in September 2017 to turn the company around its share price has tumbled from around 170p to close to 35p today.
In a note to clients, Liberum analysts said that in terms of raising further funds, they believe “everything is on the table" including the disposal of its equipment services business.
“The valuation of equipment will not have been helped by weak end markets and issues with collection. It will be hard to raise equity until there is greater clarity on energy from waste. The availability of credit is also getting harder, particularly for construction companies,” they said, adding that they struggle to see any scenario, which leaves much, or any value, for the current equity.
Interserve shares were 2.5% down at 34.14p in early trade.
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