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Interserve suffers £244m loss for 2017

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Interserve has posted a pre-tax loss of £244.4m for 2017 with chairman Glyn Baker describing it as an “extremely poor” year.

Mr Baker said that an “inefficient operating model” with high overheads had left the firm “exposed to weaknesses” in the support services and construction industries, LGC’s sister title Construction News reports.

Chief executive Debbie White said the firm had been “stabilised” after a year when its net debt increased from £387.5m to £502.6m.

She added that the company’s Fit for Growth turnaround programme will cut costs by £15m in 2018, and is on course to add £40m to £50m to operating profit by 2020.

Interserve said the business will need a “significant de-leveraging event” to stay viable, which would likely be an asset sale, or raising further equity before December 2020.

The pre-tax loss of £244.4m for the year to 31 December 2017 compared with a loss of £94.1m for 2016.

Turnover for 2017 was broadly flat at £3.25bn, compared with £3.24bn the previous year, with underlying profit standing at £52.4m.

The latest loss was largely attributed to a review of its contracts leading to an £86.1m writedown as well as a writedown to its goodwill and other assets, which knocked £76.7m off its income.

Asset writedowns combined with increased borrowing has caused the company’s net assets to drop from £133.8m in 2016 to £48.3m in 2017.

Energy-from-waste jobs continued to affect the firm’s performance, adding £35.1m to its overall losses, a figure that was flagged up in an update last October. This compared with a £160m EfW loss in 2016.

Mr Baker said Interserve was “progressing” with completing its six remaining projects and exiting the sector, but that “significant risks clearly remain”.

EfW drained £95.9m in cash outflows in 2017 and the company said there would be “substantial cash outflow” in the first half of 2018, but expects this cashflow to be “neutral” for the full year of 2018.

Interserve did not address recent claims from Viridor that the cost of the Glasgow EfW project would be £95m more than anticipated.

In March this year the company received the ROCs accreditation for the operation of the EfW plant it has built in Derby, which is a major milestone on one of its final EfW projects.

Interserve’s services business was hit by losses on a contract providing probation services for the Ministry of Justice and another contract carrying out facilities services for US forces based in the UK.

Interserve has been rocked over the past two years by large losses on energy-from-waste contracts.

This contributed to the company being forced to go to the market at the end of 2017 to raise new finance.

Last week it signed the deal to extend its current financing arrangements to 2021, which took the company’s overall borrowing to £834m.

Interserve had to ask shareholders’ permission to amend its own rules so it could take on the additional loans and allow the company to borrow up to £1bn.

Under its old financing rules it was allowed to borrow up to four times its equity.

Its 2017 results reported the value of equity had dropped from £342.2m in 2016 to £47.3m last year.

This would have reduced its borrowing allowance from £1.39bn to £189m – more than four times less than its actual borrowing level.

Ms White is currently trying to turn around Interserve’s fortunes through her cost-cutting Fit For Growth programme, which she launched in October 2017.

So far this has seen the closure of its powerlines business, a sale of its plant equipment and a warning that 1,000 jobs could go.

The company announced it would exit the EfW business in August 2016, and it expects most of the remaining six projects to be substantially complete this year.

Interserve’s shares were down 16.4% by mid-morning.

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