Interserve, the international support services and construction group, has said that it now anticipates losing £160m as it exits its energy-from-waste business (EfW).
In an earlier statement in May 2016 the firm expected this to be around £70m. It has made the announcement in advance of its preliminary results on 28 February 2017.
In a statement, Interserve said: “In November we were served notice of termination on the Glasgow Recycling & Renewable Energy project. We have considered the implications of this development with our legal advisers and expect a lengthy period of litigation to ensue.
“Alongside this exercise, we have continued to undertake a detailed review of operational developments on the other contracts in our exited EfW business, including the impact of the entering into administration by our principal gasification subcontractor, Energos, together with the likelihood and timing of potential recoveries and claims from third parties.
Interserve continued: “In the light of these developments and of the continuing uncertainties in relation to the final conclusion of our EfW contracts, the board has concluded that the exceptional provision of £70m announced in May 2016 is no longer adequate to reflect the incurred and anticipated losses associated with this business.
“Consequently, the board has determined that it is appropriate to increase the exceptional provision for exiting this market and the associated contracts to £160m.
“We expect to complete substantially the construction and commissioning of the projects during 2017, although our contractual obligations in respect of warranties, and the resolution of claims will continue for a period thereafter. Further cash outflows of c£60m are expected during 2017 as the income statement charge is utilised.”
Chief executive Adrian Ringrose announced his resignation in November and will depart once a successor has been found. Ringrose has been chief executive since 2003.
Talking about the wider impact the troublesome Glasgow EfW project has had on the business, Interserve’s statement added: “The adverse cash impact of the EfW business was substantially offset in 2016 by tight control of working capital throughout the rest of the Group, resulting in year end net debt at the previously announced £270m-£280m level. However, the cash outflow on the EfW contracts has had a significant negative impact on our average net debt, which was £390m during 2016, and which is anticipated to be approximately £450m in 2017.”
