Interserve has revealed that its year-end net debt could be as high as £650m, which the firm put down to continued cash outflows related to its troubled energy from waste contracts, as well as slow payments in certain Middle Eastern markets.
The news came in a trading update for the third quarter of 2018, in which chief executive Debbie White pledged to reduce debt, to put a strong long-term capital structure in place, and to leave behind the energy from waste sector.
Nonetheless, the latest forecast on the firm’s net debt, which Interserve said could range between £625m and £650m by the year end, is still higher than the £575m-£600m in predicted in its last update in August.
Interserve said it expected the increase in working capital to “unwind” in 2019, and that it would announce a plan to deleverage early next year.
Shares in the company fell to 32.5p in early trading following the announcement, having dropped to a 30-year low last week amid speculation about the company’s financial position.
In its update for the nine months of the year ending 31 December 2018, Interserve said it generated “strong” profit growth in line with management expectations and was on target to deliver £15m of savings in 2018 through its Fit for Growth programme.
Nonetheless, it warned that it expected a “small loss” in the second half for its UK construction business. That is due to be offset by the international construction arm, which has been combined with UK construction under a single leader and is expected to have a stronger second half than that reported in the first half of the year.
Meanwhile, the group’s equipment services business continued to face challenging times in the third quarter, after a difficult first half. Interserve blamed continued delays to major infrastructure projects in key markets. Its RMD Kwikform business is expected to report a decline in full-year profits.
Interserve also confirmed that construction on all of its energy from waste projects is now complete and it is continuing to close out its remaining contracts. It added that the successful handover of the projects was a “core priority” for the group, adding that it expected “significant further insurance proceeds” from the projects in 2019.
White said: "Interserve has made significant progress in 2018. Following the successful completion of the refinancing in April, the business has traded robustly in some challenging markets and continued to win significant new contracts. The ‘Fit for Growth’ programme is delivering material cost savings and a simpler and more effective business structure. Overall we remain on track to deliver a significantly improved financial performance this year in line with our plan.
"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."
