Debbie White
The challenge for Interserve to win new contracts has “accelerated” in 2019 as a result of its financial position, the contractor has revealed, as it set 15 March as the date for shareholders to vote on a proposed rescue plan.
The news came as Interserve revealed a 10.7% drop in turnover in its full-year results for 2018, down to £2.9bn. However, pre-tax losses narrowed over the year to £111.3m, down from £244.4m the year before.
Interserve’s net debt increased to £631.2m for the year. The contractor warned that its UK construction business suffered an “unwind” as it struggled to win new contracts due to its financial position, which “accelerated” in the first half of 2019.
The contractor’s troubled energy from waste contracts, exceptional costs on a number of construction projects and delays in payment from some Middle Eastern clients also impacted its debt levels.
In a separate announcement, Interserve said it was setting a date of 15 March for a general meeting during which shareholders can vote on its “deleveraging plan”.
The company proposes to raise £435.2m through the placing of new shares, which will provisionally be placed with the company’s lenders. The deal will leave shareholders with 5% of the equity in the business, rather than the 2.5% originally reported ahead of publication of details of the plan.
Meanwhile, RMD Kwikform will be ring-fenced within the consolidated group and £350m of existing debt will be allocated to the company. The lenders will then provide an additional £110m of new debt maturing in 2022.
"Best interest of stakeholders"
Interserve called on its shareholders to back the deal, arguing it was “in the best interest of all our stakeholders”. At least 50% of shareholders will have to vote in favour of the plan on 15 March in order for it to move forward.
That meeting precedes a 26 March general meeting announced by Interserve last night, in response to a call by Coltrane Master Fund for an alternative plan.
Coltrane and hedge fund Farringdon, which together own 34% of Interserve, are expected to vote against the debt-for-equity swap proposed within Interserve’s deleveraging plan, which would dilute their stakes.
Coltrane has instead proposed a plan that would see only 65% of the company handed to creditors in exchange for £436m of debt. That would leave shareholders with 10% of the equity plus the chance to participate in a 25% rights issue worth £75m.
It has been reported that Interserve’s lenders, including hedge funds and banks HSBC, RBS and BNP Paribas, have lined up EY to undertake a pre-pack administration of Interserve if talks fail, justifying the move on the basis of a missed £67m debt repayment that fell due in February. That would leave the banks owning the business via a new holding company.
"Extremely challenging"
Commenting on the annual results and the deleveraging plan, Debbie White, chief executive officer of Interserve said: "Despite extremely challenging circumstances, Interserve has made significant progress in 2018. Following the successful completion of the refinancing in April 2018, the business has traded robustly in some difficult 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. The implementation of the group’s strategy remains on track and we have delivered a significantly improved operating profit this year in line with our plan.
“Interserve 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. However, the group remains over-leveraged and the successful implementation of the deleveraging plan is critical to our future, as it will ensure that Interserve has a competitive financial structure for its future growth. I would urge our shareholders to vote in favour of the deleveraging plan.”
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