Interserve shares fall as growing debt sparks fears over its finances

Quarterly update reveals UK outsourcer will owe £50m more than expected by end of year

Angela Monaghan

Fri 23 Nov 2018 14.48 GMTFirst published on Fri 23 Nov 2018 11.33 GMT


Interserve shares fell after its quarterly report.
 Interserve shares fell after its quarterly report. Photograph: Jansos/Alamy Stock Photo/Alamy Stock Photo

Shares in Interserve fell 7% on Friday morning after the government contractor said debts this year would be higher than previously expected, reigniting investor jitters about the financial health of the firm.

The company, which carries out building work and provides services such as cleaning, said debts would be between £625m and £650m by the end of the year, having earlier said debts would be £575m to £600m.

It comes a week after Interserve was forced to comment on the state of its finances, after shares tumbled to a 30-year low over fears it was heading the same way as Carillion, the rival outsourcing firm that collapsed in January.

The drop was prompted by an update from waste-to-product manufacturer Renewi, which said Interserve had missed a deadline on a joint venture in Derby that aims to produce energy from waste. The update prompted speculation that Interserve may be forced to set aside more cash to compensate for delays.Advertisement

In a trading update for the first nine months of the year on Friday, Interservechief executive Debbie White said the firm was focused on reducing debts, getting its finances in order and exiting its energy from waste business.

“The board remains focused on positioning the group for long-term, sustainable success. To this end we will announce a deleveraging plan for the group early in 2019,” she said.

“Interserve has significant opportunities as a best-in-class partner to the public and private sector, and we are working with all stakeholders to put in place the right standards, services, governance and financing to deliver a stronger future for Interserve’s customers and our 74,000 people.”

The company said it was expecting a “significant” improvement in operating profit in 2018, in line with previous expectations.

But investors were not reassured. In early trading after the update, shares slid to just 32p, the lowest level since 1984.

Russ Mould, investment director at AJ Bell, said the firm’s debt pile continues to weigh on shares.

He said: “Chief executive Debbie White and her team are clearly doing their best to steady the ship at Interserve but the admission that net debt will end the year higher than expected, not helped by how the cash inflow from the troubled energy-from-waste business will be lower than hoped, means the company has yet to reassure shareholders and potential investors about the key issues that face it.”

Interserve, which provides a range of services for schools, hospitals and government departments across the UK, agreed a £300m rescue plan in March, at a time of heightened pressure on the outsourcing sector and in the wake of Carillion’s collapse under a mountain of debt.

In Friday’s trading update the company said that during the third quarter it had encountered more delays to its energy-from-waste programme.

“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 time of the group’s half year report at circa £15m,” it said.

Mould said some investors would wonder why Interserve was waiting until 2019 to unveil a new plan designed to reduce debt, “when the share price slide suggests the company’s situation remains acute”.

He added: “The lower the share price goes, the more shares Interserve will have to issue, and the more dilution shareholders may suffer, should management decide that an equity raising is required to buffer the company’s finances.”