Interserve on the block over £650m debt fears
TROUBLED outsourcer Interserve was back in the doghouse after admitting debt for the year will be higher than expected, and earnings from its waste-to-energy business will be lower than hoped.
The firm, which works for the likes of the Metropolitan Police and Edinburgh Zoo, had previously said its debt pile would end the year somewhere between £575m and £600m. But it has warned this will be more like £625m to £650m, reawakening worries in the City that Interserve will be unable to pay off the debt.
Russ Mould, investment director at AJ Bell, said: ‘It is encouraging to see management stick to its cost-reduction forecast for the year of £15m and continue to predict a strong increase in earnings.’
There are a number of factors weighing on the support services sector in general.
These include complex company structures, a reliance on big contracts which can become very expensive if anything goes wrong, thin profit margins as contract prices are pushed lower, and high debt levels after long periods of pursuing growth.
Debbie White, an outsourcing veteran who was brought in to turn Interserve around last year, has already embarked on a plan to cut costs and sell parts of the business to pay off the debt burden.
She has said that the company will reveal a plan to further reduce the debt in 2019.
But Mould added: ‘Some shareholders – and potential investors – may be wondering why a new plan designed to reduce debt is only being unveiled in 2019, when the share price slide suggests the company’s situation remains acute.’
One of the problems for Interserve has been delays in the wasteto- energy plant it is building in Derby for Renewi.
Because the project will not be finished on time, it has had to pay penalties to Renewi.
Interserve’s shares dropped 5.6pc, or 1.96p, to 33.04p yesterday, meaning £100m has been wiped off its market value since the beginning of the year.
The FTSE 100 briefly fell below 6930, the level it was at the start of the century before the dotcom bubble burst. But it clawed back some of the losses to end the day down 0.11pc, or 7.46 points, at 6952.86.
The index was weighed down by heavyweight oil companies, as concerns that supply is set to outstrip global demand caused a commodities sell-off. On the FTSE 250, brick-maker
Ibstock built up gains after announcing it would sell its US manufacturer Glen-Gery.
Brickworks Limited is buying the division for £86m, more than eight times its earnings in the 12 months to June. Ibstock said it will use the money to pay down its debt, which should end 2018 at about £50m. It has also sold off some spare land, bringing in another £3.7m. The firm is still worried about uncertainty surrounding Brexit, but building work will not stop. Shares climbed by 8.2pc, or 18p, to 236.8p. Shares in media company
Future, which owns titles such as Real Homes and the official Playstation magazine, climbed 6.4pc, or 31p, to 514p as revenue soared.
In its media division, which includes online adverts, shopping and events, revenue shot up 88pc to £64.2m. Even its magazine revenues rose, up 20pc at £60.4m, though this was mainly driven by buying five titles from Haymarket for £14m earlier this year.
Meanwhile, Record – a business which helps pension funds and other major investors iron out foreign currency risks – climbed 2.5pc, or 0.75p, to 31p on the back of higher client demand.
Graphene producer Directa Plus jumped 7.4pc, or 3.5p, to 51p, as it clinched a £177,000 contract with oil services firm GSP Group.