Energy plant woes lead group to £160m charge
Interserve revises cost of having Glasgow contract terminated
THE construction group sacked as principal contractor on the Glasgow Recycling & Renewable Energy plant has seen its shares dive by almost one-third after revealing its exit from the energyfrom-waste business will cost it £160 million.
London-listed Interserve had previously said the move would carry a writedown of £70m, but ahead of reporting its results next week, the board has revised up the number.
Chief executive Adrian Ringrose said: “We have been through an extensive multi-faceted review of all remaining projects in the aftermath of the termination of the Glasgow contract,” which led the board to increase the charge.
The group also said it was expecting a “lengthy period of litigation”.
Interserve was served notice on the contract in November after delays caused in large by three firms in the supply chain going out of business, including technology supplier Energos.
Highlighting this, and the timing of potential recoveries and claims from third parties, Interserve said: “In the light of these developments and of the continuing uncertainties in relation to the final conclusion of our EfW (energy from waste) 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.”
Construction began on the Polamdie project in 2013 with its opening planned for the middle of last year.
A spokesman for Viridor said: “The project is being completed by an experienced team assembled by Viridor, which will work with a new engineering, procurement and construction management contractor.”
The £154m scheme in the city’s south side is envisaged to divert 200,000 tonnes of waste from landfill each year, providing renewable energy that will power 22,000 homes. It is part of a wider £254m contract between Viridor and Glasgow City Council, with the Viridor spokesman saying the council “remains supportive of Viridor’s actions and the revised plan for completion”.
In August, Interserve first announced its plan to exit the EfW market in light of a difficult outlook, with Mr Ringrose saying this withdrawal was “an extremely complicated undertaking”.
The troubled group is also in the market for a new chief executive after Mr Ringrose, who has been at the helm of the business since 2003, announced in November he would step down once his replacement is found.
Interserve said it expects to complete most of the construction and commissioning of its EfW projects during 2017, although its contractual obligations in respect of warranties, and the resolution of claims will continue for a period.
“Managing the challenges of exiting from these projects and of pursuing our entitlements to recoveries and claims from third parties remains the focus for the large, experienced team of commercial, operational and legal experts we have deployed and will remain an area of critical focus for the foreseeable future,” said the company.
Cumulative cash outflows relating to Interserve’s EfW business to the end of last year were £127m, and the board expects net cash outflow for 2017 to be £60m, falling to less than £10m in 2018 as its retreat nears completion.
This has sent the company’s net debt spiralling. Year-end debt for
2016 stood at £280m, but the company said the impact of the EfW contracts saw average net debt hit £390m in 2016. This is anticipated to rise to £450m in 2017.
The group has put in place new banking facilities to expand its debt capacity by an additional £66m, to a total of £573m. The board said it considered this adequate to meet all existing and anticipated future commitments.
“Clearly the whole situation is a source of real disappointment, however the group has been able to, and will continue to, absorb the balance sheet impact,” said Mr Ringrose.
The Reading headquartered group employs some 80,000 staff worldwide and reported revenue of £3.6 bn last year. It reports 2016 results on February 28.
Shares closed last night down 107.5p, at 227.75p.