Glasgow waste contract drives Interserve into the red
Interserve has revealed a first-half loss of £33.8m before tax, having written off £70m on a waste-to-energy project in Glasgow.
Interserve is now quitting the energy from waste business after running aground on a £146m contract with Viridor for the Glasgow Recycling & Renewable Energy Centre. As previously reported, the company blames issues relating to the design, procurement and installation of the gasification plant.
The exited business comprises six contracts with aggregate whole-life revenues of £430m that were entered into between mid-2012 and early 2015. Work is expected to complete during 2017 and that the impact of these contracts will be contained within the £70m exceptional loss provision announced in a trading update in May.
Interserve’s half-year results for the six months ended 30th June 2016 show turnover up 2.4% to £1,632.9m and the business otherwise performing as expected. Headline operating profit was up 2% to £62.9m.
The UK Support Services business, which now accounts for most of the earnings, has won £1bn of new work in the past six months, including a five-year contract to support the US Air Force bases in the UK, worth £230m over the term.
UK Construction business says that trading in the building and fit-out areas remains good.
And the international business has grown by 17% in construction and by 43% in support services.
There is no resolution yet of the strategic review being undertaken at RMD Kwikform and the Equipment Services division. A conclusion is expected later this year, chairman Glyn Barker said, but there was no hint as to whether this meant it would be sold. However, Equipment Services contributed £23.5m to group operating profit, an increase of 26% from the same period of 2015, with the operating profit margin improved from 17.9% to 21.4%. Revenue for the division was up 5% to £109.9m (2015 H1: £104.2m).
Revenue generated from UK construction during the period was up 8% to £468.3m, excluding the now discontinued waste-to-energy business. The construction business has steered away from larger projects in recent years, with the substantial majority of UK construction contracts valued at less than £10m. The occasional larger project includes a new £25m contract to build the Fleming Park Leisure Centre in Hampshire.
Chief executive Adrian Ringrose said: "Trading in the first half of the year, across the vast majority of our divisions and our regions, has been good, in markets that offer both opportunities and challenges. We delivered a strong cash performance and grew revenue and headline operating profit.
“We are taking action to exit the Energy from Waste sector. Our assessment of the aggregate impact of exiting this sector is in line with the £70m exceptional charge we announced in May.
“Despite the increased political and macro-economic uncertainty following the UK's EU referendum, our outlook for the current year remains unchanged. This, together with our significantly improved cash flow and healthy future workload, underpins the Board's confidence in our prospects and a further increase in the interim dividend."
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This article was published on 10 Aug 2016 (last updated on 10 Aug 2016).