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UPDATE 1-Interserve may breach covenants after trading downturn
October 19, 2017 / 7:12 AM / a month ago

UPDATE 1-Interserve may breach covenants after trading downturn

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LONDON, Oct 19 (Reuters) - Interserve warned on Thursday it could breach its financing tests after a further deterioration in trading in its British construction and support services businesses in the third quarter triggered another profit warning.

The company said it now expected operating profit in the second half would be about half the level of last year, and it has also made an additional 35 million pound ($46 million) provision for its troubled energy-from-waste contracts.

“Taking all of these factors into account, we now believe there is a realistic prospect that we will not meet the net debt to EBITDA test contained in our financial covenants for 31 December 2017,” the company said.

The stock opened down 18 percent.

The company’s shares had crashed more than 50 percent last month after it issued a profit warning. It said then it was looking at options to maximise cash generation from the business in the short and medium term.

It said on Monday it was in talks with its banks after a report said its lenders, including HSBC and Royal Bank of Scotland, had hired EY as their own adviser.

Interserve has struggled with cost overruns in its energy-to-waste business and delays in a Glasgow contract.

It had already increased its provision for the contracts to 160 million pounds in February, and it said on Thursday that as well as the additional provision, significant uncertainty remained on the timing of commissioning.

Chief Executive Debbie White said that despite the group’s challenges, it had a strong client base and many strengths as an organisation.

“I believe there is considerable potential for business improvement across the company,” she said.

“My team will focus on improving our margin performance in UK support services and ensuring good contract selection in UK construction, while reducing our cost base across the company.” ($1 = 0.7573 pounds) (Reporting by Paul Sandle, editing by James Davey)

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