Interserve

Costs at former Interserve energy plant soar by £95m

The Glasgow Recycling and Renewable Energy Centre at Polmadie

The developer of an energy from waste plant in Glasgow said it has been hit by higher-than-anticipated costs for the facility’s construction after having to replace Interserve as the main contractor.

Viridor’s parent company Pennon confirmed in a trading statement on Monday that overall expenditure for the completion of the Glasgow Recycling and Renewable Energy Centre at Polmadie is expected to be £95 million higher than the £155m original target.

Pennon said: “The Glasgow ERF is in final commissioning. Completion of the construction has required a somewhat higher level of remediation than previously anticipated following the need for contractor change.

“Overall expenditure is expected to be £95m higher than the original £155m target.

“Viridor is contractually entitled to recover incremental costs from the original principal contractor, Interserve, under certain circumstances.

“Discussions with Interserve are ongoing with regard to the contractual settlement.”

The company said margins on the life of the project to 2043 could be lower than initially predicted, depending on the outcome of its contract settlement with Interserve.

However, Pennon does not expect an “immediate impact on earnings” and added that discussions with Interserve are ongoing.

“Viridor is contractually entitled to recover incremental costs from the original principal contractor, Interserve, under certain circumstances,” the group explained.

Interserve had its contract on the job terminated in late 2016 when it was replaced by Doosan Babcock. Shortly afterwards it decided to quit the energy from waste sector altogether.

Interserve agrees deal to defer loan covenants test date until April

Interserve CEO Debbie White

Interserve has been granted another month to secure a refinancing deal with an agreement in principle on major commercial terms now reached.

However, the commercial terms remain subject to credit approval from all providers before the new facilities are finalised.

Interserve delivered its latest profit warning in November as it battled not to breach bank loan covenants. The firm is also preparing to cut around 200 jobs across its UK operations as part of a wider cost-saving drive.

Just last month it began a formal redundancy consultation after confirming plans to shut down its specialist power contracting business.

The troubled construction and support services firm secured additional short-term funding of £180 million in December to ease off its immediate financial troubles while the test date for compliance with its loan covenants was deferred until March 31.

The compnay has now reached an agreement with key lenders to push back the test date for compliance to April 30 to enable the successful execution of all documentation required for the refinancing.

The additional facilities comprise cash facilities of £196.6m plus bonding facilities of up to £95m, which will mature in September 2021. Existing debt and private placement loan notes will be amended to be co-terminous with the new facilities.

In total, this means that the company will have cash borrowing facilities of £834m immediately following the refinancing completion and through to September 2021, subject to certain step-downs in the new facilities over the period.

Pricing on both the new facilities, and the existing debt and bonding facilities have been renegotiated as part of the refinancing. Interserve anticipates that the total interest expense in 2018 will be approximately £56m of which circa £34m will be cash interest.

Debbie White, Interserve’s chief executive, said: “Today’s announcement is a significant milestone for Interserve and a major step in securing a firm financial platform to underpin the Group’s future.  We are encouraged by the support from our lenders in respect of these new facilities, which will allow the new management team to execute our business plan, focused on delivering a great service for customers, driving growth and restoring value.”

Interserve to close power business with 70 jobs at risk

Interserve has a £10m, five year contract to assemble and dissemble the Royal Edinburgh Military Tattoo grandstand

Interserve has begun a formal redundancy consultation after confirming plans to shut down its specialist power contracting business.

The move is part of a review of all group operations in a bid to bring down a debt pile currently totalling more than £500 million.

The specialist business, which forms part of the Interserve industrial services division, works with network operators across the UK including Northern Powergrid, Scottish Power Energy Networks, Siemens and National Grid.

A consultation period for employees, which will run to early April, could see over 70 staff lose their jobs or be redeployed within the wider group.

The construction and support services firm said it will complete all contracted works, with the majority finishing by the end of June.

The closure of the power business is an attempt to “consolidate and centralise the industrial portfolio”, it added.

In January Interserve said it was making progress with its three-year ‘Fit for Growth’ rescue programme which aims to increase efficiency and simplify the business.

This came a month after it secured additional short-term funding to ease off its immediate financial troubles last month until March 31 at least.

Its full 2017 results are expected in the coming weeks.

An Interserve spokesman said: “We can confirm we are undergoing an operational restructure within our industrial division.

“After careful consideration we have decided to close down our power business, as we look to consolidate and centralise our industrial portfolio.

“We are committed to completing all contracted works and anticipate the majority of projects will be complete by the end of June 2018.

“All employees affected have been informed of the decision, with a consultation period running until early April. We are working internally to ensure as many people are redeployed within the business.”

Full line up of £250m University of Strathclyde framework contractors unveiled

A proposed £60m teaching and learning hub

Four contractors have been chosen by the University of Strathclyde for its Framework for Major Building Construction to support the delivery of its ongoing Capital Investment Plan for construction work exceeding £4 million.

Kier Construction Scotland will join Balfour Beatty and Interserve in securing places on the framework. Morrison Construction announced its place on the Framework last week.

The University of Strathclyde has invested £350m over the last ten years in improving and developing its estates and facilities to support its goal to be the Leading International Technological University.

This latest Framework has a value of £250m with typical project values likely to be between £4m to £50m with the potential for both new build and refurbishment. This four year Framework also includes the potential usage by Renfrewshire Council and Renfrewshire Leisure Limited.

Kier Construction Scotland is already an equity stakeholder and Tier One contractor in hub South West Scotland and a Tier One contractor on hub North and hub East Central.

Brian McQuade, Kier Construction Scotland’s managing director, said: “We are delighted to be appointed as a contractor to the University of Strathclyde Framework. We believe that Kier has a great deal to offer the partnership and we are looking forward to working closely with the team and supporting local communities by creating employment and educational opportunities.”

Andy McDonald to join Interserve as general counsel and company secretary

Andy McDonald

Interserve has announced that Andy McDonald will join the business as general counsel and company secretary in spring 2018.

Andy, who will also join the company’s executive board, has extensive experience across all aspects of legal and governance with listed companies, including strategy, mergers and acquisitions and commercial negotiations.

Andy joins from Premier Foods plc, where he has been since November 2011, performing a similar role with responsibility for the legal, compliance and corporate development functions.

During his time at Premier Foods plc, he supported the company in the execution of significant portfolio realignment, joint ventures and partnerships. Prior to this he was general counsel and company secretary at Uniq plc, before it was acquired by the Greencore Group plc. Andy worked as a corporate lawyer for the international law firm Freshfields Bruckhaus Deringer before moving into industry.

Debbie White, chief executive of Interserve, said: “I am delighted to welcome Andy to Interserve. His legal expertise and his extensive plc experience will bring great value to the Group.”

Interserve’s financial health ‘being closely monitored’ by UK government

Shares in the construction and services firm Interserve fell this morning amid reports that its financial health is under special scrutiny from the UK Cabinet Office.

Stock was down as much as 15% in early trading on the London Stock Exchange after the Financial Times said a small team had been put together to keep an eye on the outsourcing specialist’s financial health.

The firm has been suffering from problem waste-to-energy contracts and, following a series of profit warnings in which the Board admitted to “a realistic prospect” of the group breaching its financial covenants with lending banks.

Last month it secured additional short-term funding to ease off its immediate financial troubles last month until March 31 at least.

Interserve is involved in a three-year restructuring programme launched by new management in October aimed at improving efficiency, its procurement process and simplifying the business.

On Wednesday, the Financial Times reported that the Cabinet Office was monitoring Interserve.

In response, Interserve said: “Last week we announced that we expect our 2017 performance to be in-line with expectations outlined in October and that our transformation plan is expected to deliver £40m-£50m benefit by 2020.”

It said it expected its 2018 operating profit to be “ahead of current market expectations and we continue to have constructive discussions with lenders over longer-term funding”.

The UK government has said it does not believe any of its major suppliers are in a similar position to stricken contractor Carillion which entered liquidation on Monday after racking up debt and pensions burdens of around £1.5 billion.

The Cabinet Office said: “We monitor the financial health of all of our strategic suppliers, including Interserve.

“We are in regular discussions with all these companies regarding their financial position. We do not believe that any of our strategic suppliers are in a comparable position to Carillion.”

Interserve provides rescue plan update

Interserve CEO Debbie White

Interserve’s ‘Fit for Growth’ turnaround programme is paying dividends as the firm said it expects that its 2018 operating profit will be ahead of current market expectations.

A three-year programme launched by the new management team in October 2017, ‘Fit for Growth’ is focused on increasing the group’s organisational efficiency, improving group-wide procurement processes and ensuring greater standardisation and simplification across the business.

Interserve said its management are confident that the cost savings and management actions identified will contribute at least £40-50 million to group operating profit by 2020, with the in-year impact in 2018 estimated to be £15m.

The firm has been suffering from problem waste-to-energy contracts and, following a series of profit warnings in which the Board admitted to “a realistic prospect” of the group breaching its financial covenants with lending banks, it secured additional short-term funding to ease off its immediate financial troubles last month until March 31 at least.

In order to establish a strong foundation from which the group can move forward, Interserve said its new management team has been engaged in a comprehensive review of the group’s contract portfolio and a thorough review of the group’s non-trading balance sheet items.

“This work is progressing well and the outcomes will be announced alongside a presentation of the group’s longer term strategy for value creation at the time of the group’s 2017 annual results presentation,” it added.

Chief executive Debbie White said: “The new management team, and the board, have been working to stabilise the business and provide a sound foundation to continue to serve our customers effectively, underpin our future growth and to restore shareholder value. This work has focused on managing the balance sheet, conducting a thorough assessment of the contract portfolio, and introducing new management disciplines, processes and cost controls under the ‘Fit for Growth’ programme.”

Interserve secures £180m short-term lending deal

Interserve CEO Debbie White

Interserve CEO Debbie White

Construction and support services firm Interserve has secured additional short-term funding to ease off its immediate financial troubles.

The group has reached an agreement with key lenders to push back the test date for compliance with its loan covenants to March 2018.

Debbie White, Interserve’s chief executive, said the agreement provided more room for discussions with the lenders, with a view to securing its longer-term funding.

Interserve delivered its latest profit warning last month as it battled not to breach bank loan covenants. The firm is also preparing to cut around 200 jobs across its UK operations as part of a wider cost-saving drive.

The new facilities announced today totalling £180 million, comprise a £38m committed revolving credit facility, £37m of committed ancillary facilities, committed bonding facilities of £93m plus £12m of additional funding available by agreement with the lenders. The facilities expire on 30 March 2018.

In order to obtain these facilities, Interserve has agreed to close out its cross-currency swaps, which hedge exchange rate exposure on existing US Private Placement loan notes. The proceeds generated by closing out the swaps of approximately £44m will be used to repay existing borrowings from current bank facilities. Unwinding the accounting for the sterling value of the debt and the associated offsetting swap transactions will increase net debt by approximately £10m.

Debbie White said: “Securing these agreements puts Interserve on a firmer footing. Whilst there is still much to do, Interserve has significant opportunities based upon a strong client base and our dedicated employees. There is considerable potential for business improvement across the group.

“These short-term committed borrowing facilities, together with the ongoing work to clearly define the strategy and commercial structure for the business going forward, will bring further stability and clarity for our clients, our people and our shareholders.”

In September, Interseve launched a group wide performance improvement plan, Fit for Growth, aimed at improving cash and margin performance.

As part of this plan, Interserve said it would scrutinise its operating model and the cost base while focusing on market segments that were profitable and offered opportunity for growth.

Sally Cabrini to lead Interserve transformation

Sally Cabrini

Sally Cabrini

Interserve has appointed United Utilities director Sally Cabrini to help restructure the business and reverse its fortunes.

Sally Cabrini joins the executive board of Interserve on January 15, 2018 as director of transformation, IT and people.

The group delivered its latest profit warning last month as it battles not to breach bank loan covenants.

The firm is also preparing to cut around 200 jobs across its UK operations as part of a wider cost-saving drive.

Before joining United Utilities in 2007, Sally held a number of roles at Nestle, Northern Foods and had a successful consultancy career supporting a range of companies managing major change programmes. Sally is also a Non-Executive Director at Lookers Plc.

Interserve chief executive, Debbie White, said: “Sally is an experienced senior leader who has a strong track-record of getting the best out of people and technology. I am delighted to welcome Sally, who will bring her strong transformation, commercial and relationship building skills to support the transformation already underway at Interserve.”

Interserve support services boss departs

Bruce Melizan

Bruce Melizan

Interserve support services chief, Bruce Melizan, has stepped down from the Board after 14 years at the firm.

In a statement today, Interserve said that Mr Melizan’s departure on 30 November 2017 was “part of its ‘Fit for Growth’ programme”.

The support services business will now report directly to the group chief executive, Debbie White. Melizan will remain with the company until 31 January 2018, undertaking handover duties and the transfer of key client relationships.

Glyn Barker, chairman of Interserve Plc, said: “I would like to thank Bruce for his significant contribution to Interserve over the last 14 years. Bruce’s capability in developing strong customer relationships, leading key acquisitions, driving organisational change and focusing a 50,000-strong workforce on operational excellence have helped to shape today’s organisation. We wish him well in the next phase of his career.”