“Another Carillion”: Interserve shares plummet after news of project delay

Shares in UK-based construction and services giant Interserve have plunged to a 30-year low after it emerged that it had missed a deadline for handing over a £145m waste-to-energy plant in Derby, England.

A former large shareholder in the company told the BBC today, "We could be looking at another Carillion", and said he doubted the company could survive.

But sources described as "close" to Interserve told the BBC the company was not facing a Carillion-style collapse.

We continue to make progress on the resolution of our EfW projects, although risks to the programme still remain– Debbie White, Interserve chief executive

Separately, problems with noise and smells at the Derby plant, which is built but not yet operating, have caused a revolt in Derby City Council, with opposition councillors moving to vote the council leader out of his position over his refusal to terminate a waste management contract connected to the plant.

The share plunge that began yesterday happened after Interserve’s partner on the waste-to-energy scheme, Renewi, released its interim results for 2018-19 on Thursday, 8 November.

In them, Renewi revealed that Interserve, which is in the commissioning stage of the project prior to operation, had missed the "project long stop date" to get the plant working, which was by the end of September. The plant had originally been due to start operating in March.

Renewi said this latest deadline miss "could result in Interserve meeting the ceiling of its liquidated damages obligations to Renewi", which would expose Renewi to extra operating costs.

It said Interserve has also provided financial guarantees on the plant’s reliable operation.

Interserve shares fell more than 11% on Monday to 39.4 pence, and again today, to just over 30 pence, before making small gains.

The company has annual revenues of £3.7bn and employs 75,000 people worldwide, with about 25,000 of those in the UK.

Like Carillion, it carries out construction and holds major facilities management contracts with the UK government.

It has had a difficult time in recent years, announcing a £6m loss before tax in the first half of this year. According to the BBC, Interserve’s total share value has fallen 90% in the last two years.

Interserve has been trying improve its financial performance, with a branded "Fit for Growth" streamlining programme targeting savings of £15m in 2018, and savings of up to £50m by 2020.

However, chief executive Debbie White (pictured above) acknowledged the ongoing difficulties in energy-from-waste (EfW) schemes, of which it had previously decided to build no more.

"We continue to make progress on the resolution of our EfW projects, although risks to the programme still remain," she said in the half-year results announcement.

The former shareholder told the BBC: "We could be looking at another Carillion. I don’t see how they can raise the £500m or so needed."

But two different sources described as close to the company told the broadcaster that Interserve was not close to bankruptcy and that it would ask new investors for more capital.

Despite problems with the Derby plant, the firm’s core facilities management business was doing well, people who had been briefed by management also told the BBC.

Meanwhile, in Derby, the plant being developed by an Interserve-Renewi joint venture called Resource Recovery Solutions (RRS), is literally causing a stink.

Deliveries of rubbish to the plant started in June to test the equipment and continued throughout an "exceptionally hot summer", according to the latest RRS newsletter.

Residents complained about the smell, and also about excessive noise from the plant during testing. In its newsletter, RRS thanked residents for their patience "while we sort things out".

Now, Derby City Council leader Chris Poulter is facing a no-confidence vote on 21 November after opposition Labour councillors submitted a motion to full council, reports newspaper The Derby Telegraph.

Councillors are angry that Poulter and his counterpart at Derby County Council have not yet acted on a motion passed 27 September for the councils to axe a £50m contract with RRS to operate the plant they have just built.

  • UPDATE 14 November: Interserve’s share price closed on 13 November at 38.50 pence. On 14 November it fell to 35.69 before rising gradually again before close of trading. Interserve acknowledged press reports, and said: "Interserve confirms that the implementation of the Group’s strategy and the Fit for Growth transformation programme remains on track and the Group continues to expect a significant operating profit improvement in 2018, in line with management’s expectations."

Image: Interserve chief executive Debbie White acknowledged problems with waste-to-energy schemes (Interserve)

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