Interserve shelves dividend but reports underlying profit
Interserve has shelved its dividend following last week's warning that its exiting from the energy-from-waste market would cost more than expected.
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For calendar 2016, the support services and construction group reported underlying operating profits of £124.2m, down 14% on the previous year, on revenues up 1.2% to £3.2bn.
Revenues remained solid thanks to strong performances from equipment services and international construction and resilience in UK support services, offset by weak performance from the UK construction arm.
But an £160m exceptional charge due to delays and performance issues on EFW contracts, hit the bottom line and leading to a slide into a £94.1m loss before tax and a loss per share of 71.2p after the £79.5m profit and EPS of 47.5p the previous year.
The company expects to largely complete the EFW exit this year, but contractual obligations in respect of warranties, and the resolution of claims will continue for a period thereafter.
Although Interserve stressed that it has strong underlying cash generation, with gross operating cash flow of £239.2m in the year, and has put new banking facilities in place to address cash outflows from the exited EFW business, it said it has temporarily withheld its final dividend.
Chief executive Adrian Ringrose, who is due to step down after 13 years at the helm, said: "While liquidity available to the group is adequate, having put in place new banking facilities that expand and extend our debt capacity, the board has a medium term objective to reduce our overall indebtedness and enhance liquidity levels further whilst continuing to invest in our core businesses. We have therefore taken the difficult decision to suspend the dividend temporarily."
Looking to 2017, trading was guided to be flat on 2016, while the search for a new CEO is nearing its conclusion, with chairman Glyn Barker pointing to a "further announcement shortly".
Net debt averaged £390.9m for the year and year end stood at £274.4m, with 2017 average net debt expected to be £450m.
House broker Numis said the withdrawal of the dividend "at least draws a line here and aids net debt reduction", characterising the results, with this and EFW aside, as showing varied performance last year.
"We expect more of the same in the current year, though we believe the key focal point will be management succession in the form of the new CEO."
Jamie Constable at broker N+1Singer said the company looked one for investors to "run the value slide rule over", with Interserve's market cap of £341m for an underlying business that is profitable, makes £3.2bn sales and will be carrying around £450m of net debt this year.