Interserve to take £70m hit from Glasgow waste contract

As a result of issues relating to the design, procurement and installation of the gasification plant, as well as challenges with the supply chain that will result in further cost overruns and delays, it now anticipates a £70m exceptional contract provision to be taken in the first half of 2016. This will result in a similar level of cash outflow spread across 2016 and 2017.

“We will be pursuing every opportunity to mitigate this situation,” Interserve said.

The FTSE 250 support services and construction group said that taking full account of the cash impact of the contract provision, net debt is likely to be around £35m higher than previously guided at both the half year and the year end.

The company said trading in Support Services remains robust and in-line with its expectations. It highlighted the £230m contract award to provide facilities services to the United States Air Force's UK estate.

Meanwhile, Interserve said Equipment Services continues to have good momentum across its international markets, particularly the UK and Far East. Performance in the Middle East has been in line with its expectations although some uncertainty remains, as noted at the time of the preliminary results.

The International Construction business is also performing as expected, while trading in the building and fit-out segments of its UK construction business remains healthy.

At 0858 BST, Interserve shares were down 27% to 288.60p.

Numis said: “The shares will clearly be weak today and we put our recommendation under review for now.”

“However, all other divisions are trading in line with expectations and we regard this as project-specific in the current year with no direct relevance to the remainder of the group.”

Numis said while disappointing, the provisioning is prudent and will draw a line under these issues, although it clearly materially impacts 2016 estimates.