Interserve has issued a fresh profit warning, saying operating profits are down and it needs an extra £35M to exit from the energy from waste business.
In an update from its mid-September trading update where it issued the previous profit warning, it said the third quarter of the year has seen a slowdown compared to the first half.
Operating profits in the construction business have deteriorated, because of challenging market conditions, cost pressures and operational delivery issues, said the company.
It now expects second half operating profits to be around half the level of that which was reported for the same time last year.
It added that it has seen a delay in the anticipated completion dates of some of its energy from waste contracts in the third quarter, therefore £35M extra provision is required. This is in addition to the £160M provided in 2016.
A statement from the firm said: “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 31st December 2017.”
The financial covenants are its agrements with lenders. The statement went on to say: ”As previously announced, we are engaged in constructive and ongoing discussions with our lenders. We have engaged a financial advisor to assist us in these discussions, as well as looking at options to maximise the short and medium term cash generation from the business.”
Chief executive Debbie White said: “Despite our challenges, Interserve has a strong client base and many strengths as an organisation and I believe there is considerable potential for business improvement across the company. 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.”