Shares in Interserve, one of the UK’s largest construction and services companies, are getting pummelled on Friday morning, after the company said that it faces a huge impairment charge on a major project in Scotland.
In a trading update released on Friday, Interserve said that faces a £70 million impairment on a project in Scotland’s second city, Glasgow. Interserve is in the process of building a plant that turns waste into energy, put the project is facing problems, and has so far cost much more than expected.
The reveal of just how much has spooked investors, and as a consequence the company’s stock — which is listed on the FTSE 250 index — is having one of the worst days in the 30 years that Interserve has been listed. Just after 10:15 a.m. BST (5:15 a.m. ET) shares are down just over 19%, having recovered from the open when the drop was 27%. Here’s how things look:
Here’s the statement from Interserve about the impairment charges (emphasis ours):
Our expectations for the UK construction division as a whole have been significantly adversely impacted by a further deterioration in our Glasgow energy from waste contract. The issues relate to the design, procurement and installation of the gasification plant, together with continuing challenges with the supply chain that will result in further cost overruns and delays. As a result the Board anticipates a £70m exceptional contract provision to be taken in the first half of 2016, resulting in a similar level of cash outflow spread across 2016 and 2017. We will be pursuing every opportunity to mitigate this situation.
Interserve has been employed by waste collection firm Viridor to build the £154 million plant, designed to turn rubbish into biogas which in turn will provide electricity to the national grid. However, the project has been hit by substantial delays and issues regarding subcontractors.
Despite the impairment, Interserve — which has been involved in projects including the London Eye, the construction of Murrayfield Stadium in Scotland, and the refurbishment of Westminster Bridge — says that its “balance sheet remains robust.”