February 20, 2017 / 9:31 AM / 5 months ago

UPDATE 1-Interserve shares slump on higher energy-from-waste exit cost

3 Min Read

* Hikes provision to 160 mln stg from 70 mln stg

* Further cash outflows of about 60 mln stg in 2017

* Shares fall by more than 25 pct (Adds analyst comments, details, share move)

Feb 20 (Reuters) - Interserve Plc's shares fell by more than 25 percent on Monday after the British support services and construction company spooked investors by more than doubling an expected charge for getting out of its energy-from-waste business. Interserve, whose activities range from providing care services for people in their own homes to repairing Britain's historic Sandhurst military academy, raised the provision to about 160 million pounds ($199 million) from 70 million pounds.

This followed a review of operational developments at the energy-from-waste business and an assessment of the impact of litigation related to a terminated contract in Glasgow.

Interserve also warned that it could be harder and take longer to get money back from third parties as its main gasification subcontractor, Energos, was in administration.

However, some analysts doubted the charge was enough.

"We can have no confidence the provision is adequate," Liberum analysts wrote in a note to their clients.

Interserve said it was getting out of the business in August, after cost overruns and delays.

Lasting Impact

The company has been drumming up business for its support services division as construction in the UK has been hurt by supply chain failures and pricing pressure.

Peel Hunt analyst Andrew Nussey said he expected Interserve's UK construction business to remain under pressure.

"We remain nervous," he wrote in a client note, adding that Interserve's support services business could be impacted by a reduction in discretionary spend and cost inflation in the UK.

While most British support services firms have reported resilient trading since Britain voted in June to leave the EU, recent warnings from Capita and Mitie and a slowdown noted by Carillion have highlighted that Brexit uncertainty has caused customers to delay decisions.

Growth in Britain's services sector slowed for the first time in four months in January as businesses battled the sharpest rise in their costs in more than five years, a closely watched survey showed earlier this month.

Interserve said it expected further cash outflows of about 60 million pounds in 2017 and its shares were down 22.5 percent at 259 pence at 0925 GMT, recouping some of their early losses. ($1 = 0.8043 pounds) (Reporting by Esha Vaish in Bengaluru; Editing by Amrutha Gayathri and Alexander Smith)

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