Energis shares halve on breach of covenants

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The Independent Online

The telecoms firm Energis was last night forced into urgent talks with its bankers after issuing a shock profits alert and warning it may breach conditions attached to recently-negotiated loans.

The alert prompted speculation heads would roll at the firm and knocked 57 per cent off Energis' shares, which closed at 23p. It also hit the prices of its rivals. Colt Telecom lost 8.8 per cent, Thus was down 3.3 per cent while BT and Cable & Wireless lost about 1 per cent each.

Energis said sales in the year ended March 2002 would be around 5 per cent beneath the consensus estimate of £1.014bn while underlying profits, or Ebitda, would fall some 10 per cent short of the consensus estimate of £155m.

It was the third time since David Wickham was made chief executive in May that analysts have had to cut their financial forecasts and the second major warning in six months.

The company, which also reduced its forecasts for next year, blamed the alert on "lower than expected" growth in revenue thanks, in part, to a lengthened order cycle, as well as increased pressure on margins.

Sources close to the company suggested there were inadequate financial controls in place at Energis, potentially putting in jeopardy the roles of both Mr Wickham and Bill Trent, the chief financial officer.

"Somebody should be responsible for it. I think David Wickham has to answer for some of it, quite frankly. There's not a lot he can do about a changed market place but he could have handled the flow of information better," said one analyst who did not want to be named.

Another said: "It's hard to see all of the existing management still being in place in the near future."

As a result of yesterday's warning, Energis said it "may be at risk" of breaching certain financial covenants under its bank facility and it would be discussing the implications of its revised expectations with its banks. The warning came just over a month after Energis, in which National Grid has around a 36 per cent stake, completed a crucial loan refinancing with its banks which increased its facility by £125m to £725m.

Analysts said the banks could refuse to lend Energis the money should it breach the covenants, forcing it to seek alternative funding. But they thought it more likely Energis would be forced to renegotiate the loan at a higher price.

The company refused to disclose any details of the covenants.

Energis said it would cut a further £30m of costs out of the business during 2002/2003 but would not comment on how many jobs might be lost.

The cost of that exercise would be in the order of £10m, it said, adding it would also rein in its capital expenditure to less than £300m for the current year from £340m. It expects capital expenditure to total no more than £200m the year after.