Energis facing £500m loss

MASSIVE write-downs against its ill-fated overseas expansion spree will push ailing telecoms group Energis more than £500m into the red this year.

The group, which warned on earnings last month and said it was now in danger of breaching its banking covenants, may also find itself with a funding gap of £200m despite efforts to cut costs.

Analysts have increased expected operating losses for the group's year to 31 March to about £215m, but a raft of exceptional charges and write-downs against the declining value of its European acquisitions are likely to inflate net pre-tax losses to more than five times last year's £100m deficit.

Shares in the former FTSE 100 group, and spin-off from National Grid, collapsed following the recent warning and it is currently valued at about £315m.

Among charges Energis may have to take is a massive write-down against its acquisition of loss-making German carrier Ision, bought last year for an initial fee of e812m (£556m). That purchase valued Ision at seven times annual sales, and with most alternative telecoms groups now valued at one or two times sales, Energis can expect to write down about £300m against that investment.

Among restructuring options Energis's management is thought to be considering is a complete strategic U-turn and an exit of its struggling European operations. However, there are said to be very few potential buyers and the closure of European businesses, involving about 1000 jobs, is now a realistic option but could cost it at least £50m.

'We believe that the restructuring could trigger a significant write-down of the goodwill on Energis's balance sheet recorded at £1.14bn book value at 30 September, following large premiums paid for overseas acquisitions,' said BancAmerica Securities.

Energis, which is trying to renegotiate terms with its banks just months after securing a new £725m facility, is forecast to have drawn down £546m of that by its

year-end in March. ' Assuming that Energis is unable to extend its bank credit facility to the intended £850m then a funding gap of £200m exists which needs to be addressed in the first half of 2003,' said investment bank Bear Stearns.

Energis will book an additional charge of £10m for its current restructuring programme while a further 350 redundancies last November are likely to have cost a similar amount.

A trading update is expected at the end of March and full-year results are due on 14 May.