Interwaste Holdings today announced that it will not be making its forecast EPS and HEPS of 11.8c respectively.  Its profit is expected to come in between 35% and 45% lower than forecast due to "...cost pressures and  investment in new depots."

This means that--without any restructuring--that IWE is trading at a worst case PE of around 15.  Although this prices the company as moderately valued, the implications of the negative trading update are much more worrying.

In response to the poor performance Interwaste has decided to implement the cancellation of 90,000,000 shares that were issued upon listing/restructuring.  This drops the denominator of the EPS calculation and is a mathematical way of boosting shareholder profits.  After taking into effect this measure HEPS and EPS would only be down 10% to 20% on the forecast.

The shares canceled will be those that relate to the Inter-Waste vendors, Enviro-Fill vendors and Ex-Waste vendors.  These vendors will have an opportunity to "claw-back" these canceled shares in the event that "...the company`s headline earnings for the year ending 31
December 2008 exceed R32.8 million..."

While the cancelling of shares is a nice gesture that in the short-term minority shareholders will appreciate, it is only a coporate gesture.  The inability of IWE in making its forecasts is a long-term warning sign, as it implied weakness in the underlying operations of the company.

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