Carillion shares slump as chief executive quits after profit warning
The chief executive of construction and support services group Carillion has resigned with immediate effect after the Wolverhampton business revealed its performance is likely to be way below expectations.
Carillion announced that Keith Cochrane would become Interim Group Chief Executive, while a search is undertaken for a permanent successor to Richard Howson.
The company announced Howson would stay with the group for a period of up to one year to support the transition.
The announcement had an immediate impact on the business, with shares falling more than 38% in early trading.
In a trading update, the group said H1 revenue was expected to be similar to that in 2016 at approximately £2.5bn.
However, H1 operating profit is likely to be lower than expectations primarily due to phasing of Public Private Partnerships (PPP) equity disposals, which are now expected to be in H2.
“Deterioration in cash flows on a select number of construction contracts led the board to undertake an enhanced review of all of the group’s material contracts, with the support of KPMG and its contracts specialists, as part of the new group finance director’s wider balance sheet review,” it said.
“This review has resulted in an expected contract provision of £845m at June 30, 2017, of which £375m relates to the UK (majority three PPP projects) and £470m to overseas markets, the majority of which relates to exiting markets in the Middle East and Canada. The associated future net cash outflows in respect of these contracts is £100m-£150m (primarily in 2017 and 2018).
“As a result of the enhanced contracts review and the strategic actions below, reflecting difficult markets and exits from certain territories, Carillion is issuing revised full-year guidance, with revenue now expected to be between £4.8bn and £5.0bn and overall performance expected to be below management’s previous expectations.”
As a response to the situation, the Carillion board said it would be undertaking a comprehensive review of the business and the capital structure “with all options to optimise value for the benefit of shareholders” under consideration.
It said an update on the board’s review of the business and capital structure would be provided at the group’s interim results, in September.
It said significant action had already taken to reposition the business, including an exit from construction PPP projects and an exit from construction markets in Qatar, Saudi Arabia and Egypt.
In future, it said it would only be undertaking construction work on a highly selective basis and via lower-risk procurement routes.
Philip Green, non-executive chairman said: “Despite making progress against the strategic priorities we set out in our 2016 results announcement in March, average net borrowing has increased above the level we expected, which means that we will no longer be able to meet our target of reducing leverage for the full year.
“We have therefore concluded that we must take immediate action to accelerate the reduction in average net borrowing and are announcing a comprehensive programme of measures to address that, aimed at generating significant cashflow in the short-term.”
