Carillion boss steps down amid £845m writedown
Drop in UK orders after Brexit vote and falling trade across Middle East puts paid to Richard Howson’s tenure as building firm ends dividend and warns on profit
The chief executive of construction and support services company Carillion has stepped down as the firm warned on profits and scrapped its dividend following a Brexit-related slowdown in orders, news which sent its shares plunging almost 40%.
The company, which maintains roads, railways, government buildings and military bases, said worsening cash flow and rising debts had prompted a “comprehensive review of the business and the capital structure”. Shares in the FTSE 250 firm crashed, closing down 39% at 117p.
Carillion has worked on the £400m Battersea power station revamp in London, the £335m Royal Liverpool University hospital, Birmingham’s flagship library and the expansion of Liverpool FC’s main stand at Anfield.
But some of these projects have run into problems, and the firm announced a writedown of £845m related to three big public-private partnership (PPP) projects in the UK, including the Royal Liverpool, and the cost of pulling out of construction projects in the Middle East and Canada. The National Audit Office has highlighted soaring costs on the tram-train link between Sheffield and Rotherham built by Carillion.
The company said it would no longer bid for big construction projects and will instead focus on providing support services in rail, road, telecoms and power networks as well as central and local government buildings.
Richard Howson, who has run the company for the past five years, has been replaced by Keith Cochrane, a senior independent director, until a new chief executive is found. Howson will stay on for up to a year to help with the transition.
Philip Green, the chairman, said urgent action was needed to pay down debts and generate more cash. The firm is battling rising debts, which have hit £695m, compared with £587m a year ago.
The Wolverhampton-based company, which employs nearly 50,000 people in the UK, Canada and the Middle East, has blamed upheaval in Whitehall departments after last year’s Brexit vote and change of government for a slowdown in orders. Carillion has also been affected by cuts in spending by governments in the Middle East prompted by low oil prices.
Cochrane will lead the review, which will explore all options, including a sale of part or all of the business. The outcome will be announced in September. Analysts said a big share sale was likely.
Analysts at Liberum said: “The £845m provision is huge however we look at it. No clearer what exactly has gone wrong. Carillion will get into trouble way before it breaches its [banking] covenants. No quick fixes for the balance sheet. Hard to see a solution without equity.”
The worsening performance means that Carillion now expects 2017 revenues to total £4.8bn-£5bn, less than the estimated £5.03bn. Annual pre-tax profits will also fall short of the £179m forecast.
Carillion said it would withdraw from construction PPP projects and pull out of building projects in Qatar, Saudi Arabia and Egypt. It will only undertake future construction work “on a highly selective basis”. It has also sold half its stake in its Oman joint venture.
The asset sales will raise £125m in the next 12 months. The firm has also scrapped this year’s dividend payments to save £80m, and is looking to slash other costs.
Laith Khalaf, a senior analyst at Hargreaves Lansdown, said: “Carillion looks like it’s trying to bail out a supertanker with a soup spoon. Despite the group’s best efforts, debt is continuing to climb, and at an increasing rate, while the construction business seems to be hitting one hurdle after another.
“Judging by this announcement, the board are prepared to do everything it takes in order to save the ship. But talk of a review of capital structure, and the ongoing debt problem, will leave investors worried that a significant rights issue could be on the horizon.”
Ian Forrest, an investment research analyst at UK retail stockbroker The Share Centre, said: “Carillion’s problems are not new as can be seen by the fact that the shares have underperformed the market for two years. Despite the group continuing to win new contracts I think it is fair to say it has a lot of work to do to regain the market’s confidence.”