Carillion, the struggling construction and outsourcing group, is shaking up its top team in an effort to turn itself round following a profit warning that left the company’s future in doubt.
Finance director Zafar Khan is stepping down under an agreement with Keith Cochrane, the former chief executive of Weir who agreed to temporarily run the company following a shock profit warning in July. Emma Mercer, the finance director of Carillion’s construction arm, will take Mr Khan’s place as CFO.
Richard Howson, who had been sacked as CEO in July but remained as chief operating officer, will leave by September 30, with Andy Jones, president and chief executive of Carillion Canada, taking his place from October 1.
Carillion, which employs 50,000 people worldwide, has been fighting for its life after admitting in July that problems with four contracts in the UK, the Middle East and Canada would cost it £845m in writedowns.
The company’s troubles have been compounded by its net debt, which has rocketed from £42m in 2010 to £695m in the first half of 2017 and is expected to reach £800m in the second half. It also has a £587m deficit in its pension scheme, which has obligations of £3.4bn.
Mr Cochrane has been attempting to devise a rescue plan that could involve a deeply discounted rights issue, debt-for-equity swap and pension cuts in an attempt to stave off an emergency takeover or bankruptcy.
Shares in Carillion fell 4 per cent to 42 pence after the news on Monday.
Stephen Rawlinson, analyst at Applied Value, said: “For investors who sought some changes at the top of Carillion to start afresh, this is good news. In the short term it makes limited difference to the investment case, as the financing issues and contract issues are not resolved.”
The company said in July it would withdraw from business in Qatar, Saudi Arabia and Egypt as well as public/ private partnership contracts in the UK.
Carillion has hired professional services firm EY to assist with a review of its finances. It said on Monday that EY’s Lee Watson had been seconded to Carillion as “chief transformation officer”. Shaun Carter, group strategy director, will be leaving by the end of the year while Adam Green, managing director of Carillion Construction Services, and Nigel Taylor, managing director of Carillion Services, will both leave by September 30.
Carillon is one of the UK government’s biggest contractors and its future is being closed watched in Whitehall. In a sign of its support for the business, the government awarded the company millions of pounds of work on the new High Speed 2 railway line just days after the profit warning in July. The company is the biggest manager of military bases for the Ministry of Defence, as well as maintaining tracks for Network Rail and building roads for the Highways Agency.
But there are fears that its troubles will spread to thousands of subcontractors employed by the group.
Carillion, which has had a reputation for late payments to suppliers, took the decision a few years ago to extend payment terms to 120 days, nearly doubling its previous timeframe. Hedge funds have been shorting the stock for two years as a result. One hedge fund manager told the FT: “When we see payment terms lengthening it’s a red flag and that’s why we shorted it.”
Carillion was due to publish half-year results in August but this was delayed to the end of this month.