The chief executive of Carillion has stepped down as the outsourcing group issued a profit warning and announced a strategic review, triggering a 39 per cent plunge in its share price.
The FTSE 250 group, which is one of the most shorted stocks on the London exchange, said on Monday that full-year revenues and “overall performance” would be lower than management’s expectations because of “difficult markets” and measures to cut borrowing.
It announced that Richard Howson had stepped down as chief executive after five years “with immediate effect” and was being replaced temporarily by Keith Cochrane, a non-executive director and former chief executive of Weir Group and Stagecoach. A search for a permanent chief executive was under way and Mr Howson would stay with the company for up to a year to help the transition, the company said.
Chairman Philip Green said Carillion would miss its debt reduction targets for 2017 and that “we have therefore concluded that we must take immediate action”.
As well as speeding up measures to cut debt, he said Carillion would be “undertaking a thorough review of the business and the capital structure”.
The company said that worsening cashflow on construction contracts and a fall in working capital due to contracts not being replaced meant average net borrowing in the first half would be £695m, compared with £586.5m last year.
Because of this, Carillion said that dividends for this year would be cancelled and it would try to leave “non-core” markets.
It said that it would be “highly selective” in taking on new contracts and would only do so via “lower risk” routes.
Keith Cochrane has been appointed interim chief executive at Carillion © Bloomberg
A review by Carillion’s new finance director Zafar Khan had been started because of the worsening cashflows on some contracts, and had resulted in a write down of £845m, the company said.
Revenues for the year are now expected to be between £4.8bn and £5bn, down from a previous estimate of just over £5bn. It said first half operating profits would be lower than expected because of the timing of “Public Private Partnerships equity disposals”.
Carillion shares fell 39 per cent in early morning trading in London, taking their decline over the past year to 51 per cent and giving the group a market cap of £500m.
Stephen Rawlinson, analyst at Applied Value, said “it looks like the board had been a tad over optimistic for too long”. The “catalogue of areas of concern” was “mainly around over-optimistic assessments of expected profitability and worse than expected contract cashflows”, he said.
“Arguably this write-off should have happened several years ago and has been bad news waiting to happen,” he added. “There is a good business in there, especially in services but clearly the company was too attached to its Middle East construction operations.”
