Carillion has hired professional services firm EY to assist with a review of its finances, as the UK construction and support services group turns to more outside advisers in a bid to repair its balance sheet.
The FTSE 250 group said it had brought in EY “with immediate effect” to work on the strategic review it announced last week, with a focus on cutting costs and collecting more cash from contracts.
The appointment came a week after Carillion revealed a sharp rise in its debt and £845m of contract writedowns, causing its share price to drop by more than 70 per cent in three days. There are mounting fears that the group will have to launch a debt-for-equity swap or a rights issue to avoid an emergency takeover or bankruptcy.
As part of its turnround efforts, Carillion also hired HSBC — which provides the construction company’s debt in the form of bonds and a revolving credit facility — as a joint adviser and broker on Friday.
After announcing the strategic review last week, the group said on Monday that the board had identified actions to reduce borrowing, better manage its working capital, and recover cash owed to it.
“Alongside our own efforts, EY will provide support across the business and bring an external perspective to our cost-reduction and cash-collection challenge,” said Keith Cochrane, who was appointed interim chief executive after the incumbent, Richard Howson, stepped down on the day of the profit warning.
“My priorities are to reduce the group’s net debt and create a balance sheet that will support Carillion going forward,” Mr Cochrane said.
The company cut its guidance on revenues this year, while committing to raising £125m through “non-core” disposals over the next 12 months to ease the pressure on its finances. Its net debt rocketed from £42m in 2010 to £695m in the first half of 2017.
Its share price rose around 15 per cent on Monday following the EY announcement and the news that the group had won two contracts on the UK’s HS2 railway — worth around £450m to the company, according to analyst estimates.
It is not uncommon for large organisations to draft in emergency support from professional services firms. In 2013, outsourcing group Serco asked EY — then Ernst & Young — to examine its management processes and review its finances and contracts following a scandal that involved overcharging the government and two profit warnings in the space of six months.
This year, Carillion commissioned a review by its auditor, KPMG, into 58 contracts, after it became concerned over late payments. The results of the review, released this month, identified four problem contracts — three in the UK and one in the Middle East.
Bringing on board an independent adviser would help to combat the perception that Carillion was “aggressive” in its accounting methods or had chosen to “delay recognition of problems”, said Sam Bland, an analyst at JPMorgan.
“Having an external adviser probably does give some degree of confidence [to outside investors],” he said, adding that EY would also be able to support the new chief executive.
HSBC was not involved in the latest decision to appoint EY, a spokesperson for Carillion said.