Wolverhampton-based Carillion's share value plummets
More than £250 million was wiped off the value of Carillion shares this morning after the Wolverhampton-based construction and services giant warned it will make less money than expected this year and also revealed its boss had stepped down.
Shares fell by a third in early trading.
In a half-year trading update, the company downgraded its full-year revenue guidance, with sales now expected to be between £4.8 billion and £5 billion compared to last year's total of £5.2 billion. Its overall performance was forecast to be "below management's previous expectations".
In addition, following a review carried out by accountants KPMG, the group said it will book an £854 million provision linked to certain UK and overseas contracts.
A total of £375 million relates to the UK and £470 million to overseas markets in the Middle East and Canada.
To compound matters, chief executive Richard Howson has stepped down and been replaced by non-executive director Keith Cochrane – the former head of the Weir engineering group – on an interim basis while a search is undertaken for a permanent boss. Mr Howson will stay with Carillion for up to a year to help with the transition The group is also planning a "comprehensive review" of the business.
Carillion's share pric is currentlyd own by around a third following the stunning announcement, slashing the stock market value of the company by more than £250 million.
The company employs around 400 people at its head offices on the ring road in Wolverhampton city centre. Worldwide its workforce is around 48,500 strong.
Philip Green, Carillion's non-executive chairman, said that the action is needed to reduce the firm's borrowing.
"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," he said.
"In addition, we are also announcing that we are undertaking a thorough review of the business and the capital structure, and the options available to optimise value for the benefit of shareholders."
The firm reported a 5% fall in pre-tax profits to £146.7 million last year and has previously said the pace of new order intakes has slowed since the Brexit vote.
The group said it had also seen some delays in UK public spending decisions following the referendum, and added that low oil prices had hit customer spending in the Middle East.
Among the steps taken to improve its financial position, Carillion says it will exit from construction Public Private Partnership (PPP) projects and pull out of the construction markets in Qatar, Saudi Arabia and Egypt. But the exit from PPP will not affect its work on existing construction projects such as the new £350m Midland Metropolitan Hospital at Smethwick, which is now due to be completed next spring following delays.
The company has also suspended its 2017 dividend payout to shareholders.
Nicholas Hyett, equity 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.
"Today’s profit warning sees the CEO step down, dividends suspended and various Middle Eastern businesses added to the ‘Public Private Partnership’ contracts already on the block. With revenue falling the group’s target of reducing leverage this year has been scrapped. The focus has instead moved to improving short term cashflow ahead of a full review in September.
"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.”
