Carillion share plunge slows down

In the space of just four days nearly £600 million has been wiped off Carillion's stock market value after it announced massive write-offs on building contracts, revealed it was pulling out of major Middle Eastern markets and its chief executive stepped down.

The stock seemed to pause in its headlong dive yesterday, raising hopes among shareholders that their investments weren't going to lose any more value. Shares, worth nearly £3 a year ago, fell below 52p at one point.

Management at the company – which employs around 400 at its headquarters in Wolverhamopton city centre and another 48,000 across the UK, Middle East and Canad – will also be hoping for some relief, especially if they are going to need to persuade investors to plough more money into the business in the form of a fund-raising issue of new shares. Some analysts have suggested Carillion needs £500 million to shore up its balance sheet and get it back on track.

Chief executive Richard Howson stepped down with immediate effect on Monday as the group said it was struggling to stay within its borrowing limits.

He has been replaced by Keith Cochrane on an interim basis while a search is undertaken for a permanent boss and a "comprehensive review" is carried out of the business.

Monday's dire half-year trading update saw it downgrade its annual revenue guidance, with sales now expected to be between £4.8 billion and £5 billion, while its overall performance is forecast to be "below management's previous expectations".

It also said operating profit will fall short of expectations.

After a review by KPMG, the group said it will book an £854 million provision linked to certain UK and overseas contracts, in particular three public private partnership construction projects in the UK and another in the Middle East.

Carillion specialises in railways and roads maintenance and has contracts with the likes of Network Rail. It makes 70 per cent of its money from support services and maintenance contracts for business, local authorities, hospitals and the Ministry of Defence.

To raise cash it is selling of £125 million of 'non-core' assets, pulling out of building work in Saudi Arabia, Egypt and Qatar and getting out of the PPP construction business at home.

And it has warned that its net debt could rise to £800 million this year. It is also weighed down by a £587 million pension deficit.

The company, which split off from the Tarmac group in 1999 and later bought construction firm Alfred McAlpine, has said it is 'looking at all options' in the current crisis.

Meanwhile, Oxfordshire County Council announced yesterday it was calling an early end to a 10-year deal with Carillion to build schools and supply property management services, which was due to run until 2022 and worth £500m. It will start taking work back from Carillion from next month.