Carillion top brass depart amid profit warning

Carillion chief executive Richard Howson and the MD for the company's building division Phil Wakefield have stood down amid the issue of a profit warning. The company's half year trading update has warned of a provision of £845m being made due to losses on three problematic PPP projects in the UK and from the costs of exiting markets in Canada and the Middle East.

The Carillion board of directors also announced a comprehensive review of the business. Wakefield has left with immediate effect while Howson is remaining on the sidelines to help with the recovery. Non-executive director Keith Cochrane has taken over as interim chief executive. Measures already taken include exiting construction PPP contracts and focusing more selectively on lower risk conventional procurement routes.

Carillion has not been able to dispose of equity tied up in PPP contracts worth around £375m and it's liable for costs of £470m for exiting overseas markets. The firm has performed strongly in securing around £2.6bn of new work in the first half of the year, but it's expectation is for whole year performance of £4.8bn to £5.0bn. Pre-tax profit quoted in its last yearly results came in at £147m on £5.21bn of revenue. The net costs of Carillion's problematic contracts are expected to be £100 to £150m.

According to today's trading update, actions to reduce net borrowing include cost savings and disposals including £125m from leaving non-core markets, but the company still expects to be borrowing £625m during the half year; up from £586m over the whole of last year.

Carillion's non-executive chairman Philip Green, said: “Despite making progress against the strategic priorities we set out in our 2016 results announcement in March, average net borrowing has increased above the level we expected, which means that we will no longer be able to meet our target of reducing leverage for the full year.

“We have therefore concluded that 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.

“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. We will update the market on the progress of the review at our interim results in September."