Carillion boss goes as $1bn cash hole opens

In a startling statement today the UK’s second-largest contractor, Carillion, said its chief executive was stepping down as more than $1bn (£845m) had to be set aside to cover problem contracts at home and abroad.

The group will get out of Qatar, Saudi Arabia and Egypt, and also exit the market for public-private partnership (PPP) projects.

It is suspending dividends for the year and has launched a "comprehensive review of the business and the capital structure" with "all options" on the table.

Reporting on its first half-year, Carillion issued a profits warning and announced the immediate resignation of Richard Howson as group chief executive. Keith Cochrane, previously a senior independent non-executive director, will take over as interim chief executive while the company finds a permanent replacement for Howson.

First half revenue is expected to be similar to that in 2016 at around £2.5bn. But operating profits would be lower than expected, "primarily due to phasing of Public Private Partnerships (PPP) equity disposals, which were now expected to be in the second half".

In addition, a review of contracts by KPMG uncovered the need for an £845m "provision" for a number of projects. Of that figure, £375m relates mostly to three UK PPP projects, Carillion said, while £470m will be lost in the Middle East and Canada.

Net borrowing has risen thanks to "deterioration in cash flows on construction contracts, combined with a working capital outflow due to a higher than normal number of construction contracts completing and not being replaced by new contract starts", the company said.

Carillion hopes to raise £125m in the next year by exiting "non-core markets and geographies" and it hopes to save £80m by suspending dividends in 2017.

Philip Green, Carillion’s non-executive chairman, 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."

Last year Carillion generated underlying pre-tax profits of £178m on revenues of £5.2bn.

Image: Richard Howson has stepped down as Carillion’s group chief executive (Carillion)