Former Weir boss put in charge
Cochrane steps in as Carillion shares crash in weak trade
Shares in the group plunged 38% in the first few minutes of trading on the stock market this morning after it warned of weakening cash flow and rising debts in difficult market conditions.
The board is undertaking a “comprehensive review of the business and the capital structure”.
Chief executive Richard Howson is stepping down and is replaced temporarily by Mr Cochrane (pictured) who is formerly the company’s senior independent non-executive director. The board has begun the search for a permanent CEO.
Philip Green, 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.
“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.
“Richard Howson has stepped down as group chief executive and from the board with immediate effect and Keith Cochrane, previously our senior independent non-executive director, will take over as interim group chief executive, while a search is underway for a new group chief executive. We are fortunate to have had Keith as a non-executive member of our board as he has considerable plc CEO experience. Richard will stay with the group for up to one year to support the transition.”
Mr Cochrane was appointed to the Carillion board on 2 July 2015 and has served as the senior independent non-executive director since 1 September that year. He has also served as a member of the audit, remuneration, nomination, sustainability and business integrity committees.
Aged 52, he joined Weir as finance director in July 2006 and was appointed chief executive in November 2009, standing down in 2016. Following a number of years at Arthur Andersen, he joined Stagecoach in 1993. He became the group’s finance director in 1996 and chief executive in 2000. He joined Scottish Power in 2003 and served as director of group finance.
In 2015, he was appointed as the UK Government’s lead non-executive director for the Scotland Office and Office of the Advocate General. He is a chartered accountant and a member of the Institute of Chartered Accountants of Scotland. He was elected a Fellow of the Royal Society of Edinburgh and appointed CBE in 2016.
Carillion trading highlights:
H1 revenue expected to be similar to that in 2016 at approximately £2.5bn.
- H1 operating profit lower than expectations primarily due to phasing of Public Private Partnerships (PPP) equity disposals, which are now expected to be in H2.
- Strong work-winning performance, with £2.6bn of new work secured in H1 – £2.1bn in support services.
- Progress made against strategic objectives set at full year results, with cost reduction underway and disposal of 50 per cent of the economic interest in the Group’s business in Oman, Carillion Alawi, for an immediate cash consideration of £12.8m.
- Deterioration in cash flows on a select number of construction contracts led the Board to undertake an enhanced review of all of the Group’s material contracts, with the support of KPMG and its contracts specialists, as part of the new Group Finance Director’s wider balance sheet review.
- This review has resulted in an expected contract provision of £845m at 30 June 2017, of which £375m relates to the UK (majority three PPP projects) and £470m to overseas markets, the majority of which relates to exiting markets in the Middle East and Canada. The associated future net cash outflows in respect of these contracts is £100m-£150m (primarily in 2017 and 2018).
- As a result of the enhanced contracts review and the strategic actions below, reflecting difficult markets and exits from certain territories, Carillion is issuing revised full-year guidance, with revenue now expected to be between £4.8bn and £5.0bn and overall performance expected to be below management’s previous expectations.Actions to reduce net borrowing
- 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, means H1 average net borrowing is now expected to be £695m (Full year: 2016: £586.5m).
- The actions the Board put in place in March 2017 to reduce net borrowing have been accelerated and further actions are being taken to reduce net borrowing including:
- Disposals to exit non-core markets and geographies to raise up to a further £125m1 in the next 12 months.
- Further annual cost savings to be quantified as part of the strategic and operational review.
- Maximising the recovery of receivables.
- 2017 dividends suspended resulting in a cash saving of approximately £80m.Strategic and operational review
- The Board announces today that it is undertaking a comprehensive review of the business and the capital structure, with all options to optimise value for the benefit of shareholders under consideration. An update on the Board’s review of the business and capital structure will be provided at the Group’s interim results, in September.
- Significant actions already taken to reposition the business.
- Exit from construction PPP projects.
- Exit from construction markets in Qatar, the Kingdom of Saudi Arabia and Egypt.
- Only undertaking future construction work on a highly selective basis and via lower-risk procurement routes.