“Battersea Power Station builder Carillion has shocked the City with a devastating profit warning after an £845 million hit on a clutch of contracts and spiralling debts left it vulnerable to a takeover.
The company — whose chief executive Richard Howson has stepped down immediately — has axed its dividend this year and is desperately looking to prop up its creaking balance sheet by selling off parts of the business.
Carillion’s debt pile is likely to soar to £800 million this year and interim boss Keith Cochrane said that “no option is off the table” for the company, whose shares tumbled by 30%, or 62.5p, to 129.6p today.
RBC analyst Andrew Gibb said: “In our view, the group would need to raise a significant amount — £500 million-plus — to restore stability. And in the near term, we would expect others to be running the slide rule over the business.”
Carillion — whose roster of projects included the conversion of London’s power station into flats — called in accountants KPMG to review nearly 60 contracts earlier this year after deteriorating cashflows.
A host of major players including Sir Paul Marshall’s Marshall Wace, fund giant Blackrock and George Soros’s SFM UK had lined up big bets against Carillion, borrowing shares in the firm to sell in the market in the hope of buying them back more cheaply later and booking a profit.
Three major public-private partnership contracts — the Midland Metropolitan Hospital in Smethwick, Merseyside’s Royal Liverpool Hospital, and an Aberdeen road project — are understood to be behind the bulk of the UK’s £375 million losses. Its £470 million writedowns in overseas markets are driven by losses on a major project in Doha, Qatar.
The business slashed guidance on revenues this year to between £4.8 billion and £5 billion and is pulling out of public-private partnership construction deals altogether after the shock blow. It is also withdrawing from construction markets in Qatar, Saudi Arabia and Egypt and only pursuing jobs in future “via lower-risk procurement routes”.
“The decision to cancel this year’s dividend will save £80 million and Carillion also plans to raise £125 million through “non-core” sell-offs over the next 12 months in a bid to ease the pressure on the balance sheet. “