Carillion plunges as profit misses goal, dividend suspended

Bloomberg

Carillion Plc plunged the most on record after the British construction company said first-half profit will be lower than expected, dividend payments will be suspended and the chief executive officer has stepped down.
Cash flow from some projects has deteriorated, and the board will review all of the company’s major contracts with the help of KPMG, Carillion said in a statement on Monday. The company also will undertake a “comprehensive review” of the business and the capital structure, with all options to boost the stock price under consideration, it said. The stock fell 33 percent to 128.60 pence at 9:33 a.m. in London, after dropping as much as 41 percent.
Independent non-executive director Keith Cochrane, the former CEO of Weir Group Plc, will take over as interim chief until a permanent replacement is found for CEO Richard Howson, Wolverhampton, England-based Carillion said.
Carillion is looking to raise 125 million pounds ($161 million) from exiting some business and markets over the next 12 months, and more cost savings will be found. To stem the outflow of cash, 2017 dividends will be suspended to save about 80 million pounds, the company said.
Investors already have been skeptical about the company’s prospects. Before today, the shares had fallen 19 percent this year, giving Carillion a market value of 826.5 million pounds, and the stock was the most shorted in the UK, IHS Markit said last month. Howson will remain at Carillion for up to a year to help with the CEO transition.
Carillion Plc interim head Keith Cochrane said “no option is off the table” as the British construction company seeks to recover from a record stock market plunge, weaker-than-expected profit growth and the resignation of its chief executive officer.
Cash flow from some projects has deteriorated, and the board will review all of the company’s major contracts with the help of KPMG, Carillion said in a statement on Monday. In the meantime, dividend payments will be suspended and the company will undertake a “comprehensive review” of the business and the capital structure, it said.
We’re “not trying to find or make excuses, but it has been a bit of a perfect storm that these four contracts have all gone wrong at the same time,” Cochrane said on a call with analysts and investors. “Because they were all large contracts, the compounding effect becomes very material.”
The stock fell 37 percent to 120.40 pence at 12:18 p.m. in London, having earlier plunged by a worst-ever 41 percent. Traders wiped 253 million pounds ($326 million) off the company’s previous 826.5 million-pounds market capitalization, sending the stock to a 14-year low. Fellow UK construction firm Balfour Beatty Plc fell as much as 5.1 percent, while Kier Group Plc declined 3 percent.
Cochrane, Carillion’s senior non-executive director and the former CEO of Scottish engineering company Weir Group Plc, will take over as interim chief until a permanent replacement is found for CEO Richard Howson, Wolverhampton, England-based Carillion said.
Carillion is looking to raise 125 million pounds from exiting some business and markets over the next 12 months, and more cost savings will be found. To stem the outflow of cash, 2017 dividends will be suspended to save about 80 million pounds, the company said.
The company has made a contract provision of 845 million pounds, of which 375 million pounds relates to the U.K, it said. Investors already have been skeptical about the company’s prospects. Before today, the shares had fallen 19 percent this year, and the stock was the most shorted in the UK, IHS Markit said last month.
Carillion will have to raise a “significant amount” of money given weaker profit, higher debt, the need to restructure and limited proceeds from disposals, Liberum analyst Joe Brent said in a note. “We are not sure that Carillion has the funds to restructure,” he said.
The company attempted a merger with Balfour Beatty three years ago, but the talks hit an impasse over Carillion’s insistence that its target keep hold of a US engineering-consulting firm that it had wanted to sell. The builder expanded its Canadian operations with an acquisition the following year, and employs 48,500 people across the UK, Canada and the Middle East, according to its website. Howson will remain at Carillion for up to a year to help with the CEO transition.