Carillion chief steps down as shares plunge 40% after profit warning

The chief executive of Carillion resigned on Monday (10 July), as shares in the construction support services group tumbled 40% following a profit warning.

Richard Howson will be replaced by senior independent director Keith Cochrane until a replacement his found. Howson, who has been in charge of the company for the last five years, will stay on for up to a year to ensure the transition to his successor is as smooth as possible.

The managing director of the UK building unit has also left the company, along with the finance chiefs of three other business units.

The group warned annual pre-tax profits will fall short of the expected £179m ($230.9m) mark, while revenue is now forecast to be between £4.8bn and £5bn, compared with initial guidance for a £5.03bn figure.

Following the profit warning, the FTSE 250-listed company suspended the dividend for 2017 and promised to carry out a "comprehensive review of the business and the capital structure".

Suspending the dividend will save around £80m and will partly offset the growing debts, which hit £695m, compared with £587m a year ago.

"We have 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," said group chairman Philip Green.

"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."

Carillion, which maintains railways, roads, military bases and government buildings is also planning to raise a further £125m by selling off a host of businesses in non-core markets over the next 12 months.

The company said it will pull out of Saudi Arabia, Qatar and Egypt, adding it will only take on future construction work "on a highly selective basis".

Carillion, which employs approximately 50,000 staff across the UK, Canada and the Middle East, last year blamed a change of government for a sharp slowdown in orders. The Wolverhampton-based firm has also been beset by ongoing low oil prices and by cuts in spending by governments.

Laith Khalaf, senior analyst at Hargreaves Lansdown, added: "Judging by this announcement, the board are prepared to do everything it takes in order to save the ship. But talk of a review of capital structure, and the ongoing debt problem, will leave investors worried that a significant rights issue could be on the horizon."