Shares in Carillion fell over 30% in early trading, after the group revised guidance for the full year downwards and announced that CEO Richard Howson is stepping down.
The board has suspended the 2017 dividend.
H1 Trading Update
First half revenues are expected to be similar to the previous year, at £2.5bn, with profits lower than expected as a result of the timing of Public Private Partnership (PPP) disposals.
Deterioration in cash flows from a number of construction contracts led the group to review all material contracts. This has resulted in an expected contract provision of £845m, with associated future net cash outflows of £100m-£150m.
Carillion now expects full year revenue to be lower, at £4.8bn-£5bn, and overall performance to be behind previous expectations.
Lower cash flows from the construction business, as well as working capital outflows due to contracts completing and not being replaced, mean net borrowing is set to be higher than expected. First half net borrowing is expected to be in the region of £695m (Full year 2016: £586.5).
Carillion expects to raise a further £125m from disposals in the next 12 months, while making further cost savings and maximising recovery of money owed, to try and reduce borrowing. The group has suspended the dividend for 2017, resulting in a cash saving of around £80m.
The board is undertaking a comprehensive review of the business and capital structure, to be reported in September. In the meantime the group will be exiting from construction PPP projects as well as construction markets in Qatar, Saudi Arabia and Egypt.
CEO Richard Howson has stepped down, although will remain with the business for the next year, with Senior Non-Exec Keith Cochrane taking over as interim CEO.
Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.