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In a brief trading update Carillion announced a recapitalisation, downgraded profit expectations, revealed higher than anticipated net debt and said it expected to be in breach of covenants by the end of the year. The group is in discussions to defer its covenant test date by fourth months.
The shares fell 35% in early trading.
Recapitalisation - Carillion no longer expects to be able to achieve its net debt to EBITDA (earnings before interest, tax, depreciation and amortisation) target of 1-1.5 times by the end of 2018. As a result, some form of recapitalisation will be required. This could involve a restructuring of the balance sheet, and is expected to take place during the first quarter of 2018.
Profit downgrade - The group now expects profits for the year to be materially lower than current market expectations. That follows delays to the sale of some PPP contracts, slippage in the start of a significant project in the Middle East and lower than expected margin improvements in UK Support Services. This has been partially offset by cost savings realised in the fourth quarter.
Net debt - Full year average net debt is now expected to be between £875m and £925m.
Breach of Covenants - As a result of the above, Carillion now expects to be in breach of covenants at the end of the year and is seeking to defer its testing date to the end of April 2018.
Interim CEO Keith Cochrane said "Whilst we continue to target cash collections, reduce costs, execute disposals and focus on delivering for our customers, it is clear that significant challenges remain and more needs to be done to reduce net debt and rebuild the balance sheet. Constructive dialogue is continuing with our financial stakeholders, and I am grateful for their support."
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