Carillion to Consider ‘All Options’ After Record Stock Fall

  • CEO steps down as cash flow from four projects deteriorates
  • U.K. company suspends dividend, says profit to miss target

Keith Cochrane

Photographer: Chris Ratcliffe/Bloomberg

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 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 shares fell 35 percent to 125.60 pence at 2:33 p.m. in London, generating a windfall for traders who had made the stock the most shorted in the U.K. About 253 million pounds ($326 million) was wiped off the company’s previous 826.5 million-pounds market capitalization, sending the stock to a 14-year low. Fellow U.K. construction firm Balfour Beatty Plc fell as much as 5.1 percent, while Kier Group Plc declined 2.4 percent.

Naya Capital Management shorted the stock almost two years ago after examining Carillion’s financials and noticing rising levels of accounts receivable, said Adrien Brus, a partner at the London-based company. Receivables were “going up a lot, way faster than revenue, which to us was a sign that something was wrong and their profitability could not really be relied upon,” he said.

Cochrane, senior non-executive director and the former CEO of Scottish engineering firm Weir Group Plc, will take over as interim chief until a permanent replacement is found for CEO Richard Howson, the Wolverhampton, England-based company 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 builder has made a contract provision of 845 million pounds, of which 375 million pounds relates to the U.K, it said. Liberum analyst Joe Brent said the relevant projects probably included deals with Royal Liverpool hospital and a Sheffield tram system, although Cochrane declined to name the contracts, citing ongoing “commercial negotiations.”

Carillion will have to raise a “significant amount” of money given weaker profit, higher debt, the need to restructure and limited proceeds from disposals, 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 U.S. engineering-consulting firm that it wanted to sell. The builder expanded its Canadian operations with an acquisition the following year, and employs 48,500 people across the U.K., Canada and the Middle East, according to its website.

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