Debt-laden Carillion weighs share sale after warning again on results

(Reuters) - Britain's Carillion CLLN.L made its second profit warning this year and said it may need to sell shares to shore up its balance sheet, dealing a fresh blow to the construction and support services group's already weakened shares.

FILE PHOTO: A Carillion sign is seen in Manchester, Britain July 13, 2017. REUTERS/Phil Noble/File Photo - RC132EC060F0

Debt-laden Carillion booked an 845 million pound (845.00 million pounds) writedown on problematic construction contracts in July, prompting the departure of its chief executive and its shares to lose nearly two-thirds of their value.

On Friday it said it had made an additional 200 million pound provision relating to services contracts, following a review of its business.

Keith Cochrane, Carillion’s interim CEO, said it had no specific timeline or size for any potential share sale.

“All we’re doing is we’re flagging that (a raise) is something we might need to do in the future. But our major priority is the focus on both disposals and how to drive a meaningful reduction in net debt,” he told Reuters.

Analysts expect Carillion to have to raise new funds to shore up its balance sheet, although uncertainty over its contracts, its debts and its pensions obligations have raised questions over the value of the company.

Carillion’s shares were down 10.5 percent to 57.5 pence at 0920 GMT on Friday, cutting its market capitalisation to around 240 million pounds. The group’s stock had risen earlier this week after a London newspaper reported that a Middle Eastern buyer was considering making a bid.

Cochrane declined to comment when asked whether Carillion would be open to a sale of the business or whether the group was considering a sale of its Middle East operations.

“We believe that the business could have an enterprise value of 1.6 billion pounds,” Liberum analysts wrote in a client note.

Kier KIE.L and Balfour Beatty BALF.L, which Carillion tried to buy in the past, have all but ruled out bids for the company.


After the financial crisis, British building firms bid for long-running, fixed-price contracts to keep work coming in. But these have since caused problems for most in the sector.

Carillion, Interserve IRV.L, Mitie MTO.L and Capita CPI.L have been hit over the past year by rising labour costs and contracts have got more expensive to deliver.

“Carillion has become too complex. It has been a business that has too many layers of management from top to bottom,” Cochrane said, adding that there was a “lack of oversight”.

He said the aim of a cost cutting programme was to become “more agile” and efficient and the company would look at further redundancies in addition to 340 job cuts already underway.

Cochrane said the group was making process with appointing a permanent CEO.

Carillion, which has recently won work for Britain’s new high speed rail link, said that its 2017 revenue was expected to be between 4.6 billion and 4.8 billion pounds, down from a previous expectation of 4.8 billion to 5 billion pounds.

Full-year average net debt was expected to be between 825 million and 850 million pounds, it said, announcing measures to boost its balance sheet including raising 300 million pounds from asset disposals and an 80 million pound reduction in its pension deficit.

“Whilst there are many good businesses within Carillion, we remain wary given the many balance sheet uncertainties,” Peel Hunt analyst Andrew Nussey wrote in a client note.

Nussey cut his underlying full-year pretax profit expectation to 110 million pounds from 135 million pounds and forecast that Carillion would need to raise more than 500 million pounds from fresh equity or potential disposals.

Carillion said on Sept 11. that its chief financial officer Zafar Khan was leaving and would be replaced by Emma Mercer, the finance head of its UK construction business.

(This version of the story has been refiled to remove graph in the fourth paragraph.)

Reporting by Esha Vaish in Bengaluru; Editing by Alexander Smith