12 July 2017 | Herpreet Kaur Grewal
Carillion is reporting that its operating profit in the first half of 2017 is lower than expected primarily due to phasing of the Public Private Partnerships (PPP) equity disposals.
These are now expected take place in the second half of the year.
Despite this the firm said it had secured £2.6 billion in the first half of 2017, with £2.1 billion of this in support services.
Deterioration in cash flows on a select number of construction contracts led the board to undertake an enhanced review of all of the group's material contracts, says its financial statement, with the support of KPMG and its contracts specialists as part of the new group finance director's wider balance sheet review.
This review has resulted in an expected contract provision of £845 million at 30 June 2017, of which £375 million relates to the UK (the majority on three PPP projects) and £470 million to overseas markets, most of which relates to exiting markets in the Middle East and Canada.
The associated future net cash outflows in respect of these contracts is £100 million to £150 million (primarily in 2017 and 2018).
As a result of the enhanced contracts review and the strategic actions to be undertaken - reflecting difficult markets and exits from certain territories - Carillion is issuing revised full-year guidance, with revenue now expected to be between £4.8 billion and £5 billion, and overall performance expected to be below management's previous expectations.
Philip Green, non-executive chairman, said: "Despite making progress against the strategic priorities we set out in our 2016 results announcement in March, average net borrowing has increased above the level we expected, which means that we will no longer be able to meet our target of reducing leverage for the full year.
"We have therefore 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 cash flow in the short-term.
"We are also 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."
The company also announced that Richard Howson has stepped down as group chief executive and from the board with immediate effect.
Keith Cochrane, previously Carillion's senior independent non-executive director, will take over as interim group chief executive while a search gets under way for a new group CEO.