29 September 2017 | Martin Read
Carillion Group has added to the £845 million provision for loss-making construction contracts that it announced in July with a further £200m provision in respect of 23 of its support services contracts.
The £200m figure comprises £91m for underperforming contracts that the group has decided to exit; £56m for underperforming contracts "for which expectations have been re-based"; and £53m in respect of contracts "for which a more prudent view of receivables has been taken".
The company's announcement comes as part of a financial performance statement for the first half of 2017 that shows considerably weaker than expected performance. The results, published this morning, saw a significant drop in Carillion's share price, at one point down close to 20 per cent.
A strategic review of the business, currently ongoing, is to see the company "refocus" on its core strengths and markets (support services, infrastructure and building). A new leadership team and operating model have been introduced.
Carillion Group's interim chief executive, Keith Cochrane, was clear about the challenges facing the company in the immediate future.
"This is a disappointing set of results which reflects the issues we flagged in July and the additional £200m provision for our support services business that we have announced today. We now expect results for the full year to be lower than current market expectations.
"The strategic review that we launched in July has enabled us to get a firm handle on the group's problems and we have implemented a clear plan to address them."
Cochrane wants Carillion to become a "lower-risk, lower-cost, higher-quality business generating sustainable cash-backed earnings. However, "in the immediate short term, our focus is to complete the disposal programme, accelerate our action to take cost out of the business and get our balance sheet back to a place where it can support Carillion going forward.
The group, said Cochrane, has made "an encouraging start" to dealing with its challenges.
"Supported by an operating model that manages risk much more effectively, and led by a fresh management team with a mandate to drive cultural change, I am confident a strong business can emerge."