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Carillion’s 99 problems – the FCA’s just one

No company wants to hit the headlines because the Financial Conduct Authority is investigating its trading updates, and while Carillion won’t be welcoming the news, it’s just one of many problems the firm faces.

Hargreaves Lansdown analyst Nicholas Hyatt summed it up when he described how the share price had responded.

“Shares today are only down about 5 per cent,” he told me, “which in terms of Carillion, in recent times, is not a massive drop.”

CN had just published a story on yet another delay to the firm’s £335m Liverpool hospital PPP project when news of the FCA investigation dropped.

Reading the stories one after the other it really brought home just how complex the contractor’s financial problems are.

When it completed the deal to build Royal Liverpool University Hospital in 2013 Carillion estimated it would generate £200m from the investment and a further £100m from delivering non-clinical support services over a 30-year period.

Now it’s believed to be one of the three UK legacy contracts that contributed to the contractor’s damaging profit warning in July 2017, which saw its share price plummet and chief executive Richard Howson depart.

Factor in the drop in market confidence, which has seen big shareholders selling off swathes of their shares and lenders getting twitchy over the possibility of broken loan covenants and the picture is very stark indeed.

On the FCA investigation, Mr Hyatt pointed out: “If you look at historic investigations this is unlikely to wrap up very quickly.

“Carillion have said that in the first quarter of this year we will see exactly what there plans are to resolve the balance sheet problems they’ve got at the moment.

“That is a lot more pressing and will weigh a lot more heavily on the shares than an investigation that may or may not result in liabilities further down the line.”

Carillion did receive a pre-Christmas boost in the form of more time to prove to its lenders it would not breach its financial covenants. It also agreed a deal to bring in its new CEO earlier than planned.

Now the UK’s second-largest contractor will have to hope this can have the positive impact required.

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