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Why has Carillion's cull failed to soothe investors?

Carillion’s interim boss Keith Cochrane has swung the axe on a chunk of the firm’s management, but the crisis-hit company is far from out of the woods. 

While Mr Cochrane, who stepped in following Carillion’s monster profit warning in July, might have thought there would be a share price bump from an executive clear out – with five senior managers departing – investors appear to be underwhelmed.

Carillion’s stock has dropped by around 1.5 per cent today, having recovered from being more than 4 per cent down in early trading.

So what’s still troubling observers of the company?

For one, the treatment of Richard Howson looks decidedly odd. Mr Howson stepped down as chief executive in July to coincide with the profit warning.

Initially, we were told he was being retained for up to a year to help with the turnaround, before he was formally reinstalled in his old role of chief operating officer.

Now, just weeks later, we learn he is leaving the company for good at the end of the month.

“It looks like they’re floundering a bit,” as analyst Neil Wilson of ETX Capital put it to me.

Meanwhile, group finance boss Zafar Khan has left after just nine months in the job, where he sat on the board.

His replacement, the finance director of Carillion’s UK construction business, Emma Mercer, is not a like-for-like swap – taking the role of chief financial officer. 

Ms Mercer will not be an executive board member, but will be invited to attend meetings.

A Carillion spokesman acknowledged that it is “unusual” not to have a group finance director but the firm believes “this is the best arrangement for the business at this juncture”.

Ms Mercer, I’m told, will also “work closely” with Carillion’s new chief transformation officer Lee Watson, who is on secondment from EY – which is helping the firm with its turnaround plan. 

What has also raised eyebrows is the fact that Carillion’s support service MD Nigel Taylor is also leaving.

July’s profit warning flagged problem contracts in the construction business, but Carillion’s services business was, as UBS put it, “portrayed in good shape”.

If there are problems in the firm’s support services division, things could be worse than first feared.

It appears investors are instead waiting for the outcome of Carillion’s strategic review, expected to be presented on Friday 29 September. Most still believe that the best option would be a debt for equity swap.

However as UBS noted, the outcome from a recapitalisation is “highly uncertain”.

Senior industry figures – including Balfour Beatty’s Leo Quinn – have backed Carillion to emerge from its troubles, potentially as a smaller company. 

But all eyes will now be on what Mr Cochrane, EY and his remaining comrades can pull out of the hat 18 days from now.

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