Carillion’s interim chief executive has told Construction News he is “bemused” by the risk and reward ratio for construction firms as he seeks to turn the troubled firm around.
Speaking to CN following Carillion’s half-year update today, Keith Cochrane said fixed-term contracts were a particular risk as “inevitably you’re making assumptions”.
Acknowledging the low margins the industry operates at, he said: “As somebody relatively new, in terms of being a chief executive of a construction business, I’m quite bemused by the risks that a company is expected to take for the reward they can earn. The relationship is out of kilter.”
On fixed-term contracts, he added: “If you’re not able to flex the price to accommodate the risks then we all know what happens: you lose money.”
Mr Cochrane, who is a former finance chief at Stagecoach and ScottishPower, was speaking after the business unveiled a £1.15bn half-year loss, an extra £200m of writedowns and cut its full-year revenue forecasts.
As part of plans to tackle its issues, Carillion will cut £10bn from its project pipeline and take a more focused approach to winning work.
“We are going to say ‘no’ to things and recognise where our skills are,” Mr Cochrane said.
“It’s about bidding with the right margins and the right assumptions.”
Carillion is aiming for a medium-term margin of 2-3 per cent in its building division and 3-4 per cent on infrastructure jobs.
In its support services for central government, it is eyeing a margin of 5-6 per cent.
Rumours had surfaced that the government had been taking an interest in Carillion’s position due to the size of the firm and its key public sector contracts.
Mr Cochrane admitted it has been in contact with civil servants.
“We have had a number of very constructive dialogues with the Cabinet Office – not at ministerial level, more with facilities,” he said.
Carillion also said today it expects the turnaround to take between three to five years.
Mr Cochrane said he hoped to cut £75m of costs within two years, but part of the process involved overhauling the culture at the beleaguered firm.
“It’s about changing the way the business thinks; that’s a hearts and minds job and takes a bit longer,” he said.
On the hunt for a new chief executive after the departure of Richard Howson, Mr Cochrane said the process had begun as soon as July’s profit warning was announced.
But he revealed he had committed to staying up until next July until a permanent replacement is found.
Shares in Carillion are currently trading down around 16 per cent at 53.5p.