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Carillion boss confirms £10bn cut in project pipeline

Carillion interim chief executive Keith Cochrane has revealed his firm has cut £10bn from its potential project pipeline as part of a new approach to winning work.

Mr Cochrane said the troubled firm had restructured its construction business to focus on “low-risk procurement routes only”, including early contractor involvement, two-stage bidding, design and build projects, and frameworks.

“As part of this commitment, we have removed £10bn of potential contract opportunities, which has reduced our total pipeline to £28bn,” he said.

“We are enforcing this [strategy] rigorously and turning down potential opportunities that do not meet our criteria.”

The company reported an order book of £2.5bn in its construction business as of 31 December 2016, but this has now been cut by £600m to £1.9bn as of H1 2017. The group’s construction business recorded just £277m of new and probable orders in the first half of the year.

Mr Cochrane said the company had “entered into contracts without proper risk assessment,” and that Carillion had been “hampered by insufficient transparency and a business with no sense of what to prioritise and how.”

“In many cases we were building a Rolls-Royce, but only being paid to build a Mini,” he added.

In an analyst presentation this morning, Mr Cochrane revealed a series of “medium-term” targets for the group’s business streams.

The group’s building business has a revenue target of around £600m along with margins of 2 to 3 per cent, while in infrastructure, Carillion is targeting a revenue of £800m and a margin target of between 3 and 4 per cent.

It also plans to bring in £800m revenue from contracts with central government, with a margin target of between 5 and 6 per cent, while Mr Cochrane added the company had seen “strong support” from its customers – “notably central government”.

He said the firm’s larger construction contracts were too “driven by third-party performance” and added that projects were “starting two steps behind schedule” after failing to mobilise properly.

Problem jobs in the UK include the £353m Midland Metropolitan Hospital in Birmingham, which has been hit with a six-month delay after M&E design issues.

Another healthcare project, the £335m Royal Liverpool University Hospital, was initially due to be completed in March 2017 but has been beset by problems and delays.

Mr Cochrane revealed the company would be “prepared to walk away” from jobs, and called for “more checks, balances and discipline” across the group’s bid process.

“You need to have done the work before you sign the bid,” he said. “For example, on HS2 we will spend a year getting the design right and costing it [before starting the project].”

The group’s restructuring programme, he added, was “about doing less with less”, with the company simplifying its management structure to “increase efficiency and reduce cost”.

Mr Cochrane was speaking after the troubled firm reported a £1.15bn half-year loss and revealed that it is setting aside an extra £200m provision for problem support services contracts.

The group posted a pre-tax loss of £1.15bn for the six months to June 30, compared to a pre-tax profit of £84m in the same period a year earlier.

Carillion now forecasts it will post a full-year revenue of between £4.6bn to £4.8bn, compared to a previous estimate of £4.8bn to £5bn.

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