Carillion chief executive Richard Howson has stepped down with immediate effect as the firm has said it will be “undertaking a comprehensive review of the business” following a profit warning.
Mr Howson, who has been the group’s boss since January 2012, has been replaced by non-executive director Keith Cochrane on an interim basis while the firm searches for a permanent group chief executive.
Carillion said it expected to make a contract provision of £845m at 30 June 2017, of which £375m relates to the UK (primarily three PPP projects) and £470m to overseas markets, the majority to exiting markets in the Middle East and Canada.
It said the contracts could cost the business up to £150m in net cash outflows, primarily in 2017 and 2018.
It is expected that Mr Howson will remain with Carillion for up to a year to support a transition period, although he has stepped down from both his role as chief executive and the group’s board.
Mr Cochrane has been a member of Carillion’s board since July 2015, and his former roles include chief executive of Stagecoach Group.
The management changes follow the announcement of a “comprehensive review” at the firm, with a number of major changes announced at its construction arm.
Carillion has confirmed it will exit construction markets in Egypt, Qatar, and Saudi Arabia, and it will also no longer take on construction PPP projects.
The company added it would only take on further construction work “on a highly selective basis and via lower-risk procurement routes”.
Carillion also said it would be taking action to reduce net borrowing after “deterioration in cashflows on construction contracts”, while a number of its contracts had also completed in the first half of the year without being replaced by new deals, leading average net borrowing to hit £695m in H1.
The group said its exit from “non-core” markets and geographies would raise up to £125m over the next 12 months, while the group strategic review would include further annual cost savings.
Non-executive chairman Philip Green said: “Despite making progress against the strategic priorities we set out in our 2016 results announcement in March, average net borrowing has increased above the level we expected, which means that we will no longer be able to meet our target of reducing leverage for the full year.
“We have therefore concluded that we must take immediate action to accelerate the reduction in average net borrowing and are announcing a comprehensive programme of measures to address that, aimed at generating significant cashflow in the short term.”
As a result of the review and the profit warning, Carillion said revenue for the year was now expected to be between £4.8bn and £5bn, with overall group performance expected to be below management expectations.
In its most recent full-year results, the group posted revenue of £5.21bn and pre-tax profit of £146.7m.
Carillion said its revenue for the first half of 2017 was expected to be “similar to that in 2016” at around £2.5bn.
It added it had secured £2.6bn of new work in the first half of the year, £2.1bn of which was in support services.
The group also confirmed its disposal of a 50 per cent stake in its Oman business, Carillion Alawi, for an immediate cash consideration of £12.8m.
City analysts have this morning significantly revised down their guidance for the company, with analysts Liberum now expecting the Carillion’s construction margin to fall from 2.7 per cent to 1.8 per cent.
“Given the weaker profits, higher debt, need for restructuring, limited proceeds from disposals and working capital unwind in construction, we believe that Carillion will need to raise a significant amount of money,” Liberum said.