Carillion has reported a £1.15bn half-year loss and revealed it is setting aside an extra £200m provision for problem support services contract.
The troubled firm, which has been rocked since a major profit warning in July, warned today that full-year results will be “below market expectations”.
Pre-tax losses on a reported basis came in at £1.15bn in the six months to 30 June, compared with a profit of £84m in the previous year.
On an underlying basis, Carillion’s pre-tax profit slid 40 per cent to £50m, while total revenue was flat at £2.5bn.
The group blamed the profit slide on the “phasing” of PPP equity disposals and the trading of contracts at zero margin.
It warned that full-year revenue will be between £4.6bn and £4.8bn, compared with a previous estimate of £4.8bn to £5bn.
Half-year net debt hit £591m, up from £291m in the prior year.
The previous profit warning focused on problem construction contracts, resulting in £845m of writedowns.
But today’s announcement confirms fears that the group also has problems in its support services business, which accounts for around two-thirds of group profit.
Carillion has identified 23 problem support service contracts after a full review of all its commitments conducted by KPMG. The provision includes £91m for “underperforming contracts” the group has decided to exit.
Interim chief executive Keith Cochrane, who took over from Richard Howson in July, said: “This is a disappointing set of results which reflects the issues we flagged in July and the additional £200m provision for our support services business that we have announced today.”
Carillion has been carrying out a strategic review to tackle its problems and said today it is targeting an intial cost reduction of £75m by mid-2019. It has also agreed a credit facility of £140m with a number of banks.
It said discussions are “ongoing” in relation to the sale of its Canada and UK healthcare business. The firm also plans to exit construction markets in the Caribbean, Qatar, Saudi Arabia and Egypt.
It expects proceeds from “non-core” disposals to rise to £300m, compared with the £125m previously estimated.
The firm also reported a goodwill impairment charge of £134m in relation to its UK and Canadian construction businesses.
Mr Cochrane added: “Our objective is to be a lower-risk, lower-cost, higher-quality business generating sustainable cash-backed earnings.
“In the immediate short term, our focus is to complete the disposal programme, accelerate our action to take cost out of the business and get our balance sheet back to a place where it can support Carillion going forward.”
Carillion said transformation of the business “including a radical change in culture” will take three to five years.
The firm also said it had cut its pension fund deficit by £80m and has the potential to reduce it by another £120m.
In early trading today, Carillion’s share price slid 11 per cent but has recovered slightly.
The firm’s profit warning over the summer came as it revealed an £845m writedown on problem contracts in the UK, Middle East and Canada.
The update saw around £600m wiped off the company’s value as its share price dropped to an all-time low.
The share price got a bump earlier this week after rumours that a Middle East construction firm was eyeing a possible takeover.
The firm, which employs around 55,000 people globally, announced a management shake-up earlier this month, including the departure of its finance chief Zafar Khan.
Former chief executive Richard Howson, who stepped down in July but was retained as chief operating officer, is also leaving the company this week.
Despite the firm’s woes it has continued to win government work. It was named in July as one of the winners on a combined £6.6bn worth of HS2 contracts and two defence infrastructure contracts.
Construction News also revealed last month it had a won a £300m job to work on a mixed-use scheme in Manchester.