Carillion shares crash after company reveals 'comprehensive review'
Shares in Carillion plummeted 30% after it warned over its performance and said that the board is to carry out a "comprehensive review" of the business, with the firm's chief executive to step down.
In a half-year trading update, the construction and infrastructure giant downgraded its annual revenue guidance, with sales now expected to be between £4.8 billion and £5 billion and its overall performance forecast to be "below management's previous expectations".
It also said that operating profit will fall short of expectations.
In addition, following a review carried out by KPMG, the group said it will book an £854 million provision linked to certain UK and overseas contracts.
A total of £375 million relates to the UK and £470 million to overseas markets in the Middle East and Canada.
To compound matters, chief executive Richard Howson is to step down and be replaced by Keith Cochrane on an interim basis while a search is undertaken for a permanent boss.
Shares plunged 30% in morning trading to 132.8p.
Philip Green, Carillion's non-executive chairman, said that the action is needed to reduce the firm's borrowing.
"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.
"In addition, we are also announcing that we are undertaking a thorough review of the business and the capital structure, and the options available to optimise value for the benefit of shareholders."
The firm reported a 5% fall in pre-tax profits to £146.7 million last year and has previously said the pace of new order intakes has slowed since the Brexit vote.
The group said it had also seen some delays in UK public spending decisions following the referendum, and added that low oil prices had hit customer spending in the Middle East.
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: "Carillion looks like it's trying to bail out a supertanker with a soup spoon. Despite the group's best efforts, debt is continuing to climb, and at an increasing rate, while the construction business seems to be hitting one hurdle after another.
"Judging by this announcement, the board are prepared to do everything it takes in order to save the ship. But talk of a review of capital structure, and the ongoing debt problem, will leave investors worried that a significant rights issue could be on the horizon."
Carillion specialises in railways and roads maintenance and has contracts with the likes of Network Rail.
It is also involved in a joint venture that will support the delivery of High Speed 2 (HS2).
Joe Brent, analyst at Liberum, said: "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 more money."