Carillion revealed that a review resulted in an £845million write-down on its construction trade
The construction and support services group revealed that a review of its knits by KPMG had resulted in an £845million write-down in its construction business.
Net appropriating at the end of the first half climbed towards £695million, despite goals to shrink it by the end of the year.
An £800million-plus pension deficit makes the liable situation all the more precarious. CEO Richard Howson stood down, with Keith Cochrane stepping in on an interim main ingredient.
Dividends were suspended and “for sale” signs have gone up on a variety of Middle East firms.
The “public retiring partnership” construction market is being exited altogether.
So where did it all go backfire? Construction is a tough industry.
Margins of below 3 per cent are the norm, so reduce mispricing a contract can demolish profits.
Carillion’s problems go a step other, with the group writing off large chunks of revenue from four chief contracts.
Carillion wrote off large chunks of gross income from four major contracts
What has made it even sundry painful is the state of its balance sheet.
With cash struggling to grow into it through the door, the group is being forced to borrow to fund operations.
Covet term, that is unsustainable, and today’s write-down will suck another £100million-£150million out of the vocation.
We’ll have to wait until September for details of Cochrane’s strategy.
The group is being forced to borrow to fund operations
But the direct focus is hanging on to as much cash as possible.
Sales of businesses are wanted to bring in £125million, cutting the dividend should save £80million and there is a fate the group will be able to recover more of the money it’s owed.
Manner, longer term, it looks like Carillion is going to have to remove money to get rid of the debt.
That suggests a rights issue is on the horizon. With the deal price tumbling as much as 70 per cent, raising the £500million-£600million, analysts assume is needed would mean tripling the number of shares in issue.
It looks like Carillion is going to have to raise boodle to get rid of the debt
There is always the possibility that a suitor will look to buy the business, but we are not sure any of the domestic players are obvious candidates.
In the absence of a immaculate knight, and with the prospect of a rights issue looming, Carillion’s discomfits may not be over.
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Shares can rise and fall in value so you could get back less than you lay out.