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Carillion chief executive resigns following profit warning

10 July 2017 | By James Kenny

Carillion chief executive, Richard Howson, quit the firm this morning as the building and support services group issued a profit warning and said it planed to pull out of three construction markets in the Middle East.

The company issued a profit warning for the first half of the year, suspended dividends and announced the resignation of Howson as chief executive plus a “comprehensive review” of the business with immediate effect.

Richard Howson (carillionplc.com)

The profit warning relates to contracts worth £845m. Of this, £375m is in the UK (primarily three PPP projects) and £470m overseas, the majority of which relates to exiting markets in the Middle East and Canada.

The company also confirmed it will exit construction markets in Egypt and Saudi Arabia, and that it would also no longer take on construction PPP projects.

It added it would only take on further construction work “on a highly selective basis and via lower-risk procurement routes”.

Howson will be replaced by non-executive board member Keith Cochrane until a permanent replacement can be found. Carillion said Howson would remain for up to a year while a full-time chief executive was recruited and bedded in. 

The problems were unearthed following an earlier review of contracts with accountant KPMG by the new group finance director.

Carillion said: “Deterioration in cash flows on a select number of construction contracts led the board to undertake an enhanced review of all of the group’s material contracts, with the support of KPMG and its contracts specialists, as part of the new group finance director’s wider balance sheet review.

“This review has resulted in an expected contract provision of £845m at 30 June 2017, of which £375m relates to the UK (majority three PPP projects) and £470m to overseas markets, the majority of which relates to exiting markets in the Middle East and Canada.

“The associated future net cash outflows in respect of these contracts is £100m-£150m (primarily in 2017 and 2018).”

Comments

With Galliford, Carillion and no doubt others to come announcing that they will not tender for high risk infrastructure projects going forward, what will the impact be on procurement, investment attitudes and UK Plc cross party support at a time when infrastructure investment is needed the most?
Might this provide an opportunity for more organised and efficient international firms to gain entry into the marketplace and squeeze UK firms out of the picture altogether?
It is clear that there is a gap in the management skills set in the UK for the management of complex large-scale infrastructure and perhaps it is time to do some serious homework on who does it better and how.

Rod, 11 July 2017

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