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| Carillion shares plummet after group warns on profits and says it will breach covenants | Carillion shares plummet after group warns on profits and says it will breach covenants |
| (about 9 hours later) | |
| Crisis-hit construction and outsourcing company Carillion issued its third profit warning of 2017 on Friday, admitting that it will breach its financial covenants, which inflicted a beating on the company's shares. | |
| Under a loan agreement that Carillion has with its lenders, the company must demonstrate that its earnings can cover its debt by a certain agreed amount. | Under a loan agreement that Carillion has with its lenders, the company must demonstrate that its earnings can cover its debt by a certain agreed amount. |
| On Friday, however, the group said that – as a result of its timeline for disposals slipping, and delays to a project in the Middle East – profits for the full year would be “materially lower than current market expectations". | On Friday, however, the group said that – as a result of its timeline for disposals slipping, and delays to a project in the Middle East – profits for the full year would be “materially lower than current market expectations". |
| It said that it foresees a covenant breach at the end of December and that it would be forced to seek some form of recapitalisation, which could involve a restructuring of its balance sheet. | It said that it foresees a covenant breach at the end of December and that it would be forced to seek some form of recapitalisation, which could involve a restructuring of its balance sheet. |
| "Whilst we continue to target cash collections, reduce costs, execute disposals and focus on delivering for our customers, it is clear that significant challenges remain and more needs to be done to reduce net debt and rebuild the balance sheet,” said Keith Cochrane, the company’s interim chief executive. | "Whilst we continue to target cash collections, reduce costs, execute disposals and focus on delivering for our customers, it is clear that significant challenges remain and more needs to be done to reduce net debt and rebuild the balance sheet,” said Keith Cochrane, the company’s interim chief executive. |
| “Constructive dialogue is continuing with our financial stakeholders, and I am grateful for their support,” he said. | “Constructive dialogue is continuing with our financial stakeholders, and I am grateful for their support,” he said. |
| In early trading, shares in Carillion lost more than half of their value before recovering slightly. Neil Wilson, a senior market analyst at ETX Capital, said that some investors in the company might think that “this is the end”. | |
| But he also said that Carillion is likely to be “too big to fail”. | But he also said that Carillion is likely to be “too big to fail”. |
| “Government intervention is possible but this is a nightmare for ministers at such a sensitive moment for the economy,” he added. | “Government intervention is possible but this is a nightmare for ministers at such a sensitive moment for the economy,” he added. |
| Analysts at UBS said that for the company "all options are on the table" in terms of what it might do to restructure its balance sheet. | |
| The Swiss bank has a 'sell' recommendation on the stock and a target price for shares in the company in 12 months time of just 1 pence. On Friday they were trading around 25 pence. | |
| Carillion currently employs around 30,000 people. Its major clients include the Ministry of Defence, Highways England and BT. | |
| During the first half of 2017 it recorded a loss before tax of £1.2bn. Friday's profit warning follows two others since July. | |
| Reuters said that the company's market share is currently around £180m, down from a high of more than £1.6bn ten years ago. | |