Carillion to cut further after £1bn loss
Jobs and pensions at risk as chief executive of troubled outsourcer says ‘change of culture’ is needed
THE boss of Carillion has defended plans to cut pensions and jobs at the troubled outsourcer after revealing the company made a loss of £1.15bn in the past six months.
Chief among Carillion’s problems is its giant pension deficit and the fact that it has had to make huge writedowns related to contracts that have soured. Keith Cochrane, the company’s chief executive, said there needed to be a “change of culture” if the company was to come back from a dire two-month period during which its market capitalisation has plunged by almost 80pc.
He outlined measures to help stabilise the business, which included mak- ing £75m of cost-cutting by 2019 and changing its pension plan.
Carillion has already told its pension trustees that it is scrapping discretionary increases in pension payments, a move that has reduced its pension deficit by £80m to £587m.
However, it suggested that it could save a further £120m by basing any future increases on CPI rather than RPI, a change to the way the scheme measures inflation that many public companies have made in the past few years. Mr Cochrane brushed off suggestions that these changes would unfairly hit Carillion’s staff.
“These changes are part of a bigger picture and seeing how do we strengthen our balance sheet in the round,” he said. He said the firm has “had conversations” with the Pensions Regulator over the proposed changes. Laith Khalaf, an analyst at Hargreaves Lansdown, said: “It looks like Carillion employees, past and present, are going to take some of the strain of the crisis enveloping the company.”
Carillion also confirmed plans to exit many of its Middle Eastern operations, as well as potential sales in Canada and for its UK healthcare arm. Disposing of businesses is expected to raise £300m, up from an initial estimate of £125m.
However, Mr Cochrane said the firm had toyed with the idea of undertaking a rights issue in order to raise cash.
“We’re recognising that there may be a gap between where we are now and where we need to get to, but at the moment we’re concentrating on disposals,” he said. Yesterday, Carillion announced a further £200m of writedowns for its support services business.
The firm also identified a £134m impairment charge related to its UK and Canadian construction businesses. These extra costs add to £845m of writedowns, which Carillion identified in July, and mean that revenues for the year are now expected to be between £4.6bn and £4.8bn, having previously been forecast at between £4.8bn and £5bn. The company’s net debt for the year is expected to be between £825m and £850m.
Carillion has continued to win contracts in the past few months, despite concerns about its ability to continue trading. In the days after its last trading update, the firm bagged a £1.34bn contract for building works on the new HS2 railway, leading to criticism of the Government for awarding such a pivotal role to a struggling company.
A Government spokesman said yesterday: “Carillion is a major supplier to the Government with a number of long-term contracts. The company has kept us informed of the steps it is taking to restructure the business. We remain supportive of their ongoing discussions with their stakeholders and await future updates on their progress.”
Mr Cochrane said that he had “full support” from the Government and had held a number of meetings with senior officials in the past few weeks.