Battered Carillion stuck in the crucible

Building group Carillion seemed to be coming apart at the seams over the summer. But that looks to have deteriorated now into staring into the abyss.

A further 48 per cent was slashed from its already stricken share price yesterday after Carillion, under Scottish interim chief executive Keith Cochrane, warned that annual profits will be “materially lower” than even the severely reined-in market expectations.

Most disturbing is that the company said yesterday it will breach its banking covenants by the end of next month, often the crossing of the Rubicon for a business in trouble.

Cochrane is having to repair the Carillion roof in a tornado. Cost-savings and asset sales continue apace, but the squeeze between very high debts and collapsing profits makes it seem to the market that the business is running hard to stand still.

One could forgive Cochrane if he was privately relieved that he hands over to his successor, Andrew Davies of Wates Group, in April 2018. The latest profit warningis being blamed by delays to both sales of its public-private partnership assets and a key contract in the Middle East.

Meanwhile, profit margins on Carillion’s support services contracts have slightly improved but at a lower level than expected.

It goes on. Shock profit warning sparked by £845m of writedowns on poorly performing contracts in July. A £1.2 billion loss in September. Some form of recapitalisation, including a debt for equity swap, looks inevitable but whether as part of a survival plan or a plangent swansong is difficult to judge.

Tighter times

Nationwide is the second lender this week to reveal that the mortgages market is getting a bit tighter. Virgin Money said much the same thing, in much the same understated way.

Both challenger banks, one mutual and one publicly quoted, are well capitalised and can cope with some shifting of mortgage market share, if that is the price for avoiding too much margin dilution.

They also both successfully steered clear of the wilder shores of the financial crash than some of the bigger boys, so there is some consumer goodwill towards them, even if partly sub-conscious.