Carillion collapse triggers financial hits for partners
● Liquidation will cost Balfour Beatty and Galliford Try tens of millions
The repercussions from construction and services giant Carillion’s collapse broke out yesterday, with at least two of its joint venture partners taking financial hits linked to the liquidation.
Infrastructure group Balfour Beatty, working with Carillion on three projects, including the £550 million Aberdeen Western Peripheral Route, said it would take a financial provision of between £35m and £45m in 2018.
And construction business Galliford Try, which is involved in the same project, said: “The terms of the contract are such that the remaining joint venture members, Balfour Beatty and Galliford Try, are obliged to complete the contract.
“Our current estimate of the additional cash contribution outstanding from Carillion to complete the project is £60m-£80m, of which any shortfall will be funded equalwould ly between the joint venture members.”
Galliford Try, which also operates as Morrison Construction, added: “The companies will discuss the position urgently with the official receiver of Carillion and Transport Scotland, to minimise any impact on the project.”
The company said it had no other significant contracts or projects with the stricken Carillion. Balfour Beatty is also in a j/v with Carillion on work on the A14 in Cambridgeshire and the M60 junction 8 to M62 junction 20 scheme.
The group said it would continue to work with its customers and meet its contractual commitments, and “does not have any other material exposure to Carillion”.
Galliford Try’s shares closed down 7.3 per cent at 1,185p, while Balfour Beatty fell 3.3 per cent to 297.6p. Morgan Sindall, a UK construction and regeneration group with revenue of £2.6 billion, said it was working on “a limited number of projects and joint ventures with Carillion”, and complete them. Morgan Sindall said: “The impact of Carillion’s situation is not expected to be material on the group. We will be working closely with customers and other stakeholders to ensure continuity of service.”
Paul Mumford, senior fund manager at Cavendish Asset Management, said: “The fall of Carillion does create potential negative consequences for the industry, particularly when it comes to smaller suppliers who could run into serious problems if they don’t get paid.
“However, Carillion’s use of public sector contracts, under the government’s early payment scheme, means contractors will be paid within 20 days – unlike similar scenarios during the financial crisis when firms faced up to 90 days of exposure.
“For companies such as Kier who have some joint ventures with Carillion, the liquidation could actually produce some positive opportunities to acquire a larger share of the workload, which is a likely scenario. As for other companies, there may be a unique chance to swoop in and pick up work for healthier margins.”