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Carillion: Where it all went wrong for the mega-cap turned micro-cap UK contractor

A timeline of Carillion's struggles over the past year
Carillion issued three profit warnings last year

Carillion PLC (LON:CLLN) can’t seem to get a break.

Following a string of profit warnings over the past year, the Financial Conduct Authority has now launched an investigation into the construction contractor’s announcements between 7 December 2016 and 10 July 2017.

READ: FCA launches investigation into Carillion for company announcements

During the period the company’s shares plunged 70%, leading to its demotion from the FTSE 250 index to the small cap index in September.

Where Carillion’s troubles began...

Carillion’s struggles first emerged in a trading update on 7 December 2016 when it cautioned that the pace of new orders had slowed in the second half of the fiscal year due to spending delays by the government following the Brexit vote.

The outsourcing firm also said there had been slowdown in contract awards from the Middle East, particularly in Oman, as the region grappled with lower oil prices.

On 1 March 2017, the company reported a 5% drop in pre-tax profit for the year to 31 December 2016 to £146.7mln, reflecting a decline in profit from public private partnership projects and Middle East construction services.

First 2017 profit warning...

In July, the group lost 39% of its market value after warning that annual results would be "below management's previous expectations" and announcing that Richard Howson would step down as chief executive with immediate effect.

At the time it said it would write down £845mln following deterioration in cash flows on some construction contracts. Some of the high profile problems on major contracts included an Aberdeen road project and two NHS hospitals in public-private partnerships.

Carillion also suspended its 2017 dividend and warned debt in the first half had ballooned to £695mln from £586.5mln in 2016.

The shock profit warning led to Carillion's relegation from the FTSE 250 in September after its market capitalisation crashed from almost £1bn in early July to less than £250mln in August during a quarterly review of London's top indices.

Carillion’s management shakeup...

In September the group revealed that finance director Zafar Khan was to step down with immediate effect along with a slew of other departures at the top.

Managing director of the construction services arm, Adam Green, also left along with managing director of Carillion Services, Nigel Taylor, and group strategy director, Shaun Carter.

Another profit warning...

Later that same month, the company issued its second profit warning for the year after reporting an eye-watering first half loss. In a statement, interim chief executive Keith Cochrane said the “disappointing set of results” reflected the issues flagged in July.

The group booked a further £200mln charge for support services contracts in addition to an £845mln writedown on problematic construction contracts announced in July.

It said it would explore options including a share issue to shore up its battered balance sheet.

Carillion offloads UK healthcare arm...

In October it was handed a lifeline after agreeing new credit facilities and deferrals on some debt repayments and signing a heads of terms agreement to sell a large part of its UK healthcare business to fellow outsourcer Serco Group PLC (LON:SRP) for £50.1mln.

The firm said it intended to dispose of the remaining contracts in its UK healthcare facilities management portfolio in 2018 to help reduce its mounting debt pile.

In another statement later in October, Carillion named Andrew Davies, boss of construction firm Wates Group, as its new chief executive to start on 2 April 2018.

Third profit warning for 2017 as debt mounts...

In November, the company warned that it would breach its banking covenants as it downgraded its annual profit guidance for a third time in 2017 following ongoing struggles with badly-performing contracts.

It added that full year average net debt was expected to rise to between £875mln and £925mln.

A month later it inked a definitive sale agreement with Serco for the disposal of a large part of its UK healthcare facilities management business.

New CEO starts earlier than planned...

Carillion in December said Davies would start as chief executive in January, instead of April, to help aid the group’s turnaround.

In its last trading update for 2017, it said it was still in discussions with stakeholders regarding its options to reduce debt and avoid a breach of debt covenants and expects to take action in the first quarter of 2018.

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