Carillion
CLLN
Delayed London Stock Exchange - 08/18 05:35:02 pm
50.6GBp
+0.7%

Carillion : shares surge on contract wins for HS2 rail line and appointment of EY to help with strategic review

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07/18/2017 | 02:26 pm

Carillion plc (LON:CLLN) has won contracts to build the UKs HS2 rail line as the struggling construction company announced the appointment of accounting firm EY to support its efforts to avoid collapse.

The group, which last week saw its share price tumble 71% following a profit warning, has been awarded two contracts for the first phase of the high speed rail line through its joint venture with Eiffage Genie Civil and Kier Group. The contracts are worth a combined 1.3bn.

Shares surged 16.99% to 68.10p in late afternon trading.

The joint venture will build the North Portal Chiltern tunnels to Brackley as well as the line from Brackley to Long Itchington Wood Green Tunnel South Portal.

The first stage will involve developing and designing a programme and budget for the construction of the works, which will take about 16 months to complete. The second stage will be for the construction of the main works, which is expected to take between four and five years.

At the same time Carillion announced that it had brought in EY to assist in its strategic review amid worries that the group will need to launch a rights issue or a debt-for-equity swap to avert bankruptcy or an emergency takeover.

EY will focus on helping the company to cut costs and cash collection. The appointment of EY comes after Carillion added HSBC to its team of financial advisors.

Carillion said it has identified a number of actions to reduce average net borrowing, including further cost efficiencies, an increased focus on managing working capital and on recoveries and cash collection.

"We are moving forward quickly with the actions outlined last week, said Keith Cochrane, interim chief executive.

Alongside our own efforts, EY will provide support across the business and bring an external perspective to our cost reduction and cash collection challenge. My priorities are to reduce the group`s net debt and create a balance sheet that will support Carillion going forward.

Carillion needs to streamline business, says interim CEO

Cochrane, who was appointed as interim chief executive after Richard Howson stepped down last week, said Carillion needed to simplify its business and focus on core markets, including infrastructure and property services.

Howson left after two years as boss as the firm said it was undertaking a comprehensive review of the business and capital structure, warned that full year revenue would be lower than expected and said the 2017 dividend would be suspended.

The group saw deterioration in cash flows on some construction contracts, which led to a provision of 845mln. Carillion blamed difficult markets and withdrawals from certain territories, including Qatar, the Kingdom of Saudi Arabia and Egypt.

Not much to be cheerful about on Carillion, ETX Capital says

Neil Wilson, senior market analyst at ETX Capital, said the news of the contract wins should help the share price but whether it can deliver on them is another matter.

"It could make it a slightly more attractive prospect to rescue if it comes to that," he said.

"But its hard to see an awful lot to be cheerful about. This stock could have further downside. We await the outcome of what HSBC and EY can achieve to get the firm out of this mess."

(c) 2017 Saudi Voters Center Provided by SyndiGate Media Inc. (Syndigate.info)., source Middle East & North African Newspapers

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