Carillion warns of covenant breach

Support services giant seeks to defer test date; warns of profits “materially lower” than market expectations as woes continue

Carillion has warned that it might breach its financial covenants by the end of the year, with potential delays affecting PPP disposals.

The support services firm is in negotiations with lenders to defer the test date of covenants to 30 April 2018 as receipts from contract claims and potential disposals “might slip” beyond December.

Interim chief executive Keith Cochrane said: “Constructive dialogue is continuing with our financial stakeholders, and I am grateful for their support. I remain focused on addressing this issue before my successor, Andrew Davies, takes up the role on 2 April 2018." 

The group added that profit for the year would be “materially lower than current market expectations” due to delays in PPP disposals, the deferred commencement date of a project in the Middle East as well as lower margin improvements for some support services contracts in the UK.

With average net borrowing expected to be between £875m and £925m, Carillion anticipates that while measures adopted as part of its strategic review will reduce net debt, they would “not be sufficient” to reach a target net debt to EBITDA ratio of between 1 to 1.5 times by the end of 2018.

Cochrane added: "Whilst we continue to target cash collections, reduce costs, execute disposals and focus on delivering for our customers, it is clear that significant challenges remain and more needs to be done to reduce net debt and rebuild the balance sheet.”

Shares at Carillion plunged nearly 60% following the announcement, touching a low of 17p before recovering slightly to 30p in early morning trading.

Rival support services firm Interserve has recently warned that it may also breach its financial covenants