Carillion beefs up advisors with EY focusing on cash and costs
(ShareCast News) - Carillion has further beefed up its cabal of advisors, appointing EY with immediate effect to support the strategic review launched after its massive profit warning a week ago, with accountants from the firm charged with focusing upon cost reduction and cash collection.
The infrastructure group, which was boosted on Monday by winning a pair of contracts for the High Speed Two rail line worth £1.4bn as part of a joint venture, said management has already identified a number of actions to reduce its near-£1.45bn of net debt.
Carillion, which last Monday revealed the dire stare of its balance sheet as it warned profits would be hit by the delay or shelving of several contracts, mainly in construction, said its initial moves to shore up its balance sheet and "generate significant cashflow in the short term" included further cost efficiencies, an increased focus on managing working capital and on recoveries and cash collection.
Although the company last week reassured that its debt covenants are not in any immediate danger, analysts expect the strategic and balance sheet review to include the raising of fresh equity, a debt-to-equity swap, asset disposals or a combination of all three.
On Friday, with its shares having fallen by more than 70% in three days to an all-time low just above 55p, the appointment of HSBC as a second financial adviser and joint corporate broker saw some confidence restored, though hedge funds and other short sellers are still betting heavily that there will be further falls.
Data on Friday showed it was the most shorted stock on the market, with more than 28% of shares on loan by the close of the week, despite speculation that the company could be targeted by overseas bidders, according to the Sunday Times.
Keith Cochrane, appointed interim chief executive after Richard Howson resigned alongside the profit warning, said: "We are moving forward quickly with the actions outlined last week.
"Alongside our own efforts, EY will provide support across the business and bring an external perspective to our cost reduction and cash collection challenge.
He said his priorities were to reduce the group's net debt and create a balance sheet that will support the group in the future.
"We need to simplify the business and demonstrate that value can again be created for shareholders by focusing the group on its core markets, including infrastructure and property services, in which it has good strengths and leading positions."