Carillion: fired with enthusiasm – Financial Times

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Carillion is saying goodbye to its finance director, operating officer, strategy director and two divisional bosses © Bloomberg

The crucial question for subordinates during corporate regime change is whether they are cool with the boss. Not cool at all, is the answer for executives at struggling UK builder Carillion. New chief executive Keith Cochrane is dispensing with five out of eight of his executive committee. It is a radical move at a business that needs tough measures. But there is a deeper problem. Building contractors do not belong on the stock market.

The band of large listed UK contractors has dwindled to just two: Balfour Beatty and Carillion. The first announced a series of profits warnings three years ago. Carillion issued its own jeremiad this July. Balfour has executed a creditable turnround. Carillion hopes to follow suit, though the odds are steeper. In time, both are likely to stumble again.

Barriers to entry are low in construction. Price competition is keen. Contractors pitch for work on skinny margins and often assume more risk than is merited. Big cost overruns are business as usual for private builders. Opaque, volatile earnings suit few stock market investors, even when cushioned by steadier income from diversifications.

Carillion has promised lenders that net debt will not exceed three times earnings before standard deductions. The ratio is set to surpass five times this year, according to some estimates. The shares have dropped about 83 per cent since July in anticipation of a dilutive rights issue. Short sales represent 30 per cent of the free float, according to Markit.

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Less a reshuffle than a Soviet-style purge, Carillion says goodbye to its finance director, operating officer, strategy director and two divisional bosses. Initially at least, Carillion’s turnround attempt will depend on the efforts of Mr Cochrane, two executives drafted in from a Canadian offshoot and a secondee from Ernst & Young. The audience for such recovery plays is dwindling. Most investors fled the sector years ago. Carillion’s woes remind us why.

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