Serco, Kier among FTSE risers post-Carillion collapse

Lloyd Doyle
January 18, 2018

Investors struggled to find buying opportunities after the collapse of British construction and support services company Carillion CLLN.L on Monday, underscoring how risks have piled up for the whole industry.

Carillion ran into financial difficulties a year ago after issuing three profit warnings in five months and writing down more than £1bn from the value of contracts. Here is a summary of what its compulsory liquidation means for the government and for some of those firms.

Carillion, which employs 43,000 staff worldwide including 19,500 in Britain, said that the government would nevertheless provide some funding to allow current state projects to continue, following talks over the weekend. The government will pay these workers for 48 hours, after which the private firms will have to pay the ongoing costs or accept termination of those contracts.

The company said that for the past few weeks it has been working on detailed contingency plans with the DIO and the cabinet office to ensure that it can effectively continue to manage the contracts and these are being implemented today. United Kingdom building firms Balfour Beatty and Galliford Try announced on Monday that they would face a shortfall of up to £80 million on a £550 million joint venture with Carillion to build a motorway bypass outside Aberdeen. It says the contract terms require Balfour and Galliford to complete the work.

Shares in Galliford Try closed down 7.3 percent on Monday. The company said that discussions to sell its Batchelors' brand have not yet gone beyond "an exploratory stage". Balfour Beatty said it would face a cash hit of up to £45 million.

Automotive and aerospace components company GKN climbed over 3 percent on reports that it is mulling the sale of its aerospace arm.

In July 2017, The Planner reported that the Department for Transport had announced the firm as among the consortia awarded contracts to build the first phase of HS2 between London and Birmingham.

Kier said there were contingency plans in place and they were not expecting an adverse financial impact from the collapse of Carillion.

Kier also operated the Highways England smart motorways programme with Carillion.

That will hardly make them more willing to lend to Carillion's peers when they share so many of its problems - an environment of often low-profit work where contracts are structured so the supplier shoulders much of the risk.

The stock rallied 3.2 percent on Tuesday, after Speedy Hire said the impact of Carillion's situation was not expected to be material to the group.

Perhaps the biggest casualty among listed companies has been ground engineering contractor Van Elle Holdings (VANL). It said it had undertaken work for Carillion in December and had requested payment but had yet to receive money for the work.

"Carillion's liquidation is awful news for all those who work for the company and it will have serious knock-on effects for the many smaller firms in its supply chain, some of which will be in serious financial danger as a result of Carillion's demise", said Brian Berry, chief executive at the FMB.

Ministers rightly resisted pressure to prop up Carillion by guaranteeing its debt or freeing it from loss-making contracts.

Other reports by Iphone Fresh

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