Carillion scales back in region as project losses bite

10 July 2017

UK contractor expects provisions of $613m from international work

Carillion will scale back its operations in the region as it expects contract losses of £470m ($613m) largely from projects in the Middle East and Canada.

It is understood the UK contractor has several schemes that are performing poorly in the region, including contracts in Qatar and Oman. According to regional projects tracker MEED Projects, Carillion is working on nearly $3bn of construction projects in the Middle East.

In a filing on the London Stock Exchange, Carillion said it will exit Saudi Arabia, Qatar and Egypt, and has sold 50 per cent of its economic interest in its Oman joint venture Carillion Alawi for £12.8m.

Overall, the company said it has conducted a review of selected projects with the Netherlands’ KPMG and expects contract provisions totalling £845m. The UK accounts for £375m of the provisions, while international markets – mainly the Middle East and Canada – account for £470m. It expects the associated future net cash outflows in respect of these contracts to be £100m-£150m.

While the company expects its revenue for the first half of this year to be similar to last year at £2.5bn, operating profit is expected to be lower. Full-year revenue is expected to be between £4.8bn and £5bn, and overall performance is expected to be below the management’s previous expectations, with the company expecting a lower operating profit.

Carillion also announced that Richard Howson has stepped down as group CEO and from the board with immediate effect, and Keith Cochrane will take over as interim group CEO while a permanent replacement is found. Howson will stay with the group for up to one year to support the transition.

In early March this year, Carillion’s UAE joint venture Al-Futtaim Carillion secured a AED2.2bn ($599m) deal to build the three Theme Districts at the Expo 2020 site in Dubai.

In January, the joint venture was awarded the estimated AED725m deal to build phase 1A6 of Dubai World Trade Centre’s One Central development.

Both of these schemes are supported by UK funding guarantees. At the end of last year, Carillion said it will focus on winning new work with the support of UK Export Finance (UKEF) as the trading environment continues to be difficult for construction companies operating in the region due to low oil prices.

Carillion is the latest UK contractor to reduce its exposure to the region. In March, the UK’s Balfour Beatty finalised the sale of its shares in Dubai-based construction companies Dutco Balfour Beatty, Dutco Construction and BK Gulf to its local partner Dutco for £11m.

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