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Carillion picks ex-BAE exec Davies as CEO to drive turnaround
October 27, 2017 / 6:27 AM / a month ago

Carillion picks ex-BAE exec Davies as CEO to drive turnaround

(Reuters) - British builder Carillion (CLLN.L), which has issued two profit warnings this year, named Andrew Davies as its chief executive on Friday, bringing in a former executive of defence company BAE Systems (BAES.L) to help turn around its business.

A Carillion sign can be seen in Manchester, Britain July 13, 2017. REUTERS/Phil Noble

Davies, currently head of family-owned builder Wates Group, will take over from interim CEO Keith Cochrane on April 2, Carillion said.

The appointment comes three months after the small-cap construction and support services company fired its CEO and announced an 845 million pound writedown on construction contracts and a profit warning. It issued a second profit warning in September.

Now, 54-year-old Davies’ biggest task at Carillion will be to reduce its large debt pile, which is expected to reach about 1 billion pounds by the end of the year, analysts say.

“Sorting out the balance sheet and sorting out the enormous debt Carillion has, that will have to be (Davies’) focus and if he can do that, then it will be a very good thing for the company,” Liberum analyst Tom Musson told Reuters.

In positive news, Carillion this week agreed to new credit facilities and deferrals on some debt repayments and pension obligations, which together are expected to improve its undrawn credit in 2018. However, the group has said it may need to undertake a share placement.

Davies has been CEO at Wates Group since 2014. The company reported a more than 20 percent jump in 2016 turnover to 1.5 billion pounds.

Sky News had reported in March that housebuilder Bovis (BVS.L) had considered Davies for its top job. The group was then battling a profit warning and facing fire from buyers over the quality of some of its homes.

“The swift appointment of an experienced CEO with a relevant background might be seen a positive for the stock,” Applied Value analyst Stephen Rawlinson wrote in a note.

Carillion’s shares, which have lost about 80 percent of their value since July, were up 4 percent at 45.7 pence at 0832 GMT.

SECTOR IN JEOPARDY

Many construction and support services companies have come under pressure in the last year, with Interserve (IRV.L), Mitie (MTO.L) and Capita (CPI.L) all issuing profit warnings.

Challenges have including rising labour costs and slower demand in Brexit Britain and dispute-hit Middle East.

This week, the UK government launched a consultation after finding that 3.2 billion to 5.9 billion pounds are held back by customers from construction companies in the UK each year. bit.ly/2gLZOa3

Carillion, which employs over 48,000 people worldwide, is a major UK government contractor and carries out projects in the Middle East. It was recently awarded construction work on Britain’s new high speed rail link and has been contracted to help prepare Qatar for the 2022 Football World Cup.

The group is exploring measures to shore up its balance sheet. It has announced a cost savings plan, aims to raise over 300 million pounds by end-2018 through disposals and has been trying to claw back money from clients on older contracts.

During his 28-year career with BAE, Davies held many roles, including serving as managing director of its Maritime and Land Systems businesses.

Chairman Philip Green said Davies had the “ideal combination of commerciality, operational expertise and relevant sector experience” that Carillion would need to turn around its business.

($1 = 0.7624 pounds)

Reporting by Esha Vaish in Bengaluru; editing by Jane Merriman and Jason Neely

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