Shares in Carillion renewed their climb this morning as the embattled construction and support services group won two defence infrastructure contracts worth a combined £158 million.
It adds to the reassurances that Carillion gave its nervous shareholders yesterday as it won two big contracts on the HS2 high-speed rail line and brought in more City advisers to help it cut costs and improve cashflow.
The shares, which lost 70 per cent of their value last week after a profit warning sparked fears of an emergency fundraising, gained as much as 9 per cent in early trading this morning after the Defence Infrastructure Organisation awarded its joint venture new contracts. Before the warning the shares had been changing hands for 192p.
Under the new contracts, Carillion will be delivering facilities management services, including catering, to 233 military establishments in Britain.
Carillion said that the two contracts would be worth £158 million over the inital five-year term and that it had the chance to double that figure through other catering and associated retail sales.
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Keith Cochrane, Carillion’s interim chief executive, said: “These contracts play a critical role in supporting our armed forces and they have a number of unique aspects that require a specific, regional focus.”
Carillion’s contract in northern England will sustain 1,500 jobs and covering 130 military establishments, the group said, adding that it would begin in January.
It will start work on contracts in Scotland and Northern Ireland in November covering a further 103 military facilities and employing about 1,030 people.
Shares were trading 6p higher at 72¾p.
Carillion said last week that it would be undertaking a review of its business and capital structure. It said that it would be taking an £845 million writedown, exiting some businesses and parting ways with Richard Howson, its chief executive.
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It also warned investors that revenues would be hit by delays in some public-private partnership ventures with local government and that its cashflows on several construction contracts had deteriorated.
Mr Cochrane said that Carillion was moving forward quickly with the review, which comes amid speculation that the group might have to turn to shareholders to raise up to £500 million to secure its finances.
Carillion also said that it had won two contracts to build parts of HS2, the planned 190km-an-hour line linking London with Birmingham and the west coast main line.
A consortium composed of Carillion, Eiffage and Kier won the contracts to build the North Portal Chiltern tunnels to Brackley in south Northamptonshire and the Brackley to Long Itchington Wood Green south tunnel travelling southwards.
The contracts are worth £1.34 billion and will take four to five years to complete. Analysts estimate Carillion’s share at up to £450 million.
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Chris Grayling, transport secretary, said he hoped that Carillion could overcome its problems, adding: “My wish is that Carillion get through their current problems but we’ve made sure that it’s not an issue for these contracts.”
Carillion recruited EY, the accountancy firm, to help it to focus on “cost reduction and cash collection”. HSBC was brought in last week as a joint financial adviser and joint broker, working with Lazard, Morgan Stanley, Stifel and KPMG to shore up the company’s balance sheet and to improve confidence among shareholders.
Mr Cochrane said: “EY will provide support across the business and bring an external perspective to our cost reduction and cash collection challenge. My priorities are to reduce the group’s net debt and create a balance sheet that will support Carillion going forward.
“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.”