Johan Karlstrom, Skanska group chief executive (Skanska)

Skanska in £33m profit warning as Carillion calls in EY

17 July 2017 | By Construction Manager 0 Comments

Swedish group Skanska will review costs in the UK construction business after its group chief executive said reversing the division’s fortunes was its “highest priority”.

The UK operation unveiled project writedowns of £33m ($43m) on Friday two months after Skanska UK president and CEO Mike Putnam left the firm, handing over to Gregor Craig, who joined Skanska in 2003 as operations director at the London commercial building operation.

Johan Karlstrom (pictured), group chief executive, pledged fresh measures in the wake of the writedowns of nearly £40m in the US business.

“It is our highest priority to restore profitability in the construction businesses within these two business units,” he said.

“We will continue to strengthen risk and contract management… and to strengthen our action plan and focus on core geographies, where we know we can handle businesses, and core business lines and projects we are familiar with.”

“We need to simplify the business and demonstrate that value can again be created for shareholders by focusing the group on its core markets”

A spokesman for Skanska UK said: “The main reasons for the writedowns are lower-than-anticipated production rates, projects being delayed with estimated penalties and multiple customer-driven changes, which have caused cost overruns.

“In these areas, we continue to have constructive dialogue with our customers to reach commercial agreement.

“The executive management team, under the leadership of Gregor Craig, is actively addressing the issues around these writedowns.

“Skanska UK continues to maintain its strong balance sheet and cash position.”

Skanska revealed that it aimed to cut overheads to reduce the impact of cost overruns on the business.

It said many of the problem projects were close to completion with others running into 2018.

Meanwhile, Carillion has appointed accountant EY to support its strategic review “with a particular focus upon cost reduction and cash collection”.

The Carillion board confirmed a comprehensive review of the business and company structure last week after a shock profit warning highlighted a £845m provision to cover contract problems.

The shortfalls were discovered following an earlier contract review, helped by fellow accountants KPMG.

Carillion has also called in HSBC as an adviser and corporate broker as the share price went into free fall, wiping around £600m off the firm’s value last week.

Carillion said: “The board has identified a number of actions to reduce average net borrowing, including further cost efficiencies, an increased focus on managing working capital and on recoveries and cash collection.”

Keith Cochrane, interim chief executive, said: “We are moving forward quickly with the actions outlined last week.

“Alongside our own efforts, 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.”

Image: Johan Karlstrom, Skanska group chief executive (Skanska)