Contractor suffers hits on schools and tunnel projects, having already written down £45m during takeover
Carillion this week admitted that it was surprised at the scale of the writedowns it has been forced to make since buying Mowlem in February. It revealed that it was taking a further £90m hit on Monday.
Chris Girling, Carillion's finance director, told Building that the added writedown, which was associated with a tunnel project at Dublin Port and the Exeter schools PFI project, was unexpected.
Some City commentators said this week that questions would start to be asked about whether or not Carillion had paid too much for Mowlem.
Carillion had already made a £45m writedown on contracts when it first undertook due diligence on Mowlem in December, when it made a formal £313m offer for the contractor.
But Girling said that between then and the completion of the takeover in February, the situation in Dublin had deteriorated. Carillion had also failed to realise the extent of the problem at Exeter.
"It wasn't expected," he said. "In Dublin we had known there were problems but they got worse. In Exeter it was a surprise."
Delays to the tunnel project have been caused by leakage and work has fallen behind schedule at some of the six Exeter schools. Last September, Building examined the problems that Mowlem was having on the schools project, three of which failed to open on time.
That was a month before Mowlem revealed it had received an approach from Carillion.
Girling said Carillion had been forced to fork out £30m to cover costs associated with businesses closed by Mowlem before the takeover. He described that as "the other surprise".
One analyst said: "Why didn't due diligence pick up the £30m?"
When asked if that was the end of Mowlem writedowns, Girling said: "I sincerely hope so."
Howard Seymour, an analyst at Bridgewell Securities, said: "It is a big number and it is disappointing. The last thing that Carillion can afford is for this to happen again so they have to be absolutely sure."
Carillion announced the bad news late on Monday afternoon, so the shares were little affected that day, falling less than 1% to 354p. On Tuesday they fell a further 4% to 340p.
Carillion has estimated that its average net debt in 2006 will be £200m, peaking at £250m, but that this would reduce to less than £100m by the end of 2007.
Girling was keen to emphasise the cost savings that the contractor was expected to make as a result of the takeover. By 2008, Carillion estimates it will be making £23m of savings a year, £8m more than it originally anticipated.