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Lovisa Alvin
Lovisa Alvin
Articles (45) 

FirstGroup Investors Didn’t Like Appointment of Former Carillion Finance Director

Shareholders have expressed discontent with choice of past executive at the embattled construction company

July 18, 2017 | About:

Fallout is looming at FirstGroup (LSE:FGP) after shareholders with interests in the bus and transport operator expressed discontent with the board’s decision to appoint a former finance chief from Carillion (LSE:CLLN).

Richard Adam was appointed as a board member at FirstGroup, but it was not the smooth ride the board expected. At least one-fifth of all shareholders at the company voted against Adam, who served as the Carillion finance director since 2007. Shareholders characterized the appointment as embarrassing to FirstGroup.

Although Adam has vast experience in management, his legacy after leaving Carillion does not really inspire confidence. Last week, the construction company issued a profit warning that had massive ripple effects on the stock market with its shares tanking. There was also some speculation that Carillion could be forced to start raising an emergency fund of nearly $600 million to deal with the crisis. Adam was appointed by the board in February but in what appeared to be a vote on his ability to help steer FirstGroup toward the future, 22.5% of all shareholders felt that he lacked the required qualifications to hold that position.

The board in its statement after appointing Adam said that the financial acumen and experience he brought to the table could benefit FirstGroup in many ways. Carillion, the construction company that Adam left, has been embattled for quite some time, though. The company announced that it will suspend its dividend payments this year as a result of an impending hit of nearly $900 million. The construction company blamed this on contracts that had soured among a host of other factors. The profit warning led to a number of high profile dismissals with CEO Richard Howson, who worked closely with Adam, shown the door. Howson was replaced by Keith Cochrane.

Restoring investor confidence on Carillion is now the biggest challenge. Coming out of a dip in stock value and a massive loss is never easy, and the new CEO will have his work cut out. The company revealed that it had already received contracts to manage catering and messes in the U.K. military worth nearly $180 million over a period of five years. The company was also among the contractors named to build the HS2 rail line, which has also attracted its own share of controversy. The deal is worth a little above $7 billion.

The news had a small impact on the stock price as Carillion shares saw a marginal increase on Monday. The upward trend was maintained with Tuesday also seeing some gains on the stock front. Last week’s profit warning was, however, a massive blow and while there are those who will take a nice holiday using a Vietnam visa and wait to see what happens, there is no doubt Carillion will need to up its game if it wants to eventually restore investor confidence. In addition to this, the entry of Adam into FirstGroup is another story that continues to boil slowly.

We will see what will happen in the coming few weeks.

Disclosure: I do not own any shares of any stocks mentioned in this article.

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