6 Carillion The collapse
Carillion’s business In this chapter, we focus on the key aspects of the collapse of Carillion. A detailed description of Carillion’s business, an outline of its business model and a timeline of events as well as a fuller explanation of the collapse and the underlying reasons for that collapse together with tables and graphs showing the major issues can be accessed in Appendix 2.06.01 at www. fin-rep.com. This appendix contains more detailed information on Carillion than can be fitted into this chapter. See http://www.fin-rep.org/wpcontent/uploads/book2/Appendix-2.06.01-Carillion-The-Collapse.pdf The first indication from Carillion that all was not well was communicated in the ‘Trading Update’ issued on 10 July 2017. In fact, financial analysts had long suspected that it was in a precarious position, which had led to Carillion being the most shorted share on the London Stock Exchange.1 Yet up until six months before its collapse, Carillion’s management had repeatedly insisted that the company would survive and even prosper. For example, on 5 July 2017, only five days before the 10 July Trading Update, Carillion’s chairman, Philip Green (not Sir Philip Green of Arcadia/BHS fame), was proposing that the company should make “a positive and upbeat announcement . . . focusing on the strength of the business as a compelling and attractive proposition”.2 The Trading Update (read: profit warning) contained two very significant pieces of information, both highly damaging to the perception that Carillion could survive: 1 The suspension of the 2017 dividend, which was generally interpreted as a signal from the management that the company’s financial position was grave; and 2 Carillion’s overstating of its assets by an amount that was more than four times its 2016 profit. It reported a loss provision of £845 million related to the values placed on ongoing construction contracts in Carillion’s accounts. Following a review carried out with the aid of
