Carillion’s most recent annual report now makes for darkly comic reading.
“Making Tomorrow A Better Place,” it declares at the outset. It’s fair to conclude that the writer who coined that slogan didn’t envisage liquidation as part of that tomorrow.
The document shines a favourable light on a company with £5.2bn in annual revenues, up 14 per cent, and an underlying pre tax profit of £178m, up 1 per cent.
If you were paying attention to it (most investors don’t because these things are largely full of self serving guff about ‘values’ plus a lot of legalese) you might have noted the nearly 30 per cent rise in borrowing to £219m.
However, there’s a small (1 per cent) but nonetheless reassuring increase in the dividend, together with gushing comment about a “high quality order book and strong pipeline of contract opportunities”. Nothing to be too concerned about, then.
Lower down, in the legal bit, the company’s directors go on to formally declare that that the company is in fine fettle. Its auditor, KPMG, says it has nothing to add to that assessment.
“Trading conditions across the group’s markets have remained largely unchanged since we announced our 2016 full-year-results in March,” the company said boasting of an “encouraging start to the year” in the trading update that followed in May.
The speed of the decline since that point has been quite stunning.
The political fall out will rightly dominate the headlines over the coming days because it (again) raises questions about the Government’s reliance upon contractors like Carillion for the provision of a dizzying array of state services.
But here too is also an appalling corporate scandal, one of the worst we have seen since the financial crisis.
My formal declaration having assessed it: Something here stinks to high heaven. Feel free to perform an audit of your own on that statement. I doubt you’ll disagree.
Here’s the problem: We may see a political price paid for what has gone on, for the decisions made to award this company high profile, prestige contracts like the one I highlighted in July for the HS2 rail link, shortly after Carillion’s problems first started to manifest themselves.
But will we see anyone on the corporate side pay a price for its failure?
Will the auditor, or the executives, who have overseen the train crash at this railway builder be called to account in any meaningful way?
After the events of the financial crisis, when almost no one was, I’m not at all sure.
I am sure that they will be readying any number of excuses for the inevitable Parliamentary investigations that are coming.
I imagine that they will include “couldn’t have foreseen” or perhaps “impossible to predict” the losses on big contracts the company made, which led to a further surge in its debts (and don't even get me started on the gargantuan pension black hole). Those are the same phrases we heard when top bankers were called before Parliamentary committees to explain themselves in the aftermath of the financial crisis.
Those committees – probably the Business, Energy & Industrial Strategy one and perhaps the Treasury one too – may want to reflect on the salaries of the men in charge when they’re readying their questions.
For the year covered by the aforementioned annual report, the former CEO Richard Howson received £1.5m, including a £245,000 bonus and £346,000 in share based long term incentives, representing a handy rise on the £1.3m he booked the previous year.
His finance director Richard Adam made £1.1m, again a nice rise compared to the previous £1m.
They may also like to consider the sting in the remuneration report’s tail. It comes in the new pay policy drawn up by the company in which it makes it harder for itself to claw back the bonuses paid to its bosses
In 2015 there were provisions allowed for that in “circumstances of corporate failure”. The new policy omits the provision, with it applying only in the event of the company’s results being misstated or in the wake of a finding of “gross misconduct”.
At the AGM, just 1 per cent of the group’s shareholders who actually bothered to vote (only just over half actually did) opposed the policy.
So so much for relying on shareholders to oversee corporate behaviour.
Bear that in mind when the corporate lobby next squeals about any proposals to tighten corporate governance, which surely ought to follow this affair.
Despite the mess it is now facing, the Government opted not to kowtow to Carillion’s banks by agreeing to prop the thing up. That was probably sensible.
Given everything that we know, and there will doubtless be more revelations to cone, it would simply be too much for taxpayers – currently scurrying to complete their self assessment forms ahead of the January 31 deadline – to bear were their money to go towards propping up this steaming pile off… Well you don’t need me to spell it out. Another instance of privatised profits and socialised losses would be unconscionable.
Slim comfort really.
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