Carillion collapse

A construction empire owing £7bn with £29m in the bank. Its big contracts booked profits they were losing.

Documented, foreseeable risks that were ignored anyway. The failure is attention, not information.

Room: Q1 Predictable
Year: 2018
Impact: £7B liabilities
Sector: Construction/outsourcing
Region: Europe
Category: Economic

Why this room

Carillion is a q1 case because the information needed to see the failure was public, and in some cases audited, well before the liquidation. Net debt and the pension deficit were rising, short sellers had been building positions against the stock since 2012, the Cabinet Office had raised Carillion to a red risk rating in September 2017, and the company issued three escalating profit warnings in the space of four months. Nobody who mattered acted on any of it: the board kept raising the dividend, the auditor did not qualify its opinion, and the government kept awarding contracts. The failure was of attention and incentive, not of available information.

The record

Carillion went into liquidation on 15 January 2018 with liabilities of around GBP 7 billion (including a GBP 2.6 billion pension deficit and roughly GBP 2 billion owed to suppliers and creditors) and only GBP 29 million in cash.high
On 10 July 2017 Carillion announced an GBP 845 million provision for losses on three UK PFI construction contracts (Midland Metropolitan Hospital, Liverpool Royal University Hospital, Aberdeen Western Peripheral Route) plus Middle East construction contracts; on 29 September it raised the provision to GBP 1.05 billion.certain
Carillion's 2016 accounts, published in March 2017, showed the company as profitable and solvent; it was liquidated ten months later, and its net assets had moved from GBP 1,017 million to negative GBP 405 million over the reporting period covered.certain
Carillion increased its dividend every year through the deterioration, paying GBP 77 million in 2014, GBP 80 million in 2015 and GBP 83 million in 2016.high
At liquidation Carillion held around 420 UK public sector contracts and employed about 45,000 people worldwide (around 18,200 in the UK); the NAO estimated the direct net cost of the liquidation to the taxpayer at GBP 148 million.certain

Sources

The book

This entry is one of 111 in the register. The full story, and what it cost the people who lived it, is in Risky Business by Claudia Zeisberger, David Munro and Joanna Reijgersberg-Siew.

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