Carillion’s cradle to grave journey over 19 years

Aaron Morby 8 months ago
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Carillion rose with a fanfare from Tarmac, demerged from the construction material giant as a major UK contractor. Highly ambitious, it grew quickly and expanded beyond its roots in construction into facilities management.

Much of this growth was driven by acquisitions. By purchasing rivals such as Mowlem and Alfred McAlpine, Carillion removed competitors for major contracts.

The ill-fated purchase of Eaga, a supplier of heating and renewable energy services, proved a turning point.

Prior to the purchase, Eaga had made accumulated profits of £31m. Five consecutive years of losses followed, totalling £260m at the end of 2016.

The disastrous purchase cost Carillion £298m.

This came at a time Carillion was refusing to commit further funds to addressing a pension deficit of £605m.

That problem itself was largely attributable to acquisitions: when Carillion bought Mowlem for £350m in 2006 and Alfred McAlpine for £565m in 2008 it also bought responsibility for their pension scheme deficits.

It was storing up problems for the future.

Over the course of 19 years Carillion became a giant and unsustainable corporate time bomb. Carillion’s collapse was sudden and from a publicly-stated position of strength.

Rise and fall of Carillion
July 1999 Carillion demerged from Tarmac
Jan 2001 John McDonough takes helm as chief executive with support services growth plan
Feb 2006 Acquisition of Mowlem for £350m
April 2007 Richard Adam appointed to board as finance director.
Feb 2008 Acquisition of Alfred McAlpine for £565m
Dec 2008 Pension valuation.
Dec 2009 Richard Howson appointed to board as executive director.
Mar 2010 2008 pension valuation 15-month deadline.
Sept 2010 Richard Howson appointed chief operating officer, remaining on the board
Oct 2010 2008 pension valuation agreed.
April 2011 Acquisition of green services firm Eaga for £298m
June 2011 Philip Green appointed to board as senior non-executive director.
Dec 2011 Pension valuation.
Jan 2012 McDonough retires. Richard Howson appointed chief executive.
Mar 2013 2011 pension valuation 15-month deadline.
Dec 2013 Pension valuation.Alison Horner appointed to board as non-executive director.
May 2014 Philip Green appointed chairman.
June 2014 2011 pension valuation agreed.
July 2014 Carillion reveals merger talks with Balfour Beatty. But bid to becomes UK’s biggest contractor comes to nothing
Dec 2014 2013 pension valuation agreed.
July 2015 Keith Cochrane appointed to board as Senior Independent non-executive director.
Dec 2016 Richard Adam retired as finance director.
2017
1 Jan Zafar Khan appointed to board as finance director.
1 Mar 2016 Annual Report and Accounts signed and published.Richard Adam sells entire existing shareholding for £534,000.
March–15 April Emma Mercer returned to UK as finance director of Construction Services and brought to the attention of Richard Howson and Zafar Khan “some issues with which she was not comfortable”.
8 May Richard Adam’s long-term incentive plan awards for 2014 vested. He sell the total amount for £242,000.21
May The board conducts a review of accounting treatment for receivables following Ms Mercer’s concerns. This was reviewed by KPMG. The review concludes that assets had been misclassified but there had been no misstatement of revenue. Acted as a trigger for wider review of contract positions.
7 June The board holds a “lessons learned” exercise which considered cultural, managerial and operational shortcomings.
8 June The board considers a presentation on a possible equity issue.
9 June Final dividend for 2016 paid worth £55m.
4–5 July The chairman, and board the following day, were informed that their brokers were not able to underwrite the proposed equity issue and were advised that a trading update should be made on 10 July. Philip Green remains hopeful for a “positive and upbeat” announcement to the market.
9 July Richard Howson steps down as chief executive. Replaced by Keith Cochrane as interim chief executive.
10 July Carillion announces £845m contract provision and comprehensive review of business and capital structure.
12 July Carillion’s share value fell 70% from 10 July.27
14 July EY appointed to support its strategic review with a focus on cost reduction and cash collection. HSBC appointed as new broker.
August Board identifies a need for further short term committed bank facilities.
3 Sept Zafar Khan “spooked” the board with a financial update.
11 Sept Zafar Khan sacked as finance director and Emma Mercer appointed as his replacement. New non-executive directors appointed and transformation officer seconded in from EY.
29 Sept Half-year results included a further £200m profit write down.
24 Oct Deferral of pension deficit contributions agreed, releasing £100m unsecured and £40m secured new bank finance.
17 Nov Third profit warning issued, alongside announcement that the company was heading towards a breach of its debt covenants.
Early  Dec Changed assumptions in weekly cashflow materially reduce the company’s short-term cashflow forecasts.
11 Dec Kiltearn Partners, the largest shareholder in Carillion, halves its stake.
22 Dec Cashflow forecast delivered to finance creditors shows it would have less than £20m in cash by March 2018. As a result, it was unable to make further drawings under its £100m unsecured facility without further waivers being granted by each of them.
Late Dec New lenders inform Carillion that a further waiver would not be given unless an approach was made to Government.
31 Dec Carillion submits a formal request for support to Government.
2018
3 Jan FCA notifies Carillion that it has commenced an investigation into the timeliness of announcements made by the company between 7 December 2016 and 10 July 2017.
4 Jan The Company meets Government officials to discuss status of restructuring efforts and the need for short and long-term funding.
9 Jan Board meet with HMRC to explore the possibility of deferred payment to in respect of tax liabilities, which were otherwise due in January, February, March and April 2018. The outcome was inconclusive.
12 Jan Carillion pays £6.4m to a series of advisors and lawyers, including KPMG (£78,000), FTI Consulting (£1m), EY (£2.5m), Slaughter and May (£1.2m).
13 Jan Carillion chief sends a letter to Cabinet Office making a final request of £160m, including an immediate £10m.
14 Jan Cabinet Office informs the company that it is not be willing to provide such support. The board concludes that the company is insolvent.
15 Jan Directors petition for the compulsory winding up on the grounds Carillion is unable to pay its debts. Official Receiver appointed as liquidator, with PwC appointed as special managers to assist with the liquidation.Government makes £150 m available to support the liquidation.
16 Jan Business Secretary Greg Clark writes to the Insolvency Service and the Official Receiver asking them to fast-track their investigation into the causes of Carillion’s failure and the conduct of the directors.
18 Jan The Pension Regulator launches an anti-avoidance investigation into Carillion’s funding of their pension schemes.

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