Carillion Goes Into Liquidation

Carillion (CLLN) has gone into liquidation. No messing about with “administration” – it’s gone straight into liquidation with a receiver being appointed. The Government may apparently take over direct responsibility for some of the contracts that Carillion operated to provide public services, but it is unclear what will happen to the commercial contracts. Up to 43,000 jobs are at risk. In addition, many other companies are at risk who acted as suppliers to Carillion because as trade creditors they are likely not to get their debts paid.

Why did this £5.2 billion revenue business collapse? In essence ballooning debt, poor cash collection and risky contracts. The construction sector has been one with low profit margins in the last few years (builders seem to take on work just to help their cash flow from advance payments regardless of the likely profitability according to a conversation I had with a director of such a company). But building anything is risky and the bigger the projects, the bigger the risks. Managing such complex projects (such as building part of HS2 which is a contract they won) is tricky however experienced you are. Time over-runs can kill you, and fixed price contracts are anathema in any business, but the Government tends to insist on them.

This was and is the kind of business to avoid investing in however cheap it looks.

Needless to say, the equity shares in Carillion are now almost certainly worthless.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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