Dodging the Long Shadow of Carillion

by Brian Bamford

THIS week  Tom Fitzpatrick in Construction News wrote that there are indications of a 'split between those [companies] who are specialists in their field and making a proper [profit] margin, and those who are struggling with fragile balance sheets and highly leveraged business models.'

Of the top 100 contractors it seems that debt is concentrated among the UK's 10 largest building firms, with five of the top ten increasing their borrowing by £100 million or more in their last financial year,

True some of the smaller companies in the top 100 firm are wisely cuting shareholder dividends and shoring up their bank balances by storing extra cash.

This last may well be a response to the tubulance among the bigger firms. Not only Carillion went down, but sinificant building companies such including Lagan Construction Group and Lakesmere experienced financial collapse.

What the Carillion experience showed was that the numbers and figures auditors fed us can be misleading.  Having reported the largest pre-tax profit in the 2017 CN100, Carillion collapsed only months later.
 

Tom Fitzpatrick wrote in Construcion News on the 5th, September, 2018:  
'In a preview of 2018 published last December, I wrote: “Carillion aside, I can see 2018 being difficult for tier ones and would not be surprised to see a high-profile failure or two, perhaps among companies exposed to the commercial sector, or firms with non-UK parent groups shrinking their UK businesses”.'

Mr. Fitzpatrick continues:
'No one wants to see big companies go under. Whether you liked or loathed Carillion and what you’ve heard about their mismanagement on the pages of CN [Construction News], its collapse left a trail of destruction and forced good people out of work, apprenticeships and livelihoods.'

One possible candidate who some thought might go the way of Carillion was Interserve.  On the 17th, January, this year after Carillion went down, a report in the Financial Times revealed that the government is “worried” about Interserve (LSE: IRV) and has assigned a team of officials to monitor the company’s financial situation.

In January this year in the Guardian Neil Wilson, senior market analyst at ETX Capital, said Interserve had had its problems but was 'no Carillion.

He added:  'Comparisons with Carillon are all too easy to make of course – a diverse business operating on thin margins. It has faced pressure from employment and contract mobilisation costs and margin deterioration from a cost base which has not been flexible enough. It’s one of the most heavily shorted FTSE stocks and it has a lot of debt.
'However in the case of Interserve, the arithmetic doesn’t look anything like as bad as Carillion.' 

We'll just have to wait and see if there are any more tears before midnight.  

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