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Road to ruin: 5 graphs charting Carillion's collapse

Carillion has collapsed into liquidation proceedings today after months of financial difficulties. CN sets out five datasets that shed light on the build-up to its downfall.

Burgeoning borrowing

Arguably the biggest single cause of Carillion’s collapse has been the scale of its debt pile, which had been approaching £1bn – and that’s before factoring in its pensions shortfall.

However, far from being a steadily emerging problem, the contractor’s average net borrowing had been relatively stable during 2015 and 2016, before rocketing over the past 12 months.

The increase recorded in its final half-year results, published in September, was blamed on a number of its contracts completing during the six months without being replaced by new deals.

Despite efforts to reduce its debt through cash collection and disposals, such as the sale of its healthcare contracts to Serco, these actions progressed more slowly than hoped and ultimately fell far short of what was required.

Rapid growth…

Increasing turnover at an accelerated rate can be viewed as a high-risk strategy.

Large businesses can struggle to adapt to their expanded operations, potentially leading to cashflow difficulties and ineffective management.

Having been steady between 2013 and 2014, Carillion’s turnover ballooned in successive full-years by 13 per cent and 14 per cent respectively.

However, underlying cashflow from operations failed to match this growth, edging up only marginally from £258.6m in 2014 to £277.1m in 2016.

…particularly in the Middle East

When Carillion announced its first major profit warning back in July, one detail that stood out was the geography of its problems.

Within its £845m contract writedown, £470m related to overseas markets – despite international operations having represented only 22 per cent of Carillion’s turnover in its 2016 results.

Looking back, it is apparent that while the contractor’s group turnover did indeed grow rapidly, the rate of expansion in its Middle East business was even sharper.

Between its 2013 and 2016 full-years, group revenue increased 28 per cent. Yet within that, Middle East revenue shot up 48 per cent.

Relationship strain

A key part of Carillion’s collapse involved difficulties with unprofitable contracts.

Such were the issues with certain problem jobs that former chief executive Richard Howson briefly assumed one of his previous roles of chief operating officer, retained in order to “get involved in collecting cash”, as interim CEO Keith Cochrane put it at the time.

In recent months reports mounted of aggressive measures being taken to bring in cash from projects, which may have strained relations with clients.

One sign of this deterioration was buried in Carillion’s 2016 results. Its Net Promoter Score (an internationally recognised client satisfaction metric) fell sharply from +36 to +22, having been steady for several years.

At the time, the contractor dismissed this as a “temporary reduction” caused by “a year of uncertainty and change for our markets and customers […] combined with the challenges of mobilising large new contracts”. 

Hindsight, however, suggests this may have been a critical symptom of Carillion’s difficulties.

Word of warning

While not a warning sign of Carillion’s impending demise, one statistic now serves as a cautionary tale for Carillion’s tier one rivals.

As of the CN100 2017 ranking of UK contractors by turnover, published in August last year, Carillion was the second most profitable firm in the top 10 (margin figures were unavailable for 10th-placed Bouygues UK).

With the average pre-tax margin for 2017’s top 10 standing at -0.5 per cent, there was already significant cause for concern even before today’s developments. 

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