Carillion collapse: Investors ‘fled for the hills’

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Carillion’s shares plummeted, as major shareholders “fled for the hills” as the company headed for disaster, MPs have said

A joint report from the Work & Pensions and Business, Energy & Industrial Strategy committees said Carillion’s annual reports were “worthless” as a guide to its true financial health is released and there are serious questions about the company’s corporate governance.

Carillion’s former auditor, KPMG, will be questioned by MPs later this week.

Frank Field, chair of the Work & Pensions Committee, said: “There is a disconnect here. On one hand, the Carillion directors told us all was sunny until a bolt of Qatari lightning hit them out of the blue. Their stewardship had, they proudly told us, been adjudged ‘best in class’ by their friends at KPMG.

“On the other hand, investors were fleeing for the hills, and it appears those who looked closest ran fastest. We will be taking evidence from the auditors and the investors – as well as demanding more company papers – to get to the bottom of who knew what and, most importantly, when.”

One major investor, Kiltearn Partners, which held 10% of Carillion’s shares in February and May 2017, said there were “clear grounds for an investigation into whether Carillion’s management knew, or should have known” much earlier about a £845m writedown on contracts.

The black hole in its finances came with a profit warning issued in July 2017 that sent Carillion’s shares spiralling.

Kiltearn stated that the £845m write down “effectively destroyed Carillion’s capital base” and the company had become “impossible to value as it was not clear what future cash flows would be as there was no concrete information on critical factors”.

The firm began selling its shares in August. In October, Carillion’s interim chief executive Keith Cochrane could provide only “limited and vague” responses to “fundamental” questions. Consequently, Kiltearn sold all its shares by 4 January.

Rachel Reeves, chair of the Business, Energy & Industrial Strategy Committee, added: “The company had unsustainably high levels of debt, weak cash generation and was saddled with a widening pensions deficit. It’s a tragedy for those who have lost their jobs and the suppliers left struggling for survival that Carillion directors ignored these issues.

“Carillion’s annual reports were worthless as a guide to the true financial health of the company. The fact that it was impossible to get a true sense of the assets, liabilities and cash generation of the business raises serious questions about Carillion’s corporate governance. KPMG will have to explain why they signed off accounts which appeared to bear so little relation to reality.”

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