Cracked beams at Liverpool hospital sparked Carillion collapse

Fixing eight cracked transfer beams at the Royal Liverpool Hospital PFI project proved a critical cost, which started to set dominoes falling at Carillion.

The problems with the huge hospital contract were revealed as MPs grilled Carillon’s management about what brought about the sudden collapse of the group.

Former chief executive Richard Howson revealed that the project caused a substantial delay to the end of year finish, adding over £20m of cost to completion.

It was one of four deteriorating contracts including Qatar, where Carillion as owed £200m, and the Midlands Metropolitan hospital where building services failed to work that caused cashflow rapidly to dry up and led to the sinking of the company.

Chairman Phillip Green said he believed there were three major factors behind the group’s collapse

The level of debt in the period 2013 to 215 running into 2016 was too high and stemmed from the acquisition early in 2014 of Eaga at around £300m, a small number of contracts that went very badly wrong, and inability to get finance in the middle of January.

Mr Howson said he believed the Carillion’s optimistic annual report published in March 2017 was correct to sign off.

He said in April working capital concerns raised by new finance director Emma Mercer, led to KMPG’s first review in May to determine cashflow and the decision that a rights issue was needed.

Green said: “We did removed Mr Howson as chief executive because frankly in the period May to June we had begun to loose confidence because debt had not come down, operational difficulties were increasing, we hadn’t been able to successfully do the rights issue.

“Up to that time Howson had full confidence of the board.”

Green said: “I have full and complete responsibility for collapse, not culpability and if look back of course things could have been done differently.”

Carillion’s interim chief executive Keith Cochrane brought in to replace Howson and former finance director Zafar Khan denied there was any reason to believe Carillion faced major problems before the £845m writedown announced in July last year.

MPs on the Business, Energy and Industrial Strategy Committee and Work and Pensions Committee revealed they had documents that showed key Carillion investor Standard Life had written to Howson in 2015 warning it had concerns over financial management, strategy and corporate Governance.

These concerns saw it sell its 5% stake in the company long before cracks started to appear at Carillion.

Green added: “I believe all of the board and every decision we took at the time we took it, we believed it was right and we had surrounded ourselves by quality advice. If we look back of course we would have taken decision differently.”

Carillion key financial facts

In the eight years from 2009 to 2016, Carillion paid out £554m in dividends, almost as much as the cash it made from operations.

In the five years from 2012 to 2016, Carillion paid out £217m more in dividends than it generated in cash from its operations.

Over the eight years from December 2009 to January 2018, the total owed by Carillion in loans increased from £242m to an estimated £1.3bn – more than five times the value at the beginning of the decade.

Although the July 2017 profit warning marks the beginning of the end for Carillion, it was poor decisions in the years leading up to it that caused the company serious trouble.

Of the £845m charge, Carillion said that £375m related to the UK (mostly three PPP projects) and £470m to overseas markets (mostly exiting markets in the Middle East and Canada).

from Construction Enquirer http://www.constructionenquirer.com/2018/02/06/cracked-beams-at-liverpool-hospital-sparked-carillion-collapse/

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