Dominic O’Connel was on the Today Programme on Friday discussing Carillion Plc’s ½ year results with Michael Hewson, Chief Market Analyst of CMC Markers (UK). No news there. The conversation was about some of the detail in the ½ year results – the further £200m written off on long term contracts and the £134m written off the value of UK & Canadian business. There was talk about how Carillion had fallen such a long way in such a short time and questioning whether Carillion could do what Balfour Beatty is in the process of doing and turn the business around.Carillion announced losses of £1.1Bn in the 6 month period covered by these accounts.
The concern raised by Michael Hewson was with regard to cashflow – there was negative cash flow of £300m in the period covered by these accounts and, looking at the figures presented, Michael Hewson commented that if Carillion could get to the end of the year and increase income by £500m then they should be OK. In other words, they should survive.This is the UK’s second largest construction contractor by turnover.
Up until 10th July 2017 everything was looking fine – then the company released a profit warning and now releases interim results showing further write downs and the conversation is that if things work out OK then they should survive. That’s some change in fortune in less than 3 months! Carillion’s accounts as at 31st December 2016 showed trade creditors at £750,000,000. That’s a lot of suppliers giving a lot of credit – and why wouldn’t you? Carillion was a big, successful profitable company. And it still was until 10th July when all of a sudden it wasn’t and now the conversation is around whether the company will survive. I wonder how their trade creditors now feel about the £750,000,000 they are owed? Perhaps a little less secure than they did 3 months ago?
On a level that reflects a more typical experience; HA & DB Kitchin Ltd went into administration on 26th September. The company was a £20m turnover building contractor with a £1m balance sheet and trade creditors of £2m according to their accounts for 2015. All looked OK. They filed their accounts for 2016 in August 2017 and these accounts showed the business was in a terrible state, losing money and a poor credit risk. A little over a month later and the company is in administration – all trade creditors will lose the money owed to them. HA & DB Kitchin won’t make the headlines in the was that Carillion has, it’s not big news when a company that size goes bust. It might be reported locally or in the trade press, but that will be the extent of it. However, for each of the companies who are owed some part of the millions owed to trade creditors it might be bigger news. For some of them, it might mean that their own business is now at risk.
We at The Channel Partnership are already dealing with claims for those suppliers to HA & DB Kitchin who are owed money and who are now able to claim under their credit insurance policies. We’re open to conversation with other suppliers who wish they had credit insurance in place and want to find out more.We’re also happy to talk to suppliers of Carillion or other large, apparently successful companies who now realise that there is always risk relating to trade credit and that credit insurance has to be considered as a way of managing that risk.