Topic: Decision Notice 2022 :
Subject of Enforcement: Richard Adam
Date of Notice: 28th July 2022.
Overview: Carillion was, until it went into liquidation in January 2018, a leading international construction, project finance and support services business operating in the UK, Canada and Middle East. On 10 July 2017, Carillion announced (amongst other things) an expected provision of £845 million as at 30 July 2017, of which £375 million was in relation to projects in Carillion Construction Services (CCS). The provision arose from a review following a deterioration in cash flows across several construction projects, including within the UK.
The nature of the required provision surprised market analysts and Carillion’s share price fell by 39% on the day of the announcement and by 70% within three days. Carillion subsequently went into liquidation on 15 January 2018.
The market’s adverse reaction resulted from the unexpected nature and size of the provision, which effectively wiped-out Carillion’s profits over the previous six years. Carillion’s previous announcements, including its trading update on 7 December 2016, had given no indication to the market that such a provision was likely to be required.
The December Announcement was misleading and was made recklessly. It did not accurately or fully disclose the true financial performance of Carillion. It made positive statements about Carillion’s financial performance generally and in relation to CCS’s construction business segment in particular. It failed to disclose significant deteriorations in the expected performance of projects across the CCS portfolio and did not take account of a series of warning signs indicating anticipated losses and/or reduced profitability across a number of major construction projects. It was these matters that, when eventually acknowledged by Carillion, led to a significant proportion of the provision announced in July 2017.
Penalty: Financial penalty of £318,000