Fictional capital

[Young Master Smeet]

Interesting take on the Carillion affair in the FT:

Quote:

Carillion’s balance sheet shows the extent of its dependence on these ethereal assets. At the end of 2016, things that could be sold in a crisis (ie fixed assets and stocks) accounted for just 5 per cent of the total. Its solvency thus depended on the valuation of intangibles accounting for nearly 40 per cent of the balance sheet. Almost all of those were goodwill — acquired with the many companies Carillion acquired over the 18 years of its existence.

https://www.ft.com/content/c856fcbe-fea6-11e7-9650-9c0ad2d7c5b5

i.e. the company didn't hold stocks of physical goods, but expected cash flows.

Also, I do wonder what extent government austerity spending had on the company.  the article notes that Carillion attempted to cover its cash flow problems by drumming up more business, by slashing its profit margins.  i.e. a classic crisis for a capitalist firm.

[Young Master Smeet]

Michael Roberts has some interesting notes:https://thenextrecession.wordpress.com/2018/01/18/carillion-and-the-dead-end-of-privatisation/

Quote:

But it seems that it had taken on too many projects from the UK public sector at prices that delivered very narrow margins.  So, as debt issuance rose and profitability disappeared, cash began to haemorrhage.  Carillion ran up a huge debt pile of £900m.  But this did not stop the Carillion board lying about their financial state, continuing to pay themselves large salaries and bonuses and fat dividends to their shareholders.  In contrast, the company did little to reduce a mounting deficit on the pensions fund of their 40,000 global staff, putting their pensions in jeopardy. Indeed, Carillion raised its dividends every year for 16 years while running up a pensions deficit of £587m.  It paid out nearly £200m in dividends in the last two years alone.  The recently sacked CEO took home £660,000 a year plus bonuses.

If they continued to raise dividends, this starts to sound like a form of ponzi scheme, which is POK as long as contracts come rolling in and investors come to join them, but clearly Carillion exhausted this particular money tree…

[alanjjohnstone]

Perhaps a dedicated thread would be useful because it appears that Carillion will be producing many worms as it is investigated .

Quote:

Frank Field, chair of the work and pensions committee, said: “It’s clear that Carillion has been trying to wriggle out of its obligations to its pensioners for the last 10 years. The purported cashflow problems did of course not prevent them shelling out dividends and handsome pay packets for those at the top.

 The work and pensions committee said Carillion had been “falling short” of what the trustee expected it to contribute to pension schemes since 2008. The company pointed to cashflow problems in 2011 and 2013 – but paid more than £70m in dividends in both those years. 

[Young Master Smeet]

http://www.bbc.co.uk/news/business-42885211Would you Adam and Eve it.

Quote:

A calamitous fall in the share price – off by over one-third, reducing the company's stock market value by £800m – looks the worst possible news for Capita….Capita, which issued a series of profit warnings last year, has again cut its profit forecast and revealed plans to raise £700m by issuing new shares…Capita had relied too much on acquisitions to drive growth and had also seen weakness in new contracts, he added.

Deja Vu.

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