How to lose a Carillion
The demise of Carillion has left many questions of how a large UK based company could go so spectacularly just in just a little more than a year? The situation has been brewing for a few years, with sceptical outside investors starting to dispose of Carillion shares as far back as 2013.
Just six months ago, when City scepticism was at its highest, a quarter of the company’s shares were reported to have been used for “short” trades – it was then that a Hedge Fund Manager made assertions that the trade was being made popular to the point that it was not worth undertaking, and the cost of Carillion shares became exorbitant. There were also tell-tale signs that short sellers had foreseen that the company’s board of directors could not include a number of factors.
For a start, a 4% margin on the shares had been set – twice the normal going for rate for a construction company. This margin was deemed high to many investors. Carillion was reported to have been owed approximately £400 million from Middle East contracts, even though the company’s mix of business with money-spinning service contracts and high specification work was deemed to be substantial and lucrative. Even so, a large number of these payments were not received.
There was also the offer of longer payment terms – long standing industry specialists know without a doubt that once a main contractor begins to adjust their payment terms and make suppliers wait longer for their money, they are beginning to feel the pressure of the industry. Subcontractors struggled to receive their payments from Carillion which led to a number of news stories (see Starjammer Bulletin – Business News, July 2017 and November 2017), it was deemed that Carillion’s debts may have been much larger than originally thought.
Within Carillion’s last annual report, figures showed that Carillion had approximately £850 million of debt; the figures released did not in fact depict the whole picture. To assist with quicker payments to contractors, Carillion, along with other large contractors started to use a system known as an ‘Early Payment Facility’ – this works by suppliers presenting an invoice from Carillion’s bank, and the bank pay the supplier directly – the bank would then take a fee, leaving Carillion with a debt to the bank rather than the subcontractor.
These debts had not been included with the initial published figures of debt, with these figures being kept hidden in separate files under different titles.
It must be remembered that investors originally believed that by hedging their bets, share prices would fall and it was therefore not an unreasonable assumption for a hedge fund that the newly introduced accounting standards would directly hit Carillion’s profits.
Using Carillion’s rival Balfour Beatty as an example in previous years, a similar pattern was seen initially to be observed. An early string of profit warnings were announced, along with plunges in share prices. Business writes offs then followed, and should have been capped off by a slow return to normal trading. his is what investors were probably hoping to see. Unfortunately this was not the case.
Carillion’s issues have unveiled themselves to be a lot worse than that. The Interim Chief Executive, Keith Cochrane detailed the witness statement to the courts during the approval of the liquidation process. Carillion in fact had very little cash available within the company. During the liquidation process, companies are required to pay a deposit to the court, which is used to secure the liquidators services. Carillion have been unable to pay this amount due to lack of funds, and are depending on the government to cover the cost.
Netflix and Chill
Investment in original programming has paid off for Netflix, after recently released membership figures rose above 117 million during 2017. The streaming giant recorded a massive 8.3 million subscribers during the three months leading up to December; 6.36 million subscribers were recorded outside of the United States.
New seasons of popular shows like The Crown have attracted many viewers. Unfortunately $39 million of unreleased content had been written off, due to the appearance of shamed actor Kevin Spacey. Netflix were left in no other position but to cut ties with the House of Cards star following the sexual misconduct allegations made against him throughout 2017. Following these reports, Netflix halted production of House of Cards to give themselves time to write his character out of the series – in addition to this, the release of a film starring the actor, titled ‘Gore’ was aborted.
Figures released showed that profits amounted to $186 million – 3 times larger than in 2016, with revenue rising by almost a third to approximately $3.3 billion in the last financial quarter – dubbed a “beautiful quarter” by Netflix executives. Netflix firmly believe that their continued investment in content is the result of the rewards that they are currently reaping.
During October 2017, subscription prices were raised. This rise in costs however has not affected Netflix’s success. Investments into original shows like ‘Glow’, ‘Black Mirror’ and Will Smith’s new action film ‘Bright’ will no doubt continue to cement Netflix’s growth. With further plans to spend up to $8 billion on content during 2018, it is reported that over a quarter of this amount will be invested in original programming. With new material directly aimed at subscribers across the globe, subscriptions from outside the USA now constitute a 53% part of Netflix’s customer subscriptions. Available now in over 190 countries worldwide, Netflix plan an additional 30 original international programmes to be introduced during 2018 from France, Poland, India, Korea and Japan. The first of these international programmes will be seen next month, when Netflix screens the first episode of ‘Juventus’, a documentary movie chronicling the famous Italian Football Club.
Netflix continues to grow as a pioneer in online streaming. Taking a look at industry statistics show that members spend 9% more of their time watching content through online streaming. The growth is the result of customers opting for more online entertainment than ever before, and moving away from more expensive subscription paid TV packages.
With the continued release of original programming, Netflix use these to counteract any threats from competitors who raise their prices for their shows. As a result, Disney are in the process of pulling programmes away from the platform to set up their own programme streaming in order to stay competitive.
Talks and negotiations are also ongoing between Netflix, internet and mobile phone providers are taking place in a bid to include Netflix as part of monthly packages.
Permanent Phone Improvement
It has been announced that a PPI company, Mis-sold Products UK Ltd, which made a whopping 75 million calls from November 2015 until March 2016 has received a fine from the UK’s data protection watchdog, the Information Commissioner’s Office (ICO) for £350,000 after receiving over 146 complaints.
ICO Enforcement Group Manager Andy Curry, reported that Mis-sold Products UK ignored rules and regulations set in place for telephone marketing companies, and continued making high volumes of calls over a short duration of time. The calls were made without the consent of the call receivers, and neither was there any attempt to ensure that consent was granted prior.
The investigation proved that Mis-sold Products UK Ltd had used software to send out automatic messages with a view to pushing PPI compensation claims. A total of 74,965,420 calls were recorded in total. The calls, known as ‘Robocalls’ broke telemarketing regulations due to each call failing to identify the organisation, as well as calling without the recipient’s prior consent. It has been said that although Mis-sold Products UK Ltd may not have caused deliberate distress to recipients, firm rules had been broken due to the “massive scale” of the calls sent out, which led to distress.
The ICO reported that they had been received numerous complaints over a period of several months. Some of the complaints showed that callers were contacted twice a day using the same message without the option of any opt out facilities. Many recipients called Mis-sold Products UK Ltd back and asked directly for their details to be removed from their calling list, yet they still received calls despite promises to be removed from their system.
When actioning the fine, the ICO took all these factors into account. It is understood that the Director of Mis-sold Products UK Ltd had attempted to remove the company off of the Companies House Register, a move that was successfully blocked by the ICO. The body said that this move was taken to “allow all options to be considered for recovery of the penalty, and for the actions of the director in running the company to be fully scrutinised”.
The ICO have used this information to raise their concerns to the government and want to see Company Directors being fined instead of companies. The ICO also want to see changes in the law when dealing with the recovery of fines. Without changes, rogue Directors will continue to cause a nuisance among the public and get away with it.
Trump in Solar Panel blow
It is feared that US President Donald Trump’s decision to add tariffs to the import of solar panels will strike a massive blow to the solar panel industry across the globe, affecting stocks and businesses across Europe and Asia.
Trump introduced the move to aid American manufacturers. However, it has been reported that workers within these sectors could witness a slower performance of United States investments in solar power, as well as costing thousands of jobs across the United States.
On Monday, President Trump approved the 30% tariff on the import of solar cell and module imports – with a 15% drop within 4 years. Unassembled solar cells under 2.5 Gigawatt will be classed as tariff-free. The news spread across the globe, and Germany’s largest solar group, SMA Solar, witnessed its 46% share of American sales plummet by a 4.5% to a four-week low, whilst Norway’s REC Silicon lost 1.2%.
Peter Altmaier, the German Finance Minister, acknowledged the move and reported to have said that the cost of solar products within the United States were likely to rise, and that Berlin were ready to start talks with Washington. According to the International Renewable Energy Administration, the United States has the world’s fourth-largest solar capacity behind China, Japan and Germany. Solar capacity rose to almost 400 Gigawatts across the globe, compared to 10 Gigawatts in 2007.
Reports from the US based Solar Energy Industries Association confirmed that the decision by Trump could cause the loss of over 23,000 jobs in the United States, as well as resulting in delays or the cancellation of billions of dollars’ worth of investments and orders.
The US Government have argued that domestic manufacturers were unable to complete with lower priced Asian panels. Chinese firms that manufacture the worlds largest solar photo-voltaic cells will be in receipt of the financial blow right across the Sino manufacturing sector.
The solar industry in China has been growing rapidly over the last few years and is prepared to “actively respond to US trade protectionism”. South Korea have also announced that they would be prepared to exercise their rights under the World Trade Organisation.
China’s Minister of Commerce, Gao Hucheng has expressed his concerns following Trumps announcement, and fears that the President’s decision could damage global trade as well as curbing overseas growth. Decisions are yet to be made to when the tariffs will be imposed, and how these tariff-free imports will be managed.
More Cryptocurrency woes
It has been reported that South Korea will be banning the use of unidentified accounts within banks that are used for transactions involving cryptocurrency in a move to cease the use of virtual currency in money laundering schemes.
It is understood that South Korea has the third largest market for trading in cryptocurrencies across the globe. The newly introduced regulations will move South Korea closer into line with financial regulations within the industry, and the decision to make the move could result in a substantial swift price hike.
Users of cryptocurrency wallets that are known to be anonymous will be required to link their accounts to a named bank account – this account must be their own personal account and proof of identity must be supplied. The new system in place will mirror the ‘Know Your Customer’ anti-crime regulations within the United States. Age limits will also be put in place, with a ban introduced to any investors under the required age for opening a cryptocurrency account.
Earlier this month, officials announced that stricter measures could be introduced to a complete ban on cryptocurrency trading activities within South Korea. To rein the cryptocurrency sector in, it was also reported that exchanges will be handed large tax bills across South Korea. The trade in cryptocurrency is popular amongst the younger generation of South Korea’s population with a 30% rise in the last year, compared to other countries across the globe. Due to the cryptocurrency volatility, as well as the absence of regulations, trading with cryptocurrency is ramping up ongoing concerns amongst officials in South Korea, with many investors opening themselves up for probable unrecoverable losses.
The new regulations have been deliberated over for some time, and for the investors in South Korea, these will come into force on the 30th January 2018.