In Britain the name Carillion means construction and all over England you will see the name. Carillion started as a construction company and gradually built up to be a service company and construction company. The company was in a growth mode and felt it could do everything it wanted to. The reality was service contracts with the government means the government pays and it is steady income but many contracts called for large cash outlays upfront. The difference was debt. In addition, the company took on too many unprofitable contracts, in English terms they were building a Rolls-Royce but only getting to paid to build a Mini.

In 2016, Carillion had a net debt of $978 million, six months later the debt doubled and together with a half billion pension deficit means the company is going to be liquidated. There was good news, last September they had a plan, but the debt only went from bad to worse. An explanation was the company was in so many businesses, there were too many layers of management resulting in complete lack of line of sight accountability. The company was hampered by insufficient transparency and overinflated group overhead and a business with no sense of what to prioritize and how.

Its main construction division struggled with 4 major projects and did not monitor its accounts receivable so no money was being collected, or the need for more debt.

Linking to dividend paying stocks, growth is wonderful unless it is financed by debt. Debt is terrific if it can be paid, the rules which make life easier at the individual level also make sense at the corporate level. Collect more money than you pay out, operate at profit then the company can weather storms. If not, bankruptcy is on the horizon.

There are more questions than answers, till the next time – to raising questions.