You ask what can private investors do to avoid investing in the likes of Carillion. As an accountant, I can help you:
If 'cash inflow from operating income' (cash flow statement) is lower than 'net income' (Income Statement) DON'T INVEST and if already invested SELL.
Take out 'Intangible assets' out of the Balance Sheet and if it then goes negative (liabilities exceeds assets) DON'T INVEST and if already invested SELL
Add 'other creditors' to net debt and calculate 'total net debt per share' Deduct this from EPS. If then EPS goes negative, DON'T INVEST and if already invested SELL.
A failure on any one of the above three is a warning not to go near. Carillion failed all three. The writing has been on the wall for years, liquidation was certain; the only question was when.
Finally, don't trust audit reports; sometimes they are not worth the paper they are written on .
Remember also, that IFRS accounting (as compared to UK GAAP) made it much easier for directors, if not to falsify, then to bend accounts. For example, under UK GAAP intangible assets had to be amortised over 20 years. Under IFRS amortisation (if at all) is at the discretion of the directors.
I agree with you that the law needs to be changed. Carillion's senior directors and the audit partner signing off the 2016 accounts should be behind bars. Investors who are not financially trained are being taken for a ride.
I'll raise my head above the parapet and say I feel I was misled or for want of a better word, conned.
The accounts were nothing short of fraudulent. This was a FTSE250 company with a long track record and accounts that were signed off by auditors. Carillion wasn't a dodgy backstreet casino, but it may as well have been.
If a private/retail investor cannot rely on a set of audited accounts from a large company listed on the main London Stock Exchange then how in hell's name are we supposed to be able to evaluate a company and make informed investment decisions? I'm not talking about rich investors here (in case the media read this). I'm talking about people who invest for the long term to supplement a pension or even in place of a pension.
The FSCS covers us (up to £50K) for wrongdoing by a nominee but what about wrongdoing by a company? Who loses when wrongdoing takes place then? Us - all of us - whether direct investors, via a pension scheme or as a result of being a taxpayer, it seems. It is in everyone's interest to try to ensure this does not happen again, although in reality it will of course. Why? Weak and inadequate regulation, totally ineffective monitoring (auditing) and no real deterrents for directors, senior managers or auditors, because most of them get away with it.
So what will the FCA do? I'll wait and see (can't do anything other) but for me nothing short of prosecutions for the directors, at least, will be good enough. I say 'at least' because senior managers must have also been complicit in the deception, and what the auditors did, or more to the point didn't do is in my opinion nothing short of criminal. A good few lengthy prison terms is what is needed in order to send a clear message out. That would be a good start.
Me personally? £6.5K total loss if I include dividends. Much more if I don't, so I won't.
It is not just the liabilities that are distorted in Company accounts.
Carillion's assets were swelled by £1.669bn in supposed Intangible Assets.
Allowing £1.669bn to be deducted from the real debt and liabilities, to produce a positive Net Assets figure of £729.9m.
If Carillion actually had assets worth anywhere near £1.669bn they could have sold them and staved of liquidation.
These Micky Mouse, made up, Intangible Assets figures are just as big a problem, when trying to value a company, and unless I am wrong they have been there well before IFRS.
so now they are suspended you just report a "negligable value claim to hmrc".You can then use the registered loss to offset a gain when you make one, which can be at any time in the future taht you make a gain that puts ypou over the tax free limit
I remember I was sitting next to a Chinese chap as some HSBC Premier hospitality do. He told me that more money is gambled in Macau in one night, than in an entire week in Las Vegas. I would never underestimate the Chinese - they are ruthless capitalists and work harder than anyone else
I totally agree with you.
Equally misleading is the excessive length of annual reports. Looking at Carillions 2016 annual accounts it is a mind numbing 151 pages long full of guff from the executives with the single aim of justifying their high pay and obfuscating growing problems.
All investors, creditors and lenders are really interested in are the numbers, clear notes and analysis with explanation of material changes and a believable auditors report.
All the rest should be in a separate report if at all necessary.
Luckily I sold my Carillion shares the day before the referendum result only because I thought they would be impacted by a leave vote.
I always welcome stock purchase suggestions so thank you for that. I do not tend to buy on exchanges other than the LSE due to the added complication of currency exchange. Although recovering at the moment, particularly against the dollar, the gbp tends to be a weak currency which is good for dividends from foreign stocks but poor for purchase of them. I don't know if I could buy them directly through the ii trading platform. I expect that I would have to place a telephone order.
The stocks I hold in India, Macau and Vietnam are all funds so the risk is well spread. India is growing by over 6% each year and I hold the India Capital Growth Fund. The Macau Opportunities Fund is an investment in property intended for hire or purchase mostly by Chinese punters attending the well known casinos. Gambling casinos are forbidden in most places in mainland China. The Vietnamese Opportunities Fund, operated by Vinacap has shown excellent growth over the last two years due to a young, well educated workforce and low wages. Some big Companies ie Samsung have moved operations there to take advantage and improve profit margins. All three are listed on the LSE and easily bought and sold on the ii trading platform.
"News this week that LSE:CLLN:Carillion had gone bust probably came as little surprise to its weary shareholders. Last year the construction and support services group saw its valuation spiral from Â£1 billion to Â£100 million as its problems ..."
so you mean this does not show up in net debt and officially and formally the accounts are correct?
now... can you do us a favor? can you chack interserve and other companies like CLLN and see if this is a recuring thing sectorwide? or for that matter do you have an easy way to compile a list of companies with large "other creditors"... there is no need to do a brexit... we can just read the books better
The biggest scandal in this miserable affair is that the absolutely appalling IFRS accounting system hides or misapplies liabilities. In Carillion's 2016 accounts Debt (the amount owned to banks) was shown as £592 million. The real figure was £1,353 million (or £1.353 billion). Carillion took advantage of the government's 'early payments scheme' whereby small businesses could get paid early, or on time at no cost. There were a number of participating banks in the Carillion scheme. Under the scheme a creditor would take his authorised invoice and the bank would pay out. So now, Carillion owed the bank for the settled creditor invoice. But instead of this being shown as 'debt' which it was, it was shown as 'other creditors'.
I am accountant who is a strong Remainer, but I would happily change to being a 'Leaver' if as a result we scrapped IFRS accounting and went back to UK GAAP accounting.
People who have lost money should complain the the International Accounting Standards Board.
I avoided Carillion but I learnt the hard way elsewhere that you must always cut losses , preferably at as low as 10% and keep your winners instead of taking profits .
Its a very difficult thing to do but if your don't you will end up with a portfolio of dogs.
your message is good albeit useless. it could be useful if you pointed out the likely Carillions out there and the healthy and safe companies one should buy into.
to be fair if you look at the not so controlled unwinding of carillion that is happening and the losses bank, government and smaller companies not to mention individuals like workers are enduring a more constructive approach by the govt. and banks was to be expected as there have been rescues of all kinds...but we are now in the screww u era as dogmatic prevails on pragmatic.... so yes I for one took a small punt on this knowing it was risky but potentially highly rewarding... a bit of fun in investing is allowed as anyhow a bit of gambling component exists in all decisions we take... so really there is no novice vs expert... people can get wrong at all level of experience... see buffett buying into Tesco...or you name it... anyhow as usual wisdom sharing with some concrete advice is always welcome... saying we should be careful is good advice that also my mummy gives.
anyhow losing a grand on this is peanut as the portfolio goes up and down every day by more
These boards have got a lot to answer for.
No disrespect but the majority of posters are inexperienced novices prime to issuing Panglossian opinions that turn out to be badly wrong.
As in the case with Carillion. Posters who were already invested in the company up to their eyeballs ramped it and advocated others should buy into it.
You cant blame them for doing that but novice investors who piled into Carillion should look at whats happened at Carillion as a lesson well learned; albeit an expensive one.
Never underestimate the power of suggestion, it really does plant subconscious ideas in peoples minds, and that can be lethal if those suggestions prove to be erroneous.
My message to invesetors is that theres plenty more Carillions out there waiting to happen. So when you come on these boards and people who are heavily invested are posting positive factors and opinions on distressed companies, advising people to buy them-ignore them.
Theres hundreds of healthy companies you can invest in so why focus on those in dire straits, just because theyre cheap. Theyre cheap for a reason as Carillion know.
I always look at it like this:
If you invested £10k in Carillion @ £3
You would have lost £10k
If you invested £10k in Carillion @ £0.18
You would have still lost £10k
Remember that next time youre thinking of buying a cheap share in distress.
I hope no one will regard the message as gloating.
As investors were all in the same boat, the important thing is that you dont repeat the same mistakes again.
"Not only have I moved towards a defensive outlook, I have also bought into Japan, Vietnam, India and Macau. Dividends are scarce in those investments although Vietnam VOF has started paying them every quarter."
If you're a dividend chaser, may I suggest you look into Singaporean stocks? Singapore is a First World, super-advanced country with first-class governance (and a GDP per capita higher than ours), not at all like the s&%!hole countries (to borrow The Donald's terminology) which surround it. I would assume stocks like SingTel or DBS Bank or SGX (the Singapore Stock Exchange itself) or many of their high dividend-paying REITs would be a safer alternative to stocks from Mickey Mouse countries like Vietnam or India. Vietnam may be an interesting country for someone who spends hours at HMV looking for war movie DVDs like First Blood or John Rambo, but I've never heard it to be a safe place to park one's hard-earned wonga (nor have I heard anything to suggest the contrary). But, as always, DYOR.
Commiserations over your loss. I have employed two brokers and been scammed - not by the brokers I hasten to add. It's been a costly learning curve but once I gained confidence running my own accounts, I will never return to others running my affairs. I do have a reliable and trustworthy financial advisor just in case I flop.
My experience of brokers is that they come up with suggestions on stocks without doing the necessary balance sheet research. In effect, they collect their commission, do not care too much about the result and then want you to "churn"ie, sell and buy into something else. effectively using your money to earn them more and more income. They do not make much out of a buy and hold portfolio after all.
Good post Casa I lost a pile here it is about learning .
This was suggested to me by a broker in about 2015 ( guess that's the time you sold out )
He was a high flyer at firm as has been promoted further since.
I only very occasionally take broker advise these days oddly enough on this occasion i wanted to rebalance a little from my many risky AIM shares.
Had wipe outs before in the construction / contractor sector .
But these were not only in that sector maybe to diverse .
ideally these should be decent yield shares with virtually no debt... and divi paid by cash flow... which covers it very well... i was looking around and superdrug seems to be one such share... any other idea?
Yes that knowledge has stood me in good stead but sadly, I still make basic mistakes.
From your list, I have only dabbled with RR and I intend to have a closer look at AA. The RR dabble was not profitable and I am not seriously considering investing in there again currently.
Your point about the FTSE showing a loss is interesting. After buying a number of large caps and some medium ones previously, with decent dividends, I became somewhat disappointed as most of them lost capital. I have held some reliable ones for a lengthy period such as VOD , RDSB and WTB but have bought more Trusts, funds and some iShares and ETF's. The ETF's are in gold and silver for defensive purposes and I have some holdings in CEY, HGM, HOC and FRES in case the market corrects.
Not only have I moved towards a defensive outlook, I have also bought into Japan, Vietnam, India and Macau. Dividends are scarce in those investments although Vietnam VOF has started paying them every quarter.
The folio is holding up and I am achieving over 3.5% yield currently. The testing time will come when interest rates rise. The labour market is quite tight so inflation could become a problem if it suddenly spikes.
I hope you are keeping well. The Tories are inclined towards big business and the private sector but they cannot gift any one Company a contract no matter how needy or deserving. I spent over 25 years in purchasing and procurement in Local Government and all contracts over a certain value have to be advertised in the EU's Contract Journal. ~Even before this system was introduced in the nineties I think, an open tender procedure was used, inviting all interested parties to make a bid.
CLLN did not restrict its operations to the domestic market but had projects in the Middle East and Canada to mention just two places. The problems for CLLN worsened after the financial collapse. If you remember, public sector construction and service contracts dried up due to a freeze on expenditure, which was a core sector for CLLN.
Mr. Philip N. Green, CBE is Non-Executive Independent Chairman of the Board of Carillion PLC. He serves as Chairman of Nominations Committee, Chairman of Business Integrity Committee, Sustainability Committee. He has significant level of listed company board experience gained in executive and non-executive roles, Chief Executive Officer experience gained with large UK and international businesses, Operational leadership experience from a variety of business sectors, Strong track record in corporate responsibility, Experienced in M&A and strategy development. He has served as Non-Executive Chairman, BakerCorp, Senior Independent Director, Saga plc, Chairman Designate, Williams & Glyn Bank Limited, Chairman, Sentebale, a charity focused on Lesotho established by Prince Harry. His Past roles include Chief Executive of United Utilities Group PLC, Chief Executive of Royal P&O Nedlloyd, Director and Chief Operating Officer, Reuters Group PLC, Chief Operating Officer, DHL Europe and Africa
(from F.T. online)
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