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Carillion investors say they were kept in the dark over company's problems

Carillion’s investors were misled by the company’s accounts and were not told about the true scale of its problems, some of its biggest shareholders said today.
Representatives from giant funds Aberdeen Standard, Blackrock and Kiltearn Partners attacked the quality of Carillion’s audited reports and claimed management was distracted by setting their own remuneration targets, in testimony before MPs.
Murdo Murchison, chairman of Kiltearn, told the joint business and pensions select committee that is investigating the outsourcer’s collapse that he was “surprised” and “very, very disappointed” when Carillion announced an ?845m writedown in July last year.
He said that although Kiltearn knew about weaknesses in Carillion's balance sheet and cash flow, it had not been made aware of the breadth of the problems.
Since the company’s collapse in January, he had become aware of “evidence of misstatement of profits over a prolonged period of time, evidence of aggressive accounting and actually evidence of extremely poor operational management” that were “completely at odds with the way the business was presented”.
He said that it was “incredible” to think that the problems in the business had come about in the space of a couple of months, as some of Carillion’s management team had suggested.
Carillion investors say they were kept in the dark over company's problems

Credit:
Simon Dawson
Amra Balic, managing director of Blackrock, said that Carillion’s management “had questions to answer” over its collapse, especially in light of the generous remuneration packages they had received.
"It seems that the board was focusing more, thinking again how to remunerate executives rather than actually what was going on about the business," she said.
She suggested that the UK should implement a universal clawback rule that would enable the recovery of money from directors in the event of a business’s collapse.
Euan Stirling of Aberdeen Standard Investments said he had also been aware of the level of debt that the company had, but said that Carillion’s management had sought to reassure him.
Carillion timeline
However, on carrying out its own investigation into Carillion’s financial and trading position, he had concluded that “there was a gloss to the presentations that we felt did not reflect the true business circumstances”. Standard Life sold its shares in the business in 2016 and 2017.
“The scale of the profit warning was certainly a surprise,” Mr Stirling added.
The investors raised concerns about how robust the auditing of Carillion’s accounts had been. “Sometimes reading a set of accounts can be like reading a mystery novel  - every so often another clue pops out,” Mr Stirling said.
Witnesses from professional services company EY, who appeared in front of the committee during a later session, said that there was a lack of clear business plan for the company, although refused to be drawn on whether auditors KPMG were to blame.
How to avoid having a Carillion in your portfolio
Mr Murchison said that he had become so concerned about KMPG’s ability to present accurate audited accounts that he had written to two large companies in which Kiltearn invests and which are audited by the firm to seek assurances that their accounts reflect the true nature of the business.
Michelle Hinchcliffe, KPMG’s head of audit, had defended the firm’s auditing of Carillion’s accounts in a previous committee hearing. “The role of the auditor is to check the figures and make sure they are in accordance with accounting standards. It is not a guarantee that a company can continue or that management is making effective decisions,” she told MPs.
The Financial Reporting Council is investigating the firm's work for Carillion in 2014, 2015 and 2016, plus its half-year review work in 2017. Last month KMPG, which has been Carillion's auditor since 1999, revealed to MPs it had billed the company for ?20.2m in the last decade.
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