How investors can spot the next Carillion

The debt figure published in a company's annual report does not tell the full story. Phil Oakley shows you how to dig deeper – and avoid investment disaster.

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Carillion had a huge portfolio of contracts but also a mountain of hidden debt
(Image credit: This content is subject to copyright.)

The debt figure published in an annual report does not tell the full story. Phil Oakley shows you how to dig deeper and avoid investment disaster.

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Carillion's true debt levels
Row 1 - Cell 0 Balance sheetnet debtEbitdaOp cash flowShareholders'equityNet debt/EbitdaNet debt/op cash flowNet debt/equity
Headline figures£218.9m£280.9m£115.5m£729.9m0.81.930.0%
Adjustments:Row 3 - Cell 1 Row 3 - Cell 2 Row 3 - Cell 3 Row 3 - Cell 4 Row 3 - Cell 5 Row 3 - Cell 6 Row 3 - Cell 7
Additional average net debt£367.6mRow 4 - Cell 2 Row 4 - Cell 3 Row 4 - Cell 4 Row 4 - Cell 5 Row 4 - Cell 6 Row 4 - Cell 7
Pension deficit£804.8mRow 5 - Cell 2 Row 5 - Cell 3 Row 5 - Cell 4 Row 5 - Cell 5 Row 5 - Cell 6 Row 5 - Cell 7
Est. hidden lease debts£402.5m£57.5m£57.5mRow 6 - Cell 4 Row 6 - Cell 5 Row 6 - Cell 6 Row 6 - Cell 7
Joint venture net debt£370.7mRow 7 - Cell 2 Row 7 - Cell 3 Row 7 - Cell 4 Row 7 - Cell 5 Row 7 - Cell 6 Row 7 - Cell 7
Deferred consideration£71mRow 8 - Cell 2 Row 8 - Cell 3 Row 8 - Cell 4 Row 8 - Cell 5 Row 8 - Cell 6 Row 8 - Cell 7
Promises of funding to PPPs£63.4mRow 9 - Cell 2 Row 9 - Cell 3 Row 9 - Cell 4 Row 9 - Cell 5 Row 9 - Cell 6 Row 9 - Cell 7
Effective number£2.3bn£338.4m£173m£729.9m6.813.3315%
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FTSE 350 retailers net borrowings and hidden lease debts
CompanyNet borrowingOp. leasecostHidden lease debt (op. lease cost x 7)PensiondeficitAdjusteddebt
JD Sports Fashion-£213.6m£167m£1.17bnRow 2 - Cell 4 £954m
Marks & Spencer£1.76bn£354m£2.48bnRow 3 - Cell 4 £4.2bn
Next£899.1m£225.6m£1.58bnRow 4 - Cell 4 £2.48bn
Sports Direct£34.1m£195.6m£1.37bn£3m£1.41bn
WH Smith-£4m£201m£1.4bn£5m£1.4bn
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Companies with high debt levels
CompanyMarket capDebt to marketcap. (inc. pen.def.)
Vedanta Resources£1,952m749.1%
Interserve£109m471.8%
AA plc£728m447.5%
EnQuest£360m443.8%
Premier Oil£555m437.7%
Ei Group£605m373.7%
Capita£1,302m268.1%
Trinity Mirror£210m260.2%
Gulf Marine Services£159m235.8%

Phil spent 13 years as an investment analyst for both stockbroking and fund management companies.

 

After graduating with a MSc in International Banking, Economics & Finance from Liverpool Business School in 1996, Phil went to work for BWD Rensburg, a Liverpool based investment manager. In 2001, he joined ABN AMRO as a transport analyst. After a brief spell as a food retail analyst, he spent five years with ABN's very successful UK Smaller Companies team where he covered engineering, transport and support services stocks.

 

In 2007, Phil joined Halbis Capital Management as a European equities analyst. He began writing for MoneyWeek in 2010.