Bandit Capitalism by Wylie Bob;

Author:Wylie, Bob;
Language: eng
Format: epub
Publisher: Birlinn

The acquisition of CES in April 2011 was an important strategic development, driven primarily by the need to extend our support services offering to include energy efficiency services, given that these services are an increasingly important part of the integrated facilities management and maintenance solutions required by our customers. The acquisition has also taken the Group into new markets with good prospects for growth.13

Unfortunately Carillion’s due diligence and analysis were fundamentally flawed. A matter of months after the takeover was signed off, the Conservative government cut the subsidies that homeowners got for installing energy-saving solar panels. Solar panels were a big part of Eaga’s business. In the first post-takeover year the subsidies cut resulted in a 20% slump in sales and a £113 million loss. The Carillion board had underestimated the degree to which Eaga’s revenues were dependent on government funding; further, they had miscalculated hugely on the Cameron/Osborne government’s commitment to continue to fund its much-hyped, so-called ‘Green revolution’.

In 2010–11 the Government was spending £345 million on its ‘Warm Front’ fuel poverty programme, which was run at that time by Eaga. In the year that followed, 2011–12, when CES took over the programme, government funding fell to £100 million. By 2014 the ‘Warm Front’ programme was no more14 – fallen victim to George Osborne’s savage austerity programmes. In 2011, Carillion had predicted that the proposals in Government’s ‘Green Deal’ programme on home energy improvements would kick-start a £14 billion investment boom in energy efficiency assets which would last for ten years. The ‘Green Deal’ programme was launched in 2013 and was scrapped two years later due to lack of take up. There was no green investment boom.

When the takeover went through, Eaga’s turnover was £663 million. Five years later, by 2016, turnover had slumped disastrously to £43 million. CES was effectively bust by then. Carillion’s cumulative losses for the Eaga catastrophe totalled £370 million.15 In 2016 that was just over half the value of the net assets of the whole group – £729 million. McDonough had been at the helm when Carillion’s ship had embarked on the Eaga adventure and there is no doubt it took the shine off what many saw as his golden era.

People respected McDonough – ‘If John McDonough told you to paint the boardroom pink, you made sure you painted the boardroom pink,’ as one senior manager who wanted to remain anonymous told me. Yet it was not long into the Eaga saga that questions were being asked – ‘Has he lost his touch?’ There was also the growing crisis of the yawning pension deficit; he might have wanted to avoid that blemish on his business reputation by getting out early. These factors may have been influential in McDonough’s somewhat unexpected announcement, in August 2011, that he was stepping down at the end of the year as the chief executive. At the time he told the Financial Times, ‘I have a house down in South Africa so I’m going to relax down there, hopefully lose a bit of weight, get fitter.

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