FCA reprimands “reckless” Carillion for misleading investors
Former construction giant Carillion “acted recklessly” and made “misleading positive statements” about its finances prior to its infamous collapse in 2018, according to the Financial Conduct Authority (FCA).
Prior to sinking into liquidation two years ago, Carillion was one of the UK’s governments largest contractors. Its construction services spanned a wide range of projects, from roads and rail infrastructure to school buildings.
The Guardian stated that its collapse was “the biggest corporate failure in the UK in a decade” and prompted a nationwide recalibration of the responsibilities of executives, auditors, and the handling of public sector contracts by private companies.
On Friday, the FCA announced it had issued a formal warning notice to the defunct company and some of its former executive directors in September in relation to allegations of “breaches of securities rules” in the period between 2016 and 2017.
The firm has been accused of deliberately misleading investors about its financial stability even as it battled spiralling debt problems.
While the FCA did not publicly name names, it stated:
“They made misleadingly positive statements about Carillion’s financial performance generally and in relation to its UK construction business in particular. [The statements] did not reflect significant deteriorations in the expected financial performance of that business and the increasing financial risks associated with it”.
The city watchdog said that it would not pursue a financial penalty, but that Carillion should expect “public censure” as a result of its actions, and added that the FCA would seek further measures against former executive directors.
“At material times, the relevant executive directors were each aware of the deteriorating expected financial performance within the UK construction business and the increasing financial risks associated with it,” the FCA explained.
“They failed to ensure that those Carillion announcements for which they were responsible accurately and fully reflected these matters. The FCA considers that Carillion and the relevant executive directors acted recklessly”.
Some, however, have expressed disappointment in the FCA’s decision not to impose penalties on the collapsed firm, stating that public condemnation simply does not go far enough to hold the company to account.
Prem Sikka, emeritus professor of accounting at Essex Business School, condemned the FCA for failing to impose a financial penalty to serve as a warning to other companies, telling The Guardian it was “evidence of UK regulatory failure”.
The assistant general secretary of the Unite trade union, Gail Cartmail, also called for tougher legislation:
“This case demonstrates everything that is wrong with corporate law in the UK, a failure to act before a company collapses, very slow investigations following a collapse, and then if action is taken it is only a slap on the wrist”.
The FCA’s announcement comes on the same day Prime Minister Boris Johnson confirmed a £3.7bn ($4.9bn) funding package for new hospitals, including two major projects which had been stalled by Carillion’s collapse.
Caffè Nero launches CVA after pandemic “decimates” trading
High street coffee shop chain Caffé Nero has launched a Company Voluntary Agreement (CVA) amid a major restructuring drive as the firm battles to avoid job losses and store closures. The impact of the Covid-19 pandemic has reportedly “decimated trading”, and that despite surviving the first lockdown, the current firebreak has forced the chain to resort to “further action” to stay afloat.
The firm – founded in 1997 and currently boasting over 1000 sites across eleven countries – is seeking a CVA, which will allow it to renegotiate terms with its landlords and creditors while still publicly trading. Accountancy firm KPMG has been appointed to oversee the process, with the hope that structural changes can be made “to better manage its fixed costs moving forward”.
Sales at Caffé Nero suffered immensely during the pandemic, as the majority of its 800 sites in the UK were forced to operate a take-away only service in the spring. Despite loosened restrictions over the summer when stores reopened, high street footfall remained well below average levels amid concerns about infection, and the chain has struggled to drum up enough sales to offset its losses in recent months.
While Caffé Nero was able to navigate the first lockdown – albeit with some difficulty – the firm said that the ongoing firebreak has driven it to new lows.
Gerry Ford, the chain’s founder and chief executive, stated:
“With many people continuing to work from home, ongoing limits to social interaction and a sustained reduction to footfall in city centres, it is unclear how long this will impact Caffè Nero”.
“Like so many businesses in the hospitality sector, the pandemic has decimated trading, and although we had made significant progress in navigating the financial challenges of the first lockdown, the second lockdown has made it imperative that we take further action”.
It is understood that the CVA will see the chain moving most of its stores to a turnover-based rent system, and has reassured that it will strive to keep store closures to a minimum.
Caffè Nero currently employs about 5,000 UK staff, and usually serves as many as 135 million customers every year.
“Like many others across the sector, the impact of measures introduced in response to the Covid-19 pandemic has been devastating,” said Will Wright, head of regional restructuring at KPMG.
“In putting forward this CVA proposal, the directors have worked hard to strike a fair compromise with stakeholders to provide the flexibility the business urgently needs to get it through the pandemic”.
ESMA warns fund managers to prepare for future adverse shocks
The European Securities and Markets Authority (ESMA) – the European Union’s securities markets regulator – has published a report on the preparedness of investment funds with significant exposures to corporate debt and real estate assets, warning managers to buckle up for potential future adverse liquidity and valuation shocks.
What did the report find?
The report identifies five “priority” areas for action which would enhance the preparedness of these fund categories:- Ongoing supervision of the alignment of the funds’ investment strategy
- Liquidity profile and redemption policy
- Ongoing supervision of liquidity risk assessment
- Fund liquidity profile reporting
- Increase of the availability and use of Liquidity Management Tools (LMTs)
- Supervision of valuation processes in a context of valuation uncertainty
Next steps for the ESMA
The ESMA said that it has “reinforced its coordination role regarding investment fund supervision” during the Covid-19 crisis, increasing its “frequent exchanges with NCAs [National Competent Authorities] on market developments and supervisory risks” – particularly on liquidity issues. In addition, the ESMA has also organised “regular data collection” on the use of LMTs by EEA [European Economic Area] UCITS and AIFs to ensure a more thorough overview of market performance. In response to a recommendation from the European Systemic Risk Board, the ESMA stated its intentions to “follow-up” with NCAs in relation to the “priority” areas 1, 2, and 5 in order to “foster supervisory convergence amongst NCAs in the area of liquidity risk management and valuation in stressed market conditions”. From a financial stability perspective, the ESMA said that its aforementioned priority areas should also “reduce the risk and the impact of collective selling by funds on the financial system, by addressing the liquidity and valuation risks at the level of the investment fund”. ESMA has confirmed it will continue to “monitor” this risk with regular assessments of the “resilience of the fund sector and participation to the development and operationalisation of the macroprudential framework for non-banks”.More than half of Brits in the dark about their credit score
A new report by SWNS Digital found that more than half of Brits have no idea what their current credit score is, raising concerns of a “huge impact” on their financial health.
The survey, conducted via OnePoll and commissioned by Experian (LON:EXPN) to mark the launch of its new credit score improvement service Experian Boost, included more than 2,000 British adults.
The results revealed a significant proportion were unaware of their score and even more could not identify the factors which contributed to it.
Three in 10 “never” look at their credit score, while a further quarter are “unaware of what factors contribute to it”.
Citing the one fifth of Brits planning to apply for credit in the New Year, SWNS warned of a brewing problem, as lenders use credit scores when reviewing applications.
The top reasons for Brits not spending more time monitoring their financial health included: lack of time (15%), not enough knowledge (21%), and being “scared” of what they will find (12%).
Despite this worrying statistics, the survey found that a third of adults have “become more aware” of their finances since the start of the pandemic, with more than a fifth now saying they believe they gave gained better control of their monetary situation since March.
This is mostly down to 56% of Brits having more time to sort out their finances, as lockdown measures forced the majority to work from home and gave some an opportunity to save on everyday expenditure such as travel and take-away coffee.
50% of those surveyed said that they wanted to be better prepared for the future, while 54% say that a benefit of taking control of their financial health has been having “peace of mind”. 26% of Brits are now “better at saving” as a result of the pandemic.
James Jones, head of consumer affairs at Experian, stated:
“The current circumstances mean many have had no choice but to take more notice of their spending.
“We also know that consumers are more likely to take an active interest in their overall financial health if they feel like they can directly control it – whether that’s by making a concerted effort to build savings or by improving their credit score”.
Gold prices inch higher as vaccine euphoria wears off
Gold gained towards the end of the week after the initial buzz from the news that the BioNTech-Pfizer vaccine proved more than 90% effective in Phase III tests begun to wear off, with doubts over the efficacy and distribution. Markets soared back on Monday in response to the US election result, but coupled with the fading optimism about a cure-all vaccine, the precious metal has inched higher as investors turn back towards their trusted safe haven assets.
After a 1.65% fall over the past month, pot gold rose 0.8% to $1890.90 per ounce on Friday afternoon (14:36 GMT) and US gold futures were up 1% to $1892.20.
A joint survey by Central Banking and Invesco released this week has revealed that 23% of world central banks see gold as a “more attractive asset” following the Covid-19 pandemic, while the remaining 77% responded their view on gold “had not changed”.
Even though opinions have not markedly changed, central bankers “generally expect their gold holdings to increase over the next year”, and general public investor demand for gold has been “robust” throughout the pandemic as the investing public still sees the metal as a safe-haven asset during market turbulence.
Commenting on gold’s gains on Friday, Kitco Metals senior analyst Jim Wyckoff told Reuters:
“We have got Covid-19 raging in the U.S. and the uncertainty surrounding that the potential for some more economic damage in the coming months; all that is working in favour of gold market bulls”.
He added: “Everybody was excited about the vaccine, but then the grim realisation sets in that it will probably not be available for general public consumption until late winter or spring and until then… we’ve got to get through some very rough waters”.
Eli Tesfaye, senior market strategist at RJO Futures, also weighed in:
“There is fear of a second wave with lockdowns and restrictions and the market has to work through (some) stimulus whether we’re in a lame duck situation or with a new President elect. So, the market at some point has to anticipate that cash and price in the potential inflation”.
Gold also received a boost from a weaker US dollar index on Friday, as well as dwindling crude oil prices trading at $40.50 a barrel.
Christopher Lewis, writing a price forecast for FXEmpire today, argued that gold looks set for an upward trajectory in the near future:
“You can make an argument for gold going higher regardless of what happens next, just due to the central banks, but when you start talking about currency destruction and economic slowdowns, gold is a bit of a ‘safety trade’.
“If the coronavirus situation continues to cause major issues, then we are looking at a scenario where people may be looking to pick up gold in order to protect wealth in a slowing economic situation as well”.
Gold as currency fintech Glint Pay secures additional £2.5m in funding
Gold as currency fintech firm, Glint Pay, has continued its expansion since its Crowdcube campaign in 2018. Today, it announced that it had secured an additional £2.5 million in funding to support its growth, to 138,000 active users in the next twelve months.
The funding news follows the launch of Glint Pay’s peer-to-peer transfer facility – called ‘Glint It!’ – which allows users to send and receive money, including spendable gold and other forms of currency. The company identifies itself as one of the first to use gold as ‘an everyday global currency’, with its app allowing customers to ‘buy, sell, spend and share’ their physical gold.
Speaking on the recent fundraiser, the company said that £1.25 million was made up of private investment, with the remaining £1.25 million being contributed by the UK government’s Future Fund. Glint said that the fund matches the capital raised through private investment, and that it ”was launched to support innovative companies during the Covid-19 pandemic”.
Since its launch in 2016, this latest round of investment sees the company’s funding amount to a total of £24 million. The company said that the recent funds will be leveraged to support the growth of its fintech app, and will contribute to key personnel hires, marketing investment and expanding the Glint userbase.
Commenting on the news and the company’s ambitions, Founder and CEO, Jason Cozens, said: “This latest funding is another significant step towards fulfilling our growth plans. We set out to transform the industry and the amount of funding we’ve secured since launch proves that there’s real appetite amongst investors and consumers for an innovative alternative to spend, save and store their finances.”
“After last year’s expansion into the US and the launch of our P2P offering, Glint It!, we’re eager to tackle the next stage of our growth and meet our ambitious targets over the next 12 months. Additional funding will help to facilitate this, but it is our diverse and exceptional leadership team that provides us with a clear, competitive edge.”
Mr Cozens added that the Future Fund has been “hugely effective” for many businesses in the current climate, and will help the government’s ambition to support the UK’s most innovative companies. He finished by saying that: “This fundraising will accelerate our international expansion as well as attract additional future investment sources, from both within the UK and externally.”
With the demand for online banking and fintech solutions allegedly rising by 50% during the pandemic, it will be interesting to see whether Glint will continue to capitalise on what is essentially an unsteady market. Also worth considering is that gold has rallied once again on Friday, but should a COVID vaccine be rolled out successfully, will safe havens like the dollar and gold lose some of their appeal – and would this affect Glint’s success?
Synairgen shares bounce 30% as SNG001 shown to accelerate COVID-19 recovery
Respiratory drug developers, Synairgen (AIM:SNG), saw their shares rally by almost a third on Friday, as the company reports that its SG016 trial demonstrated the efficacy of its SNG001 treatment in treating patients with COVID-19.
The company posted its recent trial data in The Lancet Respiratory Medicine journal, which illustrated ‘positive topline results’ from a randomised study of 101 hospitalised COVID-19 patients to either SNG001, Synairgen’s inhaled formulation of interferon beta-1a, or placebo.
Positive data has been reported over time, in July, September, and now in November, in greater detail. The trial was double-blind, randomised, placebo-controlled, and sought to test the efficacy and safety of inhaled SNG001 as a therapy for patients hospitalised with COVID-19. Patients received the SNG001 or placebo by inhalation via a mouthpiece once daily for 14 days, with the primary endpoint being the change in clinical condition, using the WHO Ordinal Scale for Clinical Improvement.
Synairgen said that, based on the trial, “SNG001 was shown to be well tolerated and patients who received the drug had greater odds of improvement and recovered more rapidly”. Across the scale of clinical improvement, patients receiving the SNG001 were seen to have greater odds of improvement, and were also more likely to recover to “no limitation of activity” during treatment. Most notably: in the placebo control group, there were three deaths. In the SNG001 sample, there were none.
Speaking on the trial data, company Professor Tom Wilkinson, Professor of Respiratory Medicine at the University of Southampton and Lead Author, said:
“The results confirm our belief that interferon beta, a widely known drug approved for use in its injectable form for other indications, may have the potential as an inhaled drug to restore the lung’s immune response and accelerate recovery from COVID-19. This pH neutral, inhaled interferon beta-1a formulation (SNG001) provides high, local concentrations of the immune protein which boosts lung defences rather than targeting specific viral mechanisms. This might carry additional advantages of treating COVID-19 when it occurs alongside infection by another respiratory virus such as influenza or Respiratory Syncytial Virus that may well be encountered in the winter months.”
Following the announcement, Synairgen shares rallied by between 30% and 35%, up to more than 131p apiece at lunchtime on Friday 13/11/20. Until July, the company’s stock was trading for around half this price, but once the first SNG001 data was published, shares traded for as much as 246p.Nakama shares fall 20% as it states ‘working capital situation may deteriorate’
Recruitment consultancy firm Nakama (AIM:NAK) saw its shares dip by as much as 28% at one point on Friday, as the company laid bare the bleak outlook for its trading and cash flow.
The company, which operates across web, interactive, digital media, IT and business change sectors, fleshed out its earlier COVID-related announcement back in September, which discussed the ‘immediate and significant impact’ the pandemic had had on its trading activities.
On Friday, Nakama said it had relied on a number of government initiatives – such as the Job Retention Scheme in the UK – as well as state support in Hong Kong and Singapore. The aim of taking part in these schemes, it said, was to preserve cash and ‘retain the business ability to continue to trade’.
Its statement on Friday said that trading had been in line with management’s expectations, which had been adjusted once the practicalities of the pandemic came into full effect. However, it maintains that market conditions remain unfavourable, ‘particularly in light of a second wave’, which has prompted new national lockdowns and continued uncertainty.
Speaking on the deflated situation the company finds itself in, the Nakama statement read:
“It remains the Board’s view that as the various government support schemes are ended, the Company will face a number of trading and cashflow challenges and without access to additional capital the Group’s working capital situation may deteriorate. The Company’s largest shareholder has made it clear to the Board that they would not support a fundraise and would vote against the necessary shareholder resolutions to issue new shares.”
“As such and noting that the UK government support schemes are due to end in Q1 2021, the Board is now exploring a number of options for the Company and its businesses and further announcements will be made as and when appropriate.”
Following the announcement, the company’s shares were down by between 20% and 28% on Friday, down by around 22% at lunchtime – at 0.54p a share 13/11/20. This is still above its year-to-date nadir of 0.23p in March, but represents a climb-down from a recent uptick, with the company’s stock moving between 0.75p and 0.80p during October.Galliford Try reveals “excellent” start to financial year
Galliford Try (LON: GFRD) revealed an “excellent” start to the financial year and expects to return to profitability in the first half.
Amid the first lockdown, the construction group faced major disruption as sites shut and projects were delayed to adhere to social distancing measures.
Productivity now continues at normal levels and since July, all operations are continuing since normal despite the second lockdown.
The company said: “Our strategy and sector focus mean that the group is positioned to emerge strongly from the pandemic, supporting the government’s planned investment in infrastructure and economic recovery.”
Galliford Try has revealed plans to continue paying a dividend at the half-year stage.
Shares in the group spiked this morning and were up over 17%. Galliford Try shares (LON: GFRD) are currently trading 14.18% higher at 93,82 (0927GMT).
Castings Plc swings to loss but will pay dividend
Castings shares (LON: CGS) fell on Friday as the group swung to an interim loss.
In the group’s half-year report, the metals fabricator reported a loss before tax of £0.63m – compared to the £7.34m profit a year earlier.
The company said in a statement that demand had been “significantly impacted” amid the pandemic.
Output fell by approximately 80% during the first two months of the period as the commercial vehicle sector, which represents 70% of group revenue, closed production facilities.
In the six months to September 30, sales plunged by 43% to £41m.
There continues to be uncertainty, however, the current heavy-truck schedules are suggesting that trading is returning to pre-pandemic levels.
“The group has been successful in obtaining a number of new projects with our European truck customers that will commence production in 2021/22 and 2022/23. In addition to replacement work, these projects include additional platform volumes and also more value-add product solutions,” said the group in a statement.
“The group maintains a strong balance sheet with cash levels of £35.2 million; an increase of £1.8 million during the period after the dividend payment of £5.0 million.”
Despite the disruption, the group is said it will pay a dividend. An interim dividend of 3.57 pence per share has been declared and will be paid on 7 January 2021 to shareholders. Castings shares (LON: CGS) are currently trading -2.66% at 324,14 (0857GMT). In the year-to-date, shares in the group have fallen from highs of 443,76.