Clough facing pressure to change its corporate ways

WA business icon Clough Limited is officially a public company but retains the character of a family company, according to broking analysts.

This harsh assessment follows Clough’s shock profit warning earlier this week, which analysts believe reveals deep-seated flaws at the engineering company.

Clough has achieved great success winning contracts and building revenue, which is expected to exceed $1 billion this financial year.

However, it has been unable to deliver improved earnings per share and struggled to manage commercial risk – something the company has acknowledged and says it is dealing with.

“They have expanded too quickly and made a couple of blues,” Paterson Ord Minnett analyst Rob Brierley, said.

Clough expects to report a loss for the six months to December 2002, after disclosing problems with two unnamed projects.

“Investors may feel a sense of déjà vu with this announcement,” Hartleys’ analyst Steven Piotrowski said.

Two other unnamed “problem contracts” adversely affected Clough’s 2001-02 results.

DJ Carmichael analyst Peter Strachan said he believed the company needed a greater focus on shareholder returns, rather than simply growing revenue.

He has also called for more independent directors and an infusion of managers with financial expertise.

Mr Strachan cited the continuation of a generous dividend reinvestment plan as an example of the company’s lack of commercial focus.

The DRP encourages share-holders to buy extra shares, even though Clough has a very strong balance sheet and failed to increase earnings per share.

Clough managing director Brian Hewitt said he believed the company was already moving in the right direction.

“We’ve been working on these sorts of issues for some time,” he said.

Specifically, Clough was in the process of introducing a new financial and costing system, and was cultivating a more commercial profit-oriented culture.

“I don’t concur that engineering people are not commercial. That is a real drive in our company,” Dr Hewitt said.

He said the company was looking to appoint extra non-executive directors and agreed that the DRP would be under review.

Montagu Stockbrokers’ James McGlew said he believed the forecast loss “will only increase the pressure for change”.

“What you have got here is a real sea change of market sentiment,” he said in reference to heavy selling of Clough shares.

Looking ahead, Mr Brierley anticipated a net profit of approximately $20 million in the current financial year.

Mr Piotrowski is more negative, tipping a net profit of only $15 million.