Shares in WA civil construction company, Brierty Ltd (BYL) were battered yesterday after it revealed an earnings downgrade only five weeks or so after a previous forecast.
The shares fell more than 44%, to 26c, a sizeable fall on the day of 20c, and about 90% down from its high of $1.855 reached just after it floated last year.
It was a rather ignominious fall for the company which is finding it hard to cope with being a public company.
For a WA civil engineer group to suffer such a fate and an earnings slump in the middle of the biggest construction and resources boom in the state’s history says something about what is missing from management. And yet the company was boasting earlier this month of ‘strengthening management’ by the appointment of a new chief financial officer and a new human resources manager.
In a statement to the ASX yesterday morning Brierty said that it was issuing a new "pro-forma profit guidance of $3.6 million after tax for the financial year to 30 June 2008".
"The revised pro forma profit guidance compares with a forecast range of $8.2-9.2 million announced to the market in April 2008 and a pro forma net profit forecast of $10.3 million contained in the Company’s 2007 prospectus," the company told the ASX.
"The downgrade is the result of higher than expected costs and margin erosion on a small number of significant contracts that have been or will shortly be completed."
For the downgrade to be a cut on a previous downgrade on the prospectus forecast says enough about the lack of systems.
But the first downgrade was given on April 16, and yesterday’s second downgrade represents a cut of well over 50%.
"Brierty’s forecast revenue for the 2008 financial year of $199 million remains on track, but the increase in costs has eroded the expected margins on the contracts in question," the company said.
Brierty Chairman Dalton Gooding said the Board was deeply disappointed with the result and investors had every right to be angry, especially given the company had revised its guidance as recently as 16 April.
Mr Gooding said the additional project costs had emerged on completion and reconciliation of final claims on 3 major contracts in recent weeks.
“It is clear to the Board that the Company has battled in some areas to keep pace with the high levels of business growth in recent years,” he said.
“It has become evident that notwithstanding the strength of the revenue growth achieved in recent years – including in 2008 – internal systems growth has not kept pace.”
Brierty founder Alan Brierty has informed the board of his decision to step down as Managing Director to concentrate fully on the operational side of the business which he has built up over 27 years.
Mr Gooding said the board had engaged a national professional recruitment firm to find a suitable replacement CEO. The Board is also undertaking a search for a new non-executive director with relevant industry experience. Mr Brierty will step down from his position on the appointment of the new CEO but will remain on the board as an executive director.
Mr Gooding said the board had engaged international construction and management consultants Turner & Townsend to conduct a review of Brierty’s project management capability.
In addition, human resource consultant Gerard Daniels is close to completing a structure review to identify areas in which Brierty’s management structure and systems can be improved.
Mr Brierty said that although the reasons for the profit downgrade relate to an unexpected increase in costs, he appreciated the impact this has on investors.
“We took Brierty to the market last year as a well-run company with a proud history and great prospects. All of that remains true today but the profit downgrade is extremely disappointing,” said Mr Brierty.
Mr Gooding said Brierty had faced challenges in making its transition from a private to a public company:
“Brierty has a strong underlying business but the demanding task of managing a listed company has challenged a management group whose track record and experience are based in operations.
"The positive news is that Brierty has maintained strong underlying revenues and continued demand for its services, with a track record of quality and timely project delivery. The recent appointment of Tony Bevan as CFO is another positive step forward.
"Our objective now is to move on with an improved performance in 2009. We are confident Brierty has a good future and as a Board we are committed to restoring value for shareholders."
Brierty says it operates through four business units:
Roads – major highway construction, siteworks, concrete and pavement works;
Mining – site preparation including stripping overburden, siteworks for building; infrastructure, roadworks, tailings dams, residue deposal areas, roadworks, rail formation, airstrips and surface mining;
Urban development – earthworks, drainage and service installation, sewer reticulation, roadworks and subdivisional infrastructure for the creation of housing lots;
Major infrastructure – including bulk and structural earthworks, rail formation, airport runways, and concrete and pavement works.
