Multiplex Group has revised its forecast Aggregated Group Profit After Tax and before stapling eliminations for FY2005 to $170 million. This compares to previous guidance of $235 million, which specifically excluded the accounting impact of Multiplex's investment in Duelguide.
The forecast result has been negatively impacted substantially by the Wembley National Stadium project and the accounting impact of Multiplex's investment in Duelguide. This can be reconciled with the earlier guidance as follows:
- Previous guidance 235 $m
- Accounting impact of Duelguide equity investment (after tax) (18) $m
- Additional Wembley write down (after tax and indemnity) (41) $m
- Other (6) $m
- Total 170 $m
Impact of Wembley National Stadium project on FY2005 results
Multiplex has made a pre-tax provision on its Wembley National Stadium project in the United Kingdom of £24 million ($59 million pre-tax or $41 million after tax), from a previous break-even position.
As previously advised, Multiplex completed a detailed review of program and costs relating to Wembley National Stadium in February 2005. Following that review, Multiplex recognised a material increase in the expected cost to complete the project and subsequently wrote the project back to a break even position. At that time, the scheduled completion date was December 2005.
Multiplex has introduced various enhanced risk procedures since February 2005, including a process whereby all of its major construction contracts (exceeding $100m contract value) are to be subjected to an additional internal review on a regular basis.
Most particularly, an internal peer review has been undertaken on the Wembley project. This review has highlighted that the productivity levels that had been assumed previously are not currently being achieved. The peer review has concluded that while Wembley is now expected to be completed by the end of March 2006, in time for the FA Cup Final to be played in May 2006, the costs associated with completion of this program are anticipated to have further increased which is expected to result in a loss on the project.
Multiplex anticipates being able to commence a staged handover of the project to our client in January 2006.
Multiplex estimates the loss in relation to Wembley to be £45 million ($109 million) excluding the $50 million Roberts Family indemnity, announced in February 2005. As a result of the review, Multiplex is now recognising a pre-tax provision on the project of £24 million ($59 million pre-tax or $41 million after tax) including allowance for receipt of the Roberts Family indemnity. This position assumes no change in the level of claims recoveries previously advised.
The major risks to achieving this result include:
- the ability to successfully recover claims against third parties;
- the ability to meet the project's program;
- the costs associated with completion of the project's steelwork
- the costs of project preliminaries and, as required, acceleration; and
Multiplex Chief Executive Officer and Managing Director, Mr Andrew Roberts, said: "The Wembley result is unacceptable and completely overshadows the strong results from all other parts of the business. Since February, we have implemented a range of measures to isolate and address problems at Wembley including a peer review that has just completed, the appointment of new senior management and new risk management procedures.
However this latest result is extremely disappointing and we acknowledge it will take some time to earn back investors' confidence.
Despite the disappointing revision to our earnings forecasts, all other operating divisions within the company and Multiplex Property Trust continue to perform at or above expectations. We have completed a review of a significant number of major projects and no material issues have been identified other than Wembley," he said.
Accounting impact of Multiplex's investment in Duelguide
Previously announced earnings guidanc