Accounts problem costs Mowlem dear

CONSTRUCTION group Mowlem plunged into the red last year after taking account of a £12m accounting black hole. The company said that although underlying performance was broadly in line with the previous year, the costs of the exceptional charge and other one-off costs had led to a £15.3m pre-tax loss. This compares with a £45.2m profit last year.

The accounting problems date back to 2001 and related to the way that major work was accounted for. The company said it had discovered several work-in-progress and debtor balances which were unlikely to be recoverable.

The problems came to light after a review by new chief executive Simon Vivian, who took over on 1 January after the early departure of Sir John Gains in December.

The extent of the accounting issues prompted a major reorganisation of UK operations. The company is now to take a much more conservative view of the way it accounts for key contracts after substantial write-downs in the value of some major construction contracts.

Group finance director Gerald Brown resigned after the extent of the accounting problems became known. Although he remains with the company, he is to be replaced by Paul Mainwaring, currently finance director of logistics group TDG, who will join the company before the end of May. Vivian said that all necessary corrective decisions to resolve the impact of the accounting problems had now been taken.

Among the changes is a thorough revamp of internal controls. Vivian said that the group's approach to risk management is being overhauled and there will be more thorough processes for monitoring contract performance to avoid further accounting problems in future.

There was some respite for investors who were told last month that the company risked breaching its bonding facilities. The group has now renegotiated its banking facilities and agreed a new five-year arrangement that means the risk has now receded. Shareholders also receive a final dividend of 2.5p, making a total of 5.4p for the year as a whole.

Mowlem said turnover remained strong with turnover up 4% last year to £2.06bn, including a 16% rise in support services turnover ? though this business reported a £4.5m loss because of a number of problems with old contracts.

New managers have been appointed to run parts of the division and the company said it did not anticipate missing anticipated revenue targets. The company continued to push ahead with its Private Finance Initiative work.

Since the end of the year Mowlem has secured a £5bn contract to look after army barracks. Last year it agreed terms on a £315m schools PFI in Exeter and says it is well placed to benefit from the £30bn investment the Government plans to put into the education sector over the next 15 years.