A Hard Game At Wembley

Sydney Morning Herald

Monday December 26, 2005

Kate Askew and Carolyn Cummins

It's a stadium where dreams have come true. But for Multiplex it's a nightmare, as Kate Askew and Carolyn Cummins reveal.

AT WEMBLEY Stadium on a sunny day in July 1966, Geoffrey Hurst won himself immortality in the memories of England's football-mad masses.

A cross from his English teammate Alan Ball found Hurst, whose shot ricocheted off the underside of the bar. The Swiss referee did not see whether the ball crossed the goal line, leaving the crucial decision to the Soviet linesman. He said it did, and in the 101st minute of the World Cup final, England took the lead from West Germany and, shortly afterwards, took the trophy, its only one.

It is regarded as one of the most controversial moments in the annals of international football.

Today, in mid-winter England, the pitch at Wembley is gone. In its place, workers are digging the foundations for a new field. The stadium - football's mecca - is awash with construction activity. Instead of the chanting of fans, the stadium resounds with the clatter and hum of steelworks as roof panels are worked into place.

Now, nearly four decades on, controversy is again plaguing Wembley.

For Australian construction giant Multiplex, rebuilding Wembley has been a road to purgatory rather than a pilgrimage to Mecca.

Its job was to rebuild the ageing stadium into a sporting amphitheatre for 90,000, with two crescent-shaped roof pieces and a giant arch angled over the arena. The bill has been estimated at at least #757 million ($1.89 billion). It will be a major engineering feat. The experience has left the once reputed tough guys of the Australian construction industry looking like ingenues.

Five days ago, Multiplex finally conceded that construction might not be finished in enough time to allow the Football Association to prepare for the May 13 FA Cup final.

This cannot have come as a surprise for the FA, which in early November was revealed to have booked Cardiff's Millennium Stadium as a backstop.

Five times this year alone, Multiplex has gone cap-in-hand to its shareholders, begging forgiveness for dashed promises made over Wembley.

"On the disclosure side, from the standpoint of global investors, we have got used to an extraordinarily high level of disclosure by Australian companies," says David J. Oakes, vice-president of Cohen & Steers, a New York fund manager with $US20 billion ($27 billion) under management, predominantly in property investments. "In that context Multiplex stands out as a problem. We don't think there is proper information disclosed to us to get our heads around the entity."

Oakes, whose fund owns Multiplex securities, had a lengthy meeting in Multiplex's London offices with chief executive Andrew Roberts several weeks ago.

For his part, Roberts's frustration is palpable, as is his shame at a project gone so horribly wrong.

The very personal manner in which the Roberts family has taken the Wembley tragedy was displayed in February when John Roberts - family patriarch and founder of the international construction group - went to his board and offered to put up $50 million from the family coffers to cover the losses. Soon afterwards he resigned as chairman, though he remained on the board.

"The project has proved horrendously complex - its true complexities only unveiled themselves over the course of its construction," Andrew Roberts told the Herald this week.

"As we have discovered to our detriment, it is of a magnitude more difficult than Stadium Australia."

Both father and son have been living in the UK and, in the past month, Multiplex has added more senior management resources to the project.

Wembley must have seemed a fabulous starting point to John Roberts. He arrived in the United Kingdom determined to make a mark, as he had done in Australia over four decades, culminating in the construction of Sydney's Stadium Australia on time for the 2000 Olympic Games. The prestigious Wembley project was the perfect entree. The antipodean construction firm won the contract, ruffling enough feathers along the way to result in Britain's Parliament commissioning a special report into the process.

Since revealing the problems with Wembley early this year, Roberts snr has handed over to the experienced independent chairman Allan McDonald, whom his son Andrew describes as "first class" and "considered", and "offering strong leadership".

McDonald's arrival boded well for a company muddling its way from a private company to managing the demands of public company life.

Adding to Multiplex's reputation for ineptitude over its management of its public listing was this week's fiasco, when it came to disclosing more bad news on Wembley.

Since its first release last Monday morning, Multiplex has twice had to provide more information to its security holders.

The first release was made after the board - meeting by conference call - decided it was in the interests of continuous disclosure to advise that its audit committee was meeting that day and that there was adverse news to be discussed about Wembley.

"A report has been received by the board of Multiplex, following a detailed further review of the Wembley project, for an audit committee meeting this afternoon," Multiplex said in the statement. "The report indicates that an assessment of the final loss position on the project is subject to considerable variability depending on the outcome of steel costs, preliminary and acceleration costs, and final negotiation of numerous subcontractor claims, as well as finalisation of recoveries, including final settlement of variations with the client."

It said that full-year profit - estimated at $215 million - was likely to be reduced by $165 million, also accounting for the $300 million received from a deal negotiated with its joint venture partner, the Reuben brothers, over its Stratford and Global Switch projects.

By Monday afternoon, the Australian Stock Exchange was prodding Multiplex for more information. In fact, the board had intended to provide a preliminary estimate that afternoon, with a full estimate within, as it said, "a few weeks".

Multiplex came out with a further statement later that day.

That afternoon it said that any additional losses on the Wembley project were likely to lead to a "direct reduction in 2006 earnings guidance provided at the full year". This still wasn't satisfactory for the authorities. The board held another conference call to discuss Wembley after more prompting, this time from the Australian Securities and Investments Commission and the stock exchange in tandem.

Multiplex is still in the midst of an ASIC investigation into continuous disclosure issues surrounding Wembley that began six months ago.

The third release included detailed information from the report which went to the board. Added to its estimate of a reduction in profit of $165 million, were best and worst-case scenarios. The worst case, regarded by the company as "extremely unlikely and highly misleading", was a reduction in profit of $247 million, which would put Multiplex in a loss-making position of $32 million for the full year. A better indication of its worst-case scenario was a reduction of $205 million, leaving the company with a tiny $10 million profit.

Likewise there was a best-case scenario, which again it considered "highly misleading", of an increase in profit of $140 million. Under this scenario there would be a $60 million profit increase.

The likely reduction in profit - Multiplex's best guess, if you like - it estimated at a $104 million reduction in profit.

"There is a lot of uncertainty associated with this company," says Justin Blaess, ING Investment Management director, who spoke to the Herald after the fifth downgrade was issued. "It is hard to get a handle on the risk, which makes it hard to put the company up as an investment scenario."

Until now, Wembley has surprised only on the downside. The wildly different estimates clearly show that Multiplex is still fumbling in the dark. But with design changes still being made at this late stage of the project - a highly unusual construction scenario - there is little Multiplex can do.

By any measure, the project is a mammoth and hugely complex undertaking.

The giant roof - hanging like two partial discs above each side of the stadium - is suspended by a complex series of steel cables. Then there's the giant truss that runs from one end of the stadium to the other, at a slant and offset from the centre of the circular stadium.

The roof must be supported by a temporary support structure while the web of cables is connected. Once the pieces are connected, stress is applied to the cables, whereupon the temporary support can be removed. The temporary support further complicates matters because work cannot be carried out where it rests, but must wait until the support is removed.

Two engineering firms, first Cleveland Bridge UK and now Hollandia, were hired as subcontractors. Like Multiplex, both firms underestimated the cost of the work by at least half. Multiplex is still involved in long-running litigation with Cleveland Bridge, which began after it walked off the job following design difficulties with the stadium's eye-catching arch. It has also since failed in its efforts to lock in a fixed price with Hollandia.

In late November, the subcontractor hired to build the toilet blocks in the stadium failed.

The administrator, Grant Thornton's Les Rouss, told the Herald that he had been appointed administrator of the Stoke-on-Trent engineering contractor on November 28.

He says SGD Engineering Services and Multiplex were in dispute over the value of work that it had completed.

"Multiplex issued a valuation that was much lower," Rouss says. "We've since sold part of the business that didn't involve the Multiplex contract."

It's just a small example of the difficulties in such a complex project where Multiplex employs more than 100 subcontractors.

Compounding the situation for Multiplex is that it is working to a tight schedule. For Multiplex, this means that its subcontractors are acutely aware that the stadium must be finished by March 31 and therefore they can name their price. They have Multiplex over a barrel - a position it does not find familiar.

In its Wednesday statement, Multiplex for the first time acknowledged there was a "material risk" to the project being ready for the FA Cup final.

If that occurred, Multiplex disclosed it would lead to "significant additional costs". However, these costs will be contained within the worst-case scenario mentioned above. Liquidated damages are capped at #14 million.

"Multiplex continue to assure us that they will be in a position to hand over the stadium by March 31," says Jim Frayling, Wembley Stadium's head of public relations. "It remains the aim of Wembley Stadium and the FA to play the FA Cup final at Wembley on May 13, 2006."

Certainly, Multiplex has suffered in its transition to the UK. "Undoubtedly it's been a learning experience for us in terms of the difference between the UK and Australia," Andrew Roberts says.

As one observer puts it, Australians - used to playing their own mode of football - get the ball, turn around and kick for the goal. Multiplex is just that kind of direct player.

But in England, business, like sport, is very different. For a player to reach the goal on most of its football fields, he must have an obstacle in his way - that is, he needs to have a player in front of him or he is declared offside.

Multiplex has cited differences in the way it manages its subcontractors as one of the hurdles it has faced at Wembley. Sadly for the Roberts family, it is Wembley that has led to more fundamental questioning of the company.

"It's unclear if in the public market Multiplex is in the right venue for a business with that level of cash volatility," says one of those institutional shareholders, querying the decision by the Roberts family to take the advice of investment bank UBS and pursue a public listing.

As Roberts jnr has found, mud sticks. He is fully aware that mouthing figures like $3.3 billion in net assets and the knowledge that Multiplex has the full support of its bankers doesn't stop scaremongering about the group's financial security.

The completion this year of two successful residential building projects in the London boroughs of Chelsea and Knightsbridge, for example, have been lost in the commotion over Wembley.

Unexpected obstacles in the stadium project have singularly resulted in the unravelling of the company's reputation.

As Napoleon Bonaparte said, "perfidious Albion" - treacherous England.

© 2005 Sydney Morning Herald

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