Memo to all Staff – Clough Limited UpdateIt has been some time...

Memo to all Staff – Clough Limited Update

It has been some time that I e-mailed you all regarding rumours circulating about the company. Since that time I have spoken to most of you about our problem projects and the changes we are making. I thought it appropriate that I now bring you up to date again on how we are travelling and the change program we are working on.

We are nearly through our problem projects. We have completed all work and negotiations on the Cape Lambert project and we have maintained a good working relationship with our client. Other difficult projects, both in Australia and overseas, are now complete or near complete technically without further problems, but we have important commercial negotiations ahead of us. A lot depends on our project teams in these negotiations.

At the same time a number of our larger projects are going well. As we all know its never easy and each project has its difficulties, but there is usually good news as well. Sawan is a tough project, but Phase 1 is near complete and Phase 2 is well advanced. This will be a milestone project for us as well as our client. West Seno, is a great project and much of the risky work has now been completed. We are now working with our partner, Hyundai, to load out and commission the floating production unit. The PNG Refinery project work on site is going very well and we have no doubt that this long awaited project will be a success. BassGas, our largest ever project in Australia, is also going well. It’s a little behind schedule in some areas but we are well advanced in engineering and procurement, and construction work on site is underway. This will be a stand out project for the oil and gas industry in Australia. An overriding challenge on all these projects is to convert technical success to profit for our shareholders.

Tendering has been fairly quiet in the last few months and we have not won a significant project since January. Work-in-hand stands at just over $800 Million, which is OK for now but will need a boost shortly. Tendering activity is on the increase and there are good projects for us to bid on, particularly in oil and gas and infrastructure work, so we can be hopeful. It is important to remember however that we need to recognise and exploit our competitive advantage in any work we bid – a successful tender is one that gives our project team a good chance of making a profit.

You would be aware of the many changes that we have made in response to our recent poor performance. We have changed the Board, we have made changes in some divisions and we have changed some project teams. With all that we are still very concerned that a consistent finding in analysing our poor projects is that there was deficiencies in following company procedures and a lack of commercial discipline. It is very clear that if we ignore the lessons of the past and don’t adhere to the Clough project ‘rules of the game’ we will have further problems. We cannot let that happen and we will be making more organisational and procedure changes to ensure that it does not. The poor performance has also impacted on the way we set our budget for the coming year. The budget process is now well underway and we will be making some substantial cuts across the business which will probably mean that some restructuring and reductions in positions will be unavoidable.

Currently we are working in a number of areas were improvements are required. We are looking at our remuneration packages and hope to introduce more performance assessment and performance based remuneration components. We have introduced new training packages and will continue to develop packages that reflect the needs of the company. We are looking at introducing a more vigorous auditing regime to ensure that projects start and then continue with the appropriate system and procedure support. We are also working on reminding everyone of the importance of cost control, not only on projects but in head office as well.

We have told our shareholders that this year (the 2002/2003 financial year) may not be profitable. We had a poor first half. However, we have had a number of good months recently and we are working through our problems. With a continuing effort from you all, and a little luck, we should have a reasonable second half with the promise of a return to acceptable profitability in 2003/2004.

A word on the new CEO. The search is proceeding and there is now a shortlist of applicants from within Clough and from outside. The process is being managed by the Nominations Committee of the Clough Board and the plan is still to have the new CEO in place by the 30th of June.

Looking to the future. We are competent and strong with fantastic opportunities. We are fighting off our problem projects and will be profitable on our current projects. We are in a tough industry and we’ve had a rough time. However, if each one of us grabs the opportunity to learn from our recent history and is personally accountable for both our successes and failures, then the future for Clough is assured.



Brian Hewitt
CEO – Clough Limited
1/5/2003