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Downer needs strong leader for tough decisions
ADELE FERGUSON
August 2, 2010 - 12:22PM

The sudden departure of Downer EDI chief executive Geoff Knox sends a strong message to the market that the engineering and contracting group knew it had to do something to restore credibility and the battered share price.

It now needs to take the next step and overhaul the board, starting with the chairman Peter Jollie who has sat on the board for more than six years and presided over many disappointments.

In a statement to the ASX this morning, the company said Knox resigned on Friday night and had been replaced with the chief financial officer Grant Fenn, who joined the company last October.

Fenn's meteoric rise to the top job in less than a year symbolises the mess going on inside Downer. If Fenn can pull it together and rebuild credibility he will restore investors' faith not only in the company but also in the ability of CFOs to run companies effectively.

Right now Downer needs a strong leader to make some tough decisions, including a big rights issue, a re-look at the rail contract with the NSW Government and the possible sale of one of its divisions.

Given he has only been there a short time he will not be sentimental or caught up in the politics of the company. But he only has a short window of opportunity to make his mark.

He will also need to prove that he is more than a bean counter. The market reacted to the change in the guard by marking the share price down a couple of percentage points.

In a statement Fenn said he would discuss the company in more detail when it reports its results on August. The market is anticipating he will unveil a massive rights issue and come clean about the contract with the NSW Government, which is highly complicated and has caused it a lot of grief.

This grief became palpable on June 1 the company was forced to write off $190 million from the Waratah rail contract due to cost overruns on manufacturing rolling stock and another $70 million in impairments relating to the write-down of goodwill on the British and New Zealand businesses, impairment of assets held for sale and recoverability of legacy customer contracts in the engineering division.

This writedown came days after Knox had been telling investors that everything was fine and rumours of problems with the rail contract where incorrect.

BusinessDay reported on June 15 that the chairman Peter Jollie tried to repair credibility by making phone calls to fund managers and organising briefings to answer questions. During some of those calls there was talk about the future of Geoff Knox. But back then Knox had the backing of the board, which had replaced the previous chief executive in 2007, as well as its finance director, company secretary and several other key positions.

Since Jollie's chat with investors, things obviously went down hill between Knox and the board. It was undoubtedly not helped by the leaking of a memo to staff with cc's to the CEO and other senior executives, directing that all creditor payments in the works division to be stopped to help tart up the cashflow.

Since the start of the year Downer's share price has fallen from a high of $9.33, and is hovering below $5.

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