open letter to chairman of the board, page-29

On the point of Mr. Rubino's experience and fiscal conservativeness, I note that the West Australian newspaper included him in its list of "100 most influential West Australians 1829 - 2013." It reported that "After the stockmarket crash of 1987 Rubino nursed MND out of receivership." That episode alone surely would have shaped his financial psyche.

I learnt a poignant lesson while a shareholder of collapsed  Forge Group. What looked a healthy cash balance quickly turned to an insurmountable debt with lenders withdrawing support, in what only seemed a blink of the eye. Here was a company with an enviable track record, elevated to the ASX200, no debt and was securing contracts regularly. Then, a modest acquisition, two associated contract overruns (poor due diligence) and $500m of debt materialises. There were many lessons, the main one being that contracting is a high risk business endeavour (the contractual terms are critical) and it is paramount that directors also hold stock and align their interests with shareholders. Forge was incentivising via salary bonuses for EPS targets, the focus was higher profits by taking on a greater risk profile (acknowledged by the administrator). The CEO had no direct shareholding in Forge.

That's an interesting observation regarding the Italian connection and mining engineering companies in Perth. Over at GR Engineering (GNG) co-founder Joe Ricciardo, an Italian migrant, retired this year. He also has a long illustrious career in mining engineering. Previously he co-founded JR Engineering which the management sold to Downer EDI way back in 2001. After the sale, the key executives from JR left (including I believe others of Italian origin) and set-up GNG in 2006. Like John Rubino and MND, GNG has been run with strong financial discipline and an argument could be made that GNG has weathered the mining downturn as well to date as any company in the sector. IMO there could well be mileage in the view that the same skill and attention-to-detail that these Italians put into their engineering pursuits transfers over to their prudent financial management.

ps. Incidentally Joe Ricciardo is the father of Formula One racing car driver Daniel Ricciardo.