Ann: Accounting irregularities in Utilities and trading update, page-31

Hoo, boy.

I can recall, from around a decade or so ago, a series of jokes concerning DOW that made the rounds among the staff at a certain hedge fund:

"Downer's business model:
1.)  Tender for Revenue.
2.)  Litigate for Profits"

and

"Q:  What is Downer's biggest profit center?
A:  It's legal department"

and

"Q: Give an example of alchemy for accountants
A:  Downer's reported Net Profit"


Seems like the spots on leopards don't change.


However, to be fair, accurate accounting for profits and losses relating to engineering construction activities is not easy (project costing, progress milestones, contingency provisioning, performance guarantees... these are difficult enough for the engineers and project managers themselves to estimate, let alone the accounting types in head office who need to construct the financial statements from first principles).

You'd think that the industry would have learnt by now to account as conservatively as the auditors will sign off, and while all engineering construction/project management company CEOs say they adopt a conservative approach, it's somehow always the same culprits that have to come up with mea culpas due to accounting accidents.

At least, in the case of this particular serial apologist for getting things a bit wrong, the accounting accidents aren't of a sufficient severity to cause the enterprise to go teets-up (a la Forge, Clough, RCR Tomlinson et al), because it is modestly geared and is also a highly cash generative company right through the cycle:


^{(assuming global pandemics aren't considered to be a normal cyclical feature, of course)}

So - despite events like today - I can accept why some people might seek to invest in DOW; it's cash generation qualifies it as investment-worthy.   (I personally wouldn't invest in DOW, but can't be overly perplexed by those that do.)

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