Crisis at Semple Cochrane

The board said deep problems had been brought to light by an independent inquiry into

controversial accounting practices employed by former executive chairman Tom Clark, who quit suddenly in March along with former chief executive Wilson Evans.

It has shelved payment of the interim dividend, which was surprisingly raised 18% on the day Clark and Evans quit, leaving behind a poor set of half-year results.

The board, now chaired by Ian Kirkpatrick, the head of London recruitment firm Harvey Nash, said Semple Cochrane would have to take on more bank debt and would probably be forced to write down the value of its net assets.

An increased overdraft facility has already been negotiated with the Bank of Scotland and an extraordinary general meeting of shareholders will be summoned to approve a change in the company's articles of association to allow it to increase borrowings from the bank.

Semple Cochrane is currently able to borrow up to 1.25 times its net assets. These were deemed to be #14.87m at the end of December, but the ongoing investigation into the company's finances by accountant Ernst & Young may force them to be written down sharply.

The board said Ernst & Young was reviewing ''the carrying amount of the net assets in the group, the manner in which the group has previously applied its accounting policies for contracts, and in particular the amount and timing of profit recognition on completed and current contracts''.

The Herald revealed earlier this year that Semple Cochrane had booked #727,000 of profits on a contract to refit the electrical systems of the naval landing ship Sir Bedivere before and immediately after its 1996 flotation, whereas it had actually lost money on the job. These phantom earnings amounted to one third of the pre-tax profits claimed by the company in the financial year before it joined the Stock Exchange and again during its first year as a quoted company.

The buoyant level of profits reported at the time would have increased the confidence of investors.

In its interim results, Semple Cochrane made a provision for #400,000 against ''potentially irrecoverable costs'' on another unspecified contract that was recently completed.

Ernst & Young is expected to submit its final report within the next few weeks, but on the basis of information received, the board warned of ''a material reduction in net assets''.

Semple Cochrane shares, which touched a high of 520p two years ago, plunged 40p to an all-time low of 82.5p on the bad news.

Kirkpatrick has been running the company with executive powers for the past two months, but has now appointed Bob Lundy, former head of electrical contracting firm Balfour Kirkpatrick as managing director to assume day-to-day control.

This looks like a caretaker appointment. Lundy is 58 and retired from Balfour Kirkpatrick, part of the Balfour Beatty group, last year.

The board said it was considering ''a number of strategic options'' for Semple Cochrane.

No directors were available to comment on what these might be, but a spokeswoman said: ''Nothing will be ruled out at present which would be of benefit to the shareholders, and that you could assume would include an association with another group in some shape or form''.

The board said it would be ''inappropriate'' to pay the promised 1.93p interim dividend before full results of the financial review were known, but it was not clear whether the pay-out - amounting to #198,000 - had been delayed or cancelled outright.

The fact that Ernst & Young has communicated to the board cause for concern about how Semple Cochrane was run by Clark, who co-founded the company in 1980, and Evans, finance director before his elevation to chief executive in November last year, may cause shareholders to question the payoffs these two received.

The sums have not yet been disclosed, but semple cochrane said in March their severance packages would lead to an exceptional charge against second-half profits.

Accountancy

questions result

in heavy damage

to engineering

services firm