Shoeshine: Boardroom horses blame media cart

Friday 6th September 2002

A couple of years ago as Fletcher Challenge was being dismantled, founding father Sir James Fletcher was asked by a journalist what he considered the main contributor to the empire's demise.

Sir James roundly blamed the media. All would have been well if the company hadn't had such a bad press.

Of course, nobody should go into journalism expecting to win popularity contests. But media-bashing has recently become such a popular cop-out that blaming the press, rather like the resignation of a chief financial officer or changes in accounting policy, tends to attract close scrutiny in itself.

Tranz Rail has been particularly active in blaming all its troubles on a naive and over-eager press fed by shadowy "interests."

A curious piece in this month's Unlimited magazine painted the rail operator as the victim of corporate sabotage by persons unknown trundling "a report" around newsrooms.

Port of Tauranga chief executive Jon Mayson this week joined the fray, saying he reckoned TRH's "negative media" was being generated out of the "interest" of a group of its big customers an obvious reference to the Rail Freight Action Group which were concerned lest the company moved back into government hands.

Quite how this would work eludes Shoeshine. TRH's share price has fallen from a high of $4.50 earlier this year to $1.30 at the time of writing. If this is the work of the alleged saboteurs they could scarcely have done more to ensure the company is a cheap target for nationalisation.

This week's price falls may have been driven partly by last Saturday's derailing on the Tranz Metro Wellington network.

The sale of Tranz Metro and other assets is critical to the company's ability to renegotiate its bank facilities and stave off a credit rating downgrade and a rights issue. The crash, and attendant claims by the rail union that it was the result of underinvestment and management inattention, will scarcely encourage potential buyers.

Whatever caused one train to shunt the other off its tracks, it almost certainly wasn't the media. Reporters didn't write TRH's banking covenants and they have little influence at Standard & Poor's or Moody's. Nor can they be blamed for TRH's downgrading of profit expectations.

The simple fact is that TRH is in a trainload of trouble and the news media has done its job in reporting this fact. Perhaps it's Mayson who is a little naive.

Another piece of defensive media-bashing came from Trans Tasman Properties, which objected to a front page National Business Review report questioning whether a related-interest deal breached TTP's bonds trust deed.

To be fair, TTP pointed out the deal, or the major part of it at least, was done several months before the deed was signed.

But it took issue with the story's prominence, given it concerned transactions worth only $7.3 million, ignoring that any deal with majority holder SEA is a big concern to the other shareholders. It also professed itself "concerned" NBR hadn't contacted the company for comment.

This is a little rich coming from a company whose senior management hasn't returned media calls for years and which holds its annual meetings in Sydney despite the fact the vast majority of its shareholders live over here.

Even that protection couldn't persuade TTP director and SEA boss Jesse Lu to front up for his own re-election at this year's meeting despite it being a deal with SEA that had upset shareholders.

To complete this week's trio, packaging company Vertex Pacific warned it would miss its September first half ebit (earnings before interest and tax) forecast of $5.2 million by 15%. Full year ebit would be 10% lower than forecast.

The news triggered a share price collapse. At $1.30, punters who bought in the float at $2.05 have lost 36% of the value of their investment in just two months.

In common with many commentators Shoeshine thought the profit forecasts were wildly optimistic and that the float was therefore overpriced. He was taken aside by Vertex's advisers and assured he had misread the prospectus and big surprise had been "got at" by people with "an anti-Vertex agenda."

Vertex's previous-year financials, it was explained, were compiled when the sellers, Bain Capital and PEP, were running the show.

It wasn't in their interest to make profits and pay taxes on them so the financial setup was specifically designed to avoid doing so.

As a public company Vertex would be aiming to maximise accounting profits so comparing the pre-float financials with the post-float forecasts was misleading.

There is nothing wrong with Vertex's business and its management deserve a medal for being so upfront in a politicised environment.

In Shoeshine's humble opinion the shares are now trading below the level at which the float should have been priced to start with. But that's what you get for disappointing the market.

Earnings downgrades, huge write-offs and the "crisis in corporate governance" will always make headlines and a lot of good news undoubtedly goes unreported.

The market generally ignores the noise and prices companies on their performance.

Directors should note shooting the messenger may be fun but it doesn't put a penny on your share price.

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