Confidence killer

We’ve followed the journey of Terry Peabody, the man known as Australia’s ‘golden garbo’, very closely over the last 12 months.

He’s had a shocker, but it just got worse.

Over the course of the last 12 months, the value of Peabody’s stake in his waste management company, Transpacific Industries has shrunk from around $1 billion to around $200 million as investors grew increasingly nervous about the $2 billion debt the company was carrying.

A few weeks ago, Peabody announced he had found a new investor to help pay down the debt and restructure the company’s finances.

But before the company could raise $800 million and resume trading on the sharemarket, it had to get a very embarrassing bit of housekeeping out of the way.

Yesterday, Transpacific revealed that “as a result of the independent due diligence process undertaken for the recapitalisation review” it had actually inflated its earnings before interest, tax, deprecation and amortisation for 2007-08 due to the inclusion of some one-off items.

The EBITDA of $540.5 million the company reported in 2007-08 included $48 million of “irregular items”, including a $22.1 million profit on the sale of land, a $17 million reversal in a remediation provision for landfill and a series of “sundry” items of $8.9 million. Excluding these items, underlying operating EBITDA would have been $492.5 million.

Just for good measure, Transpacific also revealed EBITDA in 2008-09 would fall 9% cent to $447 million – well below its earlier guidance.

It’s a terrible admission that could kill whatever confidence the market still has in Transpacific. Companies can do plenty of things wrong – stuff up their strategy, over-pay for assets, sell the wrong businesses – but they should never, ever get their numbers wrong.

Analysts, who rely on a company’s financial numbers more than anyone else, have already savaged Transpacific and have been quick to point out this is the company’s fourth profit downgrade since February. That’s amateur stuff, and there are reports in today’s papers that Peabody’s position as company chairman could be reviewed after the company completes its capital raising and resumes trading.

Peabody has never been one for talking much to analysts and the media. He’d better change his tune quickly, because it’s going to take a lot of convincing to win over these people and, more importantly, Transpacific’s shell-shocked investors.