Jul 22, 2013

Business media takes its eye off the ball: long list of duds

Poor disclosure habits are emerging in Australian business and there is depressingly little media scrutiny of it.

This financial year reporting season hasn't really started and already we have enough evidence that the country is being badly let down by a business community which is not taking its disclosure regulations seriously -- and a business media cutting back on  journalists capable of subjecting companies to adequate scrutiny. Since April we have had half a dozen instances of significant events happening in major companies which have been disclosed in a confused or tardy way, with little or no challenge from regulators or the financial press. These events have included unexplained (at the time) departures of senior management, weak or inadequate disclosure, and poor and inadequate management. In two cases, the departures of senior managers was later followed by big losses. The total bill so far is in the hundreds of millions of dollars in trading losses or lower profits, and billions of dollars in asset write-downs and impairments. If the losses and falls in asset values were in privately-owned companies, it wouldn't matter so much, but Australia's huge retirement savings scheme means that most of us have a stake in the good management of these companies. The losses from asset impairments, trading failures and falling share price impact on our savings and retirement funds. The standout debacles so far in 2013 include the losses in Wesfarmers' Target department store chain, which was disclosed days after the CEO departed in May without explanation. Target's losses have so far cost more than 200 workers their jobs in the Geelong area, all because, arguably, the board and management of Wesfarmers failed to face up to the problems in the department store chain. And if you go back through Wesfarmers' commentaries on Target last year and early this year, it's clear the chain was having problems with slow sales etc. Despite the evidence, the media has withheld critical judgement on the performance of the Wesfarmers' senior management and board. Last week an incredulous market learned of the tens of millions of losses, write-downs and other costs Treasury Wine Estates (the black hole previously known as the wine arm of Fosters) has racked up in exporting wine to the US. The total will exceed $160 million, and the damage emerged only a month after the company's Chief Financial Officer departed with a nice endorsement from the company. Surely questions should be asked. Then on Friday we saw Orica (headed by ex-Newcrest CEO Ian Smith) reveal a 10% profit downgrade and a $100 million turnaround from profit to break even in a key division in the space of nine months. Given the problems in the resource industry worldwide this year, Orica should have been aware of these problems (and falling sales of explosives in some markets such Indonesian coal mining), well before the board's meeting last week. If other mining service companies were issuing downgrades and warnings from late April onwards, where was Orica? Two other debacles have received at least some coverage. Resources company Newcrest announced write-downs, losses and a dropped dividend in early June -- as well as hundreds of job cuts. Did management inform selected analysts beforehand of the cuts? And when should the company have disclosed its problems with the falling gold price and the damage it was doing to asset values and mine profitability? The problems were apparent from late April onwards, yet Newcrest waited five weeks. Last week saw Woolworths forced into the spotlight to finally confirm what more analysts have been claiming: that its Masters hardware adventure has been doing badly. Instead of losing a company estimate of $80 million, the Masters business lost $157 million in the year to June. Woolies' management confessed to getting the product mix in Masters stores wrong and underestimating what Australians buy in hardware stores, despite having Lowes as its partner, the second-largest US hardware chain. In the year to June, Masters lost 37 cents in every dollar of sales. That did garner some media attention. And then there's the ongoing problem of inadequate disclosure in the split of the Murdoch empire into 21st Century Fox and News Corporation. The level of disclosure in 21st Century Fox is OK as it was in the broadcast and film parts of old News Corp. But the level of disclosure in the new News Corp, especially the performance of newspaper businesses in Australia, the UK and US, is wholly inadequate. Investors have a greater knowledge about the performance of Fox TV or Fox Network News or the Fox cable TV businesses or Fox's film studios in the US than they do about News Corp Australia (the old News Ltd), the UK newspapers or the US papers grouped under the Dow Jones Co, let alone Fox Sports Australia and Foxtel. This lack of disclosure extended into the split and the listing of the new News Corp shares on the ASX. The inadequate disclosure included notice in an SEC filing in Australia of writedowns of between $US1.2 and $US1.4 billion in the value of its Australian newspaper assets. The filing with the ASX was the SEC filing in the US, and News was allowed to get away with it without the ASX asking for more details and the likely impact on the 2012-13 results of News in Australia. The big test for News Corp will be in the annual results due early next month: full disclosure of the performance of  Australian assets (which are the single biggest group of assets in the company) will be essential for a fully informed market. This is not to say these debacles were ignored by the business media - far from it, but the level of analysis and pursuit of the senior management and board's overseeing these losses or profit falls has been less than adequate - especially at The Australian Financial Review and The Australian. And the stories and commentaries have been buried in the various editions of these shrinking papers. If these sorts of financial stuff-ups or aversion to established transparency requirements had occurred in government, or in trade unions, the media would be all over them, and rightly so. That's the job of the media, or at least that's what they maintain. But the same level of forensic scrutiny is increasingly missing when it comes to corporate managements and boards. That's not always guaranteed, of course: business writers, particularly in the Murdoch empire, are happy to subject their commercial rivals to intense scrutiny, but any criticism of their own management and boards is strangely absent.

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3 thoughts on “Business media takes its eye off the ball: long list of duds

  1. rob oxford

    Get used to it. The Oz and the AFR now have identical, boring agendas. (Try this test: how many people appearing often in both are also featured in Switzer’s haven for neurotic fogeys?) Both have umbilical connections with PR (and what a glorious piece was Nick Leys’ trouser puff today on Hawker Britton). Both have blowhard columnists galore. The AFR, which used to have quite a few people who knew their onions, is starving the reporters to feed a bunch of show ponies. (How many times did Hewitt rewrite Turnbull’s NBN letters last week?)
    The disclosure I want to see is Rupert’s financials for the Oz and Fairfax’s latest erosions at the AFR.

  2. Keith Thomas

    Your analysis of the weakness of Masters hardware is superficial. It’s not only what’s on the shelves, it’s the preparation Bunnings and others have done in the couple of years they had to counter Masters’ attack. Bunnings have trained their staff so that every member can direct customers unerringly to “halfway down aisle 22 at eye-height on the lefthand side” for the item they are after. Or they will cheerfully drop what they are doing and lead the way to the other side of the store. Even better, if I don’t know the name of the thingamey I want, they can interpret for me. Then, to cap it off, so many of Bunnings’ staff seem to be retired chippies who can explain blow-by-blow how to DIY.

    So far as product range is concerned, Bunnings seem to have read the minds of experienced DIY-ers and tradies who know what they want and know what ‘quality’ means to them, whereas Masters are looking at the consumer market of customers who think an angle grinder would be a good idea without having a clue how to use it. I reckon the DIY accident and project failure rates among Master’s customers would be much greater than among Bunnings’ customers. But we’ll never know.

  3. klewso

    “Business media” – so much advertorial, they’re producing catalogues.

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