Is the worst over for SIME Darby?

Several steps are needed for a return to confidence, the first being the unvarnished truth.

One of the best ways to kill the reputation of a company is to let the bad news dribble out in bits and pieces. What that does is to keep the investing public in a constant state of tension wondering what’s round the corner, bleeding confidence.

Sime Darby found out – yet again – that’s not good for the share price which tumbled in the wake of rumours that it may need to provide as much as RM2.5bil to RM3bil for its final quarter to June 30 and wiping out profits for the full year.

All Sime Darby said late Thursday was that it would still be in the black when it reports its results later this month. That’s some, but scant, consolation and what anyone will read between the lines is that Sime Darby will make some provisions but not as much as the rumours envisaged it would.

So the latest guessing game in town is how much more provisions Sime Darby is going to make and for which project or projects. If those questions are not answered satisfactorily – and soon – then expect continued uncertainty in the share price and prolonged depressed valuations, especially given its recent already tumultuous history.

The problems, talk of which surfaced last year, were first centred on projects in the Middle East where there was said to be significant under-bidding but expanded to other areas later, of which the main one was Bakun.

They were initially denied but eventually these and others resulted in a huge provision of nearly RM1bil for the first nine months of its current financial year ending June 30.

The board had first set up a three-member working group, headed by board member Tan Sri Andrew Sheng Len Tao, in October, following what was described as “questionable positions” in the group’s finances last year.

Earlier this year, the scope of the probe was widened and external auditors were brought in to do additional investigations. What rankles is that so far there has been no new information on these probes. That’s a long time to wait considering that the first investigations started 10 months ago.

Surely a focused and intense investigation, and one that is spearheaded by the board no less, should be able to establish much more clearly the situation with respect to all its ventures in the various places by now.

If the investigations are complete, then Sime Darby – that is its management and board – must make full disclosure of the position, the amount of provisions required and whether there is a reasonable chance of some of these being recovered in the future.

If the investigations have not been completed, then Sime Darby must explain why it is taking such a long time, whether there is more uncertainty about the state of its finances, its contracts and the validity of its accounts, and when the investigations will be completed.

Indications are that there will be even more provisions. If there are, then there should be clear explanation as to why that was necessary and whether there are likely to be further provisions made related to old businesses.

It would also help to be clear about whether the fresh provisions came about because of more stringent accounting policies, the crystalisation of losses previously not provided for or any other reason or a combination of reasons.

There is after all a new CEO at Sime Darby. There will therefore be suspicion that a greater amount of provisions than is prudently necessary may be made to enable the new man to write on a fresh slate. In any case, if there are recoveries later through such a kitchen-sinking exercise, it would only make the new CEO look good.

But all that uncertainty in the meantime does Sime Darby and in particular its shares no good. Valuations may be depressed for a long time before confidence is restored and the shares resume their upward climb.

There is, however, no magic to regaining confidence.

The first step is the truth – the whole truth and nothing but the unvarnished truth. Tell us how bad it is and get it over with it. Do away with the spin, the spin doctors and public relations. Tell it like it really is, no less, no more. Don’t play it down, don’t embellish.

Next tell us exactly what you are going to do to plug the holes that led to the abuse. For that you must disclose why the holes existed in the first place and why no one had thought to plug them before. Isn’t that what investigations are for? You have to know what went wrong to put it right.

Then tell us who was responsible, either directly or indirectly. If people, including board members, were negligent or asleep on the job, tell us too. Tell us – and mean it - that you will take all possible action against them.

We would also like to know what you plan to do to put the businesses right and grow them and yes, what are your targets in measurable terms. Then, go out and just do it, as they say it at Nike.

And watch that confidence return.

● Managing editor P. Gunasegaram says that the last people you need to restore confidence are conmen – read it whichever way you like.