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Transpacific Industries Group writes down assets, announces big loss

Industrial cleaning, recycling and waste management provider Transpacific Industries Group (ASX: TPI) announced a punishing annual net loss of $201.6 million on revenues of $2.29 billion, brought on by impairment of assets totalling $325 million. Last year’s earnings were $29.1 million.

The non-cash after-tax impairments included a $136.9 million write-down on proposed sales of 42 non-core businesses or under-performing sites. In addition, another $139.9 million of write-downs related with its Post Collections business assets resulted from ongoing weaker market conditions and the uncertainty of recovery along with future higher remediation costs.

This impacts revenue and profits because Post Collections is an integral part of the waste management business model. The Cleanaway division, which makes up 40% of total revenue, saw a 2.2% increase in collections revenue, yet the post collections impairment caused a statutory loss in earning of $36.7 million, down from $203.8 million in 2012.

The decline in levels of infrastructure work in New South Wales, Victoria and South Australia greatly hurt post collections. In Queensland, the results were impacted by reduced pricing. Reduced activity in the construction and demolition sector led to this decline. The company projects that the 2014 market conditions will not vary materially from the 2013 financial year.

The Industrials Australia division saw relatively the same decreases in revenue and earnings. It further reflects the continuation of the soft manufacturing and industrial sectors, mainly the cause of mining and industrial companies deferring maintenance and shutdown projects, especially in the second half of the year. This division’s main priority going forward will be sell or close non-core or underperforming sites, and implement performance initiatives.

After the 30 June balance date, the company announced entering into an agreement to sell its commercial vehicles group for $219 million, and the sale should be completed by late October this year. An after-tax profit of approximately $85 million from the sale is projected.

Since July 2012, the share price has been caught in a trading range of $0.70-$1.00, showing that the market is of mixed opinion of the company’s earnings performance. These levels are about one-tenth the price it traded for back in 2007, so the fall has been great.

Foolish takeaway

The knock-on effect of the downtrodden mining and infrastructure industries has beaten down companies like this where the share prices are even lower than book value per share. There may be bargains amongst them, but you have to know the business well to know which one has the cleanest dirty shirt in the pile.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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