Hastie Group – The writing was on the wall

In today’s Australian Financial Review, Hastie Group Limited (ASX: HST) director Harry Boon blames three of the company’s seven banks yesterday for refusing to take a write-down on their debt s th reason for the collapse of Hastie Group.  He said that directors had tried hard to budge the banks, after the company had found two willing financiers, but according to Mr Boon, the banks were acting unreasonably.

Well, I beg to differ. The collapse of Hastie Group and the loss of 2,000 jobs had nothing to do with how the banks acted. Hastie Group was an ordinary business, with low profit margins, poor returns on equity, and constant capital raisings and new debt financing, it was always going to struggle. Directors are the ones to blame for the collapse of the company. If they had concentrated on making the business profitable, and not gone on a spending spree, acquiring companies at ridiculously high prices, Hastie may have survived.

From 2005 to 2010 intangible assets rose from just $52m to $438.8m, as the company spent up big on acquisitions. The company raised $382m in new equity up to July 2011, and over the same time produced an aggregate profit that was negative, as the company was forced to write down the value of its intangibles, and costs spiralled from $352m in 2005 to $1,570m in 2010.

Operating cash flows were artificially inflated, as the company excludes interest costs from Cash flow from Operating activities. As an example, in 2010, the company reported Operating cash flow as $51.6m, but that excluded $21m in interest costs, and $1m in interest received. In 2011, operating cash flow was negative $27.2m, but that excluded interest costs of $34m.

Return on Equity (ROE), Return on Assets (ROA) and Return on Capital (ROCE) were all in decline from 2006, so the company can’t blame the GFC for its woes either. Why did the company keep making acquisitions during the GFC? Surely that was the time to bunker down, pay off debts, conserve cash and streamline the company’s operations?

In 2010, ROE was just 10.6%, ROA was 7% and ROCE was  11.2%.

Net debts rose from $25m in 2005 to $188.5m in 2010, and now we find out the company actually has more than $500m in debts.

Sorry Mr Boon, directors are totally to blame for the situation that Hastie found itself in. Better management would have seen Hastie’s performance improve once it listed. Instead, it appears that directors saw the listing of the company on the ASX as a licence to go out and expand for the sake of it, rather than running the company for the benefit of shareholders and employees.

I’ve attached an old Excel model of Hastie Group (226Kb), so you can see that I gave up tracking the companies financials after 2010’s annual results, and my comments that the company was to be avoided.

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5 Responses to Hastie Group – The writing was on the wall

  1. G says:

    Great article. Hopefully some of the people that are faced with unfortunate job losses will see this to understand what really happened.

  2. Spot on. Have you done similar work on PaperlinX?

    • surfingmike says:

      Sorry Graham, I’ve never done a model or analysed PaperlinX, mainly because it has never shown any qualities that might make me interested enough to set up a model for it. I don’t suppose you’ve done a PaperlinX model?
      Cheers
      Mike

  3. harry boon says:

    written very similar to the paperlinx site. you sure u never made a site on paperlinx ?

    • surfingmike says:

      Hi Harry,

      No, I’ve never written a site on PaperlinX, I didnt even know there was a site on PaperlinX, until Graham Critchley commented on this post.

      Cheers
      mike

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