THE DISTILLERY: Hastie under fire
Jotters assess the damage from the latest findings on Hastie Group, while one points Sam Walsh in the direction of the Northern Territory.
Fairfax’s Adele Ferguson, who is perhaps the best business regulatory mind in Australian media, believes that if the initial findings of the report are proved to be true, the Australian Securities and Investments Commission should "throw the book” at a few directors and external auditors.
"Section 438B of the Corporations Act requires the directors of a company in administration to provide the administrator with a statement in a prescribed format outlining the financial position of the company, including net book values and estimated realisable values for all known assets together with details of known liabilities. According to PPB, most directors have declined the request.”
Business Spectator’s Stephen Bartholomeusz explains how the recent history of Hastie is of a company that went into administration amid "accounting irregularities,” which came less than 12 months after a recapitalisation, borrowing restructure and capital raising.
"PBB, however, believes the seeds of Hastie’s demise were sown a lot earlier. After it listed on the ASX in 2005 Hastie spent $277 million on eight acquisitions between 2008 and 2010 that it financed with $154 million of equity and $123 million of debt, which PBB says was a higher debt load relative to cash flows than other listed contractors. The short version of the explanation for Hastie’s failure is that the poor strategic, operational and financial management of Hastie, the poor performances of the companies it acquired and increased competition in the post-GFC environment affected Hastie’s cash flows and it was unable to meet its debt-funding obligations.”
Meanwhile, we’re still going through the Rio Tinto news. The Australian’s Barry Fitzgerald says new boss Sam Walsh has a handful of critical decisions ahead of him, but one stands out as the easiest.
"The Gove alumina refinery in the Northern Territory is the answer. The operation is bleeding cash like the proverbial stuck pig – as much as $30 million a month by most analyst estimations. As big as Rio is, cash losses of $30 million a month or $360 million annually from a single operation is a situation that cannot go on. The deposed former chief executive Tom Albanese let it go on too long but does get some credit for setting up a pressure play, which – if Rio is true to its word – is meant to come to a head next week. As repeated in last week's December quarter production report, Rio will decide on whether to continue to operate the refinery or ‘mothball it’ in late January, which is where we will all be next week.”
The Australian’s John Durie is sceptical, to say the least, about renewed speculation that Rio might consider some capital management initiatives on the back of Walsh’s elevation.
"The fact is that du Plessis has spent much of the past 18 months bemoaning increased costs and falling prices. So now doesn't seem an opportune time to redirect handouts to shareholders when he will be working overtime to stress it is business as usual. Directors often complain that asset writedowns come off the profit-and-loss statement while increases in asset values can be written back up to the purchase price, so the board doesn't get much credit. Nor should it. But the fact that Rio has written off $US29 billion ($27.6 billion) of its $US38 billion Alcan acquisition and $US3 billion of the $US4.2 billion Mozambique coal deal tells you management stuffed up big time and that will affect future purchases.”
The Herald Sun’s Terry McCrann believes the broader lesson from the disaster that was/is Alcan for Rio Tinto is the fallout from "clever people putting even extremely persuasive theoretical logic ahead of reality”.
In other company news, The Australian’s Durie writes separately about the rise of Rob Scott to the finance chair at Wesfarmers. The columnist says it’s part of a broader transition to local management at Wesfarmers.
The Australian’s Glenda Korporaal speaks to the Ontario Teachers Pension Plan Board for hints of what’s to come with the mega-investor’s strategy.
Elsewhere, The Australian Financial Review’s Matthew Stevens reveals that the ‘strong’ support within the Australian Rail, Tram and Bus Industry Union for industrial action in the Hunter Valley isn’t what it seems. The headline vote numbers were very strong, but only if you exclude informal votes.
And finally, The Australian Financial Review’s Chanticleer columnist Tony Boyd isn’t impressed with the takeaway from yesterday’s trading session. The market would have been down had it not been for the movements in National Australia Bank and QBE Insurance, which came on the back of media reports, not actual information from the company.
"Chanticleer reckons this is knee-jerk investing at its worst,” writes Boyd. "It displays a lack of understanding of the main profit drivers of both companies.”