Hastie Group appoints administrators

Accounting irregularities tip the company into administration

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Hastie Group Limited (ASX: HST) today announced that it was appointing administrators, after failing to gain approval from its bankers for a recapitalisation plan of the company's debt. According to the Sydney Morning Herald, a syndicate of banks is facing write-downs totalling almost $250m, on debts of around $500m. The syndicate includes Australia and New Zealand Banking Group (ASX: ANZ), National Australia Bank (ASX: NAB), Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Group (ASX: WBC).

Hastie was in discussions with its bankers over the refinancing when it announced last week that $20m in accounting irregularities had been found, dating back to 2009. Apparently, no fraud was involved — instead numbers were "fudged" in order to meet profit forecasts.

What's an audit worth?

We also now find out that the company found $3m of accounting irregularities in its accounts for the six months to December 2011, but both the company and the independent auditors failed to mention this at the time.

One has to wonder about the value of having company accounts audited. Although, according to the Independent Auditors review report, they didn't perform an audit, just a review.

Could this have been foreseen?

Looking at the financials of Hastie, the signs that this company was going to struggle long term were there, accounting irregularities or not.

  • Profit margins never got above 5% since the company listed in 2005, and averaged just 2.9%.
  • Return on Equity fell steadily each year from 2006, as the company raised more than $222m in new share capital from 2007 to June 2011, despite reporting a total of just $95.6m in profits since listing. That figure doesn't include the loss of $149.1m reported for the six months to December 2011.
  • Net tangible assets were negative, with a large portion of assets being goodwill.
  • Net Debt to Equity ratio has always been uncomfortably high (over 40%), and supported by constant equity raisings.
  • The company included its interest received and paid under cash flows from financing activities, rather than operating cash flow. While perfectly legal, most companies include these costs in the operating cash flow section. With large levels of debt, this accounting malarkey allows the company to report a higher operating cash flow.

If you're in the market for some less risky, high yielding ASX shares, look no further than Secure Your Future with 3 Rock-Solid Dividend Stocks. In this free report, we've put together our best ideas for investors who are looking for solid companies with high dividends and good growth potential. Click here now to find out the names of our three favourite income ideas. But hurry – the report is free for only a limited time.

More reading

Motley Fool contributor Mike King doesn't own shares in any companies mentioned. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691).Authorised by Bruce Jackson.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »