Joining Leighton in the downgrade stakes yesterday was a much smaller contractor, Hastie Group, the air conditioning company, which has been struggling to balance the books for December 31, as well as maintain the confidence of its banks.
The shares have been suspended now for almost two months, but yesterday Hastie finally updated the market with the bad news.
And the news was bad, a $99 million after tax loss with impairment charges of more than $100 million on Middle Eastern businesses and accounts, a fall in earnings anyway before that as margins contracted and no interim dividend and probably no final for the current 2011 year as well.
Trading in the shares resumes today. They last traded at 92.5c back in February when the problems first emerged and the company asked for a trading halt.
So stand by for a big fall in the price today.
A look back through the file reveals that Hastie is a serial downgrader, with changes in profit forecasts in 2010 and 2006.
Yesterday’s news however topped the lot.
While the company said first half revenue was up 11% on the previous corresponding half to $900 million, earnings before interest and tax fell 43% to $22.9 million.
That was the only thing that was up and the EBIT figure came before impairment charges of $69.1 million on business in the Middle East and a $33.5 million one-off charge for debtors (described as "aged").
That meant the company had a first half loss and a loss for the year with the company claiming that EBIT for the full year would be $50 million.
And that forecast was very rubbery.
According to yesterday’s statement, the full year EBIT forecast "assumes that Hastie Group will deliver A$25.7 million of EBIT in the last 4 months of FY2011 (which includes March results which are not yet available)".
"This weighting towards the last 4 months is consistent with Hastie Group’s historic financial performance, where it delivered A$30.7 million of EBIT in the last 4 months of FY2010 and A$33.1 million of EBIT in the last 4 months of FY2009.
"While the Board considers the information and assumptions used in considering its expected outlook for FY2011 to be appropriate and reasonable, future matters are, by their nature, subject to significant uncertainties, many of which are outside the control of Hastie Group and may not be capable of being foreseen or accurately predicted. As a result, no assurance can be given that particular results will be achieved."
In a masterful understatement in the release, Trevor Bourne Hastie Group Chairman said, "Hastie Group’s first half trading has been characterised by significant project slippage, delivery of lower margin work secured at the peak of the global financial crisis, ongoing margin pressure (particularly in the smaller projects market), subdued capital spending by the supermarket groups on refrigeration systems and substantially reduced maintenance spending by clients".
Well yes, that means the work has been slow in coming and the clients (especially in the Middle East) have been slow in paying, or not at all, as Leighton has found in Dubai.
And there’s more pain to come.
Hastie said in yesterday’s statement:
"As a result of difficult trading conditions Hastie Group has identified the need to strengthen its balance sheet and reduce debt. In this regard Hastie Group has appointed financial advisers, UBS AG, Australia Branch and Macquarie Capital Advisers Limited, to assist with this restructuring in conjunction with its lender group.
"The lender group has agreed to support Hastie Group and has entered into a standstill agreement until 1 August 2011 which provides time to assess all alternatives, including a potential equity raising.
"Under the standstill, the lender group has agreed, amongst other things, not to demand or accelerate repayment of any amounts under Hastie Group’s existing facility agreements, or take any enforcement action by reason of any breach of the financial covenants in each facility agreement, during the standstill period.
"The standstill is subject to certain events of default, conditions and undertakings that are considered typical for this type of arrangement.
"Hastie Group has also entered into a new syndicated facilities agreement to provide financing and bonding support for the Group’s operations and projects during the standstill period.
"This will allow Hastie Group to continue to deliver upon its order book, whist it seeks a long term sustainable capital structure solution."
Hastie Group is not out of the woods, yet.
