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Apri 2018 - By Andrew Mc Robert

Whenever Australia experiences a significant corporate collapse, the question is asked: why weren’t we warned? Notwithstanding the best efforts of the brokers’ analysts, it is clear that many such collapses come without warning. In hindsight, it is often very apparent that, for several years before, there were plenty of warning signals in the annual accounts. It appears that brokers are so dedicated to looking for ‘winners’ that they often neglect to identify potential losers.

McRobert and Hoffman1 have outlined a number of causes of corporate failure including companies seeking to achieve growth at all costs, companies whose boards seem to think that they could achieve greatness in whatever sector they choose, companies that cannot adapt to a changed competitive environment and, of course, gearing (a feature found in almost corporate collapses).
This article examines whether any of the identified causes of failure were apparent in the history of Hastie as a public company. If they were, the question then follows: why were brokers and commentators not able to identify these potential causes before, rather than afterwards?
As in a previous article on ABC Learning Centres Limited,2 this article focuses on the annual reports themselves. Most retail investors do not have regular access to the companies in which they invest. They do have an opportunity at the annual general meeting, but few retail investors actually attend the AGM or pay attention to continuous disclosure releases by companies. For the most part, retail investors’ major sources of information are brokers’ reports and the annual report. By the time brokers’ reports began to highlight Hastie’s problems, the group was already well down the road to collapse.

Hastie Group Limited (referred to throughout this article as ‘Hastie’) listed on the Australian Securities Exchange on 29 March 2005. The 2006 annual report clearly disclosed the intention of the directors of Hastie (p. 1):
The group’s strategy is to expand, through organic growth and acquisitions, its range of building services to the commercial, industrial and infrastructure sectors and its geographic coverage.
Table 1, drawn from the 2005–2011 annual reports,3 indicates the extent to which Hastie was able to fulfil this strategy.
Does the ‘growth at all costs’ issue apply to Hastie? It certainly looks that way.

Business model
Initially, Hastie’s focus was on specific target sectors, mostly in Australia and New Zealand. It is, however, significant that it took until 2010 for Hastie to report that the group had ‘moved to standardised estimating packages, complementing its existing uniform Group-wide IT platform’ (p. 19). In other words, notwithstanding 33 acquisitions between 2005 and 2010, there is no evidence that Hastie had attempted to achieve any synergies in its program of acquisitions. The following figures

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