Henry Walker Eltin (HWE) administrator McGrath Nicol & Partners has confirmed the contractor got a very bad case of indigestion from Kaltim Prima Coal's Bengalon project, for which it had been contracted to provide coal mining services.
McGrath Nicol & Partners' report on HWE's demise says a $US130 million funding requirement for Bengalon stretched the contractor, even after it had raised $A42 million from investors in mid-2004.
Other reasons for HWE's fall were poor internal planning, reporting and control procedures; strategy development at management rather than board level; and lack of integration of newly acquired businesses, McGrath Nicol & Partners said. Also to blame was HWE's "lack of control in the tender process", which resulted in significant write-offs for numerous contracts, including the Ashton Mining and Fisherman Islands contracts (which were behind the October 2004 profit warning), and putting forth low-cost bids in an attempt to capture more of the east coast market.
"The cash balance declined by approximately $A40.3 million during the six months to December 31 2004 partly as a result of the significant investment in Kaltim Prima Coal," the McGrath Nicol & Partners (MNP) report said.
"Without the injection of significant equity the cash position would have deteriorated to $A13.4 million in October 2004, which would have had a significant impact on the ability of the business to fund its operations during late-2004."
According to MNP, assets to date have realised $A148.5 million (and a $A1 million contingency payment from Macmahon Holdings in conjunction with the HWE Northern Territory civil business transaction). Year to date earnings before interest and tax (EBIT) is calculated at a $A55.8 million loss, attributed to write-downs of property plant and equipment, goodwill and investments, and other write-offs and trading loss. This compared with $A23.5 million in 2003-04 and a $A24.7 million loss in 2002-03.
A number of HWE businesses have been sold since January, including the KPC project, African Mining Services, Simon Engineering, HWE Civil NT and Bridge Autos. The remaining businesses are the mining services arm, some HWE Civil contracts, the water treatment assets and non-core land investments.
The mining arm has already attracted interest from prospective buyers, says MNP's Scott Kershaw. The major revenue earner contributed $A695.7 million, or about 62% of HWE's total revenue, in the year ending June 30 2004.
The sale of the profitable mining services arm (final bids are due in September) will be central to determining final realisations for all creditors, MNP said. There is unlikely to be any return to shareholders.
The second creditors' meeting on July 8 will give creditors the chance to decide the future of remaining HWE entities, from returning the company to directors' control, winding it up, or executing a deed of company arrangement (DOCA). The administrator has prepared a proposed DOCA for each remaining entity.
"The DOCA proposal seeks to consolidate the assets of HWE into two distinct pools, and provides different classes of creditors with varying rights to claim against each pool," Kershaw said. "The proposal will streamline the process for adjudication of claims, reduce costs and accelerate the payment of distributions to creditors."
