Hugo Kelly has pulled apart the rise and fall of Melbourne-based industrial conglomerate Austrim Nylex which really is a sad reflection on the business community and its blind hero worship of Alan “knuckles” Jackson.

The $50 million disappearing profit was just one of the tricky issues shareholders encountered during a gruelling four hour Austrim AGM in leafy Albert Park.

A cast of animated characters – including a surprise appearance from a legendary capitalist family, and a less-than-surprising diatribe from the shareholders’ buddy, Crazy Jack Tilburn – drove the plot during a meeting characterised by confusion and populated by an angry and, at times, belligerent mob of shareholders and noteowners.

We were all there to glean some answers from the board of a company which has plunged from a Top 100 stock to a penny dreadful inside two turbulent years.

Austrim Nylex. The words send shivers down the spines of hardened investors. The diverse manufacturing outfit founded by 80’s corporate hero Alan Jackson was capitalised two years ago at around $1 billion. These days, the stockmarket values Austrim at less than $100 million, and its new team of directors and executives are running out of time to sell off the bad bits and beef up the good bits, all the while dogpaddling to keep the whole lot from sinking under a glacial debt burden.

Shares have fallen from $3 to 30 cents in less than two years. So the mood 12 days ago at the 2001 Austrim Nylex AGM – possibly the final shareholder meeting before this company joins OneTel, Pasminco, HIH, Ansett & Co. in receivership – was sombre.

Crazy Jack Tilburn only slightly overstated the shareholders’ case in his opening barrage to the board: “Our past directors should be shot dead and hung from trees in Albert Park. Jackson has escaped, so we’ve saved a bullet and a hanging rope.”

It was the start of a long and stormy day.

But first, some history.

Investors who got on board Austrim were inspired by Alan Jackson’s stewardship of 1980s superstar stock BTR Nylex. In one glorious decade, Jackson’s company turned a $1 investment into $350.

AUSTRALIA’S FASTEST COMPANY

Rewarded with the top job at the UK parent, BTR plc (later, Invensys plc), Jackson also proved a success overseas. He returned to Australia nearly ten years ago to repeat the magic here. His vision for his new vehicle, Austrim Nylex Limited, was to build the kind of diversified industrial conglomeration that made BTR great. And he was backed by Kerry Stokes, one of the investors who made a packet from BTR.

Jackson was chairman of the board, CEO and MD – not an unusual state of affairs for a smaller company, but a dominant position that matched his personality, and was to cause friction and threaten the company’s wellbeing a few years later.

He started by buying the Nylex businesses. Next came three listed industrial companies – National Consolidated, Hawker Richardson and Champion Compressors – constructing a diverse, rambling portfolio.

We all own a piece of Austrim. A Nylex hose in the back yard, the fuel tank on the Magna, a moulded door panel on the Fairlane, maybe a pair of Gardena secateurs in the tool shed, which might have been knocked together with Austrim Nylex building products.

For all his failings, unlike some of our recent disgraced corporate cowboys, Jackson’s businesses actually made useful stuff. And in those early years, it seemed the Jackson template for success was carving out another winner.

A frenzied buying spree inspired investors and, as recently as 1999, the Cult of Jackson was enhanced when Deloittes awarded Austrim the Number One spot on its Fast 100 Growth Companies ladder.

“In the three years to 1999, Austrim boosted employee growth by 87 per cent, market capitalisation by 72 per cent and revenue growth by 138 per cent,” Deloittes enthused.

“Austrim achieved its growth in part by acquiring companies and then restructuring them, 05 (It) achieved its ranking by buying companies and putting them together so that the assembled whole is much bigger than the sum of its parts.”

When an accounting firm, especially one that has received tens of millions from Jackson companies over the years, starts handing out prizes for pinning back your ears, leveraging the gearing ratio up to the max and shouting: Buy, Buy, Buy! you know the market’s got more than a whiff of the Roaring 80s about it. And Jackson was in his dealmaking element.

After that, the company really started moving fast – downhill.

As Austrim’s gearing ratio blew out, the construction industry hit a slump, damaging the company’s building products division, the textile division started haemorrhaging losses amid “structural flaws” in the industry, while its 36 business units buckled under higher oil prices, a low Australian dollar and rising raw material costs.

THE DISAPPEARING PROFIT

Austrim began reporting a series of alarming and regular profit warnings, followed, three months ago, by a gigantic $279 million writedown of its assets leading to a $269 million net loss.

The market gasped, dumped heavily on the already weak stock, and shareholders gathered for an ugly confrontation with the board at the AGM.

In the midst of this turmoil – during which it breached its loan agreements with ANZ, NAB and Westpac – key board and senior management personnel came and went in quick succession, while the man who brought Austrim Nylex into the world, Alan Jackson, lost his own job in bizarre circumstances.

FELLOW INVESTORS: ROCKERFELLERS & INDIGINES

Into this mess walked Mr Herman Rockerfeller, a serious young fellow with a rounded Bostonian accent and a serious amount of capital.

The AGM had been going for an hour when the heir to the Rockerfeller Oil Billions got to his feet to ask a question of new Chairman John Moule. Announcing that he was from an outfit called Invia Custodian Pty Ltd, he had come not to bury Caesar, but to praise him.

“I came here to congratulate the board for making the tough decisions,” he told the meeting. “I think you have got the right people for the job,” he said, singling out for praise one executive, a Jonathan Ling, a longtime Visy Recycling man who has been hired to head up the company’s plastics division in the New Year.

Invia, a nominee company representing a spread of investors and advised by JB Were, holds serious equity in a serious number of companies – at least 40 in Australia. Invia owns 13,200 mandatory convertible notes issued to raise capital by Austrim in 1999 – 1.32% of the total, and the fourth largest on the company’s register – costing $1.32 million.

Austrim’s noteholders have their own reasons for unease. For a start, last month they had their security over the company’s assets downgraded, with Austrim’s bankers forcing the company to deliver them a charge over assets in the event of a collapse.

The move, secured during negotiations to rollover Austrim’s debt after it breached its loan agreements, was the second blow to noteholders. A few weeks earlier, the company reneged on its October half-yearly interest payment. Noteholders now must line up behind the banks if the company collapses.

During negotiations, the banks held the company over a barrel. In the words of Austrim company secretary Graeme Norman: “In the past, they’ve been happy with a negative pledge. But now, we’ve had to put the assets up.” The losers were the noteholders, who at least still retain pecking order priority over ordinary shareholders.

The noteholders themselves are an interesting bunch, a real spread from the very richest to the very poorest. Apart from the Rockerfellers, Citicorp Nominees bought $15 million worth, National Nominees pitched in for $2 million, and the Indigenous Land Corporation threw $1 million into the kitty.

The $100 apiece note issue converts to shares in October 2004 at a 7.5 per cent discount to market price. The maximum number of shares noteholders get on conversion is capped at 180 for each note. So if shares don’t rise to about 55c, everyone from the Grand American Oil Baron family to Aboriginal and Torres Strait Islander land representatives can start counting their capital losses.

And no doubt the Rockerfellers don’t like seeing their investments slaughtered by the likes of Alan “Knuckles” Jackson and the Austrim team. So, striking a blow for corporate accountability, Herman concluded by asking board members to stand up and advise the meeting the qualities they each brought to the company.

It was a neatest contribution to an otherwise turbulent meeting, which began with a blunder by new Chairman John Moule, who decided to hide Austrim’s relatively new managing director and CEO, Peter Crowley, from shareholders.

Crowley, appointed nearly 12 months ago to replace Jackson, should have addressed shareholder and noteowner concerns immediately after Moule’s opening report. Instead, Crowley had to wait until the entire business of the day was completed – including questions from the floor, the election of board members, and heated debate on two controversial options packages. Only then was he allowed by Chairman Moule to address the meeting at length, by which time most exhausted attendees had departed.

Meanwhile, angry shareholders voted down the board’s contentious and inappropriate plan to give Crowley one million options exercisable at a ridiculously low 50 cents, with super easy performance hurdles. Shareholders also vetoed from the floor 300,000 options to a new board member, discredited former Pasminco Finance Director, Bronwyn Constance.

The floor also voted down the reappointment to the board of failed former Austrim General Manager David Stobart.

Chairman Moule received a very rocky reception from furious stakeholders, who took his promises of a brighter future ahead with a solid grain of salt.

Throughout the meeting, Moule treated shareholders with veiled contempt – refusing to even discuss the circumstances surrounding the sensational dumping of Alan Jackson, who lost his jobs as CEO, and ultimately Chairman, after punching the company’s then MD, Greg Beatty, at last year’s Christmas party.

Moule forecast a slow turnaround for the company, mired in debt after a series of disastrous acquisitions. After last year’s stunning $269 million loss, the losses this year, he promises, will be less drastic, admitting the group will fall “marginally short of breakeven” in fiscal 2001-02 as the restructuring continues.

Pledging that earnings for the current year remain on track to reach $100 million, he looked forward to a more promising 2002-3, when cost savings would underpin profit recovery.

This didn’t satisfy all shareholders. Under fierce and persistent questioning from the floor he reluctantly went further:

Shareholder Arthur Rankin: “We’ve heard you discussing better prospects ahead…but we’d like details…Give us an assessment of profit for the year following.”

Moule: “I’m very reluctant to go further than what we’ve already set out for the 2001-02 financial year.”

Rankin: “Come on, we’re all shareholders…”

Moule: “The figure in my mind is a profit of around $50 million.”

It was a forecast that spelled trouble for the chairman. The ASX doesn’t like companies projecting profits into the never-never and, sure enough, Austrim issued a statement of clarification about the profit forecast the following day.

“At Austrim Nylex’s Annual General Meeting today in Melbourne, Chairman John Moule stated that his own tentative target for the group’s trading profit (earnings before interest and tax) in 2002/2003 financial year was $50 million, before any additional restructuring costs,” said the statement, under Peter Crowley’s name.

“The company would like to clarify his statement, pointing out that no forecast for that period can or will be made, apart from today’s projection that it will post a small loss in the 2001/2002 financial year.”

About 100 had gathered at 9.30 am to hear new chairman Moule open the meeting by expressing his regret at a “very disappointing year”. The company, expecting a long day, had booked the room till 3pm.

The Shareholders’ Association’s representative, Robert O’Brien, got questions rolling, asking about the prospect of receiving dividend and interest payments amid the trauma. “To put it bluntly, you are expecting a loss for the next year. Does that mean noteholders won’t get the payment due in April?

Moule: “Your assumption is more than accurate. I would say it’s most unlikely we could pay a dividend or interest on the notes in April.”

‘KNUCKLES’ JACKSON: THE $43 MILLION MAN

When challenged to provide details of Jackson’s $1 million departure package, Moule resorted to the old favourite: the terms are confidential, on legal advice. Jackson has done well out of Austrim: he sold $43 million worth of stock in 1997, when shares were buoyant.

It was the kind of non-disclosure that led to shareholders like Ron Furlonger criticising the chair from the floor. “We read a fine policy about ethical standards in your annual report, and you talk about a policy of being transparent. But yours is opaque…You don’t want to tell us what’s happening.”

But the rhetoric from the floor really started to bite when it came to electing and rewarding directors.

The churn rate on Austrim’s board has been spectacular. And it dates back to last Christmas, and a function at then managing director Greg Beatty’s East Malvern home attended by management and board members.

The promotion of Beatty from within Austrim had seemed a sensible idea, but his appointment as managing director to Jackson’s CEO and Chairman was, in retrospect, fraught. Jackson, the successful entrepreneur in his mid 60s, was apparently in no mood to change strategy as it became clear during late 1999 that a sharp restructuring of the rambling business was needed.

Matters came to a head at Beatty’s party, when Beatty delivered an end-of-year speech that the old warhorse Jackson clearly didn’t appreciate. When the chairman lunged at the MD, punching him in full view of the aghast assembled guests, it was clear someone had to go. In the end, it was both of them, followed by a large proportion of the board.

But in what was to become typical Austrim style, the company took too long to take its medicine. The departure of Jackson and the restructuring of management and the board was painfully strung out, costing Austrim Nylex time and goodwill in the process.

PASCMINCO: HEDGING HIGHWAY TO HELL

Which brings us to Bronwyn Constance. Peter Crowley, who replaced Beatty as MD in January, recruited her as Austrim’s Finance chief after five months on the job. Most recently, she had been finance general manager for ill-fated Pasminco, at a time the company bet the bank on a hedging policy that blew it out of the water.

Crowley’s next move was to appoint her to the Board. When chairman Moule sought approval from the meeting for Constance’s appointment, the mood turned ugly.

Crowley strongly defended the push to place her on the Board: “During her time with Pasminco, Mrs Constance played a major role in raising $1.2 billion in new capital and debt, reorganised the group’s finance and legal functions, managed the acquisition of Savage Resources and the divestment of assets for the group.”

This didn’t bite with shareholders, some of whom wanted to know why Constance hadn’t shown faith in the company by purchasing any shares since her appointment as finance chief six months ago. She replied: “Since my appointment on June 1 I’ve had access to sensitive information…concerning aspects of the company such as writedowns which has precluded me from buying shares.”

The one Constance in Bronwyn’s recent career is failure. Failure at Pasminco – and now, welcome to Austrim. Hers is the CV from Hell.

And if it’s a good enough record for Peter Crowley, it wasn’t good enough for shareholder Alan Monohan, who wanted to know what Bronwyn Constance had learned from her spell in the finance division at Kraft’s Australian subsidiary. “Probably the Kraft finance department’s greatest challenge is working out the mark-up on a crate of Vegemite,” he said. “As to her experience at Pasminco…we really don’t need that exposure to failure. We really don’t want to buy failure into this company. And, now, after six months as an executive, we’ve asked her on to the Board.”

Her response: that the previous Pasminco Board was responsible for a policy that only hedged against one metal – zinc. And when zinc cost $1130 a tonne to dig out of the earth, but was selling at $800 a tonne “no company can survive on a $400 a tonne loss”.

She noted that most miners used diversified hedging, and said she left Pasminco “not because of the hedge book. I left Pasminco because of a very difficult situation with the managing director.”

“I’m sorry for the shareholders at Pasminco. I, too, am a major shareholder in Pasminco, and I have lost my money as well.”

It was a bold performance, but raised more questions. According to Crowley, Constance had spent the past four years as Finance GM at Pasminco. Presumably she had plenty of time to tackle the lopsided hedging book problem – but either would not or could not. Giving that hedging, by her own account, was such a critical issues, why had she chosen to remain at her desk? A senior executive in a resources company with line responsibility for a crucial issue like hedging should have either changed the policy – or walked. During her four years on the job, she did neither, until leaving near the bitter end.

Alan Monohan also wanted to know what exactly was all this important, previously confidential information that prevented her from opening her wallet and showing a little faith in the company that proposed to give her 300,000 cheap and tasty options? And where was the CEO when all this confidential information-gathering was happening? It didn’t stop him from buying Austrim shares – 100,000 of them at 33 cents in September.

But after a particularly savage attack from Jumping Jack Tilburn, Bronwyn seemed to get a sympathy vote from the floor, and was welcomed onto the board with a 59/20 vote on a show of hands.

Dick Nitto, a 34 year Caterpillar employee and former chairman, was unanimously voted onto the board after a crisp and confident presentation – the kind of presentation we were still waiting to hear from the new MD & CEO.

Next up was Kerry Stokes’ man, 37 year old Perth accountant, Brian O’Donnell. He represents Stokes’ 48 million shares – 20% of the company. Kerry has been buying lately, and watching the stock tank. “In dollar terms, we’re faring worse than any shareholder in this room,” moaned O’Donnell. Sympathetic shareholders unanimously elected him, especially after hearing his sorry tale of purchasing 10,000 Austrim shares at $3.25 as part of his super plan.

David Basyl Stobart joined Austrim as General Manager in November 1996. Posted to the board in May ’98, he was up for reappointment. In the words of Jumping Jack Tilburn: “You don’t have to have a couple of PhDs from the Paris Sorbonne to work out he’s one of the people responsible for this disaster.”

David Basyl’s reappointment was decisively voted down from the floor.

Next came the big options packages the board wanted to hand to new MD Crowley and new board member Constance. With one million options headed his way at 50c apiece, the hurdle price was far too low, given the huge destruction in shareholder wealth over the past year. Shares need only reach 65 cents sometime in the next three years, and the company’s performance to exceed the average of the ASX 200, for Crowley to be in the money.

That’s a 15% share price increase and a big tick for mediocre performance when what this company needs is nothing less than outstanding performance from a scintillating executive team, backed by a sturdy board possessing the wisdom of the ages.

One shareholder wanted to know whether the options could be deferred for 12 months, pending a more realistic strike price. “I see previous options packages have been priced at over $2. I would see a better incentive for a higher figure.” If the company’s position improved, then it was time to look at a reward for superior effort. Chairman Moule didn’t like this notion. He claimed the terms of the package were decided after advice from remuneration consultants.

Shareholder Arthur Rankin thought it such a good idea, he wanted to amend the motion to set the strike price at $2 and defer the package for 12 months.

Replied chairman Moule: “I don’t accept the amendment. It’s a significant amendment. I would suggest if you don’t approve of the motion, your course of action would be to vote against it.”

Shareholder: “Then I move that the motion not be put!”

Moule: “This motion has been circulated to all shareholders, and as such it’s my obligation to put it to this meeting.”

The vote put, it was lost by a two to one majority. Once again, the chairman had to swallow humble pie and call a poll.

We went through a similar charade as the chairman tried to push through 300,000 options for new board member Bronwyn Constance. Again, the mood was ugly, and again the motion was lost on the floor.

Meanwhile, we had plenty of time to browse the annual report. It revealed Austrim has come up with a marvellous plan to stem the catastrophic bleeding; throw money at their executives.

FATCAT EXECS? PAY THEM MORE!

As the company wallowed in red ink, its share price falling nearly 80% amid $300 million in disastrous writedowns, the Austrim gravy train just rolled along. A 20% increase in the number of executives earning more than $180,000; a 33% blowout in wage costs for bosses earning more than $100,000. A total wage bill for executives climbing from $17 million to $23 million. This for a company that reported a $269 million loss for the past financial year.

All this while the company refuses to guarantee workers they won’t take their basic entitlements like sick leave and long service leave and holiday pay in order to staunch the red ink.

Meantime, the three dissenting votes were overturned by a full poll, after lazy institutions largely either voted with the board or abstained.

Crowley’s address to the rump of the meeting was low key. Conceding that the $414 million debt was “unsustainable,” he declared: “The key challenge for the company over the next 18 months is debt reduction.”

At 44, Crowley is an experienced industrial operator, most recently an executive director of the UK-based Rugby Group plc. He was responsible for the group’s manufacturing operations in nine countries including the United Kingdom, Europe, Asia, Australia and the Caribbean – not surprisingly, he has a healthy Jamaican suntan.

He confirmed Austrim’s debt position and lack of retained profits in 2000-01 meant the group couldn’t pay a final dividend, nor the October interest on its mandatory converting notes. Operationally, plant hire was a bright spot and building products were expected to lift in line with the surge in dwelling construction. What he didn’t talk about was the market gossip that the company was looking at an MBO as part of an asset spin-off.

The massive writedowns reflected a changed business strategy, revised accounting estimates, adverse conditions in the textiles industry, a slowing economy and incompetence at board and senior management level. (OK, we added that last bit).

It was a performance that invited comparison with the competition. Like most other manufacturers, Austrim was hit by the dramatic housing-related fall-off in the building and industrial products market in 1999-2000. But, unlike competitors like Hills Industries it has been unable to weather the storm. Diversified industrial company Hills reported net profit after tax of $22.8 million for the year ended June 2001, up 7%, amid increased revenues.

Of Austrim’s many problems, here’s a looming one. While Messrs Moule & Crowley have forecast a nice round $100 million in EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation) for next financial year, both men confirmed the possibility of further asset writedowns. This is certain to compromise their ability to pay dividends and meet interest payments on the convertible notes.

Hands up the Austrim shareholders who believe this $100 million earnings forecast? A look at Austrim’s recent performance – and its forecasting record – inspires more gloom than confidence.

Alan Jackson’s blueprint was to buy under-performing businesses, slash and burn to cut costs and lift margins, then spend money to expand. He sought businesses with well-known brands, solid market share, advanced technology, good distribution networks and export growth potential.

He sought organic growth – turning National Consolidated’s major business, a nut and bolt maker called Ajax Fasteners, into a supplier of smart fastening solutions with an eye to export growth.

Last November, he spent $105 million buying the engineered automotive and industrial polymers business of Invensys.

In its result for the six months ending December 31, 1999, Austrim recorded a net profit after tax (pre-abnormal items) of $30.8 million, up 10.5%, on sales of $453 million, a rise of 16%. The industrial products division, which lifted its earnings by 14% following new automotive and aerospace contracts, was the star of what at face value was a solid half-year result.

But the market began to see the Austrim story differently to the board. After ending 1999 at around $3, the stock fell 25% in the next six months. The slide had begun.

Even so, as the company started to stagnate in the late ’90s and the stock price faltered, many retail investors were hesitant to desert the stock. They remained confident in the man at the helm, wary of the tech boom, confident Austrim’s old fashioned industrial strengths would prove a good counter-cyclical play to the New Economy.

In August 2000, Austrim reported a 22% increase in revenue to $942 million for the year to June 30 – but still managed a 2% fall in operating profit, to $67 million.

A strong building sector was balanced by a tough year for the auto industry, flowing on to the firm’s vehicle component subsidiaries. But looking to the future, the company imagined a positive upside. The post GST market provided a potential boost for auto component sales, while it felt well placed to reap the benefits of significant capital spending and integration of its newer acquisitions. Shares were soft at around $2.20.

But above the bottom line figures, Austrim was not performing as well as it claimed.

As recently as July last year, analysts like George Galanopoulos were riding with Austrim as a solid counter-cyclical investment amid the dotcom madness. He noted: “The name of Alan Jackson has guru-like status for many older investors not that the 1999-00 tech-obsessed crowd would ever have heard of him.”

“At face value, the company offered attractive investment fundamentals,” Galanopoulos told his online audience. “The stock trades on a 2000-01 forecast price/earnings (P/E) multiple of 6.2 times, significantly lower than that of both its industry and the overall market,” he reported. Over 2000-01, he expected Austrim “to achieve respectable earnings per share growth of about 9% a year”.

And why not?

Ostensibly, Austrim Nylex had been performing OK. Little more than 12 months ago there was that $67.1 million “profit” for 1999-2000.

But there was trouble brewing, and you had to look at the small print to find it. The bottom line was beefed up by details like “profit on disposal of assets” and the recoupment of certain tax losses. The Austrimmers were padding the bottom line with abnormals. Pruning out the extras, ARL’s actual net profit took a $20 million battering.

By then, some in the market were starting to look hard at the company’s shaky bottom line and its prospects. This was the assessment 12 months ago of Investorweb’s David Parr: “One positive ARL has on its side is that it is paying a fully franked yield of 11.5%. But given a flat outlook for its businesses, with the marked slowing evident in the housing approvals and construction activity heading into 2001, the sustainability of such a yield could possibly be an issue.”

Too right! The bottom has dropped out of the stock since then, and the company hasn’t paid a penny in dividends to mortified stockholders.

David Parr concluded: “ARL is a perfect example of a company hiding behind its bottom line…if momentum were any indicator, I certainly would not be investing my hard-earned cash in ARL for medium term growth.”

Bear in mind, this was when the firm’s stock was still trading within the $2 range. Even diehard investors can’t say they weren’t warned. They still had time to get out – albeit crystallising a loss, but not the wipeout facing many now.

Savvy investors smelled trouble, and shares fell nearly 50% inside three months. Mercantile Mutual, which held 5.2% of the company in February 2000, with stock trading around $2.50, was selling down.

By mid 2001, National Mutual was no longer among the company’s top 20 shareholders, now populated by smaller retail shareholders as the bigger institutions bailed out. DeBortoli Wines, which had made a disastrous $6 million bet on HIH and lost the lot, owns 2 million Austrim shares, nearly one per cent of the company.

Meanwhile, when the company announced on 8 January, a few weeks after the Christmas punch-up, that Jackson was to “retire” as managing director, it was not to the market, but to the Financial Review.

But while the board decided Jackson the executive had to go, Jackson the chairman remained. A confused decision that only served to emphasize the company’s dangerous drift.

As part of the management/board spill, director John Gross “resigned as director of the company in order to spend more time on his other business interests” and Greg Beatty also “has decided to resign” as managing director due to “irreconcilable differences with senior management”.

Austrim shares were sliding, but still held up at $1.66.

Inside the next month, however, the share price was more accurately reflecting he grim tidings at Nylex. By mid-February, the company reported a ghastly 32% fall in interim profit on the previous year, to $20 million. This in spite of a 27.4% rise in revenue to $588.28 million.

Austrim insisted that it was well placed to recover with the Australian economy.

Shares fell 17 cents, or 11.18%, to $1.35, and in further bad news, the company announced its interim seven cent divided would not be franked. In what was either a bare faced lie, or a naive piece of puffery, Austrim pledged it would return to franked dividends “immediately”.

New month, new trouble. Just one month on, Austrim was at it again, warning profit would be significantly lower and the final dividend likely to be cut after its trading performance deteriorated in the first months of calendar 2000.

The worst-hit businesses were textiles, plant hire and Ajax Fasteners divisions and parts of Nylex industrial products.

Between November and March, shares had nearly halved to their lowest levels in five years, and now shareholders were being told their dividend would not match last year’s figure of 11 cents a share.

The man who copped it in the neck for this latest fiasco was finance director and company secretary Phillip Kershaw, who “resigned”, replaced by Graeme Norman.

Meantime, Crowley continued his review of the company’s business, including examining its costs, value, “strategic options” and the best structure for all operations – its very future.

PADDING THE BOOKS

The share slide by now was looking scary, down around the dollar mark.

On April Fools Day, Crowley told the market he would probably merge its two dye-houses at Coburg and Thomastown, cutting a jobs in Melbourne’s struggling northern suburbs. Shares hovered round the 80 cent mark, a touch above a five year low.

Ten days later, closure of the Coburg plant was confirmed, with the loss of 150 jobs, crystallising a $37 million write-down – later updated to $42 million.

By the end of the month, Alan Jackson’s number was up. Austrim announced his departure as chairman citing “health reasons”. He was to remain a director.

Moule, 62, also chairman of the pathology group Gribbles and a director of Toll Holdings Limited, and NAB subsidiary National Wealth Management Holdings.

The wealth manager couldn’t stop the wealth depletion. Early May, Austrim abandoned all hope of a profit, announcing it would record a loss for the financial year and abandoning expectation of a final dividend.

Three days later, Bronwyn Constance jumped from the Pasminco frying pan into the Austrim fire, under the guidance of CEO Crowley. Shares fell 4% to a record low 73 cents.

The next week, Austrim told the market it expected a full year loss “after abnormals” to blow out to “not less than $37”, after the $42 million pre-tax writedown of the Coburg textile plant. It expected an operating profit “after tax and before abnormals of between $5 million to $10 million.”

In two months, the situation had changed from a “significantly lower” profit than last year’s $67 million, to a $37 million-plus loss. The market was being asked to swallow a $100 million-plus profit turnaround.

Ten days later, Crowley and Moule brought in the corporate doctors at Pelorus to manage the sale of the textile operations, as part of a “strategic exit” from the sector. Shares fell to 63 cents.

By early June, the market had smelled a dog and was caning the stock. Shares more than halved, falling 40 cents to 32 cents inside 48 hours, and the ASX wanted to know why.

In response, the company said it was unaware of any new information to explain the fall, and that even without asset sales it was operating within the limits of its debt facility. At the close of business on 12 June, Austrim said it had unused bank facilities of $23 million and unused leasing facilities of $20 million more.

But trouble was brewing, and clearly some in the market knew. Less than two weeks later, the company started softening the market in preparation for some big news – the value of their assets were wildly over-stated, and huge writedowns were coming.

Selective briefings to the Fin Review and the Australian on 25 June saw two versions of the story released – the Fin spoke of further writedowns of more than $150 million, a shocking figure, as the company restructured its 36 divisions into five in preparation for a sell off of underperforming assets

The Oz plumped for a more conservative $100 million writedown.

THE $300 MILLION CRUNCH

The stocks had suddenly soared from 30 cents to 53 cents ahead of the news the following day that the writedowns had ballooned to $258 million – leading to a pre-tax loss of $300 million for the financial year.

Management said the writedowns reflected a change in business strategy, a revision of accounting estimates, and blamed adverse conditions in the textiles industry and the effects of a slowing economy over the past six months.

Unveiling a new structure for the group based on five operating divisions – plant hire, building products, plastic products, automotive products and engineered products – Chairman Moule said the changes “puts the group on a solid footing, where we have identified those operations which are performing well at the present time and have strong growth prospects.”

Parts of the company’s textiles, plastics, automotive and engineered products divisions were also to be sold or closed.

Come September, Austrim’s five banks threw the company a lifeline, agreeing to roll over their $400 million debt to 1 July 2002.

Crowley claimed it as “a total endorsement of Austrim Nylex’s new management, operating structure and plans.”

“The banks are happy to extend our facilities because we are generating improved operating profit and cash flow, while meeting all of our current obligations,” he said.

But of course the banks have their own agenda.

Meantime, the new chairman and newish MD are caught in a trap. While management spent the entire year flagged their intentions to dispose of underperforming assets, it’s probably the worst time in the past decade to sell off pieces of a creaky industrial conglomerate. And Austrim doesn’t have the cashflow to pay the redundancy payments needed for a full-speed restructuring. As Crowley said: “I can’t do a Broomhead,” referring to Malcolm Broomhead’s lightening 10% cut in Orica’s workforce.

On the positive side, the support of the company’s bankers relieves pressure on the balance sheet. The bank debt rollover pushes the $414 million from Austrim’s current liabilities into non-current, reducing the capital component of the debt repayments, easing the immediate cashflow crisis.

Naturally, Crowley trumpeted the rollover as proof the banks were confident Austrim was on the road back. But realistically, what could the banks have done? Foreclosed, while there was still a prospect of recovery? Not a good signal to the market, and a dangerous sign that their books were laden with underperforming loans.

The major problem is that despite Jackson’s drive to create a manufacturing behemoth, Austrim Nylex never seemed to contain a core business. Alan Jackson’s legacy was a jumbled mass of 36 different business units, rising or shrinking in value depending on the purchase of the particular month. Austrim never came together as an integrated whole.

Alan Jackson’s day is gone. The day of diversified industrial conglomerates welded together by a charismatic entrepreneur is quickly going the way of the Australian manufacturing sector itself.

How many companies have demonstrated the capacity to take on a number of basically non-complementary businesses and run all of them successfully? How much time has Austrim got left? That’s a question the bankers might decide when they meet again next July to decide the fate of the once mighty firm they hold in their grasp. And of course, major shareholder Kerry Stokes will want the final say.

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