GPG sinks back into the red on Coats' fine; pace of asset sales too slow

Wednesday 29th August 2012

Guinness Peat Group, which now counts British billionaire George Soros as a substantial shareholder, sank into the red in the first six months of the year after the European Court imposed a 110 million pound fine on threadmaker Coats, more than had been provided for.

The investment firm made a loss of 36 million pounds, or 2.23 pence per share, in the six months ended June 30, compared to a profit of 13 million pounds, or 0.72 pence, a year earlier. The loss came primarily from the European Court's fine, which was bigger than the 76 million pound penalty GPG had provided for.

The company, which is in the process of winding itself down, made a profit of 37 million pounds on asset sales, up from 35 million pounds a year earlier, and has generated total net proceeds of 310 million pounds since January last year. Excluding Coats, the investment portfolio was valued at 363 million pounds as at June, compared to its starting valuation of 677 million pounds on Jan. 1, 2011.

"Progress has been made though Coats' trading performance has fallen short of our aims and the asset disposal programme has not progressed at the pace I would have liked," chairman Rob Campbell said in his report. "Nothing has changed in our objectives, and the work currently underway in each of the areas is still directed towards substantive achievement by the close of the year."

GPG said it expects to complete more asset sales this year, representing some 20 million pounds of divestments.

Britain's Soros emerged as a major investor in the firm this week, securing a 8.2 percent stake via his Quantum Strategic Partners unit. GPG's biggest investment is the Coats threadmaker unit, a global company which is based in the UK.

The Coats unit reported a 5 percent fall in sales to US$819.3 million, with a 28 percent drop in operating profit to US$59.9 million. Including the fine, it made a first-half loss of US$105.2 million.

"The trading results are not acceptable and steps are being implemented to improve capital utilisation and cash generation throughout the business," Campbell said. "Trading conditions are not easy for Coats but like all businesses, it has to play the game on the pitch and in the conditions it finds."

Campbell said GPG will embark on an on-market buyback of shares, and will kick off the process by buying up to 10 million pounds of stock.

Shareholder funds fell to 503 million pounds as at June 30 from 602 million pounds six months earlier.

The board didn't declare a dividend, and Campbell said "further surplus cash will be returned to shareholders in appropriate forms, taking into account the obligations in respect of the capital notes and support to the pension schemes."

The shares slipped 1 percent to 52 cents in trading yesterday, and have shed 11 percent this year. The stock is rated an average 'outperform' based on six analyst recommendations compiled by Reuters, with a median target price of 63 cents.

Campbell said the takeover bid for ASX-listed financial services firm ClearView Wealth from buyout company Crescent Capital Partners is inadequate, and GPG is backing the subsidiary company's board in advising shareholders to reject the offer.

GPG has encouraged NZX-listed insurer Tower to review its strategies and is waiting on news from the firm, and wants the company to rejig its structure to optimise shareholder value.

"We believe the value of Tower's component parts is not being fully reflected," Campbell said.

The investment company is exploring ways to contain GPG's future costs for pension schemes with a carrying value of 214 million pounds as at June 30.

BusinessDesk.co.nz

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