Steady as she goes at Hallensteins

Friday 8th February 2002

Expand or die is the catchphrase of capitalism.

Clothing company Hallenstein Glasson, however, is bucking the trend. It seems to be doing very nicely while going nowhere fast.

Its 2001 annual report shows a decent list of highlights, which is fortunate for investors as it is the most readable part of the document.

The report is a snazzy, modern-looking document but is curiously out of sync with its conservative and unrevealing contents.

Highlights mentioned include an impressive consistency of return on shareholders' funds of more than 30%.

On the other hand, no pattern of growth is evident. In 1997 the company's return was 34.6% and this dipped the next year to 29% before rising to 34% in 2000 and down again to 31.1% last year.

Sales and profits show a similar pattern, although these have risen steadily in the past three years after taking a dip in 1998. The upshot is that Hallenstein Glasson, for all its efforts over the past five years, has produced a net profit of $11.4 million in 2001 compared with $11.2 million in 1997.

That means net profit margin was 6.8% last year compared with 6.7% five years earlier. Steady as she goes seems to be the order of the day.

This level of performance is unlikely to be intentional and may reflect difficulties brought on by changeable economic conditions and, particularly important for clothing companies, unseasonable weather conditions.

The company seems to be pinning its hope for growth on expansion into Australia, where it has been active for several years, but is being typically conservative in its approach.

As chairman Warren Bell says in his review, "The push into the Australian marketplace gathered momentum during the second half of the financial year under review, and particular attention is being paid to putting in place the framework to consolidate this expansion, and to move forward.

"The Australian marketplace is very different from New Zealand, and requires a cautious and measured approach to ensure development in this market is both profitable and sustainable."

No doubt this view has been influenced by independent director Howard Bretherton, former joint managing director of Michael Hill International who joined the Hallenstein board in May 2000.

The jewellery group has been one of the few examples of a New Zealand company expanding significantly and successfully into Australia. It achieved this through an approach that could best be described as "cautious and measured" and emphasised rolling out new stores rather than acquiring and rebranding a competitor's chain.

The report shows Mr Bretherton has demonstrated his support for the plan and his belief in the company's success by acquiring two large parcels of shares in May, totaling 115,000 shares at an average price of $2.46. That confidence has been richly rewarded with a 22% return on paper in eight months.

Given its low growth rate, Hallenstein has been concentrating on improving internal efficiencies to try and increase its bottom line.

Mr Bell points out that "inventories have been well controlled, closing at $11.802 million compared with $11.115 million last year. A strong focus continues to be placed on operational efficiency and cost control, but pressure from some major landlords is an ongoing area of concern."

Apart from Mr Bell's comments, there is no other content about the performance or expectations for any of the group's brands, which include clothing chains Hallensteins, Glassons and HBK. The several pages devoted to close-ups of clothing models might have been put to better use giving shareholders more information about the company and its strategy for growth.

The financial statements keep up the conservative image and show a company in a very sound financial position.

Whether these funds will be used to "continue to compete aggressively in the fashion apparel market, and capitalise on the growth opportunities presented to it" as Mr Bell indicates, remains to be seen.

Aggressiveness and risk-taking do not seem to be part of the company culture.

If it is, then it has failed to deliver the necessary growth.

David McEwen is an investment adviser and author of weekly share market newsletter McEwen's Investment Report. Internet: www.mcewen.co.nz, Email: davidm@mcewen.co.nz

Comments from our readers

No comments yet