Investors will like a boring but safe BIL

Friday 15th March 2002

In more ways than one, Brierley Investments' latest annual report gives an impression its lengthy restructuring is coming to an end.

There is a definite sense of saying goodbye to the old Brierley and welcoming the new BIL International, as it was renamed in December.

Open the report and there is no traditional highlights page or other form of gentle lead-in but there is a no-frills report by chairman Sir Selwyn Cushing, who comments on the departure from the board of founder Sir Ronald Brierley last year, then announces his own retirement.

The company has also said farewell to many of its mixed bag of assets and last year sold its stake in New Zealand companies Sealord, Tasman Agriculture and Cedenco plus several other international operations.

This brings it closer to its goal of focusing on two key areas, hotels and resorts plus food and beverages.

Sir Selwyn says the success of BIL's restructuring has been overshadowed by what he calls "legacy issues" without being more specific.

Presumably he means the results of investments by disgraced former managers, who bought badly and destroyed so much shareholder wealth, are still being felt.

Of these investments, Air New Zealand has made itself particularly keenly felt lately.

Chief executive Greg Terry said BIL had hoped to report a profit last year but its bottom line was hurt by writeoffs associated with the collapse of the airline's subsidiary Ansett.

He is leery about predicting whether BIL will be profitable in the current year.

"In the aftermath of the terrorist attack on the US, it is impossible for any business to predict what the 2002 financial year will hold. This is especially true for a company whose principal assets include hotels, resort and an investment in an airline. In 2001 we made a successful beginning in new investments consistent with the investment strategy we outlined last year. We will continue to pursue that strategy in 2002, at the pace and in the manner appropriate given world financial markets and economic conditions."

He also hints at the sale of assets by its UK hotels group Thistle, announced this week, when he talks of "rebalancing" its portfolio of properties.

Andrew Shepherd, BIL's chief financial officer, gets to make his own report - an example more companies should follow. He points out BIL would have made $US48 million last year, well up on the previous year's loss of $US26 million, but for writeoffs associated with Air New Zealand.

Even so, the net loss of $US119 million is an improvement on the restructuring-affected bottom line of 2000, when the company lost $US162 million.

The accounts also show that BIL's asset base fell to $US1.75 billion from $2.32 billion. This is acceptable in light of its many divestments. Less palatable to shareholders, however, will be the disclosure that shareholders' equity diminished by 24% to $US653 million, continuing the trend of wealth destruction that has plagued BIL for years.

Despite this, BIL's Singaporean-based majority owners still appear to have confidence in the company.

With its new name, head office, primary market listing and directors, BIL no longer resembles the feisty New Zealand-based corporate raider that Sir Ronald founded.

As Mr Terry puts it: "BIL will remain a value investor primarily focused on opportunities in a limited range of sectors, including hotels and resorts and food and beverage.

"We will also undertake strategic and portfolio investments which offer the potential to become core holdings or which offer substantial short-term returns as a result of event-driven disequilibrium.

"We will ensure that the cash flow of BIL is sound with substantially reduced overheads and lower interest payments covered by predictable cash flows enabling decisions on investments to be driven by investment merit alone."

That hardly sounds exciting, and nor is the annual report.

However, BIL's long-suffering shareholders, of which there are still an incredible 75,882 (90% own fewer than 10,000 shares) will be grateful for a few years of safe profits instead of risky losses for a change.

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

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