GPG pension woes drag as Coats unit returns to profit

Rob Campbell, Guinness Peat Group Chairman
Guinness Peat Group 12-month price history (NZX.com)

Guinness Peat Group [NZX: GPG], the cash-rich owner of thread-making business Coats, is still muddling through arrangements for its UK pension obligations before returning capital to shareholders, while reporting its Coats unit returned to profit in 2013.

The investment company, which attracted investors including billionaire George Soros, is still in talks with the UK Pensions Regulator as to whether it will have to provide more financial support to its Coats pension schemes, and is exploring its options, chairman Rob Campbell said in a statement.

GPG has received warning notices detailing the panel's arguments as to why it believes it would be reasonable to require more support for the schemes. If GPG can't reach a settlement with the regulator a hearing won't be held earlier than the second half of this year, and could drag out to the end of 2015 if an appeal is pursued.

"Any decision on the future capital structure of Coats and further cash distributions to shareholders continues to be deferred while these matters are being resolved," Campbell said. "The board fully shares the natural frustration of shareholders about this process and its prevention of further surplus distributions to shareholders."

As at Dec 31, GPG valued the pension scheme deficits at 178 million pounds, down from 281 million pounds a year earlier. In 2012, the agreed funding deficit with the pension schemes' trustee was 215 million pounds.

GPG has generated about $1.4 billion from the asset sale programme it embarked on in 2011 after a shareholder revolt over plans to split up the company along regional lines saw a board shake-out. It had cash of some $773 million as at Dec. 31 from $490 million a year earlier, and shareholders' funds of $896 million, up from $876 million at the end of 2012.

The investment company returned to profit with earnings of 23 million pounds in 2013 compared to a loss of 29 million a year earlier, as it banked gains from the liquidation of its portfolio and its Coats unit was back in black.

Coats, which GPG has previously said it plans to rebrand, lifted annual sales 3 percent to US$1.7 billion in 2013, and turned an operating profit of US$124.2 million from a loss of US$11.1 million.

The thread-maker turned a net profit of US$29.2 million, from a loss of US$146.4 million after facing a European Union fine for fixing prices in the haberdashery market. Coats generated free cash flow of US$44.8 million in the period.

GPG's shares were unchanged at 67 cents yesterday, and have gained 14 percent this year. The stock is rated an average 'hold' based on six analyst recommendations compiled by Reuters, with a median price target of 62 cents.

(BusinessDesk)

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