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GPG’s shares fell in early trading today after announcing a six-month result that even the company described as “rather poor”: an overall loss of £20 million on the back of a £35 million ($92.4 million) share portfolio writedown.
The market has been looking for a turnaround at GPG’s biggest investment Coats and is not likely to be reassured by its performance in the half to June 30: operating profit was down slightly at $US67.5 million and net profit down to just $US4 million from $US24.7 million in the previous comparable period.
There have been no further developments relating to the €122 million price-fixing fine slapped on Coats by the European Commission last year.
GPG made £15 million from “normal trading sources” and sale of shares, of which nearly half - £7 million – came from currency gains.
Chairman Sir Ron Brierley said the majority of GPG's investments are sound strategic long-term holdings, where the company is confident of intrinsic value regardless of share price fluctuations. But “there are some instances of arguably misplaced investment judgment where prospects of recovery are more remote and where cost exceeds market value.”
He cited Capral Aluminium as an example of an investment that had not been a success, forcing GPG to absorb large losses. But GPG is still supporting another Capral equity issue “in the hope/expectation that the inevitable changes in the company's trading environment are looming ever closer and our faith will be finally rewarded.”
Sir Ron said Coats' core manufacturing business held up well but losses in European crafts (where vigorous remedial action is underway), costs of refinancing (an important milestone for Coats) and higher forex charges, all impacted on the bottom line.
The Coats crafts business in the Americas and Asia is expected to produce a similar result in the second half as it did in 2007, while the performance of the Europe crafts division is expected to continue below 2007 for the second half of the year.
Sir Ron did not offer much guidance for GPG’s prospects in the second half but said the company has the advantages of a strong, conservatively presented balance sheet and good liquidity.
“That is supported by substantial undrawn credit lines so GPG is well placed for selective buying opportunities.
“Nevertheless, we are far from complacent and proceed with caution in the present climate,” he said.