GPG shares fall more than 10% as profit slumps

UPDATE: GPG shares [NZX:GPG] were down 11.5% to 50c in early afternoon trading.

GPG 12-month chart courtesty NZX.com. Click to enlarge.

Impairments hurt GPG, Coats to review strategy

Guinness Peat Group’s profit slumped to $2 million in the year to December compared to $92 million in the prior period after writing down the value of its investments by $110 million.

It has also booked $428 million of “actuarial losses” on the group’s benefit pension schemes, most through its UK-based thread making subsidiary Coats Group and taken foreign exchange losses of $52 million.

This saw shareholder funds shrink by $779 million to $1.2 billion at December 31 2011.

GPG’s net asset backing decreased from 54.6p ($NZ1.09) to 37.1p ($NZ0.74c).

Profit from continuing operations was $106 million, compared to $129 million in 2010.

The investment company, which has a shareholder mandate to wind down its asset portfolio, said market conditions had not been conductive to asset sales at enhanced values.

GPG started the realisation process by returning $159 million of cash to shareholders in July 2011. Since then it has paid out a further $24 million in cash dividend and issued $12 million of shares to existing shareholders.

Between January 2011 and February 17, 2012 GPG has completed 48 investment sales, generating approximately $330 million.

“It’s fair to say that market conditions have not been conductive to either equity value increase on a macro level nor to specific asset sales at enhanced values," GPG chairman Rob Campbell said.

“However, we consider that sound progress has been made.”

GPG said it had carefully reviewed the carrying values of its investment portfolio during the period and determined that impairments of $110 million on its non-Coats asset should be made.

Excluding Coats, GPG said it had valued its remaining assets marked to market at £491 million ($978 million). 

At the year end GPG had cash of $398 million.

Coats to review strategy
GPG’s main asset is Coats Group, which it intends keeping unless a suitable offer is received.

During 2011 Coats produced an attributable profit of £44 million ($NZ88 million) compared to ¢39 million ($NZ78 million) in 2010. Sales of $NZ2.1 billion were 7% of the prior year.

“This performance was achieved against the background of difficult market conditions, especially in the second half of the year, and significant cost inflation,” GPG said.

“these results, both sales and attributable profit, were record performances under GPG ownership.”

GPG is carrying £161 million worth of pension liabilities in relation to Coats. It also faces a potential European Commission fine of $200 million for alleged “market sharing” between Coats and William Prym GmbH & Co between 1977 and 1998.

The Coats board plans to do a full internal review of its strategy and approach to the market during 2012. GPG confirmed that Gary Weiss will step down as Coats chairman in April and will be replaced by Mike Allen.

“Suffice it to say at this point that while trading market conditions for Coats remain very challenging, the management team is implementing the strategy effectively, but the business requires constant change and reinvention while reducing costs and improving cash generation,” GPG chairman Rob Campbell said.

“It is a very strong challenge to which GPG remains fully committed.”

GPG said it would retain the capital necessary for Coats’ ongoing requirements and to ensure it remains able to meet its actual and contingent liabilities.