GPG sinks back into the red on Coats' fine, slow asset sales

BUSINESSDESK: Guinness Peat Group, which now counts British billionaire George Soros as a substantial shareholder, sank into the red in the first six months of the year after the European Court imposed a £110 million fine on threadmaker Coats – more than had been provided for.

The investment firm made a loss of £36 million, or 2.23 pence per share, in the six months ended June 30, compared to a profit of £13 million, or 0.72 pence, a year earlier.

The loss came primarily from the European Court's fine, which was bigger than the £76 million penalty GPG had provided for.

The company, which is in the process of winding itself down, made a profit of £37 million on asset sales, up from £35 million a year earlier, and has generated total net proceeds of £310 million since January last year.

Excluding Coats, the investment portfolio was valued at £363 million as at June, compared to its starting valuation of £677 million on January 1, 2011.

"Progress has been made though Coats' trading performance has fallen short of our aims and the asset disposal programme has not progressed at the pace I would have liked," chairman Rob Campbell says.

"Nothing has changed in our objectives and the work currently under way in each of the areas is still directed towards substantive achievement by the close of the year."

GPG says it expects to complete more asset sales this year, representing some £20 million of divestments.

Briton Mr Soros emerged as a major investor in the firm this week, securing a 8.2% stake via his Quantum Strategic Partners unit. GPG's biggest investment is the Coats unit, a global company which is based in the UK.

Coats reported a 5% fall in sales to $US819.3 million, with a 28% drop in operating profit to $US59.9 million. Including the fine, it made a first-half loss of $US105.2 million.

"The trading results are not acceptable and steps are being implemented to improve capital utilisation and cash generation throughout the business," Mr Campbell says. "Trading conditions are not easy for Coats but, like all businesses, it has to play the game on the pitch and in the conditions it finds."

Buyback of shares planned

He says GPG will embark on an on-market buyback of shares, and will kick off the process by buying up to £10 million of stock.

Shareholder funds fell to £503 million as at June 30 from £602 million six months earlier.

The board did not declare a dividend and Mr Campbell says "further surplus cash will be returned to shareholders in appropriate forms, taking into account the obligations in respect of the capital notes and support to the pension schemes".

The shares slipped 1% to 52 cents in trading yesterday and have shed 11% this year.

The stock is rated an average "outperform" based on six analyst recommendations compiled by Reuters, with a median target price of 63 cents.

Mr Campbell says the takeover bid for ASX-listed financial services firm ClearView Wealth from buyout company Crescent Capital Partners is inadequate and GPG is backing the subsidiary company's board in advising shareholders to reject the offer.

GPG has encouraged NZX-listed insurer Tower to review its strategies and is waiting on news from the firm and wants the company to rejig its structure to optimise shareholder value.

"We believe the value of Tower's component parts is not being fully reflected," he says.

The investment company is exploring ways to contain GPG's future costs for pension schemes with a carrying value of £214 million as at June 30.