Buy, sell, hold: Renouf reborn

By Jenny Ruth

Tuesday 1st June 2004

Hellaby Holdings is looking less and less like its flamboyant forebear these days, writes Jenny Ruth

Hellaby Holdings was born out of the ashes of the notorious Renouf Corp, which had dabbled in everything from merchant banking to property investment and almost collapsed following the 1987 sharemarket collapse. After a debt moratorium and restructuring, completed under the leadership of entrepreneur Tur Borren, it was relisted in 1994 as a much more conservatively managed investment company. Its investments now fall mainly into three key categories: automotive, automotive-related industrial businesses, and retail (including 85% of icon footwear seller Hannahs and 70% of menswear chain Rodd and Gunn).

THE NUMBERS:
The company's latter-day conservatism is reflected in its balance sheet: at December 31 2003, total equity was $98 million (a healthy 53% of its $184.5 million total assets), and term debt was just $34.3 million. Shareholders' equity before minority interests has grown from $62.9 million at June 30 1999 to $94.8 million at December 31 2003.

MANAGEMENT:
Managing director David Houldsworth, recruited in June 1998 after holding senior positions with Westpac Banking Corp in the previous decade, leads a small head office team of just five people. Under Houldsworth's management, the company has moved away from the traditional investment company strategy of looking for businesses in trouble, fixing them up and flicking them on. Instead, Hellaby has become an increasingly streamlined and long-term investor in its three core industry fields, growing organically and by acquisition in these areas.

While the legacy of its history has left it with a range of investments - including knitted fabrics business Levana Textiles, 20% of a wool scouring and exporting company and 49% of Bombay Petfoods - the company is likely to divest these where possible and profitable. In late 2003, it sold its 69% stake in life insurance startup Club Life to industry giant ING. Hellaby had acted as a venture capitalist to Club Life, which began operating in July 2001. Announcing the sale, Houldsworth reflected the company's current strategy, saying, "A rapidly growing life insurance business requires significant ongoing capital injections, and this is inconsistent with Hellaby's current philosophy of investing in businesses that generate positive cash flows." In August last year, the company also reduced its shareholding in metering business Energy Intellect to 25%, by bringing in Natural Gas Corp as a 25% shareholder who provided an immediate $7.85 million cash injection and a 10-year sales agreement.

RECENT TRACK RECORD:
While the company is unlikely to match its 2003 annual net profit (which was boosted by a one-off $6.5 million tax benefit) this year, it is expecting to "comfortably exceed" the underlying result. The 2003 full year result represented a handsome 25.4% return on average shareholders' funds, while the December 2003 half year profit of $9.3 million is a 19.8% annualised return.

A key feature of the December half year result was a turnaround in the previously loss-making Rodd & Gunn chain and in Hannahs' Australian operations, which had also been running at a loss. The retail businesses' operating profit jumped from just $900,000 in the first-half of last year to $3.5 million in the latest first-half. The industrial businesses also recorded an operating profit rise from $1.9 million to $3.6 million, partly reflecting the acquisition in May last year of the Wanganui-based TRS Agri-Tire business.

But, despite the company's healthy balance sheet and stated ambition to continue making acquisitions as an "integral part" of its corporate strategy, the last purchase, of Whangarei-based automotive business Bindons Auto Electrical, was announced back in June last year - suggesting the company is struggling to find suitable acquisitions.

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