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Making shareholders happy

Peter V O'Brien

Friday 5th December 2003

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Shareholders in three of the five listed investment companies have had a good year. Hellaby Holdings and utility investor Infratil are likely to be among the market's best performers for 2003.

Guinness Peat Group (GPG) continued its record of strong capital appreciation and BIL International had a moderate improvement from a relatively low base after UK hotelier Mt Charlotte became a subsidiary and Asian investors gave the stock more attention.

IT Capital wandered along with minimal tradeable value, a point reflected in the company's intriguing 1:1 cash issue at 0.165c a share.

The issue involved 302.7 million new shares, designed to raise about $500,000 after costs.

Trustees of the major shareholders' family trusts underwrote the issue and picked up a shortfall of 68.99 million shares, or 22.8% of the total.

The cash liability was $113,840, a sizeable amount, but not the worst possible outcome, given IT Capital's low status among investors.

GPG's most newsworthy move was its involvement in the Tower cash issue, which left it holding 17% of the financial services and insurance group. The company's interim report for the six months ended June nicely understated arguments about GPG's participation in Tower.

"The original proposal to subscribe for 30% of Tower was not well received by other major shareholders, possibly due to a failure to recognise that the $NZ200 million capital injection is only the first of a number of measures requiring strong and experienced proprietorial input to redress what has emerged as very poor management and direction since demutualisation."

Hellaby's operating record justified its high market rating, although a 57.6% profit rise for the year ended June benefited from a $2.81 million tax credit, compared with a tax liability of $3.33 million in the previous year.

Profit before tax and minorities rose 3.1% from $18.82 million to $19.4 million.

The final dividend was lifted from 10c a share to 15c, making 26c for the year, fully imputed, and giving a gross dividend yield of 8.02% at $4.84.

Hellaby has three main operating divisions ­ automotive, industrial and retail ­ a structure chief executive David Houldsworth told the annual meeting was designed to give a more strategic direction to the business and to "provide a more focused approach to future expansion opportunities" for the group.

The group's operating investments had a mixed year, particularly the Australian business of shoe retailer Hannahs.

ouldsworth said the Rodd & Gunn menswear business presented "significant challenges" over the past two to three years to turn around its fortunes.

Hellaby has taken a hardnosed approach to its investment approach over the years, being prepared (in Houldsworth's words) to "shed businesses" where it had concluded it was unable to add further value and could sell to a better owner.

Addresses to the annual meeting had a confident tone. Chairman Bill Falconer said all the businesses were trading well. "The situation remains as it has been ­ Hellaby's diversity, and the underlying strength of its businesses, positions it well to deal with change."

Investors seem to agree, given the share price's strong run in recent years.

Investment realisations complicate Infratil's profit statements but that happens in any investment company as part of its standard business.

For example, net profit for the six months ended September was $12.53 million, compared with $19.6 million in the corresponding period of the previous year.

Realisation gains were $1.88 million, against $19.78 million in the first half of last year.

Infratil has a worldwide mix of utility-based investment ranging from seaports to electricity and airports.

The company bought back 1.39 million shares in the latest half-year at an average price of $1.91, but seems unlikely to see that price again for some time, given the current level.

Not all Infratil's investments come up glowing. The interim report referred to exiting Tranz Rail after a "long and disappointing saga" by accepting the Toll Holdings offer.

There was a 41.88 million profit, relative to a previously written-down book value.

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