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Air NZ dashes Brierley hopes

By Phil Boeyen, ShareChat Business News Editor

Friday 28th September 2001

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A leaner Brierley Investments (NZSE: BRY) is again putting on a brave face after Air New Zealand (NZSE: AIRVA) snatched away a predicted return to profitability.

BIL's annual result, released late Thursday in Singapore, shows a US$119 million loss for the year ended June, including a US$168.2 million writedown on its Air NZ investment.

The company owns 30% of the national carrier although its stake is due to rise under recapitalisation plans currently being considered by the beleaguered airline.

Brierley chief, Greg Terry, says the company had been expecting to mark the millennium with a return to profitability despite difficult trading conditions in its core businesses.

Without the airline writedown the company's bottom-line would have been strengthened by a number of profitable divestments, particularly the A$234 million profit the company made by selling its investment in James Hardie.

Brierley has been trying to sell its shares in Air NZ for some time and while the exit strategy remains, the company says it first needs to help rebuild value in the battered airline.

Under a recapitalisation plan announced a few weeks ago, but currently under review, BIL and Singapore Airlines agreed to chip in another $150 million with the NZ government providing a credit line of up to $550 million.

"We believe that if the conditions in the agreement can be satisfied the solution achieved at Air New Zealand will not only ensure that Air New Zealand has a viable financial future, but also in the longer term, restore value for BIL and all our shareholders," says Greg Terry.

"It provides an opportunity for us to rebuild value, which would otherwise have been lost."

Mr Terry also says that another major investment, the UK Thistle Hotels group, will also been knocked by recent economic events despite making major progress during the year in bringing its revenue per room into line with its 4 star competitors in the UK and winning more business travel custom.

"A combination of foot and mouth disease, economic slowdown in the USA and the tragic events of early September in the USA means that much of this progress will be given back in the second half of calendar year 2001.

"Nevertheless the foundation is laid for better performance when markets recover. The next step with Thistle is to improve its return on equity."

BIL is also happy with its decision to move to full ownership of the Denaru resort in Fiji, describing the coup there as a temporary setback for the business.

"This resort remains an excellent development opportunity for BIL and we intend to consolidate the resort's position as Fiji's number one tourist asset by continued and vigorous development of the project," says Mr Terry.

During the year the company reports it spent US$72.5 million to boost its stake in Singapore listed food and beverage company, Fraser & Neave, and continues to acquire shares, currently holding around 11%.

Greg Terry says although it is hard to predict what the year will hold in the aftermath of the US attacks - particularly for a company whose principal assets are hotels and an investment in an airline - the company will continue to be a value investor, primarily focused on opportunities in a limited range of sectors, including hotels and resorts and food and beverage.

"We will also undertake strategic and portfolio investments which offer the potential to become core holdings or which offer substantial short term returns as a result of event-driven disequilibrium. We will continue to look for companies in our core sectors which are likely to grow at a rate higher than general economic growth."

The company says corporate staffing levels have now been halved to 26 positions compared with 18 months ago and the cost of running the company has fallen to less than $US10 million a year from US$30 million.

Sir Selwyn Cushing, who returned to the company as chairman in 1998, is standing down at the end of September and will be replaced by Tan Sri Quek Leng Chan.

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