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GPG's result does little to illuminate future path

By Jenny Ruth

Thursday 26th August 2010

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 Jenny Ruth

Institutional investors welcomed the improvement in thread making Coats' performance but otherwise Guinness Peat Group's results did little to illuminate its future path other than to indicate the plan to split off the Australian assets is dead in the water.

Chairman Sir Ron Brierley said in the several years since GPG said it was working towards releasing value for shareholders "those plans have followed a rather erratic course."

The Australian demerger proposals didn't find favour with the institutions but "it is inescapable that the present corporate model no longer works for GPG and we are now revisiting alternative capital restructuring proposals and will shortly be appointing three new directors to assist in this task," Sir Ron said.

One fund manager says he is pleased the Australian proposal is off the agenda. "We didn't want a bar of it."

Key to GPG's future is who the new directors will be and how independent the market regards them as being. Sharechat understands the process of appointing them is nearing the final stages with interviews currently underway.

Coats, which is wholly owned by GPG and accounts for about 40% of its assets, near doubled its operating profit before one-offs for the six months ended June 30 to US$66.9 million (NZ$95.2 million) from 39.2 million pounds in the same six months last year.

GPG itself reported a 12 million British pound (NZ$26.6 million) bottom line profit compared with a 24 million pound loss previously.

"Coats is doing a lot better," says Guy Hallwright, an analyst at Forsyth Barr. "We expected that, but it's probably doing a bit better than I thought." Hallwright valued GPG's net assets at 913.1 million pounds as at August 23 which indicates GPG's result is still a meagre return on investment.

A key concern of institutions has been the extent of Coats' US and British pension liabilities.

Coats chairman and GPG director Gary Weiss said the British schemes triennial valuation as at April 2009 is in the process of being completed "and is expected to show an actuarial funding deficit. However, the market value of investments held by the scheme has improved since that point and ... both the UK and US schemes remained in surplus" at June 30.

Weiss didn't say how large the deficit is likely to be.

GPG shares didn't react much to the results, ending the day unchanged at 64 cents, their low for the last four weeks.



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