Brierley back in the black

By Geoff Senescall

Brierley Investments' return to the black with a $114 million June-year profit hardly caused a stir in the market yesterday.

Despite the result being laced with a 3c dividend and a further share buyback, the stock only managed a paltry 1c gain to 49c.

However, chairman Sir Selwyn Cushing won some applause from investors at a Wellington briefing on its results, for having saved the company from the scrap heap, following a $904 million loss last year.

"We have addressed most of the issues impeding the group's progress," he said. "The most pressing of these were an untenable financial position caused by too much debt when asset values were falling, the lack of leadership at both board and management levels, overhead costs that were too high and a not apparent business plan."

Brierley's chief financial officer Herman Rockefeller said Brierley's financial position was now the best it had been for a long time.

Since balance date last year Brierley has slashed debt of around $3 billion by more than $1.7 billion, resulting in a significant reduction in gearing. This was achieved through $2.2 billion of asset sales of 34 companies - including Ibstock, Sky City and John Fairfax - and $270 million of capital returns.

Mr Rockefeller said at its June 30 balance date BIL had cash of around $750 million. That didn't include a Sky City receiveable of $224 million.

Brierley's profit of $114 million was made up of $376 million from an even mix of asset sales and investment income. Offsetting that was costs of $262 million, including $66 million of overheads and funding charges of $143 million.

One of the key planks of its result was the announcement of a further share buyback programme of up to 300 million shares (10 per cent). Unlike the buyback announced on Tuesday of up to 100 million shares (3 per cent) at 50c each, this one includes a swap for capital notes.

Based on a share price of 48c, Brierley calculated the capital notes would have a principal amount of 55c, a coupon of 8.18 per cent and provide an annualised yield of 12.7 per cent. The notes will have an election date of October 15, 2003.

Arthur Lim of broker Ord Minnett cautioned investors towards the notes. Brierley already had $465 million on issue and it was not a very liquid market. He questioned why it did not simply raise the money in the capital markets to buy back shares.

Sir Selwyn's logic for instigating the buyback was that the board did not believe the share price reflected the underlying value of the shares.

He also noted that many shareholders had bought Brierley shares for the dividend yield. The capital notes provided a vehicle for this.

Brierley calculated the value of its shares at balance date to be 81c each. This number was arrived at by subtracting debt from total assets to get a net worth of $2.431 billion.

Included in that number is a valuation of its unlisted assets of $963 million, worth 32c a share.