Retailored Coats boosts GPG profits

Reorganisation at thread-maker Coats has helped Sir Ron Brierley's Guinness Peat Group triple its annual earnings.

Net profits for the year rose from £32 million ($87.5 million) to £97 million, thanks to a recovery in profits at Coats - which represents a quarter of GPG's investment portfolio - and asset sales.

Brierley said the result was the best since 1999's profit of £112 million, which benefited from the sale of the investment in Australian insurer Tyndall, and was regarded as a one-off. "Needless to say, in reality, it has always been our desire to disprove that prediction and this remains for the future," Brierley said.

GPG's shares rose 6c to $2.54 , well up on the the year-ago price of $1.90. The gains this year have outstripped the rise in the NZSX-50, in which GPG is the eighth-largest constituent.

"The significant issue here is Coats, which was in line with expectations for a company that is turning around," said one analyst.

Underlying profits at Coats, which is 100 per cent owned by GPG, rose from US$92.34 million ($146 million) to US$126.5 million thanks to cost reductions in head office and at its operations in Europe and North America. During the past year, the company has invested US$81 million upgrading plants and systems. It also cut its workforce by 2800 to 24,700 at the end of last year. This and other reorganisation cost US$54 million, but was covered by property disposals.

Last year's US$3.1 million net loss was reversed into a US$53.8 million profit, while sales grew from US$1.58 billion to US$1.64 billion.

Coats warned the market for industrial thread - which makes up half of total sales - remained competitive. But global demand was firm, while reorganisation would boost profitability. The outlook for its other products, industrial zips and craft products was mixed.

"The [Coats] board remains confident that the significant investment in reorganisation and new plant will benefit in future years."

GPG's earnings benefited from £55 million of gains from disposals such as subsidiaries in UK-based Staveley Fire Services and from a 7 per cent stake in UK hotel and fitness club operator De Vere Group.

But, even after these disposals, it still had £111 million of unrealised gains, albeit down from £127 million at the end of 2005.

GPG's big success over the last year was catalysing the spin-off of Australian Wealth Management from insurer Tower. AWM is set to merge with Select Managed Funds in a deal which could be worth in excess of $200 million for GPG.

Its Capral Aluminium investment, a 52 per cent stake representing 6 per cent of its investment portfolio, delivered what GPG described as a poor result. However, it is confident of its prospects. It will pay a dividend of 1p a share unchanged on last year, but would make its usual bonus 1-for-10 share issue.