It's what you might call a quiet achiever. It doesn't make a lot of headlines and, although it's rather acquisitive, most of the businesses it buys are add-ons to its existing operations and relatively small.
Perhaps Hellaby Holdings' biggest headline last year was when it relieved ASB Bank of the embarrassment
of owning retail chain BBQ Factory after the failure of the StoreFund float.
Although the price Hellaby paid wasn't disclosed, StoreFund had been going to pay $21.188 million for the BBQ Factory.
Hellaby doesn't get a great deal of institutional support either, even though it's no longer a small company. With the shares trading at $6.80 yesterday, it had a market capitalisation of $334.5 million.
Last year's annual report shows Hellaby's largest institutional shareholder was the Accident Compensation Commission with 2.6 per cent.
Hellaby's managing director, David Houldsworth, probably doesn't immediately leap to mind as a candidate for chief executive of the year. But perhaps he should.
Selwyn Blinkhorne, an analyst at ABN Amro Craigs, says his firm has measured companies on gross returns and assuming all dividends are reinvested.
He says by that measure, Hellaby is among the top four or five performing companies in New Zealand.
During the past five years ending January this year, Hellaby delivered its shareholders an annual 38.6 per cent return, beaten only by Wrightson's 45.7 per cent a year over the same five years. The big difference is that the agricultural services company was climbing out of a deep hole while Hellaby had been getting on with business as usual.
Fletcher Buildings chief executive Ralph Waters has rightly earned his share of accolades for transforming that company, but Fletcher Buildings' returns over the same five-year period were 30 per cent a year.
And Hellaby's performance seems to improve over time. Its returns over the 10 years ended January were 26.3 per cent a year while, over the three years ended January, they were 51.4 per cent a year.
As Blinkhorne says: "Everyone thinks [Sir Ron Brierley's Guinness Peat Group] has done well and it has." However, GPG's returns over the 10 years are just over half those achieved by Hellaby.
Before Houldsworth took over in June 1998, Hellaby used to be a similar type of investment company to GPG today, buying run-down companies cheaply, fixing them up and selling them. But today it is better classified as a diversified industrial company which tends to buy and hold its investments.
It certainly isn't averse to a bargain. Its latest acquisition announced just before Christmas - Elldex Packaging for $9.5-$10 million - works out at between just 2.97 times and 3.125 times earnings before interest and tax (EBIT).
The sharemarket's multiple of current year EBIT is about 10.8 times, although small private companies do tend to sell at lower multiples.
"It has a bit more of a trading emphasis than some other businesses. Maybe that scared some people away. It does manufacture in New Zealand, but a significant proportion of product is imported from offshore," Houldsworth says. "We're comfortable with that because a lot of our other companies are involved in import and distribution."
Interestingly, the Elldex purchase is outside the three areas Houldsworth has previously described as core - automotive, industrial and retail.
Houldsworth says the company is expanding its "other" category - the reason why it appointed Ray Pickles last year to head that group of businesses. "He thinks there are other opportunities in that general field," he says. "We will continue to seek opportunities to grow that fourth leg of the business."
The other import and distribution businesses include the company's automotive and industrial companies. The automotive companies, which import and distribute vehicle parts and are the biggest contributor to Hellaby's results, had a tough year last year with their trading profits dropping 8.4 per cent to $11.4 million.
However, the return on assets was still an impressive 24.3 per cent, suggesting it was a business ripe for greater competition, which is just what has occurred.
Other businesses within the group have enjoyed significant turn-arounds, particularly the upmarket menswear chain Rod & Gunn and Lavana Textiles.
The latter, which had continually faced the problem of its customers moving to offshore manufacturers, was restructured. Houldsworth said it also benefited from the fact that one of its major competitors, Pod, formerly Designer Textiles, had a fire in its Brisbane factory which was then closed. About 40 per cent of Lavana's production is exported to Australia.
The last time Hellaby provided any guidance on what this year's profit performance would be like was back in August when it said its underlying net profit should increase "by some 20 per cent".
While this forecast wasn't repeated in either the annual report or at the annual meeting in mid-November, Houldsworth agrees that it's reasonable to assume nothing's changed because otherwise the company would have had to say so under the continuous disclosure rules.
However, given that the company's trading performance tends to be stronger in its second half, the first-half results, due out later this month, might not necessarily be up 20 per cent, he says.
Looking at last year's results, you might think the trading pattern was the opposite way around. Net profit for the six months ended December 2003 was up 49.4 per cent to $9.3 million while the full-year result, excluding one-off tax benefits, was up only 17 per cent to $18.5 million.
But the results were distorted by one-off transactional profits. The first-half trading profit after depreciation and interest but before tax and one-off items rose 30.9 per cent to $11 million while the second-half results on the same basis were up 8.7 per cent to $23.7 million, Houldsworth said.
The first-half result included the first contribution from TRS Agri-Tire business bought in May 2003.
Although the company tends to hold on to its investments, it isn't averse to selling where the opportunity arises. Last year, it sold two businesses for about $2 million and quit what had been a start-up life insurance business, Club Life.
As the company said at the time: "A rapidly growing life insurance business requires significant ongoing capital injections and this is inconsistent with Hellaby's philosophy of investing in businesses that generate positive cashflows."
Houldsworth says he doesn't know why the company holds so little attraction for institutions, although he clearly doesn't mind much and doesn't court them. "We don't do roadshows."
When he took the helm from Tur Borren, whose entrepreneurial flair had attracted a lot of institutional shareholders, many of them from offshore, many took the view that Borren was a hard act to follow and had doubts about Houldsworth, who came from a banking background.
"There was a mass exodus", particularly of overseas institutions which had decided to quit New Zealand altogether, Houldsworth recalled. "It taught me that having a high institutional shareholder base wasn't a good thing because they tend to do the same thing at the same time."
It seems a major part of Houldsworth's success is a knack of picking good people. The head office staff consists of Houldsworth, three other executives and a secretary.
"We think people are the key. We wouldn't buy a business unless we had confidence in the management."
Quiet achiever
Headquarters: Sequent House, 8 Whitaker Place, Auckland.
Profile: The company was formed out of the remnants of the collapsed Renouf Corp and relisted in 1994 as an investment company. In more recent years, it has evolved into a diversified industrial group.
Key financial statistics: Sales in the year ended June 30, 2004, rose to $323 million from $281.2 million the previous year. Net profit fell to $20.4 million from $22.2 million as one-off tax benefits fell to $1.96 million from $6.48 million.
Market capitalisation: $334.5 million.
Major shareholder: Castle Investments with 30.3 per cent.
Key executives: managing director David Houldsworth and company secretary Trevor Dwerryhouse.
It's what you might call a quiet achiever. It doesn't make a lot of headlines and, although it's rather acquisitive, most of the businesses it buys are add-ons to its existing operations and relatively small.
Perhaps Hellaby Holdings' biggest headline last year was when it relieved ASB Bank of the embarrassment
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