Even the clever market players are being caught by the credit crunch and slowdown.
Players like Sir Ron Brierley’s Guinness Peat Group, which is his third investment vehicle after Brierley Investments in NZ and Industrial Equity in Australia.
Sir Ron isn’t a financial engineer like Allco or GPT or Mirvac (since reformed). He and his band of market players are old fashioned stock pickers, asset raiders and finders of value.
Normally the current market should be one where players like him find value, but the credit crunch has not been discriminating: anyone with leverage in their business model or asset plays have been hit.
GPG was bitten and bitten badly in the June half, according to a statement yesterday.
In fact it was the first half in 37 half year reporting periods where there wasn’t a successive increase in assets from one half to the next.
GPG reported a first-half net loss of 42 million pounds ($90.4 million), compared with a net profit of 94 million pounds ($202.32 million) in the first half of 2007.
The company’s biggest investment, its wholly owned industrial threads business Coats Group, also suffered from deteriorating economic conditions thanks in particular to a sustained downturn in the European crafts market.
Guinness Peat spent 226.1 million pounds to take full control of Coats – the world’s biggest supplier of threads and craft material – which makes up a third of its investment portfolio.
Coats generated a profit of just $US4.4 million ($5.17 million) for the June half, down sharply from the $US24.7 million earned in the same period of 2007.
Sir Ron, who is Guinness Peat chairman, said his commentary that the group had produced a "rather poor" result for the half year to June 30, 2008.
He said on the positive side the company, which controls an equities portfolio worth more than 1.181 billion pounds, recorded a profit of 15 million pounds from normal trading sources and sales of shares.
However, there were also share portfolio write-downs of 35 million pounds, hence producing an overall loss for the period of 20 million pounds.
Sir Ron said there was also a deferred tax adjustment of 22 million which he described as "purely IFRS nonsense".
But Sir Ron was upfront about what caused the damage.
"GPG’s portfolio has not been immune from the worldwide sharemarket shakeout and to that extent, we believe most of those losses will be recovered and more.
"The majority of GPG’s investments are sound strategic long term holdings where we are confident of intrinsic value regardless of share price fluctuations," he said.
Sir Ron said there were some instances of "arguably misplaced investment judgement’ where prospects of recovery were more remote and where cost exceeded market value.
"We will review those again on a full year basis at 31 December next," Sir Ron said.
The company had absorbed large losses in recent years from Capral Aluminium which had not been a success for GPG, Sir Ron said.
"However, we are now supporting yet another equity issue in the hope/expectation that the inevitable changes in the company’s trading environment are looming ever closer and our faith will be finally rewarded."
No interim dividend was declared, in keeping with last year.
"Coats’ core manufacturing business held up well but losses in European crafts (where vigorous remedial action is underway), costs of refinancing (an important milestone for Coats) and higher forex charges, all impacted on the bottom line.
"An important advantage which GPG retains in the present financial climate is a strong, conservatively presented balance sheet and good liquidity (which has been further augmented since balance date). That is supported by substantial undrawn credit lines so GPG is well placed for selective buying opportunities.
"Nevertheless, we are far from complacent and proceed with caution in the present climate," he added.
And to tease shareholders and other players with the energy to read the GPG accounts, Sir Ron had this promise about the next couple of years:
"The Board is working towards a substantial release of value to shareholders in 2010 which will coincide with GPG’s 20th anniversary and my own retirement as Chairman of the company."
GPG shares lost 4 cents yesterday in Australia to close at $1.13.
