Annual General Meeting: Chairman's Presentation

RNS Number : 0534I

Guinness Peat Group PLC

08 June 2011

 



GUINNESS PEAT GROUP PLC

ANNOUNCEMENT

Annual General Meeting: Chairman's Presentation

Guinness Peat Group plc ("GPG" or the "Company") announces that at its Annual General Meeting ("AGM") to be held in Auckland, New Zealand on 8 June 2011 at 2.15 p.m., the Chairman will make the following presentation:

"There have been a number of significant developments for GPG in the last 12 months.

In September 2010, an independent sub-committee of the Board was established to evaluate options to enhance value for GPG shareholders.  The independent sub-committee identified a number of issues with the GPG business which they believed were preventing appropriate recognition of value in the business, including:

·    a large, complex and geographically diverse portfolio of assets, including a mix of minority shareholdings and wholly owned businesses (including Coats);

·    a lack of value transparency with a number of unlisted investments, the largest of which is Coats;

·    a number of actual and contingent liabilities, including capital notes, pension liabilities and potential payment of a European Commission fine.  Some of these liabilities are subject to significant uncertainty as to the timing and quantum of liability borne by companies in the GPG group;

·    a disappointing share price in recent years and an ongoing significant gap between that price and net asset value; and

·    a governance structure which was outdated in the context of today's market best practice.

After an extensive evaluation of a broad range of options by the independent sub-committee, the Board adopted the unanimous recommendation that GPG discontinue new investments and pursue a strategy of orderly realisation of investments over time.

Progress on Recommended Strategy

The recommended strategy, which was announced in February, includes the following four key elements.

1.   Pursue an orderly realisation of investments over time and discontinue new investment (although GPG may allocate further capital to existing investments where this adds value to the overall divestment strategy)

2.   GPG to continue to evaluate alternatives for realising value for Coats, with the possibility that, as part of the orderly value realisation, GPG's investment portfolio may be reduced to the point where Coats becomes the sole investment retained by GPG

3.   Cash proceeds from the orderly realisation of investments to be used to pursue capital management initiatives, including returning capital to shareholders as expeditiously as possible, having regard to the actual and contingent liabilities of the GPG group

4.   Market best practice governance framework to be adopted

I would like to take some time now to update you on the progress we have made since the February announcement on each of these four key elements.

1.   Orderly realisation of investments over time and new investment discontinued

To implement the orderly value realisation of GPG's portfolio, GPG has established an Investment Committee.  The Investment Committee is chaired by Gavin Walker and reports directly to the Board.  Anthony Eisen, GPG's Chief Investment Officer, provides executive support to the Investment Committee.

The Investment Committee has established a disciplined process that it will follow in seeking to complete the orderly value realisation as efficiently as possible, whilst optimising value for GPG shareholders.  Value realisation will arise from active engagement with GPG's investee companies and a rigorous process seeking to identify opportunities to exit investments in a value-optimising way and in an appropriate timeframe for each investment.  Whilst GPG will seek to exit investments as soon as it is prudent to do so, the process the Investment Committee will follow will ensure that there are no "forced" disposals.

Since the announcement of the recommended strategy in February, GPG has been active in seeking to realise value from its investments.  In 2011 net cash generated from investment activities and realisations have totalled £92 million.  GPG will continue to keep shareholders informed of its progress in relation to the orderly realisation of its investment portfolio.

I would also like to note that, whilst GPG will discontinue new investment, as previously announced GPG may allocate further capital to existing investments where this is considered to add value to the divestment strategy for that investment. Investors should expect to see few such investments, but some will be necessary.

2.   Continued evaluation of value realisation alternatives for Coats

There has been substantial restructuring of the Coats business in recent years. Coats is now focussed on sustained profitable revenue growth and using its investment in IT to enhance productivity.  Coats has started the year positively with both Industrial and Crafts divisions ahead of last year in the first quarter.  This builds on a strong 2010 result where profit attributable to GPG was £39 million compared to a loss of £3 million in 2009.

With the recovery of the Coats business progressing well, GPG continues to evaluate alternatives for realising value for Coats. A number of new independent directors are being added to the Coats Board who bring substantial international governance and trading experience to the business.

As part of preparing for the realisation of value for Coats, GPG has put in place new long term management incentives which consist of a cash payment on the earlier of 31 March 2014 or the occurrence of certain events including a disposal of the majority of the Coats Group, a disposal of the majority of the businesses operated by the Coats Group, a change of control of GPG and Coats essentially becoming the sole remaining GPG investment.  Further details are set out in the GPG announcement made on 16 May 2011. I would note however that the awards under the new long term inventive plan would only be triggered if the equity value of Coats is above US$450 million.  GPG believes the new incentive plan will appropriately incentivise Coats management to maximise the value of Coats for the benefit of all GPG shareholders.

Coats CEO Paul Forman will further update shareholders at this Meeting and again following the announcement of Coats' half year results.

3.   Return of cash proceeds from the orderly realisation of investments to shareholders

GPG now has your approval for the Scheme to effect a return of capital of approximately £80 million.

The size of the capital return is one which the Board believes at this point in time is appropriate having regard to GPG's liquidity including actual and contingent liabilities. It is intended that cash proceeds from the orderly realisation of investments will be used to make future returns of capital to shareholders, having regard to the actual and contingent liabilities of the GPG Group at the time.

The Board is keen to ensure that all returns of capital are effected via a mechanism which is as efficient and fair to all shareholders as possible.

4.   Market best practice governance framework to be adopted

A key issue identified by the independent sub-committee was that GPG's governance was not consistent with today's market best practice.

Over the last 12 months there have been a number of significant changes to the Board composition and governance framework.

In September last year, Mike Allen, Mark Johnson, Gavin Walker and myself were appointed to the Board as independent directors.  In December, as had been previously foreshadowed to the market, Sir Ron Brierley retired as Chairman (although he remains a Director), and Mark Johnson was appointed Chairman.

In April this year, with GPG's recommended strategy having been developed and announced, Mark Johnson stepped down from the Board and I was appointed Chairman.  In March this year former executive director Gary Weiss resigned from the Board and in May, Blake Nixon resigned as an executive director with effect from 30 June. 

The Board now consists of Sir Ron Brierley, Mike Allen, Blake Nixon, Gavin Walker and myself.  With the exception of Sir Ron, who was re-elected to the Board at the 2009 AGM, all directors are seeking re-election at this AGM.

In addition to the changes in the composition of the Board, GPG is working towards putting in place a governance framework which is in line with market best practice.  A number of protocols have been adopted and a number of formal committees have been established.  In addition to the Investment Committee mentioned previously, the Board has also established a formal Audit, Finance and Risk Committee, chaired by Gavin Walker, and a Remuneration and Nominations Committee, chaired by Mike Allen.

Strong Result in the 2010 Financial Year

Management have achieved a strong result from the investment portfolio over the 2010 financial year.  Net assets moved from £944 million to £1,062 million. GPG's net profit attributable to shareholders in the year was £46 million in 2010 compared to a loss of £36 million in 2009.  Profits included a £16 million contribution from the part disposal of GPG's investment in Maryborough Sugar Factory.

As highlighted earlier, there has been good progress in the disposal of investments up to 3 June - with net cash generated from investment activities and realisations totalling £92 million. The capital realisations have been achieved at an overall surplus to the end of year values in the last audited accounts of £5 million. The realisations have been conducted in accordance with the measured process I described earlier.

It is also worth noting that a number of changes have significantly lowered the operating costs of the business going forward.

The board intends to provide progress updates to shareholders and the market at regular intervals and on a basis which ensures the outcomes on remaining realisations are not adversely affected.

Also as highlighted earlier, the recovery of Coats is progressing well, with Coats delivering a strong result in 2010 and Coats performing ahead of last year in the first quarter of 2011. Paul Forman will shortly provide an update on the Coats business.

The Board is focussed on the strength and strategic value of the assets we hold. As the market is aware one of our largest investments, Turners and Growers, which had a very strong year in 2010, has commenced a strategic review to identify the best options for the business. This asset in our view is a great deal more valuable than is currently recognised in its share price, and it is by no means alone in this respect amongst our holdings.

I would like to thank my fellow Board members, both past and current, for their hard work, support and commitment to enhancing value for all GPG shareholders.  I would also like to thank Mark Johnson for his contribution as Chairman during GPG's review process.

I would also like to thank the management team and staff of GPG, including Coats, who have all contributed to GPG's achievements in 2010 and to their commitment to enhancing value for all GPG shareholders.

And finally I would like to thank you, GPG's shareholders, for your continued support.  There is still a large amount of work ahead of us and we look forward to continuing to work hard on your behalf in order to realise the significant value inherent in GPG."

Enquiry details are:
New Zealand media:	Geoff Senescall on:	[phone]
Australian media:	Andrew Stokes on:	[phone]
UK media:	Kevin Smith on:	[phone]

Chris Healy

Company Secretary

Guinness Peat Group plc

Tel: [phone]

8 June 2011

 

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