We wrote about Guinness Peat Group (GPG) on 21 January, citing the attractions of the Coats plc acquisition.

GPG released preliminary 2004 results on 28 February. The Chairman's statement is largely a model of brevity and clarity and there is little point reproducing it here. Just follow the link.

The following points are useful when considering the Group's future net asset value:

    * The recently reported De Vere Group special dividend which led to GPG disposing of most of it's holding in the company represents a significant capital gain. The result falls in the next accounting period. Cash, already a big item on the balance sheet (in the name of flexibility) increases further.

    * As suggested might happen in our January 21 article, the Dawson investment (previously written-off in 2003) has come back to life and may be helped to grow by a neat GPG shifting and reduction of business risk through the sale of an unprofitable 100%-owned Coats unit to the 30%-owned Dawson where it's hoped it will fit better.

    * At Coats, goodwill has risen dramatically - by £110m to sit at £144.1m. The Chairman's attractive brevity has its limits, and in the absence of greater numeric detail it seems that within the total change positive offsets were found via a revaluation of the group's Crafts division and a reappraisal of the property portfolio (which includes a race course in India - go figure). Surplus property is to be sold off in mitigation of higher than expected plant relocation costs.
    The bottom line is that, at 31% of GPG's assets, Coats continues to be the big bet. The first 9 or so months of this year must see the complete integration and operational streamlining of Coats if GPG are true to their word and 3 year turnaround plan for the investment.

    With some measure of management credibility to be thus on the line at the 11 May Annual General Meeting, GPG share-holders should expect and press hard for an on-time start to the unlocking of the massive capital value appreciation the Coats investment is clearly capable of. All the more so in light of the goodwill adjustment, expected to hit the P&L by nearly £5m annually over its 20 year amortisation.

    The writer holds shares in Guinness Peat Group, plc.

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