[See also related and more recent article of September 13 2005: Guinness Peat interims: cause to doubt ]

Longer post than usual; regular readers will know CC's interest in Guinness Peat Group (GPG); this article reports on the company's Annual General Meeting (AGM)

Post summary & conclusion:
Based on the AGM and the preliminary 2004 unaudited accounts, Coats alone still makes GPG worth buying. The goodwill adjustments are non-cash (though confusing), the accounts are clean, the operations nearly so and, anecdotally, the "new" Coats is whirring smoothly in the post-Multi Fiber Agreement environment. Coats is still 30% of GPG assets, with cash about that too (given the De Vere sale). So, as is, where GPG's next few accounting periods end up looks to be largely in the hands of Coats' managers.

Coats is a market leader, newly re-tooled and in a growing sector. If management is unable to take their existing 22% world market share and apply it to the incremental quota-free (or quota-reduced) world market plus something more from less-muscled competitors it would be quite amazing (as well as a future case-study in failure for business schools).

The deteriorating global economy might slow the return (it's jittery out there, after all), but shareholders should hold and consider buying more, portfolio balance permitting. The temptation may be to buy on stockmarket weakness. That's individual choice - just remember to buy the company, not the picture.

Background & scene-setting:
On 11 May, GPG held its AGM at the Army & Navy Club in Pall Mall, London.

The AGM was small with not more than 70 attending - and much of that was GPG staff. CC went hoping to be able to squeeze in a few questions in what he expected to be a busy meeting for the reknown activist investor GPG. As it turned out (ironically), there was only one other shareholder with a query, and that was about potential dilution from options issues to directors. This is clearly a theme some shareholders have warmed to: pre-meeting a retiree bounded up to ascertain if he was with a fellow shareholder and then disclosed that the directors overpay themselves ("they take too much") and he was getting out. Curiously, he did not speak out at all during the AGM.

Sir Ron Brierley sped through the resolutions bit of the meeting and was actually winding up when it dawned on this scribe that it was now that questions to the board were to be put. Expectations of a Q&A slot following the formalities evaporated. Thus there was some surprise when your correspondent ventured "Ah, actually Mr Chairman I have a few questions". Given this came from the only person in the room not wearing dark blue/black business attire or a navy blue blazer (yes, the casual khaki trousers and dark brown jacket were broken out for the occasion) and was delivered with an unfamiliar accent it was likely a spectacle for them. More so as it later emerged that last year's AGM lasted 17 minutes - this one stretched to an hour.

Coats' goodwill questions:
Sir Ron said the fair value adjustments amounted to "hundreds of overs and unders" with no one item or set of items featuring particularly. The scribe pointed out that it meant goodwill was rising from 5% to 20% of total Coat assets. Sir Ron replied that they had taken a conservative approach; and his repeated message was that they were accounting adjustments (and he would not/was unable to give examples) made after a very rigourous clean-up of the books.

CC's resident accountant believes the adjustment process will have been:

  • identify net assets of company, tangible and current less creditors
  • adjust for accounting treatment (application of relevant policies acquiring co. vs seller co.)
  • amount paid
  • net assets less amount paid = goodwill

That may or may not explain the mechanics in this case. Either way, it does not help interpret the magnitude of the ups and downs. But at least it's all non-cash.

Coats trading questions:
Again stopping Sir Ron winding up, ("sorry Mr Chairman, just a couple of other points") the scribe asked about Coats and the end of the Multi Fiber Agreement. Specifically was Coats taking or making prices in the current environment. There was some emphasis in the GPG Summary Accounts on Coats' working cap (squeezing receivables and inventory) but none on the top line.

Sir Ron deferred to Dr Gary Weiss (Coats' Chairman) but said first they were concentrating on working capital but of course wanted sales to grow. Dr Weiss spent a good two minutes and several hundred words saying that it was too early to tell anything from Coats 2005 trading. Yet it's May 2005 and the company has more than a full quarter's trading behind it: this line of reply was overly cautious.

Shareholders ought not to demand hostages to fortune from their boards; and directors are wary about trading statements/stock exchange regulations. But an entirely non-committal response to fellow owners is not satifactory.

Generally, Sir Ron seemed subdued and tired but engaging nonetheless.

CC spoke briefly with directors Tony Gibbs and Blake Nixon afterwards. In the non-official margins of the AGM they both sounded, in general terms, encouraging about Coats' 2005 trading and indicated that the integration/restructuring plan was only slightly behind schedule.

The writer personally owns GPG shares; his company does not.

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