KEY POINTS:
This this month at Coats Group's flagship plant not far from downtown Guangzhou, China, a group of mainly Australasian analysts and fund managers saw industrial thread-spinning at its most efficient.
Rows of immaculately maintained carding, spinning and twisting machines were each hour churning out thousands of kilometres of the thread that holds together our clothes, shoes and myriad other articles.
Guides used strobe lights to show the visitors key parts of the machinery which were spinning too fast for the naked eye to catch.
A vast air conditioning and filtering system kept the gleaming, well-lit plant free of dust and lint, and those in the surprisingly scant workforce were dressed more like laboratory technicians than factory workers.
Most of the visitors were probably impressed but, as one said later, it told him little about whether Coats was a good investment or not for Sir Ron Brierley's Guinness Peat Group.
With Coats accounting for anywhere between 30 per cent and 40 per cent of the investment company's total assets that is clearly a question of some importance for GPG's shareholders, who, by number at least, are mainly New Zealanders.
Guinness Peat Group director and Coats chairman Gary Weiss gives every indication of being in love with the company.
This seems a little strange given his record as a razor-sharp corporate raider and one of Sir Ron's key lieutenants.
Weiss, who bristles at any suggestion that he is any kind of asset stripper, reckons GPG could have "sliced and diced Coats several times over fairly early on in the piece".
"In the process we might have produced some very quick runs for shareholders but at a very long-term cost. We probably could have quite successfully destroyed a global franchise which has existed for over 200 years." Weiss says his enthusiasm for Coats and its management turnaround, which has taken longer than expected, may have something to do with his upbringing helping out in his parents' Hutt Valley button factory. The rag trade, he says, is in his blood.
Coats' roots on the other hand, are in a business that began in 1750 in Paisley, Scotland. As the 20th century dawned, it was the world's largest listed company. By the end of that century it was in trouble.
Although it had operations in dozens of countries around the world, it still had considerable operations in in Europe and North America. Trouble was, by that stage the global textile industry had largely moved to low-cost countries.
As GPG built up a stake in during the late '90s and gained boardroom clout, Coats was forced to offload some of its non-core businesses.
When GPG and a consortium of associates gained control of the company in 2003 they appointed Mike Smithyman, a South African whose affability doesn't altogether disguise his underlying mettle, as chief executive.
Smithyman, with considerable input from Weiss, has overseen a four year re-engineering of Coats.
About US$500 million ($659.9 million) has been spent on the company, mostly on capex and "re-orgs", short for reorganisations, or in plain terms, the cost of making thousands of workers in Europe and North America redundant and moving manufacturing capacity to low cost-countries such as China and Vietnam. Coats now operates in 73 countries around the world.
"Wherever our customers are, the apparel, footwear, automotive and others manufacturers, as they relocate we want to make sure we're in a position to supply them efficiently," says Smithyman.
Of course there is a human cost to this, and it was perhaps that consideration which prevented Coats' previous management from making this transition earlier.
"They certainly were starting the migration, the move of plants into Asia, but obviously it was behind the curve. This is where GPG was so good, the most important decision made was that whatever had to be done, was done quickly so we could catch up.
"It was a very tough period for lot of people least of all those who lost their jobs, we've lost a quarter of our people, it's not easy but everyone understood it had to be done."
Smithyman says Coats conducted the process, which has seen the company's total headcount come down from 30,000 to 23,500, "very fairly".
The process is largely complete, although reorg costs this year "will still be chunky", says Smithyman.
All of this spending has largely been funded from retained earnings, a US$140 million reduction in working capital, and from the sale of some prime European and North American real estate which the company vacated when making its big move, fortuitously when market conditions were favourable, netting around US$200 million.
But when you spend something like US$500 million, says Smithyman, "you expect to get some benefit from that by way of lower costs and more efficient production".
The company's last December-year results revealed it was indeed getting some benefit.
While the industrial thread division's sales of US$1.1 billion were 6 per cent ahead of the previous year, its operating profit rose 28 per cent.
That saw the company's bottom line, including the result from its crafts division, swell to US$61.8 million up from US$29.9 million the year before, with most of that upside coming from threads.
It is perhaps these signs of success, which were a pleasant surprise for many analysts and investors, that finally prompted GPG to go ahead with its analyst and fund manager tour, an event that was first mooted two years ago, but which has been postponed at least once.
While Coats still has issues with its crafts division, which the company refused to talk about during the visit, and the small matter of ¬110 million ($228.3 million) fine for historic anti-competitive behaviour in the European zipper market, this month's trip was, said one analyst, confirmation that GPG believes Coats is now largely on song.
That's certainly the line from the company.
Weiss, who concedes the turnaround has taken longer than he or GPG anticipated, says he hopes the analysts and fund managers were impressed.
"We do have a world-class business here. It has so many unique qualities and features that give it a substantial competitive advantage."
But while Weiss says GPG holds companies as if it will own them "for ever and a day", that is not its business model.
"There comes a time when it's sensible from both the GPG point of view and that of the company to look at different forms of ownership."
And when will move take place?
"Yes," is his rather cryptic reply.
In fact the analyst visit sparked some speculation that it was intended to generate some interest from would-be buyers.
As one analyst on the trip pointed out, GPG is under some pressure at the moment.
The company prides itself on its historic achievements, but with the odd exception, notably Tower, its performance has not been quite so flash lately and one of the key reasons for that is Coats.
In fact there have been one or two unkind comparisons of Coats with Mount Charlotte, the British hotel chain that effectively bled Brierley Investments dry in the early '90s.
"I hope they do have a strategy for extracting themselves," the analyst said.
However, prospects of an imminent sale don't appear particularly bright.
Given current credit conditions, it's likely that a private equity buyer can be pretty much ruled out, as could a trade buyer given Coats is three times larger than its nearest rival.
Perhaps the most likely exit strategy is an IPO, probably in one of the major Asian sharemarkets, although again current conditions make that unlikely any time soon.
The best option at present, said the analyst, may be to "keep running it, keep paying down debt, and wait for the world to turn.
"Maybe in four or five year's time they can do something with it."
COATS GROUP
* The world's largest threadmaker
* 100 per cent owned by Sir Ron Brierley's Guinness Peat Group
* Operates in 73 countries
* Total December 2007 year sales of US$1.7 billion
* Worth $1.4 billion and accounts for 38 per cent of GPG's total assets according to Goldman Sachs estimates
