KEY POINTS:
Profit has hit record levels at Guinness Peat Group as the investment company fights a big fine in Europe.
Net profit for the year ending December 31 was £129 million ($314 million), more than three times the previous year's £36 million.
Ron Brierley, chairman at the NZX-listed but UK-based company, said the main drivers for the result were the sale of shares in Australian Wealth Management and Premier Investments.
The company sold a 19.4 per cent stake in Australian Wealth Management for A$267 million ($308.5 million) in April, 2007 which returned a profit of A$172 million after a two-year shareholding.
Deals including Green's Foods and Nationwide Accident Repair Services and the contribution from UK-based sewing thread and needle-craft subsidiary Coats were also important, Brierley said.
However, in September 2007 the European Commission concluded an investigation into the price fixing of zips and fasteners, imposing fines against several producers including two fines on Coats Group for €12.2 million ($22.6 million) and €110.3 million.
The company decided to pay the €12.2 million fine in December but would contest the larger fine for an alleged market-sharing agreement in the haberdashery sector.
"The EC decision in relation to Coats was an unwelcome and unexpected blow," Brierley said.
"Although we were well aware of the uncertainties of the third and final unresolved EC issue, which we inherited as a 1990s legacy in the acquisition of Coats, the administrative fine of €110 million is totally disproportionate and irreconcilable with the facts as known to us," he said.
"We believe that this amount will eventually be proved unsustainable, even to the extent of a complete reversal of the initial finding, when it is eventually subject to higher levels of EC scrutiny."
A provision for an amount less than the fine would be held in the accounts of Coats.
Net profit at Coats for the year was US$61.8 million ($75.8 million), up from US$29.9 million, with the industrial thread business starting to show benefits from an expensive restructuring exercise. "Crafts was relatively weak in 2007 but this is a very well established operation and it is only a matter of time before profits return to more normal levels," Brierley said.
Shares closed up 24c yesterday at $1.66.
Guinness Peat Group New Zealand director Tony Gibbs said company profit could be lumpy and activity including restructuring companies did not fit neatly into accounting periods.
"We're not a sausage factory," he said.
Forsyth Barr analyst Guy Hallwright said the market had responded positively to the Coats result.
"The two operating divisions industrial, which is the thread business, and crafts are both doing better than people expected probably," Hallwright said.
