PGC
03/11/2014 11:29
ANNREP
REL: 1129 HRS Pyne Gould Corporation Limited
ANNREP: PGC: PGC Annual Report - NPAT $26.6m to June 30, 2014
NZX ANNOUNCEMENT
3 November 2014
PGC Annual Report - NPAT $26.6m to June 30, 2014
Pyne Gould Corporation (PGC) has today released its annual report and
financial statements for the year to June 30th 2014. The full report is
attached to this release and is available on the PGC website.
MANAGING DIRECTOR'S REPORT
PGC has recorded an audited Net Profit After Tax (NPAT) of $26.6m (16.6 cents
per share) in the year to June 30, 2014. This compares to $44.4m (20.5 cents
per share) in the previous financial year.
The result is ahead of previous NPAT guidance, however it is consistent at a
Net Tangible Assets (NTA) level. This is due to non-cash accounting
adjustments, in particular the foreign exchange translation of foreign
associates and subsidiaries. The net outcome was a 14% gain in NTA from 64
cents per share ($137m) to 73 cents per share ($153m).
As noted by the Chairman, the audit of RCL is not yet complete, which in turn
has delayed the completion of the Torchlight Fund audit. Therefore, PwC has
advised that it will issue a qualified audit opinion. The qualification is
specific to the completion of the Torchlight Fund audit. Once the audit of
RCL has been completed, this will allow the completion of the Torchlight Fund
audit. The impact of those results - if any - on PGC's balance sheet will be
released to the market.
Commentary
PGC's focus over the year to June 30, 2014 was to further simplify the group
by selling non-core assets and reinvesting in the core business in Australia
and the United Kingdom.
The combination of a profitable core fund management business and substantial
realised and unrealised gains delivered NPAT of $26.6m. PGC's Group NPAT
results were boosted substantially by the sale of Perpetual, the revaluation
of Equity Partners Infrastructure Company No.1 Limited (EPIC), and reduced by
the impact of legal and other costs associated with transactions, regulatory
compliance and migration.
The balance sheet continues to strengthen and simplify. The 14% gain in NTA
per share to 73 cents ($153m) follows a 48% gain in the previous financial
year. At June 30, PGC held total assets of $158.2m, total liabilities of
$5.9m and a net position of $152.3m. PGC has no bank debt. Current assets are
$42.2m ($42.1m last year), with $5.9m current liabilities ($14.1m last year),
giving net current assets of $36.3m (up from $29.3m last year). PGC held
long-term assets of $116.0m and no long-term liabilities.
Consistent with our previously announced strategy, PGC continued to increase
its cornerstone holding in Torchlight Fund LP, and as of June 30, 2014, held
$52.3m of Limited Partnership interests and $33.7m of co-investments.
Over the course of the financial year, Torchlight Fund LP acquired ownership
of almost 100% of the assets of residential land investor and developer
Residential Communities Limited (RCL). Melbourne-based RCL holds a land bank
of about 6,000 sites on a consolidated basis spread across 17 projects, and
develops and sells approximately 10% of these in any single year.
Torchlight Fund LP is also the cornerstone shareholder of ASX-listed Lantern
Hotel Group. Lantern is a major Sydney-based freehold hotel group with NTA of
more than AUD100m. Torchlight supports Lantern's strategy of creating
long-term value by acquiring and operating freehold pubs.
Torchlight Fund LP's other assets include an 11% stake in United Kingdom
newspaper group Local World. This was acquired in late 2012 for AUD12m (or
GBP7.5m) and since then the UK economy, the newspaper sector and pound
sterling have recovered strongly, leading to a positive outlook for the
investment. Local World is creating value through both cost cutting and
growth in digital advertising.
PGC, at balance date, held approximately 27% of EPIC. EPIC owns around 17% of
Moto, the largest motorway service area owner and operator in the UK. PGC
announced on October 22, 2014 it had sold its entire 41.89 million shares in
EPIC for GBP0.30 per share or GBP12.6m. This is approximately equivalent to
60 cents a share or NZD25.4m. The price of 60 cents is ahead of PGC's
carrying value and the gain on sale of $9.4m is reflected in the results to
June 30, 2014. Following the recent takeover of EPIC by United Kingdom
interests, PGC no longer has the opportunity to control EPIC and, therefore,
made a pragmatic decision to sell its stake to EPIC Investor LLP.
PGC also agreed a settlement deed with EPIC to create a clean break between
the companies. The key terms of the Deed are that PGC has been repaid the
GBP525,000 advance previously made to EPIC, and EPIC has waived its claim for
NZD2.6m. In addition, PGC has paid NZD380,000 to EPIC, which is the amount
PGC had previously accrued for legal costs in litigation.
London Listing
Over the course of the year, PGC completed the migration from New Zealand to
Guernsey. This was an important step as it reflected an appropriate
jurisdiction to prepare for a listing on the London Stock Exchange. PGC is
now reviewing its timetable for listing in London. It is currently the
intention to prepare for a first quarter 2015 listing in London. To this end,
PGC have completed the transition of the group's accountants from New Zealand
to Guernsey and it is intended the 2015 accounts are to be prepared in
Sterling. The first Sterling accounts are planned to be as at December 31,
2014. These consolidated accounts will bring together the accounts of PGC and
Torchlight Fund LP and where appropriate, the underlying subsidiaries, such
as RCL.
Share Buybacks
The group bought back about 4% of the shares on issue over the course of the
year. This was executed at a cost of $3.85m and PGC believes it is a rational
strategy to acquire shares when they trade at a discount to NTA. Since
migration to Guernsey, PGC has announced it will continue to buy back shares
with a current target of a little over 30 million shares, or 15% of the stock
on issue.
Final Comment
With this simplification process nearing completion, it is easier to
understand how PGC has evolved after five years of transformation. With the
exception of Local World, the principal investments are, at their core, large
and valuable real estate businesses. Each has a strong real estate-based
business model and a high quality management team.
In Australia, Torchlight's RCL has a significant land bank that is being
continuously developed, sold and restocked. The investment -- made via
distressed debt, consolidated and converted into equity ownership -- has
become a material engine for free cash flow.
Similarly, the cornerstone shareholding in Lantern Hotel Group was built up
in distressed market conditions and now has strong earnings prospects from a
large freehold pub portfolio nearing the end of a major refurbishment cycle.
In the UK and Europe, we intend to reinvest all or part of the proceeds from
the exit of EPIC, which was simply a shareholder in a large operating real
estate business (Moto), into further operating real estate investments.
PGC is ahead of its restructuring objectives and is confident in both the
financial strength and strategic direction of the company. As a consequence,
PGC is considering the restoration of a policy of regular dividend payments
within the next year. Our philosophy on dividends will be to pay out up to
50% of consolidated sustainable NPAT. Where we own less than 100% of a
business we are unlikely to include its profits in calculating the
sustainable NPAT. This means that each business will have access to retained
earnings to grow and strengthen, with cash flow returned to shareholders in a
transparent manner.
George Kerr
Managing Director
End CA:00257146 For:PGC Type:ANNREP Time:2014-11-03 11:29:48