A.B. Cables growth held back

Press, 19 April 1979, Page 14

A.B. Cables growth held back

A no-growth policy domi-. nates New Zealand’s econ-, omic planning, and continues to erode business confidence,! particularly in the building; and construction industry oni which the cable-making!

business largely depends. I says Mr A. S. Don. the, chairman of Associated Brit-1 ish Cables. Ltd, in its latest; annual report. ; “Stable raw material’ , prices and strict control [ | over operating costs enabled; [the company to achieve a! reasonable level of profita-i bility in 1978, but unfortunately trends in raw material ■ prices are moving against us and even closer attention ! will necessarily have to be (given this year to stock control and to the achievement of higher levels of productivity,” Mr Don says. The Christchurch and Auckland general-wiring factories operated throughout the year on a two-shift "basis of 16 hours a day, 80 hours a week, resulting in a substantia! drop in plant utilisation for those units which in past years have operated up to 120 hours a week. The general wiring division had a reasonable backlog of orders at the beginning of 1979, and should operate at a satisfactory level in the first half of the year. With the prospect of a difficult second half, the successful development and

marketing of new products > is vital, he says. Progress has been made in: the development of new! products and some very, promising items are due to be marketed in 1979. The mains cables division; faces a downturn in the' market from the com-; mencement of the year, and; with the increased output: from the new plant capacity, the backlog of orders is the; smallest for many years. Supply authorities are! now. once again, permitted' to finance capital works; from current revenues as I I well as from loans, but it is] I unlikely they will be em-j !barking on any major work! in the immediate future, Mr; ;Don thinks. ■ With the completion of its i ' expansion programme, the; division now has substantial; surplus capacity in all pro-j duction departments, and no further capital expenditure of any significance is planned over the next five years. Mr Don makes some pertinent comments on the New Zealand economy. “There has been widespread comment on the need for restructuring the economy and many theories have been advanced by some economists who, fortunately or unfortunately have not been exposed to the challenges of accepting responsi- ! bility for the performance of [these theories in the market place. “That there is need for restructuring is acknowledged, but in the short term a quick solution is for the acceptance at all levels of the need to improve productivity.

“Irrespective of any res-

.tructuring there is no other ; way to counteract inflation. “If we accept that the j genera! wage order system ! is designed to counter the (effects of inflation, then there should be no increase in award rates unless an in- ! crease in productivity has ■ clearly been achieved in the ! industry concerned,” Mr Don says. "1978 was a difficult year. [Present e c o nornic indicators suggest 1979 I will be more difficult and; | more challenging. ; “It is disquieting that it [should commence with the threat of another acceleration in the rate of inflation, j This surely emphasises the ■ need for responsibility in I pricing policies, and in pay ! negotiations to see that in- | creases are clearly linked to i gains in productivity," he I says. ; In the year to December 31 net profit before equity interests fell 20.0 per cent to $1,145,857, after providing $100,480 less for tax at $902,532. but $209,834 more for depreciation at $541,406. Interest expenses increased $43,671 to $197,089 during the year, but this year the expense will be smaller, because overseas borrowings will be completely repaid, leaving term loans of $675,000. After equity interests the! net profit was’ down to 20.3 per cent at $1,159,652. The directors have re-j viewed the company’s dividend policy, and are this year recommending an increase in the annual rate from 14c a share to 20c a share (20 per cent). A final dividend of 124 per cent is recommended, which will make the total • payment to shareholders this

year $750,000, compared with $525,000 previously. The company has for many years pursued a policy of retaining a substantia! proportion of annual profits within the business for capital development. It has in fact financed 74 per cent of its assets from its shareholders’ funds. primarily from retained profits, which in the three years from 1975 [have more than doubled to $5.3M. In an economy that is not growing and after the comjpletion trf major plant modernisation and expansion (programme, the retention of ! profits at previous levels is ■ unnecessary, and the direct|ors have considered the time (appropriate to compensate shareholders for the impact inflation has had on their earnings during the 19705, the report says. Shareholders' funds increased $434,784 to $9,235,475. comprising steady capital of $3,750,000. steady capital reserves of $244,505. and revenue reserves $420,953 higher at $4,795,544. The return on year-end funds fell from 16.5 per cent to 12.6 per cent. Net current assets were down $24,000 to $3.2M. and the current ratio eased from 2.2 to 2.1 to 1. ! At 205 c, the ordinary |shares had a dividend yield of 9.8 per cent, and an earnings yield of 15.0 per cent. The price-earnings ratio was 6.6, and the shares had a net asset-backing of 246 c each