Financial Reviews BUSINESS FROM PLEASURE

NZ Truth, Issue 1143, 27 October 1927, Page 14

Financial Reviews BUSINESS FROM PLEASURE

Tobacconists (N.Z.) Limited Submit A Prospectus For Review "FIAT LUX" IN ANALYTICAL MOOD

3^'miHiimmmiNmimmimmiMiniiMnuuiniinuiuTinimiunnniMiiMnMmiiwnMimniwinHimin^ |[ The promoters of Tobacconists N.Z. Ltd. set before the [| | f public their prospectus. As smoking these days is a popular || || habit with both men and women, the promoters are cvi- || || dently seeking some of the profits accruing from the use of || || the fragrant weed. || p/.niimrmmiflraiiwmrmuinimmimiNmiiiiairauiMMimi»iiiiiHiiiMiiMiiiniK>im^

THE promoters' proposal is to float a public limited liability company with a nominal capital of £50,000 m £1 shares for the purpose of acquiring as a going concern the chainstore hairdressing and tobacconist's business at present carried on m 8 stores m Wellington city by Tobacconists Limited, a private limited liability company. It is also intended to increase the number of stores by opening new ones as capital and opportunity permit. In support of the proposal the prospectus contains many assertions of the soundness of the tobacco trade m general and of the prospects of this company m particular. Here are a few extracts from that portion of the prospectus headed: "Facts About Tobacco"; "A sound investment"; tobacco is a product of great commercial value. It is m keen demand throughout the world. "The business proposed to be taken over is a going concern m a flourishing condition and the profits show Interest on the amount proposed to be paid (£20,000) at £10 per centum. "The comt>anv is being: formed to

take over the existing chain of tobacco stores held by Tobacconists Ltd. (a private company) and to extend that chain by

the purchase of additional stores and m this way ensure increasing profit. "Exceptionally good dividends should be earned and intending investors should apply for shares without delay. "Tobacco has a wonderful future and is a sound investment. "Invest m Tobacconists (N.Z.) Ltd. to-day; big profits and a steady return on shares is assured. "Every contributor of every £ 1 Bhare is welcomed, as it is recognised that every shareholder will be a potential customer of the company, thus increasing the returns and profits." After the above "facts" have been set forth to whet the appetite of the investor hungry for big dividends follows a schedule of net profits earned for both 1925 and 1926 by thirteen British manufacturing tobacco companies with a statement of dividends paid which ranged from 50 per cent, by Carreras Ltd. down to 7% per cent, paid by the Imperial Tobacco Co., of Canada. Presumably these figures are given to encourage the hesitant investor to get into the tobacco business m order to get his share of the colossal profits of the industry. If this presumption is correct, "Fiat

Lux" would like very much to learn exactly what bearing — if any — the profits made by say, Carreras Ltd., a manufacturing tobacco company with a world-wide market and an International fame and reputation, are expected to have upon the earning power of a small company running a chain of eight little retail tobacco and hairdressing shops m Wellington city. To mention the two firms m the same paragraph appears to this critic to savour of presumption, while to quote the earnings of internationallyknown manufacturing companies as an inducement to investors to put their hard cash into a local retail concern is more than bold. Regarding the prospects of the proposed company, it is abundantly evident that words failed the promoters when it came to setting out m cold print their ideas on this point which is of paramount importance to Intending investors. An airy nineteen words sums up and dismisses this most vital matter. This is what is said: "The prospects are sound. The profits and prospects of this company have been estimated on a sound commercial basis." The next paragraph m the prospectus calling for a little concentrated attention is headed "Purchase Price." It is so interesting m a negative way to the intending investor that it is given m extenso. "The purchase price of the eight businesses of the present company (Tobacconists Ltd.), including all assets of the company for property, leases, stock, fittings, furnishings and equipment and goodwill of leases and businesses estimated at the sum of £15,260 is the sum of £20,000— £15,000 whereof is to be paid m cash and the balance of £5000 m 5000 fully paid-up shares m the new company. "All existing liabilities are to be paid by the present company and no liabilities will be taken over by the new company. "Estimates of the values of the leases, stock, fittings and goodwill as set out m the option to purchase which appears m table A. ■ £ Leases, stock, etc., as above . . , ; 14,610 Other assets — Essex motor-car t.«<..-..i 200 Fireproof safe ...-..:< 75 Share cash register ......... 50 Tobacco cutting machine . ...» 175 Office furniture 50 Stock m bond (paid for) ...., 100 Grand total 15,260

Some Claims

"The Gresham is sub-let In part at rentals totalling £12/10/- per week. "The Cuban is sub-let m part at a rental of £ 3/10/- per week. "The Adelaide is sub -let m part at a rental of £2/10/- per week." The next paragraph of note deals with "Estimated Profits." "Careful estimates have been made on a conservative basis of the average profits of the eight shops proposed to be purchased. These show for an average week — RECEIPTS. Returns from saloons 105 0 0 Tobacco sold, £420, estimated to produce 20 per cent 84 0 0 Amounts received from subleases „i., , 1110 0 £200 10 0 EXPENDITURE. Wages and overhead expenses . 98 0 0 Rents ; 45 10 & Sundries 15 0 0

— 158 10 0 £42 0 0 "This is equal to £2184 per year or a return on the

purchase price of 10% per cent. Having given m extenso just what the prospectus says anent purchase price and estimated profits let us briefly analyse such statements. First, the vendors own estimated value of all the assets to be transferred, including goodwill of leases and business is £15,260, yet the purchase price of these assets is to be £20,000. A note on page 5 of the prospectus states that the amount of goodwill being paid to the vendor is only £4740. Now this sum is the difference between the vendor's "estimated." value of assets and the purchase price of £20,000. If, however, as it appears to this critic, that the "estimated" value of assets includes £4350 for goodwill of leases and £1710 for goodwill of the individual business, then we have this item of £4740 which is necessary to round off the figures to £20,000. "Fiat Lux" then considers the total goodwill is the sum of £10,800, but the full detailed figures are given so that intending investors can check up for themselves. A very pertinent question at this stage is: "Why is the public asked to

purchase £20,000 of "estimated" worth without any single solitary valuation certificate being tendered m support of such value? Investors can answer this query for themselves. A totally different complexion would have been put upon the whole proposal had the "estimated" stock values been certified to by at least two independent i valuators being men engaged m the I wholesale tobacco business, whilst the fittings values should have been certified to by two practical shopfitters. | The leases should have been valued ! and certified to by at least three reputable estate firms, whilst the estimated profits and goodwill of the businesses should have had the O.K. of not less than two leading firms of public accountants. As the vendor company has been carrying on business for some time, why are not certified accounts showing the actual realized profits submitted? If they have been m business too short a time to publish such accounts then the time is also too short to ask the public £20,000 for the outfit.

TABLE A. Stock Fittings Lease Goodwill Total £ £ £ £ £ Occident ....... 3550 600 600 500 5250 Gresham 750 350 2200 300 3600 Albert -....i 480 375 Nil. 150 1005 Regal 550 350 450 250 1600 Palace .., 250 200 Nil. 100 650 Cuban 150 200 550 200 1100 Adelaide « 280 175 450 100 1005 Basin Reserve . . 140 150 100 110 500 £6150 £2400 £4350 £1710 £14,610