Financial Reviews HELPING PRIMARY PRODUCER

NZ Truth, Issue 1175, 7 June 1928, Page 16

Financial Reviews HELPING PRIMARY PRODUCER

Wright Stepkenson and Company Also Help Themselves ACCOUNTS SHOW JPLENDID RECOVERY (By "Fiaf Lux.") For the 1 927 year the old-established and enterprising firm of Wright Stcphenson and Co., Ltd., had to draw on reserves to maintain its usual 7 per cent dividend, but it has made a splendid recovery m 1928, its net earnings showing an improvement of £8582.

THE profits m 1927 -were only £26,661, the lowest on record for many years excepting 1922, the culminating year of the world-wide slump, when the figures were £25,391. Consequently the, increase of £8582 for 1928 over 1927 should prove entirely satisfactory to all concerned. The 1928 profits are disclosed as £35,144, but there has to be added to this a Httle secret transfer to reserves Of £585, so that the total net earnings for the period amounted to £35,729. Against this there has been paid a 5% per cent, preference dividend and a 7 per cent, ordinary dividend for the year, absorbing £34,636, thus leaving £.1193 to be added to reserves. When the adverse economic conditions which prevailed during the greater portion of the period under review, particularly during the 1927 autumn and winter, are remembered, these results are distinctly good. Lux" will' be disappointed indeed if the 1929 profits do not show a further improvement of approximately £9000. , • The plentitude of the 1927-1928 wool

Clip, together with tHe excellent prices obtained, have had the greatest individual effect m the recovery, Imt the x-eduction m the

year's imports has also been a considerable factor." With every prospect of these factors continuing to operate to the improvement of the country's economic position and 1 the favorable outlook for other primary products for the coming season, there is every reason for expecting this company to get back to its \ £46,000 net earning sta.ge, as it deals almost exclusively m primary produce. The balance-sheet shows the firm to be m a very sound financial condition and the surplus of liquid assets over liquid liabilities shows a small improvement compared with the 1927 figures. ; Practically every item In the bal-ance-sheet shows considerable alteration on the year, but the greatest alteration of all is the increase m creditors by £157,288;. this item now stands at £1,073,552, the highest point it has reached for many years. Per contra, however, the liquid as- . sets have also risen, as will loe'detailed later, so that actually the position has improved. . • The authorized or nominal capital of this concern remains at one million

and twenty-five thousand pounds sterling. Of this amount, £550,082 worth of shares has been subscribed and the very , modest sum of £3175 remains uncalled, £1275 having been paid up during the year. The. preference shares total 249,840^ carry a fixed cumulative dividend, of 5Yz Per cent, and are preferred as to, capital on a wind- . ing-up, but do not participate m ' surplus assets on winding up. In connection with these preference shares, it has to be pointed out that they rank after debenture-holders and creditors, which together now total £1.643,544. The reserve account at £73,533 again shows a secret accretion of £585, which is the amount that, has been added annually for a number of years past without any explanation being offered.. ■ ■ -v . . Although the above is the amount to the credit of the reserve account, it is not really the full amount of the firm's reserves; one item, for instance, which has to be brought into calcula-

tion is the balance of the profit and loss appropriation account of payment of the year's final ' dividend.

As this balance / will amount to £34,073, it means that the firm's visible reserves are actually £107,606. , The shareholders' total funds m the concern at the end of March, 1928, amounted to £671,781, an increase for the year of £2513. . '-■'■.■." The amount of debenture stock current at the same date was £569,993, a decrease of £9500. " The firm • has nearly half a million ■ sterling of perpetual debenture stock— £413,588 to be exact— and £348,288 of the amount is costing only 5 per 06nt., plus debenture tax, so that the net cost of this money will be 5J£ per cent, somewhat cheaper than current bank rates. . ■ • Of the balance of the "perpetual" money, £2720 is at 7 per cent, and £62,580 at 6 per cent. ■ In each case holders have to pay the debenture tax, which is probably at the 4/6 m the £ rate, so that it is possible their return is less than the 5 per cent, tax-free issue. . It behoves the- investor to step. warily m buying debentures with a high return of interest which may prove to' be chiefly superficial. The balance of the debenture money is £156,405, of which £95,525 carries 7 per cent, and the balance (£60,880) carries 6 per cent, interest. Both these. series are terminable and In each case holders pay the debenture tax. ' ' The broad eftect of recent tax legislation covering this ' point is thai debenture-holders will pay the same rate ori ' debenture interest income as on the remainder of their income.

Reduced Imports

Debenture Stock

When a person's income from an investment m shares m a company is taxed m the same manner, New Zealand will again be able to hold up her head and say: "All's well with our taxation principles." The firm's property account at £202,351 shows a decrease for the year of £7747, due presumably to depreciation. It should be noted that this account includes both freehold and leasehold properties. ' - The machinery account shows a re duction for the period of £2347 and now stands at £12,6.16. The write-off will be 15 per cent, for depreciation. As it is evidently calculated, upon the reducing balance of the account, the rate is not nearly high enough, since it presupposes a life of seventeen years for the machinery when seven years would probably be nearer the mark. The plant account stands at £11,382, a decrease of £1489, equal to 11% per cent. This is probably depreciation and as the account includes the whole of the

firm's motor - cars, horses, etc., the rate applied appears to be ridfo ulously low. The question as to the correct rate

of depreciation to be applied to motor vehicles (both trucks and cars) used commercially, is one that can be settled definitely only when the full facts and circumstances of each case are fully known. In the case of medium-priced 30-35 mile per hour, comparatively light cars, used : by commercial travellers, stock agents, etc., such cars usually have an economical life of not more than three years. They are not worn out by then, but the higher cost of operating due to increasing repair bills makes it cheaper to trade them m and obtain new machines. ' • Estimating 1 the trade-In value at the end of three years as one-quarter of the original cost, it follows that during the three years the machine is m operation one-quarter of its original value should be written off m each year. , This rate may seem somewhat high, but m practice it is liable to work out on the low side. In the case of heavy-duty vehicles, these do not require such a high rate, ' 15 to 20 per cent, of the original cost

being 1 usually found sufficient, according to the type and make of vehicle. Stocks on hand (£178,406) include merchandise, grain, seed, manures, etc., and are £3186 less than last year. Advances at £187,382 show an increase of £95,038. ..These payments have been made against dairy produce, meat and wool, both purchased outright as well as being handled purely on a consignment basis. The amount is reduced by recoveries, by way of drafts drawn against shipments afloat or m London. "Fiat Lux" has watched with interest the rapid extension of the company's business m this direc- , tion and looks forward to still greater expansion m the future. • A firm which can handle produce from the farm iri New Zealand to the retailer m England is rendering a very real service to the primary producers of the Dominion. A few more firms of this kind would soon render needless the expensive control boards from which the country

at present suffers. Debtors at £1,2 0 8,6 87 are £10,520 less than last year, but these figures do not tell

the. whole ..story, :. since bills receivable at £90,689 show an increase of £24,832 — hence the net increase m accommodation provided for : clients amounts to £14,000 apart from , specific advance against produce, which ■increased by £95,038. . j Shares m other companies (£201,---574) and terminable debentures In , other companies (£140,000) are very ■ 'big. investments for the company to i iiold. .■■•■.•• : , • ■ They will include the half -interest m ! the Challenge Phosphate Company, . Ltd., at Otahuhu, the other half having : been sold by this firm to the N.Z. , Co-op. pah-y-Co., Ltd., some time ago; : also' the firm's majority interest m Abraham. . and Williams, Ltd., and numerous similar concerns. • The company has re-invested about 14/- in the £of the paid-up \ capital outside its own business, \ but shareholders can rest assured 1 that the policy pays pr.it would not , be continued. - ' Are the company's shares and! debentures a reasonably sound investment? They undoubtedly are, although "Fiat Lux" considers that both classes of shares 'are two high-priced ■ at present for the returns already obr tamed or m prospect.

WRIGHT STEPHENSON AND COMPANY, LIMITED. Condensed Comparative Balance-Sheet, March 31, 1923. LIABILITIES. ASSETS. Capital paid up . . 546,907 *1275 Property 202,351 t7747 . • Reserve .......... 73,533 *585 Machinery 12,516 f2347 Profit and loss 51,341 *653 Plant : 11,382 *1489 ■ — Stock 178,406 *3186 Shareholders' funds 671,781 *2513 Advances 187^382. *95,038 Debenture stock .. 669,993 • t9500 Debtors 1,208,687 t10,520 Creditors 1,073,552 ♦157.258 Bills receivable ... 90,589 *24,832 •••■." . - Shares other com- . . ' panics 201,574 *6338 . . Cash ... 53,654 *49,282 Cash m London .. — — Government securities and company . . " debentures 168,785 f 9250 £2,315,326 »150,30J £2,315,326 »150,301 Note: • Indicates increase and f decrease compared with the 1927 figures.