LOYALTY OF SHAREHOLDERS

NZ Truth, Issue 1176, 14 June 1928, Page 16

LOYALTY OF SHAREHOLDERS

, ... — , j Farmers' Co-operative Organisation Society of N.Z., ltd. A WONDERFUL HMNCIAL RECOVERY . (By "Fiat Lux") ' The Farmers' Co-operative Organisation Society of New Zealand, Limited, with headquarters at Hawera, Tarana^i, is to-day in a strong and substantial financial position.

■THIS success is due to its excellent 1 management and to the faith and loyalty of its shareholders in subscribing, during the past five years, £72,335 of additional capital, in the face of huge accumulated losses. On March 31, 1923, the company's accumulated losses amounted to £20,337. Although profits of £1238 and £1582 were shown for 1924 and 1925 respectively, a spring-cleaning of the company's affairs in 1926 brought to light additional losses amounting to no less than £29,402, thus the gross losses to the end of 1926 totalled the huge sum of £49,739. Since the olean-up of affairs in 1926, the company has made wonderful progress, not only in profit-making, but also in consolidating and Improving its financial position. i If such advancement has proved possible in years, which, for primary producers, have been very lean ones, then with the return to normal economic conditions tihe company should prove a-real dividend-earner. "Fiat Lux" will be very disappointed

£147,135 and in 1028 It was £208,448, the forfeited shares reserve account being in credit a further £11,027. This additional capital alone is practically sufficient to account for the Improvement, but we still have to account for the accumulated losses of £49,789, of which only £7027 remains in the balance-sheet. Acoording to the published aocounta, the net trading profits from 1024 to 1928 amounted to £28,559, the two last years contributing £ 16,000. Then the windlng-up of the firm's superannuation account provided an additional £3125, which was carried direct to the appropriation account. Also, on account of the slump period, many people who had taken up shares were compelled to seek the protection of the Bankruptcy Court, Wherein the Official Assignee very properly disclaimed their shares in the company, thus giving the directors no option but to forfeit such Bhares, upon which a total of £11,028 'had been paid lip. Apparently the share register was given a very thorough cleaning-up

if the company is not able to declare at leaat a 6 per cent, dividend for March 31, 1930. Good profits should be earned in

during 1928 and a large number of shares must have been forfeited to make up the £11,---028, all of which was transferred

Special Expenses

the current year, but they will be required to wipe out the- existing 1 debit in the firm's appropriation account. Now, just what is the wonderful progress the firm has made in profitmaking? 1626 1&27 192S t£ . £ £ Gross Earnings* 46,068 51,052 63,234 Working Expenses 36,329 88,880 40,491 \ ______ ______ ______ Surplus on Working 0739 12,172 22,743 Special Expenses Ino. Bad Debts Depreciation, etc. 29,402 7666 11,352 t19,668 *4607 *11,391 t denotes loss. * denoteß profit. It is fair to say that the £29,402 of speolal expenses written off in 1926 included £12,608 for bad debts, due to slump conditions putting many primary producers out of production; £16,321 was written off for depreci-

to the appropriation account. The net result of a(l these trans* actions is that the company has now an adverse appropriation balance of only £7027, arrived at as under: Accumulated Losses 31/3/1923 20,337 Clean-up Losses ,1926 £29,402 £49,739 Trading Profits . 1924-28 28,569 Superannuation Fund 3125 Forfeited Shares Reserve 11,028 42,71? Debit Balance Profit and loss Account, 1928 £7027 Dealing with this year's balanoesheet in comparison with that of 1927, a number of important changes have been effected, the principal one being the reduction of the bank overdraft by over £30,000 and the increase in the book debts by nearly £20,000. The nominal capital of this concern

ation on leasehold properties, buildings, is £500,000, but less than halfyards, motor-cars and other plant; £233,670 — has been subscribed, also stocks on bond had to be adjust- If, however, the company continues ed to, meet the then depreciated val- its present managerial policy, it should ues. not be many years before the whole of Against the heavy write-off for bad the capital is taken up. debts of £12,608 in 1926, the amount Of 'the subscribed capital, there is required in'l92B was only £3263; then over £25,000 due in calls; as this ap- j the 1928 depreciation amounted to only pears to be well spread out for pay£s3B9, against £16,321 in 1926, when ment, it will come in gradually, but evidently provision had to be made for every £ which does come in improves previous years. the company's position. Be that as it may, however, the e3- During the past year, shareholders sential indications of progress are have paid in £16,974, which improves found, fully, in the gross earnings, and things a great deal, but the company secondly, in the net profits — both these can find profitable employment for items show a moat gratifying pro- every bit of capital it can get — the grfefe&ive increase, yea* by year, niora sooner the outstanding capital is got particularly the latter item, clearly in- in the better for the company and the dlcatlng that the turnover is now t>e- shareholder, too. ing. obtained at a muoh cheaper rate 1 The fixed deposits now stand at than formerly. " £36,691, which is an increase over last - In 1926 the gross earnings were year of £4406. £46,068; in 1928 they had increas- "Fiat Lux" has always opposed ed to £63,234, an advance of thiß mathod of fi nflnc | ng a c0m£17,166., pany'e operations and thinks it But the expenses increased by only regrettable that this account should £4162 during the two years, so that be allowed to increase again, the increase in the net profits amount- -. , . ed to no less than £17,166— a truly Of course, there is no shadow of wonderful recovery; ' doubt whatever about the concern In referring to the "working ex- being able to meet its engagements in nenaes" and "net profits," it is neces- this connection at any normal time, sarv to ooint out that this firm does but If it is going to usurp the functions

not take into aooount ba.d debts or , depreciation under working expenses. Consequently it ; follows that the net „ orofits referred to

are subject to reduction for these twq Items and also for income-tax. It is difficult to understand why the 'two former 1 items are not included as working expenses— it is the orthodox method of dealing with them and there does not appear to be any reason at all why the usual custom should not be followed in this case. 1n' 1924, apart from paid-up capital and loans on mortgage, this company owed £182,468, of which' £78,320 was bank overdraft and £66,278 was due to depositors on fixed deposits. Against this hu^e amount of floating debt, it had stock book debts, shares, war loans and cash to the tune of £243,817, so that !ts surplus of liquid assets over liquid debts was only £61,349. ■ "•■• In 1927 the liquid liabilities had been reduced to «£104,385 and the liquid assets stood at £204,253, so that in the three years the position had, improved' from the 1924 surplus of £61,349 to £99,868, an advance of £38,519. In 1928, however, the improvement was £38,311 over 1927. The liquid liabilities declined 'to £84,272, principally through the bank overdraft being reduced to a mere £2890, while the fixed deposits went down from £66,278 in 1924 to £36,G91 in. 1928. 'Against these liabilities, the liquid •assets in 1928 stood at £222,451, thus bringing the surplus up to £138,179, making the ■ net. improvement for the four years £76,830., "Yes," says the ' inquiring shareholder, "that's fine, but how was it accomplished in the face of accumulated losses totalling £49,739?" > : Well, shareholders have— during the period— put up no less than an additional £72,335 in hard cash, since the paid-up capital in 1924 was

Trading Prof its

of a bank it should be compelled to give depositors similar security to a bank, I so that the funds would be available in times of emer-

gency instead of only in normal times, Clients' credits show a rise of £3655 and now stand at £27,712. This is quite a .pleasing point and indicates increasing busineßa. Pi'ovision for income-tax (£2700) is quite a new item, but a. very encourage ing one, and it ia to be hoped that future years' provisions are much higher than this. Freehold and leasehold properties, including buildings and yards ' a^ £69,437, show an increase of £352, although £ 3010 has been written off for v depreciation. In 1927 leas. than £600 was considered sufficient depreciation. This being so, why should £3010 have to be charged this year? Something wrong? here. "Fiat laix" is of the opinion that too little provision has been made for this item in the past. • Bank debts now total £186,479, being an increase of £19,49? for the year; £94,650 of the total is secured and that ia where the bulk of . the increase lies. ; ■ ■ . .. ■ ; , .■;■'. ; . ;■ The profit arid loss, appropriation account has been reduced by £25,546 and now stands at only £7027, whjch should be cleaned up and oonverted into a credit for .1929.