THEIR DREAMS END IN SMOKE

NZ Truth, Issue 1193, 11 October 1928, Page 17

THEIR DREAMS END IN SMOKE

New Zealand Tobacco Company, Limited, Prospectus of New Issue

VAGUE INDICATIONS AS TO^DIVIDEND HOPES

(By "Fiat Lux.")

The prospectus of the New Zealand Tobacco Company Ltd.* leaves "Fiat Lux' " cold and unresponsive, for it is hollow and unconvincing. It appears farcical to quote the wealth of the famous Wills tobacco family as an inducement to New Zealand investors to put their hard-earned cash into a tobacco farm. The foregoing is this writer's considered opinion of the venture, but it must be understood that this is not to be taken as a sweeping condemnation of the Dominion's latest and still infant industry —tobacco growing and manufacturing. The growing, blending and manufacturing of tobacco m New Zealand should — indeed, have-— proved to be possible and prof itable, but a very high degree of knowledge is required to bring either to a successful issue. .

THE New Zealand Tobacco Company, Limited, is seeking to raise £75,000 (less 300 shares issued as fully paid up to' the. promoters), for the purpose of purchasing land close to Auckland city, on which it is intended . to plant, cultivate, harvest, cure and grade tobacco leaf. .. As it.is quite impossible for the;promoters to forecast correctly the extent of the publio response to the appeal for capital, the minimum subscription hasbe P en fixed at the absurdly low level of 4000 subscribing shares. ... There is an idea current m the minds of many people that the "minimum subscription^ is the^mallest This belief. "Fiat Lux" has *I« ways but evidently the , promoters iof this concern do not believe m it, since iVwould. be very difficult indeed, for them to ' com,mence operations at all on this paltry sum-let alone ; *.th any prospects at all of success. . The capital of the company is divided ihto £1 shares, now offered to the publio on usual terms, i.e., 2/6 on application, 2/6 on allotment and the balance m calls not exceeding 2/6 per share at intervals of not less than one month. . • An excellent provision is made whereby investors -^ho prefer, to pay up thelr.shares m full become: entitled to receive 5% . per. , cent. . interest thdreon until the., respective, due dates;. of the calls,. ?: V ,'i: ,': The comipany .intends to' purchase land at Srigham's Creek,. Riverhead district, for'its)tobacco farming operations. Owing; to thepossibility of the puMic not'supporting the venture as fully' as the •promoters might desire, it 1 has been wisely rarranged that the details the projected land purchase-will-enable tne company to purchase areas-in Instaiments.. ,':.-■ ;•; v^ ;:.;. /.. „,.„ But.apparently^uch-rights to purchase are entirely conditional upon a certain amount, of. oapital i.being sub- , scribed, though the prospectus aoea riot disclose, of such capital, nor whether, anyytime. limit operates^ m the, matter. „..._ _„.-. The foregoing cad^uP^.'.^°.Jue^ tion as how m^ch is rea ofeeirn *k^profits In thi^ able chance ?£*^W£W;~;-af™.^: ff^a^^^t^SSff«t'-&SiS'w«l is cx Pe.^ e %B|^; s "^.lc^l^ be. readily ajbscrib^^9\^^^Y^ immediate of ,at ,^ast 120 further oA 'm the Sgures-given is an

6%hi w?Ue^Cfi'ils to understand why the oosTtlonaSlved at above should «f Savi h« Rn nbenlv stated m the prospectus tnstZl ot supplying the factorsi and leaving the investors to. work out the calculation. Such a course as has been followed to always open to the objection that every investor may possibly arrive at a different answer—and • they may all be wrong. Thus the promoters' interests are liabje to be prejudicially affected, which would be a pity. ; On the basis" of £12,000 of capital being subscribed and paid up, the compahy's cash position for the first year would be approximately as follows: ' . RECEIPTS. Paid-up .capital ' £12,000 ,r^Tm« ■ PAYMENTS. Preliminary expenses ........ £1,000 ™ I MtLwrJant- «n«Ti<ipq 500 Establishment expenses ..^.. . .&«" «an^il Ld San? IBOtf 2US? "«nn 20 acres' at' £25 3 000 Deposif'onTand.Ts of flo ' . wracre for 120 acres 3,200 p , ; —; £10,950 Cash balance available for contingencies ............. 1,050 — £12,000 "Fiat Lux" has culled the above figures from the prospectus, but believes that several of the items have been calculated altogether, too lightly. Take the item-of preliminary,expenses, for in .?tance . , _ - In the prospectus, two years aexans of estimates of ,^ ofi t t ce s m ar,? Ije s a i Je^ ritethe first year, the item Less^wnteoff preliminary expenses, £1000." apnears, but is missing m the second year's figures; therefore, it is assumed Sat estimate the total preliminary expenses at £1000. ■ Now. m the information which is supplied m conformity with the Companics Act, it states: "The preliminary expenses of, and incidental to, the promotion of the company, including legal, StiSg° etc! are estimated to amount to £600 and will be borne by the company. : > - "ln addition, brokerage and advertising will be payable by the company, As «ie estimates of prongs are al-

ready basea upon a capxtaioi^vvv,, it is reasonablei to assW that biokeiage will be payable thereon_at the agreed rate.- of .6 per cent. This amounts-to £720. - • , . Then there is aavertising, which will not be less than, £100 'so^ that whilst the estimate, of profits .'Prorfd,ea.v?oi.; preliroinary. expenses .of £ 1000 ■.mformatjon culled from other porUons^ot the prospectus goes,to show that, the'

estimate oi, ■,•?««: probablUty of a. "25 .| per cent, dividend on the ; capital require'dutQ«; Jdev.eJpP . |

comprises one hyfn-. dred and sixty- fiVe acres more or less and" can be purchased m three

OUTSIDER IN FINANCIAL STAKES

,izu acre^,*™^ ;■•, :.- f •;_ ■;; . ;. . .. . — ..11 separate blocks. > iSqBS ''FiatsLux'' want to make a "fbrtune m tobacco,'' It™£%. T^Pa™ ex&cfit^n^*?- U ft the heading of every page w the prospectus £12,000^ to dW ; ;r;reyiew.i Yes, but that would appear to, be a very || Icfes aMmon i outside chance m the oase of the New Zealand Tobacco Com- ffdier over further Sis a mort^ II pany, Limited. A lottery would make a greater appeal. If ■ JgJ^Jgf^ '■ of £53/6/8 per acre y X fortunes ■ art ■to■ be made so readily m the tobacco §§ by the lands above wk. lo£e%aijl game, why does the admittedly highly-successful tobacco fj cost of purchasing | manufacturinff concern, the National Tobacco Company, fl descrS ?n the c^iS^rl^ jl Ltd., refrain from growing its own leaf? , • ;. ,|| said, op^having . . ■ • t ■ :

amount is'much more likely to be £1420. / "Fiat Luxlj; argues that if such an easily estimated item as preliminary .expenses...is. understated by- « per cent., as it appears to'be, what reliance qan be placed upon the other estimates which are ; suppHed, and_ which cannot rest upon any more substantial basis than theidesire of the compiler to make a good,<moving?. • . ..■ ■ Here is an extract from the prospectvs:, "A net^prdfit: 0f.63/2 per cent on capita -m the fourth year of business —is surely a record. This was attained by an established New Zealand.tObacco. company.. On a £p ogal J Thlsis ?-»^^m^ ?T This statement seemed very mterestlng to "Fiat' Lux." so he went to filing cabinets for the cross index order to. work under the heading of .. Tobacco» finally locating'the file re- ,-«__ to the affairs of the National ; gure enough; tneir fourth year's accounts were published for the year :. ■ ■ •- ■ ', , '- -- • « : A/Titof/iYII \nli)PSl IVlyolyiy KjUlUtl* " „ '■• ' ' : —: »'. ■ ' ended October 81, 1927,. and their paidcapital at that date was £35*793. *• -r ; This seemed to be the concern referred to In the pro.peotus all right, so—with due praise for the genius who invented oross-index-ing—-"Fiat Lux" started to confirm the figures given m the., prospectus. : ■ . First, having early m life been tau&ht the value of caution, he checkQd the percentage of profit quoted m .^^ aDoVQ extract, discovering that on flgurea given. there, the percentage of profit for the year was sadly under- *^ ■ f £ 21,775 , represents. prac-el-per cent of the stated capi. £35^ 793 _and, not 53^ per cent., ahown m th 0 prospectus. , . trbuWe had to be located, flO v J^' p n ubl sg hed acCounts were referred to and the mystery was solved, 5hJ dredit balance of £2616, being the fltß from the previous year had been added to the profits of £1$ i 6e for the current year to make the '£21,776 quoted m the prospectus as the year's profits. --■■.;■■ It appSrs' quite simple when-it's c " J*^^^ , t? ut ther9 waß stiU an explanation required as to how

any person could take these factors and make 63% per cent/out of them, The back numbers of "Truth" were then referred to and In'the Issue of January 26, 1928, the affairs of the National Tobacco Company, Ltd., were reviewed by this writer, whose opening paragraph read as follows:' "A net profit .of 53% per cent, on capital m the fourth year of business is surely a record for a manufacturing business." - How familiar the old phrase seemed fo "Flat Lux," who wondered whether he had been guilty of that cardinal sin of journalism—plagiarism. But no; his effusion was of January vintage, Whilst the prospectus was m its mfancy nine months later. Bui: whatis the, difference between the t wo statements? Only thls- .F^ a* Lux" pointed out that the wonderful profits were made^out of manufacturng tobacco, but 4he prospectus does a Q Uq^ M• f \ eaviilg the reader to infer what he will. . The question arises as to what difference it makes whether'the National Tobacco Company, Ltd., made its profits out of growing tobacco or manu- ." V I TLn U ■ /r\ hsf/»/»/) I 111f HYP 1 WWUtCW ■ ( ' .* ' ■ •", —— • r facturing it, so long as it made its profitg out of tobacco. it makes just, this difference—their 1 figUres:cannot be used as an indication of the dividends people, may expect to derive from tobacco farming, lt WOUld be just reasonable to say t] t because the Clark family have^ ma(Je untold:milllona out of m£ hufac- .■■ , „ rotf On a rotton farm m Q^Lland should produce eriornious *v\dends T^e^lnW^oes t , t anV.:ba-als. of OOmDarison beP"*®- SeS^rooositSS r °" ;'' tween tne two propositions. . Now a few remarks- concerning the land the^company proposes 'to • .purchase. /This is situated at / !• Riverhead, 17 miles from the Auck- ; land post office,; and \s stated vto: be served; by;:a concrete Voad t6 within four .miles. . V.; ; A ceriifl<iate- nksTbeen given: by one q eor&e Kezich,; who; is ' d^cribed as a

tobacco expert from the Balkan States (where ,th^ -comedies come . . . Meal the .purpose ;P ftobacco cultfvation .and vyill produce, first-class j ea;f V . : - j n r addition, it is stated that an offlcer.bft:he Department of Agrlculture has expressed 'the opinion that the property should prove ln. ©very way bitaXAe for"-tobacco-culture. ..

It will be noted that both these opinions deal only with the suitability of the land for tobacco, and no evidence whatever appears to be tendered m support of the value of the land, for which -the company Is to pay no less than £.80 per acre.. - This is what the memorandum of association, which is contained m the

prospectus,) says on thia • land .ques^ tion: v »(<>) To enter into arid adppfc and cajryminn o effect with or without rnodif fications the following agreements for thQ purchase of Jand which" have already; been prOpared and are expressed be made between lEhiilip1 Ehiilipv Henry Chandler of Auckland law/dlerk';as TrUßtee for the company as purchaser of the one part and The Pacific In- , Limited a duly incorporated gjgjj" its^e&SSd oWce A * ckf and ln as Veri- . n*w nnrt th* aa\e\ a«r<Sftdm of. fj J^gf^^X d a °re° of gi*2nb«^One^nousand nine hundred KfSuS^S^ near/Auckland more fully described m. the said Agreement whereunder the, consideration to be paid for the pro-, perty to be acquired and the rights of the. Pacific Investments Limited therenis Eighty pounds per aero and the area of \ht P said land is 42 acres 2 roods and 32 perches more or less: under the said Agreement the.sum of £500 shall be paid m cash to The Pacifio Investments Limited upon the adoption of the Agreement by the New Zealand Tobacco, \Company Limited arid a further sum making a total cash payment equal to thirty-thMe and onerthird, per cent, of the total pufchase prioe within two months thereafter and The Paolfic Investments Limited will upon payment of the eald BOcond BUm pay the sum of twentyfiVe pounds per acre to A. R. and J. sinton of Brigham's Creek, Auckland, for their rights as original Vendors m property and obtain from them a good title to the land and the New Zealatid Tobacco Company Limited will execute to The Pacific Investnients Limited a first mortgage secured over the said lands for. the. balance of purchase money representing sixtysix and two-thirds per cent, of the total purchase: price to be payable within five years from the date of settlement, together with interest at the rate pf six., pounds ten.. shillings per centum per annum payable quarr terly. Secondly, an-Agreement marked 'Second Agreement' for the sale and purchase of certain other land situate as aforesaid and more fully and particularly described m the said Agree-;. ment having the same conditions as the price per acre and the same terms and conditions^nd Vendors and:st|puiatlons as to manner of payment the only difference being that the purqhaae: i 3 conditional on the amount of Capital therein set out being aubscrihed and

thirty-six. acres/on, similar terms and conditions as to price andl payment to , the above-mentioned Vendors m the respective amounts set out above and m: varying Areas." ... . From the above, it appears that the company under review is buying from, a middleman—the' Pacific Investments, Limited— and whilst "Flat Lux" has. no idea who the shareholders therein, may be, he would prefer a few shares m that company to any other investment at present on the world's. markets, provided the Tobacco Company goes to allotment and takes up the whole of the properties referred to. It should beat tobacco dividends right out of sight, but perhaps it is too good to come true. Here &n from the "Trade Bulletin," issued by the Bureau of Business.. -Conditions, New York, April, 1928: . ' . - ' „ '" .^ /'Exports of tobacco for the.month , of -Maroh. 1928, were six P°unds, less than m March, 1927, a decllno of 118 per cent: ", • . . "Tobacco planters have reported to . the Government an intended increase of approximately 16 per. cent, m ,the acreage of tobacco for the coming season. .. . Production of ;fluecured tobacco for the past two years has increased more rapidly than consumption and stocks of old leaf are now the highest on record. . . ."It is. estimated that stocks of leaf on July 1, . 1928, will total 25 per cent, more than a year ago." . . . ,; "if these are the fa^ts,'"says afarmer with leanings.tpwarddctobacco cvitivation "what is the use <;of me fonSg': crow' tobacco "> Where can"-I sell mv fu?Wu^ a C°° ' re-.-^n. .1 sell, my UULIJUL ,* -■ ■■V,vi-;- ; - ■■■-■'■■,:.. a:.: "., The answer, ;is.- that : vGreat^ Britain T%^ u^^n^^^ 1?f UI) thls- .trade. -:Empire t -grown leaf 'Sp-QS\4ntO:,^reat;Bsitadn-,tina!Sr..---g,.;prer-ferenceT tariff of approximately: 2/ T per pound. . ."-i; V'■. •• ..< ■:■-. '• : .:Y'^ ■ v^. This 1 alone makes it. wjrth whlle.for- : '__■•"■ , •■ ', i- -.*,,,' ;. ■•■ ■'■> •■■ ■".• %w.Zealand-( to build up-an .export trade m tpbacpo^ leaf, .and those In "' terested sfcpuld write/to the horticultural branch:*^f >th% ■ Agriculturatvi)©- • :partmerit for-all iriformatidri^ :. !::' y-.; ,; :; :