ON THE UP GRADE

NZ Truth, Issue 1207, 17 January 1929, Page 2

ON THE UP GRADE

JnaneialJJeviews

The Bruce Woollen Manufacturing Company, Limited

DIVIDEND INCREASE FOR 1928

(By "Fiat Lux")

The Bruce Woollen Manufacturing Company, Limited, seems to have turned Adversity Corner and to be well on the road to permanent dividends, Compared with the previous year, the gross earnings for the twelve months ended September 10, 1928, showed a 59 per cent, increase, which must renew investors' interest m its shares.

IN discussing this company's affairs m these columns m November, 1927, when a net loss of £1567 had been disclosed for the year ended September 19, 1927, this critic wrote as follows: — "Marketing prospects for the woollen trade m the Dominion have altered out of all recognition during the past five years. A woollen manufacturing firm to be successful to-day must alter both its production and murketing plans if it is to remain successful." Now read the following extract from the directors' report for the year under review: — ''**.■ "During the ; year the sales policy of the company has been completely changed. Whereas previously the company traded only with wholesale houses, it i 3 now selling direct to the retailer. "Despite this fact the total of the sales has been increased. ' "Your directors' appeal to shareholders for fresh capital has been extremely gratifying and has resulted m the application for 44,985 shares of which 28,433 were allotted prior to and 16,552 have been allotted since the end of the financial year. "As a result of this response your directors have been enabled to order an up-to-date worsted plant . which should be-in operation m six months' | time and which will still further increase the company's earning power as well as the demand for its goods." "Fiat Lux" feels particularly pleased that the directors' alteration of policy! has brought m its train such happy results as are disclosed m the 1928 accounts. These show the year's gross earnings at £26,095 against only £16,359 m 1927, an increase for the period of £9740. .' Admitted that trading conditions were much brighter m 1928 than m 1927 still this factor alone could not possibly account for the big advance m earnings m the year under review. A certain portion of the increase is no doubt due to the improved economic position^ of the Dominion. The greater portion of it, m this writer's opinion, is due to the "go--5 getter" sales policy now . adopted by the directors. ■ The day has gone by when manufacturers can leave the marketing of

their goods entirely to warehousemen or wholesalers. Competition amongst manufacturers is altogether too kee,rt for this method. They have to choose between maintaining their riiarket by continuous and heavy advertising expenditure, thus creating a demand for their goods amongst the public, or they must go out and personally sell the man nearest the public — m this case the retailer. The Bruce Woollen Company has chosen the latter course, which for] New Zealand trade conditions, this SATiter believes to be the better plan; but a certain amount of; advertising niust still be done to augment their retailers' efforts. When retailers handling certain classes of goods were few and far between as was the case m New Zealand twenty years ago, the warehouseman was an economic necessity. Travelling then was a very slow and expensive business and the comparatively small amount of trade which could be done by* any ' given woollen manufacturing firm was too small to warrant the expense entailed m employing its own travellers' to call upon retailers. Hence the rise of the warehouseman. But to-day and m fact for a number of years past the conditions have been steadily changing. It is no uncornmori thing nowadays to find the smallest retailer indenting his requirements regularly from overseas houses. Where . big overseas manufacturers with the benefits arising from their world-Wide experience adopt any particular method of marketing, local manufacturers would dp well to carefully consider the advisability of following m the overseas firms' footsteps. As a result of the new life which has been infused into this old-established firm, shareholders during the past yearagreed to the capital -being increased from £100,000 t6 £150,000 by the creation of £50,000 of £1 seven per cent.' cumulative preference shares. At October 19 last, the date of issue of the annual accounts, practically 45,000 of these new shares had been, taken up by shareholders. At that date £ 27,211 had been paid \ thereon thus demonstrating m a j very practical manner their implicit faith m the potentialities of their undertaking. With this very strong Indication of shareholders' support the directors, having altered entirely the marketing methods of the company, decided to alter and improve their output facilities. To this end the new capital, or a large portion of it, is being devoted to the purchase ' and installation of a fine worsted plant which should enable the company to largely increase its turn- I over with consequent profit to share- • holders. The business is m New Zea- i land to -^be.; .'"done, and , local woollen firms can turn out the world's finest! materials. That, ' however, is only half j the battle for success. The other and hardest part, is to sell the goods. This writer commends the directors' new policy of selling direct to retailers instead of as heretofore, confining their sales j.t'p wholesalers. At the date of the accounts under review' the nominal capita] totalled;

i £150,000, of which £127,211 had been i paid up, thus leaving the ,very substantial sum of £22,779 available m uncalled capital. *. * It will probably be found that the new method "of marketing wi(l require more working capital than m the past. Apart from the paid-up capital the shareholders' other funds include the dividend equalization reserve of £5000 at which figure the account has remained stationary since 1924; but even S so, it is a very useful reserve whicn [ this writer hopes will be built up conI siderably during' the next few years. Then there is the general reserve 'of £ 12,000, which has been gradually built up since- it was depleted by £20,000 m 1921 to provide shareholders with a bonus issue of shares. It is always easy to be wise after the event, but from what has transpired since that date it is abundantly evident that it would have been better business not to have made that particular bonus issue. Last year, of course, there was no accretion to this account and for the year under review all the net profits — except £260 which is to be carried forward — are required for other purposes. Compared with the previous year the shareholders' total funds including the undivided balance of the profit and loss account amounted to £146,535, ah increase of £28,497 due principally to the i new preference capital. Sundry creditors have been reduced on the year by £1424 and total £5268, which is comparatively small for a company of this size; but the "stock" is always taken up by the bank overdraft. The reserve for income-tax this year reflects the altered state of the profit and loss results and at £879 is £791 less than the 1927 provision. Compared with tho 1923 reserve of £12,500 for this purpose the derren.se of £11,621 portrays most Vividly the "slide" which this company's, earnings have taken. It has to be remembered, however, that m 1923 income-tax was levied at a maximum of about 8/7 m the £ against about half that rate today. Now we come to that very dangerous item for trading concerns — fixed de-

posits. In 1923 the company's indebtedness under this heading was well over £-21,000. In 1927 it was only £12,800 and during the past year £2800 has been .paid m reduction, leaving the balance at £10,000. w - ; The sooner this is wiped out the better for every one concerned. Mention has already been made ill Parliament of the advisability of passing an Act to prevent trading concerns accepting deposits. This writer sincerely trusts that some such measure will find its way to our Statute Book ere long. This will protect many people from getting into financial difficulties through putting their nest-eggs on deposit with trading concerns which are m no way fitted to usurp the functions of a properly controlled financial institution. The lessons to be derived from the experiences of many unfortunates m. the 1922 slump seem to be ignored by both investors and company managements alike. Statutory prohibition of the practice would appear to be the only way to stop it. The bank overdraft reached its peak m 1927 evidently, since this year's accounts show the amount at £78,901, which is a reduction, of £7275. The shareholders of this company owe a big debt of gratitude to. the bank. The premises account has remained stationary for some time now at £34,884, nothing .having been written off for depreciation. The management makes the claim that such ls not necessary as the book' value is considerably below the market value. , This' of course is a very nice comforting point of view which has been shot to pieces so often that it seems a pity to waste time pointing out the fallacy of it. The Idea seems about as sensible as the man who refused to work one week because the previous week he earned double wages through overtime. Yes, and just as logical. The company's plant at £87,836 shows a reduction of £1826 due to depreciation. The rate would appear fto average only £2.3 per cent, and to this critic this seems absurdly low. Practical!}' the whole of the new preference capital has been invested m additional stocks which now total £97,404,. an advance of £.27,942 for the year. . The amount seems to this writer to be very large indeed and should Ibe cut down to ease the bank overdraft. • The accounts show the company to [be in" a fairly good position financially, but the earnings must be brought, back to a reasonable level before the ordinary shares will meet with favor on the open market. I — . ■ ■ ■

BRUCE WOOLLEN MANUFACTURING COMPANY LIMITED. - Condensed Comparative Balance-Sheet,, September 19, 1928. LIABILITIES ' ASSETS £ £ £ £ Capital, paid up .... 127,211*27,211 Premises 34,884 — Dividend equalisation 5,000 — r Plant' 87,836 t .1,826 Reserve '.... 12,000 — . Advances workers' Profit and loss ." ♦1,324*1,286 homes .' 4,601 . f 629 — Stocks 97,404*27,042 Shareholders' funds 145,535*28,497 Book debts 15,890 f 9,106 Creditors ..." 5,268 t 1.424 Cash and insurance — t 191 Income tax reserve 879 t 791 Deposits , 10,032 t 2,807 Bank" f ;....... 78,901 t 7,275 £240,615 *16,200 £240,615 *16,200NOTE! — * Indicates increase and t decrease compared with last year's figures.