FOR POSTERITY

NZ Truth, Issue 1211, 14 February 1929, Page 9

FOR POSTERITY

Financial Reviews

No Benefit To Present Shareholders E. 8.1. COMPANY'S POLICY (By "FiatLiix") Whilst the writer cannot help sincerely admiring the directors of the Equitable Building and Investment Company of Wellington Limited, for their unswerving adherence to the very conservative policy enunciated some years ago, he feels most strongly that that poliby is fundamentally wrong m that it is entirely inimical to present shareholders' interest and will benefit posterity only. • . ■

THE broad facts of the case are that whilst the paid-up capital amounts to £60,000, the reserves total no less than £77,539. This after heavy depletions for losses on investments. In face of this huge reserve (far exceeding the paid-up capital) the directors continue to appropriate about one-third of the annual net profits to augment the reserve and to meet losses on old investments. The managing - director publicly stated some years ago that he would strongly oppose any move to increase the usual 10 per cent, dividend until reserves amounted to £100,000. The direct consequence is that although the company's surplus of assets over liabilities is equal to £11/9/3 per £5 paid-up share the market is not prepared to offer more than about £8/5/- per share. At this price the return is equal to only £6 per cent. Exactly why this concern cannot

profit and loss account, which at January 1, 1926, amounted to £3324 and at December 31, 1928, to £3239. It should be made perfectly clear that m 1925, £8265 was written off for losses on old investments, but of this sum £6000 was provided from the securities depreciation account, leaving the 1928 profits to stand the difference of £2265, although there was a further £14,000 m the securities depreciation account. Yes, posterity is winning this race. ! Looking at the condensed balancesheet, published herewith, the company is shown to be m a very strong financial position, but the published accounts show an even stronger position. Firstly, there is the. capital, the nominal of which is £150,000 divided into 15,000 £10. Of these only 12,000 have been subscribed, equal to £120,000 and of this amount only £60,000 has been paid up, so that the company has a pledgeable

THE EQUITABLE BUILDING AND INVESTMENT COMPANY OF WELLINGTON. LIMITED. Condensed Balance-Sheet, DecemHfer 31, 1928. LIABILITIES. ASSETS. Capital, paid up 60,000 — Mortgages 348,331 f18,032 Reserve .;. 74,300 f11.700 .Debtors 401 t2 Reserve for deprecia- Bank 4494 *452 tion st 6300 Inscribed stock 24,862 — Profit and loss 6239 tSO Shareholders' funds 140,539 t18,050 . - Depositors 231,638 *1091 Creditors, inc. incometax 5911 t623 £378,058 117,582 £378,088 t17,552 Note: ♦ Indicates increase and f decrease compared with the figures of two years ago.

write all its* old investment losses off out of reserves is best known to the directors, but the present policy of taking a goodly slice of current profits for this purpose each year, and m addition taking a further cut at current earnings to augment the general reserve, . is robbing present shareholders of a dividend compatible with the company's current earnings and forcing the market price of shares down, the fall during the past year being about 15/---per share. The net earnings of this concern during the past three years: have been as follows, after allowing for all expenses including directors' and auditors' fees: Incometax, salaries, rent and general expenses— 1926, £8867; 1927, £8193; 1928, £9232. During the same period the appropriations were as follows: — toss on mortgage: 1926. £602; 1927, £1410; 1928, £2065: Securities, transfer to securities depreciation 1926, £1300; 1927, nil; 1925, nil. Reserve account 1926, £1000; 1927, £1000; 1928, £1000. Dividend: 1926, £6000; 1927, £6000; 1928. £6000. The totals are: 1926, £8902; 1927, £8410, 1928, £9065. • The slight excess of -appropriations over net income m 1926 ' and 1927 came out of the undivided balance of the

security of £60,000 ready for an emergency. Then, there is the little item of securities depreciation reserve which amounts to £14,000, which is shown m the published accounts as a deduction from the gross amount of mortgage, but m the condensed balance-sheet the net amount of mortgages only has been shown. It is but fair, to point out.however, that at the annual meeting the chairman stated that it was known that losses of about £15,000 still had to be met, these being a legacy from the bad old days when the company advanced money on farming lands. Are these shares an interesting buy? "Fiat Lux" thinks not. The return upon the -market price is too low, and there is little hope of capital appreciation since the chairman has expressed his opposition to any increase of dividend until reserves reach £100,000. That is going to take some 3'ears to achieve. Then there is the little matter of £5 per share of uncalled capital. This can' be called up at any time, so far as this writer knows, and perhaps it would be a good thing for the company if it was, but it would no .doubt find many shareholders unprepared.