COSTS REDUCED

NZ Truth, Issue 1214, 7 March 1929, Page 19

COSTS REDUCED

Financial Reviews

The Auckland Gas Coy's Policy Reviewed

WHAT OF RESERVES?

(By "Fiat Lux.")

The outstanding feature of The Auckland Gas Company's sixty-seventh annual report and accounts is the chairman's statement that the heavy annual expenditure of the past few years on maintenance work is now^at an end. Future gross earnings should, therefore, be higher, but. the writer thinks it highly improbable that future dividends will be raised above the usual eight per cent, level.

THB fact is that, for. a number of years past, this company has been annually moving miles of. mains from Auckland's roadways and replacing them under the footpaths. Whilst this has been a necessity, brought about by the concrete roading policy of the Auckland City Council, the Gas Company has had to perform this work at its own expense. ' Consequently profits have suffered, since the cost has been charged up m .annual maintenance expenses. The disclosed net earnings for 1928 amount to £89,321, being £994 better than the 1927 figures. Tlie gross earnings, however, show a reduction of £3799, having come down from £474,507 to £470,708. Owing to the company having this year altered its method of presenting its accounts by "lumping" the whole of its earnings, it is hot now possible to point out m which branch of the business redactions m earning have taken place. Whilst the chairman's report is not definite on the point, it indicates that the drop is due to decreased sales of .gas and residuals. * So far as expenses are concerned, these show a reduction of £4793, but if an adjustment is made for depreci-

Valuation of. Amt. Profit carried forAssets m Depreciation Declared ward after payment Tear. Balance-sheet. Provided. Net Profit. of 8 per .cent. Div.

• ,?;'•'''' ■• ation, which this period is £2250/,mpre^ than m 1927, then the saving ia-AV.ork- j •ing expenses 'really amounts t0y£7043.; In 1927 the total was £386;180, £. against £381,387 m the year under review, and the writer is confident that this, item will show substantial reductions m the immediate future years. * ' To the net profit of £89,321 made for the year there had to be added the undivided balance of the profit and loss account brought forward from 1927, and, amounting to £40.274, making t» total available for distribution of £129,594. Out of this an interim dividend of 8 per .cent, was paid for the half-year to June 30, 1928, leaving a further sum of £85,005 to be dealt with. A final dividend of £44,723 was paid, bringing the amount for the year up to 8 per cent, leaving £40,282 to be carried forward to 1929, an increase of onl y £8 - „„ „ *,_ I This means that all but £8 of the year's • earnings was distributed to shareholders, and if any reserves were created they are not shown. • The chairman expressed his supreme confidence m this huge undertaking, which, m the course of a most interesting and enlightening address, he explained had at present an output at peak hours almost equal m horsepower to the whole of the Government's hydro-electric generating plants throughout the Dominion. The figures given m this connection are: — . „„„„„„ Auckland Gas Company, 100,000 horse-power per hour at peak loading, while the 38 hydro-electric stations operating throughout the Dominion turn out 107,453 horsepower according -to the ) 1928 New Zealand Official 'Year Book. In reviewing this company's 1927 accounts m these columns last year, the writer expressed the opinion that the amount of depreciation provided each year was governed, not by the value of assets employed, but rather by the amount of disclosed net profit left over after the 8 per cent, dividend lhad been provided: This year's accounts lend further color to this contention. The table set out above shows what has been done m. this connection from 1923 down to date, and there are other and valuable deductions to be drawn therefrom also. From the above table it will be observed that, In 1923, the assets used m the business totalled £1,116,037, and for that year the directors considered it necessary to provide £27,678 for depreciation.,.

{ THE AUCKLAND GAS COMPANY, LIMITED. '

Condensed Balance-Sheet, December 31, 1928,

been very small indeed for such a huge concern, and no reserves beyond these amounts have been created. Now, the Auckland Gas Company is controlled by tried and seasoned business men who appreciate to the full the necessity for creating adequate reserves. The fact that this has not. been done for some years past leads to the belief that the financial conditions under which the company has been operating during the last few years are.'-p.urely of a transient nature, otherwise there is no doubt the rate of dividend would have been reduced ere this. Take the yeaP:>under review, for instance, when all but £8 of the profits have been distributed. It seems incredible that directors would make such an ultra liberal distribution unless they were amply assured that the year's profits had been seriously reduced through heavy maintenance charges of a non-recurring nature and that the future held ample promise of opportunities to build up reserves. It should be mentioned that, at present, the company has no visible reserves, except £1971 premium on shares account, but m 1921 £105,780 of general reserve and £102,764 of pre-

,'miums received on sale of shares was capitalised. :••••• A Sinceythenthe company's reserve acscpuj}ts'.;)iave suffered a severe drought, l>ut the indications are that this will be remedied m the near future. The balance-sheet shows a number/ of substantial alterations compared with that for 1927, but the nominal capital at £ 1,500,000 remains unaltered. Of these, 1,178,350 shares have been issued, 937,272 being fully paid up and 241,078 being paid up to 15/- each, so the company has 321,650 shares available for issue when required, plus £60,270 of capital uncalled upon shares already issued. • • In addition to share capital the company has an authorised loan capital of £360,000, of which £160,000 is at 5 per cent, and £200,000 at 6% per cent. The whole of the 6^ per cent, debentures, which are a comparatively recent issue, have been taken up by the public and stand m the market to-day at a substantial premium, but of the 5 per cent. . issue, which is an old one, £50,950 is unissued and is likely to remain so on present indications of the money market. " t Altogether, including paid-up capital, debenture funds and depositors' moneys this concern finds profitable employment for the huge total of £1,616,406 of the public's money. , From the chairman's report it appears that it is likely to continue to do so," notwithstanding the increased competition which arises from electricity. Depositors' funds now m hand ati £97,413 are £50,909 less than last year, and, curiously enough, the debenture capital has risen during the period by an almost identical sum. Evidently the management has been successful m getting depositors to convert this sum. Speaking generally on the subject of trading concerns accepting deposits the writer lias always been very much against this practice, believing , that it is fraught with danger to both the lender and the borrower, but particularly to the former. For these reasons, it is submitted, Parliament should prohibit the custom which has grown up of trading companies accepting the public's money on deposit. It is always wanted when it is most inconvenient or impossible to repay. The company's expenditure to date upon buildings, machinery, mains, services, meters and land amounts to £1,368,220, and during the year, notwithstanding that £20,250 of deprecia-

Note: * Indicates increase and t decrease compared with last year's figures,

But compare this with the year under review, when the assets used amounted to £1,368,220 — over a quarter of a million more than m 1923— and £20,250 of depreciation was considered sufficient. To sum up the position, : it amounts to this: With over a quarter of a million sterling worth of assets more m use m the business m 1928 than m 1923, £7428, less depreciation, is considered necessary. It .may be all right, but this critic did not know that/depreciation was a moving^feast even m a gas company. Another point is that had the same percentage- of depreciation been provided this year as, say, m 1923 the directors would have had to draw upon accumulated undivided profits to meet the current year's 8 per cent, dividend. Another valuable deduction to be drawn from the above /table arises m connection with the column, headed "Amount of profit carried forward after payment of 8 per cent, dividend." It has to be observed that during the period covered by the table the annual ajmount under this heading has

tion has beeg written off, the item has increased by £11,872. This is not surprising when it is | learned that, during the period, the company laid no less than 1469 new service connections and nearly sixteen miles of new mains. Investments to the value of £20,000 have been used during the year, leaving this account at £ 39,080 which, added to the uncalled capital, gives the company approximately £100,000 available at short notice. Book debts, which were adversely commented upon last year on account of the big increase— about £5000 — have this year receded by £3693 and now total £70,105. » Stocks have increased by £10,003 to £158,026, the increases being principally m fittings and appliances and m residuals. The writer believes the Auckland Gas Company's shares are a good investment at current rates, and the 15/---"paids" with a liability of 5/- per share seem to be rather more attractive at late prices than the fully paids.

I £■' £ £ £ 1923 .. ...1,116,037 27,678 73,161 1660 1924 . ■.. 1,209,029 29,246 ' 79,036 2938 1925 V. 1,274,363 25,000 79,305 1023' 1926 .. ..1,321,781 24,290 83,393 837 1927 .. .. 1,356,348 18,000 88,327 . 977 '■ 1928 .. .. 1,368,220 20,250 . 89,321 , 8

liabilities. , , • ' Assets. Capital paid up 1,118,080 *6451 Buildings, land, Premiums . . . 1971 *1006 mains and plant 1,368,220 ♦11,872 Profit and loss 55.005 *445 Investments 39.080 f20,000 __j Debtors 70,105 +3693 Shareholders' funds 1,205,056 *7902 Stock..... 158026 n()003 Debentures and int. 313,937 *50,559 Cash 3998 *3998 Depositors .97,413 150,909 / Creditors 23,023 t4746 Bank .• — t1026 £1,639,429 *2080 ' £1,639,429 .*2OBO