WHOLESOME FARE

NZ Truth, Issue 1215, 14 March 1929, Page 19

WHOLESOME FARE

Financi

al Reviews

Southland Frozen Meat Coy's Share Value

GOOD RETURN PROSPECTS

(By "Fiat Lux.") That those interested m the meat freezing industry m «*ie Dominion have provided works far m excess of requirements appear to be well established by the deplorable financial condition of a number of companies. The Southland Frozen Meat and Produce Export Company Limited, cannot be included m such category since it continues to pay very handsome dividends and its shares are being marketed at a premium of approximately 100 per cent, over their nominal yalue. -^ ..'■'.

WHILST this very happy state of affairs has arisen out of profits made m the industry it is not entirely due to profits made m recent years, although a considerable portion, probably one third, arises from interest von investments of accumulated undivided profits made m prosperous bygone years. Whilst this is so it m no way detracts from the meritorious performance of the company for the past year m making a record gross profit of £27,329, out of which a net of £14,683 remained. In discussing this company's affairs m these columns a year ago the writer expressed the opinion that the financial "stability of this concern warranted its shares ranking with insurance and other gJJtedged investments for stability. This opinion has since been confirmed m a remarkable degree by transaction on the Dominion's stock exdhanges. A year ago buyers were offering £1/11/6 each for this company's fully paid-up ordinary shares, and the rate

of dividend then being paid 11 per cent.) showed a return of about £6/12/6 per cent. During 1928, however, investors I awoke to the real value .of these shares which to-day are quoted at £1/19/- each and as the .company is now paying, a 12 per cent, dividend' this is equal to a return on the market price of £5/15/- per cent. There are two vital questions to which investors must obtain highly satisfactory answers before they can afford to pay such a big premium for shares. The first one is: What are the company's prospects of being able to maintain the present, rate of return to shareholders? And the second is: T^haf realisable assets has the company with which to meet shareholders' capital should a winding-up be necessary owing to failure to continue to operate at a profit? • . ■ Let us answer the second question first since absolute security of capital should be the aim of every careful investor. . In the condensed balance-sheet, published herewith, it will be observed that the assets total £300,516, and of this sum only £120,927 has been sunk m fixed assets — property and plant — thus leaving no less than £179,589 m liquid or floating assets. Nearly all of this is m mortgages, investments and cash. Out of the realisation of these assets

there would have to be paid the amounts duer-to creditors, and assuming even that; all contingent claims against the company become actual ones the total m the present balancesheet is only £50,049. Deducting 'this from, the liquid as- j sets leaves a surplus of £129,540, which is £15,993 "m excess of the paidup capital without making any allowance whatever for the realisation of property and plant. This is shown at £120,927 and would, m all probability, realise far more than this. Taking into account the whole of the assets and deducting therefrom • the amounts due to creditors and contingent liabilities; also deducting from the profit and loss balance the amount of the 1928 final . dividend the position is that the company has a surplus of assets over "outside" liabilities (excluding paid-up capital) equal to £2/2/10 per £1 of capital paid , in. A study of these facts and' figures must convince an investor that any capital he may invest m the Southland Frozen Meat and Produce Export Company, Limited, is very well .backed up wifh real value. Now to deal with the first question as to the prospects of a continuance of present dividends. This is a more difficult matter since it deals with intangibles and we must look to past performances to offer a guide. ' Prom the above table a number of peculiarities can be observed, but relevant to the question under discussion is the fact that for the past six years the company has paid regular and substantial dividends. In addition it has retained m the business no less than' £12,348 of undivided profits. . Added to this is the fact that the frozen meat industry the world over is m much better shape to-day than for a numbei-. of years past. There you have the principal reasons why the writer considers the prospects of this company most excellent m continuing to keep up its dividend rate. Perhaps the most curious point brought to light by the above comparative table is the extraordinary rise m expenses. This company, unfortunately, is one of those which publishes practically no information m the profit #nd

loss account and, therefore, it is not possible to say where the huge rise has taken place. But let us examine the meagre in-* formation offered on the subject. Firstly, we find that the earnings or gross profits are described thus: — "Profits, including interest from investments, and after making provision for repairs, renewals, taxation, depreciation and sundry contingencies." Now, turning to the expenses side" of the profit and loss account, the expenses of £12,646 are described thus: "To general expenses, including salaries, directors' fees, rent, insurance, exchange and sundries." Thus, we flnd that, m 1923, when the earnings, after providing for repairs, renewals, taxation, depreciation and sundry contingencies, amounted to £26,832, the general expenses, salaries, directors' fees, rent, insurance, exchange and sundries then totalled only £7136, equal to 24.6 per cent, of the gross earnings. For the 1928 year, however, the gross earnings at £27,329 are only £500 more than m 1923,. but the general ex-

penses, salaries, directors' fees, rent, insurance, exchange and sundries at £12,646 have jumped up by £5510 and now equal 46.3 per cent, of the earnings. To the writer such an extraordinary state of affairs would have appealed as a very appropriate subject for explanation m the directors' annual report published with the year's accounts, but the report is as silent as the grave on this matter. Truly the highest art m preparing accounts for publication is to disclose nothing. Dealing with the balance-sheet, the nominal capital of the company is a modest £150,000 m £1 shares, but 13,950 of these have not beep sold. Of the subscribed shares, 26,160 are preferreds and 109,890 are ordinaries, while 45,006 of these are paid up to only 10/- per share, the remainder being fully paid. It is improbable m the highest degree- that shareholders will ever get the opportunity to pay up the uncalled capital as it is obvious the company has no use for further capital — it has as much as it can use now. Regarding reserves shown m the condensed balance-sheet at £100,000 this includes the general reserve of £50,000, the fire insurance reserve of £25,000; also the building fund reserve of £25,000. Creditors and contingent liabilities Is an extraordinary combination. It has appeared right back to 1923,

which is as far as this writer's file goes ,and it is a puzzling item. ; 1 Exactly why a "contingent" liability should be mixed up with creditors, this critic, cannot understand, unless it is for the express purpose of hiding another substantial reserve. It is evident the company continues to . expand its plant, since the properties, buildings and plant account has increased m value for the year by nearly £5000, notwithstanding the heavy depreciation which must have been written off. Other items m the balance-sheet show little alteration compared with' last year, except stocks and shares which are down by £5238. It is interesting, however, to observe that the company has over £140,000 of investments and cash on deposit and at .bank — very comforting if a bad year happens along.

Year ... v 1923 1924 1925 1926 1927 1928 £ £ £ £ £ £ Gross earnings .. 26,832 16,596 ' 21,060 21,462 23,316 27,329 Expenses J 7,136 7,348 7,351 7,685 10,595 12,646 Set .! 19,696 9,248 13,709 13,777 12,721 14,683 Dividend "... 11,355 11,355. 11,355 11,355 12,490 1fc.626 Rate 10 p.c. lOp.c. 10 p.c. 10 p.c. 11 p.c. 12 p.c. Surplus 8,391 * 2,107* 2,354 2,422 231 1,057 ♦Deficiency.