Financial Reviews SOUND INVESTMENT

NZ Truth, Issue 1216, 21 March 1929, Page 20

Financial Reviews SOUND INVESTMENT

Napier Gas Company s Ordinary Snares REVIEW OF YEAR'S WORK '(By "Fiat Lux.") " ' .''■ The Napier Gas Company, Limited, enjoyed a fair year for 1928. The gross earnings were slightly less and expenses considerably more than for 1927, the result being that reserves suffered, as usual dividends of 8 per cent, on Ordinaries and 6 per cent, on Preferreds were paid,

THE annual accounts show thai the company's total earnings from all sources m 1928 amounted to £55,926 as, against £56,347 m 1927— a drop of £421. « Tho total expenses for 1928, including the annual contribution to the employees' superannuation fund, amounted to. £47. 127. an increase of £1015 over the 1927 figures. Thus the decrease m earnings and the increase m expenses together amounted to £1436.. which represents the fall m the company's net earnings for 1928. the .total of which was £8799, whereas 1927 produced £10.235. The fall m the sales of gas for the year, apart from sales pf byproducts and other income, account, curiously enough, for almost the whole of the drop m the gross revenue. The total fall is £42i and the lesser gas sales account for £402 of this sum.

Comparing the 1927 gas sales with those for 1926, the reduction on the former year .was £1391. In reviewing the 1927 returns m these columns a year ago the writer pointed out that the annual report was silent upon this very important point and asked the question as to whether the adverse figures were due to reductions m price or to a falling off m the"»consumption of gas. This point, happily, is fully cleared up m the chairman's report. Without the circulation of the chairman's annual address such shareholders would be deprived of any intimate knowledge of their investment apart from the meagre information to be gleaned from the published annual accounts. With reference, to the reduction m gas sales, if the figures alone are, considered, bared of that dressing of explanation Avhich is tendered m the chairman's report, then both shareholders and the public cannot be blamed for arriving at the" totally erroneous conclusion that the writing is on the wall indicating the approaching end of the successful running of gas concerns. In addition to the amplified explanation given m the chairman's very interesting address the following brief statement is this year included m the annual report: — "The policy of. the company is to supply the best and most economical appliances^. We have been,* and still are. meeting a constant demand for our modern cookers which, as compared with older stoves, give a saving to gas consumers of over 25 per cent, with maximum efficiency. "The fitting of so many of these modern appliances is thus mainly responsible for a reduction m (Napier) gas sales, but at the same time the company's consumers .are receiving

much better service from the use of gas." This statement cannot fail to instil further confidence m investors m the future of this company m particular and of all gas concerns m general. Examining the 1928 profit and loss account, practically every item shows an increase over the previous period. Income tax \is slightly lower at £2628, but even at this figure it lis a wholly inequitable charge on gas consumers. ■ ■-.'■■ Napier has its Municipal Electricity Department which, makes', substantial profits, but it is not called upon to pay one penny ]>ieee of income tax. While this position continues, why should the gas consumer have to pay out'about 1/3 m the £ for income ta^? It is that the cost of general government has to be met, but why should the gas consumer y?have to contribute so heavily whilst the electricity consumer gets off scot free? . There are certainly two sides to this, question, but the foregoing is briefly the side this 'writer sees and it happens also to be the only side that the many, thousands of gas consumers of this Dominion sec. In 'the last six. years this company's consumers haye contributed nearly £17,000 to' the Treasury by way of indirect taxation. The following table > shows clearly the percentage of expense incurred by this company for" each '£100 of gross revenue earned. Percentage yof expenses to total revenue:— 1924, 82.9; 1925, 80.4; 1926, 80,9; 1927, 81;8; 1928, 84.2. "-.', ■■■'■■■■■-■■ V' The percentage of net profit to total revenue is as follows:— l 924, -17.11; 1925, 19.6; 1926, 19.1; 1927, 18.2; 1928, IB.*.'"'.- ■> ' The increase m the 1928 expenses shows up very clearly m the riise ihthe percentage of gross earnings and the fall in' the percentage of net profits. ■The next question of interest is: What percentage d,6es the year's net profit .bear. to. the total funds used by the company? Owing to the fact,.- that, - m the case under review, the reserves, including the undivided balance of the profit arid loss balance, have been increasing year by ye&r— -and for 192 8 the paid- up capK

tal was increased toy £4420— the .amount of funds upon which this calculation is based varies each year. In 1927*the. amount was £138,000, but for 1928 it increased to £145,---680 and m 1927 the net earnings were equal to 7.4 per cent., yet, m 1928, the rate fell away to 6 per cent. . If it were not for the fact that the company has £41,500 of reserves accumulated out of past undivided promts, shareholders could not possibly enjoy their present regular 8 per cent, dividend. The accompanying table, set out m this article, shows very clearly the efforts of this company for the past six years and should prove of interest to both actual and potential shareholders. / It will be observed that the peak year for earnings was 1926, whilst the best year for net results was 1925.

The nominal capital of this concern is ,£150,000, divided into 5000 6 per cent, preferred shares and 10,000 ordinaries, both classes being of a nominal value of £10 each. Only 2968 ,of the 6 per cent; preferreds have been allotted, and of this number 492 were placed during 1928, this being the first allotment of shares by the company for many years past* " Of the preferred capital amounting to. £29,680, it is all" called up, but at the balance date., tliere was an outstanding call of £500, so the netpaid.up preferred capital was £ 29,180; , Regarding the ordinary capital the whole 10,000 shares have been subscribed, but 5000 of them are called up only to £5. Thus there is £25,000 of uncalled ordinary capital which can be pledged at any time should the company need' temporary finance. Seeing that the company has this £25,000 of uncalled capital available by the mere passing of a book minute the curious may to know why some of this was hot called up instead of selling additional preference shares to provide the capftal required for the Hastings extensions. The reason is purely one of cost and expediency. The average dividend on ordinary shares' has', for years past, been 8 per cent., whereas the preferreds are preferred only as to a 6 per cent, dividends Consequently, by selling 6 per cent, preference shares the directors are saving 2 per cent, per annum on the new. capital. The plant replacement reserve fund account, which was strengthened by £2000 out of the 1927 profits, now totals £7500, at which figure the directors have called a halt, evidently believing that this sum is ample for their purposes. , Perhaps it is, but as this writer does

not know the condition of. the plant he cannot offer an opinion beyond submitting that gas manufacturing plant is "kittle cattle." Money on deposit decreased during the year by £868 and now amounts to £12,212. The directors suggest this will be further and substantially reduced during .1929. '..'''. This critic will be much better satis- . fled .with- this company's accounts when 'the item is entirely eliminated. The bank has been called upon to provide additional funds during the year to the extent of £2941 and the overdraft now stands at £5975. Of the assets, buildings and plant at £129,016 show an ' increase ' of £7597, due to the expenditure on buildings, etc., m Hastings. Investments at £17,472 show an increase of £2000, due to the investment , of the transfer from profit and loss to the plant , replacement reserve fund account. Ordinary debtors, including those for goods on hire purchase, now owe amounts totalling £13,688, an increase on the year of nearly £3000, which is- far more than the company's turnover warrants. Either the chairman m his report or the secretary m preparing the balancesheet has gone "off the rails" over accounts receivable. The amount due to the company on hire .purchase is shdwn separately m the balance-sheet at £5613. Further . down the balance-sheet appears the item, outstanding accounts, £13,688, yet the chairman m his report states that the outstanding accounts item is very largely made up of instalments, oh gas cookers sold to consumers on "the time payment purchase" system with monthly payments. Perhaps they run hire purchase arid time payment*— -this writer appreciates the legal difference between the two but. considers it unlikely a gas company would . sell appliances on-time-payments'unless secured by hire purchase, but evidently the Napier company does no. The company is, all things considered, m a strong financial' position and -judging the prospects as known to this writer he considers the ordinary shares m particular are a sound/ investment as the present dividend rate should be easily maintained.'.;

Condensed Comparative Balance-Sheet, December 31, 1928. * LIABILITIES." : • ■ ASSETS, Capital paid up .... 104,180 *4420 Land _rReserve ............ 25.000 — Buildings and .plant 129,016 *7597 Reserve <!und> plant: 7500 *2000 Furniture 560 *330 Profit and loss .... 11,631 t689 Stocks 1359 *271 . „ _ Hire purchase 5613 t797 Shareholders' funds 1^1,311 *5731 Coal MM t2341 Deposits . i 12,212 tB6B Investments 17,472 *2000 Mortgage .......... 2100 *2100 Debtors .w 13,688 *2993 Creditors 2946 *288 Income tax 2528 t139 Bank 5975 *2941 . ■'] ■ £177,072 *10i053 ' , £177,072 »10,053 ISTotft: * Indicates increase and t decrease compared with the 1927 figures.

NAPIER GAS COMPANY, LIMITED.

1923 ■ 1924 1925 "- 1926 1927 1928 £;££ £ £ £ Gross earnings ...... 54,042 54,350 .56,742 57,327 56,347 55,926, Expenses ..:..... 45,676 45,066 45,663 46,421 46,112 • 47,127 Net profit 8366 9284 11,079 10,906 10,235 8799 Rate Of dividend .... 8 10 8 8 8 8 Amount of dividend .. 7486 8986 7486 7486 7486 ,7598 Transfer to reserve .. — — 3500 2000 2000 — - Undivided bal. left ■ H mP. and •L. A/c. 880 298 .93 1420 • 749 1201