Financial Reviews by "Fiat Lux " GAME BATTLE AGAINST ODDS

NZ Truth, Issue 1302, 27 November 1930, Page 9

Financial Reviews by "Fiat Lux " GAME BATTLE AGAINST ODDS

Griffin and Sons, Limited, Builds Up Its Internal Strength POOR SHOWING MADE BY NET PROFIT The thirty-fifth annual report and balance-sheet of the old-established Nelson confectionery and biscuit company of Griffin and Sons, Ltd., paints a picture which can hardly be described as roseate. A dividend is declared, however, at the rate of 5 per cent., for the first time since 1926, and even this is accomplished only by a dip into reserve.

IT is indeed open to question whether the pay-out is justifiable m the circumstances. Still, reserves are strong, having regard to the capitalisation; and as the company, with Spartan rigour, has carried heavy sums to depreciation and bad debt provision during the last few years, it is difficult to raise any serious objection to the payment of dividend this year.. . The company has m recent times aimed, as ,a general rule, at building up strength rather than paying out to shareholders. Still, on strict financial grounds, it. is hard to justify any dividend m existing circumstances. Gross trading profits are nearly stationary, with a slight falling tendency, and expenses are also tending downwards. With the ample -depreciation policy that has been pursued, however, net : profit makes a poor showing, but the directors are to be congratulated on building . for 'the future and putting duty before inclination. The position of the concern is sounder than its disclosed profit situation shows, owing to this conservative policy. ', This idea -was put rather finely by the chairman, at the annual meeting, m words that many company directors might well ponder: "The question of saving and maintaining Griffin's as an active and progressive concern counts more to us than the personal divi- ■ dend," he said. "The policy has been to work for the safety of the company, and to conserve its strength, rather than to color the picture and skim a doubtful dividend, thus leaving the company weaker, and finally inviting the fate that has overtaken some, other^ biscuit and confectionery companies m New Zealand." The profit position has been as below, m the last five years: — ( 1926 1927 Gross profit .. 12,563 13,207 Expenses . . . . 9,455 10,051 Depreciation . . . ' 1,650 1,650 Bad debt reserve — 300 Net profit.. .. 1,458 1,206 The net profit is subject to deduct tion of income tax, which was £125 m 1926, £149 m 1927, £150 m 1928, and £157 m 1929. When these deductions are made, the met profit positionis as follows :r-1926, £1333;' 1927, £1057; 1928, a loss of £471; 1929, £1274, while the 1930 profit of £1143 is subject to tax not yet paid. The position, however, is really better than it looks, since heavy depreciation has been allowed for, amounting over the period to £11,275, and £850 has been set aside as a bad debts reserve, thus building up internal strength by £12,125 m a difficult trading situation.

In doing this the directors are only doing their duty, but few boards would, m our judgment, have acted so firmly and courageously m the circumstances. Last year gross profit - showed a slight fall of £40; but expenses were £752 lower, a considerable improvement. Tlie expense, ratio to ' gross profit stood at 75 per 'cent, m 1926, 76 per cent, m 1927, 75 per cent, m 1928, 73 per cent, m 1929, and fell sharply to 67 per cent, last year," a gratifying feature. Still, net profit was only 3.9 per cent, of capital m 1926, falling to 3.1 per cent, m 1927, and going right out of existence m 1928. 'It rose to 4.2 per cent, m 1929, but for last year, when income tax is paid, it will be under 2 per cent. Only the conservative, policy of the past' can be offered as justification for dividend m the circumstances. Dividends at 5 per cent.,, absorbing £1698 each, were paid m 1926 and 1930, and since' total net profit over that period amounted to only £4335, a sum of £939 only was left for reserves, m addition to the considerable writing down already referred to. The liquid strength has, however, been growing steadily, circulating

When deduction of debits is . made, working capital stands at £18,201 m 1926, £17/267 m 1927, £19,407 m 1928, £21,655 m 1929, and £24,471 m 1930. This shows a pi - ogressive _ improvement, but the figures give the impression that the company is hard pushed competitively, and barely holding its trade. Having regard to the capitalisation of . the company, and recent liberal writing doWn, the reserve situation is satisfactory, as follows: —

.The 1930 figure is subject to income tax. In addition, there is a bad debt reserve of £850, and as compared with capital at £33,948, the reserve is good. Liability to the bank has been substantially reduced over the period; and buildings, machinery and plant, which aggregated £34,892 m 1926, now sta.nd at £30,661. ■ . ' Though the company is one of Nelson's industrial glories, it mu6t be admitted that it is riot favorably situated for industrial and commercial competition, m this class of trade, m a place, so far out of the main transport routes as Nelson. That city is a delightful place, but transport costs must be considerable, and the pressure of larger concerns, and imported varieties, is heavy m an

» : . _- industry m which variation of- products ia so • subject to the caprice of fashion as are confectionery products. Biscuit sales are said to be increasing, and quality to give satisfaction, which is contrary to past experience of the company. Up-to-date biscuit plant has been installed, and the result is evidently making itself felt m larger business on .this side. The company is making a game fight against considerable odds, and is managed vvith ability and vigour m face of difficult trading conditions. , In bad times' the demand for luxuries falls off as people have less surplus for spending on 'pleasure, and this is an adverse factor m the confectionery business. The shares are not recommended for ordinary investment, but the building up of internal strength would make them of value m. the event of. a revival of trade iii this industry.

credits being as follows: — O 1926 1927 1928 1929 1930 £ £. :E & £. Debtors .. .. 16,064. 14,f43 13,018 ' 11,014 13,319 Bills receivable .. 10 32 — 35 — Stocks.. .. .. 30,737 .28,448 28,159 26,961 26,092 Total . ... .. 46,811 42,623 41,177 38,010 39,411 Debit items ar§ as follows: — 1926 1927 1928 1929 / 1930 £ £ £ £ £ Bank .... .. 18,464 13,196 8,688 8,951 8,634 Bills -payable.. .. 4,978 -5,280 .7,175 1,910 78 Creditors .. .. 5,158 3,580 2,607 2,194' -4,728 Deposits „.. \. ,— 3,300 3,300 3,300 1,500 Total ' ... .. 28,600 25,356 21,770 16,355 14,940

Reserve Profit & Lohb Account Balance Total £ £ £ 1926 ..18,000 321 1J8.321 1927 ... 18,000 1,378 19,378 1928 .. 18,000 907 18,907 1929 .. 18,000 2,181 20,181 1930 .. 18,000 1,626. 19,626.

0 '■ — C 1928 . 1929 . 1930 12,802 12,641 12,601 9,598 9,210 8,458 2,975 2,000 3,000 550 — . — 321 (loss) 1,431 1,143 fr —