COMPANY PROGRESS

Otago Witness, Issue 4031, 16 June 1931, Page 61

COMPANY PROGRESS

THE PERPETUAL TRUSTEES. ESTATE, & AGENCY COMPANY OF NEW ZEALAND, LTD. Paid-up Gross Net DivlApril 30 Capital. Reserves. Profit. Profit, dend.

The gross profit comes out at nearly £5OO behind that of the prior year, but nevertheless exceeds that of all other years. Owing to increased expenditure, the shrinkage in the net profit is probably more decided, but, with income tax still to be provided for, an exact comparison is not possible. After provision for the proposed dividend —which will make the shareholders’ distribution at the customary rate of 15 per cent. —the transference of £l5OO to reserve fund, the allocation of £450 to the staff benefit fund, and the writing off of £217 from fixtures, there is a surplus of £lOl7 left to meet income tax. Judged by the previous annual allocation, that sum is expected to approximate closely the amount required for the outstanding charge. The ordinary expenditure aggregates £19,921, or equivalent to 73.98 per cent, of the revenue. In the profit and loss account, distinction is not drawn between commission and interest, so that the relation of charges to the working income cannot be ascertained. What is seen is that the combination of a decreased surplus with an increased expenditure has produced a result which, if not down proportionally to the extent of that of trading concerns, shows that financial stringency affects the profits of trust and financial companies as well. If the recommendation to add £l5OO to reserve fund is adopted, reserve fund will draw level with the paid-up capital, while, with each account standing at £22,500, the

aggregate is practically covered by cash investments. It has been the custom in the past to transfer funds periodically from the reserve fund to the other—a procedure which doubtless will be continued in the future—£lo,ooo having been transferred in 10 years, and, as the two grow, so do the invested funds. It seems not improbable that this company, while maintaining its trust and agency business, may develop more in the sphere of an investment company—a process which, although necessarily slow in the earlier stages, will increase in impetus as time goes on. Again the bank balance is a liability, but reduced on this occasion to £505. The margin between “ balances due to company ” and “ balances due by company ” has been narrowed considerably, but the former is still greater, contrary to the usual position prior to 1929-30. During the past 13 years, the relations at the closing date have been as follow:— Balances Balances Due to Due by April 30' Company. Company. Difference. Ratio.

It can be understood how, at a time like the present, “ balances due to company ” are likely to keep above the other, necessitating some slight assistance temporarily from the bank, but the fact of their having been reduced during the past 12 months is a promising sign. The rest of the assets, both cash and property, represents investments. Debentures with the New Zealand Government (£10,350) and with local bodies (£9200) show the same total as formerly. Mortgages and deposits at £24,903 have increased by nearly £2OOO, but. as the respective proportions of the two are not given, it does 'not appear where the increase lies. A sum of £44,453 held in cash investments of a gilt-edged nature is a sufficient indication of the strong: h of the financial position. Apparently, no account is taken in the balance sheet of interest accrued. Leasehold and buildings at £43’28 may not be the least profitable investment. Evidently there has been little in the way of capital expenditure during the period, so that the amount allowed for writing off, if confirmed, will reduce the book value to £4200. Office furniture, which shows a tendency to rise, will be increased to £ll5O after the writing down has been applied. Roughly the allowances come to 3 per cent, and 7 per cent, of the respective capital values. As far as the buildings are concerned, the provision is possibly another form of adding to reserves, and although not so apparent is none the less effective.

BURNS, PHILP, & CO., LTD. Paid-up General Net DiviMarch 31 Capital. Reserves. Profit. dend. £ £ £ p.e. 1930 .. 1,500.000 831.673 2.;1.932 10 1931 .. 1.500.000 905.858 227.213 10 The result of the business for the past financial year comes out at a little under that of the preceding period, while the disposal of the surplus is practically identical. Out of a return of 15.15 per cent, shareholders are allotted 10 per cent., and the balance goes to reserves. The similarity is also noticed in the profit and loss account. General charges come to £404,692, to which the other group designated “ depreciation. bad debts, losses,” amounting to £141.265, has to be added. Against them the gross profits stand in practically the same relation as that of a year ago. The relative positions have been: — Total Gross Charges. Profits. Ilatlo £ £ p.c. 1929- .. .. 518.924 780.855 70.30 1930- .. .. 515.957 .773.170 70.61 The allowance for depreciation, bad debts, and losses is over £5OOO above that for the prior year, but which of the individual items accounts for the increase does not appear. The fact that the decrease in the gross surplus is relatively inconsiderable in spite of the decline in merchandise transactions and shrinkage in shipping earnings says much for the superI vision exercised.

The assets arc not sharply divided between liquid and fixed. The largest group contains property, shipping property, anil investments, and stands at £2,702,560, ir an increase of over £450,000. Depreciation may operate here in the case of each individual item, but as the whole allowance, including bad debts and losses, is £141,265, or equivalent approximately to 5 per cent., it may be inferred that the wastage provision is not excessive. The drop in the stock and advances group to £572,410 may be imputed to the smaller turnover, and the difference of some £200,000 may be assumed to have gone to help the increase in the property group. Book debts and bills receivable are not affected to the same extent, although reduced to £912,562 —a reduction which has its counterpart in the slightly smaller total of £126,764 in the cash group. The general effect has been for the total assets to increase, their aggregate being £4,314,296. Liabilities to the public amount to £1,328,171, of which the greater part is indeterminate. Cash credits are entered at £55.692, and bills and foreign drafts at £9500, but the balance is undefined. Whatever its nature may be, it exceeds the funds represented by cash, book debts, and bills receivable combined. Reserves are being well supplied. Not only has the general fund received an addition of £75,000 out of the net profit, but the group containing insurance fund and sundry reserves has been augmented to £502,237. It cannot be ascertained from the balance sheet how far reserves are supported by investments, but it may happen with this company that the capital value of the fleet and its appurtenances is being gradually overhauled by the value of the investments, if, indeed, the latter is not the greater. The extensive provision made annually for reserves must have that effect eventually, and, although the present time has shown that investments may depreciate as well

as other and more fixed forms of property, investments have a more liquid character, and are perhaps more susceptible to appreciation than the majority. NEW ZEALAND PERPETUAL FORESTS, LTD. Paid-up General ‘Net DivlMareh 31 Capital Reserves. Profit. dend. £ £ £ p.c. 1939 .. .. 191,266 10.931 15.574 8 1931 .. .. 196,813 7,181 15.821 8 • Subject to income tax. The figures published by this company for its latest two financial years show that, while the revenue represented a large sum, the expenditure was so high proportionally as to leave relatively a small net balance to satisfy shareholders. On the latter occasion, after the dividend and estimated income tax are met, there will be a deficiency of nearly £3OOO which the undivided surplus brought forward will have to make good. It might have been expected that the rate of dividend would be reduced, but the shareholders’ portion is unaffected. Revenue shows a slight, falling away from that of the prior year, but, on the other hand, some reduction has been effected in expenditure. The relative figures for the two years are as follow: — Expenditure. Revenue. Ratio. £ £ p.c. 1929- .. .. 301.375 320.219 94.11 1930- .. .. 21’5.092 310.912 94.91 The saving in 1930 31 has been effected entirely in maintenance and administration, the other branch of expenditure—land and development—having increased. The influential items in the balance sheet are those connected with the bondholders. An aggregate of £751,987 at March. 1930, has been followed by one of £605,846 at March, 1931. Meanwhile maintenance-reserve funds placed in trust securities have risen to £524.154, and the expenditure on land has increased to £131,547. or by nearly £.100,000. The extensive funds represented by the bondholders and reserve funds investments are almost balanced by the planting and maintenance reserve, which shows a rise of some £50,000 during the year’. The revenue derived from the invested funds must produce an amount that well exceeds the shareholders’ dividend.

In the development of the company’s activities, other fixed assets besides the land are keeping step. Plant, implements, furniture, at £14,107, have more than doubled, but which of the three is mainly responsible for the rise does not appear. The inventories of stocks of tools, seeds, trees, etc., are reduced to £12,814, in what must necessarily be a fluctuating item. Cash assets are strong, no less than £115,357 being held in investments, debtors, banks, and cash. That position may merely be temporary as regards banks and cash (£25,268), a material proportion of which may have been awaiting employment at the commencement of the current year, but the increase of debtors to £44,006 would seem to indicate an enlarging turnover. Investments, at £46,085, have actually fallen, possibly in consequence of the larger amount sunk in land. Goodwill still appears at £15.000. Seeing that it has been possible to transfer £5OOO to reserve, it might have been thought that an attempt would be made to write down such a shadowy asset periodically, as the reduction or absence of it is not likely to weaken the balance sheet in the eyes of interested observers. Reserve fund which was instituted a year ago holds £5OOO. The transfer was made from one reserve to another, but the allocation towards the formation of a special account seems a desirable step. Creditors—secured and unsecured—make up the total liabilities to outsiders. At. £93.145, they have slightly risen, but not to the extent of the similar movement in debtors.

At March. 1929, the balance brought forward, after allowing for payment of dividend declared at that time, was £16,796. When the dividend now payable is met, the floating balance will be reduced to £2lBl. A considerable encroachment has thus been made on the undivided surplus, even when the £5OOO transferred to reserve is taken into account. As the company may be regarded as still in the embryo stage, the question of some curtailment in the rate of dividend might be considered until the period of maturity is reached.

THE DUNEDIN STOCK EXCHANGE PROPRIETARY, LTD.

On this occasion it is necessary to take the gross return when comparing the result of the latest financial year with those of preceding years. During the past seven years there has not been much fluctuation, but the high-water mark was reached in 1927-28. Since that year the fall, although not great, has been steady. A concern which depends almost entirely upon business premises’ rents for its income is not likely to be long in showing the effects of a financial depression, and it may well be argued that the decrease for the past 12 months is less than might have been expected. The disbursements, as usual, are fully detailed. They aggregate £2687, which is their lowest for several years. The mortgage interest has been reduced to £Bl9, owing to an instalment of £lOOO having been repaid on the loan during the previous year. Rates and taxes have further risen, and at £694 take second place, repairs and maintenance, which at the present time will be kept down as far as possible, coming third at £464. The chief item on the debit side of the profit and loss account is depreciation, which is a newcomer, and for which £l6OO has been provided to cover both the past year and its predecessor. For comparison purposes, therefore, 1930-31 should have .£BOO added, and 1929-30 £BOO deducted from their respective net profits. The former would then be placed in a more favourable light in relation to the latter financial year. As

it is, however, the net surplus for 1930-31 is £BB7 short of the dividend, reduced by 1£ per cent, from the rate paid for the previous seven years, and reserves are depleted correspondingly. Reserves are divided not unequally among general, shares premium account, and the floating balance. The growth of them has been especially pronounced in recent years, during which they have more than held their own relatively to the growing capital. Chiefly employed within the company, their presence affords tangible evidence of the strength of the financial position.

Apart from the mortgage of £14,000, which might be entered more fittingly as a deduction from its relative fixed asset, the liabilities are small. Sundry creditors total £219, while accrued charges come to £355. As the business is not a trading business in the ordinary sense, there is little complication either in ’the money due by or due to the company. Where accounts are settled at short intervals the risk of bad debts is reduced to a minimum, so that among the assets any items outside the fixed property and cash represent chiefly accretions. There is rent, due,and accrued, amounting to £844,, but there is nothing to indicate that any rent is overdue, although the amount is greater by one-third than at April, 1930. War bonds (£1200) and Dunedin City Corporation debentures (£080) remain as before, being entered presumably at their purchase price. Deposits, of £756 at call, make a further revenue-producing asset, but they are down to almost onethird of their figure at the preceding annual balance. When the bank balance of £614 is added to deposits, the total does not greatly exceed the amount required to meet the dividend. The buildings and site are down to £42,800, or diminished by the amount of the depreciation allowance. The effect of the application of depreciation will be to increase further the hidden reserve contained in the property. On the book value the rents collected for the past season show a return of over 14 per cent. Of the capital value of £42,800 there is £14,000, or, approximately, one-third, on the loan claiming 5| per cent. After the interest charge lias been met. the return on the balance of the capital value is raised to over 18 per cent. It would thus appear from that aspect that the book figure for the fixed property as a re-venue-producing asset is entered at considerably under its market value, and it is possible that confirmation is given when a comparison is made with the Government valuation. From its nature and its site, nothing short of a grave earthquake appears possible to destroy the security upon which the safety of the shareholders’ interests is based.

£ £ c. £ p.c. 1919 . 12.500 14.994 9.5SG 3.S92 15 1920 . 12,500 14.750 13.330 G.G30 15 1921 .. 15.000 10,158 13.S29 5,654 15 1922 .. 15.000 17.510 13.S04 4.G30 15 1923 .. 15.000 10,040 14,666 4,684 15 1924 .. 17.500 17,885 15.297 6.268 15 1925 .. 17.500 19,090 20.323 G.519 15 1920 .. 17.500 22.064 21.747 6,508 15 1927 .. 20,000 20,995 23,471 6,038 15 1928 .. 20.000 22.549 24,465 5,940 15 1929 .. 20.000 22.700 26.361 6,702 15 1930 .. 22.500 24.710 27,412 6,345 15 1931 .. 22,500 *27,226 * Subject to 26,928 income tax. *6,559 15

£ £ £ p.c. 1919 .. 04,207 76.174 11.967 84.29 1920 .. 68,647 77.017 8.370 89.13 1921 .. 00,004 60.159 155 99.74 1922 .. 47,974 50,442 2,468 95.11 1923 .. G2.106 99.683 37,577 62.30 1924 .. 81,401 100.574 19.173 80.94 1925 .. 63.542 82.990 19,448 76.57 1920 .. 76,014 94.424 18.410 80.50 1927 .. 91,038 92.844 1.806 98.05 1928 .. 74,180 9G.2G9 22.089 77.05 1929 .. 76,435 81.328 4.893 93.98 1930 .. 99,831 93,747 *6.084 106.49 1931 .. 95,682 93.125 * Minus. •2.557 102.75

Paid-up Gross Net DiviApril 20 Capital. Reserves. Income. Profit. dend. £ £ £ £ p.c. 1919 .. . 15.000 3.850 4,503 1.499 12 1920 .. . 15 000 3.053 4.996 1,003 12 1921 .. . 15.000 3,543 5.124 1.690 12 1922 .. . 15.000 3.206 5.324 1.S98 12!A 1923 .. . 15.000 3.464 5.328 2.073 12-i 1924 . . 15.000 4.482 5.521 2.267 15 1925 . . 15.000 4.832 6.373 3.600 15 1926 . . 10.500 9.373 G.503 3.356 15 1927 . . 17.500 10.3GS 6.580 3.620 15 1928 . . 18.500 11,491 G.8S2 3.89S 15 1929 . . 20,000 12,110 0.671 3.619 15 1930 . . 20.000 12,325 0,223 3,215 15 1931 . . 20,000 11.439 6,150 1,863 13%