FORESTRY REFLECTIONS

Sun (Auckland), Volume I, Issue 253, 16 January 1928, Page 9

FORESTRY REFLECTIONS

THE COST OF ORGANISING N.Z.P.F., LTD. MANIFOLD DUTIES OF BROKERS W HAT are the promotion expenses of New Zealand Perpetual Forests, Ltd., the big Dominion afforestation sen erne, and what is the remuneration of Smith, Wylie and iso., brokers and managers? • Th ® s ® questions are traversed in THE SUN’S second series of Forestry Reflections.

It is well known that the formation of a company involves a good deal of expense. The usual brokerage on shares issued is 5 per cent., and other expenses generally bring up the figure for establishment costs to a gross 10 per cent. In Australia the rate is often higher. Such expenses are correctly and almost invariably shown in the balance sheet of the company as establishment costs,” “preliminary expenses” or "goodwill.” An example Is given below, the balance sheet of Australian Securities, Ltd., a company registered in 1926, with an authorised capital of £500,000, of which £398,290 is issued. Assets at June 30. 1927Cash balance, book debts, loans, etc., .. .. £"7 049 Furniture and fittings ' ' ’ 6lO Preliminary expenses 40.P.73 It will be noted that the last item is approximately 10 per cent, of the issued capital. PRELIMINARY EXPENSES THE SUN has perused two balance sheets issued by N.Z.P.F., Ltd., and can find no trace of any such entry. Assuming its preliminary expenses to have been 10 per cent, of the issued bonds and share capital, the figures would be 10 per cent, of £2,338,860, or approximately £234,000. The assets column of the balance sheet of N.Z.P.F., dated July 10, 1927, may be summarised as follows: Lsind and development .. .. £782 482 Motor-cars, etc., 4’409 Plant and implements 2*741 Office furniture Men Live stock -too Goodwill 7 ,5,000 Nursery stock 201883 Sundry debtors ~ 42,079 Investments 1 761988 THE SUN is forced to ask whether there were actually any promotion expenses at all, apart from the £15,000 shown as goodwill. Do Smith, Wylie and Co., as .brokers and managers of N.Z.P.F., Ltd., perform their multifold duties for nothing? Or is their fee so small that it is included in the £15,000 goodwill? Certainly Mr. Hunter, the manager in Dunedin for New Zealand Perpetual Forests, Ltd., is reported to have said: “Does it matter to anybody what the expenses are?” But if there are no expenses, then the promoters are dealing in mystery and many other establishments would give quite a large fee to learn how such results can be obtained. UNCANNY EFFICIENCY THE SUN is still further surprised at this almost uncanny efficiency, because it would have expected the promotion costs in this case to be higher than 10 per cent. It is well known that mit? Wylie and Co., or N.Z.P.F., Ltd., maintains elaborate suites of offices in numerous cities, a vast scheme of propaganda, and maintains a numerous and probably highly efficient staff in several countries. THE SUN had had the impression that all these things cost money, and were In addition to the average 10 per cent, cost of promotion. In fact, ohe question will be referred to again in the fifth article of this series. However, it appears that everything of this nature during four years of its operations has cost a grand total of £15,000. If only an apathetic Government could work as economically! The egregious Mr. Hunter is reported to have spoken further, thus: “The brokers maintained offices and, further, being a public concern, also engaged in other work such as firms and companies underwriting.” THE SUN wishes to inquire whether or not

it is a fact that such “other work” is done by a separate company lately incorporated as “Smith, Wylie (Australia), Ltd.,” with a (purely) nominal capital of £1,000,000, and which, it is stated, has recently underwritten the flotations of a shark fishery and a stone quarry in Australia. Mr. Hunter is also reported as saying “The company (N.Z.P.F., Ltd.)', has a firm of brokers which does the selling, advertising and collection of money.” COST OF THE PROCESS THE SUN would further inquire whether or not the sole business of Smith, Wylie and Co. is in fact the management of N.Z.P.F., Ltd. If so, and if Smith, Wylie and Co. have for four years maintained offices, and done the advertising, selling and collection of money to the tune of £2,338,860, are the bondholders and the public asked to believe that the gross cost of this process has been £15,000, or do Smith, Wylie and Co. pay the expenses out of their private purse? A second important aspect of this portion of the company's scheme is this: The Companies Act requires a company selling shares to state in its prospectus the rate of commission payable for such sales. THE SUN has the impression that it is also the almost invariable practice of companies to disclose the rate of commission paid on debentures. The prospectus of N.Z.P.F., Ltd., does not appear to contain this information. The company has been selling documents: loosely described as “bonds” for a period of four years. Lately it has taken to describing' them as “debenture bonds.” Almost anything may be called a debenture bond, but the “Report on Finance and Operations,” dated July 18, 1927, uses the terms “debenture bond capital” and "debenture reserve capital” in referring to the bond sales and reserve funds of the company. The balance sheets for March 26, 1927, and July 16, 1927. both use the words “debenture bonds.” The question then arises: “If the company itself calls these documents “debenture bonds,” can it deny that they are debentures? THE SUN would also like to know (whether or not such a process as is outlined above may be strictly legal) If it is proper, reasonable or safe for a concern professing to handle pillions of the public’s money, to handle it on lines such as these. DIRECTORS WILL REPLY In connection with these and subsequent articles of the series, which will appear this week, we have had a visit from Messrs. R. G. Menzies, of Melbourne, a member of the Board of Directors N.Z.P.F., Ltd., and a representative of the Australian shareholders and bondholders; Mr. R. N. Henderson, of Sydney, a director of Smith, Wylie (Australia, Ltd.), and Mr. Norman Frazer, chairman of N.Z.P.F., Ltd. Mr. Menzies states that they are in New Zealand in connection with important changes in the management and administration of N.Z.P.F., Ltd. At our suggestion they propose to review these articles before leaving for Sydney by the Maunganui on Friday. THE SUN has promised them ample space for their reply, and we suggest that our readers reserve judgment on the whole question till the directors’ reply is before them.—Ed., THE SUN. '

(To be Continued.)