GIFTS OF THE FUTURE

Sun (Auckland), Volume I, Issue 255, 18 January 1928, Page 9

GIFTS OF THE FUTURE

BONDS IN FORESTRY CONCERNS SPECIFIC CONDITIONS TO BE MET IV. DECOGNISED forestry authorities contend that certain specific conditions must be complied with before investment in forestry is lifted beyond speculation. Some of these conditions cover the type of tree planted, their commercial value, cost of exploitation, and date of maturity. Are these positively met by New Zealand Perpetual Forests, Limited?

A review by the Melbourne 4€ Argus” states: “The investment assumes the form of an insurance combined with speculation as to gifts the future may provide. With insurance, the Saw insists upon the issue of a great deal of statistical information and certain valuations. . , . The necessity exists that N.Z.P.F., Ltd., and any other company working on similar liaes shall have to issue, at least annually, details of the company's revenue and expenditure. A bare balance shee: is not sufficient.”

That statement may be amplified very considerably. An insurance companydoes not necessarily disclose the xate of commission paid to its salesmen of policies, but it does disclose its expense rate and the cost of new business is readily ascertainable. THE SUN also points out that an insurance company is not managed by the salesmen of its policies. In the case of insurance, 40 per cent, of the net premiums is the minimum proportion set aside as a reserve for unexpired risks, while in the case of the more solid companies that proportion is greatly increased. Regarding £2,170,000 subscribed for bonds as being in the nature of net premiums, N.Z.P.F., Ltd., sets aside one-third of the face value of every fully-paid bond as “a guarantee against maintenance.” So it will ultimately have £723,000 invested in trustee securities against that £2,170,000. At March 26, 1927, it had £48,383 so invested, and the balance of £675,000 has to come out of the unpaid amount of £1,364,410 then owing for bonds sold on the instalment system. ESTIMATED PROFIT The company's statement of estimated profit is arrived at as follows: £ s. d. By sale of bonds .. .. 2,170,925 0 0 By forfeited bonds .. .. 1,260 19 0 £2,172,185 19 0 To cost of land, development and planting, against bonds sold .. 840,414 7 S To maintenance and administration on account of bonds sold . . 923,616 !;3 4 To re-purchase and forfeiture account .. .. 375,000 0 0 £2,139,031 1 0 Estimated profit (of N.Z. Perpetual Forests, Ltd.) £33,154 IS 0 The Sun would be Interested to know out of which entry in the above statement it is proposed to extract the balance of £675,000 which will be eventually added to the trustee investments, after paying oft a mortgage of £155,000. Does the money of the bond-holders constitute the source from which comes all the expenditure of Smith, Wylie and Company upon offices in numerous cities and several countries, propaganda of all kinds in the name places, travelling expenses, commission to salesmen and lastly Smith, Wylie and Company’s own profit? If so, would it be unreasonable to assume that the gross figure for these items constituting promotion expenses would be 20 per cent, per bond or one-fifth of £2,170,000, namely £434,000? Where is any such item or group of items shown in any of the company’s balance sheets? An interesting comparison is afforded by the fact that the total of £675,000 (to reserve) plus £155,000 (mortgages) plus £434,000 (possible gross expenses) is approximately equal to the sum ot the two accounts for “maintenance and administration” and "repurchase and forfeiture.” That wtauld seem to indicate that an estimate of 20 per cent, for promotion costs is not far from the mark. "ENDORSED BY AUTHORITIES” The directors’ annual report states "the scheme of commercial afforestation and the manner in which this company has given effect to the same have been fully endorsed by every authority who is conversant with the details of this company’s operations. A special circular is being issued setting out the criticisms of Sir H. Barwell, late Premier of South Australia. “As a form of Assurance for old age or for the benefit of one’s family afforestation in New Zealand properly safeguarded will, in my opinion, give returns far greater than any other form of safe investment.” Another quotes Sir Herbert Matthews, secretary of the Central Chamber of Agriculture of England: "Having fully inquired into the company’s management and the complete system in operation, I have pleasure in stating that I am quite prepared to associate myself with the company in the capacity of trustee representing English interests." Both these gentlemen have joined the directorate of the Trust Co. mentioned below. Can they be fully conversant with the details of the scheme, or have they information superior to that which is available to The Sun? Many people would like to know what N.Z.P.F., Ltd., does to earn its profits. Everything appears to be

done by Smith, Wylie and Company and it N.Z.P.F. discloses a profit of £33,000, what is the profit of Smith, Wylie and Company likely to be? Regarding the manner in which “this < rnpany” (N.Z.P.F., Ltd.) “has given effect to the scheme,” possibly the most glowing tribute comes from Mr. Hugh Corbin, Professor of Forestry at the Auckland University, in his report to the Australasian Forestry Bondholders’ Trust Company, Ltd. (of which body more will be said anon). SEVERAL CONDITIONS Professor Corbin is supposed to be au authority upon forestry. Is he also a financial authority? He says of the operations of N.Z.P.F., Ltd.: (1) It forms a very useful and sound method of investing capital, and, (2) The possible reward appears to be as safe and as large at any rate (even at present-day prices) as that obtained from other sound investments. Mr. Corbin may be an expert on fox-estry, but The Sun doubts whether his opinion on finance is equal in value to that of the “Investment Digest,” which says “before the purchase of bonds in these companies can be lifted from speculation to investment it has to be demonstrated beyond all doubt, firstly, that the trees planted are the right trees; secondly, that they will have the commercial value ascribed to them; thirdly, that they will have that value at the date prescribed; and fourthly, that the value will be realisable by the bondholders with reasonable facility.” Until these four things have been done, where is the comparison with insurance benefits? The Sun is also interested In the ti-ustees for the bondholders. A concei-n handling business which seems to be approaching the three million mark might be expected to place its ti’usteeship in the hands of some well-known trust institution, of which there are a number in New Zealand. But the report of the Bondholders’ Trustees dated November 1, 1925, was signed by J. M. Melville and H. E. Bracey. Is this the same Mr. Melville whose firm are solicitors to the network of Smith, Wylie Companies and whose partner, Mr. J. S. Broun, is a director of N.Z.P.F., Ltd.? Mr. Bracey’s name is unknown to The Sun.

The next report is a much more weighty affair, dated January 20, 1927. It is made by three members of the Board of Directors of the Australasian Forestry Bondholders’ Trust Company, Ltd., deputed by the board to carry out the duties, etc. What is this company? What are its capital and resources? HIGH-SOUNDING COMPANY

The three deputies are Messrs. A. C. Morley, W. L. Wyber and A. Commons. The Sun has no information regarding their qualifications, and neither their occupations nor their addresses are appended to the printed report issued under their names. Why is it necessary to incorporate a high-sounding company especially to become the trustees for the bondholders, and why is it decided to appoint as deputies of that trustee three gentlemen who will pardon The Sun for referring to them as comparatively obscure?

The company’s (N.Z.P.F.) land purchases to July last were 155,000 acres, which means that Smith, Wylie and Company then contemplated selling bonds to the value of £3,875,000. The Sun merely asks whether the public should continue to regard the bonds as a safe and sound investment if offered £10,000,000 worth. It also asks whether the inhabitants of England, Africa and Australia may not soon regard New Zealand as a perpetual forest presided over by Messrs. Smith and Wylie. A last point in this branch of the subject is the "manner in which the N.Z.P.F. directors use the words of forestry authorities. According to the “Investment Digest” they “have dragged Mr. A. J. Gibson,” the Commonwealth Adviser on Foi’estry, “into the fray as a supporter. But so far as words mean anything, Mr. Gibson opposes the claims of the companies.” He is quoted by Mr. R. G. Menzies, a director of N.Z.P.F., in a letter to the “Argus” of 4/8/27, but “what Mr. Menzies did not quote was Mr. Gibson’s statement that it takes 40 years for pines to mature, and pine forests cannot be expected to return profits within that time.” Also Mr. Gibson, “one New Zealand company has been flooding India with copies of its pros.pectus. In my opinion they are too optimistic. Experience has shown that a recurring net annual return of £2 10s is very high.” The Sun merely asks whether these circumstances are usual in the case of insurance companies. (To be continued.)