GREAT RECOVERY

Sun (Auckland), Volume II, Issue 455, 10 September 1928, Page 12

GREAT RECOVERY

FARMERS’ TRADING COY. SHARES AS AN INVESTMENT By “ NOOX CALL” There are at least two reasons why a review of the operations of the Farmers’ Trading Company over the past five years should be interesting at the moment. Firstly, the company was recently granted official quotation on the New Zealand Stock Exchange and, incidentally, the market value of the scrip has firmed appreciably over the past three months. Secondly, the Farmers’ Trading Company was the first big co-operative New Zealand concern faced with a substantial debit at profit and loss account in the slump period following the post-war boom to initiate a drastic programme of reconstruction and writing down of capital. With many cooperative concerns still suffering from the results of boom period excesses, and dividends well out of sight, the Trading Company’s experience makes interesting reading. The story of the growth of the Farmers’ Trading Company is one of the romances of New Zealand business, and the operations of no other large concern have attracted so much interest in recent years. In 1918, at the time of the amalgamation of the Farmers’ Union Trading Company with Laidlaw, Leeds, Ltd., to form the present company, the shareholders numbered little more than 3,000, and the aggregate annual turnover of the two firms had just passed the half-million sterling mark in that year. At the present time there are 13,000 shareholders and the turnover for the year ended March 31, 1928, was £1,235,000. Since March monthly statements have shown an increasing volume of trade to the extent of £17,000 above the figures for the corresponding period of last year. The Investors’ Viewpoint From the point of view of the investor and present holders of the company’s scrip, however, it is a comparison of figures shown in the annual balancesheets over the past five years that make the most interesting reading. In 1925, a special comprehensive review of the company’s finances by its auditors supported the decision of the directors that the time had come for a drastic reconstruction. A debit amounting to £241,111 was shown at profit and loss. The paid-up capital stood at £546,932. In addition, it had been found necessary to raise debentures, which at March 31, 1925, stood at £324,656. This included amounts due to depositors, who in January of 1924, by an 89 per cent, majority, agreed to a reduction of 1 per cent, in the interest rate and to an extension of five years to the original term of their loans. At the same time the debenture holders agreed to a reduction in the interest rate, resulting in a total annual saving in taxation and interest to the company of over £5,000 a year.

Following the auditors’ report of 1925 a drastic reconstruction took place. The paid-up capital of the ordinary shares was written down to 8s and that of the A and B preference shares to 17s and 14s respectively. By March, 1926, all arrears of A and B preference dividends had been cleared off, and ordinary shareholders received 4 per cent, on the new paid-up value of their shares. Next year the amount was increased to S per cent, and present prospects point to its continuance. What Balance-sheets Show The following figures bear striking testimony to the wisdom of the directors’ policy in facing facts and cutting losses when they did. Heavy losses were made over the two years prior to the period reviewed below. 1924 £ Net Profit 10,209 Gross Profit 156,609 Debentures 367,367 Dr. to Bank * .. 67,803 Mortgage Liability .. .. 117,778 It will be noticed that the liability on debentures has been reduced by £106,247; mortgages and indebtedness to the bank also show a substantial reduction. As the total commitment for 8 per cent, and 6 per cent, dividends on the ordinary and preference shares, respectively, amounts to £20,500, it can be seen that net profits over the past three years have allowed a wide margin for contingencies and augur well for future bonus payments to shareholders. Compared with the scrip in many of the farmers’ co-operative concerns operating throughout this Dominion, that in the Farmers’ Trading Company appears in a very favourable light. Results over the past five years have shown that the administration is sound, and it is reasonable to assume that, with the advent of better times for the man on the land, the company will continue to show a wide margin over present dividend requirements. With the market for the ordinaries even at par, 8 per cent, is worth considering and gives the shares an undoubted attraction.