FACTS FOR INVESTORS.

Auckland Star, Volume LXI, Issue 212, 8 September 1930, Page 4

FACTS FOR INVESTORS.

NEW ZEALAND BREWERIES.

PAYS HANDSOME DIVIDENDS.

EFFECT OF CAPITAL CHANGES.

New Zealand Breweries, Ltd., formed in 1923, for the purpose of amalgamating existing interests in various parts of the Dominion has, up to date, experienced a degree of success that has surely equalled the expectations of the most optimistic of its promoters. To raise the capital necessary for the undertaking 500,000 £ 1 shares were issued as well as £1,000,000 worth of debenture stock, the latter to carry a dividend of 10 per cent per annum. The company's operations were profitable from the commencement, and its earning power is well illustrated in the following table:—

Net Kate Dividend To Profit. per Amount. Reserves. £ cent. £ £ 1925 .. 103,220 10 50,000 50,000 1926 .. 109,540 10 50,000 50,000 1927 .. 97,372 10 50,000 50,000 1928 .. 121,331 10 50,000 75,000 1929 .. 128,848 15 75,000 50,000 1930 .. 123,038 15 93,750 35,000

From the foregoing it will be seen that after 1928 the directors felt justified in raising the dividend rate by 50 per cent. A year later came another development which created quite a sensation in the investment market, and sent shares bounding upwards in anticipation of the event. The company was still paying 10 per cent on £1,000,000 worth of debentures, and ■was liable to continue this payment until 1933. The proposal of the directors was that the debenture holders should be given the option to change their stock into shares on the basis of one share for two debentures. At the same time existing shareholders were given one bonus share for every two held. These proposals were unanimously agreed to by the shareholders in July, 1929, and subsequently most of the debenture holders exercised the option proffered them. As a matter of fact, only £65,371 worth of debentures are still in existence.

A Handy Purchase. At the last annual meeting the information was given that of the £1,000,000 of debentures originally issued £250,000 had from time to time been bought in by the company from the original vendor companies. The conversion of the balance was not complete until April 1, and the change is, therefore, not reflected in the latest balance-sheet. Such movements as have taken place can be noted in the following comparisons:— LIABILITIES AS AT MARCH 31. 1928. 1929. 1930. £ £ £ Capital 500,000 500,000 750,000 Debenture stk. 1,000,000 1,000,000 750,000 Sundry creditors (Including provision for taxation 258,469 174,545 234,516 Reserve fund 175,000 250,000 50,000 ASSETS AS AT MARCH 31. 1928. 1929. 1930. £ £ £ Land & buildings 550,000 540,000 542,777 Machinery and plant 170,499 142,507 124,713 Stocks 167,205 143,081 146,000 Advance* agsr. barley, hops 25,500 25,370 25,173 Office fur'ture and fittings . 200 100 100 Investments . 425,64(5 588,209 499,382 S'dry debtors. 155,420 154,588 144,809 Goodwill 500,000 375,000 375,000 Cash in bank. 54,165 62,119 30,429

Capital has increased £250,000 as the result of the bonus shares allotted to original holders, and the reserve fund consequently lessened by that amount. Debenture stock is reduced by £250,000, the amount held by the company having been cancelled. "Land and buildings" have increased by £2777, and in this connection the chairman stated at the annual, meeting that the directors had acquired the freehold of a property adjacent to the Speight brewery, which had formerly been held on lease. Machinery and plant had been written down nearly £18,000 as provision for depreciation.

An Astute Move. The adjustments which have been made are of vital import to the company's future. As a policy measure they bear the mark of business genius, for they lessened the company's liability to debenture holders, and in giving them the opportunity to become shareholders materially increased the number of persons who will be directly affected by the result of the company's operations—an important aspect when the triennial licensing poll falls due. To achieve this end and yet maintain a reasonable balance between the interests of existing shareholders and of debenture holders respectively was not easy, yet the proposals were so skilfully arranged that they met with virtually the unanimous approval of all parties concerned. It will be interesting to note how the changes will affect results during the current year. The company will now have a capital liability of approximately £1,125,000, necessitating for a 15 per cent dividend £168,750. Last year's net profit was £123,038, but the gross figures had been liable for £75,000 debenture interest. But for this debit the net return would have been £198,038. Based, therefore, on last year's returns, the company can during the current year pay 15 per cent dividend and still hand approximately £30,000 to reserves. And if the assumption should need to be discounted by the possible decrease in returns following upon depressed conditions, investors are justified in believing that the management is sufficiently well entrenched to handle satisfactorily any situation that may arise. The disclosure 15 months ago that the company was itself the owner of a quarter of the outstanding debentures provides an interesting instance of the prescience of the board.

An Anomaly. The item of goodwill at £375,000 would probably be justified if the company wished to sell out, but the retention of such an entry after seven years of business is something of an anomaly, and will doubtless receive special attention now that capital adjustments have been finalised.

Popular With Investors. The company's shares have been amongst the most popular on the Dominion Stock Exchanges, and in recent years have formed the basis of considerable speculation. Values on September 1 in recent years have been as follow:— £ s. d. £ s. d. 1924 ..170 1925 ..210 1026 .. 215 0 1927 ..230 1028 ..276 1929 ..450 1930 .. 2 10 0 The high values ruling on September 1, 1929, were due to the announcement of the bonus issue already referred to. Assuming the present dividend rate of 15 per cent is maintained, to-day's investor will receive 6 per cent on his outlay.