THE LOAN AND MERCANTILE COMPANY.

Press, Volume LIII, Issue 9323, 25 January 1896, Page 5

THE LOAN AND MERCANTILE COMPANY.

REPORT OF THE DIRECTORS.

(FROM OUR OWN CORRESPONDED.) LONDON, Deoember 13.

The report of the Directors of che New Zealand Loan and Mercantile Agency Company waa issued to-day. Briefly it states that tbe new Company has earned £254,514 during its first year of operations aud that the result of the actual twelve months' operations is a credit balance of £5207. But owing to the date at whioh tho new Company started, fifteen months' interest instead of twelve had to be paid on the debentures. This extra three months' interest "mopped up" £31,600 at one fell swoop. Consequently the net income is a debit balance of £28,593. With this preliminary explanation I had better lot the report speak for itself. It is as follows:—

" 1. The Directors submit to the shareholders their first annual report, with balance sheet to 50th June, 1895, for the colonies, and to 30th September, 1895, for Loudou, together with profit and loss acoouut showing that the Company has earned during the year the sum of £254,514 2a lOd. 2. In explanation of the debit on the year's working of £28,393 6s, the Directors beg to remind tho shareholders that; owing to the date at , which tho Company commenced operations, interest for fifteen months oa the 4 Prior Lien ' and 'A' debenture stocks, besides exceptional expenses, have been incurred; although, therefore, there is a balance at debit of prcfit and loss, if the three months' extra interest paid, amounting to £31,600 16a sd, were deducted, the result would be a credit of £307 10a sd. 3. The work which has devolved upon the Directors has been of no ordinary kind, for in addition to the taking over of a business of Buck magnitude, with properties situated so widely apart, they have had to deal with many very difficult and complicated questions arising from the transfer of the property and assets of the old Company, and its divergent interests with allied companies. 4. The shareholders are aware that the Company's revenue is mainly derived from commissions on the sale of colonial produce and interest upon advances on land and pastoral properties iv Australia and New Zealand. Immediately upon tho formation of the new Company the Directors invited Mr Beaumont to proceed to the colonies to take measures, in concert with the managers, to safeguard these interests and to effect economies wherever possible. Mr Beaumont's mercantile experience in New Zealand especially fitted him for the work, and the Board are much indebted to him for the prompt and efficient manner in which he fulfilled hi 9 important mission! 5. The Directors are pleased to report that the coll on the shareholders has been well responded to, and has already produced upwards of £500,000. 6. The scheme of arrangement sanctioned by the Court under which the affairs and assets of the old Company were placed in the hands of the Directors to carry on, provided that all the debenture stocks should be put on a permanent basis, leaving as the only fixed obligation of the new Company the payment of interest on tho « nrior lien' and 'A' debenture stocks. 7. Ifc is with great satisfaction that the Directors are able to inform the shareholders that the numerous clients of the Company have steadily continued their support, and owing to this the Company's business has been well maintained. The rise in the price of wool, which occurred last autumn, is an additional source of gratification. 8. Good progress has been made in consolidating the affairs of the Company. One most important measure in progress is tho absorption of the business aud properties of the New Zealand Land Association, Limited, an offshoot of the late New Zealand Loan and Mercantile Agency Company, Limited, and the Directors are indebted to the • Prior Lien'and *A' and *B * Debenture Stock Trustee, who| having after careful consideration, satisfied themselves that this would be the means of saving the Company's liability on its shares iv the Land Association to the extent of about £186,000, and would be of the greatest benefit, notonlyto the Company but alßo to the several classes of debenture stock holders, unanimously agreed to an increase of £400,000 of 'prior lieD ' stock for the purpose of carrying out this operation, and at the same time providing additional working capital. It is not intended to make any public issue of suoh increase. A resolution will be proposed at the extraordinary meeting for making the necessary alteration in the Articles of Association. 9. The ultimate effect of the absorption of the Land Association, when completed by the-transfer of its properties to this Company, will be that th« Company will become the owners of the properties so transferred in lieu of being tne holders of shares and debentures in the Lend Asßooiation. 10. The assets comprised in the balance sheet under the headings of' Company's Premises, &0.,' ' Stock, Share, and Debenture Investments,' 'Shares and Debentures of New Zealand Land Association,' and ' Loans on Mortgage, &c.,' stand at the values at which they were taken over from the old Company under the Scheme of Arrangement, subject to the changes during the year and to the provision amounting to £647,956 19a ld made for actual and contingent losses. In the continued depressed state of affairs in the colonies, the shareholders will not be surprised to learn that reports which the Directors have received show that very large additional deficits in the loans, properties and investments of this Company and in those of the Land Association, will have to be dealt with hereafter. The amount of these, however, cannot at present be even approximately determined, and will largely depend upon the course of trade in the colonies during the next few years. In any case, the Directors do not consider that it would be in the interest of the shareholders or in accordance with the object and intention of the scheme, that they should, after only one year's working, attempt to re-adjust the capital account. 11. Since the statutory meeting of the Company held on 2nd August, 1894, the trustees of the 'A ' debenture stock, in terms of the authority given under tbe Scheme of Arrangement and Artides of Association, have appointed Mr Vesey George Mackenzie Holt a Director of tbe Company .—Edward Mabtin, Chairman. Portland House, Baainghall street, London, E.C., 12th December, 1895."

Ib may be remarked in passing that the amount of land and income tax which the Company had to pay in New Zealand amounted to £3836, or considerably more than the whole of the year's profit, even supposing the extra three months' interest had not been paid. This is worthy of note. But the sting of the report is ia its tailor ab any rate in the tale which tbe auditors (Messrs Turquand, Youngs and Co.) have to tell in their report which is appended to the balance-sheet. This is what they have to say :— '* 1. We.have examined and compared this balance-sheet and profit and loss account with the London books and vouchers, as well as the returns from Australia and New Zealand, and have to report that—with regard to the item of ' Loans on mortgage, secured loans and properties held by the Company' standing in the balance-sheet at £3,400,265 2s Id, according to the recent reports and estimates of the Managers and Inspectors of the Company in Australia and New Zealand submitted to us, 'the sum of £647,956 19a Id, being the amount of the reserves and credits available for that purpose, deducted from the total book values before arriving at the sum of £3.400,265 2s ld, before mentioned, is insufficient bo cover the estimated deficits in respect of properties and loans: and, in their opinion a farther sum of £847,940 Is lOd may have to bo provided. 2. With regard to the items of 'Stock, share, and debenture investments £71,307 12s 6d,' and ' Shares and debentures of New Zealand Land Association, Limited, £875,571 7s lid,' we have not any adequate means of judging to what extent the total values of tbe investments included in these items approximate to the figures at which they appear in the balancesheet, bat we understand from the Direotora that they anticipate a serious loss therefrom. 3. With regard to the profit and loss account, which, after making allowance for loss by acknowledged baa debts on new business, but before deducting interest on debenture stocks and charges, shows a profit of £254,514 2s lOd, we have to report that certain debts and accounts taken over from the old Company had, at the date of this

balance-sheet, increased by the sum of £224,831, whioh is included in the£3,400,265 2« ld appearing therein. According to the auditod accounts received from tho colonies and the reports und statements of the Managers and Inspectors, these increases (occasioned to a considerable amount by prior mortgage? redeemed) are represented by additional values, and the Directors oonour in this opinion. This being so, and after reference to many of tho working Recounts, we see no reason (notwithstanding these increases and the fact that on the basis of these accounts no allowance has been made out of the earnings of tho year for bad and doubtful debts included in this category) fir doubting the accuracy of tho abovementioned sum of £254,514 2i lOd. 4. We have, pursuant to the provisions of the Articles of Association, to report that no iutorest has been earned on the •_' debenture stock, the amount of which, therefore, remains as a, liability of the Company, payable out of future profits. 5. Subject to the foregoing observations, we are of opinion that tho balance-sheet is » lull and fair balance-sheet, and drawn up so as to exhibit a true aud correct view of the Company's affairs. 6. Having regard to the difficulties experienced oa this occasion in dealing with the balance-sheet as made up to 30th June, 1895, in the colonies, and to 30th September, 1595, in Loudon, we reoommeud that steps should be taken to securo the closing of the accounts in future, at tho stune date, both here aud iv the colonies." That is to say, tho Auditors state —(1) That £847,490 more may have to be provided to moot tho tit tioita iv respect of properties and loans. (2) That a serious loss is expected on the fctock, share and debenture investments atul on the Laud Association shares. (3) That the debts, &c, taken over from the old Company had increased by £224,831, which, however, had been allowed for in estimating the year's results, and are considered to be represented by additional values. This report is characterised by one writer as a " bombshell." It can hardly be muoh of a surprise, however, to those who have watched the progress of events iv the colony and the persistent depreciation in the values of landed properties there. It may fairly be hoped that with the revival iv the wool market, the generally favourable position of frozen meat and dairy produce aud the development of mining property the contingent deficits indicated as possible may never become aoccomplished facts.