Company Report Dominion Breweries’ Satisfactory Result In Difficult Year

Press, Volume XCVIII, Issue 28973, 14 August 1959, Page 24

Company Report Dominion Breweries’ Satisfactory Result In Difficult Year

Notwithstanding the serious difficulties which faced the licensed industry, and more particularly the hotel section, following the 1958 Budget, Dominion Breweries, Ltd., produced a very satisfactory trading result in the last year, said the managing director, Mr H. J. Kelliher, in his address to the annual meeting of shareholders in Auckland on Tuesday. By its progressive policy, he said, the company was able to take effective measures to overcome the adverse consumer reaction to the unprecedented increase in excise duty.

“I feel sure that the public reaction which followed the 1958 Budget decision to double the excise duty on beer came as a shock to both Treasury and the Minister of Finance,” said Mr Kelliher. “It was a clear indication that the beer drinker will not allow himself to be harshly imposed upon and has keenly resented the imposition of what in his opinion is an unjust and discriminatory tax.

“I have always availed myself of the opportunity presented by our annual meeting to comment on those financial and economic matters which vitally affect the welfare of our organisation, and also that of every individual citizen.

‘Tor many years we have seen successive governments fail to honour their promises to rectify the grave defects so obvious in the existing financial system. These defects can only be removed by a fundamental correction which would enable stability in the purchasing value of money to be achieved, thus assuring real justice, to all sections of the community, and at the same time clearing the way for real freedom for personal and competitive enterprise. Currency Inflation

“The inescapable truth which should be apparent to every one of us is that the process of currency inflation, which has become the standard excuse for controls, is brought about by the day-to-day creation of new money by the banking system, unequated with productivity. 7116 result has been an excessive issuance of money so that progressively the pound buys less and less. In the last six years this ‘dilution’ of the currency has resulted in an increase in the cost of living of no less than 27 per cent. “Because governments have failed to deal effectively with this glaring evil, inflation has become a form of State theft from the savings of the citizens. On top of—or rather hidden behind—all the vicious confiscatory taxes in operation today in this country is the subtle and insidious tax of currency depreciation. “If what is being filched from the taxpayer by this hidden tax were openly levied outright upon him, he would quickly realise the extent of the inroads being made upon bis earnings over and above direct and indirect taxation, ruthless as these have become. “Surely it must now be apparent to all that this excessive taxation stems from a dishonest and unsound money system, and would not be necessary if governments carried out their proclaimed monetary policies. Steps Not Taken

“It is indeed a sad reflection that although we had an antiSocialist government in office from 1949 to 1959 that government failed to give effect to its stable necessary to free the country from totalitarian control of industry and socialist regimentation, as it had pledged itself to do, and also failed to give effect to its stable money and free enterprise policy Instead we had inflicted upon us a 50 per cent inflation of the currency, accompanied by an expanded bureaucracy. “It should be clearly understood that it is goods and services that give money its value, and it stands to reason that goods and services provide the soundest backing for money. All that is required, therefore, is to keep money and goods in balanced relationship. That was the policy promised by Mr Savage and in turn by Mr Holland, and ably expounded by both of them, particularly when in opposition. "By such a system whatever happened in the realm of production would be related to the capacity of our people to consume or use the resultant real wealth of our country. This would be economic realism. All new monev would be issued and kept in balance with produtcion. thus maintaining a stable internal price level.

Incentive to Save "Those who earn and those who save would have the incentive and assurance that their money would be kept stable in. purchasing value and that hard ship resulting from inflation or deflation would not be inflicted on all sections of the community —and so harshly on old-age pensioners through continually rising costs of living. "Public indignation and the ensuing moral demand for a wrong to be righted is the only basis of reformation. “Until there is strong public pressure and a demand for political integrity and sovereignty brought to bear on those elected to govern the country; until every citizen realises what the unbalanced creation of credit money is doing to his daily life, his future and the well-being of his family—just so long will an unsound money system continue both to fool and to jeopardise the ■welfare and freedom of every citizen, and retard the progress and prosperity of our country. "I would like to remind shareholders how important it is that they use and recommend the products of the company on every possible occasion. Two and a half thousand enthusiastic share holders can be a tremendous sales force in increasing their company’s profits Papatoetoe Hotel

"Good progress has been made with the construction of the new Papatoetoe Hotel. It is anticipated that this hoel will be ready for the commencement of business early next year. Provision has been made for all the latest innovations and amenities. The large site available enables the introduction of many novel features which should make the a unique attraction in the district

‘‘lt would not be fitting for me to conclude my annual address to shareholders without reference to the staff of the company whose loyalty and co-opera-tion have been a material factor in meeting the difficult trading conditions encountered during the last year. Once again I extend to them my sincere thanks for the manner in which they have carried out their duties. “In accordance with our usual practice, the provision for special purposes includes not only the staff bonus at 7J per cent, on ordinary earnings, but also provision for the company’s contribution to the staff superannuation fund on the same basis as iu previous years. The staff superannuation fund is now recognised as a very important amenity, particularly among retired members of the staff who are now in receipt of superannuation grants of £7 a week each for life. This fund now owns assets totalling £280,000.” Address by Chairman

In moving the adoption of the 29th annual report of the directors and the statement of accounts for the year ended March 31, 1959, the chairman of directors, Mr L. J. Stevens, said:

“The statement of accounts covers a consolidated profit and loss account, a consolidated appropriation account and the balance-sheet of the company and a consolidated balance-sheet of the company and its subsidiaries. The consolidated balance-sheet discloses the overall position. The susidiaries are. as mentioned last year, Sunshine Brewery, Ltd., and Waitemata Company, Ltd. “The consolidated profit and loss account shows the profit for the year as £220,004. Of this amount, £215.266 is dealt with in the acounts of the company and the balance is retained in the accounts of the subsidiary companies. The balance-sheet of the company again shows a very healthy position.

In the first place, I would mention that this year we have passed the £4 million mark in the balancing total of our consolidated balance-sheet. It is an impressive figure. What to me is the most outstanding feature is that out of the total of something over £4 million the total of capital and reserves—that is, the shareholders* funds—amounts to £2,687,426 Assets representing this sum include land and building, plant, machinery, furniture and fixtures and other assets to a value of £2,733,865.

“At this juncture we have had to rely on finance for only about £50,000 of this large sum. The rest of our long-term liabilities and current liabilities and provisions are covered by current assets investments and a small item of goodwill I think it is material to mention that the figure shown as £2,733,865 is the depreciated value of the assets. As disclosed by the accounts, depreciation to a total of £458,936 has been written off these assets since January 1, 1957 The sum includes £ 159.884 provided in the year under review. These assets stand in the company’s books at their original cost less depreciation.

Value of Assets “I think 1 can say that every one of the items included in the total is worth more—very many much more—than their original cost. So far the company has not elected to revalue its assets for balance-sheet purposes as is now commonly done If and when the company does decide to write up its assets to something approaching today’s value then I am sure shareholders will be impressed by the total. Meanwhile these added values stand as a hidden reserve. Nevertheless they contribute to current earnings and shareholders enjoy the benefit of the foresight of those responsible for the purchases.

“Taking for example the company's own balance sheet, the movements are:—Fixed assets show an increase in net value from £2,451.769 to £2,730.219. The main portion of the increase is represented by payments on capital works as noted in our last year’s balance sheet and in addition to our plant and machinery Investments in companies and other investments show a drop of £26.000. mainly represented by the sale of the company's interest in the Hotel TransTasman. Effect of Budget “The consolidated profit and loss account shows a profit decline from £240.906 to £220,004. or approximately £21,000. I referred in my last address to the implications of the budgetary proposals then recently published. None of us expected those implications to be other than harmful to the brewing and hotel-keeping industries. Dispositions made in our main activities helped to cushion the effect of the higher taxation and the tax raid made on the working man’s beer. “On the hotel-keeping side, however, an unrealistic price order did very substantial damage to the whole of the economy of the hotel-keeping industry. As a large organisation we were better able to stand a siege and to surmount the difficulty than was the individual hotel-keeper. But we did suffer and the fall in our profit is related to unrealistic price control. More reasonable allowances are now in force and the position appears to be on the improve.

“Much still is required if the worker is to have his glass of beer at a reasonable price. A most widespread demand exists for a reduction of the excise on beer and I am surprised that this was not recognised in the recent Budget. “Within the limitations which followed the large increase in excise and customs duties and the price restriction on hotel profits

I am glad to be able to report that all departments have operated most satisfactorily. In particular I would mention the substantial advance in the operation of the company’s inventions in wort stabilisation and continuous fermentation. As a revolutionary departure from orthodox brewing and fermentation processes it is only to be expected that time must elapse before these new inventions are accorded full appreciation. In the first place it takes a considerable time foi 4 breweries furnished with standard equipment to change over their processing methods while still maintaining normal production. Stabilised Product “Even in our own brewery we experienced this difficulty but these difficulties are all surmounted and our plant is now. an outstanding example of what can be achieved in the way of a fully stabilised product of the highest quality and at relatively low capital and production cost. In the second place brewers as a class are traditionally conservative and are inclined to approach with timidity any revolutionary departure from standard procedures. When they are not so timid they are sometimes inclined to try to achieve the same results by parallel processes. "On the other hand, as you well know, our main competitor in New Zealand was quick to appreciate the advantages of our inventions. That large company accordingly acquired a half-share in the New Zealand rights on mutually satisfactory terms. During the year under review it has opened a new brewery serving central districts completely equipped to produce fully stabilised beer with continuous fermentation. It is busily engaged on conversion work at other plants. The advantages of the processes which that old-established company expressed at the time when it opened its new brewery are most heartening to us. particularly in our objectives for further sales of the processes to overseas countries.

“Our associates in Canada report progress. Our information is that a new brewery in the suburbs of Monreal is designed to use wort stabilisation and continuous fermentation. A new brewery in Vancouver is to be similarly equipped. A few large breweries in the United States are also showing interest, in all the circumstances the position is very satisfactory. I think it is inevitable that some time will elapse before full realisation is achieved. Bonus Issue "At our last annual meeting I referred to the substantial credit in the share premium reserve and said that if a distribution could be achieved to the advantage of shareholders then your directors would be giving that matter their attention. As you will now know they gave the matter their attention. The result is the recommendation for a bonus issue of one ordinary share fully paid for each four ordinary or preference shares. The necessary resolution is on the order paper and will be submitted to shareholders in due course. “This distribution adds to the impressive record of which I gave particulars a year ago. It is most pleasing that this further advantage to shareholders is now to be realised. But in addition your directors have recognised that shareholders have had to wait for nearly 12 months before the anticipation was realised. To compensate for this delay your directors have taken the unusual, or I maysay unprecedented, course of recommending a bonus dividend equal to the dividend which in the ordinary course of events would have become payable had the issue been made earlier. It is not to be confused with a bonus payment in the accepted sense. The wording of the directors* recommendation makes this very plain. It is a special bonus referable to special conditions. "In terms of the proviso to Subsection 1 of Section 4 of the Land and Income Tax Act, 1854, the issue of shares from share premium reserves qualifies for exemption from taxation. As such it should not be subject to dividend tax or classed as non-assessable income. Application has been made to the Minister of Finance for his direction accordingly. While the company has not yet received advice on the Minister’s direction, it can be taken that such a direction will issue in due course. The exemption of the share issue from tax must not be confused with the special cash bonus. This bonus payment is subject to dividend tax. Charities, Staff Bonus “It is my pleasure to advise you that included in the item ’provisions for special purposes’ is again a substantial sum for charitable purposes. Also included in the item is the bonus to staff at the head office, store and brewery, which with your concurrence will be paid at the rate of 7*4 per cent as hitherto. "You will note that the directors’ report recommends the transfer to general reserve cf the sum of £380,277 17s lid to bring this reserve up to the figure of £BOO,OOO. On the basis of the increase of capita) following the proposed free bonus issue, the capital of the company will he £1600,000 The general reserve, increased to £BOO.OOO, will be exactly half of the subscribed capital In addition the company will still nave a credit in its profit and loss appropriation account of £217,780, as well as capital reserves of nearly £70,000. “The approval of the directors’ report will carry with it approval of the final dividend and the special bonus equivalent to a dividend on the projected share issue, as well as approval of the transfer to general reserve Likewise in respect of the charitable gift and staff bonus. The actual capitalisation of part of the sums standing to the credit of the share ’ premium account and the bonus, distribution calls for a separate resolution to be dealt with later.” The report and balance-sheet were adopted.