Crothall’s Based On Sound Management

Press, Volume CVI, Issue 31375, 22 May 1967, Page 15

Crothall’s Based On Sound Management

Cleaning and servicing of buildings and offices in New Zealand have customarily been the domain of the small, independent contractor, but lately Crothall and Company, Ltd., Christchurch, has changed all that.

Most of the costs in the servicing field are labour costs. Profit margins are narrow and a good quality of work is necessary to ensure a renewal or increase in contracts. Because of these characteristics careful supervision of staff is essential.

By adopting modern management techniques—its theme is “control by management” —Crothall has largely overcome these problems and is by far the largest servicing organisation in New Zealand. '

The group is about twice the size of the listed company, which is among the top 10 commercial cleaning companies in the world for size. Crothall’s beginning was, by these standards, small. Its forerunner, Commercial Cleaners, Ltd, was registered as a company in 1940 with a staff of two and capital of £5OO.

World First In the years that followed the company expanded and at the same time achieved a world first in pioneering the field in hospital cleaning. Branches were opened in Australia and the United Kingdom, and each of these overseas sections today employs 2000. In 1964 the public had the chance of buying into Crothall and Company, which owned the New Zealand assets of the Crothall group and held minority interests in the overseas sections.

The 70,000 10s shares, offered at 18s to the public, were rushed before the issue officially opened, and those lucky enough to buy in then or at the lowest prices in 1964 and 1965 have seen these shares rise to 265. Sound Management Mr Alan Crothall, the company’s founder, chairman, and joint managing director (along with his brother, Mr Frank Crothall) says his group’s success had come about because of strong emphasis on sound management methods.

Management techniques are Mr Alan Crothall’s speciality. His knowledge of them, like Topsy, “just grew.” He was a founder of the New Zealand Institute of Management and today is one of its leading figures. The Crothall organisation has used special methods and has spent a great deal of money on work study methods and training and retraining at both supervisor and operator levels. 41 Branches In New Zealand the listed company, Crothall and Company, Ltd, has 41 branches throughout the country and employs more than 4000. The major part of its activities is in hospital servicing, but it holds also a large number of commercial contracts.

To gain economies of scale in an industry that has narrow profit margins, rationalisation has been carried out through the group and there has been a trend of diversification into allied

activities. As an example, the take-

over of J. O. Taylor, Ltd, the Christchurch decorative plant hire business late last year, fits in nicely with the group’s cleaning and towelhire services. The company’s future is in the expansion of its contracts and further diversification in service lines. Ideal Position Because of its organisational structure, the company seems ideally placed to main-

tain its lead in the servicing field.

The company’s profitability has advanced rapidly in the last three years, as the table shows, and the forecast for this year is a continuance of sales increase and maintenance of the profit rate. At the latest price of 26s the dividend yield is 4.8 per cent but the high earning rate on capital returns an earnings yield of 15.7 per cent at this price. The generous dividend cover left £29,935 within the company for expansion in the latest year, although this was eroded by the capital loss of £20,000 on the sale of its share in Johnson’s Wax New Zealand, Ltd. Reserves High The reserves, in relation to ordinary capital, are high. The balance-sheet shows a low ratio of current assets to current liabilities which ordinarily would point to a possible liquidity problem. However, Crothall, unlike a manufacturing concern or retailer, for example, does not need to carry a high proportion of stocks. It needs just enough funds to meet its creditors, tax liability, and dividend requirement. For these, the present current assets are adequate. Because of the high asset backing and ample cover on the 12J per cent dividend, the 10s shares, are not likely to show any great capital loss if the share market should turn for the worse this year. Further Issue Although the dividend yield may be lower than that given by other comparable shares, there is the chance that Crothall may seek further

funds from shareholders by way of an issue at a favourable premium to shareholders. The possibility of such an issue was hinted at in the prospectus of 1964 when it was stated that the offer of sale to the public was made to achieve a wider distribution of. shareholding to qualify for listing and also to widen the field from which to raise further capital for expansion. In the uncertain economic future for New Zealand, however, the main advantage of holding shares in Crothall’s is that the company seems set to maintain its profitability and position in the servicing field during this period.

1966 1965 1964 £ £ £ Profit 44,200 35,595 26,728 Dividend (%) Ui n 11 Ord. amount .« 13(290 11,495 11,495 Cover (times) .. »« 33 3.3 2.3 Ord Capital 108,000 104,500 104,500 Reserves .< 76,872 62,212 39,087 Earning rates (%) Ord. Capital 40.7 33.4 25.6 Av. Ord. Funds 24.6 22.3 18.6 Share Prices: High 26/6 25/21/9 Low 24/3 20/6 20/-