COMMERCIAL Extent Of Business Fall Revealed By Survey

Press, Volume CVIII, Issue 31649, 8 April 1968, Page 17

COMMERCIAL Extent Of Business Fall Revealed By Survey

A survey on annual accounts of 98 public companies, received by the Reserve Bank during the December quarter, shows the extent of the slackening in business conditions that has occurred progressively since the end of 1965. \

Most of the accounts covered the 12 months to July, August or September and profits over-all were down 7.8 per cent on the year before. Of the companies, 47 reported profit falls, 20 were unchanged (plus or minus $2000) and another 31 increased their profits.

Paradoxically, ordinary dividend payments were higher although almost all the increase was to sendee the rise in ordinary capital over the two periods compared.

This loss of profitability was not unexpected but what the survey does illustrate is the effect of this on balancesheets. It shows, too, the main casualty of the run-down in business demand—a reduction in liquidity. An unexpected drop in sales or in the growth rate can mean that firms selling

goods can be left with more stock on their hands than wanted. The total of the 98 balance-sheets shows that stocks rose $12.3m, or 10.1 per cent, to $134.8m yet trading profits over-all rose only 8200,000 to sl.Bm. This slight increase in trading profit is misleading in the sense that these stocks would be used to work out the trading profit. A sales figure, which is required by law in Britain but not in New Zealand, would have given a better guide. Correspondingly, bank overdrafts were 14 per cent, or $4.4m, higher at $35.7m and cash balances $700,000 lower at S3m. The sharp rise in fixed assets would not have helped this liquidity position. These rose $18.4m, or 8.4 per cent, to $238.6m while term debt rose 813.9 m to $93.1m. This shortage of liquidity has been a common complaint amongst businesses for some months now and even if demand is to firm, it will remain for some time yet.

Market Buoyant The New Zealand stock market was even firmer last week and the turnover of about 143,000 shares in Christchurch was the highest since May last year, and the second highest for at least five years. Spice was added to the market by some good and bad reports, notably by U.E.B. Industries, South British, and N.Z. Industrial Gases in the former case, and Rex Aviation in the latter. Overseas, Woolworths Australia reported a record turnover figure for any Australian retailer.

L.E.B. Sales U.E.B. Industries reported a group sales increase of ■ more than 21 per cent to above S4lm in the latest year I to March 31 but the lack of a guide as to profit or dividend left many a little frustrated. However, sales figures (released just four days- after I

the end of the financial year) are much easier to find than the profit figure, which will be released towards the end of this month. Last year the group profit of $1,643,028 covered the ,11 per cent dividend twice, but since then a one-for-five bonus issue and a convertible note issue have been made. Because the company hopes to maintain the 11 per cent dividend on the higher capital, the requirement will be higher in the latest year, especially as there is an added requirement through the conversion of the 1967 notes.

Dividend Needs This brought the ordinary capital to $7,247,344 which at 11 per cent would need about $BOO,OOO. This compares with $789,508 last year which incidentally does not reconcile with the ordinary capital of $6,571,344 at J-me 30, 1967. Because of the high sales increase in the latest year, one should not assume that there will be a profit rise. Last year’s profit was unusual in that it was considerably less than equal to the tax provision. Tax usually is about half the pre-tax profit and so should just about equal the net profit Last year the tax provision was .$1,241,178 against the profit of sl.6m. Tax Losses

Advantage was taken last year of tax losses available from subsidiaries and these will also be used in the latest year, although the extent of this is not yet known. Also, rationalisation and the probable higher expenses Involved in promoting sales will eat into the sales rise. Nevertheless, the profit announcement should be most satisfactory and in line with the efforts of a most successful group.

j The shares closed on Friday at 94c, a rise of 5c in the week. The yield on the 11 per cent dividend is thus 5.3 per cent.

At this price, the remaining 55 per cent of the shares in Knightsbridge not held by U.E.B. spring to mind. Before September, according to the

agreement between U.E.B. and the McKendrick family, the remaining shares held by the public will be sought by U.E.B. for about 95c a share. This could be satisfied by a straight share exchange if the rise in U.E.B. shares continues. , : ■..

South British ' 'South British brought little

market reaction by its effort in increasing the interim dividend from 5 to 6 per cent. The share rose to 379 c, then slipped to 375 c on Tuesday, the day the announcement was made, recovered to 379 c on Wednesday, but closed on Friday at 377 c, a fall of 3c since the previous Friday. Assuming that the increase in the interim dividend will be maintained, the total dividend will be 15 per cent. On the closing price of 377 c, the yield is almost 4 per cent.

Bonus Prospect South British last made a bonus issue in 1964 (a one-for-two) but capital reserves at the August, 1967, balancedate were $7.3m compared with ordinary capital of $14.5m. Since then, devaluation has raised shareholders' funds about $7.2m. This makes South British a bonus issue prospect, but whether this will eventuate will depend on the profit for the latest year. This will be announced about November.

If the profit is good. South British may decide to distribute some of its capital reserves by way of a bonus, perhaps at the expense of a reduced dividend for the 1969 year.