The Press FRIDAY, FEBRUARY 19, 1971. For sale: non-profitmaking company

Press, Issue 32535, 19 February 1971, Page 8

The Press FRIDAY, FEBRUARY 19, 1971. For sale: non-profit-making company

The annual accounts of the Union Steam Ship Company for the year ended last September show clearly why the P and 0 Steam Navigation Company is a willing seller: Union Steam lost more than $1 j million last year. Admittedly, the Wainui dispute, which spread to other vessels in the company’s fleet, accounted for nearly all of last year’s loss; and the parent company could reasonably expect that loss not to be repeated this year. But this is not the Union Company’s first loss in recent years. Losses of $702,000 and $641,000 were shown in 1966 and 1967 respectively; subtracting the 1966, 1967, and 1970 losses from the profits made in other years, the company has made a profit averaging $207,000 a year for the last 10 years. Out of this profit a 5j per cent dividend on the million preference shares has taken $llO,OOO. The P and O company, which holds the 12 million ordinary shares, has earned less than $lOO,OOO, on average, on its investment Shareholders’ funds—ordinary capital plus retained profits—total nearly $35 million. An earning rate of 10 per cent on shareholders’ funds—a figure achieved regularly by many New Zealand companies—would represent a profit of $3.5 million; but average annual profit earned for the P and O shareholders by Union Steam is less than 0.3 per cent This places the company in the category of a non-profit-making venture. The argument sometimes heard that the profits from shipowning should be retained in New Zealand is not made more persuasive by the experience of Union Steam.

Then why should the Union Steam Ship Company attract a bid from Thomas Nationwide Transport? “ All operations will be examined closely ”, said a director of T.N.T. recently, “to see where services “ can be reorganised to give proper economic terms ”. From this it mpy be inferred that T.N.T. intends to eliminate the unprofitable services run by Union Steam; but it is on the cards that some services unprofitable on their own would become profitable when integrated with T.N.T.’s own network. The fear that the elimination of unprofitable services will prejudice the development of trade has lent a little plausibility to the campaign for a New Zealand-owned Union Steam Ship Company. Not surprisingly, the campaign has failed to attract any substantial backers; what businessman would put his money into a venture which is not to be allowed to close down its unprofitable activities?

The Government, too, has shown itself reluctant to nationalise the company, or even to guarantee part of the purchase price offered by a New Zealand consortium. A nationalised shipping line, or a New Zealand-owned line in which the Government had a substantial stake, could become a heavy burden on the taxpayers. Caught between the incessant claims of a militant seamen’s union and the demands of exporters to maintain and improve shipping services, the Government might find it had a tiger by the tail. The politically sagacious and economically sensible course of action for the Government might be to allow the P and O Company to sell to the highest bidder—while promising other interested parties to consider the question of subsidies for uneconomic services in 12 months.