I.H. group net eases

Press, Volume CXII, Issue 32838, 11 February 1972, Page 10

I.H. group net eases

The group net profit of International Harvester Company of New Zealand, Ltd, Christchurch-based manufacturer and distributor of farm and construction equipment, and motor trucks, fell 2.7 per cent to $768,870 in the year to October 31, the company’s report discloses.

The report was filed at the; [companies’ office in Christ-[ i church yesterday, as required by the 1969 Amendment to the Companies Act, 1955. It is the first made by I. H. under these regulations, covering overseas-controlled firms. Sales for the year increased by 8.6 per cent to a record $15,409,530, which included export sales of $194,975, compared with exports of $15,949 in 1970. Sales of all three lines in the enlarged LH. product range showed substantial increases, and the company’s “new generation” concept tractors were especially enthusiastically received, said the chairman and managing director (Mr W. R. Harper) in his review of operations. Consolidated profit before tax fell from $1,542,225 to $1,117,854. The increase in sales was not sufficient to offset the rapid rise in costs coupled with narrower profit margins because of increased competition and price control, Mr Harper said. I GROSS PROFIT < Gross profit from trading, but after depreciation of $152,578, was $1,234,418, to which was added $194,146 in investment income.

Income charges, including interest of $264,192 amounted to $310,710.

Payroll tax was $27,663, and income tax $544,061, but there was an adjustment for deferred tax benefits of $222,740 — leaving a net profit of $768,870. A note to the accounts states that the company depreciates its fixed assets at

.higher rates than allowed by 'the Inland Revenue Department, and that it has certain tax-paid reserves. The balance sheet contains an item “deferred tax effect benefit” of $230,323. The note explains that this represents the benefit likely to be recouped when future depreciation is less than the allowable rate, and/or when taxpaid reserves are used or brought back to income. Accounting procedure had been changed so that each year’s profit was charged with tax at the current rates relating to it, irrespective of whether the tax was payable. This change resulted in the adjustment in this year’s tax of $222,740, and increased this year’s profit by $230,323. EARNING RATE The earning rate on the ordinary capital of $5,600,000 was 13.7 per cent, and the rate on the shareholders’ funds of $6,919,885 was 11.1 per cent. The balance sheet discloses a strong position, with a high level of liquidity. The company’s practice of re-investing the major portion of its earnings contributes greatly to this. This year the total dividend was 35 per cent of the profit.

In the last three years the additional working capital from retained earning: has climbed from less than $lOO,OOO to almost $900,000, while stocks have been reduced, and receivables at year-end increased. Current assets are almost $12.5 million of which ac-

counts receivable amount to almost $6 million, and stocks to almost $12.5 million. Current liabilities are about $3.7 million, of which $721,220 is owed to the bank, $709,557 to sundry creditors and the balance almost equally to overseas affiliates and the New Zealand Government (for taxation). The current ratio is 3.3 to 1.

Term liabilities are $4 million in unsecured debentures, of which the repayment is evenly spread over the period 1975 to 1981.

HIGHER PRODUCTIVITY Investments are in the books at $105,000, and land and buildings (at cost less depreciation) stand at $1,354,540. Net depreciable plant at balance date was $380,377.

Given normal trading conditions, coupled with the improvement in dealer sales and servicing facilities, the directors were confident that 1972 should be a more profitable year, Mr Harper said. Stringent control of operating expenses and the centralised motor truck assembly in Christchurch had resulted in increased productivity per employee; the full effect would be felt this year. As announced, the company’s new subsidiary, International Harvester Credit Company of New Zealand, Ltd, will be offering a public debenture issue. This would take care of the expanding finance requirements brought about by increased sales, Mr Harper said.