COMMERCIAL Exceptional items in A. and B. profit fall

Press, Volume CXII, Issue 33051, 19 October 1972, Page 22

COMMERCIAL Exceptional items in A. and B. profit fall

The group net profit of Andrews and Beaven, Ltd, fell mainly because of three exceptional factors: the substantial disturbance costs involved in the transfer of two large divisions, the depressed state of the engineering industry, and a large provision for special depreciation.

The chairman (Mr R. C. Neville) says in his review with the accounts that it was originally intended to postpone the transfer to Christchurch of the automotive i division from Dunedin and 'the general merchandising i division from Wellington. But it became clear —early ■in the year—that, to obtain optimum efficiency, this transfer would be necessary, he says. “This was successfully achieved during a year in which the engineering industry generally was in a depressed state. Government measures to control inflation had a marked effect on companies involved in the manufacture of capital plant and equipment. This was handled satisfactorily and at an acceptable level mainly because of the wide diverisification of our activities, but productive man hours were down 20 per cent, and some contract work was undertaken at fine margins to prevent further staff erosion,” Mr Neville says.

Higher provisions “These were the principal factors which resulted in the pre-tax profit dropping by 16.4 per cent from $1,151,233 to $962,614. The net profit fell by 14.8 per cent, from $535,846 to $456,689. This result was reached after providing for special depreciation on plant and vehicles $39,310 and ordinary depreciation on buildings $31,847, a total of $71,157. In the two previous years this depreciation was claimed for tax pur-

poses but not written off in the books. The result was struck after providing $78,782 more for depreciation at $311,282, $44,303 more for interest charges, and $109,462 less for total taxation at $505,925. As announced, the dividend lis maintained at 8 per cent, with a final of 4 per cent; the total ordinary dividend requires $360,980, and is covered 1.2 times.

Strong position The earning rate on the unchanged ordinary capital of $4,512,248 falls from 11.4 to 9.6 per cent; the rate on average ordinary shareholders’ funds declines from 6.5 to 5.1 per cent. Working capital improved by $734,135 to $7,401,736; the current ratio is 2.4:1. Discussing liquidity, Mr Neville says that effective measures were introduced, and the ratio of current assets to current liabilities is the highest for many years. Inventories were down by almost sl.sm from $10,174,230 to $8,695,627. “Reserves remain particularly strong, and it is recommended that a further $150,000 be placed in the general reserve, to bring this to $1,250,000. After making this transfer, the appropriation account will be carried forward at a higher figure than the previous year. This, in part, is because of an adjustment of $92,209 ($74,697 in holding companies’ accounts) being the revenue content of the revaluation of properties carried out in 1971. The company’s consolidated revenue reserves are in a strong position at $1,944,989. In the circumstances, this was a creditable result.” Disturbance costs Commenting on the year’s trading, Mr Neville says: “In common with most other companies employing a large staff, we found expenses difficult to control. Wages and salaries continued to rise and the cost of all services such as communications, sea and rail freights, postal charges, etc., increased markedly. However, the steps taken to streamline the group’s activities and to bring about increased efficiency will enable us to plan for some expansion.

“There is far greater confidence among primary producers. The Government has instituted measures to stimulate the engineering trade, and unless there is some major change in the economic climate, we can look forward to a period of increasing business.” The transfer of the automotive and general merchandise divisions did not impede the other plans, and a number of relocation and rationalisation moves were successfully carried out; these are aimed at reducing costs in the branches. Mr Neville also outlines in

the report the company’s plans for Auckland, where modem offices, showrooms, warehouses, workshops, and servicing plants are to be built on a strategically located seven-acre site at Wiri.

“Providing efficient and modern facilities on a national basis can be an expensive business and does have some short-term effect on our trading activities and on company profitability. Nevertheless, your directors are quite confident that the long-term benefits far outweigh any temporary inconvenience,” he says. Referring to exports, Mr Neville says: “In spite of the closing of our warehouse in Melbourne, it is pleasing to report that exports during the year under review were almost doubled. In the main, this is fine-margin business and the Government’s decision to increase the incentives allowed us to keep an interest in export possibilities. Furthermore, we participated in a national advertising scheme in Australia, and the successful international engineering trade fair in Sydney, both of which were Government subsidised. With the aid of capable and aggressive agents in Australia and continued Government assistance, it is expected that our export volume will increase. It is also possible that we will participate in a major scheme under the auspices of N.A.F.T.A.”