COMMERCIAL Exchange urges better reporting standards

Press, Volume CXII, Issue 33095, 9 December 1972, Page 20

COMMERCIAL Exchange urges better reporting standards

The directors of all listed companies should give more consideration, before any report is published, to their obligations to inform the public as well as shareholders, suggested the retiring chairman of the Christchurch Stock Exchange (Mr R. J. Riley) in his address to the annual meeting yesterday.

“Unfortunately the traditional presentation of net profit and its relationship to the preceding year is inevitably the first and often only lasting impression of the information presented to the public by the company and the news media.

“Too often today we find company chairmen in their annual addresses lamenting the diminishing return on shareholders’ funds while criticising the public reaction to an apparent increase in profits. “By this time it is too late. “In particular I commend for consideration the listing recommendation that consideration be given to expressing profits in cents a share, or cents a dollar of shareholders’ funds.

“Properly informed, the public could come to realise that contrary to general opinion industry does not grow fat at the expense of the consumer, and that the person who invests his savings in equities, and so makes a vital contribution to the prosperity of the country as a whole, does not receive an excessive return on his investment,” Mr Riley said. “This is well illustrated by the results shown in the Reserve Bank’s June quarter survey of Public Company financial statistics. Aggregate net profits after tax of the 31 companies included in the survey rose by 5.1 per cent compared with the profits of the same companies in the previous year. “However, because of the larger capital employed, the earning rate on shareholders’ funds fell from 11.4 per cent to 11.2 per cent between 1971 and 1972. “The exchanges, quite rightly, demand a higher standard of reporting from listed companies than that required by law. The flexibility of the

present method of control over listed companies enables changes to be implemented as and when the need arises. The slow process of law reform cannot and never will be able to match the investor protection which the present system provides. “Indeed, it is possible to point to statutory requirements for investor protection which have been enacted more than a decade after the lead has been given by the exchanges in their requirements for listed companies.

“The almost insignificant number of failures of listed companies over the past twenty years when compared with the number of failures of companies not subject to the reporting standards set by the exchanges is adequate testimony to the effectiveness of these requirements. “While the majority of listed companies fully meet the standards set for reporting to shareholders, and many exceed the requirements, few seem to give much thought to their growing responsibility to report to employees, customers and the public at large. “It is not the role of exchanges to dictate the format of company reports, and indeed the presently accepted methods are suited to the investor — who is well able to judge a company’s progress for himself.”

Referring to exchange control, the chairman said that the high level of overseas reserves, adequate travel allowances, the termination of the no-remittance scheme and the elimination of the premium on overseas securities combined, suggest that this is an opportune time for the Government to consider the termination of the depository system for overseas securities.

“I believe that the use of controls which help to isolate this country from the activities of international currency speculators are desirable, and in general have prevented our overseas balances from being

artificially manipulated for profit. “While the series of crises which have affected so many countries’ currencies and have so unsettled international monetary confidence cannot be blamed oh the speculators, there is some reason to believe that they contribute to the lack of stability in exchange rates.

“As a nation which depends so much on overseas trade we have a vested interest in a stable international monetary system,” Mr Riley said.

“This does not, however, justify the continuance of controls which no longer seem necessary or desirable. Controls invariably bring with them administration costs, and the depository adds not only to brokers’ costs but also to those of the Reserve Bank. I believe that the controls on the sale of overseas securities for New Zaland currency by New Zealanders no longer serve any useful purpose and should be revoked. “While controls are maintained on non-residents’ investment in New Zealand — and the merits of such control are not disputed — there is a case for permitting some overseas portfolio investment by New Zealanders to balance the limited inflow of capital permitted under the present regulations. “While private overseas investment does not appear in the official overseas reserves figures, it is a hidden national asset, offsetting the investment in New Zealand by residents of other countries.

“New Zealand’s private overseas investment pool has undoubtedly been depleted by the no-remittance scheme, and the controlled rebuilding of this over a period would seem to have considerable merit,” Mr Riley said. The meeting elected the following officers for the ensuring year: J. B. Hindin (chairman), J. R. Wignall (vice chairman), K. W. Hobbs, R. E. Howarth, D. S. Dolt, W. J. McKie.