Profitability of all firms declining, chairman says

Press, Volume CXIV, Issue 33580, 8 July 1974, Page 16

Profitability of all firms declining, chairman says

Many companies which have shown record profits during their last financial year would have earned those profits in the first half of that year, the chairman of Bunting and Company, Ltd (Mr C. S. Peate), told the annual meeting.

It was highly likely that their earning rate at the present time was less than at the same time last year, he said. “The present world high rate of inflation appears to be caused by the labour force, together with the owners of raw materials, trying to achieve a redistribution of wealth through revolution rather than evolution. “This has resulted in the current world-wide liquidity crisis caused in the main through consumer wage rises being too far ahead of consumer prices. It is sad that the free-enterprise world has found its governments having to impose controls on both wages and prices, but it would appear that this is with us at least until the revolution is under control. “It is also evident that our

present Government has not’ yet come to grips with the. problem, since the present! wage order, the present price-; control regulations, the Com-; merce Bill, and its regulations; on interest rates will not prevent the great possibility of! a serious recession in the; near future,” he said. The Government appeared to think that all profit was profiteering. Fortunately, said Mr Peate, the majority of Bunting products were those which “normally do not experience greatly increased demand during times of feast nor great reduction in times of famine.”

The company believed that the 9 per cent wage order would generate extra buying power and keep demand high through the rest of this financial year, but that buying power was not available in the same measure to companies, he said. “This is evidenced by the extremely critical money shortage now prevailing,” said Mr Peate. “There have been many and varied capital, debenture and note issues over the last few months which reflect the problems the present rate of inflation is bringing to companies to finance inflation alone from retained profits, without leaving anything over for financing real growth.”

New problems

Stock reduction starting at retail levels to ease the liquidity problem could at worst have serious repercussions on manufacturing units and their profitability, Mr Peate said. This could give rise to increasing downward activity and associated higher unemployment. “At best, retailers will find difficulty in raising their purchasing power to carry stock in sufficient quantity to supply the extra consumer demand. This in turn will limit the manufacturing sector’s ability to increase activity to a level to absorb the 9 per cent wage rise.” The rest of this financial year would bring a new set of problems, but the company was in good heart, especially as a result of exports growth, said Mr Peate. Export sales were proportionately much further ahead at this time of the year than the company’s New Zealand sales. In the latest year to February 28, consolidated sales exceeded ssm, and exports rose to near s2so,ooo—bringing reduced tax. The major increase in exports was in products wholly of processed New Zealand timber, confirming the optimism expressed last year. Mr Peate said the five-year financial summary of the group showed a healthy upward trend in earning "rates together with an upward movement in net asset backing. The Papakura plant is now running well and the lower real overhead costs through having two locations rather than three is expected to help offset some of the high rate of inflation in costs. Plans for the new Christchurch plant are well underway. Bunting’s hopes to meet the deadline of February, 1976.