COMMERCIAL Gemco investors should decide

Press, Volume CXIV, Issue 33706, 2 December 1974, Page 22

COMMERCIAL Gemco investors should decide

(By

ADRIAN BROKKING.

our commercial cdtrori

Rather than allowing! the directors of Gemco to borrow more money against the investments, investors should insist that the affairs of the group he wound up.

The extra funds needed to allow operations to be maintained for another year — until the start of the Government floor beef price i scheme in October next year — will be more than the present net worth of the assets.

Gemco is thinking in terms of a loan of 5750.000. That is at least 27c for each dollar of investment. If there iwere a wind-up tomorrow, investors would probably receive something like 5c in the dollar. This means that investors would be liable for another 22c for each dollar already invested, over and above the amount of money they already stand to lose.

It is also quite clear that tto borrow an amount equal Ito the net worth of the assets, say $150,000, would be insufficient to last the I company three months. i As I’said in a report on I Gemco five weeks ago, the (equity of the investors is (dwindling rapidly. At that (stage my 7 assessment was (that it was down td 25c in (the dollar. It is very much lless today. j About a week after disputing this article, Gemco (organised a field day on two (North Canterbury properties. (About a dozen people attended: a few graziers, j some investors, and two ij urnalists from “The 1 Press.”

On that occasion the chairman of Gemco (Mr M. D. Lawlor) was questioned closely by the investors and he supplied, among the comment, the following facts:

That if there had been a “fire sale” that day, the cattle would probably realise about $800,000; Long-term borrowings on the security of the cattle was $310,000; Investors collectively owed the management company $100,000; Current liabilities amounted to about $60,000. On such a basis the net worth of the assets at that stage would have been about $330,000, or something between 11c and 12c for each dollar of investors’ money. Since then more stock has been sold, while current liabilities have continued to

rise, and investors’ equity is I probably down to nearer 5c 1 in the dollar. In any event, very little isi left to salvage. But the most important i point is that it is the in-! vestors, not Gemco. who should determine whether a salvage attempt is to be made or whether the investments should be wound up. ' To be able to decide pro‘perly, the investors need accurate end up-to-date information. On the same ■ day that the group met in .the field a circular letter! ’ was . sent out that, in my 1 opinion, skirted very import- ■ ant issues. Apart from admitting heavy losses, this statement did little to put investors in the picture. To quote verbatim: “The trading loss revealed by (these accounts for the 1972 land 1973 investment years is

(even more serious than was predicted earlier and is estimated for the year to be <5600,000, which represents a ’trading loss of about 26 per (cent on the capita! invested lin those years.” ' What does that mean ’ Does it mean that the accounts for the years 1972 and 1973, as well as 1974, (are only now being drawn (up? What does “estimated for the year to be $600,000” (mean? Does that loss relate (to 1974? Or to previous years, and, if so, to what (year? The paragraph talks of (“year” and “years” without (precision. This circular letter is similar to others from Gemco that were too vague and euphemistic to assist investors. With this letter the Gemco directors included a statement they made to “The Press” — which was printed

on November 1 That statement was meant to be a 1 defence, but refuted nothing. Anybody who would care to compare the original article with subsequent statements bv Gem.o must become aware that nothing that was said then has been effectively denied since. If the Government wanted to spend monev to keep this enterprise afloat, it would be ■spending it not to protect investors' money — for there is virtuallv nothing left to protect — but to preserve the incomes of the directors of a private company who have failed to .keep properly informed the people who have invested in the business. If the Government is concerned about the maintenance of the beef herd — and a lot may be said for that — it should take over the herd and run it under completely new management. But above all, the people with the money at stake, should be given the facts to 1 be able to make the proper decisions.