Rothmans profit inappropriate

Press, 19 October 1976, Page 26

Rothmans profit inappropriate

PA Auckland The profit of Rothmans Industries, Ltd, did not appear to bear an appropriate relationship to the increase in sales volume and value, says the chairman (Mr K. D. Rutland) Jn the annual report.

! Gross revenue rose 18.5 per cent to 5104.2 M in the June 30 year, but group net profit, although a record, was up only 11.1 per cent to $3,227,982. The return on higher shareholders’ funds was 15.7 per cent, compared with 16.8 per cent last year. In spite of continuing improvements in efficiencies and other cost savings throughout the group, price stabilisation regulations had again prevented a return on shareholders’ funds sufficient to finance the effects of inflation, pay an adequate dividend and provide an appropriate transfer to the reserve. The accounts showed a profit slightly higher than the preliminary figure of $3,210,876 — a gain of $321,509 which did not include a non-recurring capital profit of $70,837. Borrowing money to fin-

lance inflation made no more sense in commerce than it did ■ for an individual or a country. To be forced into such a situation by profitcontrolling regulations was a dangerous form of Government harassment, Mr Butland says. It is encouraging to see the urgency which had been given to investigations into the reform of the Commerce Act since the change of Government.

Sales of tobacco products continued to increase. It was too soon to assess accurately the effect of the increase in excise duty which was levied on all tobacco products after the close of the year, but early indications were that it was unlikely to be as severe as expected. The outlook for the group’s other products and services was healthy and the demand strong. Increased emphasis was being placed on exports, which were becoming a very important outlet for a number of Rothmans companies. New avenues of diversification were continually under consideration.

Mr Butland says that while the price freeze would, temporarily affect the profit of most companies, any reduction in the rate of inflation which it brought must provide some compensation. “Although no responsible board could predict an easy

year ahead, a growing and widespread recognition that the pursuit and achievement of increased profit is a legitimate and' necessary objective in business prompts the directors to look forward to the coming year with confidence and a certain optimism.”

Some price relief in the second half of the year is reflected in the results.

Rothmans now owned 76 per cent of Corbans Wines, Ltd, and beneficially' owned a further 4 per cent through its half-share in A. A. Corbari and Sons, Ltd. The inclusion of Corbans in the consolidated accounts has raised assets from S33M to more than S44M, while the issue of 1,235,000 shares in the Corban transaction had increased paidcapital $617,000 to $11,019,951. Corbans achieved record sales during the year and the demand for its tal’.e wines far exceeded available stocks. Since the end of the year demand for the company’s products had increased.

Extra supplies of grapes were secured during the year and the first yields were obtained from the group’s wholly-owned subsidiary, Gisborne Winegrowers, Ltd. Production and sales of tobacco products by Roth-

Imans Tobacco Company, : Ltd, and Rothmans (N.Z.), Ltd, reached record levels. Develop- -t has proceeded with a number of nc 7 cigarette and tobacco products. Agreement was concluded with R. J. Reynolds Tobacco Company of Winston-Salem U.S. (largest cigarette manufr .turer in the U.S.) for Rothmans to manufacture and market its principal cigarette brands.

A licensing agreement was concluded for Rothmans to package and market the Amphora brand of pipe tobacco, one of the largest selling Dutch pipe tobaccos — and an agreement c...apleted for manufacture here of Schimmelpenninck cigars. The profit was after providing $214,508 more for depreciation at SI.2M but $279,848 less for tax at SI.BM.

The earning rate on capital improved from 28.1 per cent to 29.3 per cent and return on shareholders’ funds was 15.7 ner cep* compared with 16.8 per cent previously. Shareholders’ funds were up $4,445,994 at $22,666,237.

Minority interests share of the profi' ere up $254.7(4 at $261,083. Term liabilities were $1,700,995 higher at $6,665,541.

--’-14 per cent (7c a share) dividend requires $1,542,792.