N.Z. United expects modified restraint

Press, 7 July 1977, Page 12

N.Z. United expects modified restraint

Doubts whether the dividend restrictions will be completely lifted by the Government on August 14 are expressed by the chairman of the New Zealand United. Ltd Corporation (Mr F. H. Renouf) in the annual report.

Whether complete freedom from dividend control will be restored is open to conjecture, he says.

“However, in the present economic climate it is considered that some modified form of dividend restraint may be continued as part of an over all package.” The directors are mindful of the need to provide shareholders with an equitable income return from their investment.

“The present 15 per cent dividend is covered a healthy 2.7 times by available earnings and scope clearly exists for a higher distribution. “This indeed would have been recommended had circumstances permitted. “Given normal circumstances it is considered that a group like N.Z.U.C. can achieve a satisfactory level of growth from internal retentions based on a twice covered dividend.”

Mr Renouf says the removal of interest rate controls is a welcome move. However, the ability of the

official market to compete effectively is inhibited by a; lack of suitable short-dated public sector securities. “Further, the total investment base is now clearly too narrow to enable official • dealers to play a worth-while role in the mobilisation of-short-term funds.

“Unless some radical changes are made, the official market —once an integral part of the systemfaces an uncertain future,” Mr Renouf says. He notes that deposits have shrunk from SSOM last year to S2BM in April.

“The Reserve Bank is currently evaluating open market trading, which could abolish the fixed rates for Government stock purchases and sales.

“If the system ultimately adopted is the same as the Australian one, then official dealers may be given some modest ray of hope.” The Government policy on its own stock issues is an interesting siuation, leading the New Zealand United Corporation to maintain a shortdated and highly liquid portfolio of securities, he During the year under review the New Zealand United Corporation underwrote, or sub-underwrote, 17 issues, mostly of non-re-nounceable specified prefer-

ence shares. Only one commitment was incurred. Mr Renouf says it is clear that continued policies of restraint will be required to bring the economy into balance.

In this context it was difficult to see a buoyant sharemarket in the immediate future. Company results were, however, mostly disclosing sound profits with potential for increased dividends when permitted, and this should act as a buffer against any further downward movement in share values, he says.

As reported, group net profit rose 9.5 per cent to a record $647,684 in the year to March 31, representing a return of 40.9 per cent on ordinary capital (37,3 per cent previously) and the earning rate on ordinary average shareholders’ funds was 15.2 per cent (15.4 per cent). The profit included $49,356 from an associate company, compared with $37,528 previously.

Income for the group rose 124.7 per cent to $3.4M. The profit was after providing $389 less for depreciation at $15,156, but $14,860 more for tax at $233,507. Interest payments on fixed loans and debentures fell $7329 to $29,840, but payments on other borrowings rose $615,495 to $2,040,633. Total shareholders’ funds rose $369,369 to $4,566,056, and comprised steady issued capital of SI.7M, and steady capital reserves of $297,162. Revenue reserves increased $354,868 to SI.9M. Overseas borrrowings rose $2,804,648 to $7,323,312. Working capital increased $162,798 to $1,421,528, and the current ratio rose slightly from 1.0 to 1.1 to one.

Term liabilities rose $198,350 to $325,700, and deferred taxation was $164,614 higher at $467,265.

The recommended final dividend of 9c a share, makes a steady 15c a share (15 per cent) for the year, and is payable on July 22. The dividend takes $234,000. The ordinary shares last sold for 310 c for a dividend yield of 4.8 per cent and an earnings yield of 13 per cent. The price-earnings ratio was 7.7.