Associates help A. S. Paterson

Press, 4 August 1977, Page 20

Associates help A. S. Paterson

Commercial

Most of the profit increase for A. S. Paterson and Company. Ltd, in the year to March 31, came from investments in associated companies, says the chairman (Mr G. P. Shirtcliffe) in the annual report.

The year began with holdings in three companies, — Nylex Products (N.Z.), Ltd, (25 per cent); Bonds (N.Z.), Ltd, (22 per cent) and Fermentation Industries (N.Z.), Ltd, (46 per cent) — whose results have been included on an equity basis. Dividends received and the share of retained profit from these companies totalled $514,000 compared with $126,000 previously.

The 1976 calender year saw improved trading for Nylex Products, and a profit more in keeping with the funds employed. For the previous year, the group brought to account a loss for this associate.

The directors were prompted to dispose of the remaining involvement in the New Zealand plastics industry. Mr Shirtcliffe says. Firstly, it was felt the group carried an undue proportion of minority investments, which give rise to problems of control and at the extreme, financing. Secondly, the profits of Nylex had been erratic, and the group had been exposed to relatively high risks. Thirdly, Nylex, it was considered, would continue to be a heavy drain on the groups cash resources. For the five

years to March 31, 1976.! most of the profits have been capitalise*! and dividends in that period amounted to little more than $30,000, he says. The board recognised that if a sale of the holding could be made at a realistic figure, the resulting surplus over book value would be a useful addition to the equity base. This sale was finally negotiated with Fletcher Holdings, Ltd, for SI.3M, and in addition a cash dividend of $205,000 was received from Nylex for the year to December 31. Since the end of the financial year, the group has raised its holding in Bonds to 49.9 per cent. The cash was from the Nylex sale, after the board considered either raising or selling the holding in Bonds. It was thought that the group should have at least one major interest outside food processing, and after a study of the effect on earnings if the investment in Bonds was made it was decided to proceed, Mr Shirtcliffe says. “Bonds has already announced a gratifying lift in profit,’’ ho says. Fermentation Industries had a better year, but because of its size is a relatively small contributor to the overall profit.

The result does not include the 26 per cent holding in A.B. Consolidated Holdings, Ltd. The dividend paid by the company was credited to the cost of the investment. "Our main business — the

I processing of New Zealand grown wheat into flour and the use of flour in the baking of bread and other products — has produced a modest increase in profits.

After the elimination of the wholesale grocery division in the previous financial year, there has been a rise of 32 per cent in sales. Part of this increase comes from four subsidiaries acquired in 1975. The quality of wheat and the resultant flour quality has caused problems this year, and contributed to a lower profit per dollar of sales.

Group sales revenue rose 7.8 per cent to $27.5.M, but costs of sales rose 7.3 per cent to $25.7M, increasing the pre-tax trading profit 15.9 per cent to SI.7M. Dividends received rose $239,463 to $274,804. Earnings before tax rose 30.6 per cent to S2.OM. After providing $67,370 more for tax at $707,370, excluding $lO,OOO deferred, and minority interests of $1719 group profit from trading and dividends rose 46 per cent to SI.3M.

The trading profit was also after providing $132,394 more at $717,943 for depreciation, and interest expenses $110,600 higher at $314,165. Retained profits, less losses, in associated com-

pames more than doubled to $240,109, and equity interests, excluding exceptional items rose 57 per cent to SI.SM. The sale of assets realised a surplus of $622,378, compared with $89,014 in the previous year. The total equity surplus attributable to shareholders ro-e $1,090,307 to $2,162,645. The recommended final dividend of 9c a share, taxfree, makes the rate for the year 14c a share (14 per cent) compared with 12 per cent previously. The dividend for the year requires $547,173, compared with $389,417 previously, and it is covered 2.4 times by the SI.3M profit, before equity interest, and capital profits.

Net current assets rose SI.SM to S2.OM but the current ratio only rose from 1.1 to 1.4. Shareholders’ funds rose $2.6M to 510.9 M, after an increase in capital of $590,322 to $3.9M from the conversion of notes during the year, and an increase of $1,989,156 to S6.IM in retained earnings.

The equity profit gave an earning rate of 16.2 per cent on average funds. At 155 c the ordinary shares had a dividend yield of 9.0 per cent and an earnings yield of 25.5 per cent, based on equity profits. The price-earnings ratio was 4.