Scott Group adjusts to liquidity conditions

Press, 5 October 1977, Page 43

Scott Group adjusts to liquidity conditions

“Suppliers have had to bear the burden of a year in which high interest rates made it difficult for businesses to borrow to meet their obligations,” says the chairman of Scott Group, Ltd, (Mr D. H. Scott) in the annual report for the year to June 30. “Consequently, credit control and debt collection was probably the year’s most difficult trading area for the company.” “It is expected that business conditions will be harder still over the next few years, and with this in mind the company has, with the disposal of some manufacturing units, improved liquidity and provided a base from which to improve earnings in the future,” says Mr Scott.

During the year Scott Group realised its in-

vestment in the Bondpanel division, which was involved in the manufacture of decorative wood veneered panels at Penrose. “This division had an indifferent profit record over recent years mainly because

of price control and import licencing.” “The division was earning well at the time the decision was reached, but the investment was considered to be unjustified in terms of future earnings.” “The stock and most of the plant has been disposed of, while the property will be used by other units of the Group,” says Mr Scott. “The roller door and structural steel departments of the Sincro division at Levin were also disposed of, and the remainder of that division comprising the stainless steel and production engineering department is being developed with better use of manpower and resources.

“The development of warehouse facilities has continued throughout the coun-

try, and a new office area on the Auckland property will be the centre of activities for the merchandising in the upper half of the North Island.

“The South Island area i warehouse in Christchurch i has been enlarged, and plans ■ are being completed for an : addition to the Dunedin : branch warehouse. In the , Wellington area a new i branch was opened at Upper • Hutt. “Earlier this year the • activities of the Sydney > subsidiary, Scott Dis- ; tributors, Ltd, were trans- ■ ferred to the New Zealand Export-Import Corporation, ■ which will service the mars ket for our products that ; has been built up in Austrai lia by the subsidiary. i “Although sales remained buoyant during the year, and 1 group sales increased 19 per : cent, constantly rising costs ■ undermined profitability, and ■ resulted in a decline in the rate of earning during the

second half of the period under review.

“Expenses were held in line with budget, but as sales failed by 3 per cent to reach the budget we had set, expenses increased slightly faster than the growth in gross profit as a result of the sales shortfall.”

“A new debenture trust deed was adopted during the year, after which a further placement of $400,000 of debentures was made to provide funding for the year’s budget, including repayment of maturing debt. As most of the funds required were for investment in working capital, various commercial bill facilities were arranged and much use was made of these during the period. “The proprietary ratio remains sound at 50.4 per cent of total assets, however, and the board of directors is reluctant to lower this by further borrowing. The proceeds of the specified preference issue will be used to take care of maturing debt and other budgeted ex-

penditure will be mainly funded from cash flow,” says Mr Scott.

The group’s net trading profit for the year to June 30, rose 16.3 per cent to $615,692. A tax-free profit of $15,352 ($217,854) was realised on the sale of assets,

making the total profit for the year $631,004, compared with $818,622 in -the previous year.

The profit was after providing $1933 less at $246,011 for depreciation but $47,692 more at $469,107 for tax.

Interest expenses on fixed loans rose $14,600 to $191,203. The borrowings were $266,405 higher at $2. IM. Net current assets rose $482,686 to $4.3M, and the current ratio rose from 2.2 to 2.4 to 1.

Shareholders’ funds rose $363,454 to $5,326,802, including steady issued capital of $1,745,150 in 50c shares. The earning rate on average funds rose from 11.4 per cent to 12.0 per cent. The dividend rate for the year was unchanged at 12| per cent, but the effective rate is 15.3 per cent, because the shares from the one-for-three bonus issue received the recommended final dividend of 4.25 c a share (8 J per cent).

The dividends for the year are payable tax-free in shareholders hands, and require $49,446 more at5267,590 which is covered 2.3 times by the trading profit (2.4 times previously).

At 65c the ordinary shares have a dividend yield of 9.6 per cent, and an earnings yield of 22.1 per cent. The price-earnings ratio is 4.5, and the net asset-backing was 152 c a share.