Commerical Challenge profit cut 52p.c. in half-year

Press, 23 February 1978, Page 22

Commerical Challenge profit cut 52p.c. in half-year

The group net profit of: the Challenge Corporation,: Ltd, was more than halved;

in the six months to December 31, compared with the previous corresponding half year.

The profit after tax, including the results of associated companies, and profits on disposal of surplus assets, and after allowing

half of the after tax benefit of the trading stock valu-

: ation adjustment, fell $3,680,000 or 52 per cent to $3.4M. Group turnover fell 2 per cent to $359.7M.

! An increase in gross earnI ings of 10 per cent was insufficient to cover increased I costs. I Interest expense increased > 53.7 M, and staff and other j costs by 55.4 M, despite a I decline in the number emI ployed by the group. I An unchanged interim ; dividend of 5c a share (5 per i cent) will be paid on March [27. It will be tax-free in shareholders hands. I “Because of the late seaison, and some increase in j charges the rural subsi- : diaries would pick up part lof their profit decline in the; 'second half of the year. The i group could also expect sus-| ! tained performance from the! finance subsidiaries. “In a contracting economy, with high levels of inflation it is impossible to be optimistic about any improvement in trading and manufacturing. “Profits for the full year will be substantially down, but proportionately the drop should not be as great as in the half-year result,” says the chairman (Mr R. R. Trotter). “The rural sector suffered I from a late and dis-

appointing season in many districts. Results were also

adversely affected by the 1 high costs of funds borrowed for on-lending to farmers which could not be ! fully recovered. “In New Zealand, Wright-: i son NMA is by far the larg- < est supplier of seasonal fin-' i ance to farmers. Legislation amending the Money Len-li ders Act was finally passed;' in December, and will allow 1 !

[an improved recovery of costs in the second half of 'the year.

“Our position is being greatly aggravated by the very heavy demand for fin-

lance from our farmer I clients. This has been [brought about by the alarmling inflation of their costs [with a consequent decline in profitability.

“A further factor is the substantial finance we have

had to find for development programmes, encouraged by the Livestock Incentive Scheme. “There is some evidence

of a decline in the proportion of rural lending by some of the traditional longjterm lenders which makes refinance difficult,” he says. “We, along with most of the industry have reached the limit of our ability to prudently finance a further increase in our advances. We will have no option but to limit seasonal advances and particularly funds for capita] and development expenditure. “From a national point lof view it is vital that i development programmes [are not impeded and that [farmers are given further [help and encouragement. Urjgent and positive action is essential and we have made representations to Government in this regard,” Mr Trotter says. “Wrightson NMA will benefit from an increase in wool and livestock charges, granted by the Commerce Commision, which came into effect in January. “Wrightcars increased its turnover, and the total number of units sold. However, increased costs, and the totally unrealistic margins on new vehicles resulted in

a fall in profit. “Considering the difficulties of the motor industry, they did well to hold this fall to less than the group average. “Rationalisation is taking place within the motor industry to adjust to the reduced market. Smaller country towns can no longer sus- ■ tain several full scale deal-; erships of the type we have! 'operated, and the closure oil

some outlets has been announced.

“The results from the manufacturing and trading subsidiaries of the group reflected the difficult economic conditions, serious inflation of costs, and showed a sharp decline. “The finance sector con- : tinned to grow with all companies increasing net earning. This area of activities was now making a most valuable contribution to group results,” Mr Trotter says.

I The profit was after providing $3,083,000 less for tax lat $781,000, after allowing ■for a rebate of $741,000. Minority interests in the profits of the group’s subsidiary companies fell $BOOO to $7OOO. The group’s equity in the profits of associate companies fell $276,000 to $544,000.

Profits on the disposal of assets were down $878,000 to $243,000. i

Gold lower Gold slumped from yesterday’s summits on the London bullion market today. The metal slipped SUSI.2O to close at $181.25 an ounce.

The fall was due to a partial dollar recovery which slowed towards the close, dealers said.

But gold’s decline was maintained by a small pocket of profit-taking in a moderate market.