Cautious view by Deanes

Press, 15 June 1978, Page 14

Cautious view by Deanes

f Deanes Industries, Ltd, 1 has found itself in, a fiercely competitive trading situation in a shrinking market, and /‘this must cut deeply into profitability ...” the ! chairman (Mr T. I. Perry) says in his review with the a' nual accounts. The second half of the year under review showed signs of a reduction in the rate of profitability, he says, and this trend has continued. But the company expects a reasonably successful half year to August 31. As previously announced, last year’s net profit rose from $489,772 to $1,287,180 (when adjusted for 12 months $1,188,166). When this profit was announced, the directors warned investors to keep it in perspective — a commendable action — because of some unusual circumstances. The chairman’s review includes an extensive discussion of the factors which affected the profit: some of the more important were the vertical integration of the Fuller and Rangiora clothing companies, some relief from the previous price freeze, a return to profit by Greers Industries, and less absenteeism and markedly reduced staff turnover. Mr Perry also says that the big profit increase last year merely restores the group to the relative-profit

position it achieved until three years ago; a graph with the accounts shows how the profit-to-sales ratio deteriorated between 1975 and 1978, and how the latest year is merely a return to historical earning rates. However, the return on shareholders’ funds of 24 per cent is the highest in the company’s history. The result was after providing $289,295 more for tax at $488,031, and $29,164 less for depreciation at $118,894. Because of last year’s 2:3 bonus issue, the effective rate of dividend this year is 15.3 per cent: it is covered 6.3 times by the profit. The balance sheet discloses a very strong financial position.

Net current assets increased more than SIM to S4.BM; the current ratio is 4.0 to 1. Ordinary shareholders* equity is 57.9 per cent: shareholders’ funds increased from S3.BM to $5.4M, comprised of s2m ordinary capital, $99,275 preference shares (soon to be converted), $486,566 convertible specified preference shares, $857,977 capital reserves, 52.2 M revenue reserves — intangibles to be deducted are $247,393. The 100 c shares last sold at 170 c, for a dividend yield of 7.1 per cent and an earnings yield of 33.9 per cent. The price-eamings ratio is 3.0, and the net tangible asset backing 256 c.