D.R.G. regrets having to borrow to finance its growth

Press, 1 April 1980, Page 20

D.R.G. regrets having to borrow to finance its growth

' pA Auckland It would be better' if D.R.G. (New Zealand), Ltd, could generate its own savings to provide capital for growth, ' the chairman (Sir John Marshall), says in the annual report. He begins his review by noting that, although calendar year 1979 met interim expectations, and after-tax: profit increased 18 per cent,: this must be set against a national inflation rate for the year of 16.5 per cent “to put it in proper perspective in real terms, he said, “we are just keeping ahead of inflation.” ■ He ends by saying . that, while 1980 has started well, it is difficult to predict a definite position for this year. ' . <■/

D.R.G. has a strong management group and sufficient resources and credit lines to

ensure it can borrow what it [needs to keep, growing. He .adds: “It would be better if !w.e could generate our own savings to provide capital for growth?’. As' reported, D.R.G.- in its latest year had a tax-paid profit of $1,681,000; profit before tax rose 15 per cent to $2,913,000. Turnover was 23 per cent higher at $23,833,000. The directors have recommended a final dividend increased 0.25 c (0.5 per.;cent) to 3.625 c, making ' 7.25 c for the year; the interim was also increased by 0.25 c. \ Sir John reports that packaging operations had a much improved year, with a substantial part of the improvement coming from specialty packs and containers for exports. Indeed, he said, these operations did better than expected — “but management is fully aware that the capital intensive nature of the packaging business

needs , good profits to ensure the business continues to grow.” The stationery division recorded profits at similar levels to 1978. An industrial dispute resulted in a profit loss of $BO,OOO because the division was unable to regain the sales lost. Associated companies improved market share and profitability, and acquired Business Equipment, Ltd,, which was expected to provide profitable growth in the future.- --

■r Because , of the present high inflation and increasing costs, Sir John doubts that D.R.G. will -increase profits this year to the same extent as in 1979. He thinks the inability of the company to generate cash means it will need to resort to borrowing for day-to-day operations, and the borrowing is likely to be expensive. He is critical of the effects' of .taxation and competition price-cutting reducing companies’ ability to preserve working capital or build reserves, to meet the strains of replacing stocks and plant.