Farmers’ may make issue

Press, 12 November 1981, Page 20

Farmers’ may make issue

New Zealand Farmers' Cooperative Association of Canterbury, Ltd. might make a specified preference share issue in 1982, according to the chairman, Mr H. W. Revell, in the annual report. The sharp increase of $500,000 in the costs of borrowing noted in the annual accounts, indicated a heavy, undesirable dependence on short-term funds, and the need to review the group’s capital base, he said. “Such a review contemplates the likelihood of an issue of specified preference capital in 1982. If the board so decides, details will be announced at the appropriate time.” The review would also examine the justification of borrowing — especially high cost borrowing — to finance operations and services that looked good for the purposes of the group, but benefits were more apparent than

real when tested against the cost of funds consumed, he said. Mr Revell expanded at length on inflation, and one of its major by-products, interst rates, which is currently under some political pressure. He concludes that interest rates would not fall if the contest for funds continued and market forces were free of constraint. "Controls are possible and may have a limited effect if the unavoidable distortions are ignored, but they won’t do much to fix the real problem of inflation. “Only a huge increase in productivity can do that!” Based on present profit projections for the current year it was anticipated that the group would achieve a worthwhile profit increase after making the necessary tax provisions, Mr Revell said.

The managing director, Mr J. B. Buxton, said that N.Z. Farmers’ and Waitaki N.Z. Refrigerating, Ltd, were holding talks for common facilities at their respective meat works in Marlborough. The facilities included such support services as rendering and cold storage, to maximise the return on the companies' investments and control costs. “There is a compelling case for N.Z. Farmers’ to increase its activities in meat and this objective will be actively pursued,” he said. The company was working in conjunction with the Christchurch City Council and architectural advisers to determine how the Colombo Street department store site could be developed — the first stage being a multistoryed customer car park. The 1980-81 retail sales budget was surpassed and gross profit margins were satisfactory. However, exceptional costs dissipated much of the growth, many of these being “one-off” costs arising from integration of> Farmers’ and Haywrights. This had served to teach the retail division to concentrate on constant expenses audits, and a detailed study of store operations was being undertaken by management consultants, Mr Buxton said. The retail projections for 1981-82 were encouraging and a challenging budget had been set. As reported, the group net profit, after extraordinary

items and minority interests, fell 2.7 per cent to $2,267,944 in the year to July 31. An extraordinary loss of $206,490 was incurred from the sale of the Christchurch motor division and other rationalisations. An extraordinary profit of $520,624 was achieved in the previous year. Minority interests took $73,893 less at $10,174. Group sales rose 16.6 per cent to $168.8M, from which the gross profit on trading was 7.8 per cent higher at $30.8M. The pre-tax net profit increased 40.6 per cent to $2.5M. The final result was after providing $119,921 less for depreciation, and deferred tax $126,654 less at $BllO. A recommended final dividend of 5c a share gives a steady annual rate of 9c a share (18 per cent). In addition a special centennial taxfree dividend of 3.75 c a share has been recommended. Excluding the centennial payment of $375,755, the total dividend ■ requirement is $901,811, and it is covered 2.4 times by the profit after allowing for the preference dividend. Shareholders’ funds improved $962,097 to $23,569,152, including ordinary capital up $75,000 to $5,010,064 after the issue of 150,000 shares for the cumulative preference shares in Haywrights, Ltd. Working capital fell $425,893 to $15.5M, and the current ratio declined from 1.6 to 1.5 to one. The net asset backing a 50c share was 227 c (221 c previously).