Directors learnt too late of expenses

Press, 26 November 1981, Page 21

Directors learnt too late of expenses

PA Wellington The Clyde Group. Ltd, annual report reveals that after the balance date the directors discovered that there were “substantial amounts of expenses which had been deferred, and not brought to charge in the monthly figures.” The chairman (Mr 0. R. Gunn) says “The board has been most concerned at the dramatic reversal of profits caused by taking up these expenses, and as the position was not made apparent until after the balance date, it was not possible to effect any remedial measures in the period under review.”

“However, all known costs and expenses have been provided and stock reserves maintained,” he says.

The Lower Hutt-based machinery and vehicle distributor had already announced that net profit for the year ended August 1 was $119,000 compared with $549,000 in the previous year. This was on sales increased from $18,017,000 to $19,298,000. The dividend is being maintained at 12 per cent, requiring $270,515 ($241,800 in 1980) and

is not covered, by the net profit. (0.4 as against 2.3 in 1980).

Mr Gunn said that the results for the year are extremely disappointing. The first half of the year produced a profit of only $37,000, but improvements were experienced in the trading months of February and. March, with projections of a profit of about $400,000 for the full year. Figures submitted to the board supported the projections, Mr Gunn ados. But then came the late expense adjustments, resulting in a reduction of the profit to the figure stated in the accounts.

Regarding the dividend. Mr Gunn says that the directors gave serious consideration to the recommendation of a final dividend (7c a share) in view of the disappointing result. “However, the board is conscious of the fact that shareholders rely on dividends as their return for providing the funds to enable the company to exist. In consultation with the group’s bank (Commercial Bank) the board decided to recommend

a final dividend to the annual meeting (December 11). With shareholders' funds totalling $4,313,000 ($4,519,000 in 1980) the earning rate drops from 12.4 per cent to 2.6 per cent. Earnings a share are also down, from 24.3 c to 2.9 c. At balance date the 100 c ordinary shares had a net tangible asset backing of 189 c (199 c and the equity ratio slipped from 40.5 to 35.8 per cent. The current ratio (current assets as against current liabilities) drops from 1.6 to 1.4.

A note to the accounts shows that there are two holders of more than 5 per cent of the issued voting capital (Moana Estates, Ltd, Nelson, and Overseas Nominees, Ltd. Wellington). Looking to the future, Mr Gunn said that a positive prediction is clouded by many issues. “The board is confident, however, that it has the products, staff, and facilities to supply the market and hopes that the efforts that have gone into the restructuring of the group will bear fruit in the current year.