Hallenstein to adopt CCA

Press, 26 October 1982, Page 31

Hallenstein to adopt CCA

PA Dunedin Hallenstein Bros. Ltd. will use the current cost accounting (CCA) convention in next year's annual report, as required by the New Zealand Society of Accountants, said a director. Mr P. G. Mander, at the annual meeting. He made the announcement when seconding the adoption of the annual report and balance sheet. Hallenstein appears to be the first listed company to make the commitment since the society issued the rule for the financial year beginning April 1. Mr Mander said the purpose of CCA was to recognise the change in the purchasing power of the dollar during a financial year. The cost of replacing raw materials, stock, plant and equipment had to be considered in terms of inflation, not the historic cost convention which had reigned for 500 years. "Some international companies have stripped nearly all their profits under CCA.” Mr Mander said. "Some companies which adopt CCA could be paying dividends although they have reported a loss." However, the effect of inflation was recognised by prudent companies. They had been putting an increasing proportion of profits into retained earnings, some putting by as much as two-thirds in comparison with the orthodox 50 per cent split. “You will be pleased to note that your company has retained sufficient profit to account for the effects of CCA. unlike some companies profits you may be seeing soon,” he said. The meeting approved the recommended final dividend of 11.5 c a share, which increased the annual dividend

rate from 19.5 c to 20.5 c a share.

At the meeting, the chairman, Mr E. Friedlander, attacked unsympathetic Government policy towards the retail industry in relation to inflation, taxation, population and the price/wages freeze. Mr Friedlander said that Hallenstein's turnover was ahead of budget and substantially ahead of inflation. The improved turnover was expected to be maintained in the second half of the year, thanks to spending power increased by the tax cuts. Mr Friedlander accepted plaudits from the floor after a bumper year which saw the group net profit increase by twice the rate of inflation (36 per cent to $2,374,193) and sales beat inflation with a 19 per cent increase to a record $4O million. "In Hallenstein's we are rather more conscious that its an ill wind that blows no good and the early onset of winter certainly helped our performance,” he said. Tight control kept expenses increases to 17 per cent and general efficiency was shown by the improved profit-to-sales ratio of 5.9 per cent (5.2 per cent). “While this performance ranks us as leaders in the retail industry it has been in spite of the almost laissezfaire policies of the Government towards retailing, which have for many companies made trading a matter of bare survival." Mr Friedlander said. Retailing was being called on to bear an unfair share of the burden of the freeze. The effect was not only to freeze the industry but ’ to shrink profits. There was a high proportion of imported content in the apparel sector and although the increased cost

was permitted to be passed on. the profit in dollars and cents was frozen on the old prices. "The effect is to progressively reduce our profit margin as a percentage of the retail price of the goods." the chairman said. “If this were to continue beyond June next year the trading surpluses would become insufficient to replace stocks, with the result that the retail industry generally would become increasingly dependent on borrowed funds. “While interest percentage rates may be frozen we have to face the prospect of servicing successively higher overdrafts to maintain stock levels. The whole situation is

one that compounds itself in all directions. “The only fair answer is to treat retailers the same as hanks and finance institutions and to freeze profit margins on a percentage basis instead of actual dollars and cents," Mr Friedlander said. “How would banks function if they had to provide inflation-swelled overdrafts at the same interest cost to the borrower? If that sounds a silly situation it is where we find ourselves with this price freeze." Mr Friedlander said insult was added to injury as politicians talked as though the retail industry to a man was trying to elude the freeze and rip the public off.