Firestone shareholders ask for more pay-out

Press, 17 February 1984, Page 9

Firestone shareholders ask for more pay-out

Business editor Shareholders of Firestone N.Z., Ltd, put the bite on directors yesterday for some of the cash the company will accumulate this year. The chairman, Mr R. L. Deal, told the annual meeting in Christchurch that the Papanui factory was working six days a week trying to rebuild rundown inventories and satisfy increased demand for tyres. He also said that foreign exchange losses on loan payments in the last year of ?L2 million reduced aftertax profits by 14 per cent. The borrowings had now been repaid, so those (and the interest) would not be recurring. Shareholders at the meeting had been doing their sums. They calculated that the effects of the increased sales, and the fact that there would be no interest payments on overseas payments and no exchange loss on these, would take this year’s earnings to more than $6 million compared with last year’s $4 million.

A shareholder asked whether bonus issues could be expected.

The finance director, Mr Barry Millar, said this was an issue which could not be fully discussed at the meeting. “It is always up for consideration. We will be assessing cash requirements and resources and deciding what we can do for shareholders.”

Another shareholder, Mr J. Lanigan, expressed dissatisfaction that the company was not making a better return on investment. Similar firms, such as Dunlop N.Z., Ltd, were paying higher rates of dividend to their shareholders.

He said he accepted that last year had been a poor one for Firestone, but it should soon be able to make a bonus issue.

Mr W. R. Hocking, a director and a former Wellington sharebroker, said the board tried to pass on 50 to 60 per cent of the profits each year.

Mr Gordon Orr, a Christchurch investment manager, asked whether the company would distribute 40 per cent of the tax-paid profit this year, given that it would be a good trading period. Mr Millar and Mr Hocking told the shareholders that the company needed to retain a considerable portion of the earnings to upgrade equipment at the factory. With uncertainty because of the Industrial Development Commission study, the factory must build up its plant so that it could economically produce high quality goods and meet the competition that would come from Asia. Mr Millar also defended the pay-out of $1.522M in the year to October 31 on an after tax profit of S4M, by drawing attention to the current-cost financial statements in the annual report. These state that shareholders’ net income before taxation was $1.533M, and that $1.522M was paid out. The background to the dividends-versus-retained-

profits discussion is that 83 per cent of the company is owned by the parent firm, the Firestone Tire and Rubber Company, of Akron, Ohio.

The New Zealand shareholding was established in the early 1970 s at the behest of New Zealand politicians. Until fairly recently the company had been returning only average results, affected by poor industrial relations and changes in the tyre market. Now, however, with new plant, an industrial “peace pact” with the unions at the Christchurch plant and some new management techniques, such as quality circles, the firm seems to have turned the corner. In its financial links with the parent American company, Firestone New Zealand has an extra funds pipeline in the payment for access to technology (SI.3M in 1983). The company is indebted to the parent company’s research for new tyres and for day-to-day

production techniques, but the value placed on the access must always be a fairly theoretical sum. At present the Firestone factory at Papanui was working at close to maximum production, and new demand must be met from more equipment, greater labour productivity, or more staff. However, the overhead contributions will be increasingly diluted by the increased production. Uncertainty about the future is provided by the present importing of tyres under a system in which there is virtually an auction for import licences. It is hoped that the premium paid for the licences will help establish a tariff to control imports as the quota system is phased out. In his address to the meeting yesterday, the chairman, Mr Deal, said the 1983-84 year was shaping up as a period of high demand both in the motor-vehicle assembly and tyre industries. “Based on the very successful products developed by Firestone in Europe and the United States we have been able to adapt and produce a much sought after range of tyres,” he said. Mr Deal said the present demand for Firestone tyres meant that the company’s inventories were low, making it difficult to satisfy all its markets.

"Currently we are working the factory six days a week in an attempt to rebuild the inventories and satisfy the increased demand.”

Mr Deal said Firestone was investigating ways to increase its production level, either with further equipment or with permanently staffed shifts. During 1983 Firestone had a very difficult first half but that was followed by a sharp improvement in second half trading and the group finished the October year with net profit at S4M only 8 per cent down. Mr Deal said that foreign exchange losses of SI.2M effectively reduced after tax profits by 14 per cent. “But for this fact, largely caused by New Zealand’s formal devaluation in March, 1983, the profits would have been 7 per cent ahead of last year, approximately matching the rate of inflation.” (Firestone has now eliminated all borrowed funds). Mr Deal said the importance of the local vehicle assembly industry in creating volume for the local tyreindustry could not be overlooked. “Until the Government decides on the direction of the motor-vehicle assembly industry we cannot plan ahead to the extent we would wish.” Mr Deal said Firestone was investigating new projects to extend its product range and reviewing the factory operations to further improve efficiencies. Next month it would open a

Next month it would open a tyre service centre on the North Shore of Auckland on a main arterial route which would prove to be a “substantial outlet.”

“We are investigating three sites in Wellington for the purpose of choosing one site for another new service centre.” The shareholders ratified the recommended dividend of 8c a share, making a total of 15c for the year.