N.Z. Equities: ‘We are not paper shufflers’

Press, 1 December 1987, Page 49

N.Z. Equities: ‘We are not paper shufflers’

NEILL BIRSS

New Zealand Equities, the listed investment company. is distancing itself from the “paper shufflers,” and emphasising its losses in the sharemarket crash were light — just under $6 million. A SSM provision for share price fluctuations has been wiped out and further losses of about SIM incurred. The group lost its 40 per cent of the eroded share portfolio value of Paladin International, of Hong Kong, whose shares lost SHKIOM in value. "For us, it’s business as usual, we’ve got a solid industrial base,” the managing director, Mr Peter Francis, told a press briefing before the annual meeting of the company in Auckland yesterday. The group was in good shape, he said. Mr Francis said New Zealand Equities bad a very limited exposure to world share markets. “Excluding our strategic investments in Asia Pacific and Paladin Investments, less than 3 per cent of our total group’s assets were share trading investments. The effect of losses which we suffered on this portfolio, net of

existing investment fluctuation provisions, amounted to only $1 million. Of the use of the share fluctuation account, Mr Francis said, “We had SSM salted away for a rainy day — and it rained.” The chairman, Mr Avon Carpenter, said the company did not have heavy investment in the sharemarket at the time of the crash, "nor did we hold a number of minority interests in other listed public companies.” The company is working hard on unloading the ballast from its prize acquisition, UEB. The new managing director of UEB, Mr Murray Higgs, aged 42, has cut four tiers of management out of the company in three months and aims to reduce the original 11 to five. The most dramatic changes have been at UEB’s head office, whose staff has been reduced from 200 to 12. This reflects the re-organisa-tion into a decentralised structure. The chairman, Mr Carpenter, said that when the company was still a minority shareholder in UEB it had asked for a list of UEB’s senior managers. "We got one with 220 names on it, all with the title of manager.” There were trimmings with the title such as cars and other benefits. Management had been decimated in the reorganisation. Mr Higgs, a commerce graduate and former deputy trade commissioner in New York, has come to UEB from Fisher and Paykel. He described UEB as asset rich, with “a big chunk of them” in considerable commercial property, Auckland. UEB is in carpet manufacture as well as packaging,

with the Bremworth brand. The carpet-manufacturing section of Bremworth had been infected by a cost-plus mentality, Mr Higgs said. As an exporter, UEB had suffered from fluctuations in the New Zealand dollar. This was still high, but seemed to have flattened out. Mr Francis, the group managing director, disputes assertions that UEB is losing money. In its 1985 financial year it made S3OM, in 1986 SIOM, and in the current financial year it will make close to S2OM. UEB’s assets are worth about S4OOM. Analysts’ suggestions that it was losing money might have been caused by their overlooking it had contributed only three months profit to the latest result, Mr Francis added. He agreed that the total liabilities of the group were about S3OOM. A big chunk of this was trade creditors. In three years, N.Z. Equities has built assets in excess of half a billion dollars. The company disputes it is highly geared in the traditional sense. “We are comfortably geared, certainly not overexposed,” said Mr Francis. However, the company is highly geared on equity sense. The group assets of more than SSOOM are controlled with capital funds of S2OOM. New Zealand Equities listed in 1984 using the shell of the Christchurch readymix concrete group, FarrierWaimak. As previously reported, New Zealand equities trebled its profit to $6,050,000 for the year ended June 30. Mr Francis said this did not reflect the capabilities of the group, and held out hope for something "more representative” in the next financial year. The chairman, Mr Car-

penter, made a spirited attack at the meeting on Rogernomics, specifically high interest rates and the floating dollar, both of which contribute to a tough environment for UEB. Mr Carpenter said interest rates were crippling. He said they were destroying “our competitiveness, and if the situation continues, they will destroy many businesses.” In morning trading one day last week the New Zealand dollar rose two and-a-half cents against the U.S. dollar because an American bank bought half-a-billion New Zealand dollars. Mr Carpenter believes the bank saw an opportunity to profit by buying when it could see others in the market would be short (selling). In the 12 months since last December the New Zealand dollar moved from 75 to 92.4 Australian cents, a shift of more than 20 per cent. Overseas business people asked him how long a company could survive under New Zealand’s "penal” interest rates. "The answer to that is very simple — not long — and unless the Government recognises this fact quickly and adopts a more practical approach to the realities of the situation, the real activities upon which this country depends for its livelihood will be wrecked.” The economic climate was far more important than the recent plunge in sharemarket prices, Mr Carpenter said.