Canty Dairy Farmers gives full bucket

Press, 28 December 1988, Page 25

Canty Dairy Farmers gives full bucket

By

ROY HASSELDINE

Canterbury Dairy Farmers has just released its accounts for the year ended August 31 — its fortyfifth annual report, but its first in a deregulated environment. The 1987/88 year was also the last in which it was subject to the special rules governing the taxation of cooperative companies so that in more ways than one it was a transitional year. Transitional or not, CDF has turned in a splendid result. Comparisons with earlier years when the company operated very largely under the New Zealand Milk Board regime are not entirely relevant. Nevertheless, the company has managed to lift its pay-out to suppliers both in absolute terms and in cents per litre of milk supplied. After making pro Vision for an end of season payout of $1,534,818 to suppliers, the company is able to retain net profits of $2,258,265 for its capital expenditure programme. The profit figures include $508,444 being deferred profits from the acquisition of a subsidiary in an earlier year as well as a deferred tax credit of $237,546. At first sight it may seem strange that a company can report a tax credit before it falls under the normal tax regime like other corporates, but the accounting treatment is consistent with tax allocation procedures adopted by the accounting profession. rne company has received a clean, unqualified audit report. The company has a healthy proprietary ratio of 63.9 per cent. Its return on shareholders’ funds (10.9 per cent), and net profit ratio (4.1 per cent) are, as the report rightly states, influenced by the pay-out policy determined by the directors. The note to the accounts indicates that these two ratios are both lower than might be expected

from a company which was not a co-operative. Maybe so, but it is equally a fact that numbers of companies in New Zealand would have been glad to have been able to report such figures in their 1988 reports. Since shareholders’ funds at $13,864,724 reflect revaluation of properties, the 10.9 per cent return, even if accepting the validity of the company’s comment, is certainly respectable. Like many other co-operatives, the paid-up capital at $115,939 is but a trivial proportion of total shareholder funds — virtually all of which arise from capital and revenue reserves built up over many years. This situation is linked with arrangements for surrender of shares when suppliers leave the industry. There is now an awareness in the dairy industry that this pattern of low paid-up capital may need to change. Mr Bob Spark, CDF’s chairman, refers to this matter in his report and the company is seeking approval from shareholders to amend its articles to allow for a greater measure of paid-up capital, relative to total shareholders’ funds.

Although CDF had negative working capital of $955,983 at balance date, this need not cause concern for at least two reasons. First, the end of season pay-out is a special situation not typical over the whole year, and second, the town milk operations, as well as other activities, yield relatively stable and predictable cash flows leading to effective funds management. One imagines that CDF’s bankers must view a company in this situation and with a healthy proprietary ratio with a considerable degree of assurance compared with many others of its corporate clients. The chairman’s and chief executive’s reports are models of their

kind. Forthright, succinct, positive, but without being over the top. There is no attempt to shift responsibility (no need to in view of the excellent results), and a refreshing touch of candour in acknowledging a disappointing result from one of its exporting activities.

The format of the accounts is good. Lay-out, clear bold print, pleasing use of colour in bar and pie charts and photographs of company products and activities all combine to yield a visually satisfying presentation, as well as assisting interpretation of the data presented. One cautionary note is needed. Although pay-out in cents per litre for all milk supplied (quote and surplus) has increased in the last year (from 20.007 to 25.84), four years earlier suppliers were receiving 20.05 cents per litre. So with the impact of inflation in the intervening years, farmers’ returns in real terms will not have kept pace with inflation. So the company has every incentive to build upon its success in reversing earlier seasons falls. CDF is a company which touches the lives of nearly everyone in Canterbury, and well beyond with its supply of cultured and UHT products to other parts of New Zealand and overseas. One of its trucks bears the inscription, “Make it with Milk.” In terms of profit, products, progress and general contribution to the economy of Canterbury, CDF is doing just that. The air of confidence is unmistakable and exemplary. It is certainly making the grade. Roy Hasseldine is a financial consultant and former dean of commerce at the University of Canterbury. Mr Hasseldine works part-time at CDF as a consultant, but this review is based entirely on the published accounts plus information that is freely available.