CARDBOARD PRICE

Dominion, Volume 33, Issue 137, 5 March 1940, Page 9

CARDBOARD PRICE

JWhakatane Paper Mills Inquiry INTERIM JUDGMENT Accountants To Go On With Investigation The Price Investigation 1 ribunal .which recently heard the application ,o£ Whakatane Paper Mills, Ltd., (for permission to increase its prices for cardboard, yesterday gave an interim judgment on four points:— The tonnage output to be regarded as the standard. The fair or true value of the iuvest;meut in the mill, with its adjuncts. The price to be taken into account for cord wood delivered to the mill. What percentage of return on capital, if any, should be provided, and whether such should be inclusive of income-tax, war tax or social security (tax, or one or more of them. The tribunal also answered the question of the quantity of ground wood pulp derived from a cord of .wood, as it considered that there was a principle involved, and that this ,was a matter that could, in consequence, be more appropriately dealt With by the tribunal than by the accountants. Members of the tribunal are Mr. Justice Hunter and Mr. H. L. AAfl.se. Their judgment occupies ten typed foolscap pages. After delivering the judgment, Mr. Justice Hunter said that the accountants would now make their investigations. If they desired any assistance from the tribunal it would be readily given. Mr. AV. Perry, counsel for users of .Whakatane cardboard, suggested that when the tribunal made its final decision an indication should be given. His Honour said that, if costs were increased the tribunal would give sympathetic consideration to any application by the boxmakers. Annual Tonnage Output. ■“Having regard to the whole of the evidence on the question of annual tonnage output, says the tribunal, after reviewing evidence on the subject, “we have decided that a fair and reasonable basis at this stage of the company’s existence is 12,500 tons. On the admission of certain of the company’s own witnesses, ithe expected output is approximately 12,000 tons per annum, and the tribunal considers that the increase of the basic figure to 12,500 tons will provide the company with the necessary incentive to take full advantage of the opportunities now provided by the domestic market and to lower its cost of production. In arriving at this figure, the tribunal has also been influenced by the evidence submitted Iby the company to show the possibilities of developing an export market to Australia. Evidence was produced to show that trial orders have already been received by the company to a value of £l5OO. The tribunal has had regard to a statement made by one of the Crown witnesses, Mr. J. R. Middleton, to the effect that, providing the requirements of the local market arc fully satisfied, he saw no reason why the company should not be permitted to export any surplus to Australia.’’ Value of Investment. It is stated that, at a conference in chambers between the tribunal and counsel it was decided that in the meantime £450,000 should be taken as the fair value of the investment in the mill and its adjuncts. The price for the March-April cyclo is to be based on this figure, but prices for subsequent cycles are to be adjusted to take into account the value of the mill and its adjuncts as agreed to by the accountants for the parties after investigation, and any gain or loss to the company- during the March-April cycle is to be adjusted when subsequent prices are fixed. The tribunal gives its reasons for allowing £3/18/10 as the rd price for wood, as against the £4/3/6 claimed by the company as its cost under this head. Return on Capital Dealing with what percentage of return on capital, if any, should be provided, the tribunal says:— “An important matter of principle is whether the company should be placed in a markedly better position, by reason ot changed conditions, than it would have been in had the war not occurred and had the Government not implemented its policy of import control and conservation of sterling funds. “The tribunal has carefully considered this aspect of the matter, and is of opinion that it would he unjust to the public 3f it were immediately Io put the comrppuy in n. position to "which in normal Circumstances it could not have honed to attain till after passing through its experimental and developmental stage. It seems clear to the tribunal, having regard to qll the evidence and having regard, particularly, to the evidence submitted by the company itself in respect of competition from overseas before the war, that the company could not have hoped to successfully meet such competition, and that accordingly there could not have been any reasonable expectation of the company being in a profit-earning and dividend-paying position for some considerable time.

Accordingly, the tribunal feels that it would not be justified in cutting the company in a position where it would be receiving such a return on the capital invested m the mill as it could only have hoped to attain after the company had become well established, after it had reached an' economic stage of production, /liter it had /ittainet! to a high degree of efficiency, and after it had, in consequence, been able to meet successfully competition from overseas. Gross lieturn of 7 per cent. ■ “If the tribunal had strictly adopted tins view it would have been justified in not allowing any return on capital invested at the present juncture. Having regard, however, to the value of the company to the Dominion under wartime conditions and to tlie fact that overseas prices have risen as n result of the war, the tribunal has decided to allow the company a gross return on the capital invested in the mill and adjuncts thereto calculated at the rate of 7 per cent, per annum. “This will provide a net return of 5 per cent, on the capital invested in the null after providing for the payment of income tax by the company. 'J’| le tribunal does not. consider that the special war tax and social security tax should be Itiki'U into account, as both of these taxes are. by their nature, taxes which should, in' the opinion of the tribunal, be borne by the individual concerned and not passed on. - ’ 'l’he return of 5 per cent, on the eapitai invested is computed as follows: Seven per cent, on £‘150,000, £31.5()G; less debenture interest on £200,000, £10,050; and less income tax payable by the company on £20,850 at 7/11 in I he £l, £8253; balance available as return on eapilal invested in mill after payment of income tax. £12,597. “The amount of £12,597 will be sufficient to provide for a return of 5 per cent, net after payment of income tax on the balance of £250,000 invested in the mill and adjuncts thereto (£-150.000, less debentures £200.0001,” states _ the tribunal. “The actual amount available as a return on lhe eapiial invested in Hie miill will, of course, be increased il Jin value of the assets, as finally determined upon, is greater than lhe Ibnsic figure of

£150,000, which tins been "taken for the Alareh-A.pril cycle. Prospects For Future. “'The foregoing return on capital is, of course, dependent: upon the company alitaining the basic production figure of 1.2,500 tons. If this figure is less, then the return ou capital invested will also be less and, conversely, if the product ion figure exceeds 12,500 tons per annum, then the return on eapilal will be greater than the figure decided upon by the tribunal. Tliiw should provide tin.' necessary incentive to the company to increase its output, to a maximum, to increase its efficiency, and Io examine every possible avenue in order to accomplish ci reduction in production costs. “'l’he abnormal circumstances at present existing in Now Zealand, which include lhe shortage of tin ami oilier container materials, seem Io ttflord an excellent opportunity to the. company Io inereax'e its production even beyond the figure of 12,500 tons.” The lift It question was lhe quantity of ground wood pulp derived from a cord of wood. The tribunal referred to lhe decided difference of opinion on this point among the witnesses, and slated it thought, il reasonable to lake a figure of .70 lons a cord. In the costs for lhe Mnreli-April cycle I his figure is to ho taken as the basis, mi the iinderpl;,tiding that adequate tests .shall he made during the period and that the euiiipiiny’s and . the tlovcrti'iiient experts shall agree upon a figure for l.lie succeeding; cycle,