WOOLLEN TRADE

Evening Post, Volume C, Issue 87, 9 October 1920, Page 5

WOOLLEN TRADE

MILLING INDUSTRY

PROFITS

INVESTIGATIONS OF BOARD

"NO EXCESSIVE PROFITS."

The report of the Board of Trade on the woollen milling industry was presented to the House of Representatives yesterday by the Minister of Industries and Commerce (the Hon. E. P. Lee). It contains the result of the Board of Trade's investigation of allegations made that woollen mills in New Zealand have been seeking unreasonable profits since 1914 —the year of the commencement of wax with Germany. The board's investigation into all the operations of tha woollen industry—from the raw wool to the point of sale to the consumer—was started some time ago, and has not yet been completed, and the report tabled' yesterday was of the first section of the investigation, the process of manufacture of woollen goods and the disposal of these goods by the milling companiesthought by many not to be the most interesting section. The Minister states in his summary of the report that every oare was taken by the. board's officer* to obtain accurate information of the costs of manufacture and'other charges which figure in the total cost of production, and express the opinion that, upon. the evidence disclosed, it cannot be said that the woollen milling companies of New Zealand have taken excessive profits during recent years. The profits have certainly been increased during the war period, and on the gross capital outlay the average net profit in 1919 amounted to approximately 12 per cent. A reduction of prices of less than 8 per cent, would place the companies in such a position that no profit whatever would passage of the report, "that in sympathy -while at least two of the largest companies would be conducting business at a loss. "It must be allowed,", runs a passage of the report, "that in sympathy, with general inflation of values, the decline in the exchange value of money and the general increase in interest rates, investors in woollen manufacturing companies are entitled to some increase in the net profits earned by the capital go invested."

There are ten woollen mills at work in New Zealand to-day, comprising four operated by private companies and six by public companies. The tables given in the report refer to nine of the companies. A recent change of ownership of the tenth mill^has delayed the submission of its. detailed accounts to tha accountants of the Board of Trade. Im a preliminary part of the report, it is explained that the inquiry has been complicated by the fact that several of the companies are also importers and makers of clothing. "The allocation of capital, expenses, and profits as between the various departments of those companies," the report states, '^s a matter which can be carried out only on. the basis of intelligent estimates. The records of the various companies do not provide for the ascertaining of profits otherwise than for the businesses as a whole, but there is no evidence to show that the gross profit, arising out of imported goods, is less than the gross profit taken on locally-manufactured goods. For this reason the particulars given in the major portions of this report cover operations which are allied to, but which! are not necessarily part of, the Business of woollen manufacturing." NOT ENOUGH EMPLOYEES. "It is well recognised," the report states, "that prior to the war period.l the pressure of overseas competition waa such that woollen milling in New Zealand was by no means a lucrative business. Several of the companies carrying on this business weite rapidly reaching al position of financial instability, and onlyi one or two of the companies were earning profits which could be regarded as reasonably sufficient in a manufacturing industry. The higher profits earned in recent years have, to some extent ait least, been secured as a result of the installation of now and up-to-date machinery and the adoption of improved! methods of organisation." The manufacturers state that the absence of competition from overseas permitted them to undertake measures of specialisation—a concentration on materials that couldl be quickly produced. Thus, with the up-to-date < macMnOTy a large output was maintained, despite the shortage of labour, and the cost of manufacture waa kept below the point to which ib wouldl have otherwise risen, with a corresponding increass of prices to the public. Though the number of employees Jiaa risen from 1416 id the yeiar 1896 to 1678 in 1919, the mills have, equipment for a much larger number, and many machines are idle to-day as a result of Qic shortage of suitable labour. It is shown in a table that in 1905-06 scoured wool usedi totalled 3,835,0541b, of a value of £167,-------291, while in 1918-19 there was usedi 4,363,9561b of a value of £474,922. Tha respective outpute for the two periods mentioned were : Tweed (yds), 1,300 - 471 and 1,675,113; flannel (yds), 1,368,-------268 and 853,247; blankets fprs), 59,572 and 88,383; rugs and shawls (no) 23,573 and 25,171; yarn (lb), 259,967 and 271,-------42 5; the total values were respectivelvi £397,713 and £956,434. INCREASED COSTS. •, In consideration of the fact; that costs of production for different samples of goods have increased since 19*14 by different amounts, it is not possible to give a concise statement as to the general increase in cost of manufacture," the report continues. "The increase, however, may be set down as approximately 70 per cent." It is claimed by the woollen ' companies that prices of greasy wool have increased since 1914 approximately as follows :—-Merino, lO^d to 20id per lb (95 per cent.); halfbred, lOfd to 20id (88 per cent.); crossbred, 7sd to 13 4-5 d (88 per cent.). After an analysis of the wool position, the report mentions that: "There is conclusive evidence to show that wool prices have advanced in recent years, notwithstanding the nominal _ fixation of prices under the Imperial Government requisition and the extent of this advance, so far as 1919-20 prices are concerned, cannot be accurately determined, but may be aoeeoted, quality for quality, at approximately 75 per cent." The wages figures show increased rates of about 65 .per cent, for men and 52.84 for women! Largely as a result of scarcity of labour, the wages of junior female workers have been increased to a much greater extent. "Although, it is impossible," the board comments, "to determine accurately over the milte as a whole the increase in labour coste in relation to output, the evidence available shows that this increase haa been not less than 60 per cent." ■With regard to the rise in cost of various materials used by the mills, the board states :—"lt is quite impossible to give any concise or accurate statement of these increases, but evidence produced in respect of one mill shows increases ranging from over 100 per cent, for coal to several hundreds per cent, for relatively unimportant commodities.'' Tn the general average of mill costs, wool figures at approximately 55 per cent, and operative wages at about 28 per cent., but there is a variation of the ratio amonir the mills from 30.27 per cent, to 59.83 for wool, and from 25.78 per cent, to 34.28 per cent, for wages. The total share capital paid in up to 1919 for nine of the companies was £1,-------373/160, and the gross capital was staih ed Sz £2,234,532. The position of. nja%j

of the companies in regard to reserves is given in the fallowing :—Company A : 1914 £55,000, 1919 £160,000; B: 1914 £47,147, 1919 £125,367; C : 1914 £27,-------900, 1919 £67,150; D: 1914 £17,500, 1919 £27,500; E: 1914 nil, 1919 nil; F: 1914 £1500, 1919 £7000; G: 1914 £10,478, 1919 £17,000; H : 1914 £1000, 1919 nil; I: 1914 £3000, 1919 £3000. "With reference to the above," the report states, "it is advisable to point out that these figures cover reserves made for both special and general purposes, and relate only to such amounts as are specifically transferred to reserve accounts. In the case of almost every company, the unappropriated balance of profits has been increased in recent years as compared with 1914. These unappropriated profits are in themselves of the nature of a general reserve. Since a considerable portion of the reserves have been set aside for specific purposes, and as ithe unappropriated profits have not been taken into account in the above figures, the figures given do not provide any very significant statement of the 'reserve position' of the companies. To the extent that the companies have increased their general reserves instead of appropriating profits for purposes of paying dividends, their action is probably due to a desire to make provision for a fall in prices and a period of unsuccessful trading." PERCENTAGE OF PROFIT. The total Bales of locally-made and imported goods by nine of the ten companies were £1,569,490 in 1914 and £3,028,746 in 1919 (an increase of £1,459,256). The gross profit was £305,630 (19.47 per cent.) in 1914 and £729,061 (24.07 per cent.) in 1919. The net profit in relation to sales was £85,845 (5.5 per cent.) in 1914, and £242,721 (7.9 per cent.) in 1919. It is explained that these net profits differ slightly from the figures ascertained for the purpose of determining the ratio of net pTofit to gross capital. As compared with gross capital (which included loan capital) the net profits were adjusted to cover interest paid on. such borrowed capital. ■; "", . .".'. The net profits with percentages on gross capital for nine companies in 1919 are 6hown in the following table:—Company A, net profit £52,449, per cent, on gross capital, 10.3; B. £108,013, 9.9; C, £24,903, 12.3; D, £14,621, 13.1; E, £27,436, 30.3; P, £16,221, 17.8; G, £9296, 14.2; H, £9944, 17.3; I, £3302, 17 5. Total net profit, £266,185; per cent, on gross capital, 11.9. Further investigation will be made regarding the operations of one or two of the more successful companies, and the board's recommendations in this connection will be submitted to the"Government later. '