7 PER CENT GROSS

Gisborne Herald, Volume LXVII, Issue 20187, 4 March 1940, Page 8

7 PER CENT GROSS

CAPITAL RETURN WHAKATANE BOARD 12,500 TONS AS STANDARD INTERIM JUDGMENT PRICE TRIBUNAL (Por Press Association.) WELLINGTON, this day. In accordance with arrangements made at the conclusion of tile evidence, the Price Investigation Tribunal gave an interim decision today on four points raised in the recent hearing of an application by Whakatane Paper Mills Limited, to increase the price of its cardboard and allied products. The accountants for the parties are to consider these decisions before the tribunal announces prices for the company's cardboard products. The first question was the tonnage of output to be regarded as the standard. The tribunal decided that a fair and reasonable basis at this stage of the company’s existence is 12.500 tons. It considers that this 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. The tribunal was also influenced by the evidence submitted by the company to show the possibilities of developing the export market to Australia. One of the Crown's witnesses had also stated 'Pat. provided the requirements of the local market wore fully satisfied, he saw no reason why the company should not bo permitted to export any surplus to Australia. Value of Mill and Properties

The second question was the fair .or true value of investment in the mill and adjuncts. This was decided at a conference between the tribunal and counsel on the last day of the hearing, the figure agreed upon being £450.000 in the me ultimo. The prices for the March-April cycle are to be based on this figure, but the prices for subsequent cycles are to be adjusted to take into account the value of the mill and adjuncts as agreed to by the accountants for the parties after investigation, and any gain or loss to the company during the MarchApril cycle is to be adjusted when the subsequent prices are fixed. The third question was the price to be taken, into account for a cord |of wood delivered to the mill. The company claimed £4 3s fid a cord as its costs under this head. The tribunal decided to allow £3 18s lOd. The fourth question was what percentage of return on capital, if any. would be provided and whether suck should be inclusive of income tax. war tax or social security tax, or one or more of them. Tire tribunal decided to allow the company a gross return on capital invested in the mill and adjuncts, calculated at the rate of 7 per cent This, it is stated, would provide a net return of 5 per cent on the capital invested in the mill after providing for the payment of income tax by the company. The tribunal did not consider that the special war tax and social security tax should be taken into account on the ground that these taxes, by their nature, were taxes which should, in its opinion, be borne by the individual concern and should not be passed on. Dealing further with the question, the tribunal said it had decided Ihe important matter of principle whether the company should be placed in a markedly better position because of the 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 tire conservation of sterling funds.

The tribunal’s view was that il would be unjustified in putting the company in a position where it would be receiving such a .return on the capital invested in the mill as it could only have hoped to attain after the company had become well established, after it had reached an economic state of production, after it had attained to a high degree of efficiency and after it had, in consequence been able to meet successfully competition from overseas Value in Wartime If the tribunal had strictly adopted this view, the judgment continued, il would have been justified in not allowing any return on the capital invested at the present juncture. Having regard, however, to the company’s value to the Dominion under war-time conditions and the fact that overseas prices had risen as a result of the war, the tribunal decided to allow a gross return of 7 per cent. The judgment says that the actual amount available as return on the capital invested in the mill would, of course, be increased if the value of the assets, as finally determined, was greater than the basic figure, £450,000, taken for the March-Anril cycle. The judgment also points out that if the production is less than the basic figure of 12,500 tons, the return on the capital invested will also be less and, conversely, if the production is greater than the basic total then the return on the capital would be greater than the tribunal’s figure. This should provide the necessary inceptive to the company to increase its output to the maximum, to increase tits efficiency and to examine every possible avenue for reduction in production costs. The tribunal considers that the present conditions seem to afford an excellent opportunity to the company to increase production beyond 12.500 tons, following the shortage in,tin and other container materials. The tribunal also considered the fifth question of tiro quantity ol ground wood pulp derived from a cord of wood. Although this matter was noi specifically referred to it at this stage because it was considered that the question of principle involved could be more appropriately dealt with by tile tribunal than by accountants, the tribunal decided that it was reasonable to take a figure of .70 tons of pulp to the cord. In the costs for the March-April cycle, this figure is to be taken as the basis on the understanding that adequate tests shall be made during the period and that the company’s and Government experts shall agree upon the figure for the succeeding cycle. The accountants arc now to proceed with their investigations, and wher, i they are ready the parties arc to j communicate the results to the tri- j bunnl.

Mr. Justice Hunter, in reply 'to a question, based on the assumption of an increase being allowed -|to the company in the prices for its cardboard, said in that event it might be necessary for the boxmnkers to make application to the tribunal if they wished to pass on the increase to their customers.