THE New Zealand Herald AND DAILY SOUTHERN CROSS FRIDAY, JANUARY 23, 1920. THE TRAMWAYS PURCHASE.

New Zealand Herald, Volume LVII, Issue 17375, 23 January 1920, Page 4

THE New Zealand Herald AND DAILY SOUTHERN CROSS FRIDAY, JANUARY 23, 1920. THE TRAMWAYS PURCHASE.

The terms .of the tramways purchase agreed upon last year , have now been adjusted and; the full details of cost were laid before the City Council last night. The agreement made with the Tramways Company bound the City Council to pay £1,143,750 plus an unknown sum' j" representing the company's profits on their last working year and the discharge of their outstanding liabilities. This sum has . been ascertained to be something ovpr £85,000, and the total net cost of the tramways to

the city is thus shown at £1,229,463. The whole of this purchase money is being paid in debentures so that the city is freed from all the trouble, expense and loss involved in the flotation of a loan. The city took over the tramways at July 1 last and the council's, auditor has submitted a. statement showing that at that date the book value of the company's assets was £1,214,122. The total value of the debentures to be

paid by the city is just £15,340 in excess of this sura. The .figures in the company's books represent the • actual outlays since the inception of the business, so it may be said that the city; has given the company its money back plus £15,310. As to this • it may be noted • on the Tramway • Company's side that it is not getting money but debentures which are worth less than their face value. From the city's point of view it may be asked whether the assets are • worth what they cost. The valuer > employed by the City Council in April answered this in the following words "I judge that the permanent increases in the cost of materials and; labour as estimated over the j whole undertaking , are far . greater > ; than any obsolescenco or depreciation 'that has not been written off by the company." Mr. Ferguson's.ad- ■ vice was : that considering present prices and the outlook for material and labour the tramway system as it then'stood 'vas worth more, than was shown on the company's books. On,this advice the ' City Council was* thoroughly justified in closing the purchase. \ , :

When Mr. Ferguson made his valuation in May he pointed out that the company's book values included a sum of about £100,000 paid at the initiation of , the . company for " rights''- and in " preliminary expenses.'' This represents nothing tangible, but on, the other hand the Auckland properties J owned by the company, which are Bet down at '£22,648, are now worth much more than their book value, and the material .in 'X store, which cost the • com- j -pahy £50,740, could not be replaced at anything like that figure. ' On the whole, in view of the high prices now ruling for all kinds of material the council appears to have made a good bargain. , Its future position can, perhaps, be best tested by comparing the interest it has to pay with the profits made by the Tramways Company. The total bill for interest will be £63,565 per annum. Against this may be set the results of the Tramways Company's operations for its last- year, which closed on June 30, 1919. Owing to high running cost and to a substantial decrease in revenue during the epidemic period the company's gross profits in this year fell from £81,162 to £60,856. If the future profit is estimated at this latter figure it will be seen that the council must fall back on the advantage of municipal ownership to meet its interest bill. The chieS advantage of municipal ownership is that the municipality will save, approximately, £30,000 per ■ annum which the company has been paying in income tax. Against this must be set an addition to the working costs of £10,000 a year occasioned by the increased pay granted to tramwaymen when the service was taken over. There is thus a margin of about 000 in favour of the municipality. On an undertaking involving an outlay of a million and aquarter pounds this is a small return. It will remain for the corporation to show that it can improve upon the present service and still keep up the balance in the tramways account on 'he credit side of the ledger. The council has already decided upon a limited scheme of extensions, for which it will have on hand from the loan of a million and a-quarter a balance of some £20,000 after issuing the debentures payable to the Tramways Company. A fair test of the purchase as it is now shown in its complete form is the return it is likely to bring to the shareholders in the Tramways Company. The total of the debentures as above stated is £1,229,463. To meet the claims of the . company's shareholders; these will have to be realised on the London market. They are to consist of £836,671 in debentures bearing interest -at 5} per cent, and £392,792 bearing interest at 5 per cent. At the present value of money the holders will be fortunate if they realise at £90. Assuming that figure to be the average selling value, the Tramways Company would get in cash £1,106,517. From this the. company would have to discharge its outstanding liabilities arid pay off its debenture holders and preference shareholders, the balance being divisible among the holders of ordinary shares. The pre-' ferential claims are as follows:—

Dclxmtuie-holders .. .. , w , Prefererwo shareholders " ' fSn Liability including income tax and dividends ~ . . 86 671 ToUI • • • • £629,463 Of the assumed yield of the debentures there would remain £477,054

'to liquidate 450,000 ordinary shares. This calculation makes no allowance for • the expenses of the ■ London office of the company from June 30 last until the unknown, and possibly distant, ' date ' when the company, is finally wound up. All things ' considered, the ordinary shareholders will be fortunate if they get 21s* for their shares and: they will probably have to be content with less. 'It certainly appears that' the. purchasers who bought on the Auckland market about : the time of the tramway poll last year at 22s did "hot make a profitable investment. : It also seems, from; this test, : that' (Congratulations are "due to . the Mayor upon his conduct of the negotiations and to the ratepayers upon! their acquisition of the tramway system on such terms.