NEWTON KING, LIMITED.

NZ Truth, Issue 772, 21 August 1920, Page 4

NEWTON KING, LIMITED.

Prospectus Inviting Subscriptions for Ordinary Shares. The above prospectus is one of the most extraordinary documents which j has ever come into the hands of "Cambist." As it is a prospectus, this I writer must m duty bound fully criticise it and, at the same time, express his opinion on the methods embodied m this effort to touch the investing public. Some time ago "Cambist" warned his readers that the financial effects of the aftermath of the war would require to be carefully considered and the investor's needed more than ordinary business caution m selecting investments m new companies, or proffers of partnership m old established joint stock concerns. The reason prompting this advice was principally the fact, that the banks .were beginning to get afraid of their own position and that, m consequence, we would shortly find overdraft and bill discounting facilities curtailed m a drastic .fashion. That period has arrived and with it has come a widei spread demand for money by concerns i which are at present feeling the "COLD ATMOSPHERE OF THE SWEATING ROOM." "Cambist" feels both glad and sorry that his predictions have come true. It was "high time" that the pampered pets of the banks were made, feel what it is like to run a business on their own capital. On the other hand, this writer must condole with some firms who are supremely honest and creditworthy m every sense. These latter have been run into the same corral as the others first-mentioned. ■, The screw is being applied and the worthy, as well as the pampered unworthy, both come under the hard pressure of banking fear and exigencies. Coining to a careful review of the prospectus of Newton King, Ltd., the first matter that attracts the eye of "Cambist" is the delightful egotism o£ the promoter. That gentleman informs the potential investor that "his business has become too extensive for one person to control;, that Mr. King desires to perpetuate by a company, which bears his own name, a business he personally founded when the province o«i' Taranaki was m comparative infancy and which, under his management, has grown to its present great dimensions." Again, it states . that "the name of NewLon King" is a household word m Taranaki, etc, In the second paragraph, it is stated that, "A very substantial amount of the purchase money for the business and- its ' assets is being accepted by Mr. King m ordinary shares of the company, which are postponed both as to dividend and capital to the preference shares." In the latter clause no mention is made of the number of ordinary shares he is to receive, nor does this particular clause hint at the big swag of preference shares and cash that go to make up the deal. However, these will be duly noted further down and the whole proposition, with its many interesting features, fully discussed. Clause 3 mentions that "members of the staff engaged 411 the business, who may, perhaps, be regarded as the best judges of the past success and future possibilities of the undertaking," have "intimated their intention to subscribe for no fewer than about 30,000 of such shares (contributing or ordinary shares)." Clause (4): "The magnitude of the business is shown by the fact that for the five years ended April 30, 1920. there' was AN AVERAGE OF £2,146,935 PER ANNUM passed through the accounts of the business at the bank." , Lower down, we are told "the busi---ness has been acquired by the company on the basis of the stock 'in trade and other assets and liabilities as they existed on April 30, 1920; but there is excepted from the sale a proportionate part of • the -current year's profits as from May 1 to July 31, 1920; when the agreement for sale between Mr. King and the company was executed." Looking at 'the total of the assets (the latter including a sum of £ 30,000 for "goodwill"), the total given is £539,002. From this is taken a most significant item, namely, "The total liabilities amount to £209,G45." This leaves a sum of presumable assets amounting to £329,354. It is for the latter that investors are asked to put up the money. But there is more to follow — "contingent liabilities." * These are "on account of .bills under discount." There I is no mention of the parties who discounted the bills, whether the Bank of New Zealand or some of the kind friends whom Mr. King may have made m the course' of his great business. Another oversight m this connection is any mention of the amount of the contingent, liabilities for bills under discount. It might be half a million, or only a few pounds, no one «an say.. But looking back at the "assets" already .mentioned, there does not appear to be a single penny m the blessed bank. Possibly there is. However, on the other hand, there may be a swanking overdraft instead, amongst the liabilities put down at £209,648. With reference to the .figures as excess of assets (£329,354), the prospectus mentions that they are "according to a balance-sheet prepared as at April 30, 1920." This implies "a balance-sheet," but it fails to say if it is "the balance-sheet." The indefiniteness .of the statement is most unfortunate, m "Cambist's" opinion. One would feel better if a properly drawnup balance-sheet had been furnished, m this connection bearing the certificate of some notable firm of accountants. The statement of assets and liabilities is sadly devoid of supporting evidence. Properties, buildings and cattle yards, plus stationery and office furniture make a total of £77,124. A note states that these items "have been valued by independent valuers at £82,566." Why 'have the names of these valuators been WITHHELD FROM THE .PROSPECTUS? If these assets are really worth the larger sum, how comes it that they have been written down over £5000? Stock m trade, working plant, fittings, and motor cars used m business, are set down at £114,475, such .values having been made "by departmental managers who are applying for ordinary shares.," One would like to know the method of valuation followed by these gentlemen. In the case of stock m trade, does the sum of £ 08,713 depend upon landed cost or shelf cost and, also, is anything written off for old stock or damaged goods? As to the working- plant and the motor cars, a little more information might have been tendered. ■ One cannot help thinking that these values might »be underestimated., but this writer will not suggest such a thing, seeing that the valuers are taking up ordinary shares m the business arid that Mr. King' would not be likely to allow his assets to be undervalued m any case. If any exception is taken' to these candid remarks, the blame must be attached to : the framers of the prospectus. The latter is too "easy going" m tone and < precision for so serious a business document Book debts and bills m : hand £314.761, is a combination of matters that would ho better if jst.it.efl . .: separately. The public would naturally like to know how many bills are '. kept m hand. Why were they not '•• melted with the others at the bank? : How much book debts hang around the , : counting-house, causing a shortness of '

working capital? Still, Mr. King is to guarantee this"" and the contingent liabilities. This is a heavy contract. "Cambist" is not satisfied .with the average of £2,146,935, given as having "passed through the accounts of the business of the bank." . No banking account ever truly reflects the business of a firm. "Cambist" would much prefer the summation of real business, which can only be arrived at front a properly kept set of books, vouched for by a competent auditor or accountant. It seems ridiculous that a company with an authorised capital of £500,000 should attempt a showing of assets, making up £539,002, inflated by such a nebulous item AS "GOODWILL" £30,000. When the liabilities are deducted the net result is only £329,354. .A further sum of £30,000 should be also deducted for "goodwill," and the resulting figures -would be £299,354. This really is what the balance-sheet of April 30, 1920, boils down to. It is considered financial impudence to talk of any "goodwill" where there is no mention of the annual profits. Goodwill means, if anything, an estimate of the profit-earning capacity of a business and the purchase of these profits for usually two and a half years. As the business is of the kind known m alliterative phraseology as "farming the farmer," the prot fits may have been enormous, or possibly the profits .were disappointing, for the risks are great m such a business. , One fact appears to be clear — Mr. Newton King "wants to get out," and he floats the Newton King, Ltd., accepts £130,000 worth of £1 ordinary shares, takes 50,000 £1 preference shares, m all. £180,000, and 'for the balance (£149,354) cash, payable with interest of' 6% per cent, per annum "by sumsjo-fi not less than £20,000 per annum until the whole amount is paid off." The whole boaTd of directors is made up of Mr. Newton King- as "boss" and the others, his faithful servants m the "old show." This, will assure Mr. King that his interests will be well safeguarded and ttfint gentleman may, m time, g-et, with interest, over £150,---000 m cash. It reminds "Cambist" of old Omar's advice, "to take the cash, and let the credit go." In this prospectus the public are asked to take £70,000 worth of £1 ordinary shares; they are told that Mr. Newton King "will be paid wholly or partly out of the proceeds of the sale of shares, whether preference or ordinary." That is THE "MAIN OBJECTIVE." Mr. Newton King must perpetuate his name, but he must "get the cash," too. It may he a good investment. That is "Cambits's" uncertain summation..