BUSINESS AND BOODLE

NZ Truth, Issue 834, 12 November 1921, Page 4

BUSINESS AND BOODLE

(By "CAMBIST.")

Shareholders In Companies are invited to send the balance-sheets and reports of the companies they are interested m to "CAMBIST," c/o "N. 55. Truth," for review. The prospectus of any new company is also reauoßted for criticism. .

THE NEW ZEALAND FARMERS' CO-OPERATIVE ASSOCIATION OF CANTERBURY, LTD. Fortieth Annual Report and Balance Sheet. ■

"Cambist" has always taken care to point out that m this country we have not yet reached the standard of true co-operation. On former occasions, when reviewing this company's balance sheets, he has been careful to make allusions to the fact that this association is a joint stock company, and that such being the case, the only co-operative element m it depended upon the members who loyally gave it all the support of their business and influence. There is, however, no doubt that the management has m the past been very successful . in promoting- the goodwill of its members to the association, but at the same time it must be admitted that It kept one eye on shareholding possibilities and the other on the co-operative potentialities of these people. Hence, we find that the capital holdings are distributed amongst 130,000 (preference shares, and 170,000 of ordinary shares. The authorised shareholding at the present time, is limited to £1,500,000 m £5 shares, and of this, 9964 ordinaries and 28,517 preference shares are unallotted, making a sum of £192,405 awaiting emission at some future time. En passant, one can see, the great preponderance given to the interests of the mere investor; that comfortable person enjoys a special privilege amounting to nearly 77 per cent- of the authorised capital of the company — a position' that could never arise Uy a. true co-operative association. "Cambist" does not wish to have these facts used against the association named at the head of this article. Under the wretched company laws of the Dominion, this kind of thing is forced upon the people, and, of course, it works out to the advantage of those who wish to receive a steady return for their investments. The Industrial and Friendly Societies Acts have been, emasculated by the influence of bankers and other exploiters, to such an extent, that these channels of voluntary association are so limited that they are of no manner of use to anyone. In these respects New Zealand is

THE MOST BACKWARD COUNTRY IN THE WORLD. The people, of Germany and of Denmark enjoy greater opportunities of co-operative association, for the purpose of every kind of enterprise, than is the case here. The paid-up capital at the en^ of July last, is £883,821, and the visib'.e reserve fund is given as £190,000. In these, two sums we discover that an amount totalling £1,073,821 provides a strong financial backbone to the 'whole fabric of this association. The balance sheet totals, on each side of that document, £3,281,001, so that one may say that fully one third of the latter sum is 'made up of capital and reserves provided by the shareholders of the association. While this is a very fine position, it also shows that the capital account, plus the reserves, has proved -to be inadequate for the business purposes of the company. The association has had to borrow by a bond issxie £530,000, by taking fixed deposits £686,065, and by way of overdrafts £180,941. These three items total up £1,397,006. The last mentioned sum shows that ' the considered opinions of the bank, keen investors, and hard- saving persons, coincided very favorably towards meeting theinsistent requirements of the association. Regarding the recent bond issue, "Truth" by the humble pen of "Cambist," lent the association valu-, able aid. This writer is sorry to find that the genial chairman of the company made no mention of the fact when addressing the shareholders m general meeting, though that gentleman took occasion to refer to the clever advertising stunt caiTied out by their publicity agents. However, it is only fair to remark, that

UNTIL. "TRUTH" PUT ITS "HALL MARK" ON THE ISSUE of these bonds, which it has to be admitted was warranted by the strong position of the association,, the association's offering ' met with a lukewarm reception Once the effect of this people's journal's influence., started working, the association had- to work overtime to Keep pace wite> the demand created for its bonds, and m fact, had to write out a; further £ 30,000 to please investors, flius a record was made that no other company up to the present has ever reached-. Coming back to the .few remaining liabilities, the amount of shareholders' current accounts £504,315, and sundry creditors „£176,790, are individually quite m line with the business of the association, being neither excessive nor unusual considering the situation. The other items on this side of the accounts explain them selves > without any comment on the part of "Cambist."

Turning to the assets side of the ho.iance sheet, the properties of the company are put \ny at £314,507 which shows a large increase. The chairman explained this by stating it was "accounted for mainly by the Nelson and Takaka properties." Then there were works at Blenheim branch, and the purchase of a large block of buildings at Ashburton. The latter property, m the days when Ashburton could get drunk- without being asha/med of that human failing, was a very fine "pub," well situated for the purpose of attracting the swagger, traveller, or resident, to its refreshing 1 bar. In the future, it will be used for the business of this company, and for that purpose, it should suit admirably. "Cambist" hopes the Nelson adventure will turn out better than the local co-operative ventures have turned out m the past. However, time will prove whether the 1362 new shareholders gathered by the association m Nelson have been' worth the risk of -the capital involved by this transaction. Although the subiect of properties is under notice here, it is well to remark that the capital account of the association has increased by the paid up sum of £ 111,---182 (notwithstanding; the miseries of the "poor farmers") and that this performance must be generally commended) as

A SIj3N OP COMMERCIAL WISDOM on the part of shareholders and. directors. The next move by these parties should be the calling up of unpaid capital (£423,774),' which wi.l), no doubt, be reassuring to the bond holders ant* creditable to the management. The shareholders are "good enough" for the money and as they are never "out of a billet," this would help to show the public the "stuff they are made of," and also let ttse sacked Civil Servants and other 'wretched town dwellers learn for the first time the sustaining- worth of property m land; especially m the case of land which is not taxed enough.. Machinery and plant £67,562 is a small sum for the purposes of this business. Stock Ol" goods m stores is more "by £200,000. at * £763,803. The; chairman informed the meeting that "the whole .of this asset was paid for." His other comments upon this line are not, however-, quite, so illuminating. With all of the 'money this association, has m its capital account, reserves and borrowings, it would have , been a calamity if the stocks amounting: to over three-quarters of • a million pounds had not been "paid for," even

though the amount, m writer's opinion! seems altogether excessive under present conditions. Unless the trade of the association not only shows no falling- off owing"." to the slump, but actually increases, a possible but very, improbable eventuality, there seems serious overloading- here, and it is ■questionable: if this load' oi' stocks can be sold at a profit. Also it is to be hoped that it has been put m the balance sheet not at landed cost, but at replacement values ? The amount is the most serious item. in..: the assets, and it must have an important bearing: on the future' prospects of the association, o "Cam- . bist" never is satisfied, -with the manner of the stock taking, inwhich the values are 1 depend--1 ent on the certificates of any gentlemen, 'who, no doubt, are "top-notch-ers" m their own way; the auditors accept this position and so save themselves from all responsibility m connection with this item. It is quit© m accord with the sloppy methods of this country to follow on these lines, but the kindly critic who is attending to this review has often taken exception to it before. In his opinion this method leaves too much scope for averaging losses, hiding 1 blunders, ar carrying forward into smooth Tvate.r many things that NEED DRASTIC AND IMMEDIATE ■ ATTENTION. ' "Taiahoa" may suit a Maori, but "do it now" is better for sound commercial and financial affairs. In other words, if stocks have cost a certain price, show it and subtract therefrom the deflated value, and the quotient arrived at will then be somewhere near a sound .asset valuation which will, at any rate, minimise, future risks m realisation. With a tumbling market stocks are risky things to be loaded up with. All this, we trust the management of the association is alive to. Quite different comments apply to the two following items, namely, "sundry advances against freehold lands, stock, etc., seeur- '■ ed £1,147,353," and "advances against stock, grain and produce shipped, £352,576." The excess over the previous yeax-'s figures is roundly £300,---000, and it is mainly to finance these lines that the bonds had to be issued On the face of things all of this money is well expended, profit earning • and ■ also beneficial to the debtors. Practically £1,500,000 is lent out by the association, to producers of. wealth let it be hoped. On these lines there is little or no chafice of losses. If. however, land speculators m any form have been included here, then, there is cause for misgivings. The chairman told the meeting that "with Tew exceptions, the positions Of the borrowers show a good surplus over their liabilities," but, he added, "there are a few (more particularly amongst the newer accounts, our soldier boys, and others) who have been badly hit by the slump." "Cambist" would like to ask the management why they took on' these "newer accounts"? Surely that sort of business was not worth fostering- by the association.. All of these loans have to. be made* out of bonds and fixed deposits, and for that reason the utmost care should have been exercised- b5 r the association, instead of which they seem to, have "taken the risk," so to speak. The glamor of the battle-field is dimmed, when we learn that eleven "soldier boys" held 67,000 acres at Lees Valley and Snowdale, and that the association was

"STANDING BY' THESE MEN." Anyway, the business seems to be. sentimental. and loaded up with risks due to climate, lack of funds '--and falling pricesLet us hope the "soldier boys" will pull it off on the right side of the ledger. Good luck to them, and also to the association, that is "carryingfon" these under-class risks. The chairman intimated that the number of accounts which is on the books for "general merchandise accounts £326,---856," and for "auction! and grain accounts £193,086," totals up- to over 15,000. From this it would seem that each account averaged £340. Viewed m this mnaner the set out is excellent. Had he told the shareholders how many persons were enjoying- the use of this money a better estimation of the true position would be possible. Let us hope that he will do so m his next report, for it is one thing to mention the numbei of accounts, but quite another matter to deal with the number of persons. In the latter case one person might have ten or- more accounts and so use up say £3400. That, too, gives a different flavor to the financial dish. Bills receivable £80,705, is a fluid item that had practically run off the books at the time of the meeting. The contingent liabilities are over £ 8000, the largest item being possible calls m connection with the Wholesale Federation £7650. There is also a sum of £375 for "The Farmers'. Union Advocate" — a paper that knows as much about co-operation and other matters as a heavy sheep.

The profit and loss account is a well set out statement of the year's work. It clearly shows what a. tremendous overhead charge accrues from running 1 a lot of branches; Salaries run into close upon £ 3000 per week, the sum set down being- .£149,331 for the year. The interest on borrowed money is another huge burden, but its weight is covered over by the sums collected from the borrowing clients. Nevertheless, some idea of this costly item can be gathered by assuming that 7 per cent, is paid on the bonds, overdrafts and fixed deposits; this gives a charge of £97,790. Then, there is Government taxes £44,409 (about £"SOO a week). Adding all these items,, we get' £291.530-, which is a sum that requires to be whittled down considerably.- In this case a net profit on a turnover of £3,982,916 for the year amounting to £46.835, is a shoctt to any sensible person. That the association is paying a seven per cent, dividend jto its ordinary shareholders, and six per cent, to the preference investors READS LIKE A FAIRY TALE. Only £2103 is left over for next year's account, and nothing is paid« m the way of rebates and bonus to those Who supplied the £3,982,916 of business already mentioned. "Cambist" considers that Mr. J- G. Armstrong did right m denouncing" the 7 per cent, dividend-, and it is significant that he had no other "co-operator" to "back him up." The preference dividend could not have been avoided, for that is part of the bond signed to' the mere investor. But in 1 spite of all defects, the association has measured up fairly well to its difficulties. It has stil l tremendous latent strength. It has got over a six years' financial spree without headache or other ill effects other than a silly desire to placate its boon companions— the "poor farmers." it has now to make its creditors happy for the "poor farmers" have a .grouch against it- But the latter have got n very fat dividend and that should suffice. Suppose it becomes more co-opernt^-o quits profiteering f™ awhile ? This seems to "Cambist" a safe method of reaching cheapoi services, sounder finances, less worry and the z-esumption of additions ir> the reserve funds. The half-millioi. of calls due by the "poor farmers" (when theso calls are made) should be put m place of the half-million of bonds, as quickly as possible, and by so doing, 7% per cent, interest will be saved In the association's out-go— a matter of aav £37.500 per annum.