THE NORTH OTAGO FARMERS' CO-OPERATIVE ASSN., LTD.

NZ Truth, Issue 849, 25 February 1922, Page 4

THE NORTH OTAGO FARMERS' CO-OPERATIVE ASSN., LTD.

Twentieth Annual Report and Balance Sheet.

"Cambist" rarely reviews the affairs of the above association, for be has always regarded it as the least cooperative iri character of any' of the concerns whiich use t]\e. word "co-. operative" ih,.. their name title. On tills occasion lfe has been rather surprised at receiving copies of the bal-. ance sheet from various shareholders In the concern as well as from others who do not claim to be shareholders. One of- the correspondents has sent him balance sheets covering the years 1017-192-1, • This has given this impartial critic an opportunity of making comparisons which a single, balance sheet wbuld make impossible. The first impression made upon the critical mind of "Cambist" is that the kssociation is managed m an obstinate ..fashion';' /that a fixed, erroneous idea has obsessed the. directorate; that the situation arrived at is unsound, and that prompt ' aotidn, coupled with a reversal of foolish financial policy, is immediately necessary, to bi-ing about a sound condition of affairs. \ To begin with, the. capital isation^of the. company is only £75,000 m 15,000 shares of £ 5 each. ' The amount paid up since 1917 is £37,500. In. both cases the amount of capital is quite, inadequate for the purposes of a business of the class done by this association. Starting out on the dangerous commercial seas so badly equipped m. the financial depar'trnent, it is not surprising-, to Arid that this little show has been trading on borrowed funds to an extent far beyond the ordinary limits of reasonable prudence. In the year 1917 the "association had to incur debts to the extent of £57,973 to help eke 'out the miserable paid up capital of £37,500: for the year 1918 the figures 'grew to £63,823;' for 1919 we find that £6rf,65i had to be raised; for ■ 1920 the.. latter sum jumped* to. £83,830, while for 1921 these totals had iri-. creased to £111,543. The items making up these totals are "sundry creditors and bills payable, overdraft at the bank, and/ fixed .deposits'." ."■ Comparing" the last total . with the. small paid-up "capital^ we find that the debts are about three times the amount of the £37,500' which the "bardfisted" proprietors thought sufficient to tackle storekeeping, auctioneering, broker 4 -_ age, moriey. lending and many other-; matters that, make up the farmers' business." The position wfis/bad ' enough m 1917 with credit strained to £57.973, but to find that position still further strained m 1921 (£111,543); proves how/ "pig-headed" the management must' be. The last mentioned period shows nearly double the figures of 1917. During the same Deriod the' reserve fund,- which has, had additions, made to it annually, except for the. year 1921, grew from £12,5Q0 to £22,000. The reserve fund appears to be built up from the surplus pro-, fits which were left over from the several years when -there was enough to pay the , • " '

MODEST 7 PER CENT. • DIVIDEND that seem.4 to be the fixed notion of the direction. " While the reserve fund' was growing, funds at the end of 1920, carried over .m the., profit and loss appropriation 'account, amounted to £7947. With regard to the amount placed to reserves and the rate of dividend paid to the shareholders, one must fairljf • commend the moderation of the last-mentioned, and the policy of building up a reserve fund also deserves due credit. However, m face of these sound policies .'• the., practice of trading on excessive borrowed funds and extended credits appears to be all the more blamable ; m fact, it discloses an extraordinary amount of either inconsistency or weakness. It must .not be forgotten that all the time that these erratic movements were taking place' the shareholders liable for £2 10s per share m the capital 'of the company were never asked to pay up a penny. Had they been made to do their duty m this respect, ' then, a sum of £37,500 would have been gathered m, and, what is more, that sum would ihave been -most beneficial to; . the concern. . It would have at least saved the high price of an overdraft at the bank, and have mitigated the huge increase of sun-i dry creditors, with its loss of discount, etc. .-.■.''

'While the dangerous deb.t Rubble was blown to its fullest capacity, let us .compare the . state of the assets side of fthe affairs. In 1917 the total assets "Were £118.122, while m 1921 the sum of these came to £175,506., On the face of the latter, figures one might be inclined to assume a less censorious attitude to the Association than that adopted m the opening of this article. However, by taking the items as they appear m the bal-, ance sheet for the last mentioned period, one * cannot logically dp this. Turning to the latter, document we find that the property account has grown from £16,999 m 1917' to- £28, 764,. a very heavy increase, '(.say,---£12,000, for the period mentioned. Roundly the freehold properties have increased by £10,000 and th'e leasehold properties (Harbor Street store) by £2000. The question arises as to how this has come about. Has the Association . bpen speculating .m properties, leasehold and freehold, or has there been a general writing up of valued? "There may be. some grounds more, or less sufficient for the latter proposition, ' 'while for lthe former there cannot be any. No matter what may be the reason, the manner of the set out of the these items is so baa. that it is impossible to arrive at a true conclusion from these, accounts, original cost should be the first line, and all depreciations and write-offs should be deducted therefrom; also any appreciations, should be put on record, the, resulting figures being the -true position. Stocks of merchandise have grown from £40,160 to £74,669. In this latter line there is . MUCH DANGER QF FUTURE LOSSES.

All through 1 the piece this item has grown until! at the last date, it has amounted to a sum that is altogether beyond the requirements of the business. The directors' report to the shareholders makes, no mention of ' the position of this account. There is not a line to say if it has been written down to replacement values, and on glancing at the profit and loss, account about which something will be said lower down, not once does the word "depreciation" appear. Evidently, there is an over-valuation, of this 'asset,, or the North Otago Farmers' Co-operative Association, Ltd., has had no experience df the necessity of writing down stocks which all other firms have had, or it is so cleverly managed that the values standing to, this item, will be realised m the course of business at a profit. Really, "Cambist" is unable to brand the management with such cleverness; the facts are against his doing so. Plant and fittings are more by £1700 at £4995. War bonds are put m at £4600, and from these figures, do not appear to have been written down to market values. Perhaps the loyalists thipk it would be seditious to follow such a sound line of financial policy with regard to Bill Massey's precious taxfree war bonds. This Iqoks well compared with Consols at £50. In the latter case, Britain must be disloyal to allow her people to face the facts m these, matters. Sundry debtors (less reserve for doubtful debts) £62,---478 1s £5000 more than m 1917, Regarding -this line it is possible that much of the increase is m advances

to farmers who have need of credit j these times. This kind of business, properly conducted, -should be quite x a safe one, and there ought not to be-y*, any fear" for the figures mentioned. ■' / In former years — the fat years — the/-' Association furnished a profit and loss account to its shareholders, and a*so . a profit and loss appropriation fac- " count. This year there is only a pro- . fit and loss account, the la.tfe'i- having ' been dropped. In former times, when profiteering was at white heat, the directors' report used to give the yearly profit and the carry-over from the previous years. By following that method the--real State of affairs was made clear to the hard-fisted proprietors. For the year ended 1921 there is no mention of the horrid fact that the Association has lost £3358 on the year's trading, but the Association managed''to pay its usual rebates and seven pei? cent, on. its capital. This operation; has swept out most of the £7947 of accumulations m the profit and loss- appropriation account, and it •will lease only about £1900 for the carry-over. The gross profit for 1921 is given'as £16,995. For the previous year it amouhted to £82,?30. Probably theY latter carried with it a lot of commissions . "earned" from land speculations, as most' of the "men on the land'A were ,. "up, to the neck" m that sort of social trouble. There was more land-jobbing than' f arining>. and more motoring than hard work. -Expenses, for 1921. were higher at £20,---353, so we can. see that there has been, very little attempt at economy on the part of : the management. The responsible persons at the head of this concern must have" known that tbe concern was , losing money at a great rate, yet nothing was* done to keep expenses down. At leafet the report A "does not- make any mention of what I was done, just as it failed to notice^l the heavy, loss made for the year. Un-"* j der these circumstances, the hardest I conclusions become natural, and the 1 "management deserves blam^. * The, Association is asking its share- ,v holder's to give it power to raise the | capital limit to £ 150,000, instead of '; ,£75,000, the present limit. Well, "it « is time they did so," is "Cambist's" . ' candid comment. For. the last five 1 years the Association was run for the - 'benefit of creditors, and the shareholders "got what was left," so to speak. It is time now for the share- .-. holders to pay up the £37,500 that.,;, they should have put into the business,,/ l years ago, and it is also time that ' sufficient capital, over and above that sum, is provided: To this writer's ■- view, £200,000 could be safely invest- :,. c.d m the concern, -provided that sound , management were obtained to carry. * it 'on. To try and do a. safe business '/ 'on borrowed money is almost an im-: possibility. .Capital wastes, losses are made, trade carries risks. Borrowed \ money is not capital. It is a costly ■;. ddb't, a very different proposition. The North Otago Farmers' Co-opera-tive Association, Ltd., must get on to a sound capital basis, and quit the foolishness- of trying to force debts t<Y take the place of real capital.