THE DOMINION RUBBER CO. SHOWS ITS WARES

NZ Truth, Issue 1080, 12 August 1926, Page 3

THE DOMINION RUBBER CO. SHOWS ITS WARES

Affairs and Prospects Under Review

• : . :. : .; (By "Fi Speculating m rubber share ing game fifteen to twenty yea ber boom; \ ; ..'./' PORTUNES were made and lost 17 overnight, but speculation is not a strong point m the British national character, whilst investment undoubtedly is. The British investor, therefore, finding that with, the advent of the übiquitous motor the demand for rubber was likely, to far exceed the supply for years to come, - decided toinvest his capital not m companies already producing raw rubber, but to start production himself. All eyes wore turned to the Federated Malay States, where the climatic conditions were ideal for rubber plantations- and land was available m huge -areas. - ] /The- F.M.S; Government granted every conceivable concession to encourage the industry, and although many concerns went .down through insufficient capital, a far greater number were able with ample funds and good management to come through the first and non-productive seven or eight years to the extraordinarily prosperous (to rubber , interests) ' war' years. EXCESS QUANTITIES After 1921, however, came several unprofitable years through huge excess quantities of raw rubber being produced, and prices slumped badly.. ... The position was desperate, and a desperate remedy was invoked) beingnothing less than the Stevenson plan of restricting production. In economic theory this principle is right; but m theory, circumstances can be altered to fit the case. , . ; Alas, m practice, this r cannot' bo done, and although the Stevenson ref strictions undoubtedly, did at the time save many producers- from ruin it still remains to be seen exactly what effect Its artificial prices have had upon inventors. '->.., The British control. 75 per cent, of the world's production of rubber, and the United States uses 75 per cent, of the worl.d/s production. ... . ■ ;•: The restriction of output sent priced of' raw . rubber soaring, and :thus stimulated American industrialists to research, work . find a profitable method of reclaiming'and re-using old rubber. i i» . They have been moderately successr ful m this, and are continuing their efforts. . \, ; ' ' : '. ' Even now very satisfactory. tyres, can be produced m which 20 per cent, oi? reclaimed rubber has been used, whilst m making vulcanized insulating parts reclaimed rubber can be used exclusively. •■■■'.- RAW RUBBER '"'["'"- All available facts point m the direction of lower prices for raw rubber, although daily . fresh uses are being found for it. ' ■ <-.-. . Even so, the. world's production ia rapidly rising beyond demand, and lower prices must therefore rule m the future. . ■;"*■■.-. ' ; The following figures have been ta"ken . from the Alexander Hamilton Trade Bulletin, and concisely set out the position: — - • 1924 .1925 1926 World's output (tons) 420,000 500,000 626,000 Consumption 475,000 556,000 603,000 From this table it can be seen that while m 1924 and 1925 the output was a long way behind consumption, this position has now been reversed, and world's stocks . are increasing and prices must fall m sympathy. . The Dominion Rubber Co.; . Ltd.started operations some eighteen years ago and acquired property at Kelant:in, m the Malay States. With a paid-up capital of £50,000, the. company has .done , very well by its shareholders having paid 10 per cent, for the year ended November 30, 1924, and 30 per cent, for the year ended November, 1925, m addition to building up a substantial reserve account. i. . . ' A comparative analysis of the two balance-sheets shows that for; the year ended November 30, ] 925, - the shareholders' funds increased by £5065 and "now total. £61,188, out of which a final dividend of £5000 remains to -be paid. Sundry creditors have also 'increased ;by £6625 to £7441,; due to the vision of £6000. for income; tax;;. buying to the very successful year the .pom-, pany enjoyed.: ... . .':'."" • Dealing with the assets, the 1000---acre property, which is held on a 999 years' lease, is brought to ; account a l . £44,155, at which figure it has remained stationary for years.' This represents a cost per acre of £44 exclusive of buildings,; and " while, "Fia.t Lux is not an authority upon Malayan values, .it certainly does appear that this value should be written down considerably m. prosperous years sunh as the, one just enjoyed. There, are many people, , of- coui*se. particularly those who have purchased shares at very high prices during the last year, who would be stronsrly opposed to such a course, 'but this ob-

at Lux.") ' . s was a very fascinating and ei:citrs ago during the sensational rubjection merely serves to strengthen this critic's opinion. If the property is rightly valued at £44 per acre when the company is able to produce a 30 per cent, dividend from it, then it, cannot be worth that •sum when only' 10 per cent, can be paid. ■ Ten per cent, is the maximum average dividend this writer can see for this company for years to come. It must of course be admitted that this is only an opinion, but it is based upon a careful study of worl.d conditions, and is therefore worthy of consideration. Buildings 'at £984 are £666 less than last year, and as the total depreciation for the year, including that on plant, amounts to £452, it is evident that some transaction has taken place m this asset which cannot be traced on the face of the accounts. It is, however, good to see the item so substantially reduced. : Plant lias been reduced! in .Value by £113 and /now stands at £807,. at which figure it should be' modestly; valued. , • .■■'■' ■-.., Stores on hand have increased by £581, and. now total £lis7. INCREASED SUPPLIES ' No doubt the manager kept this item down to the lowest possible point m pt evious years, but with, the prosperity of 1925 wisely increase* his-' supplies, i Stocks on hand at £3^457 exceed the previous year's figures by. £2498. The company .kindly . supplied "Fiat Lux" with a copy of the -chairman's report to shareholders at the recent annual meeting. From this source it was found that stock on hand consisted almost entirely Of ;OctoberNcvember production, which was valued for balance purposes at is 4d per pound against an all-in ( cost of; Is 3d. . ■ • ' ■; While the item is not a Serious one, there is no doubt these stocks should have been valued only at the cost price of 1s 3d. " . V To value them at Is 4d is really anticipating the Id per pound profit which will come out of the -1926 accounts. ' .'-. * Sundry debtors .are £395 less than a year ago, and now stand at Only £ 232 ■'•'•' A new item m the balance-sheet, and one which is very pleasant to see, is investments £9700. This is of course a direct result of the extraordinarily good year the company 'enjoyed, . and should ensure ooualizatibn of '■ dividends for some years. ' • ; SPECULATION ELEMENT 'It removes to a considerable extent the element of speculation from the company's affairs, and the ; directors are to be congratulated upon their action m the matter. . The directors can control the quantity of output, but they cannot eliminate' the world factors which affect 'the. price of that output on the open; rnaiv ket. ••- . . •■; /. -; ■•'■■■■ ••-■ :--- Consequently if, the .company has to rely entirely for its dividends upon the profit made m each: year, the shares must be highly speculative. If this element can be offset, "however, by having' available readily realisable securities which can be converted into cash to maintain a standard ..dividend, then the company's shares become ,an investment and are; clearly removed from the category of highly speculative shares. ,• The next item on. the assets side i\ is cash ,on handi This is approxlv mate|y the same -as last year— £8107— and. is held partly m Malaya and partly m New Zealand.; Dealing briefly" with the profit! and loss account, m 1924 the gross .. earnings were £14,709, the expenses £11,33P, leaving a net profit of £$373 out of which income tax hail to be provided and" to which had to b*». added £2684 brought forward from 1923. In 1925, however, the gross earnings went up to £39.750, whilst the expenses also rose to £13,683, leaving; a net profit of £26,067, to .-■•which has to be added £636 brought forward from 1924, making a total available for distribution of £26,7.03.;.,, , ; „ This was disposed of by paying- a 30 per cent, dividend which absorbed £15.000; income tax required £6000, £5014 was transferred to reserve, and £689 was left] to carry forward .to 1926. l ' •'• -•-. ' ' ';'■■:^ ;' . • Taking a comprehensive view of the company's affairs and prospects, this writer is of opinion that the directors are to be congratulated upon their effort to remove the company from the category of ■speculative concerns. ' L The company has had an extraordinarily good year, btit ; shareholders cannot expect the i results to be .repeated, and consequently there does net appear to be sufficient justification m the rubber trade prospects to warrant the present high prices for these shares which > a recent market ri notation places at- V£2 12s for ; £1 shares. ■'."'. '