PROSPECTUS TOO RETICENT

NZ Truth, Issue 1286, 31 July 1930, Page 8

PROSPECTUS TOO RETICENT

Financial Reviews by "Fiat Lux"

City of Wellington Finance, Limited, and Kemball Debentures

INVESTORS ARE ENTITLED TO DETAILS In a document dated July 7 last, City of Wellington Finance, Ltd., offer, on behalf of Mr. W. R. Kemball, £100,000 of 10 per cent, first mortgage debentures (so-called), and £37,500 of 10 per cent, cumulative preference shares m Kemball Theatres, Ltd. . This document, to the unsophisticated, may look like a prospectus, but it is not a prospectus. When Kemball Theatres, Ltd., was formed and incorporated, it purchased the picture interests of Mr. Kemball, and as part of the purchase price he received- £100,000 of 10 per cent first mortgage debentures and £37,500 of 10 per cent, cumulative preference shares. It is these shares which are now being offered to the public. s -

CITY OP WELLINGTON FINANCE, LTD., it is said, has undertaken to place . these debentures and shares as agent for Mr. Kemball, but there are some pertinent queries which investors will naturally ask, and which are not answered m the documents before us. On what terms, for instance, has City of Wellington Finance, Ltd., undertaken to do thiß? What is their contract with Mr. Kemball and/or Kemball Theatres, Ltd? Who are City of Wellington v Finance, Ltd? Messrs. A. C. Davis, J. H. Miles and A. W. Press, signatories to the memorandum of City of Wellington Finance, Ltd.,' are mentioned as dh*ectors of Kemball Theatres, Ltd., and it is further stated that General Finance, Ltd., are to be trustees for the deben-ture-holders. Who are General Finance, Ltd? Are they the same happy family under still another, name? Investors are entitled to an answer to these queries, and to know what is the nature of the interests that these various concerns hope to acquire on the profits they expect. The investing public, who are asked to find the money, are certainly entitled to further details of these somewhat over-compli-cated transactions, m view of the substantial identity of the parties all through, and it is to be regret- . ted that the information has not been made public m connection with the appeal for funds. Passing now to the investment, to call the debentures "first mortgage debentures" may be calculated to ignorant investors. The term may be taken among them to mean debentures secured on unencumbered realty, land and buildings. The only real property referred to m the document is apparently the Hastings property, which is valued on behalf of City of Wellington Finance, Ltd., at £ 25,000. ' An independent checking is desirable m such matters, but as this is a minor point, it can pass. The balance of the security behind these "flrst mortgage debentures" is. the value of Mr. Kemball's interests m the various picture enterprises listed. There is no mention of 'liabilities,' f or uncalled capital or on any other account, contingent or otherwise, as regards these various enterprises. \ If there are no such liabilities the fact should be specifically stated, and if they have been incorporated, into the valuation, and we do not for a moment doubt that if they exist they have been taken into consideration, that fact should also be stated. . The valuation of these Kemball enterprises has been made on behalf of City of Wellington Finance, Ltd., by Messrs. Watkins. Hull, Hunt, and Wheeler, a firm of the highest standing m which implicit confidence can safely be repbsed, but their report is couched m terms that intending investors should carefully consider. They^say: "Scope of examination: Our examination has been primarily directed to the valuation of the assets, and more particularly, to the valuation of the goodwill attachable to these assets. Our conclusions m regard to this particular feature have been based upon a study of the operating accounts, m most cases, for the past three or four yeais. The transferable value of goodwill computed on this basis is, therefore, dependent upon the premise that operating facilities and conditions available to the purchaser will be, at least, as favorable as those enjoyed by the vendor during the operating periods studied."

deducted. The amount of this tax at current rates is .£4llß. If, however, remuneration to him is on a reasonable basis, and we are left quite m the dark on this very material point, past earnings clearly leave ample margin, if they are maintained, to meet the £10^000 a year required to meet debenture interest, and the £3750 required to meet the preference share dividend. What, however, of capital redemption? Assets, consisting to an undisclosed extent of goodwill, are set down at £157,400, and against this there exists debenture capital of £100,000, preference shares of . £37,500, and ordinary shares of £70,000, a -total debenture and share capital of £207,500, an apparent deficit of £50,100 of assets as against aggregate capital. Ordinary shares, of course, get nothing until the debentures and preference shares are satisfied — a point not to be overlooked. If these debentures are to be retired m the stated period of 10 years, heavy reserves will have to be put aside, and m any case the separate concerns must build up considerable reserves of their own unless the assets of the concern are to deteriorate. The crucial point is, therefore, management or earning power. It is stated on the inside of the cover that "the business has grown to such dimensions that, with projected extensions, it has become too much for one man to.control." If it has outgrown the managerial capacity of so competent an expert m the picture business as Mr. Kemball, is it likely to be within the competence of the directorate of a

joint stock company composed of ordinary business men without special experience m, the picture business? There is nothing connecte.d with the unimpeachable gentlemen named as directors of Kemball Theatres, Ltd., with the exception of Mr. Kemball to suggest that they have any special competence to manage a picture business that has got beyond the handling powers of the man who built it up. Prospective investors should consider whether they require information on' the many problems we have raised, and whether the prospects of the picture business m the future are sufficiently bright to warrant, the investment. The terms of these two issues are certainly attractive, but having regard to the future of the picture business they cannot be pronounced free from risk. Indeed, if they were, so high a rate of interest would, not be offered. The venture is a speculation on the future of the business. So far, it ljas been very profitable and it may, of course, maintain, or even extend, its profitableness m the future. On the other hand, depressed times are on ' us, patronage may fall off, competition may increase, and further taxation may be imposed on the industry.. Some of these concerns, taken separately, would not appear impressive. Investors will finally be guided by their estimate pf the value of the goodwill, that is, of the management and earning power of the concerns m the future, possibly, indeed probably, when the guiding hand of Mr. Kemball •is withdrawn.