CORPORATION TRADING.

Otago Daily Times, Issue 19530, 13 July 1925, Page 4

CORPORATION TRADING.

A SUBSTANTIAL SURPLUS. PROFIT FROM EACH DEPARTMENT. In his annual report tho town clerk (Mr G. A. Dewin), in referring to the. figures for the year ended March 31, 1033, of the trading departments, points out that the total income for the period was £I33,(MS, with an aggregate loan capital of £1,353,200. Working expenses accounted, for £231,343 of the income, or 53.10 per cent.; interest took a further £75,C35, or 15.05 per cent.; while to renewals and depreciation was debited £01,487, or 14.11 per cent, thereby leaving as a declared surplus £04,183, or 14.74 per cent, of the total income, “The sum paid in interest,” Mr Lewin states, “represents 3.06 per cent, on the total capital liability, while the declared surplus is equal to 4.13 per cent. It can therefore be shown that the combined results of the several trading branches a**; such that, on a company basis, the investors could have been paid a dividend or 0 per cent., after setting aside tho substantial sum of £01,487 as a reserve for future calls to cover depreciation and renewals. That is, without doubt, a most satisfactory result, and is all the more noteworthy from the fact that the council’s policy does not ignore the fact that the primary object of municipal ownership is not profitmaking. “Each of tho departments shows a satisfactory return, but the gas industry is again easily tho winner. Very heavy capital outlay is imperative in this branch in the near future, and it is therefore desirable that its finances should be on a sound basis. The electric light and power branch has also done well. Heavy capital expenditure is now being called for in extensions at Waipori. Much of this expenditure is in the nature of development that will meet the growing demand for current for many years. The effect of that will be reflected in tho financial returns for the next few years, and it is doubtful it the present net surplus position can be maintained during this coming period of ■development. That fact is brought into prominence by a reference to the diagram of this department, because there it will be seen that interest and other standing charges, such as renewals and depreciation, absorbed on that year’s capital outlay no loss than a total of 47.01 per cent, of the revenue. These charges are constant, and have no direct bearing on tho volume of business, while the same remark applies in a peculiar way to the working expenses, tho great bulk of which is made up of wages and salaries. The cost of these services is only in a remote way connected with the output of electricity. It therefore happens that, during the initial years of each phase in the history of development, the declared surplus suffers to some extent, and the phase of development that is just now in progress is on a wider scale than anything that has hitherto been done. “When commenting upon the financial results in the last annual report, I wrote with some misgivings in respect of the tramway account. To March, 1924, the surplus of this branch was £6830; for the year just closed it is £9311. It is gratifying to find that the result is an improvement on the previous year. That fact does not, however, seriously affect the position nor’ remove the necessity for the greatest care in the control of the tramway finances. Practically none of the capital expenditure out of the £IOO,OOO loan recently authorised had become a charge on the tramway finances for the year ended March 31, 1925, and it is the ultimate effect of the standing charges on this expenditure—which will amount to £IO,OOO or £II,OOO per year—that must he kept in mind. There should be no apprehension during the coming year, as the increased volume of business arising out of the Exhibition should assure a ‘bumper’ year to the tramway revenue: but, despite that fact, a careful survey of the position of the tramway account must show that the margin between income and outgo is a slender one, and that any one of quite n number of factors might quite conceivably at any time turn a profit into a loss. “It is desirable, if possible, that wo should maintain not only our Id cash fares, but the surplus-earning position we now occupy. If we fail to do so, a little comfort will be gathered from the knowledge that we have failed in good company, and that our case would then he no worse than that of at least two of the other chief centres,”