NELSON BROTHERS.

Otago Witness, Issue 2355, 13 April 1899, Page 28

NELSON BROTHERS.

PROPOSAL TO WRITE DOWN CAPITAL. (Fbok Oto Own Coebespondent4 1 , February 24. - - There war a large' attendance -of share- • toldera in Nefcon Brothers at the fifteenth annual meeting, held at the Cannon street • Hotel, on Tuesday afternoon last. The chair | waa taken, by Sir Montague Nelson. I In their report the directors stated that it was proposed that a dividend of 5 per cent. be declared on the preference shares out of the profits for the year, which would absorb £1700- The debit balance to profit and los 3 Carter taking into account the loss brought forward from last year) would then stand at ■•£2482. The auditors had referred in their 'certificate to the- question of depreciation, a subject which -would be considered at the general meeting. Tho market for New Zealand mutton here throughout tho year had not Buffered from any great fluctuations in prices, a steady, although low level, having been maintained, and it was satisfactory to note that for the first time since 1890 the average price realised had not fallen below that of the previous year. There had been a further shrinkage in the value of crossbred fwool; but, on the other hand, tallow had ! shown a welcome improvement, which appeared likely to continue. The manager in \ New Zealand reported that both property J and stock were looking well, .and that the ! prospects for the present year wero very en- • couraging. . , \ The Chairman, in moving the adoption oi I the report, said this was the first time for s the last three or four years .that he could ' 'say he had had pleasure in submitting the • balance sheet and profit and loss account. As to the proposal to pay a dividend of o per cent, on the preference shares, it had occurred to him as probable that some shareWders might think it doubtful whether it should bo paid. He confessed that he nvav lelf had been doubtful until he looked carehilly into the matter, and took an opinion on the resolution upon which the preference {hares were iraued. This stated that a preferential dividend at the rate of 6 per cent. per annum should be payable out of the bxofita of each year, but without any rights ai tho case of a deficiency in any year to resort to the profits of any other year. Ibat fcowever had not been sufficient for the directors, so they took the opinion of the company's solicitor. He thought the dividend •houM be paid; but as he wished that confiimed, an opinion was sought of Mr falmer, i the principal authority in company law, who 1 also gave it as his opinion that it should be Wd. He (Sir Montague) thought .it a very 'oood thing for the company that • it should. • Following his usual practice, the chairman then went through th£ various lt^ms m the balance sheet, comparing the difference between the present year and the past. Xne capital stood with the preference shares at £560 450, and waa exactly the same, me /debenture stock-bearing interest at 5 per 'cent., and redeemable at any time at the 'option of the company at £110, stood now at £155,450, while last year it had been £158.270— a decrease of £2820. At the last meeting the shareholders were made aware Jhat some land in New Zealand had been sold; it was valuable property, and it had been sold at a price exceeding the amount at which it stood in tho company > books. With the money so acquired, debentures had • been purchased in the open market and can- ■" celled so that, while two or three years ago, .^"debentures stood at £180,000, they now "stood at £155,000 odd. Then, last year there . had been a lean- of £18,000 ; this year that item did not appear, at all. for there was no ' "loan. Advances against "^P 1 ?^^"S? ?°!? year at £118,650, as against £207 ,000 last •.year. The amount had been advanced by 'the Colonial Con B i(rnment and Distributing Company against shipments of frozen meat, preyed mist, etc., which ™™^™ I,*1 ,* were estimated to produce £14/, 000. The figures this year, although smaller than last year, did not necessarily ngmfv a diminution of business. It was purely tne accident of the moment ; it was possible the very next day after the accounts had been made up that there were consignments, and £50.000 and £60 000 acceptances, which would increase the amount. So the figures did not indicate anything beyond the actual fact that on the 30th of September, 1898, the figures were » « -stated. Debts due by the company were £29,000 this year an airainst £19.000 last year ; that was also simply the accident of the moment, and was mainly connected with shipping companies. Turning to the other side of tho balance sheet, freehold land and improvements stood, he said, at £130,234 against £130,337— figures so nearly the game as to require no comment. Th= item for machinery and plant had increased ; it stood at £231,807— it did stand at £222,000. This had been caused by necessary outlay for improvements in machinery. In refrigerating machinery, improvements had been so great of late that the company had been obliged to keep up with the times, and add newer machinery. This, however, was much more economical than the old. Investments stood in the present balance sheet at £252,525, against £253,000 last year. The decrease represented some debentures paid off. Office fittings and furniture had decreased by £161 written off for depreciation, so in New Zealand they had not Tbeen adding to their office furniture. Stocks on hand and in transit came to £157,121 against £228,271 ; there was a diminution here of £71,150, which represented frozen meat and other produce untold at the 30th of September last. But- the books were not, closed for about four months after the financial year ended, so that they were in most cases able to take the actual >

realised values. The same remark applied as to advances againut shipments ; it was simply what happened to be standing at the moment of the issue of tha balance sheet. Live stock stood at £20,749 against £21,434, a very small difference, and materials and stores wero £10,167 against £10,762. This: latter represented miscellaneous materials used in connection with the freezing works, and the difference was very plight. Charges paid in advance wero £1295 as against £1400; these charges consisted of insurance premiums, rates, taxes, etc. Debts due to the company were £19,426 compared with £24,036, a deciease of £4610. These debts were all good, and for the most part consisted of a large number of small Hems. Cash in the bank and in hand at present stood at £15,139, compared with £4457. That, he thought, was a very satisfactory state of affairs, and it should also be taken into consideration that there was now no loan. Securities and cash in hand of trustees for debenture-holders stood at £12,121 -as against £14,692.

After* referring to the cancellation of debentures, the Chairman said that the last item in the profit and loss account was perhaps the most satisfactory item in the whole list. This was the balance of £38,902 153 4d to credit against a debit balance of £5331, making an increase of £44,734. — (Applause.) There was, beyond what he had stated, very little in the balance sheet requiring extra comment. There was however a question of depreciation of machinery, drawn attention to by the auditors, which wonld be referred to later on. In former years, he (the Chairman) paid, in conclucion, he had to refer to past contracts which wero terribly against them, and droughts and floods. This year he had no such tale lo Sell, for the jyenecaL manager in New Zealand wrote on December 29th last that the ' season is rather catchy for haymaking, but is otherwise perfect." The manager then spoke of the difficulty as to shipping. On the sth November he wrote : " Every inch of land 13 now looking perfection, -and, barring accidents. I shall have no excuse handy this year." Tnat was|" handy" to explain a loss. So then the prospects of the current year woto very satisfactory.— (Hear, hear.) The Chairman then moved the adoption of the report and balance sheet.

Mr Taylor seconded the motion, and congratulated the board pn the healthy interest in the affairs of the company shown by the shareholders attending in such numbers as on that day. The better prospect spoken of by the chairman had not been brought about without a great deal of care on the part of the chairman, and everybody connected with the company, botb in England and New Zealand. Tho corner had been turned, and he thought they might have faith in the future; he certainly hoped now for the reward of prosperous times, for a year or two at anyrate-

In reply to a question, The Chairman said of the large item of £252,000 for investments, £220.000 was in ordinary shares in the Colonial Consignment and Distributing Company; these were valued at par. and they were worth it. — (Hear, hear.) Last year they received 6 per cent, dividend on theas shares ; this year they had received an interim dividend of 3 per cent., and they expected 4 per cent, more at the end of the year. — (Hear, hear.)

The motion was then agreed to, and the retiring directors and auditors were reelected.

The Chairman said that was really the whole of the business for which the meeting had been called, but he would like to say a few words on a subject which he knew had heen agitating the minds of many shareholders. The auditors, in their certificate, had referred to tho question of depreciation. The}' were bound to admit that during the laf=fc five years of the company's business they had not written off as much depreciation as the auditors thought advisable, and as the circumstances required. Last year there had been a loss of capital of £40,000, and the directors had then under consideration the question of applying to have the nominal value of tho shares reduced for the purpose of getting rid of that loss, and making the balance sheet in regard to buildings, machinery, and plant more in accordance with the facts. There had not been time to get the^e tluugs forward before the court before tho last balance gheet was made out. When it had been made out it was found that practically they had replaced that £40,000 without; such an application. Then, having regard to that fact, they were doubtful whether they ought to reduce the nominal -value of the shares. But the manager in New Zealand wrote that ho was strongly of opinion thai it should be done, and the board, after a great deal of careful consideration and debate of the question, had come to tho conclusion that he was right. The auditors strongly advised it. And such a course would have advantages from a shareholder's point of view. It would not affect the market valua of the shares one atom, one way or tho other; nor would it affect the business. And it was possible they might go on and pay a small dividend, and put Burplus profits to depreciation. But it would take yeara on those liut;s to get down the values of buildings, michinery, and plant to their proper level. If the value of tho sharos were reduced any surplus profit made could be set aside for equalising dividends in the future. And ho thought they should bear in mind a fact which had been driven home lo him move particularly during the last few years; that was, that the business was of a. more speculative nature than he thought 15 years ago. They were liable tp loesee — and heavy losses at times — which might interfere with the payment of a dividend. Now, if they were able to build up a reserve fund, he hoped they would bo in a position to continue dividends steadily. This depreciation of buildings, machinery, and plant (Sir Montague Nelson went on), was not entirely due to their not writing otf because since the formation of the company there had been written off a total deprecia tion of £83,000, and there had also been paid for repairs, renewals, etc., £77,000. .ThebC were big figures. But a considerable quantity of the machinery possessed by the company in New Zealand was quite obsolete, and it had been impossible in the ordinary course to write it down to represent the real amount of depreciation. They were working now vith new machinery, and at very much less cost. It would have been suicidal to continue working the old machinery. For these reasons he thought it very desirable to pursue the course which tho board recommended. They could not. of course, pass any resolution that day, but they could have o little discussion, and so got the opinion of shareholders. If it was decided to do as suggested, a special meeting would be called.

In response to a. request from the chair, Mr Nicholls, one of the auditors, advised the acceptance of the suggestion. He did not see how the auditors could consistently pass tho values in the balance sheet, knowing that Mr William Nelson had said the things they represented were not worth the prices put against them. So he thought it became imperative to reduce the values to something

like- the- amount indicated by Mr William Nelson. Otherwise it would not be a full and fair balance sheet, and he could not certify it as such. A shareholder asked the amount of depreciation.

The Chairman said they could not go exactly into details, but it was suggested that £2 per share would be ample to write off to cover everything they desired. That would reduce the shares from £10 to £8, or the writing off would be £112,000. Mr Cobb: What is the value according to Mr William Nelson?

The Chairman: Roughly £100,000 less than it is.

Mr Cobb said what tho shareholders wanted wa3 dividends, aod^tfter the reduction in capital had taken place they ought to- get them. The profits would be just the same. He would be much pleased to see the reduction. — (Hear, hear). air Ager asked what would bo the effect in New Zealand. Suppose the company had a run of luck and got good dividends they would hear it said, *" Oh, they are making such, tremendous profits." The Chairman said there was something in what the last speaker had said. He had held that opinion himself, and had used it as an argument. But after a great deal of consideration he was quite satisfied that the balance was very much in. favour of tho other course.— (Hear, hear.) There was a good deal to be said on both sides of the question, and he might confess there was no subject on which he had vacillated more than this.

Mr Evans objected to any reduction; such a course would damage a respectable company. He would like to know a single company that had been' reorganised, or where there had been an attempt to reorganise, that had ever done any good afterwards. The Chairman t There are lots of them.

Mr Evans : Ido not like it. ■ I have seen in tho papers time after timo, " never touch a reconstructed company." To confine the dividend to 5 per cent, and carry the rest forward to writing off depreciation would, in his opinion, bo very much better. The argument that they were making- too big profits would bo turned against them. He had bought his shares at a low price, and could afford to lose the £2, but he did not like the plan. It looked bad to have "reduced" written after the name.

The Chairman said this -was •unnecessary. It was entirely in tho option of tho court ; the company had no debts, so that the writing down did not matter to anybody. Mr "Wilkinson : Supposing you reduce and make good profits, what will you do? Will you create a re3erve fund from your profits? Tho Chairman : Certainly. Mr Wilkinson : In addition to reducing- the capital? The Chairman : Yes, certainly.

Mr Cobb: If you have a depreciation of £100,000, would you have any right to declare a dividend until it was paid off? The Chairman : Tliat would be a qtiestion, and rather an important one. Mr Lewis thought the course suggested by the board a proper one. As it was, their assets were £100,000 less than the figure at which they appeared in the balance sheet. Ho thought tho course proposed would have tho contrary effect to damaging the company. — (Hear, hear.) Mr fieath thought the "only honest courso was to do what was suggested. He would just as soon have an £8 share at a premium as a £10 one at a discount.

A shareholder asked if anything was to be written off for freehold land values, in view of the depreciation in these that had certainly taken place in the colony in the last few years. The Chairman said the only amount for depreciation in land recommended by the mauager was £?320. With that slight exception the land was fully worth what it stood at in tho books- He had been very much gratified at. such an expression of opinion as they had had. tho bulk of which he might fairly say had been in favour of the course proposed by the directors. The matter would be put forward in due course. A vote of thanks to the chairman concluded the proceedings-