OTHER PEOPLE’S MONEY

Sun (Auckland), Volume 1, Issue 29, 27 April 1927, Page 2

OTHER PEOPLE’S MONEY

FINANCIAL VIEWS AND REVIEWS (By Pertinax.) NORTHERN STEAMSHIP CO., LTD. The annual report and balance-sheet of the N.S.S. Coy., which will be issued during May, is being awaited with some expectancy. Of late the shares have been quoted below par, chiefly on account of rumours as to the effect which the loss of the “Manaia” in June last may have had upon the-company’s financial position. As it had been reported fairly freely in commercial circles that the Whangarei passenger traffic had not been profitable for a considerable period, the loss of this ship may not affect the firm’s earning capacity as adversely as would otherwise have been the case. There has been an impression for a couple of years that the profits of coastal shipping have been declining largely, but an examination of the company’s balance-sheet does not afford much evidence of decline. A more reasonable deduction is that the management has been made more efficient and that a rather different course has been followed in the presentation of the accounts. Motors and railways can compete seriously with passenger trade, but sea-borne ca»-go can always be carried for something like half the cost of land conveyance. It is significant that a dividend rate which had remained at 7 per cent, for 25 years was raised to 7J per cent, in 1924, and again to 8 per cent, in 192 5 and 1926. Although the actual increase in disbursement is only about £1,600, the alteration is proof that the board is satisfied with things as they are. Owing to the disclosure of a lower net profit than in preceding years, the superficial observer might imagine that business had been bad, but fruquent and unexplained additions to reserves put matters in a different light. The directors now seem to have adopted the policy of making liberal deductions from gross profits for maintenance, depreciation, insurance, income tax and boiler and repairs accounts, and then disclosing a net profit just sufficient to cover the dividend. Conclusive proof that management has been greatly improved is afforded by the comparison that whereas in 1920 the surplus of assets (excluding steamers, plant, etc.), over liabilities amounted to only £9,240, in 192 G that excess had piled up to the handsome figure of £61,737. In the same period investments had increased from £32,860 to £71,693, while the fixf'd assets item went down by £ S.OOO, which represents the excess of depreciation allowances over six years’ expenditure on additions and improvements to the fleet. This is a situation with which few could find fault, since its chief element is a net improvement in more or less liquid assets of approximately £52,500, equal to practically a third of the company’s paid-up capital. During the year ending March 31, 1926, the accounts for which were submitted in the following May, the Northern Steamship Company admitted a net profit of £13.328. In that year, it had purchased the “Rangitoto” and installed wireless on nine vessels at a cost of £2,000; while the chairman stated that “a very large sum” was spent on the upkeep of the vessels. The fixed assets item increased by £9,900 above the 1924 figures, and this does not appear to be unreasonable in view of that expenditure, while the item “investments” increased by £9,750. This leads one to suppose that earnings were a little higher than a discreet directorate would avow, the balancesheet appearing to have been drawn up with one eye on the income-tax commissioner and the other one on the Seamen’s Union. According to that balance-sheet the shares, which are fully-paid at 14s 6d, are worth 21s 6d in net assets. The permanent drawback which has a marked effect in depressing the Stock Exchange quotations for Northern Steam shares may be expressed as their “ragged” nominal value. The company has a paid-up capital of £161,412 divided into 104,289 shares at 7s paid, with a liability of 7s 6d attaching to them, and 172,291 shares fully-paid at 14s 6d. The average investor does not like contributing shares as compared with fully-paid ones, and has a prejudice against shares with a nominal value indicated in odd shillings and pence. It should be a simple matter for the directors to rearrange their capital account by issuing 161,412 fullypaid £ 1 shares in lieu of the present scrip, on an approximate basis of 5 new shares of £1 nominal value for every 7 at 14s 6d, or every 14 at 7s. Such new shares would be worth 30s in net assets on the balance-sheet figures and -would certainly find a more open market and a quotation more in keeping with their real value, since the tendency for a .£ 1 share carrying an 8 per cent, dividend and having a high assets value is always to settle at a price on which it yields about 6£ per cent, to the holder. Of course it is quite possible that the board may have some .3cli€*me of this sort up a sleeve which is already j;roved to have a certain capacity.