AFFAIRS OF COMPANY

Taranaki Daily News, 14 December 1932, Page 12

AFFAIRS OF COMPANY

SHAREHOLDERS’ REPORT CRITICISM OF FINANCES. NEW ZEALAND REFRIGERATING. Charges that the true financial position of the company has not been disclosed to shareholders in recent years, when recourse was made to secret reserves, and that buying costs have been - high, are made in a report by a committee of shareholders which investigated the affairs of the New Zealand Refrigerating Company, Limited, Christchurch, covering the period from 1922 to 1931, the term of the present administration. The report also draws attention to the overhead expenses and payments to the executive at a time when heavy losses were shown by the company. Comment upon the report is made by the directors, who claim that “the company is in a better position to make profits for the shareholders than at any time during the past ten years.’-’ The report states that in four of the balance-sheets submitted to shareholders the real position was not disclosed. The balance-sheet for October 31, 1925, stated that the profit for the year was £38,260, whereas a substantial loss resulted, adjustment being made by transfers from reserves. Similarly, in 1926, when it was stated that a profit of £4628 was made, the real- position was that there was a substantial loss. In 1929 a loss of £105,406 was claimed, whereas the loss was considerably higher, and' was met not by. a transfer from reserves of £lOO,OOO, but of a -much larger sum. The loss- of £104,472 claimed in 1930 was also much larger and was met by transfer from reserve. Over the ten-year period, the total losses • exceeded the profits by a substantial sum and reserves were reduced by nearly, 68 per cent. USE CT RESERVES. Referring to these charges,’ the directors state: “It is admitted that secret re-’ serves have been used, but the profits in the six good years exceeded the losses iri the bad years by a substantial sum. In six good years the secret reserves were used to absorb surplus profits, and in the four bad years, to which reference has been made,, those reserves were drawn upon to minimise violent fluctuationsand so protect the company’s credit. We believe that every freezing company whose balance-sheets are published in New Zealand, and which has to undertake the speculative business of buying stock to any serious extent on its own account, employs secret reserves in the same manner, and all over the world trading companies also do so.” The report claims that no regular annual provision has been made for depreciation on buildings and, plant, In reply, the directors claim that at the commencement of the period the build-’ ings and plant had already been written down by £259,078. Had a further allowance of £316,650, as suggested,.been made during the period, the fixed assets would have been reduced at present to £452,000, which figure xyas out of -all relation to their true value. ... 'J DEPOSITS WITH COMPANY. The report refers to deposits held at short call and on which a high rate of interest is paid, and states that demands for repayment of large amounts might prove embarrassing. The directors claim tliat more than 75 per cent, of the deposits were made by directors, staff snd allied companies, and the company was not likely to be embarrassed. As to the rates, as far as the staff was concerned, the privilege cost the company nothing and was commonly granted by trading companies. Deposits from outside- had never been sought, but had been accepted at rates which meant a saving to the company. Dealing with a charge that the company had carried on a number of outside activities,' two of which had proved unprofitable, the directors' reply that the outside profits for 1931 and 1932 equalled the total loss on the tinprofitable activities. In reply to a charge that buying expenses in connection with livestock purchases were excessive, the directors state that the buying costs were not questioned by purchasers of meat from the company and the meat supplied by the higher-paid buyers worked out the cheapest The directors further agree that the company, in common with other similar concerns, paid higher prices _ for mutton and lamb than could be realised in London after paying expenses, but defend the efficiency of the London selling organisation. OVERHEAD EXPENSES. The report states with regard to overhead expenses. “We feel bound to draw attention to the agreements entered- into between the company and three members of the executive here and in London.” Stating that the inference, is a charge that the contracts for service with the executive provide for extravagantly high remuneration; the directors outline the extensive affairs of the company and state that they consider they are not paying and have not paid the executive more than the market value of men of their experience and ability. Answering the charge that the agreemerits provide for a fixed salary and a bonus estimated on the profits of the company before depreciation or income tax is provided for, the directors state that a salary is provided which has already been reduced by 20 per cent, in respect of the New Zealand executive, and a bonus becomes due, conditional on a dividend payment, when profits earned are sufficient to cover New Zealand and British income tax and 5 per cent, on paid-up capital. DETAILS OF EMOLUMENTS. The report further alleges that in 1931 the total emoluments (including salary, bonus, income tax, payments in respect of London executive, and premiums on endowment. policies representing retiring allowarices) of five members of the executive in New' Zealand and London, totalled £37,755, or 6 per cent, on the paid-up capital of the company, as against £31,815 10s paid to the shareholders that year. The directors claim that the cost of the head office executive was £17,280 in a year when a profit of £lOO,OOO was made. Dealing with a statement that during the last 11 years two policies to the value of £30,000 had matured in favour of two members of the executive, the directors state the amount included a policy of £lB,OOO

taken out and transferred to Mr. W.' Murray to provide a retiring allowance on his retirement in'l923, and a policy of £12,000 J to which Sir Francis Boys became entitled in, October, 1932,. after .25 years’ service. Sir Francis. was ' asked to accept a fresh engagement as . a director, with special duties, at a reduced rate of salary and without bonus. Defending payment of a bonus of 15 per cent, to the London manager of Towers and Company, Limited; the copipariy’s selling agents, under which arrangement the re-; port claimed that, very large bonuses were paid • iri 1330 and; 1931, .the. directors claim that the arrangement was intended to provide every inducement to the manager to concentrate on selling the company's mutton and lamb and a .revision of the terins was now under consideration.