The 1975 Increase

There are so many dubious things about the latest price increase that it is difficult to know where to start.

Last year, an application for a previous price rise was heard by the Price tribunal At that hearing. Consumer groups (CSSO, CARP and FOL) were granted observer status - a role improved on this time to full participation. At the previous hearing however, the Price Tribunal told the breweries it would require a full break-down of costs in the industry before it would grant another increase. This in itself reveals the bankruptcy of the Price Tribunal - that several price increases were given to the breweries without full details of cost structure being given. Anyway, at' the 1975 hearing the breweries presented this information page 15 - but asked that it be kept confidential and not be seen by the consumer groups. This was on the grounds of maintaining competition - in view of the total dominance of the industry by the two companies this is ludicrous in the extreme. One can only surmise that in trying to hide their books the breweries are scared that their accounting techniques won't stand up to the public scrutiny. What the Price Tribunal is doing in supporting this underhanded dealing, is anyone's guess. The consumer groups, when they realised the whole hearing was going to be a farce, walked out;

New Zealand Breweries

Year	Capital $	Dividend $	Bonus Shares $	Total Return % of $100
1970	100	12.50	20	32.5
1971	120	15.00.	-	15
1972	120	15.00	-	15
1973	120	18.00	20	38
1974	140	21.00	-	21
		81.50	40

Dominion Breweries

Capital $	Dividend $	Bonus Shares	Total Return % of $100
100	12.50	36	48.5
136	15.95	-	15.95
136	15.95	-	15.95
136	19.10	-	19.1
136	19.10	-	41
	82.60	58.00

Post Office

Deposit $	Interest $
100	3.5
100	3.5
100	3.5
100	3.5
	3.5

A little can be seen from the figures publically announced however. Of the $17.5 million the breweries were seeking to "recover", $4.5 million was for increased interest charges, $4 million, increased costs, and $3.5. million, increased labour charges. The remainder seems to go on transport and other charges. This break=down alone shows how false are the claims that inflation is caused by union higher pay claims -less than 25% in this case. One further point - the largest entry is $.4.5 million for interest charges. This should not be a charge on prices at all - it is a capital charge and should be covered by more debentures or shares, etc.. Also it is safe to surmise that these interest charges are bound up in the buying of new pubs and hotels - which are definitely capital expenditure and should be paid for by capital, not by price rises.

Returning to previous Price Tribunal decisions, the 1973 one which granted only 37% of the price increases the breweries asked for, was said to be cutting "heavily into the breweries' profitability." The lies behind this can be seen in the massive profits the Breweries made in the 1973/4 financial year - NZB increased its post-tax profit from $5.2 million to $6.6 million, and DB's post-tax profit went up from $3.3 million to $4.4 million. Congratulating themselves on the decreased profitability of their company, the directors of NZB recommended that their remuneration go up from $37,000 to $55,000 a year. And despite the 47% wage increase for NZB directors, Sir Henry Kelliher, Chairman at DB, still found it necessary to complain about the 9% general wage order. Consistency all round.

One of the most coherent arguments advanced by the Breweries for their price increases was the need to maintain profit percentages on capital, which, according to the 1974 company accounts, are at present around 11.3% for NZB and 11.6% for DB against '11.8% for the national average. However; both of the breweries' amounts are seriously misleading largely due to shareholders getting bonus share issues free which thus increased the nominal capital without doing anything about real capital invested in the companies. From 1970 there have been several bonus share issues in both companies as the above table shows:

Thus, comparing the results of putting $100 in 1970 in the Breweries or the Post Office Savings Bank, the Post Office gave a $17.50 return over five years. Against Against this, the New Zealand Breweries return was $ 121.50 and the Dominion Breweries return was $ 140.60 over the same five years. And the breweries claim their profit margins are being eroded - perhaps they need to be. The claims by the breweries that they are only making 11% on share holders funds thus need to be adjusted - if the bonus share issues are considered 1975 returns of 11% on nominal capital are actually 17.5% for DB and 15.5% for NZB. And this juggling of books to mislead and implicitly defraud people seems to be entirely legal! It certainly meets with Price Tribunal approval - the chairman announced this year that the breweries had virtually no capacity left to cover cost increases. Even if they cut down on their attempts to monopolise the hotel trade - which government is known to be "concerned" about-(i.e. it won't lift a finger to do anything), the breweries would save a lot of their "increased costs".