Breweries don't make much profit

Tony Ward's expose of the Breweries I would rank on a par with Truth's expose of Dr [unclear: Sutch].. and his affairs. Tony, like Truth, appears to have a penchant for half-truths, falsehoods, misconceptions and emotive journalism.

There are so many errors in his analysis of the Breweries that it would take a considerable amount of time and space to explain them. However, there is one sector of analysis which is so pitiful that I feel it has to be corrected.

This involves his assertion that a $100 investment in the breweries in 1970 would give a return of well over $100 (or well over 100%) in the period 1970-74. Tony's understanding of shares and finance are shown to he dismal when he makes such a naive claim.

I will try in as simple a manner as I can to illustrate how profitable an investment in brewery shares have proved since 1970.

If on the first day of share-trading in 1970 one wished to purchase 100 NZ Brewery shares the cost would have been $171 (the shares were $1.71 each: to make the illustration simple I will leave out the 2% brokerage fee and the stamp duty). Having bought the shares one would be entitled to receive the final dividend of 7½% for the March 31st 1970 financial year. Because the shares have a par value of 50 cents this means that the shareholder will receive 3.75 cents per share. Our 100 shares would thus net $3.75.

In July 1970, the company had a 1:5 bonus issue of shares. Thus our shareholding would increase to 120. As the company paid a 12.5% dividend for the March 31st 1971 and 1972 financial years we would thus receive $7.50 for each of those years. In 1973 a dividend of 17.5% was paid which would give us a $10.50 dividend.

In July 1973 there was a 1 : 10 bonus issue and a 1 : 10 cash issue at par. The bonus issue would increase our number of shares to 132 and the cash issue would add an extra 12 shares if we paid the 50 cents per share cost. Thus if we paid for the new shares we would have 144 shares and our total outlay would have increased to $177.

For the March 31st 1974 financial year a 15% dividend was paid and as we now have 144 shares we would receive $10.80. For the March 31 1974 financial year a 12.5% dividend was paid, so we would receive $9.00.

Our total dividends for the period would amount to $49.05. We would have a total of 144 shares which on August 4th 1975 had a value of 85 cents each. At this price our 144 shares would realise $122.40.

Thus in the 5 years there was a total outlay of $177. The shares are now worth $1 22.40 and $49.05 has been received in dividends. Adding these two together we get $171.45 -a loss of $4.55 over the 5 year period.

A similar analysis for DB would yield the following:

At the start of 1970 100 shares would be bought for $ 166.

On August 4th DB shares sold for 88 cents the convertible notes sold for $1.36. Thus if the shares and notes were sold on August 4th we would get $154.48. II we add on our dividends we get a total of $209.29 - a gain of 29 cents over the 5 year period.

These figures illustrate how poorly Brewery shareholders have fared. Investment in the Post Office would have far outperformed them. And when it is considered that the average inflation rate over the last 5 years has been about 6% brewing shares have provided a real loss of Considerable magnitude.

Go on, turn the page!