The World in Chains Part 9

7. _The New Statesman_, March 25, 1916:

An innocent person might think that when a manufacturing company is faced with an enormous rise in the cost of the princ.i.p.al commodity it consumes, its profits would be diminished. Some law must be in operation which has escaped the attention of economists, for so far from this being the case, what appears to happen is that the profits of manufacturers rise in a greater degree than the price of the raw material. Thus, so far from being hit by the enormous rise in the price of flour, Peek, Frean & Co., the well-known biscuit manufacturers, made a net profit of 107,478 last year, as compared with 99,578 in 1914, and 98,607 in 1913. After paying the usual 5 per cent on the 300,000 of preference shares no less than 25 per cent is paid on the 230,000 of ordinary share capital, which has been issued. This company raised its money very cheaply from the public, which paid 102 per cent for its 4 per cent debenture stock and par for the 5 per cent preference shares.

The investing public does not benefit by the big dividend on the ordinary shares. These were never offered to the public, but are privately held.

Another shipping company, sister to the Court Line, mentioned in these notes last week, has issued its report. This is the Cressington Steamship Company, which owns two modern tramp steamers of slightly over 7,000 tons each. The company was very fortunate in that one of these vessels was delivered in February, 1915, it having been contracted for at pre-war prices. The profits for the year amounted to 50,015, as compared with 6,861 in 1914 (when only one vessel was trading). The dividend for the year is 15 per cent, 7,072 is allocated to depreciation, 22,000 for special war profits and income-tax, whilst about 3,000 is being carried forward. The financial position of the company is such that if its ships were sold at 2 15s. per ton, shareholders would receive the return of their capital in full. On present prices, however, they would probably fetch over 15 per ton. The shares are now quoted at 28s.

The Bengal Iron and Steel Company, whose report has also been issued during the week, has had an interesting career; it works large iron ore and coalmining areas in Bengal. At first the company did well, but then it went in for an unfortunate steel venture and fell into arrears with its preference dividend. This was overcome, and during the past few years the company has done well, particularly from its coal business.

The report for the year ended September 30th, 1915, shows a working profit of 144,913, as compared with 79,200 during the previous year.

This considerable improvement enables the company, after writing off various old items, to place to a general reserve 20,000, and to declare a dividend payable quarterly of 24 per cent on the 224,850 of ordinary shares, which compares with 12 per cent a year ago. By way of a change, the report states that the trading results would have been even better had war conditions not prevailed.

EMIL DAVIES.

8. _The New Statesman_, May 27, 1916:

Markets have displayed unwonted cheerfulness during the past week, and all sorts of peace rumours are in circulation. It is more than likely, however, that it is the firmness of the market which is responsible for the rumours, and not _vice versa_. There is a steady stream of orders from the Midlands and the North, where people are making money, and these have the effect of putting up prices in several of the markets.

The Brazilian Funding Loan, which was recommended here on the 29th April at 74, has been noticeably firm, and is now 77-1/4. It still appears to be the cheapest Government Loan. Brazilian securities are attracting more attention, and Brazil Traction Common, which a year ago was below 50, now stands at 64. There has been a large business in Castner Kellner on the working agreement between that chemical company and Brunner, Mond & Co., the shares having jumped four or five shillings to their present price of 69s. 6d. Precisely a year ago they were recommended in these notes at 66s. 10-1/2d. Shipping shares have been exceptionally firm; Court Lines have risen another few shillings to 34s., the large business in them being probably due to the fact that they are one of the few shipping shares which can be obtained. Rubber shares are equally firm.

n.o.bel's Explosive Company has just issued its report for last year, showing a profit of 529,738 _after_ providing for excess profits duty.

The dividend is 15 per cent, free of income-tax, or 5 per cent more than last year. This increase in the dividend came as a surprise to the market, and the price of the shares (which are a favourite investment in Glasgow) jumped from 31s. to 38s. 3d.

The profits of the Oceanic Steam Navigation Company (the White Star Line) for last year have attracted a good deal of attention. They were stated as being 1,968,285, as compared with 887,548 in 1914 and 1,121,268 in 1913, which was the Company's record year; but the figure given for 1915 does not indicate the full profit, for it is arrived at "after providing for excess profits taxation and contingent liabilities." Replying to a question asked in the House of Commons by Mr. W. C. Anderson, Captain Pretyman stated that the Company informed him that the profit mentioned was before deduction of debenture interest and depreciation. Captain Pretyman added that the sum divided as dividend was 487,500, the same amount as in the year 1913 before the war. Where people are protesting against large war profits it may, at first sight, appear an adequate answer to point out that a Company is not paying out more in dividends than it did in the year preceding the war. As a statement of fact it is perfectly correct, but it has no bearing upon the amount of profit that has been made, as the following calculation will show. We now know that the 1915 profit shown in the accounts is _after_ allowing for excess profits taxation, deferred repairs, contingent liabilities, debenture interest and depreciation.

Since 1913 the Company has increased its debenture issue, and last year had to pay in debenture interest 109,536, as compared with 65,211 in 1914. How much has been placed on one side for depreciation before showing the profits can only be known to very few people, but the amount the Company must have put on one side for excess profits taxation must be at least half a million, and possibly a great deal more. The actual profits for last year were therefore probably in the neighbourhood of three millions, if not more. As indicated above, out of the 1,968,285 shown as profit, only 487,500 is paid out in dividends, the remainder going to various reserves. The dividend works out at 65 per cent, but all goes to the International Mercantile Marine Company, the much-talked-of American shipping trust a.s.sociated with the name of the late J. Pierpont Morgan, which holds all the Ordinary Shares. The trust was in a bankrupt condition prior to the war, but the present state of affairs is radically altering its position. It must be annoying to the American holders that a large slice of the profits of an American-owned concern has to go to the British Government in the shape of war taxation.

9. _The New Statesman_, June 24, 1916:

Another firm which has apparently benefited by the war is Ruston, Proctor & Co., the well-known Lincoln manufacturers of agricultural implements. A final dividend of 5-1/2 per cent is declared, plus a bonus of 2 per cent, making 10 per cent for the year, which still allows the Company to place 45,000 to reserve and to carry over 16,300. This dividend is 3 per cent more than was paid last year, and is the highest in the twenty-six years' history of the Company. Shipping shares remain firm, and it is almost impossible to purchase any of the best shares. As an ill.u.s.tration of the profits that are being made, the Nitrate Producers' Steamship Company's accounts for the year ended April 30th last show a gross profit of 404,022, as compared with 151,905 and 135,986 in 1914 and 1913 respectively. The dividend is 25 per cent, free of income tax, 100,000 is placed to reserve, 200,000 to a special fund for excess profits tax, income tax, etc., 30,000 is added to the insurance fund, and the carry forward is increased by some 7000. The Company owned a fleet of ten steamers, which has, however, been reduced to five by the sinking of one last September by an enemy submarine and by the sale of four vessels. A new vessel is under construction, and should be ready for delivery in August. The capital of the Company consists of 200,000 in Ordinary Shares and 200,000 in 5 per cent c.u.mulative Preference Shares.

10. _The New Witness_, June 15, 1916:

WAR PROFITS AND THE GOVERNMENT

It is essential that a determined effort should be made to rouse the nation to a sense of the gross and scandalous injustice of the huge profits that are at present being "earned" by certain firms piling up wealth which is really amazing to contemplate. This is not mere empty rhetoric; the figures support the description up to the hilt. Let us take the case of five well-known companies, all engaged in "war work,"

and see to what account they have turned our soldiers' sacrifices:--

FIRMS. PROFITS.

1913 1914 1915

Cammell, Laird 171,700 235,500 301,500

Curtis & Harvey 48,100 77,800 143,800

Projectile 14,000 40,400 192,700

Webley & Scott 9,500 16,400 61,300

Th.o.r.n.ycroft 13,000 107,640 267,333 (6 mos.)

These figures can only be described as staggering--staggering, that is, to anyone who cherishes a faint, lingering belief that "equality of sacrifice" is to be a reality and not merely a bitter jest. Look for a moment at the tale that these profits show! The Projectile Company has multiplied its 1913 profit _thirteen times over_! Five or six years ago its affairs were in so parlous a state that 19s. had to be written off as lost from each 20s. share. Now, as Mr. Charles Duguid reminds us, "it is paying a first dividend of 50 per cent and is returning to the shareholders 3s. 6d. out of the 19s. they regarded as lost." The return on the shares, according to the same financial authority, is 400 per cent!!!

Look at the case of Th.o.r.n.ycrofts. The profits for the first half of 1915 are twenty times as big as the profit for the whole of 1913--an increase, as Mr. Duguid reminds us, _of 3800 per cent upon the year_, a year that will spell blank financial ruin, impoverishment and dest.i.tution to the families of thousands and tens of thousands of our fighting men!

Th.o.r.n.ycrofts are by no means peculiarly fortunate; n.o.bels, for instance, have managed to earn quite a tidy little profit. Their net profit for 1915 comes out, we learn, at over half a million sterling (529,800), exclusive of 213,900 brought forward out of the large profit of the preceding year, and this makes the total amount available for distribution as much as 743,700. Even after paying a dividend of 10 per cent and a bonus of 5 per cent, making 15 per cent, all free of income tax, the Company has still 424,700 unallocated. In its most prosperous year, 1913-1914, the net profit of the n.o.bel Dynamite Trust did not amount to more than 381,300. We have, we need hardly say, no feeling against n.o.bels or Th.o.r.n.ycrofts or the Projectile Company. We only want fair play in this matter. If this aggregation of profits is not stopped the wealth of England will be in the hands of men who will regard the triumphant conclusion of the War as spelling ruin to themselves and who will see in victory only the cessation of profits that in normal times they have never dared to contemplate.

The remedy for this is simple. The Government have refused to the workman the right to extort unearned increment out of the country in its dire necessity. The workman may not strike or cease work or even change employment without the permission of the State. a.s.suredly the State has the right to exact that obedience from him. But it is essential that it should, and at no distant date, lay its restraining hands also upon the employers who are earning these huge dividends, otherwise we shall have enacted in England the tragedy that we have seen in Ireland. We shall have a Government without moral authority, a Government which will, therefore, be perpetually embarra.s.sed in the conduct of war.

11. _The New Witness_, June 15, 1916:

WILLIAM CORY & SON

This famous coal company has taken every advantage of the demand for coal, and can show a record profit. After providing for excess profits, the balance of profit is 453,136, or 237,808 more than last year. As I have again and again pointed out, I do not think the Government should allow such huge profits to be made in war time. The coal trade is in a few hands, and firms like Corys may be said to control it. The directors content themselves with raising the dividend 5 per cent to 15 per cent; but they place 100,000 to reserves, making them 500,000; 30,000 goes to staff pensions and 25,000 to a war fund for employees. The carry forward is raised 30,740 to 88,969. The steamers, tugs and barges are now to be formed as separate companies; and the French business is also to be transferred to a subsidiary. The balance-sheet shows creditors up 204,971, presumably to meet the excess profits liability. Debit balances have increased 509,840, and now include Treasury bills. War loans have been increased 280,652, and the total a.s.sets are up 451,183, at 4,541,601, and have earned 10 per cent. When all creditors have been paid the quick a.s.sets amount to 930,654, and amply protect the debentures, 900,000 which are an admirable security. I do not suppose the present Ministry will do anything to control the profits made out of the War by those who run the coal trade; and, therefore, we may expect that 1916-17 will be as good a year as that just ended. But I am not in agreement with a policy of _laissez-faire_ in war time unless the policy is carried out stringently.

HOLBROOKS

Apparently the sauce trade has not been seriously injured by the War, for Holbrooks have increased their trading profit 4,694 to 35,170; but income tax is higher, and 5,000 has been used as a special reserve for investments, so the available profit is only 23,046, as against 25,055 in the previous year. The dividend remains at 20 per cent, but 3,072 more is carried forward than was brought in, and the Board say that the unsettled state of the world justifies them in doing this. I suspect that they are building up a reserve for the purpose of attacking the Yankee trade which for so many years has been in the hands of Lea & Perrins. The business is well managed by the two managing directors, who have been in the firm since it was promoted. The alterations in the balance-sheet are not of any moment. Quick a.s.sets total 151,557 when liabilities have been met, and the a.s.sets have earned 7-1/2 per cent on their book value--not a very splendid profit for a sauce.

JAMES HINKS & SON

This famous firm of lamp makers should benefit largely by the complete absence of German compet.i.tion all over the world, and the eleven months show the satisfactory profit of 13,595. The dividend for the previous thirteen months was only 6 per cent, but the report now issued declares 10 per cent and a bonus of 1s. 6d., or 17-1/2 per cent--a record distribution. Also 2,250 is placed to reserve and the carry forward is raised from 3,603 to 6,399. As long as the War lasts we may expect this remarkable prosperity to continue. The reserves are now in excess of the capital. The company has earned 7-1/2 per cent on the book value of its a.s.sets, which, in spite of goodwill and patents having been written off, looks as though they were fully valued at 179,765. The shares are a fair industrial speculation.

12. _The Manchester Guardian_, June 19, 1916:

While everybody knows that the immense disburs.e.m.e.nts on the War have led to a greater demand for labour than it is possible to meet at present and that employers have done well, in spite of their difficulties, it is perhaps not generally known how greatly the profits of nearly all the public companies have increased during the last year. They have had to pay higher wages in many cases, though not in all, their materials have been much more costly, and their foreign trade has been hampered by restrictions, in furtherance of the policy of preventing the enemy from getting goods which he requires and which it is in our power to control.

Many, however, have done a large business for Allied Governments as well as our own, especially in army equipment, and the demand for coal has been greater than our power of supplying it. All our production has commanded high prices, and profit margins have in most cases been very large. It is a way that chairmen of companies have to take big profits as being in the natural order of things, and dwell mostly on the difficulties which have prevented them from showing even better results.

If this has obscured the real state of affairs it is desirable that the other side of the picture should be clearly presented, for it is impossible to understand the economic side of the War without a thorough comprehension of its industrial effects.

We give below a tabular statement of profits which have been declared this year, with the figures for two preceding years added so as to show their true significance. Some are gross and others net profits, but in this we have simply followed the methods adopted by the directors in their reports, that being in practice the only way of showing how the comparison stands. In some cases the capital has been increased during the three years, but the extent to which that has occurred does not affect the tables if they are regarded comprehensively. Some did very badly in the first few months of the war, and the profits they declared in 1915 look very small in comparison with those in the first column of the tables. In those cases the third column will act as a corrective, for in the main it shows the companies' normal earnings. It will be noticed that some of these were very small. Here and there the company was in the development stage, but as a rule it may be taken that the concern was not a very profitable one in peace times. Possibly it was over-capitalised, or over-weighted with debentures, or its plant was out of date, or it could not get sufficient business to make full use of its productive capacity. We shall not attempt the invidious task of singling out which come in these categories, but we call attention to the cases in which small pre-war profits have been converted into large ones since because they are really the most instructive of the whole series.

For very large increases upon profits which were already good the most notable are the shipping companies. Our list is typical rather than exhaustive. Some of the small concerns, with only one ship, or up to half a dozen, have done better relatively than several of the big lines, as they were more at liberty to take advantage of the big freight-rates which were going. We have not set these out, however, because it does not appear to be necessary. The dividends in virtually all cases have been substantial, and in some cases very large indeed. It would be useless, however, to show these in tables, as some of the leading companies use reserves greatly exceeding their nominal capital, and quite a number have devoted a larger proportion of their profits to strengthening their position than to the payment of dividends. In the case of the Moor line we are unable to give the amount of the profit reported last year, as the balance-sheets are not issued publicly, although we have been favoured with them occasionally.

Coal, iron, engineering companies and shipbuilding companies are bracketed together because so many of them are concerned in at least two of those fields of industry. As our table shows, they have had a great revival, many having been used by the Government, while all have felt the effect of the great demand for munitions. The miscellaneous list offers an interesting field of study, and the rubber and tea companies'

results are in some respects more striking still. We have only given a selection of these, but they suffice to show that rubber and tea have been very profitable since the War began. An appeal was made some time ago with a view to the "young" rubber companies being relieved of the excess profits tax, but our list shows how unnecessary it was to make any special concession to the industry they represent. In the last two months a great many of the companies have indicated that they were setting some thousands of pounds aside for the tax.

Among the other concerns which have announced their appropriations to meet the excess profits tax the most notable one that we recall is the British Oil and Cake Mills Company, which expected to have to pay 225,000. The Nitrate Producers' Steamship Company is putting 200,000 to a reserve for the excess profits duty and income tax. Most of the big companies have provided for the tax before striking the profit balance, and as this is strictly correct it would hardly be fair to say that they have concealed part of their profits. The figures would have been more striking, however, if the gross sums had been given. As we read the White Star line's figures they indicate that the company has had to pay much more than the British Oil and Cake Mills Company, but the Cunard line has probably had to pay much less.

The amount payable in any given case is the excess over the pre-war standard, which is fixed by taking the best two of the three immediately preceding years. Speaking generally, the companies do not appear to have hurried in their payment of the tax. For the year ended March last the total yield was estimated at 6,000,000, but the actual sum received was only 140,000, and the 6,000,000 has not been got yet, the yield from April 1 to June 10 being only 3,556,000. A sharp increase is bound to come, however, in the course of the financial year. The Chancellor of the Exchequer expects to get 86,000,000 in excess profits tax and munitions levies by the end of March next, and he cannot possibly have made so enormous a mistake as the receipts to date would suggest if we did not know that thousands of firms have still to pay very considerable sums.

In the tables appended the years at the tops of columns are those in which the profits mentioned were announced. A large proportion of the results shown in the 1916 columns are for the year ended December last.

Some, however, are for years which have ended since then, while a few, relating to companies which carry on business abroad, are for years which began soon after the outbreak of the War:--

SHIPPING