COMPANY MEETING

LONDON MIDLAND AND SCOTTISH RAILWAY CO.

IMPROVED NET REVENUE FOR FIFTH SUCCESSIVE YEAR EFFECT ON OPERATING EXPENSES OF INCREASED COST OF WAGES AND MATERIALS TRADE IMPROVEMENT AND JUSTIFICATION FOR HIGHER RAILWAY CHARGES SIR JOSIAH STAMP ON THE OUTLOOK FOR THE CURRENT YEAR

THE fifteenth annual general meeting of the London Midland and Scottish Railway Company was held at Friends House, Euston Road, London, N.W. r, on Thursday, March loth, 1938.

Sir Josiah Charles Stamp, G.C.B., G.B.E., Chairman of the company, presided. The Chairman : I will now ask the Secretary to read the notice convening the meeting.

The Secretary (Mr. Owen Glynne Roberts) read the notice. The Chairman : Ladies and Gentlemen : I now lay on the Table the Report and Accounts for the past year, and as they have been in your hands for some days, I presume you will as usual take them as read.

RESULTS OF THE YEAR.

I should like to mention before coming to a review of the 1937 results, that in conjunction with the other railway companies we have, with the consent of the Minister of Transport, omitted shillings and pence from our full published accounts. For the fifth year in succession we have an improvement in net revenue. The various results are given in detail in the summary before you and I need not repeat the details of the railway receipts, but it is interesting to record the fluctuations of the last nine years :- Railway

Receipts. Per cent. of 1929.

1929 • .

73,195,000

zoo 1930

68,241,000 93.2 1931

63,223,000 86.4 1932

58,507,000 79.9

1933

58,185,000 79.5

1934

60,572,000 82.8

1935

61,658,000 84.2 1936

64,463,000

88.1 1937

67,234,000 91.9 and the improvement has been maintained in 1938, the results for the first eight weeks of the year showing an increase of £317,000 over 1937, which is a little better than our anticipations.

Since the low water mark in the railway receipts of 1933 the recovery has been fairly generally spread over the various classes of traffic, but it is interesting to ,ompare 1937 with 1929. against 1929 are :—

. .. .. k

Passengers .. .. 1,385,000 The decreases Per cent.

6.4 Parcels, &c. .. .... • •

344,000

4.9 Merchandise (Class 7 and upwards) .. 3,155,000 14.4

Merchandise (Classes 1 to 6) .. • • 314,000

4.6 Coal .. .. .. .. .. 538,000 3.8 .. Live Stock .. ....

236,000

28.8 Miscellaneous Increase 1 i,000 I.7

£5,961,000

8.

The Passenger Receipts are the best since 1929, and although 6.4 per cent. below 1929, they show a steady improvement each year since 1933, which is continuing in 1938. We carried 461 million passengers in 1929, and last year were only 1,700,000 short of that figure, but in passenger miles there was an increase from 7,672 million miles to 8,104 millions, or, say, 6 per cent.

The decline in general merchandise (Class 7 and upwards) is marked, and it is here that we suffer most from the effects of road competition. While we had this severe loss in receipts the work done as measured by ton-miles was 99.9 per cent. of the 1929 level, and the reduction in revenue was mainly due to the combined effects of less short distance traffic and reduced rates. The former factor can be readily appreciated when I add that the average length'of haul in the eight years increased from 70.4 to 76.6 miles, although 1937 itself showed a reduction of one mile—the first year which has shown a reduction since the L.M.S. was formed.

The receipts from coal and the low grade traffic covered by the term " Classes 1 to 6 "have recovered well and will, I hope, reach the 1929 level in 1938.

The live stock figures are very bad and reflect the Irish difficulties.

RAILWAY EXPENDTTURE.

I have compared the Traffic Receipts last year with 1929, and ithout giving you each intervening year the corresponding reduction ili Railway Expenditure is 61 per cent., and you will bear in mind the large proportion of railway expenditure which is unaffected by The volume of traffic. We are thus doing substantially more actual work than in 1929 at considerably less working cost.

Compared with 1936 the expenditure increased by £2,387,000, a-1d the main cause is the large increase in prices of materials and

rates of wages I mentioned a year ago. I told you that we could then see three-quarters of a million additional for price advances, but the increase has been much more severe. The growth in railway expenditure is made up of :— Maintenance 941,000 Operating Expenses 1,352,000 Other 94;000 42,387,0o0 As in 1936, the increase in maintenance of way and works and rolling stock is due to the growth in prices of labour and materials, the renewal provisions alone increasing by 4493,000. The increase in operating expenses, while due partly to the growth in traffic, is largely a reflection of increased rates of wages and prices of coal ; we were fortunately aided in the last two months of the year by considerably better operating conditions than in 1936, when we were heavily handicapped by unfavourable weather.

The railway net receipts total 413,636,000, an increase of 4385,000 over the previous year, and are disappointing compared with the successive increases of? roundly 4i,00o,000 in each of the three previous years, but the chief reason was beyond our control and the costs capable of control were reduced.

As regards the other businesses I need say little. The net results from Road Transport, Steamers and Docks again show the highest figures in any year, the Docks being aided (at the expense of steamers) by increased charging powers which Parliament granted us last year. Canals have gone a little worse owing to special damages due to floods, while Hotels and Air Services I refer to later. I have previously explained to you the reactions of increased merchandise receipts on the collection and delivery account, and this year the result is an increased loss of 455,000 ; whilst receipts increased by 4102,000, the expenditure, mainly for the reasons I have explained in relation to other accounts, increased by £157,000. The net result compared with 1929 is, however, an improvement of 4280,000 and, with slightly higher receipts than in 1929, expenditure has been reduced by 4260,000.

The net result from all businesses is an increase of £306,000, and miscellaneous items add another £2,000, which reflects on the one hand improvements in joint lines and in capital account invest- ments, and on the other hand reduction in interest items.

The net revenue of 414,356,000 or 4308,000 more than in 1936 is regarded by some as small in relation to the growth of gross receipts, but the severe increase in prices is, as I have shown, the chief cause, and I must warn you that the full impact of this rise was not felt in 1937. On the other hand the benefit of increased charging powers granted to us, which I am explaining later, was felt in three months only of 1937. Turning to the balance-sheet, you will observe that the loan from the Railway Finance Corporation, which I have already fully explained to you and is a receipt of a capital nature, for technical reasons not credited to Capital Account, is increased by nearly £2,000,000, Savings Bank deposits have increased by £1,220,000 and reserves of various descriptions by 4570,000.

On the last item I should add that the Renewal Provisions for all businesses set aside during the year out of Revenue Expenditure in accordance with our usual practice, amount to 45,630,000, an increase of 4606,000, mainly due to increased prices. A critic has suggested that we are unduly conservative in this policy, but my reply is that we do not live from " hand to mouth " and our pro- visions are very carefully considered on their merits and are those appropriate to our responsibilities to the public and to the proprietors.

Our capital outlay has been mentioned by another critic. I have told you before, and repeat, that none is authorised without the fullest justification from the net revenue aspect. This year the largest part of the total of £2,250,000 is £1,650,000 for rolling stock. We expand or contract our stock according to probable require- ments, such as for the heavy freight traffic in December last (the " peak." since the Great War) and the unique " peak " in passenger traffic early last year due to the Coronation of King George VI.

At amalgamation our capital expenditure stood at 4437,oloo,o00. In 1929 it had grown to 4448,500,000, and in the eight years since then it has grown by £8,200,000 to £456,700,000. Of that 48,200,000, 44,o0o,000 is due to investments in road transport undertakings but, to hark back to our Net Revenue, this 44,000,000 gave us a direct return in 1937 of 4360,o0o or 9 per cent., and I need not repeat what I explained before regarding the excellent return from our modernisation of equipment generally, and par- ticularly our rolling stock.

(Continued on page 492.)

COMPANY MEETING LONDON MIDLAND AND SCOTTISH RAILWAY CO. (Continued from page 491.2 The investments, other than those in Capital Account, amount to £28,250,000, an addition of nearly £3,000,000, a reflection largely of the reduction of the Rates and Rate Relief Suspense Account as the overpayments are being recovered. We have still nearly A:1,500,00o to recover, but it is coming in rapidly. Stocks of stores have risen by £1,300,000, or 20 per cent., mainly again owing to prices, but partly to building up reserves of_certain supplies owing to difficulties we experienced in obtaining deliveries

at certain times during last year. - - The Outstanding Traffic Accounts show an increase of £415,000 arising from the increased traffic.

I explained last year that our net revenue results for 1936 were the best since 1929 and that we hoped to maintain and improve upon them in 1937. We have actually done so and the additional 5s. per cent. dividend proposed on the Ordinary stock will, we hope, be improved upon in 1938.

RATES AND CHARGES.

Since 1929 the Railway Rates Tribunal have been holding their annual reviews of railway charges in accordance with the Railways Act, 1921. As you know, an important function of the Tribunal is to fix rates, fares and charges which will, so far as practicable, with efficient working, yield to us a prescribed annual net revenue known as the " standard revenue," and they are required when making their periodical reviews to make general modifications of the charges, where necessary, to enable such standard revenue to be earned. I need hardly remind you that if on any such review net revenue exceeds the standard, 8o per cent, of such excess is to be devoted to reducing the charges.

Now it is common knowledge that the railway companies have not yet been able to earn their standard revenues. The deficiency in our case was at its maximum—£10,600,000—in 1932, and the deficiency in 1936 was still £6,500,000. The Tribunal have throughout adopted the practice of inviting the suggestions of the railway companies as to the possibility of meeting the deficiencies. At each annual review from 1929 to 1936 the companies informed the Tribunal that, in their view, an increase of charges would not be likely to yield an increase of net revenue. On each such review the Tribunal found that the undertakings of the companies had been conducted with effici :my and economy, but having regard to the companies' submissions on charges no increases were authorised. There has, however, been a marked improvement in the trade of the country generally since 1935 which justified a more optimistic view of the future, and after careful consideration the companies came to the conclusion early last year that a moderate increase in charges would improve their net revenues materially, without prejudicing the continuance of the favourable trend in trade and industry. Accordingly, they submitted proposals for increases in charges, with the object of assisting the Tribunal in carrying out the duty imposed on them, although they recognised that this increase would still leave them short of their standard revenues.

The railway companies appreciated that different descriptions of traffic would respond in different degrees to an increase in charges, but they felt that there were strong reasons against any differentiation in the application of the increase. They were of opinion that an increase of 5 per cent., applied generally, would yield some increase of revenue, though possibly not to the full extent of 5 per cent., with a corresponding addition to the net revenue. There was therefore no justification for leaving any description of traffic untouched by the increase, and the railway companies felt that any discrimination in favour of any particular traffics would be inequitable and would be resented by those interested in other traffics. In those circumstances the proposals laid before the Tribunal were for a general increase of 5 per cent. or thereabouts to apply to all charges subject to the jurisdiction of the Tribunal, the estimated addition to net revenue in a full year being, in our case, £2,200,000.

' The hearing before the Tribunal occupied 16 days, and at the conclusion they decided to modify the standard and exceptional charges substantially as proposed. This decision took effect from October ist, 1937, but it did not apply to fares in respect of intra- London suburban passenger services, as these are governed by the London Passenger Transport Act, 1933.

We have not yet had a full year's experience of the effect of the Tribunal's decision, but the partial experience so far appears to justify the estimate we put forward. Although not its objective, this addition to our revenue will offset to a considerable extent the increased cost of labour and materials which we have felt severely.

OUTLOOK FOR 1938.

Comparing the two months already elapsed with 1937 there has been, ignoring the 5 per cent. rate increase, a decline in the revenue from general merchandise, but it has been made good by an increase in minerals, coal and passengers. Although in many particular industries 1938 would have difficulty in EL<..–intaining the 1937 results, the general prospect over our system is that trade as a whole may be just about the same level as in 1937—perhaps a little above it. If this proves to be the case, the net financial results will then reflect the increase in rates and fares for nine months, less the increase in wages for seven, and also less any general increase in the cost of our supplies. Economies in working continue to be made in many directions, and although road competition remains severe the position

of our undertaking compares very favourably with that of railways , • generally throughout the world.

The report and accounts were unanimously adopted.