2 AUGUST 1935, Page 34


Railways and the Investor

nut the first time for some few years past, the Directors of the London Midland and Scottish Railway announced early last week the interim dividends in full on the 4 and 5 per cent. Preferences. Nothing, of course, is paid at present on the 4 per cent. Pref. of 1923 so .far as interim distributions are concerned. Immediately, after the announcement Home Railway stocks became quite strong, but the rally was short-lived for it was followed by the publication of a profit statement which proved distinctly disappointing to the market. This statement showed that the net revenue for the half-year was just about equal to that of the corresponding half of the previous year. The actual gross receipts of the Railway had risen by £200,000 and railway expenses by £100,000, but on other business, interest income, &e., although gross receipts were the same, expenditure was £100,000 _higher, thus entirely wiping out the net gain on the railWay receipts. Moreover, the gain Of E300,000 which had been shown in the published weekly traffics was reduced in the profit statement to £200,000, due, however, it was stated, to the fact that as regards the weekly traffic statements the first half of 1935 had included one day more than the corresponding half of 1934, a matter which will be adjusted in the current half-year. the Directors also emphasized the fact that traffics had shown an improving tendency towards the end of the half-year.


Nor was the Iialf-yearly statement of the Southern Railway a very encouraging one. An interim' dividend was announced of 1 per cent. on the Preferred Ordinary as compared with nil a year ago, : though it will • be remembered that by the end of the year the stock received 4 per cent. out of its maximum of 5 per cent. The gross receipts were about £30,000 less, an advance of E185,000 in passenger receipts being offset by a decline of £165,000 in revenue from goods. Moreover, expenses rose by £45,000 owing to the higher scale of wages, and conse- quently the net revenue was £75,000 less. Not only so, but the Directors stated.. that they have no reason to think that the results for the whole year will be better than for those of 1934, but they decided to make the payment now announced in fairness to the large number of holders of the Preferred Ordinary stock. • • L. AND N.E.R.

The London and North Eastern statement showed that the gross revenue of the railway and ancillary businesses, together with the net miscellaneous receipts, WAS £74,500 less than last year, the figure comparing with a decrease of £26,000 in the Weekly traffics. Expenses rose by £252,400, of which £227,800 was represented by wages and salaries, and the total net revenue, therefore, showed a decrease of £326,900. The Directors have repeated last year's dividends, with the declaration merely of the half- year's dividends on the First and Second Guaranteed. stocks ; consideration of payment of dividends upon other stocks is deferred until the accounts for the year are available.


Alone among the • four railways the Great Western was able to record an increase in the net revenue for the first half of the year. The gross receipts rose by £35,000, • as compared with an increase of £78,000 shown in the weekly figures, while expenditure rose by £18,000, thus leaving an increase in net revenue of £25,000. The Directors have declared an interim dividend of I per cent, on the Ordinary, being the same as last year's interim dividend, and it will be remembered that at the end of the year the dividend was made up to 3 per cent. by taking £550,000 from the Reserve and £324,000 from profit on sale of investments.


• Following the announcement of these results by the four railways the market for Home Railway stocks became distinctly dull, especially as regards the Ordinary stocks. This, no doubt, is partly due to the fact of over-optimistic estimates having been formed, which caused some revival of speculative buying of the Ordinary stocks. But while in these columns I have from time to time spoken favourably of certain of the Prior Charge stocks of English railways, I have hitherto found it impossible to say anything very encouraging with regard to the prospects for the Ordinary stockholders. Moreover, speaking quite bluntly, one of the • reasons why I have had to take this rather gloomy view is based. on what I must regard as the somewhat unreasonable attitude of the railway workers. The chief hope for the Ordinary stockholder lies, of course, in the possibility of any real revival in trade, but if and when such a revival occurs, I think it will be found that the railway workers will have little sympathy with the fact' that 'for many years those who embarked capital in the Ordinary stocks of the railways have had no return whatever on their- money, but will bring the usual pressure upon the railway directors for proportionate rises in wages. Even at the present moment, and when an actual reduction is shown in net revenues for the past half-year, demands are apparently being made for a full restoration of the cuts in wages, one-half having been restored last autumn, although the actual purchasing power of the railway wage has increased compared with some years ago.


At the same time, it is only fair to point out that as far as can be inferred from the interim statements made by the companies, the decrease in the net revenues is only partially due to the restoration of one-half of the wages cuts; the other • part is due to an actual advance in working expenses, an advance no doubt occasioned by .. the growth in traffics. Moreover, so far as can be gathered, the increase in wages costs has not exceeded, even if it has actually reached, the estimated total of the increase involved in the partial restoration of the wages and salary cuts. To some extent, therefore, I regard the set-back in railway stocks, especially in some of the Prior Charge issues, as a little overdone and not altogether justified by the facts of the position---Ahat is, alWays. supposing that there will be no full restoration of the wages cuts unless such restor- ation Should be justified by an improved financial position: I think, however, insufficient attention is given to the quiet but steady rise in railroad earnings, and unles there should be some unexpected set-back in trade activity, I expect the traffic figures for the second half of the year to make a good showing. Finally, it has to be remembered that in the background there is the possibility of the companies benefiting through lower assessments in the matter of taxation, a development which would, so far as many of the Prior Charge stocks, at all events, are concerned, put a much more cheerful (Financial Nolee on Page 203)