2 JUNE 1939, Page 35



Ladies and Gentlemen, The report of the directors and statement of accounts have been in your hands for some days. Is it your pleasure that they be taken as read?

You may recall that last year I mentioned to you the policy of co-ordinated control of all the companies in the Edmundsons' Group which had been initiated two years earlier. On that occa- sion I explained to you that this policy was predicated upon " three basic principles of physical integration, corporate simplifi- cation, and a fixed objective of commercial achievement and physical growth." I will not repeat what I have previously said to you regarding the obvious advantages to be derived from this policy, but I am pleased to inform you that its application has been continued during the past year as rapidly as has been consistent with orderly procedure and an exact compliance with statutory obligations.

During the past year 18 separate subsidiary and sub-subsidiary companies have completed their liquidations, and six subsidiary companies of the Shropshire Group are now in process of liquida- tion. A comparison between the organisation chart appearing in last year's report with that in the report now under consideration will give you in graphic form a complete picture of the changes that have been effected during the past year This policy of con- solidation will, of course, continue until we reach our final objec- tive, when the Group Will consist of Edmundsons, the Parent Company, and to—or possibly less—directly owned operating subsidiaries.

We have continued our intensive commercial and selling acti- vities with objectives and quotas established after careful study, and it is gratifying to be able to report that these objectives have been attained in each of the numerous fields of commercial endeavour.

The following figures will give you an idea of the growth of your company during the past year: 40,000 new consumers were added, bringing the total number up to 418,100, an increase of 11 per cent.

210,300 kw. of additional load was connected, bringing the connected load to 1,270,300 kw., an increase of 20 per cent.

81,658,0oo additional units were sold, thereby increasing the total for the year to 817,591,000 units, which represents an increase of output of i I per cent., after excluding 72,781,000 units exported to the Central Electricity Board.

The increase of 11 per cent. which I have just mentioned com- pares with an increase of 6.4 per cent. in units generated through- out the United Kingdom during the same period of time.

The figures I have just given to you relate to the calendar year 1938, and I am pleased to add that during the first four months of 1939 the increase in number of consumers, connected load, and units sent out shows a highly satisfactory improvement over the corresponding period of 1938. It is, moreover, reasonable to assume that if fairly stabilised political and economic conditions are maintained during the remainder of the current year the final results for the year 1939 should prove to be satisfactory.

Satisfactory progress has been made in the installation of the 225,000 kw. of additional generating capacity in our several selected stations, which, as I reported to you last year, had been directed by the Central Electricity Board. Unless we are delayed by circumstances at the moment unforeseen or beyond our control, we have reason to expect that the final completion of this important operation will be achieved several months earlier than the time scheduled for us when the work was undertaken.

In an operation of this size, involving several million pounds of capital, the time element becomes a factor of exceptional im- portance for the reason that until the stations or extensions are completed and are in commercial operation the capital involved may, from a practical point of view, be considered to be idle or dormant, and consequently unrermmerative. In other words, the sooner we can get the additional plant in operation the sooner do we begin to receive some return on the capital employed.

Unfortunately the prospective legislation relating to the proposed re-organisation of the electrical industry, to which I referred last Year in some detail, has not made any progress. While it is not my desire or intention to be critical of the Government because of its failure to attempt a solution of this highly complex prob- lem, frankness compels me to state that the uncertainties regard- ing the future are multiplying to a regrettable extent the difficul-

ties that confront us daily in the problem of producing and dis- tributing satisfactorily the electrical supply which is so essential to the economic and social welfare of the country.

A recent attempt at piecemeal, and, in my view, undesirable, legislation through the Instrumentality of a Committee of the House of Lords at the moment appears to have hung fire, and the Committee in question has decided to adjourn any further hearing on the matters before it until November 16th next.

In any event, this method of approach to this really vital prob- km only adds to the confusion. Pending legislation on the sub- ject it would be a help if the Government would give public expression to the view that the present status quo of municipal and companies' interests should be maintained. Unfortunately, the authorities concerned have not thus far taken any action on this important phase of the problem and, as a consequence, the disintegration predicted is proceeding. We. and doubtless other companies similarly placed, are losing from time to time valuable and important undertakings, which logically and from every • practical point of view should be retained as components of those larger companies of which they have been a part.

As a result of conflicting views between the industry and the Ministry of Transport relating to the exercise by the Electricity Commissioners or the Minister of control over the terms and form of new capital requirements of all statutory companies, we are confronted with a serious difficulty Our Wessex company has been expanding rapidly during the past few years and, as a result of the large expenditure involved, found itself last October in the position of having reached the limit of its authorised capital powers.

Application was made in the usual way to the Commissioners for approval of an extension of the capital of this company in accordance with the terms of what is known as " The Wessex Act." At the time the application was made the Wessex Com- pany could have raised, and was prepared to raise, debenture capital at approximately 31 per cent. The right to raise this capital is still being withheld, and we do not know when, and if, it will eventually be granted. In the meanwhile, owing to changes in market conditions and the price of money, the cost of this capital today as compared with the prices ruling last October would be approximately of I per cent. higher, which means in simple language that over a period of say 3o years (the normal life of the debentures in question) the additional cost would be in excess of 1,15o,000. Moreover, we have been advised by eminent counsel that this arbitrary action by the authorities concerned is ultra vires.

May I now turn to the accounts and deal with the principal changes which have occurred during the last year.

The Profit and Loss Account shows a profit, after providing for Income-tax, loan interest, debenture stock interest and re- demption provisions, of £588,798, which compares with last year's profits of £535419, an increase of £53,679.

In former years we have shown administration expenses, less amounts charged to subsidiary companies, as a separate charge in the profit and loss account, while the trading profit was charged only with the salaries and expenses of what we might call the " operating " as distinct from the " administrative " departments.

The allocation of these charges is necessarily arbitrary, and we have now decided to amalgamate these two items, thereby ensur- ing a truer picture of our operating and selling activities. You will have noticed also that the description of this item has been expanded, and now gives a more comprehensive outline of these various activities.

It would not be practicable to give here a full analysis of the various sources from which this profit is built up. A substantial proportion comes from capital sources, and a very large part arises from the sale of merchandise through the numerous show- rooms of our subsidiaries to the general public, and from trading with outside parties. Capital extensions during the year amounted to approximately £2,50o,000, and the merchandise and goods pur- chased and sold amounted to about £1,758,000. The major part of the management and administration of our subsidiaries is also undertaken by Edmundsons, and it is from all these varied and ex- tensive services that the item of profit in question arises.

After adjusting last year's profit and loss account to give effect to the change which I have just described, it will be observed that what we were in the habit previously of describing as " Trading Profit " has declined quite considerably.

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(Continued from page 975) The manner of making, and the amount of, charges to sub- sidiaries for services of all kinds rendered by Edmundsons are constantly being considered by your directors, and during recent years increasing efficiency and increasing turnover have enabled us to revise such charges to the advantage of our subsidiaries. It is our hope and expectation that further favourable changes will con- tinue to be made in the fLture.

In pursuance of the policy announced to you last year of trans- ferring important sub-subsidiaries to direct subsidiaries of Edmund- sons, controlling interests have been acquired in the South Wales, Cornwall, East Anglian and Stroud companies. This was re- sponsible for a considerable increase in the item " Investments in Associated Companies " a year ago, but it was not accompanied by an increase in Edmundsons' income, as the transfers in ques- tion were effected ex dividend. This year the dividends on thete new shareholders are brought into the account, and are the chief cause of the substantial ir.crease in Edmundsons' income from " Dividends and Interest Receivable from Subsidiaries." This increase amounted to £126,000, but, of course, a similar increase cannot be anticipated next year.

" Dividends, Interest and Discounts Receivable from Other Sources " of £45,00o shows a considerable increase over last year's figure of £15,000, but you will observe that this year we have in- cluded cash discounts which amounted to nearly £26,000. A year ago the corresponding figure was included under the trading profit, but this transfer is not entirely responsible for this year's increase, as our major outside investment last year did not receive the full year's interest while this year it has.

The only item on the debit side showing any great difference is that of interest on temporary loans, which shows an increase of £8,500. This interest is paid on loans to Edmundsons from three subsidiary and associated companies which held cash in excess of their immediate requirements and were therefore able to loan to to Edmundsons to be utilised in the Group's interests, principally in the extension of other subsidiary companies' under- takings.

If you will now turn to the balance sheet you will observe the chief differences appear on the liabilities side, as the " issued capital " and " general reserve " both call for comment.

You will remember that last year the capital was increased to £zo,000,000 by the creation of a further 3,000,000 £i ordinary shares, and you will also remember that 2,250,000 shares were issued to the then shareholders as fully paid shares by capitalising reserves to that amount. The issued capital has therefore been increased by £2,250,000 and the reserve reduced by a similar amount.

After allowing for the withdrawal from the general reserve of £2,250,000, the reserve has again grown during the fast twelve months. It is our recommendation that you should approve the transfer of £30,000 to reserve out of this year's profits.

The amounts owing to subsidiary and associated companies have been increased from £1,539,000 to £1,761,000, and to creditors from £389,000 to £620,000. These two increases are due to the increased purchases which were particularly heavy towards the end of the year, especially in connection with selected station expenditure.

Referring to the assets side of the balance sheet, you will observe the investments in subsidiary companies show an increase of nearly £600,000. This is made up of an increase of £1,000,000 in debenture stocks which we have taken, as to a further £25o,000 in the B. C. and H. Company and £75o,000 in the East Anglian Company. As against this, shareholdings have declined by nearly £42o,000 in consequence of the liquidation of subsidiary companies.

The amount owing from subsidiary companies has increased by over £5oo,000, due to the expansion of the various subsidiary companies' undertakings.

If you refer to the consolidated statement of assets and liabili- ties as of December 31st last, you will notice the growth of the fixed assets of the associated undertakings from £23,25o,000 to £25,5oo,000. This figure shows graphically the increase in the size and importance of the group which Edmundsons controls.

In conclusion it is my privilege to give expression to the feeling of real appreciation that we stockholders feel of the valuable services rendered to the Association by our managing director, Brigadier-General Wade H. Hayes, and the other members of the staff. We have passed through a year made even more strenuous than usual by the extra work involved in the numerous amalgama- tions to which I have alluded in the earlier part of my speech, and by the preparation of evidence rendered necessary by the appoint- ment of the House of Lords Committee. All this was superim- posed on the ordinary work of the corporation, and has necessarily thrown a great strain on the members of the staff concerned. I am sure that you wish me to convey to them on your behalf a very cordial vote of thanks for their loyal and efficient services.