UC-NRLF LIBRARY OF THE UNIVERSITY OF CALIFORNIA. Class RAILWAY CAPITAL EXPENDITURE. Reprinted from the ''Financial Times, riUCE ONE bIJILLING (POST FKRE). HKI) r,Y THK ' ' I'lNA N( '1 A L TlMKS," LiMlTKI . COMPANY. ture to Dec. 31st, 1882. ture to Dec. 31st, 1892. Amount. Per Cent. London and South- Western .. 24,371,521 33,868,984 9,497,463 38-9 London, Brighton & S. Coast 22,764,360 24,661,969 1,897,609 8-3 dis 517,539 ^ London, Chatham and Dover South-Eastern 24,262,409 21,922,491 27,660,047 24,458,363 2,880,099 } 2,535,872 11-8 11-6 In the above table nominal additions through conversions have been excluded in the case of the South- Western ; and in tha case of the Chatham, though the actual increase is 3,397,638, more than 500,000 is represented by discount on issues of stock, so that the amount expended in hard cash is only 2,880,099, as shown above. The expenditure of nearly 9,500,000 by the South- Western is very large, and the proportionate increase of 38'9 is the largest of any company during the period under review. In considering the effect of this expenditure upon the revenue of the Company, it should be borne in mind that 1,192,000 of the nine and a-half millions shown above was spent by the Company last year in acquiring the Southampton Docks, an expenditure which has not yet had time to reflect itself to a full extent on the revenue. The Brighton expenditure of barely =61,900,000 is certainly small, but, of course, the capital account of this Company has been for some years past practically closed, at least so far as is deemed possible for a large UNIVERSITY ) ^_ railway company. The proportionate" 'Increases of the Chatham and South-Eastern approximate very closely, though the Chatham is really much larger than it appears, owing ta the inflated amount of capital existing in 1882, the year with which comparison is made. Each of these two com- panies has, with the proceeds of the capital shown above, managed to invade the province of the other, with dire consequences to both, though it must be admitted, if the revenue results which we give below form a fair criterion, that the Chatham has come off best in the conflict. Our next table gives the estimate of further expenditure in the case of the four Companies. II. ESTIMATE OF FURTHER CAPITAL REQUIRED. COMPANY. Estimate of all Further Capital Expenditure Dec. 31st, 1892. Estimate of Further Capital Expenditure on Lines open for Traffic Dec. 31st, 1892. London and South- Western London, Brighton & South Coast London, Chatham and Dover ... South-Eastern 1,320,000 559,744 108,650 1,566,097 535,000 559,744 25,000 1,044,766 It will be seen that the South-E astern requires a considerable sum to bring the system up to perfection, and inasmuch as the amount shown in the second column has stood at about a million for some years past, and has not been reduced by the expenditure which in the meantime has been incurred, we are afraid it is rather a low estimate. The modest estimate of the Chatham does not by any means imply that that system is already perfect, but is rather to be accounted for by the embargo laid by Parliament on further capital being raised by this Company, as a result of its financial position. The following table (No. III.) shows the increase in gross receipts and net revenue for the ten years : ( 12 ) III. REVENUE ACCOUNT. Gross Gross Increase 1 COMPANY. Revenue, 1882. Revenue, 1892. Amount. Per Cent. London and South-Western.. London, Brighton & S. Coast London, Chatham, and Dover Sou th-Eas tern 3,005,710 2,099,289 1,225,298 2 165 270 3,613,140 2,542,990 1,470,034 2 358 686 607,430 443,701 244,736 193,416 20-2 211 20-0 8-9 COMPANY Net Net Increase . Revenue, 1882. Revenue, 1892. Amount. Per Cent. London and South-Western.. 1,245,932 1,598,140 352,208 28-3 London, Brighton & S. Coast 1,057,742 1,306,893 249,151 23-5 London, Chatham, and Dover South-Eastern 578,636 1,113,221 644,225 1,091,711 65,589 21,510 11-4 - 1-9 The increases in gross revenue are, on the whole, very satisfactory, especially in the cases of the Brighton and the Chatham. The increase in capital, we see by table No. I., was in the Brighton and the Chatham 8'3 and 11-8 per cent, respectively, and this has produced an increase in gross revenue of 21-1 and 20-0 per cent, respectively. The apparently moderate increase of 2O2 in the gross revenue of the South- Western, compared with an increase of 38 f 9 per cent, in capital expended, is due to the fact to which we have already alluded, namely, that sufficient time has not elapsed to allow the new capital to produce its ful quota of revenue, and under ordinary circumstances a further important expansion of revenue may be looked for in the near future, and this will doubtless further improve considerably the net revenue figures shown above. The important appreciation during the last few months in the values of the Ordinary stocks of the South- western may in a large measure be attributed to the general -belief that this will be the case, and certainly there is every reason ( 13 ) to expect it. As it stands, the increase of 28-3 per cent, in net revenue in ten years is quite phenomenal, the nearest approaches to it among the larger companies being a corresponding increase in the case of the Midland of 2CK per cent., and 23-5 per cent, in the case of the Brighton, though the two smaller Scotch companies, the Highland and Great North of Scotland, show larger increases, due to special conditions. The expansion of the Brighton net revenue is itself very satisfactory, as it is accompanied by an increase of only 8-3 per cent, in capital. The net revenue results of the Chatham and South- Eastern Companies form a marked contrast to the Brighton and South- Western, and afford a sufficiently plain commentary on. the policy pursued by the two former companies. One deduction in particular may be drawn from the figures given above, and that is, that any improvement in the position of either the Chatham or the South-Eastern Companies should be derived more from a reduction in expenses than an expansion of earnings. The next table deals with the results of the capital expenditure on the basis of a 4= per cent, return. IV. RESULTS OF CAPITAL EXPENDITURE. COMPANY. Capital Expendi- ture in 10 Years. Table I. Increase in Net Revenue 10 Years. 4 per Cent, on Capital Expendi- ture. Annual Gain or Loss on Capital Ex- penditure. London & South- Western 9,497,463 352,208 379,898 27,690 London, Brighton & South-Coast London, Chatham and Dover .. South-Eastern 1,897,609 2,880.099 2,535,872 249,151 65,589 - 21,510 75,904 115,204 101,434 + 173,247 - 49,615 122,944 The South- Western, it will be seen above, shows a small loss, and under the circumstances it is not surprising. The loss of 123,000 by the South-Eastern is, however, quite another matter, and is very unsatisfactory. The gain of 173,000 by the Brighton, on the other hand, is nothing less than brilliant^. and is an achievement which has produced very satisfactory results to the ordinary shareholders. The next table shows the results to ordinary shareholders : V. RESULTS TO ORDINARY SHAREHOLDERS. COMPANY. Annual Gain or Loss Table IV. Per Cent, on Ordinary Capital. Dividend Paid. Actual Gain or Loss. 1882. 1892. London & Sth.-Western 27.69D s. d. 4 9 5* 6 s. d. + 050 Lon., Brighton, & S. Coast + 173,247 + 231 4| 6i 4- 226 London, Chatm. & Dover 49,615 14 10 *4i *313 060 South-Eastern - 122,944 144 5i 4 150 * On Arbitration Preference Stock. The apparent loss on a 4 per cent, basis of 4s. 9d. in the case of the South- Western has been turned into a gain of 5s., by reason of its ability to borrow at a lower rate than 4 per cent, on the average. The gain and loss shown respectively in the case of the Brighton and South-Eastern come remarkably near to the actual results indicated in the last column. The Chatham loss shown above, of 14s. 10d., does not fall so heavily in 1892, because the balance brought into the current year is reduced by 30,000, and the full dividend paid for the second half of last year. The advantage which the Chatham derived from issuing 860,000 in Second Preference and Ordinary stocks earning no dividend, and which, after deducting discount, realised about 350,000, has apparently been counteracted by the poor credit of this Company. The net results of the passenger lines appear to be far -and away superior to those of the goods lines, and the contrast, already great, will probably be even greater in 1893 than it was in 1892. III. CAPITAL OF METROPOLITAN LINES. "We have already dealt with the capital expenditure and its results in the case of the " Heavy" and " Southern " groups of Companies. Our third group comprises the Metropolitan Companies, and in this group we also include the Great Northern and Great Eastern. Though the two latter Companies are, of course, not strictly Metropolitan, yet each of them possesses a very large share of Metropolitan local traffic. This applies to the Great Eastern especially, as this Company has now developed an enormous suburban traffic in the North and East of London, and its central terminus, Liverpool Street, is now used by a greater number of passengers daily than any other station in London. Much of this enormous traffic has sprung up under the fostering influences of cheap fares and frequent trains, during the period of ten years covered by our statistics namely, 1882 to 1892. The increase in gross revenue of this Company is larger than that of any other important railway during the ten years, though, as explained below, the increase in net revenue has not kept pace with the growth in gross receipts. To this feature imust mainly be attributed the fact that the dividend of this Company, instead of showing any decline in common with its 'neighbours, actually shows a small increase in 1892 compared with 1882. Had it not been for the altogether unprecedented increase in working expenses in the same period, the result, of ( 16 ) course, would have been a great deal better ; but, neverthelc ss, the shareholders are to be congratulated on the results obtained, and also on the maintenance in the first half of this year of the rate paid in 1892, particularly as so many of the other large Companies showed a decline in its rate of distribution compared with 1892. Subjoined is our table (No. I) showing the increase of capital expenditure and the percentage thereof to the capital as at December 31st, 1882 : I. CAPITAL ACCOUNT. COMPANY. Capital Expenditure to Dec. 31st, 1882. Capital Expenditure to Dec. 31st, 1892. Increase. Amount. Per Cent. Great Eastern* 35,062,401 33,688,595 10,369 ; 045 6,692,308 43,259,568 40,121,138 11,437,895 7,694,049 8,197,167 6,432,543 1,068,850 1,001,741 234 19-1 10-3 14-9 Great Northern Metropolitan Do. District * Excluding Discount and nominal Additions to Capital. Both the Great Northern and Great Eastern expenditure have been considerable, but there has also been a large increase in the mileage constructed by each of these Companies. The Great Eastern increase in mileage during the ten years was 167, and the Great Northern 93. In the Great Eastern figure are included, however, several small systems absorbed since 1882, most of which were previously worked by the Great Eastern, and which, from the dilapidated state of their finances, the Great Eastern Company was able to acquire very cheaply. For example, the Tendring Hundred line, which cost over 400,000, is now included in the capital account of the Great Eastern at <206,000, and the Felixstowe Eailway, which cost over 260,000, stands at 222,000. The Metropolitian mileage has more than doubled in the period under review, but the small expenditure in respect thereof is, of course, due to the ( 17 ) smaller comparative cost per mile of the provincial extensions of this Company. Ths Metropolitan District increase in respect of a similar expenditure was only two miles. Each mile f this Company's system stands in its capital account at over 530,000, a fact which illustrates the tremendous cost of construction, and the large turnover required to meet capital requirements alone. Our next table shows the estimate of future expenditure at December 31st, 1892 : II. ESTIMATE OF FURTHER CAPITAL REQUIRED. COMPANY. Estimate of All Further Capital Expenditure, December 31st, 1892. Estimate of Further Capital Expenditure on Lines Open for Traffic December 31st, 1892. Great Eastern 269,519 207.519 Great Northern * 2,473,305 1,956,200 Metropolitan 28,500 13,500 Do. District 20,967 5,717 * 1.368,000 Expenditure Deferred. Though the Great Eastern proposed expenditure as shown above- is inconsiderable, in the report for the first half of the current year, the estimate of all expenditure is increased to 1,230,000. The Great Northern estimate is large, and, following as it does upon large disbursements on capital account during recent half-years, with consequent large issues of Ordinary capital, keeps the Ordinary stock at its present low price. A great -deal of capital has been spent by this Company recently in widening and improving its existing lines. The Great Northern Company is, perhaps, subjected to keener competition than any other important line. With the Midland and North- Western on the . one side, and the Great Eastern on the other, it is only by straining its resources that it is enabled to hold its own. As is. well known, its proportion of working expenses to receipts is about 5 er cent, higher than is the case with other important ( 18 ) British Companies, and this is mainly due to the keen competition which it experiences. Our next table shows the gross and net revenue for 1882 and 1892 : ill. iir.\ ton i. A 001 NT. Gross ( ! TOSS Increase 3. COMPANY. Revenue, 1882. Revenue, 1892. Amount. Per Cent. Croat Eastern 3,337,000 4,365,030 1,028,030 30-8 Great Northern 3,713,018 4,465,320 752,302 20-3 Metropolitan 592346 715,867 123,521 20-9 Do. District 365884 425.610 58,726 16-0 Net Net Increas 3. COMPANY, Revenue, 1882. Revenue. 1892. Amount. Per Cent Great Eastern 1,540,754 1,842,776 302,022 19-6 Great Northern 1,598.251 1,788,890 190,639 12-0 Metropolitan . fRly. Ri-v.. 368,015 411,974 43.959 I 11-1 Do. District I Estate Hv., [ 65,297 196,811 69,324 232,753 4.027 f 35,942 18-3 *200,000 added for Joint Lines first half 1882, as net only given in accounts. Comparing the percentage increases shown in the gross revenue with the percentage increases in capital (table I.) we see that they are uniformly satisfactory. The Metropolitan is especially so, an increase of 10-3 in capital resulting in an increase of 20-9 in gross receipts. We have sub-divided the net revenue of this Company according as it belongs to the Surplus Lands stock or the Ordinary stock. The dividend now paid on the former stock was, until 1886, included in the dividend on the Ordinary capital. In that year 50 per cent, of Surplus Lands stock was issued to holders of Ordinary stock, and holders of this now receive the Estate Eevenue, which, for comparison, we have ( 19 ) shown separately. Following our previous plan, we show in our next table the resulting gain or loss from the ten years' capital expenditure on the basis of a 4 per cent, return. IV. RESULTS OF CAPITAL EXPENDITURE. COMPANY. Capital Expenditure in 10 Years. Table I. Increase in , n Annual Gain Net Revenue q r nt : o Great Eastern Great Northern 8.197,167 6.432,543 302,022 190.639 327,836 257,302 25,864 66,663 Metropolitan 1 038,850 47986 42,754 -t- 5,232 Do. District.. 1,001,741 35.942 40,069 1 - 4,127 1 The results above are not very striking. The Great Northern loss is considerable, however, though, as the next table will show, the effect on the Ordinary dividend is much more adverse than the above figures would indicate. Owing to special con- ditions, which we explain below, the Metropolitan and the District are in a similar position, whilst the Great Eastern has been able to mitigate the unfavourable effect produced on its net revenue by recent capital expenditure. Our next table (No. V.) shows the effect on the Ordinary stock of the above figures and the actual results : V. RESULTS TO ORDINARY SHAREHOLDERS. COMPANY. | Annual Gain or LOBS. Table IV. Per Cent, on Ordinary Stock. Dividend Paid. Actual Gain or Loss. 1882. 1892. Great Eastern 25,864 8. d. 041 - 9 + 2 039 2 5 5 , 3 6 Ord 2A 4* 3*1 "lAJ SPref. s. d. + 026 - 17 6 -089 f2% on ! Pref. " I and -ft | on Ord Great Northern Metropolitan 66,633 . + 5,232 4.127 Do. District . * Dividend on 50 Surplus Land Stock, 1892. The discrepancies between the results on the basis of a yield ( 20 ) of 4 per cent, and actual results are large in each case, except that of the Great Eastern, and are, moreover, of an adverse character. The gain shown by the Great Eastern, of 2s. 6d., in spite of an apparent loss of 4s. Id., points to the fact that the Company has, on the average, been able to borrow at about 3| per cent. The difference in the case of the Great Northern is the result of an enormous increase in the Ordinary stock in the ten years. This increase amounts to 4,737,985, and, furthermore, at the half-yearly meeting in February last 2,000,000 Ordinary stock was created. It should be stated, however, that over 1,900,000 of the above increase in Ordinary Stock was due to the conversion into that stock of the 1878 and 1881 Preference issues. However, the increase in the Ordinary stock bearing a higher rate than 4 per cent, has been enough to reduce the dividend by 17s. 6d. and, together with an increase of 20,000 in guaranteed rent, accounts for the difference shown in our table. The loss of 8s. 9d. in the Metropolitan dividend is equal to 22,000, and in addition we must add the sum of 5,000 shown in the first column, together equal to 27,000. This sum is accounted for by the fact that 383,000 of stock was in issue in 1882 bearing no dividend, and this, at present rate paid, represents 17,000, the difference of 10,000 being accounted for by the circumstance that the debit balance on capital account was reduced in 1892 compared with 1882 to the extent of 240,000. The loss of dividend in the case of the District Preference stock is mainly owing to 541,152 of Guaranteed stock having been issued in the year 1882 with dividend postponed, whilst curiously enough, the loss of 4,127 shown in the first column of above table is just equal to -fr, the rate 01 dividend paid on the Ordinary in 1882 and the last- dividend it received. 21 ) IY. PROVINCIAL RAILWAYS' CAPITAL. In this chapter we propose to deal with four of the more important provincial lines. The Companies included in this group, which we propose to consider, are the Furness, Lancashire and Yorkshire, Manchester, Sheffield and Lincoln- shire, and North Staffordshire Companies. For comparative purposes, it should be remembered that, as a rule, these four companies are each subjected to special local influences, and as the district within which their operations extend is in each case comparatively small, the temporary state of the trade on which each Company mainly depends plays an important part in determining the adversity or prosperity of the Company itself. Thus we find that the Furness, which depends to a large extent on mining and iron industries in the West Cumberland district, is now passing through an abnormal period of depression, and shows a decline of 5| per cent, on the rate of -dividend paid on its Ordinary stock compared with 1882, whilst the North Stafford, serving the Potteries, has in the same period increased its dividend considerably. The Lancashire and York- shire and Sheffield Companies, though not sharing much in common, were in 1892 both influenced by the depression in the mining and cotton industries, and consequently the results ( 22 ) displayed by them compare unfavourably with those of 1882 ;. and, further, both have suffered from increased working expenses. Subjoined is our table (No. I.) showing the increase in capital expended in the ten years 1882-92 : I. CAPITAL ACCOUNT. COMPANY. Capital Ex- penditure to Dec. 31st, 1882. Capital Ex- penditure to Dec. 31st, 1892. Increase. Amount. Per Cent. 6,108.284 36,265,635 25,852,093 7,838,185 6,338,136 47,868,004 31,240,666 8,125,272 229,852 11,602,369 5,388,573 287,087 3-7 32-0 20-8 3-6 Lancashire and Yorkshire ... Manchester, Sheffield & Line. North Stafford . ... The expenditures in the cases of the Lancashire and Yorkshire and Sheffield Companies are large, amounting, as they do, to 32-0 and 20-8 per cent, respectively. The Lancashire and York- shire increase includes, however, 1,496,900 of Debenture Stocks,, issued to North Union and Preston and Wyre shareholders in lieu of annual payment formerly made, and this amount, therefore^ involves no extra charge against this company. The Sheffield figure shown above is the actual increase as given in the capital account of this Company. Owing, however, to a unique form of accounting adopted by this Company, whereby premiums received on stocks and shares, instead of being shown on the credit side of the capital account, are deducted in the half-year in which received from the debit in the capital account in respect of " lines open for traffic," the amount of 5,388,573 is really considerably below the actual sum expended in the ten years. We have taken out the amounts thus deducted from the debit side of the capital account in the ten years under review, and find they aggregate 1,303,091, so that, added to the sum given in our table, the actual expenditure is 6,691,664, or an increase of ( 23 ) nearly 26 per cent., and this is the sum with which we shall deal in our subsequent tables. It is difficult to see the reason for treating premiums in this way. The practice followed by every other important Company, with one exception, is to place the= balance of premiums received, less discounts, on the credit side of the capital account. The South-Eastern Company is the exception referred to, this Company putting the amount derived from premiums to a reserve fund. The increase in miles con- structed by the Lancashire and Yorkshire and Sheffield Companies in the ten years was 34 and 66 respectively. Our next table shows the estimate of further capital expenditure at December 31st, 1892. II. ESTIMATE OF FURTHER CAPITAL REQUIRED. COMPANY. Estimate of all Further Capital Expenditure, December 31st, 1892. Estimate of Further Expenditure on Lines Open for Traffic, December 31st, 1892. Furness 20,250 2,845 192 2,961,156 43,000 12,510 1,242,906 Not stated. 43,000 Lancashire & Yorkshire Manchester, Sheffield & Lincoln North Stafford As the Sheffield figure given above does not include the amount required for the London Extension, the Act authorising which did not receive the Royal Assent until this year, the modest figure shown above is now increased to 12,082,320. The raising of this money will be an interesting matter for the Sheffield Ordinary shareholders. In the last report it is stated, "the directors hope to be able to lay a satisfactory scheme before the proprietors for their approval in the course of a short time." Results of the Sheffield in the past do not give much encouragement in the way of inducing investors to subscribe to its new venture. The attempts to make that road the connecting link between the various Watkin railways, including the East London, the South- Eastern, the Metropolitan, and even Sir Edward Watkin's latest protege, the Neath and Brecon, may satisfy the ambitious pro- pensities of that gentleman, but are only of questionable advantage to the Sheffield shareholders. The proposed London Extension is sure to raise the ire of all the powerful Northern Companies, and if the Sheffield escape scatheless, it will be a surprising matter indeed. In the large estimate of the Lan- cashire and Yorkshire is included work authorised as far back as 1882. The following table gives the increase in gross and net revenue for the ten years : III. REVENUE ACCOUNT. COMPANY. Gross Revenue, 1882. Gross Revenue, 1892. Increase or Decrease Amount. Per Cent Fvrness 612,981 3,765,294 1,906,938 666,102 463,566 4,414,666 2,350,939 776,245 149,415 + 649,372 + 444,001 4- 110,143 -244 + 17-2 + 23-3 + 16-5 Lancashire and Yorkshire . . . Manchester, Sheffield & Line. North Stafford COMPANY. Net Revenue, 1882. Net Revenue, 1892. Increase or Decrease Amount. Per Cent. Furness 364,576 1,672,883 969,028 324,610 227,723 1,852,305 1,099,389 377,693 - 136,853 + 179,423 + 130,361 + 53,082 - 37-5 + 10-7 + 13-4 + 164 Lancashire and Yorkshire . . . Manchester, Sheffield & Line North Stafford The striking feature of the above is the enormous loss of revenue by the Furness. This loss of revenue is entirely due to the depressed condition of the coal and iron industries, which was ( 25 ) aggravated in 1892 by the Durham strike. A comparison of the receipts of the Furness Company for the years 1882 and 1892 shows that the passenger receipts increased by 3,000, the merchandise receipts remaining stationary, whilst the mineral receipts declined over 150,000, thus accounting for the whole loss of revenue. The result is, that whereas the Ordinary stock in 1882 was as high as 163, it is now 71, and its. dividend, which in 1871 and 1872 was as high as 10 per cent,,; and for a long period of years has averaged well over 5 per cent ; was in 1892 only 1| per cent. A revival in the mining industries will bring about a wonderful resuscitation in this Company's dividend, for the system itself is inherently sound. The increase in gross receipts in the case of the North Stafford Company of 16-5 per cent, is very satisfactory, and it is still more satisfactory to find that the net revenue has increased in the same proportion. This Company has practically a monopoly of the Potteries district, and is a close ally of the North- Western Company. Ifc is in a peculiarly strong position, and for some time past its Ordinary stock has been very steady, at about 125. Our next table (No. IV.) shows the results of the capital expenditure in th$ case of each Company : IV. RESULTS OF CAPITAL EXPENDITURE. COMPANY. Capital Expenditure in 10 Years. Table I. Increase in Net Revenue 10 Years. Table III. 4 per Cent, on Capital Expenditure. Annual Gain or Loss on Capital Expenditure.. Furness 229,852 136853 9194 146047 Lancashire & Yorks... Man., Sheff. & Lincoln North Stafford 11,602,369 *6,691,664 287,087 179,423 130,361 53,082 _ 464,094 267,666 11,483 - 284,671 - 137,305 + 41,599 * Includes 1,303,091 premiums deducted. The losses shown in the first three cases are considerable, and c ( 26 ) our next table (No. V.) will show their effect on the Ordinary dividend of each Company : V. RESULTS TO ORDINARY SHAREHOLDERS. COMPANY. Annual Gain or Loss Table IV. Per Cent, on Ordinary Stock. Dividend Paid. Actual Gain or Loss. 1882. 1892. Furness 146,047 - 284,671 - 137,305 + 41,599 s. d. 5 10 5 1 14 -2 10 + 1 5 10 7 41 *} 34 1* 3| 11 *l a. d. -5 10 150 -126 -1-176 Lanes, and Yorkshire Man., Sheff. & Lincoln North Stafford The results on the basis of a 4 per cent, return and actual results approximate very closely in the cases of both the Furness and North Stafford Companies. The difference of 9s. in the Lancashire and Yorkshire results represents the amount saved by its ability to borrow under 4 per cent, and the saving in respect of the nominal increase referred to above, namely, the exchange of Debenture Stocks for an annual payment to the North Union and Preston and Wyre Companies. The difference in the case of the Sheffield is larger, and arises from several causes. First of all, the credit to the Net Eevenue Account on account of Joint Lines, in which the Sheffield is interested, and on account of which it has raised a considerable portion of the 6,691,000 of capital shown above, has increased since 1882 by about 40,000. Secondly, it saved about 15,000 in 1892 in respect of interest on its 1891 Preference Stock as compared with the full charge thereon, and it is entirely owing to this item that, whereas in 1892 it paid a dividend of J per cent, for the first half, this year it pays nothing. These two items account for 1 per cent, of the 1 7s. 6d. per cent, of difference, and the balance of loss shown (7s. 6d. per cent.) has not fallen on the Ordinary shareholders, as it has been able to raise its capital at a rate slightly under 4 per cent. . CAPITAL EXPENDITURE OF SCOTCH LINES. This chapter deals with the recent capital expenditure of the five important Scotch railways, and its effect on revenue and dividends. As the circumstances of these Com- panies differ considerably, the results displayed are necessarily somewhat divergent, but the most cursory examination of the leading features of each Company will explain the variance of its results from those exhibited by its neighbours. Apart from this, however, a most noticeable feature presented by our investiga- tions is the marked distinction between the three larger Scotch 'Companies, the Caledonian, North British, and Glasgow and South- Western, and the other two, the Highland and Great North of Scotland, in the results obtained duriag the ten years. Both the latter have, in the decade under consideration, increased their gross revenue to a very large extent, and both have increased their net revenue also very largely, especially the Great North of Scotland. On the other hand, the three larger com- panies, though showing fair increases in gross receipts, uniformly exhibit but small increases in net revenue in comparison to the increase in their capital, and in consequence, all three show declines in their dividends in 1892 compared with 1882. The reason for this contrast will readily appear. Both the smaller .Companies have escaped the large increase in working expenses, which has told so adversely on the larger Companies. The growth in population in the Highlands, and, more important ( 28 ) still, the increasing popularity of this district as a tourist resort, have produced a large expansion of revenue of the two Companies serving it, and the due proportion of this, or even more, has been retained as net receipts by reason of their ability to work cheaply. Our following table (No. I) shows the increase in the capital expended in the 10 years from January 31st, 1883, to 1893 : I. CAPITAL ACCOUNT. COMPANY. Capital Ex- penditure to Jan. 31st, 1883. Capital Ex- penditure to to Jan. 31st, 1893. Increase. Amount. Per Cent. Caledonian 38,138,796 10,469,970 3,841,198 3,773,395 32.146,310 44,677,634 14,165,844 4,704,938 5,242,571 51,195,752 6,538,838 3,695,874 863,740 1,469,176 19,049,442 17-2 35-3 22-5 38S 59-2 Glasgow and South- Western Great North of Scotland ... Highland' 1 North British * To February 28th in each year. In the above table, the figures given are those shown in the capital account of each Company, and, therefore, in consequence of the form of accounting adopted by the Caledonian and North British Companies, the increases shown include nominal additions to- capital, while in the case of the other Companies the increases- shown above are actual. It is only by examining each half -year's- account that the nominal additions can be ascertained, and this- we have done, with the result that we find the nominal additions- amount to 1,730,000 in the case of the Caledonian, and no less than 10,717,974 in the case of the North British, so that the actual increase in each Company's capital expended in the ten years is 4,808,838 and 8,331,468 respectively, and these amounts we deal with in Table IV. The total amount of " water " now included in the North British figure of 51,195,752, shown above, exceeds 13,000,000, so that every 100 of stock issued by ( 29 ) this Company representing actual cash has been supplemented by nearly 35 of stock representing nominal additions. This truly American record has been attained by the conversion of the Ordinary Stock and Convertible Preference Stocks, and consoli- dation of Lieu and Debenture Stocks, operations which have no doubt benefited the respective holders. Table II. shows the last estimate of further expenditure on capital account. II. ESTIMATE OF FURTHER CAPITAL REQUIRED. COMPANY. Estimate of all Further Capital Expenditure , January 31st, 1893. Estimate of Further Expenditure on Lines Open for Traffic, January 31st, 1893. Caledonian 3,033 852 197 143 Glasgow and South- Western ... Great North of Scotland . . . 483,757 110,000 258,108 60000 Highland 266,000 15 COO North British '. 2,503,288 2,047 754 It will be seen that the Caledonian and North British are committed to considerable expenditure in the near future. Whilst, however, the Caledonian contemplates extension, the major part of the estimate of the North British is for lines already open, including 1,800,000 for Waverley Station. Our next table shows the growth of gross and net revenue in the ten years. III. REVENUE ACCOUNT. COMPANY. Gross Revenue, 1882-3. Gross Revenue, 1892-3. Increase. Amount. Per Cent. Caledonian 2,865,484 1,111,211 297,493 349,081 2,523,675 3,296,004 1,312,533 386,738 460,969 3,301,390 . 430,520 201,322 89,245 111,888 777,715 15-0 18-1 30-0 32-0 30-8 Glasgow and South- Western Great North of Scotland Highland North British ( 30 ) II. REVENUE ACCOUNT. Con. COMPANY. Net Revenue, 1882-3. Net Revenue, 1892-3. Increase. Amount. Per Cent. Caledonian 1,469,570 567,423 137,407 163,179 1,301,245 1,668,750 593,167 198,909 215,864 1,617,073 199,180 25,744 61,502 52,685 315,828 13-6 4-5 44-8 32-3 24-3 Glasgow and South- Western Great North of Scotland Highland North British As we pointed out above, the Great North of Scotland and Highland Companies show very much better results than the other three Companies. The Glasgow and South- Western, with an increased capital expenditure of 35-3 per cent., is especially disappointing, as this has only resulted in an increase of 18-1 per cent, in gross and 4-5 per cent, in net revenue. The North British increase of 30'8 per cent, in gross revenue compared with an increase in capital, after allowing for nominal additions, of only 26 per cent., is satisfactory, especially as a great deal of the capital has only been expended quite recently. Som& allowance must, however, be made for the fact that in 1892 the sum of 118,688 of net revenue was paid over by the North British as the amount due to the Forth Bridge Company, and this amount included in the figures of our table did not of course, form a deduction in 1882. This sum has been deducted from the increased amount of net revenue dealt with in our next table, and a fair comparison thus established. In regard to the Glasgow and South- Western, it should be stated that in 1892 the Company had to meet an entirely new item of expenditure, amounting to 46,000, for steamers. The subjoined table (No. IV.) shows the results of the ten years' capital expenditure on the basis of a 4 per cent, return : ( 31 ) IV. RESULTS OF CAPITAL EXPENDITURE. COMPANY. Capital Ex- penditure in 10 Years. Table I. Increase in Net Revenue 10 Years. Table III. 4 perCent. on Capital Expenditure. Annual Gain or Loss on Capital Ex- penditure. Caledonian *4,808,838 3,695,874 863,740 1,469,176 *8,331,468 199,180 25,744 61,502 52,685 1 197,140 192,353 147,835 34,550 58,767 333,259 + 6,827 -122,091 + 26,952 6,082 - 136,119 Glasgow & S. Western Gt. North of Scotland.. Highland North British * Excluding nominal additions. f Excluding amount paid Forth Bridge Company. The figures of the Highland and Caledonian are practically the same on the basis of a return of 4 per cent, as they have actually proved to be. When we come to examine the effect of these figures on the ordinary dividend, the outcome is quite different, however. The Great North of Scotland gain of 26,952 is very satisfactory, and in comparison the Highland result may appear less acceptable than it really is. It should be remembered, however, that the expenditure of the Highland has been more than the Great North of Scotland, and represents a longer extension in the 10 years under consideration, and will therefore tell more effectively in the future. With a capital expenditure of 1,469,000, the Highland has increased its mileage constructed by 135 miles, whilst the Great North of Scotland, with an expenditure of 864,000, has only increased its mileage by 29 miles. As evidence that the Highland result is actually a very satisfactory one, we may point to a comparison between it and the Glasgow and South- Western. The latter Company increased its capital by 35-3 per cent, between 1882 and 1892, and the accompanying increase in net revenue was only 4-5, while in the same period an increase of 38'9 in the capital expended by the Highland Company produced an increase ( 32 ) of 32-3 in net revenue. Our next table (No. V.) shows the effect oj the capital expenditure on the Ordinary Stock : V. RESULTS TO ORDINARY SHAREHOLDERS. COMPANY. Annual Gain or Loss, Table IV. Per Pent, on Ordinary Stock. Dividend Paid. 1882. ! 1892. Actual Gain or Loss. Calcdonifin ... + 6,827 - 122,091 + 23,952 6,082 - 136,119 s. d. + 011 - 2 9 5 + 2 18 7 - 5 9 2 5 4* 51 nil. 4* tf{ 4* 44 3* 41 2 t Pref iDef. s. d. -076 -176 + 350 + 12 6 } 12 6 Glasgow & S.- Western Gt. North of Scotland Highland North British : In the case of the Caledonian, an actual loss of 7s. 6d. compared with an apparent gain of Is. Id. is accounted for by the fact that 587,000 of Ordinary Stock was in issue in 1882, with dividend postponed, and 1892 a sum of 25,000 was carried to reserve, as against nil in 1882. These two items account for 51,000 out of a total loss of about 60,000, and the balance is represented by the increase of Ordinary capital, amounting to about ,1,750,000, carrying a higher rate than 4 per cent. The Glasgow and South- Western has reduced an apparent loss of 2 9s. 5d. to an actual one of 1 7s. 6d. by making good use of its credit. All its capital requirements in the ten years have been met by the issue of Preference and Debenture Stocks, no Ordinary Stock being issued. A gain of 26,900 by the Great North of Scotland, though not large in amount, has raised the Ordinary dividend from nil to 3J. The Ordinary Stock of this Company is very small, representing only about one-sixth of its total capital, and consequently an adverse or favourable feature in the revenue produces an unusually large effect on its dividend. This fact explains the curious vicissitudes its Ordinary dividend has undergone. A gain in the Highland dividend of 12s. 6d., ( 33 ) compared with an apparent loss of 5s. 9d., is due partly to 365,000 of Preference Stock being included in 1892, carrying no dividend until this year, and also to it being able to borrow a little under 4 per cent. The large loss shown by the North British on the basis of a 4 per cent, return has been reduced to 12s. 6d. by reason of the dividends on 1,004,000 Convertible Pre- ference Stock 1890, and 1,124,319 Convertible Preference Stock 1892, being postponed until this year. This represents at 4 per cent, about 85,000, the actual loss in dividend representing a further 40,000, together 125,000, equal to 2 per cent, on the original Ordinary Stock, so that apparently the Company has only been able to borrow at 4 per cent, on the average. YL THE RETURN ON RAILWAY CAPITAL. A few months after the close of each year the Board of Trade issues a return comprising many valuable statistics in relation to the railways of the United Kingdom for the preceding year. According to the last return that for 1892 the net revenues of all the railways of the United Kingdom for that year repre- sented 3-85 per cent, on the total paid-up capital. The latter includes, however, the nominal additions to capital arising from the conversion and consolidation of Debenture and Preference Stocks and division of Ordinary Stocks. Moreover, it does not give in any way the return on the capital of each individual Company. This is, of course, a matter of the utmost importance to the holders of the stocks in the various Companies, especially in view of the influences at present at work, which attach additional interest to these and similar considerations. The Regulation of Railways Act of 1868, so far as it applies to railway accounts, has maintained, in many directions, that uniformity in the published accounts which was its main object* None of the accounts of the Companies, however, show so much variation as the all-important capital account. This diversity of treatment of various items common to most of the Companies- is, no doubt, due to the various developments since 1868, which have been treated by each Company according to its own version of what was the correct method. The want in the capital account of that uniformity which, thanks to the Act of 1868, is so characteristic of railway half-yearly accounts, as a whole, is to be regretted, but, in order to make fair comparisons, the figures given in the following tables have been put as far as- ( 35 ) possible on the same basis, with the aid of the materials, supplied by the published accounts of the Companies. The- return of 3-85 per cent, shown in the publication referred to--- above is, as stated, on the total paid-up capital of the Com- panies, and besides including nominal additions, amounting to considerably over 50,000,000, includes a further similar amount of stock which received no dividend. The table sub- joined gives the following particulars in reference to ten of the^ principal English Companies. I. Amount of capital, including nominal additions and premiums, received on stocks, less discounts. II. Amount of nominal additions. III. The actual amount received and expended by the Com- panies on capital account, including premiums, &c. The figures shown in the last column of the table are, in fact as accurately as the accounts of the Companies will enable us to* define them, the actual amounts paid by the original shareholders, without reference to the changes in market values which have- since taken place. The amount of the capital is taken as at 30th, June, 1892, this representing approximately the mean capital for the year for the purpose of calculating the return thereon for the year 1892. COMPANY. Capital Expenditure to June 30th, 1892. Amount of Nominal Additions. Actual Capital' Expenditure at June 30th, 1892. Great Eastern 47 013 251 4 157 946 42 855 305 Great Northern 47 503 469 7 969 071 39 534 398 Great Western 79,970 853 79 970 853 Lancashire and Yorkshire London and North- Western ... London and South- Western ... Midland 49,660,663 112,028,986 33,926,108 98,374 495 2,100,588 9,372,132 1,444,911 10 073 283 47,560,075 102,656,854 32,481,197 88 301 212 Manchester, Sheffield & Line.. North-Eastern 30,503,069 63,173,532 399,200 30,503,069> 62,774,332 South-Eastern 24,314,690 24,314,690 . ( 36 ) The large amounts of the nominal additions shown above are worthy of notice. The nominal increase in the capital of the Great Northern of nearly 8,000,000, equal to over 20 per cent, of the actual capital, is proportionately much larger than in the case of any other Company. Over 6,000,000 of this amount s due to the conversion of the Ordinary Stock and the consolidation of the Debenture Stocks into one 3 per Cent. Stock, both of which operations were authorised by the Great Northern Company's Capital Act of 1890. The Midland increase of over 10,000,000 is due to the consolidation of the Debenture, Preference, and Guaranteed Stocks. These two Companies, the Great Northern and the Midland, are the only two English Companies that have at present converted their Debenture Stocks into a 3 per Cent. Stock. The North British have, however, recently converted theirs into 3 per Cent., and the London and North- Western and London and South- Western Companies in their Bills, which have received the Royal Assent, have now powers to convert their Debenture Stocks also. The Great Western Company, which is the only one of our great Railway Companies which has any large amount of its capital represented by 5 per Cent. Stocks, has not yet adopted any conversion scheme. It is somewhat remarkable that altogether more than half of this Company's capital is at the present time in the shape of Debenture, Preference, and Guaranteed Stocks, carrying 5 per cent, interest. There is much to be said in favour of the conversion of the Debenture and Preference stocks, so that the nominal rate of interest borne by them approximates in some degree to the return on the market price. As matters now stand, if a 4 per Cent. Preference or Debenture Stock is issued by, for example, the London and North- Western Company ? for which 130 to 135 per cent, would be realised, 30 to 35 of this is treated as premium. It would certainly be more convenient, both for themselves and for the public, that the Company should ( 37 ) in a case like this have power to issue a 3 per Cent. Stock,, and there is not much doubt that this course would be the more economical one for the Company, for it is a market axiom that a stock below or about par commands a relatively higher price than a stock standing at a large premium. On the other hand,, something may be said against the adoption of a conversion scheme ; for instance, it may be urged with considerable reason that it is not at all certain that in the future the Debenture and 5 Preferential Stocks of our railways will in all conceivable circum- stances continue to command as good prices as they have recently. The following statement gives the net revenue for 1892: including credits on net revenue account, of the ten Companies referred to, with the percentage proportion of the same to the actual capital expenditure given above COMPANY. Net Revenue for Year 1892. Per Cent, of Net Revenue to Actual Capital Expenditure. Great Eastern 1,882,723 4-39 Great Northern 1,815,941 4-58 Great Western 4,215,420 5-27 Lancashire and Yorkshire 1,860,036 391 London and North- Western London and South- Western Midland 5,355,397 1,610,168 4,274,025 5-22 4-96 4-84 Manchester, Sheffield & Lincoln. North-Eastern . . 1,251,696 2,723,854 4-10 4-34 South-Eastern 1,116,844 459 Total 26,106,104 4-74 In regard to the North-Eastern, it should be remembered' that the Company incurred a loss of revenue in the first half of the year 1892 amounting to nearly 500,000, in consequence of the Durham coal strike. This represents about 240,000 net revenue. Allowing for this exceptional loss the return woulcf ( 38 ) "have been 4-72 per cent., instead of 4-34 per cent., as shown -above. The results, it will be seen, show considerable variation. The extreme difference is nearly ! per cent., varying from 3'91 in the case of the Lancashire and Yorkshire, to 5-27 in the case of the Great Western. Altogether the net result, showing, as it -does, a return of 4-74 per cent, over the whole capital of the ten /principal Companies, representing considerably more than half