WHILE " RESERVES" GO UP
Prom Our Labour Correspondent IT is far too early on in the war yet I to be able to ascertain the full effects on armament makers' fortunes. So far the incidence of the Excess Profits Tax would seem in the majority of cases to have stabilised these firms' profits at pre-war level,
though it must be borne in mind that such levels of late years have mostly been quite high.
Thus the vast network of industries grouped by the Imperial Chemical combine increased its trading profit from 19,023,292 in 1938 to 113,701,248 in 1939, but taxation rose from 1511,438 to 13,653,883, still leaving, however, a not insignificant increase of f1,538,511. This has been mainly ploughed back into reserves, and the ordinary dividend is kept at 8 per cent.
It is, of course, the item known as "reserves" that should receive most attention. Colin Clark, the eminent economist, has calculated that 20 per cent. of company profits are not distributed but find their way back into reserves in one form or another. The Economist index showed that in Imo 2,334 companies had between them net profit of 1260,912,000, of which no less a sum than 172,987,000 was put to depreciation and reserves.
Reserves and Contingencies
Vickers-Ar inetrong, doyen of arma ment firms, is a case in point. The parent company of Vickers had available for ordinary dividends in 1939 only f808,681, as against 1980,663 in 1038 (the smaller figure still represented 20 per cent. of the ordinary shares). Similarly, Vickers-Armstrong's allocation for ordinary share earnings declined from £1,104,795 to £1,028,143, and the associated English Steel Company from £550,141 to 1357,337.
But in each of the last two cases substantial increases appear in that vague allocation termed " sundry creditors, provision for taxation, and contingencies." In the instance of Vickers-A.rmstrong it leaps from 0,964,015 to L7,889,223, and for English Steel from £2,199,1,19 to ne,054,8e2, and it would seem nery likely that the " contingencies " conceal certain undprofits. S I Handsome closed prottisl.
Even so, and having full regard to the definite necessity of firms doing war work putting adequate sums to depreciation for plant that will be redundant afterwards, there are many very handsome dividends being declared.
The firm of Hadfields, well known in the arms constellation, has paid 22e per cent. on its ordinary shares for the third year in succession. Morris Motors, despite the slump in private motoring, have managed a divitiend of 40 per cent., and Stewart and Lloyds, although only paying the usual 12e per cent., actually earned 22.1 per cent., 1 per cent, less than last year but 6.6 per cent. more than in 1937.
From the above it will be seen that despite the Incidence of E.P.T., which is certainly taking the gilt off, there are still worth-while profits in the arms business.