The Seventy First Annual General Meeting of the Cunard Steam Ship Company Limited will be held on April 28. The following is the statement by the Chairman (Mr. F. A. Bates), which has been circulated to the stockholders:-
The report and accounts submitted to you on this occasion are, I think, of unusual interest to the stockholders and indeed note- worthy in the Cunard Company's long history. For the first time we are enabled to present consolidated accounts for the whole of the group of companies whose capital is owned by the company, in addition to the customary annual accounts of the Cunard Company. This has only been possible by the remarkable spirit of cooperation which has inspired the directors and staffs of all our companies give you accounts in this form.
The directors of the Cunard Company presenting the report are the same as last year, with two exceptions. Sir Thomas Brockelbank, acting under medical advice, is curtailing for the present some of his business activities and has resigned his seat on the board, much to the regret ot his colleagues. In Sir Richard Hopkins we welcome a new director already well known to us for his valuable services on the board of Cunard White Star. There will be also present with, us at the annual meeting some of the directors of the associated companies responsible for our combined trading results, now for the first time consolidated in one set of accounts by the skill of our grouped accountants.
Many of those most actively engaged in the direction of our affairs are men who have grown grey in the service of the shipping industry, and it is with great regret that 1 tell you that Mr. Herbert Cory, who bas been a director of the Port Line for over 30 years and chairman all through the war has decided to retire during May from the Cunard board, of which he has been a director for nearly 22 years. He will then also be retiring from the board of Cunard White Star, but the Port Line will, I hope, prevail on him to retain his directorship of that Line and to continue to give them the benefit of his long experience in that trade. Sir Arthur Cauty and Mr. W. R. Roberts are also retiring in May from the board of Cunard White Star. I cannot speak too highly of their services to the Cunard White Star Company from its formation until now, nor indeed of their personalities and organizing abilities, which have been devoted to the service of British shipping all their lives. They have earned retirement by merit as well as seniority and we wish them well. While referring to age, I would like to say that it is abundantly evident that the value to a company like ours, of maturity and experience in matters of policy and direction, knows no limit solely by the years of a man. The advice of the older directors is of inestimable value in the work of our board, and as chairman I can ill afford to lose their contribution.
Before commenting in detail on the accounts I will refer first to a matter which last summer created a good deal of public interest-namely, the arrangement which resulted in the Cunard Company acquiring the whole of the share capital in Cunard White Star, Limited, of which previously we had owned only 62 per cent. For 13 years in the North Atlantic trade there has bee a fruitful and smooth-working partnership within Cunard White Star, Limited between the Cunard Company and the O.S.N. Realisation Company, Limited, together with certain interests of H.M. Treasury and the Government of Northern Ireland. This partnership, which was cemented by the early and difficult years through which we have passed, has ended, not because the Cunard Company asked for a change, but because the Realisation Company sought the fulfillment of its destiny - a right which could not be denied to it. When the approach to us was made, the circumstances pressing on the Realisation Company to seek retirement brought a grave responsibility to the Cunard Company to offer fair terms, so that the retirement might take place in concord and continuing friendship. The Cunard Company did not wish to gain an advantage at the expense of their partners, nor did the latter wish to lay an over-heavy burden on the shoulders of the partner that would be left to carry on the company in the future.
It will be remembered that the shares in Cunard White Star, Limited, were held as to 62 per cent. by the Cunard Company and 38 per cent. by our partners - and so, after considering all the bearings of the matter, the Cunard directors laid down the principle that we would pay for this 38 percent of the shares at a price worked out on the book value of the assets in the Cunard White Star balance-sheet at December 31, 1946. Thus was a round price of 40s. per share decided as the fair figure to complete the deal. In addition, we paid to our retiring friends the dividends in respect of the 1946 operations. In fact, the retiring partners received full value for the built-up strength as exhibited in the balance- sheet without inflation, while the Cunard Company retained all that might be called the built-in strength which a prudent company requires to meet its varying fortunes in the future.
The most enduring form of credit of a company is that quality of confidence engendered by the men who have made its history and in this respect the Cunard Company is fortunate in finding itself well endowed, so when we desired to consummate the deal, our several bankers jointly gave us the necessary facilities. Our unsecured overdraft at December 31 last, as you see fin the accounts, amounted to £4,881,300 after reduction by payments from our current resources and by transfer to Cunard White Star Limited of real estate assets originally acquired by the Cunard Company primarily for the housing and conduct of its business on both sides of the Atlantic. At the time of the formation of Cunard White Star Limited in 1934, these large assets, here and in America, would have been transferred to that company together with the ships but for the fact that their inclusion in the deal at that time would have disturbed the agreed percentages of capital as between the respective parties. The continued use by Cunard White Star Limited of these premises was secured by tenancy agreements, but from many points of view it is desirable that such properties should be in the ownership of the operating company. The Cunard Company's purchase of the minority shareholding of the operating company provided the occasion to effect this change.
Since the end of the year the overdraft has been further reduced out of our current funds, to £4,581,300, at which figure it now stands.
Turning to the Cunard balance-sheet you will observe the important and beneficial changes which have been brought into effect, firstly on the assets side by the purchase of the additional Cunard White Star Limited shares and secondly, on the liability side, by the financial cooperation of our associated companies in arrangements to cancel certain internal indebtedness as explained later.
TOn the assets side our additional investment in £3,800,000 Cunard White Star shares has increased the book value of our holdings in subsidiary and other companies; and on the same side our real estate interests at home and abroad set up for the operation of the Atlantic business, have been transferred to Cunard White Star Limited, as already explained. In- dependent and expert valuations were obtained in order to fix a sound and reasonable basis for the transaction. The difference between the book values and the transfer valuations has been used to write down our investments in subsidiary companies which now stand at £18,581,625 in the balance-sheet.
On the liability side of the balance-sheet at December 31, 1946, there was an amount of £3,700,000 representing loans from Port Line Limited, and Thos. and Jno. Brocklebank Limited. It may be recalled that the Cunard Company borrowed this money in order to redeem the 5 per cent. Mortgage Debenture Stock in 1942. These loans have now been cancelled for the purpose of simplifying the accounts and of reducing indebtedness within the group as circumstances make possible. As the book value of the subsidiary investments has always been on a conservative basis, the cancellation of the debts has been dealt with in the Cunard Company's balance-sheet by transfer of the amount to reserve, the book value of these investments remaining unaltered.
In the profit and loss account the figures run on similar lines to those of the previous year. The item £17,005 on the right-hand side is a non-recurring profit in the books resulting from the sale of some overseas assets which were no longer required to hold for our business. The balance of profit for the year is £769,908 against £699,064 in 1946. It is proposed to transfer £100,000 to the reserve and £100,000 to contingency reserve.
From the contingency fund has been paid ?95,578 to the Cunard Superannuation Trust Limited, being the company's proportion of payments arrived at on an actuarial basis for the purpose of improving the scale of pensions available to our staffs when they retire on superannuation from our service. I may mention that Cunard White Star Limited, for the same object, set aside £350,000 in their 1946 accounts, and are adding a further ? £150,000 out of 1947 accounts. Where the salaried staffs are so scattered and diverse as those in our group, and with several and differing schemes affected, it becomes a difficult and intricate matter to handle all the problems involved. I can say with knowledge that great care is being taken to make the best job of it.
I now come to the consolidated accounts as at December 31, 1947. To make the production of these possible within three months after the end of the year is a remarkable achievement on the part of all our associated companies. The accountants concerned are to be congratulated on carrying through a very difficult task.
Under the Cunard Company's Articles of Association the annual meeting must be held before the end of April, so it will be apparent how narrow has been the margin of time. To provide for a tolerance of date in some future year when some unexpected delay might intervene to prevent completion of the accounts so early, the directors have recommended an alteration in the Articles of Association, in order to allow more time.
I regret that it is not practicable to provide figures for earlier years to set alongside this 1947 consolidation. This is the first year of Cunard White Star Limited as a 100 percent subsidiary and the usefulness of the consolidated figures will grow with each year in the future. The immediate value of the consolidation to the stockholders is to demonstrate the integral strength which long years have built up and built into the fabric of the Associated Lines. If to anyone the strength seems overdone, I can assure him that is not so. Out of strength by courage and enterprise the successful but costly refrigerated ships of the Port Line have been born. That is the parentage of the Port Line fleet now plying in the Australian and New Zealand trades to carry British exports out and Empire foodstuffs and general cargoes home. No different is the pedigree of the modern Brocklebank ships. They are the best that trade experience and naval architecture can design. With developments in refrigerated cargo spaces and air- conditioning of holds they are unsurpassed to serve the trades with India and Pakistan.
I will now refer to some of the salient features of the consolidated accounts which are a real consolidation of all the many companies in the Cunard group as at the same day, December 31, 1947. The work that this has involved has been immense. A mishap or delay to a single plane carrying the new form accounts from New Zealand, Australia, India, or America could have upset the whole programme. It was not till the middle of March that I could feel reasonably hopeful that all the necessary figures were in hand at Cunard Building. I would like to add a special word of thanks to the auditors of all the companies, at home and abroad. Their advice and cooperation on the problems involved have been invaluable.
Commenting first on the profit and loss account, the very heavy drain of the liability for income and profits tax amounting to £4,160,418 against the operating profit of £9,093,432 is startling, and I will refer later to its serious effect. After providing for taxation and depreciation the profit for the year is £3,186,260, a large figure, but none too large in relation to our grouped responsibilities for continuing stability.
Provision for pension funds at £310,000 is made up of allocations for different schemes by several companies in the group. The payment of £95,S78 by the Cunard Company, to which I referred earlier, is not included in this figure because it was debited to that company's contingency fund.
With regard to the consolidated balance sheet, the items are in form compiled from all the companies as though the group were a single company, and are largely self- explanatory.
The investments, £5,905,781, are almost all Government stocks. The tax reserve certificates, £2,914,000, are our preparation for paying the liability for taxes shown in the profit and loss account. On the left-hand side, the mortgage loans, £970,639, are mainly on Cunard House in London and on the New York building at 25, Broadway. The small item, £2,737 attributable to minority stockholders (with a counter- part item of £356 in the profit and loss account) represents small outside shareholdings in sub-subsidiary companies. They are insignificant figures and the fact that they have special lines of their own is evidence of our accountants' care in presenting these consolidated accounts.
When reporting on these matters, it is well to remind you that though this is the first year of union of the figures we have for years enjoyed consolidation of operations. The Brocklebank ships operate freely with those of Cunard White Star on the homeward Atlantic berths and the Cunard White Star cargo ships are to be found in the ports of Australia and New Zealand, while Port Line ships are operated on the Cunard White Star berths in the Atlantic. The sum of this is that the co- operation between the associated companies is as excellent on the seas as in accounting, to the great benefit of all concerned.
The figures in our consolidated accounts reflect the present financial strength of the company due to long continued and careful husbanding of our finances. But not so obvious is the danger inherent in the position when both constructional and taxation costs are alike swollen to their present degree. Ships are wasting assets and adequate provision out of profits for replacement is as essential to a continuing shipping company as any other expense. But burdensome indeed is this essential provision when post-war replacement costs are more than doubled and the dues to the Collector of Taxes are as large as 4,160,418GBP shown in the consolidated profit and loss account. The handling of the tax liability is now a major problem. It must be remembered that the current depreciation allowed on our pre-war ships against profits is less than half what is required for replacement at current building levels and, on top of this factor, the renewal moneys set aside and invested in earlier years have lost a great part of their buying value expressed in tonnage. Reserves are good, but if the reserve to buy a ton of shipping will only buy half a ton when expended, the reserve has lost its savour and twice as much reserve is needed.
When anyone assures me that the difficulties to the shipping industry arising from a 9s. in the GBP income-tax, plus profits tax, plus ever- expanding replacement costs, will be a figment of the imagination my inclination is to consider the translation of "experto crede " and to say to myself " You have been warned."
How long shipowners will be able to make progress in the face of these three adverse factors of excessive taxation, high price of new tonnage, and insufficient allowance for depreciation of old tonnage before the imposition of taxation of profits, is a question to which there can as yet be no precise answer. It is obvious that we must move very cautiously in developing our shipbuilding programme, especially during a period of shifting economics.
The additional tonnage, either built or acquired for each service during the year, is giving every satisfaction in performance.
The facts relating to the development of our various services, which are briefly set out in the report of the directors, tell their own tale. The year has been one of great activity in all the trades in which we are engaged. There have been many difficulties to overcome as the ships have been introduced gradually into commercial service, but the reputation of our companies, I am glad to say, stands high with both passengers and freight shippers in all parts of the world. The staffs, both ashore and afloat - seasoned and skilled teams as they are - have given every evidence of their old skill and efficiency in meeting and satisfying the wants of our patrons and developing the interests of the group in the face of increasing competition. In this connection I am sure it must afford the stockholders no little gratification to realize that the operations of the group contribute very materially to the export drive and in national goodwill. The hard currencies and invisible exports which our ships earn are of inestimable value to the country's economy.
Among the problems we have to face in every trade are the heavy increases in expenses in all directions, Notably oil fuel has greatly increased in price, and this factor alone will have considerable effect on voyage results during 1948. The continued delays in handling ships in port are another depressing feature with which we have to contend. To illustrate the consequence of these delays in our Indian trade the comparable picture is that in 1947 20 ships made 33 round Indian voyages, as against 60 similar voyages in 1938, not withstanding that the sea speed of our modern ships has considerably increased. It is a serious fact that the major part of the delay occurs in our home United Kingdom ports.
Finally, you may wish me to say something about our prospects. A year ago I expressed the perplexity of the times by the question "and who would be a prophet ? " Perhaps it is easier to practice foresight this April, because there is less fog when seas are stormy and there is no need today of prophetic gifts to enjoin a cautious outlook. It is a serious thing at any time to draw attention to the risks of one's trade, but particularly so when we may shortly be offering new shares to our stockholders. Nevertheless, I would be uneasy in mind if I failed to warn you of growing risks and dangers ahead, most of which are quite outside the company's control.
During 1947 there was a " low ebb in passenger accommodation in relation to the peak demand for it, and in all our cargo trades there was satisfactory employment. These factors have produced exceptional figures in our consolidated accounts, which it would be unwise to take as a standard. The year 1948 is still likely to be exceptional, but in different ways, and its changing factors bear small resemblance to those of 1947. So different n fact are the circumstances that I do not feel able to attempt a prophetic comparison.
We have a big stake in the Atlantic passenger and cargo business. How big will realized when I tell you that in 1947 Cunard White Star carried close on 150,000 passengers across the Atlantic on the normal commercial basis. The cargo carryings in the same period grossed over 1,000,000 tons. As new ships and the reconditioned ones come into the scheduled sailings we shall obviously need more passengers and more cargo. The universal urge to travel, trade, and see the world was never greater, but it is patent to all that the arithmetic and restrictions of the exchanges at present have the freedom of the seas in pawn. The menace to our traffic from restrictions during the national struggle to balance trade is a growing one. Nevertheless I would not have you think the company is in any way daunted. The reverse is the case, as will be realized when I mention that our building contracts and purchases of tonnage since the end of the war up to completion of the Caronia will have involved expenditure by our group of more than 14,500,000GBP. All these considerations have been before the directors in framing our policy, including attainment of the 10 per cent, dividend level reached last year.
Having dealt with the accounts, I now come to the resolution to increase the authorized capital of the company to 12,000,000GBP of ordinary stock which will be submitted to the Extraordinary General Meeting to follow this annual meeting. The directors' reason for recommending the increase is to make provision for reduction of our bank loans which, as I have told you stand today at 4,581,300GBP and to pave the way for any future expansion or development of the company's business. I should like in this statement to indicate the time, amount, and terms on which the directors may decide to make an issue, but we are hardly ready to do this. Subject to your support, it is possible that an issue to the stockholders to cover the bank loans, or part of them, may not be long delayed, but a good deal will depend on the outcome of events. Meantime, until any decision is notified, the proposal should be regarded as without commitment of any sort beyond giving the directors power to act at their discretion in the stock- holders' interests.
In the faith of the Cunard group we are a team of many thousands - with our eyes looking seaward for our living and our trade-with our hearts in the science of ships and in the art of their operation. We belong to every art and every trade, and truly we need them all. For the work, the duty, and service of 1947, I thank the men of the ships, their builders, and our friends in every town and village - our ships' companies and all the men and women in our offices at home and the United States and Canada and Europe. To the teams of the Port Line and Brocklebank, and of the other companies associated in the good partnership of our joint endeavours, in all parts of the world, I send my thanks for their cooperation throughout the year. I thank, too, our agents and the public everywhere who have given us encouragement and the shippers and consignees in every trade. To the passengers and all who use the ships, we offer our continued duty and unstinted service. There are so many in the team to whom we of the sea owe so much and not least is our debt to the naval architects and engineers, the artists and the craftsmen, the steelmen, carpenters and electricians, the finishing folk and the polishers, the fabric and carpet weavers - and when you get down to it you realize that it is all Britain who have bent their efforts to the beautifying of our ships, and who have by shipcraft and shipwork added the new names to the fleets which are printed with this report. Total gross tonnage of Cunard and associated companies, 897,053.