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A profit and loss league for road haulage

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20th September 1974

Page 212

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Page 212, 20th September 1974 — A profit and loss league for road haulage

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by John Darker AMBIM

'Anyone borrowing money from the bank at 16 per cent in order to invest in a business offering a return of under 11 per cent must want his head examined'

FOR MANY years there has been a distinct need for comprehensive statistics on all aspects of road haulage — ideally within the covers of a single book. Periodically, the DoE publishes traffic surveys which form the main data for politicians and others to digest in formulating policies. The British Road Federation's "Basic Road Statistics" is, of course, a valuable annual publication.

It is a weakness of almost all published information that it is not hang up-to-date; without a series of figures bringing out the trend for the future the searcher for information may be led astray. It is well known that many companies in road haulage submit their company accounts to the authorities in most dilatory fashion, to the embarrassment of Licensing Authorities, or others, with a right to accurate current, information.

A new publication by the Financial Analysis Group Ltd (Somerset House, King Street Lane, Winnersh, Berkshire RG11 5AP): The British Road Haulage Industry a financial survey breaks interestingly new ground, for it lists 240 of the larger haulage companies, whether public, private or foreign owned, with an analysis of the latest reported accounts.

The survey extracts sales, profits, net capital employed, stocks, employees, wages and other financial data, and these figures are processed into an IBM System Three computer which calculates major operating ratios, aggregates, and where appropriate, averages for the industry.

On certain assumptions, the computer can also forecast ahead for five years, though the reliability of such forecasting in present conditions is questionable. If required, a subscriber to this publication — not exactly cheap at £22 — can ask for companies to be listed in descending order of any account item or ratio chosen.

The survey results make sombre reading. The authors, whose figures must be presumed to be accurate, say that the average return on capital in the road haulage industry has collapsed to only 10.9 per cent, with sales margins a mere 5.6 per cent. The sales margin presumably means the difference between the cost of providing the service and the price charged for it. Such a small margin must, of course, be related to turnover in a particular business.

The "Small profits, quick returns" formula of the original Mr Woolworth laid the foundations for a huge international business. But any haulage business working on a sales margin of under six per cent is terribly vulnerable to the normal hazards of business life. Rapid rises in the cost of fuel, tyres, and other necessaries may not be matched by equivalent increases in rates.

In an expansionary business climate customers may agree to pay more for transport with a resigned smile; in a recession, the haulier's bargaining strength is pitifully small, with far too many vehicles chasing the available traffic — and in an increasingly restrictive climate of price controls and consumer protection.

Overdrafts

As the survey authors point out, anyone borrowing money from the bank at 16 per cent in order to invest in a business offering a return of under Ii per cent, must want his head examined. It must be doubted, in fact, whether any experienced bank manager would provide a bank loan or overdraft facilities to any haulier whose business results are so unpromising — unless against cast-iron security. The average yearly wages of lorry drivers in the sample of 240 firms quoted worked out at £1,759 per man — much better pay than the average for British industrial workers.

It seems possible, if a high proportion of the 240 larger haulage companies make so little money, that the industry's thousands of "small fry" operators must be in equally parlous straits. I suspect that the owners of many tiny vehicle fleets in reality draw wages from their business which may be little better than those of their employed drivers.

The 10 most profitable road haulage companies -they are all subsidiaries — (based on the latest filed accounts, and return on net capital employed) are as follows:

Return or George White (Dagenham) capital %

Ltd 262.1 Middlesbrough Transport and Engineering Company Ltd 183.9 Vincit Carriers Ltd 111.8 R. Dennison and Sons Ltd. 105.6 F. Wardell (Haulage and Warehousing) Ltd 63.9 Highland Haulage Ltd 59.5 R.P.C. Transport Ltd 56.7 J. Stirland Ltd 52.7 KEM Transport Ltd 51.0 Thomas Transport Ltd 46.9 It must be stressed that the survey includes this league of profitability for the readers' amusement. The least profitable company in the survey has a return on capital of -675.6 per cent and two other well-known companies show a return of minus 100 per cent. All the most profitable companies listed are subsidiaries and eight out of ten of the least profitable are also subsidiaries. Clearly, one would need to know a lot more about the owning group's background and investment intentions before draw ng any firm conclusions from these ntriguing figures.

Capital return

The most profitable wholly iniependent operator is said to be T.

Brady and Sons Ltd, with a turnover of £943,000 in 1972 and pre-tax profits of £131,000. This company has a net capital employed figure of E432,000 with a pre-interest profit of E146,000 yielding 33.8 per cent profit/net capital employed, and a profit/ sales margin of 15.5 per cent.

Its sales/net capital employed percentage is shown as 218.3 and its NCF (Net Cash flow)/NCE ratio per cent 30.8.

The analysis includes tables of ;elected account items and ratios, Ind miscellaneous information, the latter including the number of Nnployees and their average pay :presumably gross pay). It would be helpful if future editions included a break-down of vehicle fleets, including the average age of vehicles; there is scarcely any limit to the 3upplementary information which !arnest seekers after truth would wish to know!

What would be interesting would be an analytical criticism of the report by an informed group of transport chartered accountants.

The authors say the combined turnover of the 240 survey com panies is £583 m and the combined net capital employed, £332m. "There is inevitably double-counting in these totals since subsidiaries and parent companies are often included separately ... ratios of return on capital and margin on sales, (10.9 per cent and 5.6 per cent respectively) do not appear very attractive against current interest rates." Many will say "amen" to that.

The survey price of £22 includes — at no extra charge — photocopies of any five companies' accounts listed within it. Good light reading at Christmas, perhaps, to the tune of: "Anything you can do, I can do better ..."