Stranded whale problem of NFC passed to Gov't
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by John Darker
WHEN Sir Dan Pettit discussed the National Freight Corporation's annual accounts for 1975, revealing a E31 million loss for the year, he said quite frankly that the picture had to be shown "warts and all." The NFC's progress had been punctuated by a major hiccup.
The trading slump, he confessed, had cut deeply into the revenues of a number of NFC companies. Despite strenuous, dedicated efforts by management and staff the slump had revealed •a deep-seated weakness, particularly in National Carriers Ltd.
"We tried to stem this with seed corn from other sides of the NFC but decided this was not the right policy, and we have referred the NCL problem to the Government this year— as we have done before," he said.
These words can only mean that Mr Peter Shore, the new Environment Secretary, must face the problem originally posed by Mr Peter Land—then parcels and smalls supremo— to Mrs Barbara Castle. What to do about that voracious cuckoo in the nest, National Carriers Ltd ?
The company has absorbed a lot of sound management talent, but its rail-based traditions have not readily been ditched and it has not always moved quickly enough in the direction of specialised, purpose designed services, to make the breakthrough to long term viability. Had national output continued to rise the story might have ended happily. The savage decline following the oil crisis increased the annual rate of loss of NCL to £9.8m in 1975.
To this staggering loss, despite higher gross receipts (£72.8m against £64.8m in 1974) must be added more than £8m. The total trading loss now amounts to £18.4m.in 1975 if charges for interest and pensions borne by the NFC were apportioned out to all companies.
The profits of Roadline UK Ltd (formerly BRS Parcels Ltd) were slashed to £0.49m in 1975 from £1.93m in 1974, and better results in earlier years. Nothing more clearly reflects the effect of a trading slump on road transport than this merciless squeeze on the profits of Roadline—at one time the brightest jewel in the NFC's crown.
Sir Dan seemed convinced that UCL's bonanza profits (CM last week) of £1,674,389, up 62 per cent from 1974 figures, did not reflect badly on the performance of Roadline. Perhaps the answer here is to be found in the hq expenses. The NFC's hq costs, spread over all companies, amounted to nearly £1 im in 1975.
The profitable road-based UK companies in the NFC notched up profits of £6.6m, of which the BRS companies— now well established in contract hire, distribution, warehousing and truck rental— accounted for £2.84m.
Freightliner results were disappointing with a trading loss of £1.2m against a profit of £0.3m. in 1974. Sir Dan hinted that BR charges for the use of track by Freightliners were sometimes excessive, pricing the service out of the reach of throughout road movement.
With unprofitable companies incurring losses of £17.0m, there was a net trading loss of £10.4rn to which must be added £10.5m in interest charges payable to the Government.
In 1975 the provision was made for £16.4m for closure costs, redundancy costs, charges in respect of pension liabilities and other items. Taking account of £5.4m for profit on disposal of land and buildings and £0.9m for trading losses less trading profits attributable to minority interests, the Corporation's loss for 1975 tots up to £31m.
The NFC's long-term strategy of profitable operations in Europe, with a Government backed five-year plan, has misfired disastrously. The Corporation "has experienced the harsh realities of the tough competitive business environment that has emerged in Continental Europe. The severe economic recession, cost inflation, the pressure on sterling, subtle differences in Continental business customs and laws and the added difficulty of applying formalised profit planning and control principles all reacted to limit the Corporation's ambitions for European development in 1975."
The decision to end French activities with closure losses of £5m—net liabilities total £11.4m— cannot have been welcome. Some part of this loss may be recovered as a result of legal action against the previous owners of certain companies.
Sir Dan stressed the continuance of the policy of steering all NFC companies "up market." Of the parcels and smalls situation he felt that the results showed that ownaccount firms who had, in normal times, given the State parcels sector 10 per Cent of their traffic, were now doing this work themselves. NCL's Fashionflow and similar specialised services were perhaps a way to salvation.
Why has the NFC fallen on such hard times ? A principal cause lies in the inability of the NFC to continue to dispose of unwanted bits of its property empire, using the profits to regenerate the thriving sections of the business. With a property portfolio worth around £100m it was convenient to sell chunks annually; when, there is no cash advantage in doing so the exercise becomes pointless. No doubt some warm exchanges will be taking place between the Corporation and the Government as discussions for capital reconstruction get under way.
Much of the NFC's indebtedness to the Government—such as the near £100m commencing capital debt—is at the very low interest rate of 5.35 per cent a year. Interest on other loans, such as the £35m borrowed between 1970 and 1974, varies between 8.5 and 12.875 per cent.
Because of new land legislation one property that the NFC thought would bring in £4m was reduced in value to a derisory £50,000.
The complete winding up of NCL—a prospect Sir Dan did not envisage—would involve the Government in all kinds of difficulty. In my view, there would very likely be a rail strike to block such a move. Nearly all the 16,000 staff possess redundancy and pension rights.
Yet still the NFC appears to shrink from any move in the direction of parcels integration, taking in the relevant Post Office and Rail Express Parcels sectors beneath the State umbrella. How paradoxical that Sir Dan should note with displeasure the Post Office's intention to do its own thing with parcels by road in East Anglia!
Cartransport (BRS) Ltd lost a third of its business at a stroke during the Chrysler reorganisation. Fortunately, imports of foreign cars are now enabling car transporter services to balance with homeproduced cars in some measure.
Since 1969 the total NFC staff has fallen from 65,600 to 44,600 and vehicles operated from 29,000 to 22,400. Any political decision to expand the State sector of road haulage should be, in Sir Dan's view, on the basis of approval by the private sector. The NFC, he stressed, was sensitive to "political strokes of the pen."
In the specialist high-capital sectors in which the NFC sees itself operating in future its partners—or protagonists—will be mainly in the own-account sector because the bulk of the fragmented road haulage industry will be able to afford the costly vehicles and infrastructure. Really ?
Mr Peter Shore and Dr Gilbert must decide quickly how best to resuscitate the stranded whale that the NFC has become. The NFC abhors regular subsidy doles, though a major capital reconstruction surely amounts to the same thing for underwriting taxpayers.