Wednesday, 11 January 2012

Profitable McEwan's

Just a brief little thing this time. One of those boring items that fill the financial pages and don't warrant a second glance. If we're talking about 2012. Go back 100 years and I'm suddenly much more interested in such dull stuff. Funny that.

You can see why they were keen on that share structure:

"The Directors of William McEwan and Co., Limited, Fountain Brewery, Edinburgh, report that at the sixth annual balance of the books, on 30th June last, the accounts of the Company show on the year's operations (including £25,759 brought forward from last year) a profit of £180,592. After payment of the 5 per cent dividend upon the preference shares, amounting to £25,000, the Directors have decided to dispose of the surplus as follows : —in payment of a dividend of 10 per cent and a bonus of 15 per cent on the ordinary shares, £125,000 ; balance carried forward, £30,592 ; the reserve fund remains at £100,000."
Manchester Evening News - Saturday 3 August 1895, page3.
£180,000 profit is a huge amount. These were the profits of George Younger, the largest Scottish brewer outside Edinburgh, around the same time:

For Year ending 3lst December, 1894,     £22,237 3 10
For Year ending 3lst December, 1895,     £1,416 15 9
For Year ending 31st December, 1896,    £38,173 0 4

Making more than four times as much profit as George Younger, McEwan must have been a very substantial enterprise. The whole of George Younger's business was only valued as £500,000.

Hang on. I can work out the valuation of McEwan from those figures and their share structure. If 5% is £25,000, then the full amount is £500,000. Similarly, £125,000 is 25% £500,000. So there were £500,000 worth of preference shares and another £500,000 worth of ordinary shares. Which values the company at a round million quid. Or double the size of George Younger.

"the Directors have decided to dispose of the surplus as follows" - it's worth bearing in mind that the Directors were also the owners of the ordinary shares. So they were voting to pay themselves. And just look at that - they got 5 times the return (25%) on their shares as ordinary punters did. What a surprise.

The return on investment - I make £180,000 of £1,000,000 18% - is pretty good. Though of course the Directors grabbed the lion's share. These were the boom years in brewing. Things would get a lot tougher in the new century. You can see why, with figures like this, investors were queueing up to buy shares in breweries.

As this was the sixth annual balance, McEwan must have gone public in 1889. That makes it one of the earliest in Scotland. Looking at the money the Directors (i.e. former partners) were making while still retaining control, it's no wonder most decent-sized breweries followed their lead.

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