COMF kNY MEETING

TRINIDAD PETROLEUM DEVELOPMENT

BENEFITS OF DEVELOPMENT EXPENDITURE PROPOSED ISSUE OF NEW SHARES MR. KENNETH MOORE ON THE TAXATION POSITION

THE annual general meeting of the Trinidad Petroleum Development Company, Limited, was held on October 3oth at Sunningdale, Berks, Mr. Kenneth A. E. Moore, F.C.A., the chairman, presided.

The Secretary (Mr. J Mytton) having read the notice convening the meeting and the report of the auditors, The Chairman said: Ladies and gentlemen,—The report and accounts have been in your hands for some days, and, with your per- mission, we will take them as read. (Agreed.)

In normal times shareholders look on the one hand to the t. udited accounts for information as to the financial results and position, and on the other to the directors' report and to my statement at the annual general meeting for details of production, field operations and development. With information before them on both the financial and operational aspects of the company's affairs they are in a position to form for themselves a ‘..iew as to the company's position and prospects.

ALL WELL ON OPERATIONAL SIDE

On this occasion, however, there are two imponderables—on the financial side the uncertaindies of taxation, and on the operational side the absence of information. As to the operational side, I must on this occasion, and for reasons which need no explanation, ask shareholders to accept my assurance that all is well As to taxation, I shall be explaining the position fully later in my remarks.

Turning now to the accounts, you will observe that the profit before provision for taxation amounted to £36o,677—roughly double that for the preceding year. This somewhat startling increase is not, as might perhaps be thought, due to a violent increase in prices but rather to a number of factors, of which prices are only one, and to the fact that we are now reaping the benefit of the increased labours of the last few years, made possible by the additional share capital raised early in 1937

LIABILITY FOR EXCESS PROFITS TAX.

This brings me to the subject of taxation—and particularly our liability for Excess Profits Tax. You will have observed that we have transferred to taxation reserve out of the year's profits no less a sum than £200,000. Excess Profits Tax was at the rate of 6o per cent. for the first eight months of the past financial year and too per cent. for the last four months, the effective rate thus being 73+ per cent. for the year. For the current year it will, of course, be too per cent. So long as Excess Profits Tax remains at too per cent, its incidence is of such paramount importance to shareholders that I feel they are entitled to the fullest explanation of the company's position that I can give them at the present time.

COMPANY'S POSITION

That positon may be summed up as follows:— I. Under the Finance (No. 2) Act, 1939, the company's standard profit must be selected from its trading results in the calendar years 1935-1936-1937. In spite of the fact that it was then in the process of development and that annual production was very much less in those years than it has been since Excess Profits Tax was imposed, there is no provision in the Act under which the company can put forward a claim for relief on those grounds. 2. In arriving at its liability for Excess Profits Tax the company Is entitled to add to its standard profit 8 per cent, of any increase in the average capital employed in the business beyond that employed In the selected standard period. In connextion with this allowance for increased capital the Inland Revenue have put forward a technical contention, based on the fact that the company was a subsidiary com- Pany until additional share capital was issued early :n 1937, the effect of !ditch is substantially to negative any allowance in respect of that additional capital. It is that very additional share capital which has enabled the company to increase its production and profits. The Point at issue affects the company's liability to a very material extent, and I need harclly say that we are taking the matter to appeal. 3. Under the Finance (No. 2) Act, 194o, section 13, the company, king engaged in the production of oil, has the right and is taking Reps to join with others similarly engaged in a collective application for an increase in the rate allowed on increased capital. The basic rate is 8 per cent, as already mentioned, and the Board of Referees _liave power to increase it to such an extent as they think fit, but not '1211y case beyond 12 per cent, in all. ,Any concession obtained under section 13 applies to all companies 91 the class making a successful collective application, whether their dividual pre-war standards are good, bad or indifferent. In other words, the possible relief afforded by this section does not meet individual cases. It only empowers the Board of Referees to ec?gnIse the fact that in the getting of minerals or oil the benefit of PitAl expenditure may be exhaused at a greater rate than in the

case of other classes of commercial activity. Thus all companies within the class—rich or poor—obtain equal benefits.

There is, in fact, no provision in the existing legislation under which we, as an individual company, can get relief on the facts of our case—which, as you know, for want of a better expression, is a " hard case."

Now that Excess Profits Tax is at too per cent. it seems more than ever unfortunate that our legislators have failed so far to provide for cases such as ours.

You will appreciate that until these outstanding matters are dis- posed of the company's liability for taxation cannot be estimated with accuracy, but, as stated in the report, the company's advisers con- sider that the sum of £200,000 transferred to taxation reserve will prove to be more than adequate.

DIVIDEND OF 15 PER CENT.

After making this transfer there remains out of the year's profits a balance of £160,677. An interim dividend of 5 per cent., absorb- ing £5o,000, was paid in June last, and the directors recommend the payment of a final dividend of to per cent., absorbing Doo,000 and making the total dividend for the year up to 15 per cent. as for the previous year. If the directors' recommendations are approved th° amount to be carried forward will be £74,305, an increase of £10,677 over the balance brought forward from the previous year.

Turning now to the balance-sheet, you will observe that the two principal items on the assets side which are affected by capital expenditure—namely, oil wells and development account and plant, buildings, tanks, pipe lines, stores, materials, &c.—once again show a substantial increase over the corresponding figures for the preceding year. In fact, taking these two items together, the increase amounts to £152,749, in spite of the fact that £112,253 has been written off during the year for depreciation. Part of this increase is accounted for by the fact that as a matter of policy certain reserve stocks of stores and materials have been built up in Trinidad, but in the main the increase is due to permanent capital expenditure.

EXPENDITURE ON DEVELOPMENT The position is therefore that during the past and recent years large sums have been spent on capital account in connexion with the development of the company's properties, and, if I may say so, spent to very good purpose. But with taxation at its present level it is no longe" possible to finance such expenditure out of profits, and it is largely for this reason that your directors have come to the conclusion that the capital resources of the company must now be increased.

As you will have seen from the report, we propose to seek the authority of the shareholders for an increase of £2oo,000 in the authorized share capital of the company in the form of zoo,000 6 per cent. redeemable cumulative preference shares of Li each. The consent of the Treasury has been obtained to this proposed issue, and an extraordinary general meeting is to be held at an early date to deal with the matter, and it is our intention to offer the new shares to our shareholders at par in proportion to their existing share holdings. I want to take this opportunity on behalf of the board of expressing our thanks to Commander Lavmgton, our manager in Trinidad, for the satisfactory way in which the company's affairs have been carried on during the difficult conditions of the past year. I am sure that as shareholders you will wish to be associated with your directors in saying that we are most grateful to him and to all in the company's service in Trinidad and London for the success with which they have carried on.

IMPORTANT CONTRIBUTION TO NATIONAL EFFORT In conclusion, management, staff and shareholders may justifiably derive solid satisfaction from the fact that the company as making an important contribution to the oil supplies of the Empire so vitally necessary for the prosecution of the war. In addition, shareholders, though they may feel that the company is unfortunately placed with regard to taxation, can at least derive some consolation from the fact that money as well as oil is necessary to win the war, and they are supplying both in no small measure. The Chairman concluded by moving the adoption of the report and accounts. Maior Goronwy Owen, D.S.O., D.L., M.P., seconded the resolution and it was carried unanimously. The proposed final dividend of to per cent., less tax (making 15 per cent. for the year), was approved. The retiring director, Mr. T. L. Jacks, C.B.E., was re-elected, and the auditors, Messrs. Josolyne, Miles, Page and Company, reappointed. The proceedings terminated with a vote of thanks to the chairman, directors. and staff. "