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We've seen how the directors of Arrol sought and received permission to issue more preference shares. 15,000 in all, if they saw fit. But what really happened?

New preference shares were issued, but not the full 15,000. Only half that: 7,500. The details of the issue are fascinating because they let us peek inside Arrol's books. How well had the company been doing since flotation? Had they been raking in the dosh like McEwan? Let's take a look.

"The Subscription List will open on TUESDAY, the 1st day of August, 1899, and will close on or before THURSDAY, the 3rd day of August, 1899, for Town and Country.

No portion of this issue has been or will be underwritten.

London, Glasgow. Newcastle-on-Tyne and Alloa.

Registered under the Companies' Acts, 1862 to 1890.

Present Issued Share and Debenture Capital.

10,000 Ordinary Shares of £10 each £100,000
15,000 5.5 per cent. Cumulative Preference Shares of £10 each 150,000
4.5 per cent. First Mortgage Debenture Stock 200,000

New issue of 7,500 5.5 per cent. Cumulative Preference Shares of £10 each at par, being one-half of the additional Capital duly authorised in January 1899, payable as follows :-

£1 0 0 per share on Application.
£3 0 0 ... per share on Allotment
£3 0 0 ... per share on 2nd day of October, 1899
£3 0 0 ... per share on 1st day of November, 1899.
£10 0 0

The dividend on the Preference Shares will be paid half-yearly, on the 1st day of April and the 1st day of October in each year, as on the existing Preference Shares. The first payment will be made on the 1st April, 1900, and will be for the amount of dividend accrued from the dates of payment of the several instalments. All the Preference Shares rank, both for Capital and Dividend, in priority to the Ordinary Shares.

THE Company, which was formed to acquire the old-established and well-known business of Archibald Arrol and Sons, Brewers was registered in June 1895,and there were incorporated therewith the businesses of Mr John Meikle and Mr William Turnbull, Newcastle upon-Tyne. The progress and prospects of the business are highly satisfactory. Irrespective of the trade of the Public-houses managed by the Company, which has been largely developed, the output at Alloa and Newcastle has greatly increased.

This progress is shown by the subjoined statement of Nett Profits taken from the Company's Audited Accounts for the past four years. The amount of £28,890 6s 2d for the year 1899 is arrived at after debiting £2,032 10s for interest on Loans, which it is intended to pay off out of the proceeds of the present issue, and may therefore be fully reckoned at £30,972 16s 2d : -

Year ending 31st May, 1896 .. £23,585 9 11
Year ending 31st May, 1897 ... 24,790 6 0
Year ending 31st May, 1898 ... 28,619 5 0
Year ending 31st May, 1899 ... 28,890 6 2

At its incorporation the Company held 40 freehold and leasehold licensed properties, and was interested in other 32 licensed houses - in all 72 houses. On 31st May, 1899 it held 86 freehold and leasehold licensed properties and was interested in other 150, giving a total of 236 which draw their supplies from the Company's Breweries at Alloa and Newcastle-upon-Tyne.

The Property and Assets of the Company stood in the Balance Sheet of 31st May, 1899, at £633,244 19 7
After deducting Debenture Stock, Loans on Properties, and other Creditors 357,093 4 0
£276,151 16 7
To which add the proceeds of the present issue 75,000 0 0
Making a total of £351,151 15 7

to cover the £225,000 Preference Share Capital including the present issue. The issue of 15,000 additional Preference Shares of £10 each, to rank in all respects pari passu with the original issue of Preference Shares, was duly authorised in January last, and the Directors now offer for subscription 7,500 5.5 per cent. Cumulative Preference Shares of £10 each at par. The remaining 7,500 Shares are held in reserve for future issue as required.

It is intended to a apply the proceeds of this issue in the further development of the business and in paying off certain existing Mortgages amounting to £48,000 or thereabouts.

The Nett Profit for the year ending 31st May, 1893, as above, was £30,972 16 2
The Interest and Dividend on the already existing issue of Debenture Stock and Preference Shares absorb per annum 17,250 0 0
Leaving £13,722 16 2

while the dividend on the present issue only requires £4,125 a year, and it should be stated that the very satisfactory profits for 1899 were earned although the Company did not have the benefit, of a full year's trading profits from the additional houses acquired during that year.

The existing Debenture stock and Preference Shares of the Company are officially quoted on the Stock Exchange, and application will, in due course, be made for a quotation of the present issue."
Western Times - Tuesday 01 August 1899, page 1.
I didn't bother including the duller parts of the prospectus, where the directors, bankers, solicitors, etc.are listed. One thing is worth noting about that list: who isn't on it. Mr. Smyrke's association with the company appears to have ended. Was that by any chance connected with the court case with Mr. Key?

Notice something odd about the company asset's? They'd declined since the launch four years earlier, when they had stood at £416,276 19 6. The £75,000 raised from this share issue only got the net assets back to that level. Where had the money gone? Probably buying pubs.

The company appears to have had rather a lot of debt. In addition to the £200,000 debenture stock, there was another £157,000 of debt. I'm not surprised that they wanted to pay off some of their debt.

The profit carrot held out in the first prospectus (based on Arrol supplying Scotch Ales to the English tied estate) was £38,912. It proves to have been illusory. In none of the years after flotation did the company make more than £29,000. Remember that the number of pubs controlled by the company had trebled. And that the majority of the profit seemed to have been generated by the pub estate. So why weren't the profits higher?

This second issue doesn't look like such a good deal for the directors. The £4,125 in dividends that would be paid out each year for the new preference shares would eat up about a third of their profit. Sounds to me like they were desperate for more cash. Had they bought too many pubs at too high a price?

It looks as if Arrol's gamble on tied houses hadn't paid off, at least in the short term.