Virgin Trains East Coast franchise to end 24 June 2018 and is temporarily re-nationalised

[AnonymousUser1]

How fascinating. What is that as a percentage of their revenues? Is there anything obvious that stands out in the short term as to why that's so small? Or is it just that it has been that way for them for some time.

all the assets ofthe bus companies are in the names on the legal lettering iirc stagecoach in Lincs is still LRCC ltd ...

 

[whhistle]

Being the boring accountant I thought I'd look at the latest accounts for VTEC which hopefully have attached...

And this Sir/Madam is one of the best posts I have seen in a long time.

1) You've explained it in a way everyone can understand.
2) You've attached / told people where to find the FACTUAL documents.
3) You've not taken sides; just presented the facts.

So many people have translated their opinion / gossip / heresay into fact on this thread, not to mention others. So much "my train is bigger than yours" - people need to chill out and discuss rather than promote their view as fact.

Thank you
+1 rep for you.

 

[Tetchytyke]

AIUI Stagecoach/Virgin were paying more than DOR managed

Except they've handed the keys back with massive losses, is that a good thing?

 

[SaveECRewards]

Being the boring accountant I thought I'd look at the latest accounts for VTEC which hopefully have attached. Just to confuse everyone it's registered at Companies House as East Coast Mainline Company Ltd!!

Interesting post. I've not had the time to look through the accounts myself and not being an accountant it was beneficial to have one analyse it.

As for the company name "East Coast Main Line Company Ltd" is the name of the ECML operator since 2009 (before that it was NXEC trains Ltd) the government just transferred ownership of their company to InterCity Railways Ltd the Stagecoach/Virgin 90/10 venture.

If DOR had been a six year franchise run by another bus operator/foreign Government then I don't think many people would remember them a decade later - fairly dull/functional livery, fairly unambitious operations, some nice perks for First Class passengers but probably not in the top/bottom ten of TOCs we've had since privatisation. BUT, as poster boys for Westminster-controlled operations, they are elevated to special status.

Dull livery - agreed! That was intentionally a blank canvas for the next operator. Despite what Adonis says now DOR was temporary and they expected to only be running it a few years. Although as they proved competent many agree they should have kept operating it at least until the government sorted out the franchise mess which had lead to 2 ECML failures already and the aborted WCML franchise bid.

They used special liveries to break up the tedium somewhat.

Going back, NXEC livery was also a dull grey/white. A lot of the new operators have dull liveries, it seems the current trend is to go minimal.

Unambitious? Rather than just winding down the excellent restaurant service which NXEC seemed to be aiming to do, EC tried a different approach. They decided to invest in upgrading the kitchens to support a complimentary offering to all in first class. This was costly to roll out and if it hadn't seen an increase in first class custom would have been a waste of money but it proved to increase custom in first class and although many of us miss the restaurants, the chef prepared evening meals aren't bad for free (when they're available which is a bit of a gamble under VTEC).

By nice perks for first class are you talking about Rewards? If so that wasn't just for first class, everyone could benefit from that.

I couldn't think of a top 10 that didn't include East Coast (but I would put GNER above them). There's so few decent operators that NXEC and VTEC could probably make the top 10 too!

VTEC did look like they were building on the stable foundations of East Coast and the Virgin brand, marketing and new livery might have encouraged some more people to travel by train, the problem was at the same time they were taking their regulars for granted.

 

[B&I]

Being the boring accountant I thought I'd look at the latest accounts for VTEC which hopefully have attached. Just to confuse everyone it's registered at Companies House as East Coast Mainline Company Ltd!!

Points to note:-

After paying the DFT £272 million the loss for the last year was £117.4 million

The balance sheet shows net liabilities of £106 million more than it's assets so technically even on the day of the accounts it is close to if not already bankrupt, the only reason it can continue to trade is that Stagecoach is propping it up, the accounts having a going concern note which says that.

Then if you move onto Stagecoach (I did try and attach the accounts but the file is too big 157 pages, if you want to see the accounts google Companies House Beta (as that is a free service) type in Stagecoach Group then you will find them)
Stagecoach has a net balance sheet worth of only £68.5 million (tiny considering the size of operation) which means it can only properly guarantee what is VTEC for another £68.5 million as at the date of it's last accounts.

On the presumption that what is VTEC is still making a substantial loss after DFT payments £68.5 million won't last long. This is what is being referred to as coming close to breaking it's agreements etal.

If that does happen not only is VTEC in trouble but so is the whole Stagecoach operation buses & trains the whole lot.

To be clear a company can continue to trade with net liabilities provided it has a guarantor and that guarantor can afford to pay off those Net liabilities. Currently Stagecoach can afford to act as guarantor but it's getting close to not being able to afford to do so.

By saying what I have above I'm just trying to demonstrate what the mess is all about & why it is becoming urgent something is done about it. One thing I am not doing is taking sides nor am I apportioning blame.

This is not really a great advert for the greater efficiency of private sector over public sector in the context of operatung public transport, ehich maby people on here seem to consider an immutable law of nature. Those figures sound a bit, well, Carillionish.

I wish someone would mount a comprehensive, unbiased investigation into the best way to provide public transport. I suspect i know the answer, but I'm willing to be proved wrong.

 

[Andrewh32]

How fascinating. What is that as a percentage of their revenues? Is there anything obvious that stands out in the short term as to why that's so small? Or is it just that it has been that way for them for some time.

The turnover for the whole Stagecoach group is £3,941 million, so the net balance sheet worth of £68.5 million is really tiny by comparison.

Stagecoach has only been around since the 80s, the balance sheet reflects the rapid growth necessary to go to the size it is now, it doesn't look like it has ever been that strong.

 

[Andrewh32]

all the assets ofthe bus companies are in the names on the legal lettering iirc stagecoach in Lincs is still LRCC ltd ...

The accounts I have quoted from are Consolidated group accounts which include assets from every Stagecoach operation including the company you have named.

 

[Andrewh32]

And this Sir/Madam is one of the best posts I have seen in a long time.

1) You've explained it in a way everyone can understand.
2) You've attached / told people where to find the FACTUAL documents.
3) You've not taken sides; just presented the facts.

So many people have translated their opinion / gossip / heresay into fact on this thread, not to mention others. So much "my train is bigger than yours" - people need to chill out and discuss rather than promote their view as fact.

Thank you
+1 rep for you.

Thank you

 

[LNW-GW Joint]

Except they've handed the keys back with massive losses, is that a good thing?

If BR was underperforming on its EC services, it would cut costs until better times came (the country moving out of recession etc).
It did this regularly, the last time being in the early 90s, mainly by thinning out services (also by with withdrawing older stock, reducing catering etc).
Should the DfT do the same with the new operation (whoever runs it)?
The reduced premiums will also impact the generosity of other deals (eg fewer new trains and services in the upcoming SE, EM franchises).
For good or ill, the EC operation is trapped into expensive IEP contracts for many years.

 

[Tetchytyke]

Should the DfT do the same with the new operation (whoever runs it)?

I'll make it easier for you.

DOR posted £200m a year into HMT's bank account, no problems.

VTEC paid a bit more, but only by running up enormous losses.

Which is preferable?

 

[LNW-GW Joint]

They are not comparable.
DOR didn't have an expansion plan to implement and pay for.
Shall we go back to DOR's timetable too, with none of the recently introduced services (to Leeds and Edinburgh especially)?
If VTEC was incompetent, try someone else, certainly.
If it was market conditions, the name of the operator is irrelevant, and the EC plans need to be reduced to what is deliverable.

 

[ainsworth74]

I may be wrong but isn't it the case that the ICEC franchise was (and is) still profitable? I.e. after all of its operational costs it was still making money? The issue was surly that it wasn't making enough money to then pay the premiums as agreed to the Government rather than it wasn't making money at all? This suggests to me that the plans were deliverable but that the premiums were not.

 

[aar0]

Off topic comment:

air-propelled cooling system

A fan powered fan?!

My understanding is that VTEC is making money before paying the government, yes. Multitude of cock ups.

 

[Chrism20]

I may be wrong but isn't it the case that the ICEC franchise was (and is) still profitable? I.e. after all of its operational costs it was still making money? The issue was surly that it wasn't making enough money to then pay the premiums as agreed to the Government rather than it wasn't making money at all? This suggests to me that the plans were deliverable but that the premiums were not.

That’s certainly the way I have viewed it.

I also think some people assume that EC/DOR would have continued to have returned the same amount to the government continually. We don’t know if that would have been the case and there was certainly no guarantee that they would have.

 

[LNW-GW Joint]

The yardstick is not for the EC operation just to be "profitable", it is to make as much money as possible to fund other parts of the network which are loss-making.
By accepting that, say, £200m can be lopped off the EC premiums, while still being profitable, is denying that money to other franchises.
It's DfT's budget that is damaged by a shortfall in premiums.
VTEC is currently maintaining those premiums at its own expense, but time is running out.
Remember the "no growth" franchises around 2004, forced on DfT/SRA because of poor performance of the other franchises.

 

[lincolnshire]

Well back in B.R days didn,t the East Coast Inter City service indirectly help subsidise the regional railways services to be able to run along with money from the government.
I did laugh at a comment earlier where someone sail it was mainly predominately leisure?
Seems strange to me all these people going down to London from Doncaster and stations south early in a morning for leisure?
It also seems funny that if there is no money to be made then why does the trains seem to have plenty of people on them these days as against say 10 years ago.
The bid team seem to have got there calculations wrong or did the calculator have a flat battery.

Just admit defeat and hand it back before its too late.

I also think that the Virgin branding has run its course and now is the time it should be dumped as its no longer fashionable anymore, a television advert for Virgin East Coast at the moment on our television screens in this area can,t even get it right as its showing West Coast rolling stock as been for an East Coast journey from Leeds to London.

 

[Tetchytyke]

If VTEC was incompetent, try someone else, certainly.
If it was market conditions, the name of the operator is irrelevant, and the EC plans need to be reduced to what is deliverable.

My view is DOR were squeezing all they could from the franchise. Stagecoach's losses are proving that.

We could go back to DOR's timetable and barely notice, tbh. Sunderland? It moves nowt but fresh air. Stirling? Not a great deal different, certainly nowt Scotrail couldn't take on.

You've still not really answered me.

 

[LNW-GW Joint]

My view is DOR were squeezing all they could from the franchise. Stagecoach's losses are proving that.
We could go back to DOR's timetable and barely notice, tbh. Sunderland? It moves nowt but fresh air. Stirling? Not a great deal different, certainly nowt Scotrail couldn't take on.
You've still not really answered me.

I've got no problem if a DOR setup goes back in for a spell to stabilise things.
But it's not the long-term answer.
DfT wants a merged franchise/NR operation anyway, with joint profit/risk sharing.

 

[ainsworth74]

Considering the last two private outings have fallen over due to being unable to meet the premium payments is there any point in the DfT trying to use the ICEC franchise for maximum profit? All that happens is that it falls on its face after a few years...

 

[Bletchleyite]

Would some kind of profit-sharing (and possibly loss-sharing) model make sense?

 

[NorthernSpirit]

DOR are often praised for being "profitable" but they didn't have a benchmark/ commitment so paying *anything* back was seen as good enough for them. Stable? Well, there were no franchise commitments to stick to, there were no shareholders to worry about, there was no benchmark for success/failure, so it's probably quite easy to be "stable" in such circumstances.

Wouldn't the general public be seen as shareholders of DOR East Coast since it was being ran by Government?

Either way, I believe that HM Government should have kept DOR as an arms length operator should ever one or more franchises decide to call it a day or go bankrupt.

 

[158756]

Wouldn't the general public be seen as shareholders of DOR East Coast since it was being ran by Government?

Either way, I believe that HM Government should have kept DOR as an arms length operator should ever one or more franchises decide to call it a day or go bankrupt.

Are there not some consultants contracted to set up DOR again if necessary? I don't see how it would be value for money to retain any sort of structure if it's merely an operator of last resort - sure if it's going to bid for franchises, but if it's just going to sit around waiting for someone to go bust what's the point?

How many staff do DOR/Stagecoach actually bring to the show anyway, is it any more than a handful of managers?

 

[Tetchytyke]

Would some kind of profit-sharing (and possibly loss-sharing) model make sense?

Wouldn't directly hiring good managers, letting them get on with it, and keeping all the profit make more sense?

Call me crazy.

 

[SilentGrade]

I believe that HM Government should have kept DOR as an arms length operator should ever one or more franchises decide to call it a day or go bankrupt.

DOR was only set up to take the East Coast franchise. DfT has never had a shadow company ready to go at a moments notice and I don't think it should either.

 

[alexl92]

Either way, I believe that HM Government should have kept DOR as an arms length operator should ever one or more franchises decide to call it a day or go bankrupt.

I understand, but I imagine there isn’t a one-size-fits-all solution to taking over an operator going bust.

I don’t know if this one team of people would cover all the skills needed to take over any franchise at will, or whether you need a different team of people for something like the East Coast route compared to, say, a more urban-centred operator like Northern, or an intensive commuter network like those into central London.

My guess would be that each would require different skills, so it makes more sense to recruit for specific circumstances rather than just retain a general team of ‘consultants’.

I am, of course, open to being corrected if my assumptions are wide of the mark.

 

[FQTV]

Being the boring accountant I thought I'd look at the latest accounts for VTEC which hopefully have attached. Just to confuse everyone it's registered at Companies House as East Coast Mainline Company Ltd!!

Points to note:-

After paying the DFT £272 million the loss for the last year was £117.4 million

The balance sheet shows net liabilities of £106 million more than it's assets so technically even on the day of the accounts it is close to if not already bankrupt, the only reason it can continue to trade is that Stagecoach is propping it up, the accounts having a going concern note which says that.

Then if you move onto Stagecoach (I did try and attach the accounts but the file is too big 157 pages, if you want to see the accounts google Companies House Beta (as that is a free service) type in Stagecoach Group then you will find them)
Stagecoach has a net balance sheet worth of only £68.5 million (tiny considering the size of operation) which means it can only properly guarantee what is VTEC for another £68.5 million as at the date of it's last accounts.

On the presumption that what is VTEC is still making a substantial loss after DFT payments £68.5 million won't last long. This is what is being referred to as coming close to breaking it's agreements etal.

If that does happen not only is VTEC in trouble but so is the whole Stagecoach operation buses & trains the whole lot.

To be clear a company can continue to trade with net liabilities provided it has a guarantor and that guarantor can afford to pay off those Net liabilities. Currently Stagecoach can afford to act as guarantor but it's getting close to not being able to afford to do so.

By saying what I have above I'm just trying to demonstrate what the mess is all about & why it is becoming urgent something is done about it. One thing I am not doing is taking sides nor am I apportioning blame.

This really is a most useful post.

I’ve uploaded the final Annual Report and Acccounts for Directly Operated Railways, including the Chairman’s Statement, if it’s of interest, too:

 

[LNW-GW Joint]

DfT has never had a shadow company ready to go at a moments notice and I don't think it should either.

Yes it has, SNC Lavelin at Derby has a contract as the DfT's Operator of Last Resort.
That doesn't mean it is mobilised to run a franchise immediately, but a management framework is in place.
Even DOR was staffed by external consultants, some from First Class Partnerships which is where current Franchise Director Peter Wilkinson came from (now a DfT staffer).
SNC Lavelin used to be Interfleet Engineering at Derby, and is heavily involved in introducing new rolling stock on to the GB network.
http://www.snclavalin-railandtransit.com/en-int

 

[SilentGrade]

Yes it has, SNC Lavelin at Derby has a contract as the DfT's Operator of Last Resort.

Perhaps I should have clarified I meant its own company rather than an external contractor.

 

[backontrack]

Try comparing the East Coast franchise with the West Coast franchise.

WEST COAST:

• provides the main intercity services from London to Coventry, Birmingham, Wolverhampton, Stoke-on-Trent, Crewe, Chester, Stockport, Manchester, Liverpool, Warrington, Wigan, Preston, Carlisle and Glasgow, plus the North Wales conurbations
• also serves large towns en route such as Rugby, Nuneaton, Tamworth, Lichfield, Stafford, Macclesfield, Runcorn and Lancaster
• occasionally serves Telford, Shrewsbury and Blackpool
• provides a fast service to the Home Counties towns of Watford and Milton Keynes
• serves the Lake District National Park, and the tourist attractions of Chester, Lancaster and Glasgow
• serves Birmingham International Airport
• provides scope for cross-country journeys; i.e West Midlands to Edinburgh, Glasgow to the Lake District
• unpopular rolling stock
• other operators run busy commuter services such as to Wealdstone, Watford, Hemel Hempstead, Berkhamsted, Leighton Buzzard, and Northampton

EAST COAST:

• provides the main intercity services from London to Doncaster, Wakefield, Leeds, York, Darlington, Durham, Newcastle, Edinburgh, Fife, Dundee and Aberdeen
• also serves large towns en route such as Grantham, Newark, Northallerton, Berwick-upon-Tweed and Stirling
• occasionally serves Lincoln, Retford, Hull, Bradford, Keighley, Skipton, Huddersfield, Middlesbrough, Sunderland, Morpeth, Glasgow, Perth and Inverness (or will in the future)
• provides a fast service to the Home Counties towns of Stevenage and Peterborough
  
• serves the Northumberland National Park loosely, and the tourist attractions of Leeds, York, Newcastle and Edinburgh
• provides limited scope for cross-country journeys (most people will use CrossCountry for a direct link)
• to receive new rolling stock
• open access competition between Sunderland, Northallerton, York, Doncaster, Retford, Grantham, Stevenage and London Kings Cross

From a population point of view, the West Coast franchise has the edge. It operates many services which detour from the mainline to serve large conurbations, while East Coast services tend to stick to larger towns on the main corridor, with its only branch with a frequent service being to Leeds. Passengers come to Euston from a variety of different destinations; from East Coast, this is less so

Although the East Coast currently has a monopoly on through traffic from Edinburgh, First's new franchise (scheduled for 2021, though the cynic in me is sceptical) will provide a challenge, with cheaper fares and non-stop journey times.

Although there is open access competition on the ECML from Grand Central and Hull Trains, the bulk of York passengers will still use Virgin, as will the bulk of Doncaster passengers. Virgin literally has all the London passengers on the West Coast from points north of Birmingham, so people can always make the comparison - but they're still more likely to use Virgin on the East Coast too, as the service is just more frequent.

It's in the nature of the franchises' scope that shows the difference. With the West Coast, there is a multitude of destinations with large populations and their own attractions to serve - Glasgow, Liverpool, Birmingham, Manchester, Edinburgh, Chester - while, with the East Coast, it's just London-Leeds and London-York-Teesside-Tyneside-Edinburgh for the vast majority of the services.

So perhaps we need more imagination on the East Coast. How about London to Nottingham via Grantham? London to Scunthorpe and Grimsby? London to York and Scarborough? Regular services to Bradford Forster Square and Shipley? Virgin's current East Coast plans are a good start - now they need to expand their horizons. Look at all the destinations that Virgin EC serve irregularly. Surely there's some untapped potential?

Virgin need to reduce fares, firstly, to incentivise passengers to travel with them. Deals are a good way to do this, providing that they get publicity - remember their 'hot cakes' offer? Slap on some cheap(ish) fares at weekends from London to Leeds, York, Durham and Newcastle, flog first-class upgrades and ramp up the publicity - and you should generate passengers. It's a start at least.

Virgin Trains is a successful franchise. Virgin Trains East Coast is not. That has to change. And Virgin could start by imitating their West Coast approach - they could do worse, right?

 

[paul1609]

Being the boring accountant I thought I'd look at the latest accounts for VTEC which hopefully have attached. Just to confuse everyone it's registered at Companies House as East Coast Mainline Company Ltd!!

Points to note:-

After paying the DFT £272 million the loss for the last year was £117.4 million

The balance sheet shows net liabilities of £106 million more than it's assets so technically even on the day of the accounts it is close to if not already bankrupt, the only reason it can continue to trade is that Stagecoach is propping it up, the accounts having a going concern note which says that.

Then if you move onto Stagecoach (I did try and attach the accounts but the file is too big 157 pages, if you want to see the accounts google Companies House Beta (as that is a free service) type in Stagecoach Group then you will find them)
Stagecoach has a net balance sheet worth of only £68.5 million (tiny considering the size of operation) which means it can only properly guarantee what is VTEC for another £68.5 million as at the date of it's last accounts.

On the presumption that what is VTEC is still making a substantial loss after DFT payments £68.5 million won't last long. This is what is being referred to as coming close to breaking it's agreements etal.

If that does happen not only is VTEC in trouble but so is the whole Stagecoach operation buses & trains the whole lot.

To be clear a company can continue to trade with net liabilities provided it has a guarantor and that guarantor can afford to pay off those Net liabilities. Currently Stagecoach can afford to act as guarantor but it's getting close to not being able to afford to do so.

By saying what I have above I'm just trying to demonstrate what the mess is all about & why it is becoming urgent something is done about it. One thing I am not doing is taking sides nor am I apportioning blame.

Absolutely, I suspect the reality is that whoever the operator the East Coast Route is profitable on London to York/Leeds. York to Newcastle just about breaks even and the rest is an absolute basket case financially. Does anybody really think that running full length trains with restaurant cars along obscure single track branch lines in Scotland makes any financial sense? i can understand that rail enthusiasts like it and I can understand why local politicians want it but the fact is that financially its never going to be able to generate the sort of growth thats being predicted.