Virgin and stagecoach net £51.2 M in dividends

underbank · 17 Oct 2018

DynamicSpirit said:
A couple of points there: Firstly, to the extent that a company was ploughing profits back into the business, that money would no longer appear as profits: It would show up as expenses in the accounts.

No, investment in fixed assets or other long term investments wouldn't be an expense in the accounts - it's capitalised so doesn't appear on the profit & loss account at all and doesn't change the reported profit. Quite possible to show £1m profit, but buy assets of £1m, so you don't have anything surplus. The accounts still show a £1m profit.

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DynamicSpirit · 17 Oct 2018

underbank said:
No, investment in fixed assets or other long term investments wouldn't be an expense in the accounts - it's capitalised so doesn't appear on the profit & loss account at all and doesn't change the reported profit. Quite possible to show £1m profit, but buy assets of £1m, so you don't have anything surplus. The accounts still show a £1m profit.

Yes, that's a good point, I'd forgotten about that. So it depends a bit on what you invest in - whether it's buying stuff that would be considered as capital rather than current expenditure.

That's also very relevant to the wider debate about corporate profits, TOC profits, dividends and corporation tax: Most people, when they hear that a company has made £Xm profits will assume that that's £Xm in the bank ready to be given to alleged fat cats if we don't tax it - and more generally available to be spent on anything. Not necessarily so: It could be £Xm represents the value of newly purchased new buildings or machinary which, for accounting purposes. is included in a company's assets, and therefore contributes to its profits - even though it isn't actually available as cash.

I don't think that's the case for West Coast Trains Limited. The accounts show that almost all of the reported profits, after paying corporation tax, were distributed as dividends. That suggests that the profits probably were available as cash.

43096 · 17 Oct 2018

underbank said:
No, investment in fixed assets or other long term investments wouldn't be an expense in the accounts - it's capitalised so doesn't appear on the profit & loss account at all and doesn't change the reported profit. Quite possible to show £1m profit, but buy assets of £1m, so you don't have anything surplus. The accounts still show a £1m profit.

It does appear on the P&L as the assets have to be depreciated over time, depending on the useful like of the asset. So if an asset has a useful life of 5 years, then (simplistically, as various methods of depreciation can be used) 20% of the asset value is written off to the P&L as an expense each year.

You are also confusing profit and cash in what you say - they are not the same.

Carlisle · 20 Oct 2018

LNW-GW Joint said:
Virgin and Stagecoach get it in the neck when they lose a fortune on VTEC, and again when they make a profit on VTWC.
VTWC has made steady profits throughout the 3 direct awards since 2012 (typically about 5%), and this year is little different to last.

Won’t that mostly be down to the DFT order of 4 additional trains + 64 coaches allowing virgin to significantly increase the number of compedetively priced advance tickets sold, remember originally virgin came across as pretty reluctant to introduce the additional stock into service under their old franchise agreement

LNW-GW Joint · 20 Oct 2018

The DfT's antics around the 106-vehicle 390 expansion order were baffling.
They let several options from the previous Alstom order expire, and then refused to let VT manage the expansion as part of the franchise.
After negotiating the order with Alstom, they invited competitive tenders to manage the introduction, and surprise, surprise, VT won the contract (the other bidder being Govia)!
I don't supposed we'll ever know in the final analysis if DfT or Virgin were the winners of that particular skirmish.
It was Labour's DfT, of course, who let those contracts in 2008.
Today's DfT would just have let VT get on with it.

Kettledrum · 20 Oct 2018

Another way to think about it:

If the franchise had been run by a UK state-owned rail company that had made such a big surplus that it had £51M to pay out on dividends or re-investment, just think what the £51M could have been spent on to improve services to passengers.

3141 · 20 Oct 2018

Kettledrum said:
Another way to think about it:

If the franchise had been run by a UK state-owned rail company that had made such a big surplus that it had £51M to pay out on dividends or re-investment, just think what the £51M could have been spent on to improve services to passengers.

A question to consider about that is whether the state-owned company would have had the same incentive to make the surplus, after having paid the contracted premium, as VTEC did.

Robertj21a · 20 Oct 2018

3141 said:
A question to consider about that is whether the state-owned company would have had the same incentive to make the surplus, after having paid the contracted premium, as VTEC did.

Well, we all know that they wouldn't have had the same incentive, so most of that £51m would never have happened. In any event, if it had been state-owned and made any form of profit it would just enable the government to reduce some form of variable payment.

HH · 20 Oct 2018

There is no profit incentive in state-owned operations. People simply do not get this fundamental truth.

In fact, it's the opposite. The incentive is to make sure you get as much money as possible the next year - and the way to do this is to not be too successful. Take away the profit motive and you get all sorts of perverse incentives. But try explaining that to those who will not see...

FQTV · 21 Oct 2018

HH said:
There is no profit incentive in state-owned operations. People simply do not get this fundamental truth.

In fact, it's the opposite. The incentive is to make sure you get as much money as possible the next year - and the way to do this is to not be too successful. Take away the profit motive and you get all sorts of perverse incentives. But try explaining that to those who will not see...

Twaddle.

A very great many public servants value and focus on professionalism, responsibility, accountability and self respect completely.

Try explaining that to those who will not see. [Edited for auto-correct faux-pas!]

HH · 21 Oct 2018

FQTV said:
Twaddle.

A very great many public servants value and focus on professionalism, responsibility, accountability and self respect completely.

Try explaining that to be that will not see.

I can see that you're an expert on twaddle.

Robertj21a · 21 Oct 2018

FQTV said:
Twaddle.

A very great many public servants value and focus on professionalism, responsibility, accountability and self respect completely.

Try explaining that to be that will not see.

I'm sure that a great many public servants are excellent in all their roles. Unfortunately, it appears that vast numbers aren't.

Sorry, I can't understand your last sentence !

talltim · 21 Oct 2018

I don’t really see what the incentive to make a profit for most private sector workers is either.
“Work harder and you can make shareholders a nice dividend”...

underbank · 21 Oct 2018

Robertj21a said:
Well, we all know that they wouldn't have had the same incentive, so most of that £51m would never have happened. In any event, if it had been state-owned and made any form of profit it would just enable the government to reduce some form of variable payment.

Well said, Public sector just spend whatever spare money they may have, so any "surplus" would have been frittered away. Our local council "found" £280k in a fund earmarked for library improvements which they hadn't spent. So, they blew it on a total refurb of our village library, (a tiny one room single story building!) - including mood lighting, outside decking area, etc., and then six months later the same council announced it's closure. I'm on several teachers' facebook groups - every year, there are teachers on it saying that they've £x left over from their budget and asking for ideas as to what to spend it on before the year end! It's endemic that they just have to spend, whether necessary or not.

AndrewP · 21 Oct 2018

I work in both the public and private sectors and think that overall levels of ability are broadly similar although the public sector seems to have a wider range of abilities as the private sector seems more risk averse.

The biggest difference is how success / importance is quantified by senior management. In the private sector its profit, turnover and often share price whereas in public its budget and number of staff.

Human nature really most people want to look better than their peers

underbank · 21 Oct 2018

AndrewP said:
The biggest difference is how success / importance is quantified by senior management. In the private sector its profit, turnover and often share price whereas in public its budget and number of staff.

So in the public sector, is "success" having more or less budget and more or less staff? I'm not sure why either a high number of low number of staff can be a sign of "success"?

6Gman · 21 Oct 2018

underbank said:
So in the public sector, is "success" having more or less budget and more or less staff? I'm not sure why either a high number of low number of staff can be a sign of "success"?

It's called "empire building". A higher number of staff and/or a higher budget is a sign of status.

I've seen it in local government, in the health service, and on the railway. Mind you, I've also seen it in private enterprise! (But less so.)

3141 · 21 Oct 2018

talltim said:
I don’t really see what the incentive to make a profit for most private sector workers is either.
“Work harder and you can make shareholders a nice dividend”...

The incentive is that if you make an effort at your job it's much more likely that you'll continue to have one, and you may get promoted. If everyone just slops around the firm goes out of business.

AndrewP · 21 Oct 2018

underbank said:
So in the public sector, is "success" having more or less budget and more or less staff? I'm not sure why either a high number of low number of staff can be a sign of "success"?

More staff and more budget - mine is bigger than yours syndrome.

Sometimes totally justified sometimes not.

Robertj21a · 21 Oct 2018

underbank said:
So in the public sector, is "success" having more or less budget and more or less staff? I'm not sure why either a high number of low number of staff can be a sign of "success"?

Public sector 'success' is larger responsibilities - more staff, more areas, more departments, more resources and more poor-performing staff reallocated to other areas.
Failure is allowing anybody to be disciplined (let alone dismissed) and failing to grow your area of responsibilty.

158756 · 21 Oct 2018

3141 said:
The incentive is that if you make an effort at your job it's much more likely that you'll continue to have one, and you may get promoted. If everyone just slops around the firm goes out of business.

This currently doesn't apply on the railways though - employees can actually want their TOC to go bust, knowing the government will step in. And, based on the last 25 years of increasing passenger numbers and subsidy, no one believes the government will cut services or close lines - if passenger numbers fall and don't come back following industrial action this belief may soon be tested.

underbank · 21 Oct 2018

Robertj21a said:
Public sector 'success' is larger responsibilities - more staff, more areas, more departments, more resources and more poor-performing staff reallocated to other areas.

So, as suspected, customer satisfaction doesn't come into it at all???

3141 · 21 Oct 2018

158756 said:
This currently doesn't apply on the railways though - employees can actually want their TOC to go bust, knowing the government will step in. And, based on the last 25 years of increasing passenger numbers and subsidy, no one believes the government will cut services or close lines - if passenger numbers fall and don't come back following industrial action this belief may soon be tested.

Where there's an important public service that no-one else is providing the situation is more complex. As you say, the government would step in if TOC failed. If we think about a privately-owned bus company that goes bust, the local authority may organise some replacement services but probably not the whole of the company's network. Another local operator may take on some of the routes. When Webber buses packed up in West Somerset, First's Buses of Somerset took over, though they've given up on some of the routes more recently. If an energy supply company fails, Ofgem arranges for another one to pick up the customers, though that's different again as the energy supply comes through the same pipes and cables. It probably depends how important the service being provided is, how many people are affected by the closure, and another company's assessment of the prospects of running the service profitably.

Do you have any estimate of the proportion of railway employees who hope their TOC will go bust? As you point out, if a series of strikes contributes to a further reduction in passenger numbers, we may see cutbacks here.

43096 · 21 Oct 2018

Robertj21a said:
Public sector 'success' is larger responsibilities - more staff, more areas, more departments, more resources and more poor-performing staff reallocated to other areas.
Failure is allowing anybody to be disciplined (let alone dismissed) and failing to grow your area of responsibilty.

Which is why the public sector is too often a hiding place for the weak, the lazy and the useless.

DynamicSpirit · 21 Oct 2018

talltim said:
I don’t really see what the incentive to make a profit for most private sector workers is either.
“Work harder and you can make shareholders a nice dividend”...

I think the issue is more that senior management are the ones on whom responsibility for profits lies, and it is senior management who ultimately set the direction of and the culture in an organisation. A good culture can make all the difference in productivity and people being motivated to do a good job. Of course, then you have the question of whether the profit motive is effective at incentivising management to create a good culture in their organisations, and I suspect it is to some extent, but it's still a bit mixed.

43096 said:
Which is why the public sector is too often a hiding place for the weak, the lazy and the useless.

Teachers? Doctors? Nurses? Policemen? Food standards enforcers? Soldiers? University researchers? I believe most of those people work in the public sector. Are you suggesting they are all useless? Or are you perhaps over-stereotyping?

SamYeager · 22 Oct 2018

DynamicSpirit said:
Teachers? Doctors? Nurses? Policemen? Food standards enforcers? Soldiers? University researchers? I believe most of those people work in the public sector. Are you suggesting they are all useless? Or are you perhaps over-stereotyping?

Or are you perhaps wilfully misunderstanding? The key phrase was "too often" rather than "always". Most, if not all, workplaces have some individuals who do the minimum possible and some are in the wrong job wrt their abilities. It's the proportion to which they exist in the public and private sector that is relevant. Both areas have them, it's more likely to occur in a larger organisation as there are more hiding places and there may be a greater reluctance to challenge such behaviour in the public sector but equally I know that this can also occur in the private sector so neither is perfect.

It's possible that because the general public may be more likely to interact with the public sector that such behaviour is publicised. Anyone who follows the personal finance and consumer pages in the papers and online however will be well aware of similarly bad behaviour from various private sector firms as well.

HH · 22 Oct 2018

SamYeager said:
Or are you perhaps wilfully misunderstanding? The key phrase was "too often" rather than "always". Most, if not all, workplaces have some individuals who do the minimum possible and some are in the wrong job wrt their abilities. It's the proportion to which they exist in the public and private sector that is relevant. Both areas have them, it's more likely to occur in a larger organisation as there are more hiding places and there may be a greater reluctance to challenge such behaviour in the public sector but equally I know that this can also occur in the private sector so neither is perfect.

It's possible that because the general public may be more likely to interact with the public sector that such behaviour is publicised. Anyone who follows the personal finance and consumer pages in the papers and online however will be well aware of similarly bad behaviour from various private sector firms as well.

TBH, I think it's large organisations that attract these types, rather than public/private.

Carlisle · 22 Oct 2018

HH said:
There is no profit incentive in state-owned operations. People simply do not get this fundamental truth.

In fact, it's the opposite. The incentive is to make sure you get as much money as possible the next year - and the way to do this is to not be too successful. Take away the profit motive and you get all sorts of perverse incentives. But try explaining that to those who will not see...

That’d certainly be true of full privatisation but our current system seems to consist mainly of short term, hugely complex, rather inflexible contractual relationships and multiple sub contractors etc which I’d think at very least would come close to containing a similar number of perverse incentives within it

We’ve had the Brown review, and we’re soon embarking on yet another enquiry, how many new trains could we buy with the costs of these ?

FQTV · 22 Oct 2018

HH said:
I can see that you're an expert on twaddle.

Touché. Autocorrect is my undoing.

Robertj21a said:
I'm sure that a great many public servants are excellent in all their roles. Unfortunately, it appears that vast numbers aren't.

Sorry, I can't understand your last sentence !

Edited to unravel the auto-correct twaddle!

43096 · 22 Oct 2018

DynamicSpirit said:
Teachers? Doctors? Nurses? Policemen? Food standards enforcers? Soldiers? University researchers? I believe most of those people work in the public sector. Are you suggesting they are all useless? Or are you perhaps over-stereotyping?

Or perhaps you missed you the words “too often”?

Virgin and stagecoach net £51.2 M in dividends

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