c2c sold by National Express to Trenitalia

[HH]

The ticket bond, the default bond, the staff and equipment, cash in the franchises bank accounts. The sunk costs of the bid and startup costs.

You clearly don't understand the financial aspects of a TOC at all.

Let's take these item by item...

The bonds are from the parent company and not c2c. They are also only backed guarantees to pay, not an actual asset.

The staff are not an asset you sell - that would be slavery. Although the agreement might include certain staff staying with the company for an agreed period, that would need to be done in agreement with said staff. TUPE happens anyway.

Equipment is an asset, but fairly minor in most TOCs - a lot is leased.

The new owner will have their own bank accounts - the cash will belong to NX, unless agreed otherwise (which is NOT normal) and would be minor in any case - any excess money would have already been siphoned off to NX central.

Finally, sunk costs are sunk. You can't charge someone for them. How they are treated by NX depends on their accounting policies, but they will either have written them off already (prudent) or will have started writing them off over the length of the franchise. They are nowhere near £70m. Startup costs (normally called mobilisation costs) are generally treated as operating expenditure, not an asset.

What you can say is that many of these things are worth money, and that would be correct. What you pay for them, however, is Goodwill. This indicates that they are intangible assets, like the c2c brand, which will no doubt be part of the sale.

On the NX side, the only costs they will have to put against the £70m is a small amount of equipment and the unwritten down part of their bid costs, if applicable. Oh, and selling costs - lawyers, accountants, advisers, etc.

P.S. I imagine that what NX are counting, in order to end up with a "small" profit, is all the 'profit' they have foregone from future years. This is somewhat disingenuous, as there is no guarantee that they will make a profit. Frankly, I'd say that it's been done to realise some corporate bonuses, but then I'm an old cynic.

 

[FordFocus]

Reminds me of the late 90s and early 2000s. A management or small transport company win a franchise and sells it on for a decent profit. Prism Rail, Great Western Holdings, MTL..

 

[HH]

Reminds me of the late 90s and early 2000s. A management or small transport company win a franchise and sells it on for a decent profit. Prism Rail, Great Western Holdings, MTL..

Precisely. Dean Finch was involved in some of those purchases and he's a bright cookie...

 

[anme]

Please elaborate on why you think it is acceptable for foreign STATE OWNED "companies" to run rail franchises and generate profit from us passengers here in the UK to spend it on their own networks?

Abellio recently admitted that their UK operations required very little investment and generated a good amount of profit which they could invest on their home network.

It simply seems wrong to have these state owned companies playing in the supposedly free private market. These organisations have vested interests in their nature to provide for their own taxpayers first and foremost.

How is that different to organisations that have a vested interest in providing for their shareholders first and foremost?

This is the question you should be asking - why didn't the British government keep British Rail going, not to operate trains in the UK but to operate trains abroad?
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Nothing to stop the likes of National Express bidding for rail contracts in Germany. We will increasingly see European Networks open up to franchising as its now EU policy.

Thanks to the utterly moronic decision to leave the EU, there's no guarantee that British companies will be able to bid to franchises elsewhere in Europe.
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Yeah I get that but a lot of the profit heads back to a company owned by the German state. How many British state owned companies are running services abroad. I guess it is about none.

This says a great deal about the UK.
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They are mostly privatised.

I believe you were referring to Deutsche Bahn, the owners of Arriva. DB are 100% owned by the Federal Republic of Germany. They are not privatised at all.
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What is so fundamentally flawed about our government that means we can't do the same?

Put yourself in the position of an EU government for a moment. Would you want a country that just voted to leave the EU to have any stake in providing your public services?

 

[LNW-GW Joint]

I believe you were referring to Deutsche Bahn, the owners of Arriva. DB are 100% owned by the Federal Republic of Germany. They are not privatised at all.

No, I was referring to the once public sector transport operators in the UK (ie BR, TfL and the regional bus operators, also BA and Sealink).
By government policy, they were all privatised, except for TfL and, by accident, DRS (owned by the Nuclear Decommissioning Authority). Maybe the odd bus company.
So there are essentially no public sector transport companies left to bid for EU operations.
The UK capability now lies with the private transport groups like First, NX and Stagecoach.

Arriva and DB are ultimately owned by the BRD, but they, particularly their subsidiaries, operate as commercial businesses.
The Germans have made repeated attempts to privatise DB, and DB itself could sell off Arriva if it wanted to.
FS in Italy (owner of Trenitalia) is being readied for part-privatisation (40%).

 

[anme]

No, I was referring to the once public sector transport operators in the UK (ie BR, TfL and the regional bus operators, also BA and Sealink).
By government policy, they were all privatised, except for TfL and, by accident, DRS (owned by the Nuclear Decommissioning Authority). Maybe the odd bus company.
So there are essentially no public sector transport companies left to bid for EU operations.
The UK capability now lies with the private transport groups like First, NX and Stagecoach.

Arriva and DB are ultimately owned by the BRD, but they, particularly their subsidiaries, operate as commercial businesses.
The Germans have made repeated attempts to privatise DB, and DB itself could sell off Arriva if it wanted to.
FS in Italy (owner of Trenitalia) is being readied for part-privatisation (40%).

Then we are in agreement. My apologies.

 

[Mordac]

They are mostly privatised.
So the UK equivalent is Stagecoach and National Express (still) with operations and subsidiaries abroad.

There's nothing to stop TfL bidding overseas (like RATP and MTR do here), but I guess the Mayor doesn't see any benefit for London.
Nobody else is big enough really.

Translink is, but they have enough on their plate.
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No one can seem to answer how foreign governments can run a railway company that operates in the UK getting a subsidy from our government (Which must make them a profit or they wouldn't do it, they aren't doing us a favour) and why our government can't do the same.
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Our TOC owners are not the same as Trenitalia or DB. Our TOC owners are not owned by the government so any money they make does not go to the government.

Because the foreign operators, even if they are state owned, are not owned by the government of the country they are operating in (here the UK). This means they can operate as a profit maximizing business free of political interference, and have adequate incentives to operate in an efficient manner. It also means the UK government isn't playing the role of regulating the railway, which is supposed to be done in an impartial manner, while at the same time being an interested party by operating one of the operators.

 

[LNW-GW Joint]

Because the foreign operators, even if they are state owned, are not owned by the government of the country they are operating in (here the UK). This means they can operate as a profit maximizing business free of political interference, and have adequate incentives to operate in an efficient manner. It also means the UK government isn't playing the role of regulating the railway, which is supposed to be done in an impartial manner, while at the same time being an interested party by operating one of the operators.

Not sure what you mean here.
Arriva, Abellio etc operate in the UK exactly like First and Stagecoach, with full DfT control and ORR regulation.
What their home governments think doesn't come into it.

The overseas operators in the UK are also not at all carbon copies of their domestic operations.
They are British companies with a foreign owner, just like Scottish Power or Heathrow Airport.

 

[Mordac]

Not sure what you mean here.
Arriva, Abellio etc operate in the UK exactly like First and Stagecoach, with full DfT control and ORR regulation.
What their home governments think doesn't come into it.

The overseas operators in the UK are also not at all carbon copies of their domestic operations.
They are British companies with a foreign owner, just like Scottish Power or Heathrow Airport.

I agree with everything you just said. I think there must be some miscommunication. All I'm saying is that there is a difference between a company owned by a foreign government operating in the UK, and a hypothetical company owned by the UK government also operating in the UK. The former can operate as a private business, because the government of the foreign country will not have any concern about how its UK business is run short of having it make a profit--just the same as if its shareholders were a private company.

On the other hand, a hypothetical UK government run TOC would be subject to political meddling in operational matters, just like BR was, and just like the NHS and much of everything else that is government run is. Every little operational decision that has an adverse effect upon some interest group becomes a political football, and there is no or very little incentive to operate efficiently, because the taxpayer will always be there to foot the bill.

 

[LNW-GW Joint]

I agree with everything you just said. I think there must be some miscommunication.

Yes, I see now and fully agree with you.
It's one of the paradoxes of Labour's position (to let franchises expire and just not bother to relet them) that it upsets the currently level playing field between bidders.

 

[tbtc]

a hypothetical UK government run TOC would be subject to political meddling in operational matters, just like BR was, and just like the NHS and much of everything else that is government run is. Every little operational decision that has an adverse effect upon some interest group becomes a political football, and there is no or very little incentive to operate efficiently, because the taxpayer will always be there to foot the bill

This is worth repeating.

The recent "NHS crisis" thread was full of people saying how they wish it was taken out of the hands of those nasty politicians and how they don't trust the current Government to properly fund it or to stop meddling and there have been too many structural re-organisations and politicians are part of the problem...

...so anyone who thinks that a publicly owned railway would be free of such awkward interference/ funding deficits/ change-for-changes sake seems a little naive to me.

Ideally, maybe people would like a situation where the Government gives a big bucket of cash to some "proper railwaymen" once a decade and lets them get on with it (:roll but we all know that that isn't going to happen. The Fat Controller didn't have to worry about bureaucracy. A 21st century equivalent wouldn't have such freedoms.

And whilst the Government will play havoc with civil servants, they'd be too scared to take on departments of other Governments. You could argue that the railway/ passengers/ investment is better protected by being run by a department/ subsidy/ offshoot of the French/ German/ Italian/ Dutch Government than it is being run directly by the UK Government.

Be careful what you wish for...

 

[doa46231]

..".so anyone who thinks that a publicly owned railway would be free of such awkward interference/ funding deficits/ change-for-changes sake seems a little naive to me."

Some people would suggest though, that the Govt. interfered far less in what BR did than they do now.

"Ideally, maybe people would like a situation where the Government gives a big bucket of cash to some "proper railwaymen" once a decade and lets them get on with it (:roll but we all know that that isn't going to happen. The Fat Controller didn't have to worry about bureaucracy. A 21st century equivalent wouldn't have such freedoms."

But generally that was how it was done under BR, though of course the amount given varied from day to day and was nothing like the amounts now squandered on the privatised system. But BR largely decided what to apend the money on.

 

[Wivenswold]

I'm not so sure that Nationalisation won't happen. Labour support it (at the moment) as do Greens and Lib Dems are making noises about it. SNP are looking at it for Scotland. That leaves the one main party who probably aren't going to be many people's friends in a few months.

 

[Moonshot]

..".so anyone who thinks that a publicly owned railway would be free of such awkward interference/ funding deficits/ change-for-changes sake seems a little naive to me."

Some people would suggest though, that the Govt. interfered far less in what BR did than they do now.

"Ideally, maybe people would like a situation where the Government gives a big bucket of cash to some "proper railwaymen" once a decade and lets them get on with it (:roll but we all know that that isn't going to happen. The Fat Controller didn't have to worry about bureaucracy. A 21st century equivalent wouldn't have such freedoms."

But generally that was how it was done under BR, though of course the amount given varied from day to day and was nothing like the amounts now squandered on the privatised system. But BR largely decided what to apend the money on.

Lot of truth in the above post.....todays reality is that Government still decides such items as the High Level Output Statements funded by taxpayers, and also regulates 50% of the fare basket. In a fully privatised set up with no government interference, the market place would be sending price signals to the suppliers of capital. The reality is in such a scenario in todays railway, I rather suspect some of the current capex projects would never have seen the light of day .

 

[LNW-GW Joint]

I'm not so sure that Nationalisation won't happen. Labour support it (at the moment) as do Greens and Lib Dems are making noises about it. SNP are looking at it for Scotland. That leaves the one main party who probably aren't going to be many people's friends in a few months.

If it happens, it won't look like BR.
The government (any shade) will not devolve that much autonomy again.
They are too used to meddling now (as in health, education etc).
It also doesn't trust "the railway" to spend money wisely.
It will remain fragmented and micromanaged.
Freight, open access, rolling stock and high speed will remain outside any "national" operator.
Not much different from now really, but no-one to kick if things go wrong.

 

[yorksrob]

Translink is, but they have enough on their plate.
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Because the foreign operators, even if they are state owned, are not owned by the government of the country they are operating in (here the UK). This means they can operate as a profit maximizing business free of political interference, and have adequate incentives to operate in an efficient manner. It also means the UK government isn't playing the role of regulating the railway, which is supposed to be done in an impartial manner, while at the same time being an interested party by operating one of the operators.

All free market twaddle of course.

I think people would far prefer some sort of autonomous regulator overseeing railway affairs on their behalf, than a free for all of unimpeded "profit maximising businesses".

Frankly I don't want foreign Governments profiting on what are already subsidised public services and expatriating those profits to other countries, any more than private multi-nationals. If there is "profit" to be generated, it should be going back into the British railway network.
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Put yourself in the position of an EU government for a moment. Would you want a country that just voted to leave the EU to have any stake in providing your public services?

Even though this situation has pre-dated the decision to leave the EU by two decades.

If all of these straw man arguments regarding franchising had any truth, the public of all of these countries would be queuing up to off load their state run systems to anyone who would have them, regardless of whether they were in the EU or not.

 

[anme]

Even though this situation has pre-dated the decision to leave the EU by two decades.

Indeed. It's a very lucky escape for the rest of the EU that the UK government did not get involved in providing public services outside the UK. It's a big loss to the UK public though and damages the UK's negotiating position in the forthcoming negotiations.

Given the nasty rhetoric from Theresa May and Philip Hammond over the weekend, the rest of the EU must be even more relieved.

If all of these straw man arguments regarding franchising had any truth, the public of all of these countries would be queuing up to off load their state run systems to anyone who would have them, regardless of whether they were in the EU or not.

Good point.

 

[daikilo]

In this trhread we are/were discussing the "sale" of what appears to be the C2c franchise to Trenitalia.

First issue I have in the context of the "nationalisation' debate is that C2C does not "own" anything, they have the right to operate the franchise to a specification drawn up by the DfT. This is where I continue to question just what C2C is "selling" and what Trenitalia is actually "buying". Clearly the DfT cannot "nationalise" the C2C franchise as they "own" it. Under certain circumstances they could withdraw the franchise from the then current operator and either relet it or decide to operate it directly for a period of time (DOR).

Secondly, and with regard to the "sale" of a franchise specifically, normally, when a franchise is to be let, bidders must qualify based upon a range of criteria and the DfT will choose the one most appropriate. I have not been able to access the specific franchise agreement on the gov.uk website but I assume they indicate what criteria must be met to allow such a "sale" to take place. Likely it also states what if any financial value the franchisee may claim for the said franchise. In this case, can NEx claim a value which is quite clearly a projection which includes assumptions on factors driven by government agencies such as DfT for fares and NR for track access charges.

Finally, I am hoping this deal will not go through as it basically makes a franchise a commodity which I believe was never the oroginal nor subsequent intent of the franchising policy.

 

[anme]

Finally, I am hoping this deal will not go through as it basically makes a franchise a commodity which I believe was never the oroginal nor subsequent intent of the franchising policy.

I'm pretty certain that companies holding rail franchises have been sold before. Is this one different?

 

[daikilo]

I'm pretty certain that companies holding rail franchises have been sold before. Is this one different?

Well, I haven't been able to identify a case yet. I get the impression there may have been some significqnt franchise shareholder changes but I have not found one where a franchisee "sells out" 100% to another company/JV not involved in the orginal franchise.

 

[tbtc]

..".so anyone who thinks that a publicly owned railway would be free of such awkward interference/ funding deficits/ change-for-changes sake seems a little naive to me."

Some people would suggest though, that the Govt. interfered far less in what BR did than they do now.

"Ideally, maybe people would like a situation where the Government gives a big bucket of cash to some "proper railwaymen" once a decade and lets them get on with it (:roll but we all know that that isn't going to happen. The Fat Controller didn't have to worry about bureaucracy. A 21st century equivalent wouldn't have such freedoms."

But generally that was how it was done under BR, though of course the amount given varied from day to day and was nothing like the amounts now squandered on the privatised system. But BR largely decided what to apend the money on.

In an ideal world, it all sounds lovely.

But that's not the way it'd work now.

In the 1970s/1980s, the Government may have owned a lot more (buses, mines, planes, telephone provision etc) but actually interfered little.

Nowadays, the Government may actually operate much less (more of Government's role is spending money on things), but they interfere a lot more in the operation of things.

Also, the railway has become a much bigger political football - BR could increase fares by much more than the rate of inflation (sometimes to choke off demand) but even increasing fares by RPI nowadays would see protests/ petitions/ demands on MPs etc. Too many people use the railway nowadays to allow it to operate without political interference.

If I honestly believed that the Government would just leave the railway alone to decide it's priorities/ manage its own projects/ deliver what it decided upon etc then I may change my opinion of nationalisation. But I'm pretty certain that modern government (of any "colour") wouldn't work like that. And I think that the current set up may be the "least bad" one.

I'm not so sure that Nationalisation won't happen. Labour support it (at the moment) as do Greens and Lib Dems are making noises about it. SNP are looking at it for Scotland. That leaves the one main party who probably aren't going to be many people's friends in a few months.

Labour need to get back above 30% in the polls before we start taking them seriously again.

The SNP were perfectly happy for Abellio to take on the ScotRail franchise (and then to use the same franchise as a handy "whipping boy").

The "one main party" you refer to are the ones still getting over 40% in the polls (rightly or wrongly).

If it happens, it won't look like BR.
The government (any shade) will not devolve that much autonomy again.
They are too used to meddling now (as in health, education etc).
It also doesn't trust "the railway" to spend money wisely.
It will remain fragmented and micromanaged.
Freight, open access, rolling stock and high speed will remain outside any "national" operator.
Not much different from now really, but no-one to kick if things go wrong.

Exactly

I think people would far prefer some sort of autonomous regulator overseeing railway affairs on their behalf, than a free for all of unimpeded "profit maximising businesses"

You accuse others of "straw man" arguments, but then you put forward the idea of the Government happy to sit back and allow an "autonomous regulator" making all rail decisions without political interference?

I mean, it sounds lovely and everything, but really... not likely.

In this trhread we are/were discussing the "sale" of what appears to be the C2c franchise to Trenitalia.

First issue I have in the context of the "nationalisation' debate is that C2C does not "own" anything, they have the right to operate the franchise to a specification drawn up by the DfT. This is where I continue to question just what C2C is "selling" and what Trenitalia is actually "buying". Clearly the DfT cannot "nationalise" the C2C franchise as they "own" it. Under certain circumstances they could withdraw the franchise from the then current operator and either relet it or decide to operate it directly for a period of time (DOR).

Secondly, and with regard to the "sale" of a franchise specifically, normally, when a franchise is to be let, bidders must qualify based upon a range of criteria and the DfT will choose the one most appropriate. I have not been able to access the specific franchise agreement on the gov.uk website but I assume they indicate what criteria must be met to allow such a "sale" to take place. Likely it also states what if any financial value the franchisee may claim for the said franchise. In this case, can NEx claim a value which is quite clearly a projection which includes assumptions on factors driven by government agencies such as DfT for fares and NR for track access charges.

Finally, I am hoping this deal will not go through as it basically makes a franchise a commodity which I believe was never the oroginal nor subsequent intent of the franchising policy.

I'm pretty certain that companies holding rail franchises have been sold before. Is this one different?

Well, I haven't been able to identify a case yet. I get the impression there may have been some significqnt franchise shareholder changes but I have not found one where a franchisee "sells out" 100% to another company/JV not involved in the orginal franchise.

PRISM sold out to National Express (WAGN, C2C, Wales & Borders, Valley Lines).

MTL sold out to Arriva (Merseyrail, Northern Spirit).

Henderson Equity/ Laing/ 3i sold out to DB (Chiltern) - I can't remember the exact history.

Great Western Holdings sold out to First Group (FGW, FNW), though I think First had a minority share in the business before they took it over fully.

It's happened before. It'll happen again.

 

[daikilo]

PRISM sold out to National Express (WAGN, C2C, Wales & Borders, Valley Lines).

MTL sold out to Arriva (Merseyrail, Northern Spirit).

Henderson Equity/ Laing/ 3i sold out to DB (Chiltern) - I can't remember the exact history.

Great Western Holdings sold out to First Group (FGW, FNW), though I think First had a minority share in the business before they took it over fully.

It's happened before. It'll happen again.

As far as I can see, in all 4 cases the then franchisee was actually taken over, generally by buy-out of shares, which is not quite the same. Indeed, in the Chiltern case, after a consolidation of shareholding then the decision by Henderson to liquidate Laing rail, DB won the new franchise award. MTL was anyway an oddity.
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PRISM sold out to National Express (WAGN, C2C, Wales & Borders, Valley Lines).

MTL sold out to Arriva (Merseyrail, Northern Spirit).

Henderson Equity/ Laing/ 3i sold out to DB (Chiltern) - I can't remember the exact history.

Great Western Holdings sold out to First Group (FGW, FNW), though I think First had a minority share in the business before they took it over fully.

It's happened before. It'll happen again.

As far as I can see, in all 4 cases the then franchisee was actually taken over, generally by buy-out of shares, which is not quite the same. Indeed, in the Chiltern case, after a consolidation of shareholding then the decision by Henderson to liquidate Laing rail, DB won the new franchise award. MTL was anyway an oddity.

 

[LNW-GW Joint]

Not quite the same as a rail franchise, but Stagecoach sold its TfGM Metrolink concession to Transdev (RATP) without any problems.

Although the circumstances were unlike c2c and NX, I think Connex (Veolia) was the only other operator to voluntarily exit the UK rail franchise market, by doing a deal with our friends Govia over South Central.
The other changes of control were by the franchisee being acquired by a new owner rather than the franchise itself changing hands.
I'm not sure at the end of the day there is much difference in DfT terms.
Trenitalia has its franchise passport, and will get some kind of direct award for c2c (for some sort of premium to the DfT).
It might have been different if a non-passport owner was involved.
DfT can always choose to rebid the franchise if it wishes.

 

[43096]

Trenitalia has its franchise passport, and will get some kind of direct award for c2c (for some sort of premium to the DfT).

Why would Trenitalia get a direct award?

It has bought the c2c operating company - presumably the shares in it that NatEx Group owned 100% of - and is bound by the same contract that NatEx was.

 

[LNW-GW Joint]

Why would Trenitalia get a direct award?
It has bought the c2c operating company - presumably the shares in it that NatEx Group owned 100% of - and is bound by the same contract that NatEx was.

If it suits DfT, yes, otherwise they can negotiate a deal (ie a direct award).
Or rebid the franchise with all the fuss and bother, not long into the current term, for no obvious benefit.
DfT has control over the process.

 

[IanXC]

It has bought the c2c operating company - presumably the shares in it that NatEx Group owned 100% of - and is bound by the same contract that NatEx was.

This. I would be astounded if the method of transfer is anything other than this. (Which I coincidentally means that the money in bank accounts belonging to c2c Rail Ltd will pass to Trenitalia, along with all the other assets and liabilities).

 

[Suraggu]

I didn't know Virgin was "foreign"?
A Virgin consortium may well win WCP, but they'll have to fight for it.
Arriva is based in Sunderland, not Berlin.

It can be based in Sunderland all it wants but it is a subsidiary of DB and that owned by the German Government, Arriva is basically a glorified brand, but still does the bidding of its German owners.

 

[HH]

As far as I can see, in all 4 cases the then franchisee was actually taken over, generally by buy-out of shares, which is not quite the same.

Except that it's 99.9% certain that it will be. Anything else would create lots of extra work (and cost) for no benefit.

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It can be based in Sunderland all it wants but it is a subsidiary of DB and that owned by the German Government, Arriva is basically a glorified brand, but still does the bidding of its German owners.

Indeed, the ultimate shareholder is the Federal Republic of Germany. However the fact that Arriva UK is British means that they pay British taxes. Subject to any Corporate charges, of course (I have no idea what amount of charges they levy, if any).

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This. I would be astounded if the method of transfer is anything other than this. (Which I coincidentally means that the money in bank accounts belonging to c2c Rail Ltd will pass to Trenitalia, along with all the other assets and liabilities).

Yes, what is left in the bank account after they have paid for NX's corporate services, dividends, etc. And they'll also take over c2c's debts, like its Trade Creditors. I suggest that the net position won't make a dent in the £70m, whichever way it swings.

 

[daikilo]

Unless I am mistaken, Trenitalia owns zero pct of either NEx or C2C so this appears to me as a straight open sale.

 

[HH]

Unless I am mistaken, Trenitalia owns zero pct of either NEx or C2C so this appears to me as a straight open sale.

Which will be a sale of shares...