LNER vs VTEC financial performance

mrmartin

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LNER's first set of accounts are out; which shows the following:

Turnover: £695m
Operating profit: £52.5m
DfT premium: £128m

This compares to VTEC the year before:

Turnover: £842m
Operating profit: -£20m (a loss)
DfT premium: £334m

Not entirely sure how like for like these numbers are, but considering its the same franchise must be virtually comparable?

So a big fall in turnover. The DfT would have been vastly better off cutting VTECs premium requirements by say £50m - they'd have got nearly double the premium, and VTEC could take home a small profit.
 
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Purple Orange

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LNER's first set of accounts are out; which shows the following:

Turnover: £695m
Operating profit: £52.5m
DfT premium: £128m

This compares to VTEC the year before:

Turnover: £842m
Operating profit: -£20m (a loss)
DfT premium: £334m

Not entirely sure how like for like these numbers are, but considering its the same franchise must be virtually comparable?

So a big fall in turnover. The DfT would have been vastly better off cutting VTECs premium requirements by say £50m - they'd have got nearly double the premium, and VTEC could take home a small profit.
I’m intrigued. Where on a P&L would the DfT premiums be reported? Are we saying in both cases the premium is accounted below operating profit, therefore a net loss for LNER and VTEC? Or is it accounted for in the operating profit numbers?
 

ainsworth74

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I could be missing something but won't these accounts only be for 24 June 2018 through to 31 March 2019? Therefore missing the best part of three months worth of revenue?
 

ainsworth74

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I’m intrigued. Where on a P&L would the DfT premiums be reported? Are we saying in both cases the premium is accounted below operating profit, therefore a net loss for LNER and VTEC? Or is it accounted for in the operating profit numbers?
According to the accounts:

The Company generated an operating profit for the year of £52.5 million after £128.4m being paid to the Department for Transport as franchise premium, and operating profit before franchise premium was £180.9 million.
 

mrmartin

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I could be missing something but won't these accounts only be for 24 June 2018 through to 31 March 2019? Therefore missing the best part of three months worth of revenue?
Very good point!

So if we estimate the numbers to 12 months for LNER (by dividing by 9 months and multiplying by 12, which is simplistic), we get:

Turnover: £926m
Operating profit: £70m
DfT premium: £170m

vs

Turnover: £842m
Operating profit: -£20m (a loss)
DfT premium: £334m

Still a worse performance than VTEC in terms of DFTs 'take', £240m of premium and profit vs £314m with VTEC.
 

Bertie the bus

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Where do you get the £314 million premium with VTEC from?

The reason the franchise ended was they couldn't afford the premiums and had no intention of funding the losses beyond their contractual obligations, so how do you calculate they would have paid £314 million if LNER paid £170 million with a £70 million surplus?
 

mrmartin

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Where do you get the £314 million premium with VTEC from?

The reason the franchise ended was they couldn't afford the premiums and had no intention of funding the losses beyond their contractual obligations, so how do you calculate they would have paid £314 million if LNER paid £170 million with a £70 million surplus?
£334m - £20m loss = £314m. LNER did £240m. Point I'm trying to make is that you could have cut the premiums to VTEC by up to £74m and the taxpayer would have done better than LNERs performance.
 

Bertie the bus

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The point you are trying to make is wrong. They weren't going to subsidise any further losses. If LNER made a total return of £240 million then £240 million is the absolute maximum VTEC would have paid. Therefore, the government would have gained absolutely nothing by allowing the franchise to continue.
 

LNW-GW Joint

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There will be a figure somewhere of the premium that VTEC would have had to pay had the franchise continued.
The important figure is then how that compares to what LNER achieved.
That's assuming LNER were following the same targets.
 

WatcherZero

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The point you are trying to make is wrong. They weren't going to subsidise any further losses. If LNER made a total return of £240 million then £240 million is the absolute maximum VTEC would have paid. Therefore, the government would have gained absolutely nothing by allowing the franchise to continue.
Your logic is flawed, VTEC generated £314m of turnover in excess of operating costs, LNER generated only £240m of turnover in excess of operating costs. VTEC had already paid £334m in premium the year before, almost £100m more than LNER did.

Governments own assessment:

OLR would generate between -£19m to +£13m in franchise premium over a short term extension period compared to Virgin. Overall with other costs included government will be £32m better off allowing Virgin to continue as a short term contract than using OLR.

https://assets.publishing.service.g...8-options-assessment-report-print-version.pdf
 
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herb21

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£334m - £20m loss = £314m. LNER did £240m. Point I'm trying to make is that you could have cut the premiums to VTEC by up to £74m and the taxpayer would have done better than LNERs performance.
I haven't gone through everything, but there was a £93m onerous contract provision booked in 2017 which was fully utilised in 2018 although an additional provision for £40m was raised, so that would be another £53m off your VTEC performance for the year. There is also the tax position to consider, although VTEC had a £23m tax charge in 18 that was largely due to release of deferred tax assets that were no longer recoverable, treasury only got £4m of tax related to PY and no CY, LNER are paying £11m (crudely annualised £15m) over to treasury this year. Our difference, and this is recognising how rough this is, is now £12m.
One thing I can't see is LNERs start up costs, I would normally expect these to be a not inconsiderable exceptional item which would likely further narrow the gap. (I assume LNER haven't disclosed these separately as the ORLs purpose is to step in for a failed franchise and thus they don't regard them as exceptional, but they would still be one off, non comparable costs).
 

HH

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All LNER's startup costs may not be included, because many will have occurred pre the takeover date. Plus you cannot simply multiply 12/9 - the late Spring is not a typical part of the year from either a passenger or a performance perspective, plus there is an extra week.

Moreover, any half-decent accountant could take a set of figures and produce significantly different profits, depending on what they wanted to show. There is quite a lot of wiggle room in reality and LNER don't have prior years to cause consistency issues.
 

4REP

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just thought that the reason for less income could possibly be due to the high complaints from customers/passengers referring to all areas of the business eg catering and new trains rude staff etc.which has resulted in lower patronage! I have read some really awful complaints about this company compared to VTEC on trip advisor etc
 

4REP

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It Would be also interesting to find and look at the results for Grand Central/EMR/ and National Express compared to last years and this years reults of VTEC and LNER
 

class26

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just thought that the reason for less income could possibly be due to the high complaints from customers/passengers referring to all areas of the business eg catering and new trains rude staff etc.which has resulted in lower patronage! I have read some really awful complaints about this company compared to VTEC on trip advisor etc
Since the introduction of *800`s on the ECML and the dreadful seats I have voted with my feet and driven on 5 occasions since the summer so that`s approx £500 lost from just one punter. Just hope someone from DaFT / LNER reads these comments. i have left several comments on LNER`s site when asked for feedback on these "new and luxurious" trains
 

quantinghome

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LNER's first set of accounts are out; which shows the following:

Turnover: £695m
Operating profit: £52.5m
DfT premium: £128m

This compares to VTEC the year before:

Turnover: £842m
Operating profit: -£20m (a loss)
DfT premium: £334m

Not entirely sure how like for like these numbers are, but considering its the same franchise must be virtually comparable?

So a big fall in turnover. The DfT would have been vastly better off cutting VTECs premium requirements by say £50m - they'd have got nearly double the premium, and VTEC could take home a small profit.
Do you have a link to these figures? Does VTEC's turnover include payments from the parent company to make up the agreed premium to DfT?
 

quantinghome

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Here is an excerpt from LNER's filing for year ending 31 March 2019:

upload_2020-1-16_12-1-4.png

Revenue is stated to have increased compared to VTEC. This seems to agree with the revenues above adjusted for the 9 month duration of LNER's first accounts.
 

FQTV

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Since the introduction of *800`s on the ECML and the dreadful seats I have voted with my feet and driven on 5 occasions since the summer so that`s approx £500 lost from just one punter. Just hope someone from DaFT / LNER reads these comments. i have left several comments on LNER`s site when asked for feedback on these "new and luxurious" trains
I think that's a perfectly valid data point describing a personal response, but I suspect that it's fairly atypical.

Here is an excerpt from LNER's filing for year ending 31 March 2019:

View attachment 72772

Revenue is stated to have increased compared to VTEC. This seems to agree with the revenues above adjusted for the 9 month duration of LNER's first accounts.
These figures don't surprise me based on my own observations of both train loadings and also ticket sales strategies. LNER has certainly not gone back on Virgin Trains East Coast's swerve away from the lowest Advance tiers, and whether by accident or design, release of some other Advance tickets does seem to have become restricted as well.

On Tuesday this week, for example, the LNER system showed no Advances at all from London to Newcastle on the 28th January until late evening services. Today, Advances in Standard and First are showing on most services. Hitherto, I'd have assumed that that would suppress revenue, both by discouraging bookings and also by pushing sales into inter-available fare types. However, I wonder in this case, as the cheapest alternative to a Standard Advance would be a Super Off Peak Single, at a premium of 17.4% in the specific example I am looking at. Is the revenue from this fare type retained by LNER (& Connections as relevant) or does it go through ORCATS?

For 1st May, the current booking horizon, there are only two First Advances at the lowest available fare released on most Durham to London King's Cross services. First Advances in general seem to be unavailable full-stop on certain services, and even more-so for flows which don't start and end in London. This would tie in with the report above that London flows are revenue positive at the moment, and non-London are negative.

All very interesting, anyhow.

Edited: to add that very anecdotally the level of customer satisfaction amongst my clients and networks is much higher with LNER than ever it was with Virgin Trains East Coast - which I put down mostly to the cessation of the incessant over-promising of the latter, while both customers and staff were having to deal with blatant cutbacks and under-performance on a daily basis.

Even if performance hasn't improved under LNER (or if it has), then the fact that passengers may feel less like foie gras geese being force fed brand claptrap constantly will likely have improved their moods.
 
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ainsworth74

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It Would be also interesting to find and look at the results for Grand Central/EMR/ and National Express compared to last years and this years reults of VTEC and LNER
I'm not sure what you expect to learn from Grand Central considering they're so much smaller than LNER however their last full year results were for January 2018 - December 2018 (they seem to use the calendar year for their accounts) show that they had a turnover of £51m and after costs, taxes, etc they turned a profit of £8.2m.
 

Brissle Girl

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That's precisley what it means.
It could be due to the average journey length increasing thus attracting higher fares per journey , as well as higher fares for journeys of a similar length.

One thing strikes me is the proportion of profit to turnover before payment of the DfT premium. That would suggest that, if you ignore the holistic view that the premium helps pay for franchises which need subsidy, fares could be cut by around 25% and the operation would still break even. That might help fight the airlines on the Scottish routes, and indeed the experiment on lower single fares could be seen as a step in that direction.
 

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