I’ve just chaired my first AGM. I’ve done about twenty as a director of WyvernRail plc but this was the first time I was in the chair. And what a cracker – defending a £112k loss.
One hundred and twelve thousand pounds. Oh Dear Lord.
Sounds terrible, doesn’t it? Well it is, but that’s heritage railways for you. Let’s break it down a bit:
Turnover was through the roof at £575k
Taking away direct costs we made a gross profit of £322k
So far, so good.
Then comes the kicker: £450k of “Administrative costs” (i.e. indirect costs), leading to a loss of £112k.
Oh Dear Lord indeed.
The administrative costs included such items as fuel and wages, plus a £40k chunk of depreciation that really is an accounting ‘thing’. What isn’t an accounting ‘thing’ is maintenance and repairs: while depreciation is an accounting write down to reflect “the estimated reduction in value of a fixed assets within a fiscal year“, repairs are the reality because things break or wear-out. While we’re at it, you’d think a 150-year-old railway line is probably pretty well depreciated, wouldn’t you?
It’s the repairs that kill you and it’s not just the fixing. Take this one bridge:
This bridge, just by the site of Hazelwood Station, has been on the move for ever. I took a picture of cracks on this bridge back in 1997 so it’s clearly been an issue for a very long time. Here’s the rub: it’s our bridge but a road runs over it. It’s not in immediate danger of falling down but the Highways people are nervy and – guess what – we haven’t got a spare £175k to fix it properly.
So what do you do? You patch it up and monitor any deterioration. Now, back in the day, some guy who knew somebody on the Board would ‘do a favour’ and come up with a ‘report’, probably delivered in the pub, and we’d be covered. Not any more: we work in an evidence-based world and things have to be done properly. This involves the use of professional engineers and they don’t come cheap. They provide state-of-the-art tools to see if the structure is moving – even by millimetres – and even tools to see how much the bridge flexes when a vehicle drives over it.
But this doesn’t come cheap and as much as we can the play the “We’re a poor little heritage railway who needs some help” card, that only goes so far: professional engineers aren’t charities, nor should they be. The problem is that these costs are necessary, not insignificant, repetitive and decidedly unsexy.
So what’s to do?
Simple. Sell more and spend less. Where’s the problem?
Well, selling more doesn’t appear to be too much of a problem: here’s the statistics showing last year’s sales against the preceding years:
Obviously, 2020 and 2021 were total or partial washouts, so 2019 is probably a good comparator although in four years, a lot of water has gone under the bridge and things don’t quite bear comparison but you can see that the business has more-or-less doubled in size. That is lovely but it brings problems, namely those of capacity.
Capacity is good and bad. Getting it wrong is a major problem for companies and, as I keep trying to remind everybody, a heritage railway is still a company. Gravity still applies. Eventually.
So, capacity can be defined as the ability of a person or organisation to do something. OK so far? Now, that comes in many flavours: the number of people to do a job, the cash available to acquire assets, the equipment to deliver a service, the power of a vehicle to move a payload. I could go on but I won’t.
The key thing is that getting capacity right is a critical task for any business: too little and you can’t deliver the goods or services too much and it drains other resources.
Take, for instance, a factory with too little capacity, say, not enough employees . If orders go up and, for some reason, absenteeism goes up at the same moment, that lack of capacity means one or both of:
1. Failing to meet the orders on time.
2. Needing to hire temps to do the work (assuming you can just draft-in temps and have them productive immediately).
Both will have an effect on the bottom line through not enough sales (and consequent loss of future custom) or increased costs because your payroll has gone through the roof.
Too much capacity seems better but it is still Illusory. Let’s go back to our factory a few months later: sales have dropped because of the delivery crisis and for reasons unknown, we have absenteeism down but they’re still using temps. OK, they can meet the diminished orders but the cost of paying all those employees will be enormous and with sales down, what about all the space and equipment that isn’t being used? It still needs to be paid for (and depreciated – remember that?), so once again the bottom line gets a hammering.
Now, what about our little train set?
The railway, specifically that at Wirksworth, is out of capacity. The pictures above give an immediate illustration of how we have insufficient capacity but we also have too much capacity in the wrong places.
The obvious example here is yard capacity. This is a very real issue where moving a vehicle from A to B might involve a very complex shunt because there is so much rolling stock in the way. That uses up time in planning and execution, not to mention fuel and lost productivity if people were working on one of those vehicles being moved out of the way and had to down tools for the move.
Don’t even mention the maintenance shed: we’ve had near warfare about capacity in there.
But there’s more. Look at the these good folks crossing the tracks at Wirksworth last Saturday (the 29th). That is really great but if they all came in the Apollo Bar, we’d have nowhere to put them, we’d run out of food and drink and our team would struggle to clear the tables and keep the place looking spick and span. Result: lost trade today and lost potential business as nobody wants to came back to an attraction was wasn’t, well, attractive.
But is goes the other way too. We have too much rolling stock.
Our first train services in our earliest days used Diesel Multiple Units, a.k.a DMUs or railcars but in the past few years, their use diminished as we gradually increased the number of locomotive-hauled carriages and moved towards locomotive haulage, especially steam.
Steam sells and with steam comes the ability to sell high-value products, especially dining and special events.
But what we didn’t do was consider what we were doing with the DMU fleet. As a result, many vehicles have languished in Wirksworth yard, taking up valuable space and deteriorating in the elements. Therefore, we have a lack of capacity in one case and surplus capacity others.
Don’t get me wrong. We need DMUs at the EVR and without diesel locomotives we would be sunk. BR rid itself of steam for a reason: it is expensive to operate and takes time to bring into operation – it doesn’t have a starting key. Diesel is great for quieter days, DMUs doubly so, whilst sometimes diesel is great for operations where the motive power isn’t central to the experience. For example, last year when we had the disaster of 80080 derailing, the evening’s Faulty Towers experience went ahead with a diesel locomotive and nobody noticed nor was upset by the absence of steam.
But that’s not the only example. The other classic – and common to most other heritage railways – is the dreaded restoration project. I am as guilty as the next person of accepting a vehicle onto the railway that came with a rock solid promise that six months work and it would be a runner, then it turns out that the six months work in question would probably be spread out over five years. More valuable capacity in the yard is consumed on the promise of a shiny new vehicle ready to provide much needed capacity for the fleet as an undetermined date.
Now, don’t get me wrong: some of the vehicles at our railway have arrived and followed a restoration path that has brought them into productive use. But others, well, we’ll have to see.
This brings us to the next challenge: controlling projects. That’s for next time…
Neil
From the 54th Floor 
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