North Yorkshire Moors Railway General Discussion

Until the railway gets a grip of the wage bill it will only make loss after loss. No company can survive with a wage bill that is nearly 50% of its turnover. Really poor management in this area.

Last accounts show a wage bill of £3.6 million V's a turnover of £7.9 million.

 

Wages should absolutley not be half of turnover, more like a third at most! Cost of delivering services, true cost, including track wear and tear, overhaul of rolling stock, for a heritage railway is going to be frightening.

Anyway, i chucked those numbers above in to excel and thats the picture. Big downturn since the pandemic. It would be tempting to run the railway on core service only until that picture improves, ie, only run those services which are revenue positive, until the finances stabalise. Cut all expense which is not core and associated to those services.

The other question that the numbers above throw up, is how much cash is at hand. With an £8m balance, id be expecting to see some tucked away for just this kind of scenario, where revenue falls and a few lean years need to be had.

 

Actually more like 45% which has been typical for some time including many pre Covid years that generated a healthy financial surplus.......so what's changed?

 

I'd suggest there are 3 issues, intersecting:
* Public appetite
* Ability of the NYMR to market itself to potential customers, especially on the margins
* Alignment of costs to income, bearing in mind that if non-staff costs have risen, that leaves less absolute headroom for staff costs even at the same proportion

None of these are new to this discussion; my own view is that revenue growth is the key challenge, and that given the constraints on NYMR's operations, that requires a strategy shift towards marketing "internal" traffic, where there is room for growth, rather than "Whitby" traffic, which is constrained.

Pricing needs to be part of that - the anecdotes on here all point to NYMR having establish the limits of price elasticity, but not in a good way.

 

Staff costs seem to have risen substantially in the 'loss' years - Wages and Salaries rose by 21% between 2023 and 2024 (£2,761,074 to £3,312,614) and between 2021 and 2023, Directors Emoluments more that quadrupled from £59,650 to £270,600.

 

I suspect a 'Rail Trail' package/ticket would be a simple and attractive option for the internal services. Train from Pickering or Levisham to Goathland, walk the rail trail to Grosmont for refreshments there and then train back to Pickering. Ideally make it slightly cheaper than an internal return to allow for the downhill walk from Goathland. This would surely appeal to both families and walkers alike? Offer a voucher for the tea room at Grosmont adding to the secondary spend on the NYMR.

 

Well of course they would appear to have quadrupled because home grown management talent has been given PLC director responsibility but without being paid any extra directors’ fees for taking on those roles. The cost that would previously have been included in management salaries now has to be shown as directors’ emoluments but that does’nt mean the net cost is any greater.

 

Thanks for the explanation.

 

That sort of suggests that staff costs have risen even more than the 21% figure suggested. Doing a simplistic back calculation on the figures from @The Black Watch, that implies that the net increase in payroll was not £551k/21%, but £762k/27%. As I'd expect redundancy costs (if any in the period) to be presented as restructuring costs rather than part of the paybill, that doesn't support a narrative of tight cost control.

 

It's hard not to feel that you've just put forward a "rearranging the deckchairs on the Titanic" argument. The fact remains that the wage bills, however they are split between different sets of accounts (because ultimately they describe a single pot of money), are not sustainable with the present level of turnover. You have said in the past that it isn't feasible for the NYMR to trade its way out of the problem, necessitating grants to be secured - so tell us, please, where the £2.2M of grants needed to replace the losses since 2012 are coming from? Are there any big applications on the horizon? It isn't going to be possible escape maintenance costs for much longer before other big bills start to emerge - e.g. bridge 42 at Grosmont - let alone other work that is has been deferred this winter. The solutions seem to be obvious ; if we assume that Pickering-Whitby services are the most popular part of the repertoire at the moment, turnover has to be increased by focusing on attracting more people to use Pickering-Grosmont services - that is where the potential for re-growth lies. For that, I suggest we need more Indians and fewer Chiefs working at the railway, and it should be mandatory for anyone who describes it as a successful medium sized charity to be put into stocks for the volunteers to show their "appreciation"! Medium sized it may be, and once was, but currently it is a failing and floundering mess.

 

I wouldnt pretend to be au fait with the NYMR operations or accounts but taking a median of age 21 from 1.4.22 to 1.4.25 the national living wage has increased by 37% in accordance with government policy. A lot of heritage railways have a large proportion of their staff on or on a margin above the living wage. I havent done any analysis but i wouldnt be too surprised to find that if you took the same number of employees from 2020 (the last time the NYMR was in surplus acording to the graph above) and applied it to now, government policy accounts for all or nearly all of the increases you are quoting.

 

Very perceptive.....and if the living wage increases it's inevitable that to maintain differentials wage levels generally will follow suit.

 

That doesn't alter the fact that the wages bill of the NYMR is unsustainable, and for anyone who is not completely blinkered the likely outcome is rapidly heading towards disaster. I note that you didn't answer the question I posed in my earlier post - deo tell us, please, where the £2.2M of grants needed to replace the losses since 2012 are coming from? -which you must have seen. Grants should only ever be seen as a possible bonus, the should never be part of a financial survival plan.

 

I did a bit of a deeper dive into the finances, going back to 2000 to try to shed some light onto the staff question and also look for any other trends.

The TL,DR:

• staff costs have grown gradually up to Covid, but significantly since then.
• catering performance (at least in revenue terms) looks very good. By contrast, shop performance has been woeful.

Detail:

Helpfully, the accounts lay out the figures in a consistent way (with some caveats - see below) so you can look at:

• Total staff costs. I took Wages & salaries, Social Security costs and pensions; and also added in (because they are now very significant) "directors emoluments" and associated pension costs to get a total staff cost.
• Total income. Again, (with a caveat) this is laid out consistently as "Shops", "Catering", "Armstrong oilers" and "other". Because of the way it fluctuates, I assume "other" probably relates to value-add services like filming, training etc, which can be very erratic. For a couple of years in the mid 2000s there was another line item, "Esk Valley" - presumably related to the Whitby operation initially being considered somewhat separately? After a couple of years it disappears.
• I then looked at the ratio of those two figures.

There are three caveats in here.

• One is COVID, which screws up the 2021 figures. (On my chart, the years refer to the year of the accounts, i.e. typically they relate to financial performance of the previous year. So the worst impact of Covid was in 2020, which shows up in the 2021 accounts).
• The second is the 14 month year, which is 2016 on my chart.
• The third is that there is evidently some structural change in 2018 (i.e. took place in 2017) in which staff costs jump hugely, but a new income line item of "railway operations" appears. Oddly, both numerator and denominator in the fraction change, and the result doesn't actually vary much. But without digging in any further, I assume that prior to that, railway operations, and the staff required to deliver those operations, were accounted for elsewhere?

So here's the chart. Top line (left axis) is the total income; bottom line (left axis) is the total staff cost; and the grey bars (right axis) are the percentage ratio between them.




If you ignore the Covid year as an anomaly, the ratio has gradually climbed through the period. In 2000, it was 28%. By 2020 (i.e the last full year before Covid) it was 42%. Since Covid, it has been consistently over 50%, peaking at 53.5% in 2022. That year in particular looks awful - revenue was down, but staff costs didn't shrink to match. You can't lay the blame at the feet of rising social costs such as the recent rise in employers NI - the trend has been the wrong way since 2020.

In revenue terms, 2024 accounts (i.e. trading in 2023) actually looked really positive. The problem is that the wage bill jumped as well, so the ratio is still poor, particularly when compared with pre-covid. If you could have done 2024 trading with 2023 staff levels, things might have been a bit better. But instead the staff bill rose by over £600,000 in one year.

So I think there is justification to those who are making the point that the wage bill is very high - even relative to 2019, it is high, never mind relative to 2001.

There is one other interesting point, which I've plotted on the second graph, about secondary spend. I've ignored "other" as it fluctuates, and ignored "Armstrong oilers" as it is very small - instead just concentrated on "Shops" and "Catering".

Over the period, catering has grown by about 4.2 times. Over the same period, inflation was about 1.8 times, i.e. catering has strongly outperformed inflation, at least in income (I didn't look at profitability - maybe that extra income generation has come at the expense of lots of seasonal staff). By contrast, shops has grown by 1.5 times - even to keep pace with inflation, that should be 1.8. So the shop performance has been declining in relative terms. In fact, that figure is slightly flattered by a strong shop performance in the 2024 accounts - up until then the performance was flatlining. The shop in 2022 turned over the less in absolute terms than it had done 20 years ago - £427k in 2022 vs £450k in 2002. In short, the shop performance is very poor relative to what you were doing at the turn of the millennium.





Tom

 

There seems to be an explanation for the jump in 2018, and thus the low level up to that 2018. Note 5 in the PLC accounts for the years up to 2018 mention an agency agreement with the Trust and the cost of those employees is held within the Trust. You will also notice that in note 7 of the 2018 PLC accounts 70 Railway operations staff appear during the year. I wasn't around in that period so I don't have an explanation as to why this was done but I'm sure others will chip in.

 

That’s an interesting analysis, Tom, and thanks for taking the time to do it.
With regard to the separation of Whitby operations, I don’t know if this is the reason but when the NYMR first dipped its toes into the water, it was done using a third party operator (WCRC from memory).

 

Yes, I was just looking in a bit more detail. So some care is needed comparing figures from further back.

Even so, just looking at the period after that structural change, there is a big change in staff costs as percentage of turnover between 2017-19 and from 2021 onwards.

• In the three years prior to Covid, the ratio fluctuated from 39 - 42%.
• In the three years post Covid, it has fluctuated at 50 - 53%.

That feels like the root of the problem. Based on the 2024 accounts income, if staff costs had been maintained at the historic 40% level rather than the actual 51%, it would require the staff costs to be about £850k lower than they actually were, and the railway would instantly be back in profit. Now, I am sure you can make arguments about how essential to the business the paid staff are, and I certainly don't think this is the place for a debate about individual roles. But in gross terms, staff costs have jumped and in doing so, eroded the profitability.

Tom

 

How much of the jump in staff costs is due to the significant effect of inflation since 2020? Two questions, how has the average number employed changed over the years and what cost of living pay rises have been given. What I am getting at is, how much of the increase is the effect of external economic factors (and a static headcount) and how much is discretionary choices of the management.

 

Regarding question number one, I don't think there's a simple answer to that. 40 part time catering staff will cost a similar amount to roughly 20 full time catering staff. So it's not just about the number of people employed. Ffestiniog accounts got 2023 show similar numbers - income £7.2m, staff numbers 131, staff costs £3.6m. But they turned a small profit for the year.

Edit - just to add, a quick search shows businesses should aim to spend around 25-35% of income on staff costs. Spending over 50%, bearing in mind there are dozens of volunteers involved each day as well, doesn't bode well. And relying on grant funding to keep your head above water rather than use it for improvements to the railway really doesn't sit comfortably with me.

 

Perhaps the living wage legislation which has increased pay for heritage railway staff, has exposed the previous meanness of heritage railways to pay their staff a decent wage?