Lynton and Barnstaple - Operations and Development

Spot on, @Isambard! : turnover of £10m would be irrelevant if you lost £500,000 - or even £500 - on it.

LBBC paid too much, and had too much debt for the profitability of the business. Given the timing of the purchase, the only logical conclusion is that Miles and Co were desperate to have some good news after the planning permisson expired and the s73 gambit descended into fiasco, and were prepared to do so at any cost - which turned out to be very high indeed.

I see no one here @Small Prairie who wants LBBC to fail. But the ridiculous price paid makes failure a real possibility, and it is therefore perfect reasonable - indeed responsible - for those who care. about the future of the railway to discuss what its failure wwould mean.

 

Risks you take personally are your perogative. If you want to gamble on the dogs, fine by me.

In business however we take risks alongside steps to manage them. In the case of LBBC that could have been to let a tenancy. In that way the profitability is the tenant's risk. The way that LBBC PLC is set up is exposing L&BRT to risk which it has no ability to manage.

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Or indeed, expertise. Hospitality margins are notoriously thin, and expertise and scale is required to be consistently profitable. No disrespect to those running OSHI, but the Trust does not obviously have this expertise, and in any event, should be managing other, more important issues. We are, after all, in the business of rebuilding the L&B, not running a debt-laden pub, which is at best a distraction from other, higher priorities.

 

Exactly, Tobbs. The sad fact is that while I mentioned fundraising a few posts back, isn't issuing more shares a form of fundraising? Looking at the big picture, and since it is well known around the heritage railway world that by default, the L&BR Trust has this debt, any effort toward raising funds is going to be difficult until this debt has been removed and I would guess, however hard I try to be positive about the whole project savvy people may not want to put money into a project that has this legacy to clear first of all.

As Tobbs has pointed out, we should not even be thinking about how to clear the debt when all we want is to build a railway.

What we need is something cheap and legal that will make loads of money very quickly.

 

a sentiment that will be recognised by virtually every human that has ever lived…

 

The Trust/LBBC’ve done the right thing in hiring an experienced manager to run the pub side of their business. The debt-laden financial structure is not his fault and he should be supported. No doubt he’ll be looking for ways to grow profitability, and some of them might take a while to bear fruit.

The criticisms of the Trust for setting up LBBC in this way seem justified but we are where we are now and must make the best of it. I wonder what could be done to better manage the debt-burden in the short-medium term.

For example is the Trust paying rent for the house now (another cash-burden) such a good idea? Yes it may be required as museum/accommodation etc in the long term but, in the meantime, couldn’t it be rented out for profit? Perhaps as holiday accommodation, if the location next to the pub is perceived as a problem for longer-term tenants.

 

Based on the Charity Commission rule that charities cannot bail out failing subsidiaries, then the medium term choices are pretty stark:

- Hope that enough people donate money (either directly or to buy worthless B shares) to pay off the loans. This looks like it would cost several hundred thousand pounds and seems extremely unlikely.

- Accept that there's not enough profit to service these debts, and close the pub and liquidate the assets. This means the Trust / some other part of the L&B family buying the assets to satisfy the secured loans, with whatever's left from an auction to percolate down to the other debtors. Because of the structure of the A Shares and the B Shares, where as I understand it, at least £5m has to go to the Trust for the A shares before the B shareholders see a penny, it will wipe out the B shareholders.

The honourable thing for those responsible for this mess - principally Miles and Cowling, but also the other Trustees who voted for it - would be for them to personally pay off the loans.

However, we've seen no evidence of the kind of honourable behaviour from either Miles or Cowling, so I'm not holding my breath.

 

Would closing the pub not do the L&B's reputation among locals some serious harm?

 

Which locals? North Devon isn't exactly short of good pubs.

And if the alternative is bankrupting the Trust or breaking charity law, then which would you prefer, @MellishR ?

The reality is that if LBBC had purchased OSHI at a market price - £750k to £1m, and done it all with equity raised from the shareholders, then we'd not be having this conversation (we may be having conversations about governance, but that's a bit different). But the ridiculous decision to pay at least £1.9m (and presumably more than £2m when the costs are factored in) has made the project unsustainable without continuous - illegal - Trust bailouts.

Would you prefer the Trust to focus on bailing out an indebted pub or rebuilding the railway? I know which one I want.

 

This is why I'm glad the trust are involved in the pub and not nat pres ....half the facts and no idea .

The pub is popular with locals , WE enjoy the pub in and out of season as locals.

There is no other pub close enough to service the villages and still get home sensibly , absolute rubbish that the pub doesn't have locals

 

Two quick observations:-

1. "Half the facts" is simply because everything to do with the Trust's financial involvement with the LBBC, and the latter's role in the purchase of the OSHI site, has remained opaque for far too long.

2. Even if the pub is a rip-roaring success for many years, if it does not produce enough 'spare cash' to enable the LBBC to repay its loans on time in full and meet its creditors, then AIUI the Trust is at risk of losing both a heritage asset and much-needed funds.

 

Mitchell - this is not about whether you want OSHI as your local, it is about what the impact of OSHI is on the railway. If it were as successful as you suggest, then the pub would be making lots of money and we wouldn't be having this conversation.

It isn't, and so we are having this conversation.

Of course if you want it as your local, you're very welcome to buy it or lease it and pay for it yourself, and the rest of us can get on with rebuilding the railway.

 

Its not a if i want it to be ...it IS my local as well as a local for many , the pub protects the land for the route , that's a given but the pub needs to be run as a pub , not as a L&B venture, it's a pub for locals in a local community, I assume you've been in thier out of season during the winter and have seen how the locals , the farmers and others still use it .

Its more than a pub , it's a social club , it's a meeting point , it's where family's work .

After all the loans , deductions and everything in 2023 it made a profit of 8k which considering the loan sizes , wages , interest etc for a newly brought company I'd be quite happy with that .

Once the loans are paid etc I'd expect to see a substantial jump in profit which will then get reinvested into the pub .

No business that can make a profit after paying debts , loans etc can be classed as a poor business.

 

>>>>After all the loans , deductions and everything in 2023 it made a profit of 8k ....

But what made that profit - the pub or the LBBC?

>>> Once the loans are paid etc I'd expect to see a substantial jump in profit which will then get reinvested into the pub ...

But in the meantime presumably little or no investment in the pub, so how will the pub sustain itself in the interim?

>>> No business that can make a profit after paying debts , loans etc can be classed as a poor business.....
But if you compare the meagre profit to the overall costs of servicing the debt and - in due course maybe - maintaining/upgrading the structure of the buildings, is that a business on a good footing or shaky ground?

 

Way to miss the point, Mitchell @Small Prairie. It may well be your local, but like many pubs up and down the country, if it cannot pay its way, it will go under, whether you like it or not.

In other words, it's a pub like most others up and down the country. OSHI has no special right to exist or survive if it can't pay its way.

You shouldn't be. Its net margin of 1% of turnover after tax is tiny and gives absolutely no room for error when circumstances change, like an increase in Employers NICs from April this year. And of course it only happened because of the bailout.

Ok, so when will that be?

Yes it can be a poor business if it was profitable only because it was bailed out. If you're so convinced it's a gold mine, then you and your friends should lease it from LBBC for say £20k a month - we'd all be very grateful.

Based on the accounts and the excellent forensic accountancy of @Michael B to whom the entire L&B family owes a great debt beyond his already great contributions in the history and in Measured and Drawn, it is clear that without the Trust bailing it out, LBBC and OSHI is a financial turkey. Which is exactly what many of us predicted when the costs were revealed ahead of purchase, and tried unsuccessfully to persaude Cowling and Co to step back. It's not a case of 'I told you so', because it wasn't only me.

A business that struggles to pay off its loans and needs a bailout from a large shareholder is not on a sustainable path, and needs its stakeholders - ie, including every member of the Trust and the broader L&B family - to think long and hard about how we fill in the bl**dy enormous hole that Miles and Cowling's desperation has landed us in.

 

I was talking to the landlord of the Pipers at Ashcott last year. That was a well known 'locals' pub, on a significant cross country route (where the A39 and A361 separate), that also had a good reputation as an eatery, did a decent sunday lunch etc. and always appeared busy. He reckoned the actual profit on a pint was about 9 pence. The Pipers is now closed.
1% net profit is laughable. £1.9M in a totally risk free savings account would net £60,000PA.
Should have waited- and after a year, if the business failed, bought the required assets and not been blamed by the locals for closing the pub. As it turns out, given the sad demise of the owner, the railway would have been in a very different negotiating position, if not immediately then after a year or so.
I want X at any price is not a good negotiating tactic- but I guess if its not your own money, what the hell?

 

Ironically, I know the Pipers as I passed it often on my way to/from West Somerset and North Devon, but never ventured in there simply 'cos I was not passing at meal-times. Did use the Ashcott Inn a few times until I found alternatives more suited to my needs as travel plans changed. In my immediate area 2 of our 3 pubs have closed within the last few years and are being redeveloped as flats etc. The remaining 3rd one is nice, but expensive, so I rarely go there; its trade seems to be somewhat seasonal and it's hard to keep up with its constant changing of opening days/hours.

 

Assuming that the imperative is to secure the historic station building and that it would be advantageous to have a functioning business on the site if it were me I would look at Transferral of part or all of the Freehold to the Trust from LBBC in lieu or settlement of all debts and in exchange for the shareholding of the Trust in LBBC. LBBC would then receive a lease at sensibly commercial rate. Whilst this is very much on the edge of acceptable from a Charity perspective and might not fix the LBBC profitability, it would ensure the building was secured for the longer term and the business had a fighting chance.

 

This maybe should have been what was done at the outset. Could it still be achieved within whatever legal requirements there are on a charity?
If it can, then it surely falls into the 'no brainer' category.

 

Somewhere in the back of my mind, that is the exact reason why it was set up like it has been. I think the only thing they (the Shareholders) can now now is to seek a motion at the next GM to pass such a motion.