Heritage Railway PLC

Hello

I am conducting a bit of research on the practicality and effectiveness of Heritage Railways having an element of PLC structure within the governing arm of the railway.

I know that many railways are PLC based, how effective is that at fundraising and at what cost? Are railways and their members happy being PLC based?

Have you been at a railway that was once a PLC and is no longer? Why so?
Have you experienced a railway which isn't a PLC, how does it effect it? Is it for better or worse?

All I want to know is your experiences with PLC based heritage railways. Is the PLC system the way to inject serious capital into a railway?

 

This was discussed on other threads (Bluebell and Moorland and City from memory) so a search might find you more. As I recall, there were a range of opinions how different models worked.

The SVR's organisation is complex, details are here https://www.svrwiki.com/The_Severn_Valley_Railway_in_preservation#Current_Organisation. It includes a PLC which raises funds in a number of ways:

- commercial revenue (fares, trading etc.)
- donations (as do other organisations on the SVR)
- grants (e.g. Lottery awards https://www.svrwiki.com/Category:Lottery_funding - again, as do other organisations on the SVR)
- Share sales

In respect of the latter it has a steady annual sales of shares in the tens of thousands of pounds, but with share offers from time to time. The current (2016) offer has raised £1.5m gross and is coming to a close on 31st October [subscribe here], the previous (2012) offer raised £2.00m gross and £1.91m after costs (around 5%). I think the last share offer before that was around 1994. The current issued share capital (including the £1.5m under the current issue) is around £9m.

Being a PLC it has to take account of such things as the Financial Services and Markets Act. Its governance (audit, general meetings, share offers etc.) have to be done very properly. The share management was voluntary but is now outsourced, I think recognising how the size of the share base has grown. The PLC route therefore has a cost.

Whether the PLC system is a (or the) way to inject serious capital into a railway might depend what you offer investors. The SVR PLC is clear that it pays no dividend and shareholders get nothing back if the company is sold or wound up. Also: "Prospective Investors should only apply for Offer Shares in the Share Offer if they are able and willing to accept the high degree of risk connected with an unquoted investment, which could result in the loss of some or all of their investment". If your PLC was to offer more rewards, it's possible you could raise more money - but what would those shareholders want in return and would it be a risk to your railway?

I would suggest that SVR PLC's increasing the share base from £5m or so to £9m between 2012 and 2017 through share sales constitutes successful fundraising and the share issue costs around 5% not excessive. Would the railway have raised as much by general appeal? That's not so clear, but the SVR Charitable Trust can source complementary income from other sources and it too has raised a seven figure sum.

I am not part of the management of the SVR and all the above is information in the public domain, given in a personal capacity, and given entirely without responsibility. I hope you find it interesting.

Patrick

 

I think the first point to consider is that if you want to "inject serious capital into a railway", there has to be serious capital available to inject. In other words, fundraising doesn't just happen in a vacuum: the railways that are good at it are good because they put significant effort in.

At which point, I don't think changing corporate structure alone is some magic bullet way to raise funds. There are lots of considerations about the best overall structure for a heritage railway (and it is not a "one size fits all" problem): effective means to raise funds is one such consideration, but not the only one. Just because a plc issues a share prospectus for some large investment does not of itself guarantee that a single penny will be raised. (As Patrick says, it has been a topic of discussion over the years on several threads on NatPres).

A significant consideration, as @D1039 says, is the compliance cost of a share issue. You are making a pitch for investment, not a request for donations, so you are subject to all the financial rules about soliciting investments. There is also the fact that, once invested, you have an annual ongoing cost to maintain a share register and send out annual reports etc. (That's admin - but admin has a cost). So maintaining a large share base of small investors has an ongoing cost long after the initial investment has come in.

You quite frequently hear comments here and elsewhere, à propos railway share issues, "oh, but everyone knows that really it is a donation". Really? That's not how the regulators would see it. My own view is that if what you are soliciting is intended to be a donation, find a way so that it genuinely is a donation, which probably means going down a charity route as your main fundraising body, rather than a PLC route.

Also, as Patrick said: I am not part of the management of any heritage railway organisation and all the above is information given in a personal capacity, and given entirely without responsibility. I hope you find it interesting.

Tom

 

seems to me that current share purchases are effectively a donation whereas PLC shares would be tradable and subject to regulation and quite possibly take over bids, asset stripping etc. Most railway lines own property worth far more when developed for non railway use.

 

Plus of course the considerable advantage that Gift Aid brings to a donation. That's why, as far as the Bluebell is concerned, I've never been a shareholder- I'd far rather that a lump of my hard earned income tax is kicked back to a good cause.
Never seen the point of buying shares which won't pay a dividend.