Nottingham tram network not ‘broken’ despite £57 million loss

The boss of Nottingham’s tram operator says the company is not “broken” despite reporting a GBP57 million financial loss.[1] The figure was revealed on Monday (January 8) in the accounts for the last financial year, but the CEO of Tramlink says some of the issues behind the loss have now been resolved. Although optimistic about the remaining decade of Tramlink’s contract to run Nottingham’s tram network, Tim Hesketh says some have now accepted they will not get all the money they invested in the project back. Speaking about the company’s latest finances, Mr Hesketh said: “Our accounts [for the last financial year] are not very pretty, but that’s now ancient history.

“We’ve restructured, we’ve solved a lot of the problems that [the accounts] show up.” The major driver of the GBP57 million loss is an ‘impairment charge’ of over GBP26 million. Do you agree with tram fares rising in Nottingham? Let us know here.[2] An impairment charge is recorded when the value of a company’s assets is considered to have fallen.

In Tramlink’s case, that judgement has been made primarily because passenger numbers are still 20% less than pre-pandemic levels. Explaining the loss, Mr Hesketh said: “As our revenues were dipping relative to covid[3], the projected value of those assets in the future was lower than it was in previous years. What you’ll see [next year] is a reversal of some of those impairments.

It’s all wooden dollars, it’s not real money. “It is accountants [assessing] potential values of something in the future, it’s nothing to do with the day-to-day profit or loss line on the tram. Essentially we are making less than we predicted when we started out in 2011.”

Nottingham’s tram network, which first began operating in 2004, is run through a Private Finance Initiative (PFI) contract, where private investors put money into public projects with the promise of this investment being returned over a set period. The network has also received significant investment from the Government and Nottingham City Council[4] over the years. Nottingham Trams Limited runs the city’s network on behalf of Tramlink, under the NET brand.

Despite being confident that a recent financial restructure has put the tram network on a good footing for the next 10 years, Mr Hesketh says some original investors in the project have now accepted that they won’t be getting the financial returns they originally predicted. The senior lenders to the tram network are banks and the recent financial restructure means they should get their money back in 2032. Another priority lender is Nottingham City Council and finally, there are the junior lenders made up of shareholders.

Tim Hesketh, the CEO of Tramlink in Nottingham. (Image: Nottingham Post)

Speaking about the situation for the latter group, Mr Hesketh said: “The lowest priority of those loans, those shareholder loans, now have less of a chance of being repaid.

The better we do over the next 10 years, the more they get back, it’s as simple as that. “The project is financed on a risk basis so all lenders in theory face the possibility that they might not get their money back, that is just the nature of this sort of project. We’ve restructured our loans to make sure the banks get their money back and then in order of priority the other junior lenders then get their money back as well.”

Despite some accepting that they won’t get all their original investment back from the tram network, Mr Hesketh explained that investors still value their role in the project because of its green credentials. Tramlink is due to hand back the tram network to Nottingham City Council when its contract expires in 2034, though it will more likely be taken on by the upcoming East Midlands Combined County Authority. Ahead of the handover, Mr Hesketh said the next decade will see Tramlink taking a three-pronged approach to maximising its revenue.

This will include delivering a good and reliable service, tackling fare evasion and assessing what capital investment needs to be made in the network over the next 10 years.

The Tramlink CEO added: “We’ve had a really difficult few years, but we’ve got to set ourselves up for the next 10 years and beyond and I think there’s a lot of opportunity there.

We’re not broken, we’ll still get through this and we’ll pay off our debts, make some money for our shareholders and deliver a good service for the people of Nottingham.”

References

1. ^ GBP57 million financial loss. (www.nottinghampost.com)
2. ^ Let us know here. (xd.wayin.com)
3. ^ covid (www.nottinghampost.com)
4. ^ City Council (www.nottinghampost.com)