Published:14th October 2014
The Government via Her Majesty's Treasury, (The Chancellor), has offered its 40% stake in Eurostar International Limited (EIL) for sale at a target price of £300 million. This is part of the Government’s sell-off of state owned assets it says it no longer requires, such as the Post Office aimed at reducing overall debt said to be £1.45 TRILLION.
The announcement was made via a letter issued by UBS Limited (UBS) who is acting as the financial advisor to HM Treasury on the sale. To qualify for bidding you have to register interest by October 31st addressing the questions set out in the sale document.
Those selected to bid by UBS will then be sent further information in confidence to be able to formulate an offer which will maximise value for money for the UK taxpayer the Government has said. The timetable suggests that the sale will be completed before the General election in May 2015.
Eurostar is the brand name for the 186mph trains that operate on a core route between London, Paris Nord and Brussels Midi. There are also ski trains to the Alps and summer services to Provence. The city to city services have captured the majority of the travel market from budget airlines which in turn killed of the regional Eurostar trains that were to link Edinburgh, Glasgow, Manchester and Birmingham with Paris and Brussels from 1998.
It was the advent of budget airlines from 25 years ago that meant the 10 million annual passengers forecast to travel a decade ago has only just been reached after nearly 20 years of operation. The 186mph trains have carried over 145 million passengers in total with numbers increasing year on year for the last decade.
A new fleet of state of the art 200mph trains has been ordered being built by Siemens and will be delivered over the next two years at a cost of 600 million Euros. The company has returned an operating profit for the last few years of £54 million in 2013 paying a dividend of £18.6 million in total with the UK Government receiving £7.4 million dividend for its 40% stake.
The other shareholders are French Railways owning 55% and Belgium Railways owning 5%. The former can buy the UK stake but will have to pay a premium over the top bid understood to be 15%. So who might buy the company? Opinion is that it will be a pension company who wants a long term investment.
Eurostar does not operate Eurotunnel or High Speed One, they pay access charges to both companies as do UK rail companies who pay access charges to Network Rail. They were originally set up as a partnership between SNCF, SNCB and British Rail and in 2010 Eurostar became a company with the three shareholders and the part owned by London and Continental Railways after the 1994 rail privatisation ended up owned by the Treasury this year.
You will have to be able to lodge £35 million in equity and sign the deal by February 15th or soon after.
The company has around 1,600 staff and is based in London near St. Pancras International and it earned £882 million in 2013. This generated £133 million profit before tax, interest and other mandatory payments. Revenues grew slightly to £456 million in the first half of 2014, an increase of £3 million over the same period last year.
What makes up its costs? Infrastructure costs in 2013 were made up of 58% for Eurotunnel charges, UK access charges 18%, France 18%, Belgium 1% and other costs 5%.
It has won over 40 marketing, transport and service awards in the last 5 years, and was the Official International Rail Services Provider for the London 2012 Olympic Games, (not that there was much competition here), and the company holds the UK rail speed record at 335km/h. It runs up to 28 daily return services to Paris and Brussels offering high speed European rail connections at Lille International.
Eurostar is unlike most UK rail operators in so far as it owns its trains which are based at Temple Mills in east London on which it has a long lease. Contracts exist for maintenance in France at Le Landy depot and in Belgium at Forest depot.
Once the new Velaro trains are in service, Eurostar will look at operating to Amsterdam and into Germany from London splitting into two sections at Brussels. These are likely to run from December 2016 to Holland and from May 2015 to Lyon/Provence and will also provide fast onwards connections across Europe.
The new trains are forecast to significantly reduce operational costs while increasing capacity by 20% as each new train will be able to carry 900 passengers against the 27 train 750 current capacity. At the moment, trains on a Friday and Sunday are full so the extra seats will be sold.
The Eurostar website generates 46% of all bookings and is used by 70% of its passengers of which over a third of a million belong to a loyalty scheme.
Eurostar has a 30% stake in the Keolis Consortium, shortlisted to operate the East Coast main Line franchise, the winner of which is about to be announced.