12 th JUNE
East Somerset Railway was established by David Shepherd and a group of his
friends in the early 1970s. Under
David’s inspirational leadership the Railway developed rapidly and the core of
what is here today was created. The
Railway went through a period of rapid growth in the early years, and the
investment required was a steady and substantial drain on David’s resources.
were many major achievements in this period, including the acquisition of the
site, the construction of the engine shed, workshops and carriage shed, the
negotiation of running rights into Cranmore Station, and the extension of the
line in stages to its current terminus at Mendip Vale.
the mid-1990’s, David felt that his other major interest, wildlife
conservation, had to take priority over the Railway and that the time had come
for the East Somerset Railway to become self-supporting.
Accordingly he withdrew into the Railway’s background and a full-time
salaried General Manager was appointed to take the reins.
period of tenure of the first General Manager was characterised by exciting and
ambitious expansion plans which failed to materialise in reality.
The loss of the financial ‘safety net’ which David had provided meant
that the Railway had to operate in a much more difficult financial climate, and
with hindsight it failed to adapt to these circumstances.
Substantial financial losses were incurred year on year, the position
worsened, and matters came to a head in 1997 when the General Manager resigned.
the departure of the first General Manager, the Board of Directors asked one of
their own number to take over as acting General Manager.
By this time the Railway was in a deteriorating financial position, with
income consistently failing to cover operating costs.
The increasing pressures involved in trying to run the Railway under
these conditions led to Board resignations and great difficulty in finding
replacement directors, with a consequent reduction in their number.
a background of mounting debt, in early 2000 the locomotive ‘The Green
Knight’ was sold to raise much-needed funds, but the respite this provided
proved to be only temporary. By the
mid-2000, the Railway had six-figure debts and many creditors were pressing for
addition the Railway had at this time come under very close scrutiny from the
Charity Commission, which was expressing disquiet about several aspects both of
the management structure and the conduct of the Railway’s management.
a result of the Charity Commission’s involvement, a new Board of Trustees was
co-opted in October 2000, and immediately commenced an intensive review of the
business activities and financial circumstances of both the East Somerset
Railway Company and its trading subsidiary, the Cranmore Railway Company.
At the same time the Trustees took immediate and fairly drastic steps to
reduce overheads, which included a reorganisation of the management structure to
return the Railway to volunteer management.
the full extent of the financial problems became apparent, the Trustees felt
that they had no choice but to the close the Railway whilst they established
whether it was technically and legally solvent, and sought advice on how the
situation could be improved. Happily,
the expert advice was that the Railway was not – quite – insolvent and could
reopen and continue to trade whilst seeking a more permanent solution, provided
that in doing so the debts were not increased.
the Trustees had completed their initial business and financial review, their
conclusions were that the Railway’s operations could be made to become
profitable, but that to do so would require very careful management and strict
in the way of this, however, was the substantial burden of debt that had been
allowed to build up. Whilst the
creditors had been, and were continuing to be, extremely patient, it was clear
that a way had to be found to pay them before the Railway could move forward.
Since the Railway’s bank, itself the largest single creditor, had made
it abundantly clear that further credit would not be forthcoming, the future did
not look good. Furthermore, since
the sale of ‘The Green Knight’, the Railway’s only remaining asset of any
significance was the real estate over which it operated, and although the value
of this exceeded the aggregate debts, it was an asset which clearly did not fall
into the ‘disposable’ category.
Due to the
sums involved and the speed with which they were required, fund-raising was not
considered an option. The Trustees
then set themselves to find someone who would be prepared to invest a sizeable
sum in the Railway. Despite the
Trustees’ conviction that the business was viable, the Railway’s poor
financial record made it virtually impossible to attract any form of normal
April 2001 the Railway’s fortunes took a dramatic turn for the better when the
Trustees were introduced to a potential benefactor in the form of David and
Pamela McCleave. The McCleaves generously agreed in principle to inject a
substantial sum into the Railway, but only with the eminently sensible provisos
the Trustees should convince them that the
Railway did indeed have a viable business case and a reasonable prospect of
the deal should be a sound commercial
agreement so that at least a substantial part of their investment would be
safeguarded in the event that the Railway did subsequently fail and had to be
and Pamela McCleave run a successful London-based property company.
They are lifelong railway enthusiasts, and have been regular visitors to
the East Somerset Railway for some years.
and Pamela immediately expressed a willingness to help the Railway if they
could, and negotiations between them and the Trustees commenced immediately to
formulate a commercial agreement that would be satisfactory not only to both the
parties directly involved, but also to the Charities Commission, which continued
to take a close interest in the proceedings.
deal that has been arranged involves the sale of the freehold of the East
Somerset Railway’s land and buildings to the company run by David and Pamela
McCleave at a price approved by the Charities Commission, and the coincident
leaseback of the same property by the East Somerset Railway.
This has in effect unlocked the capital of these assets, and will enable
the Railway to pay off all its creditors.
terms of the leaseback have been carefully formulated to provide the East
Somerset Railway with the security of tenure necessary to satisfy the Charities
is important to note that these arrangements affect only the real estate of the
ESR and not the Railway’s business operation.
The McCleaves have become the Railway’s landlords, but the East
Somerset Railway – the business – has not been sold.
Trustees are delighted to be able to announce that the arrangements were
completed on 21st May 2002, and that as a result most of the
Railway’s creditors have already been paid in full, and the remainder are in
the process of being paid.
should be stressed that the McCleaves have entered into this arrangement as a
commercial transaction borne from a desire to see the East Somerset Railway
succeed, and - as the Railway’s landlords - they have a vested interest in the
success of the ESR. The Trustees
also recognise that the McCleaves have a wealth of business experience which
they could share with the Railway to the benefit of both parties.
Railway remains a registered charity and continues to operate as such.
The burden of debt is removed, but the basic problem of running the
business profitably remains. The Railway has not been ‘saved’ by this deal,
but it has been given another chance. Furthermore,
the ESR has no substantial remaining assets, and so this is - in fact –
probably the last chance.
Trustees firmly believe that the keys to the future success of the Railway are
improved publicity and marketing to
increase visitor numbers
making the Railway more attractive to
targeting the Railway’s activities on
those aspects of the business which can be shown to be successful
ensuring that the routine train services
are operated as effectively as possible.
probably appropriate at this point briefly to review the business activities of
the ESR. First and foremost, the
Railway’s purpose is to offer the ‘heritage railway experience’ to the
general public by existing as an operating steam railway.
This core objective is supported by a range of other activities,
Footplate Experience Courses
Special events, including the popular
‘Day out with Thomas’ weekends
public and private “Wine and Dine” and
static catering events
the commercial restoration of carriages
and rolling stock
retail activities including a specialised
restarted operations last year, and whilst the deal was being negotiated, we
therefore put the emphasis on these activities, and the period was marked by a
number of really very successful events. The
time taken to complete the deal was considerably longer than had been expected,
and the Trustees have been greatly reassured by the fact that the Railway was
able not just to survive but in fact to prosper whilst trading under very
difficult circumstances, with no working capital, and on a week-by-week basis.
The 2001 Santa Special season was particularly successful with over 3,000
tickets sold, and the “Thomas the Tank Engine” weekend in May 2002 was the
most successful event in the ESR’s history, with in excess of 2,800 visitors
over three days.
Trustees therefore wish to pay a special tribute to everyone who has worked so
hard to ensure that the Railway has survived against the odds, and this includes
not only the hard-core of volunteers which has continued regularly to turn up to
keep the place running, but also those who have been equally busy behind the
particular, we are grateful to the small band of people actually employed by the
Railway, who faced extreme stress and uncertainty, and all of whom have
demonstrated a degree of loyalty to the Railway which the Railway had no right
to expect. These people spent many
weeks of last year working under notice, and all also worked for some time
without being paid. It is difficult
to think of another business which would attract this level of loyalty, from its
are very grateful to the McCleaves, both for giving us a further chance, and for
their great patience whilst the prolonged negotiations were underway, and we are
very grateful to those creditors whose generosity and patience has given us the
time needed to achieve this.
we wish to express our profound thanks to our friends and neighbours in the
area, who have helped us in many ways and whose support has been unflagging, and
many of whom are present in this room today.
conclusion, the priority for the Railway is, without doubt, to consolidate and
strengthen the business.
is a huge backlog of maintenance which must be brought under control, and this
includes not just structures, but also the rolling stock itself.
For the Railway to flourish, it must once again become an attractive
place to visit.
is a need for more visitor attractions, and a wider range of events to interest
a broader spectrum of patrons.
Railway needs to become more attractive to volunteers both by giving them a
greater involvement in operational issues, and by making it easier for new
volunteers to become involved.
from a management perspective, there is an urgent requirement for a proper
business development plan, and this will now become the focus of our attention.
This will include the short term aims, including those already mentioned,
and also the longer term aims and aspirations of the Railway, including the
possibility of extending the line to give us a presence in Shepton Mallet, a
development which would be of considerable benefit both to the ESR and the local
all, at the moment, there is a pressing need for more volunteers to achieve
these aims. The refinancing deal
has given the Railway an unique opportunity which can only be fulfilled if it
has an enthusiastic and growing membership which is committed to success, and
there has never been a better time to join us, to rise to this challenge and
make a real difference.