A “return on sales” of 2% is – assuming it’s been reported correctly– hardly ”bumper profits”.
And is the sales income even First group's own revenue? For the open access operations yes, but the
DfT» retains full revenue risk in its contracts (NSCs), so arguably that money is theirs not the manager's. The operator's fee is partly fixed and partly those algebra-ridden incentives. Here's some examples from First group's announcement of the
SWR» contract in 2021:
Under the NRCs the DfT will retain all revenue risk and substantially all cost risk. For the Group’s 70% share of the First MTR▸ joint venture for SWR the fixed management fee is £3.3m per annum and there is the opportunity to earn an additional fee of up to £9.9m which is the maximum attainable performance fee. The punctuality and other operational targets required to achieve the maximum level of performance fee are designed to incentivise the highest level of performance for customers.
The Performance Based Fee is scored against four categories (Operational Performance, Customer Satisfaction, Finance and Business Management). There is a mix of quantitative metrics and qualitative assessments with three levels (‘below acceptable’, ‘acceptable’, ‘good’) – ‘acceptable’ rating results in approximately two thirds of the performance-based fee element being payable
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