Boardroom changes

Stagecoach pulls out of ‘risky’ rail franchise bidding


Focus on buses: the company will invest in cleaner vehicles


Stagecoach Group has confirmed its withdrawal from the rail industry after stating it has “no plans to bid for new UK rail franchises on current risk profile”.

The Perth-based company, which is in dispute with the UK Government after being barred from train operating bids, will return to its original mission as a bus business.

It has announced a restructuring of the board and a commitment to investing in cleaner vehicles.

Chief Executive, Martin Griffiths, said: “I am pleased to report good financial results as we reposition the business. We continue to focus on driving growth at our core high quality bus and coach operations in the UK, but we have no intention to bid for new UK rail franchises on the current risk profile offered by the Department for Transport. We have maintained our expectation of earnings per share for 2019/20.

“We have a critical role to play in tackling climate change and delivering cleaner air for our communities by enabling the switch of more journeys from car to public transport. As well as our significant investments in newer vehicle technologies, including hybrid and electric vehicles, new policy initiatives such as ‘mobility credits’ can help governments meet their ambitious targets.

“Our priority is to provide safe, high quality, value travel where every customer matters. We are leading the way in making travel easier for our customers through innovation and continued investment in our people, fleet and technology. Partnership working and new commercial initiatives are delivering positive results and high customer satisfaction.

“Mass transit has positive long-term growth prospects as governments are focused on growing the economy, connecting local communities, revitalising our town centres, combating road congestion and ensuring a healthier environment.”

Deputy chairman, Will Whitehorn and non-executive director Jayne-Anne Gadhia, pictured, will be stepping down from the board.

Dame Jayne-Anne, former CEO of Virgin Money, will leave on 31 July to take up the new full-time role of chief executive at financial services start-up Snoop, a technology start-up that will use consumer data to save money on household bills. Her plans to run Snoop were reported in January and she is understood to have been working on the project with Dave Dyer, a former Virgin Money chief financial officer and long-standing colleague.

Mr Whitehorn leaves on 30 June next year, when he will have served for nine years and therefore regarded as non-independent based on the criteria for independence stated in the UK Corporate Governance Code. 

He will be succeeded by Ray O’Toole, who joined as a non-executive director in September 2016 and is currently chairman of the health, safety and environmental committee and the remuneration committee. He is also a member of the audit and nomination committees and has extensive senior experience in the public transport sector in the UK, mainland Europe and North America.

Karen Thomson, non-executive director, will continue to serve on the board. She was due to step down at the conclusion of the annual general meeting on 30 August. However, due to recent changes in her other business commitments, she will now continue and will seek re-election. 

Stagecoach chairman, Sir Brian Souter, said: “I would like to take this opportunity to thank Dame Jayne-Anne for her positive contribution to the Board and wish her well for the future. I am pleased that we will have the insight, experience and good counsel of Ray O’Toole in his new role as deputy chairman as we look to maximise the opportunities for the business ahead.”

Financial highlights

Revenue from continuing operations for the year ended 27 April 2019 fell from £2.8 billion to £1.8bn, principally due to the South West Trains franchise ending in August 2017 and Virgin Trains East Coast franchise ending in June 2018.

Notwithstanding those franchises ending, total operating profit from continuing operations, before exceptional items and non-software intangible asset amortisation, increased to £161.3m (2018 restated: £159.7m).

Unadjusted operating profit from continuing operations for the year was £135.7m (2018 restated: £110.7m).  

The final dividend is maintained at 3.9p which will result in a full year dividend of 7.7p (2018: 7.7p) per share for the year ended 27 April 2019. The proposed final dividend is payable to shareholders on the register at 23 August and, if approved, will be paid on 2 October.

Market reaction

Emma-Lou Montgomery, associate director from Fidelity Personal Investing’s share dealing service said: “Stagecoach, the UK’s biggest bus and coach operator may have been driven down a narrower path than it had scheduled by its corporate sat nav, thanks to shareholder pressure and yet another rail franchise disqualification, but the newly-focused group should now put the board back in the driving seat. 

“The focus on cost-effective coach fares and greener vehicles should fare well.  Already the UK’s biggest investor in hybrid-electric bus technology, Stagecoach has invested more than £1 billion in new greener buses over the past decade and a further £80m-plus will see it operating more than 350 new buses and coaches in the UK in 2019/20.”

Russ Mould, investment director at AJ Bell, said: “Pretending that you didn’t want something anyway is a classic response when you’ve been ditched and that is reflected in the commentary which accompanies transport operator Stagecoach’s annual results.

“Having been disqualified from renewing its key railway franchises by the regulator over pensions concerns, the company now says it has no intention of bidding for new UK rail contracts.

“The loss of these franchises could blow a hole in Stagecoach’s revenue and will involve a one-off £100m hit but the fact minimal profit is expected from its rail arm in the current financial year helps explain management’s ambivalence towards this space.

“With the US bus and coach operations sold off to private equity in April, all the focus is now on the UK bus arm which may actually be no bad thing.

“Arguably its regional bus operations are the star of the show, certainly they generate the highest margins, and the company appears to acknowledge the need to boost profitability on its London bus routes, vowing to improve its performance on bidding for TfL contracts.

“There are likely to be bumps in the road, but ultimately the company could come out the other side a more streamlined and efficient business.”

Stephen Martin, senior investment manager at Brewin Dolphin, said: “It’s a period of significant transition for Stagecoach following the sale of its North American division and its withdrawal from UK rail franchises. While these decisions have hit revenues, profits are up as the company focusses on its core coach and bus businesses. Stagecoach has a strong balance sheet, with net debt reducing by more than £100 million and its expectations for the year remain in place. The business appears to be heading in the right direction.”

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