Transport of delights as Stagecoach profits soar

BUS and rail group Stagecoach reported a strong rise in annual profits, thanks to a shift to public transport as the higher cost of petrol deters people from driving.

The transport firm said operating profits rose 25 per cent, to £240.2m, in the year to April 30, as revenues increased in all of its divisions.

The company’s regional UK bus division, which runs major bus operations in cities such as Sheffield and Hull as well as the Sheffield Supertram, saw sales growth of 2.1 per cent, to £893.6m.

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The bus division’s operating profits rose 21 per cent, to £153.1m, which includes the benefit of a £14.3m year-on-year reduction in fuel costs.

The division reported like-for-like sales growth of 2.1 per cent over the year.

Chief executive Sir Brian Souter said: “We have delivered further revenue and passenger volume growth at our UK Bus regional operations. Over many years, our UK bus regional operations volume growth and profit margins have been among the best in the sector.”

He added that the company is seeing increasing signs of a shift from car to local bus services as road congestion, the high price of fuel and Government green taxes all take their toll on the cost of motoring.

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“Consumers are seeing the convenience and financial benefits of switching to a better value and more sustainable mode of transport,” said Sir Brian.

He said that revenue growth in the year was consistent with the group’s plan for modest bus fare rises.

Like-for-like passenger volume growth for the year was 0.9 per cent.

“Our value fares strategy and focus on organic growth has ensured we have a vibrant bus business in the UK and we believe the environment for public transport will support continued modal shift to bus and coach travel,” he said.

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Stagecoach said that all bus operators are facing increasing pressure on fuel and energy costs and, as from April 2012, they will have to cope with a reduction in Bus Service Operators’ Grant.

“We have maintained a strong commercial bus network through a mixture of fare increases at, or below, inflation, and some limited mileage reductions,” said Sir Brian.

“We will continue to manage the impact on our business proactively and take these factors into account in future decisions on bus services, tenders and fares, while working hard to minimise the effect on our passengers.”

He said that UK bus operators face a number of challenges in the months ahead, but the group is confident about the division’s prospects.

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“The flexibility we have on fares and service patterns, the rising cost of running a private car, and the strength of our management team, mean that the bus division is well positioned to at least deliver operating profit in the year to April 30 2012 at a level similar to that of the year to April 30 2011,” he said.

“While fares will increase at a higher average rate than the previous year, our services will remain good value.”

The group’s UK rail arm, which runs the South-West Trains commuter franchise and East Midlands Trains, saw revenue growth of 4.2 per cent to £1bn, while operating profits increased by 16 per cent, to £48.4m.

Virgin Rail, in which it owns a 49 per cent stake, notched up sales growth of 10.5 per cent, while the company’s share of operating profits increased by 55 per cent, to £39.5m.

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Stagecoach reported a 27 per cent rise in full-year pre-tax profits, to £205.7m, on revenue 10 per cent higher, at £2.38bn, for the year to April 30.

Following the results, it has decided to hike its full-year dividend by 9.2 per cent, to 7.1p.

Sir Brian said that the move towards green forms of transport will provide a boost to the business, while public transport will be at the heart of next year’s Olympic Games in London.

Analysts at Investec said in a note: “Stagecoach is trading well and, while some headwinds exist, the outlook looks strong, especially with continuing evidence of modal shift as motoring costs rise.

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“The review of the capital structure of the group (to be announced in August) provides further support, as it most likely will lead to a return of capital to shareholders.”

Analyst Douglas McNeill, at Charles Stanley, said: “Results for the year to April 30 are slightly ahead of expectations, and growth is materialising in the US as expected.

“But the share price fully reflects the likely continuation of that growth, and the ongoing possibility of a special dividend or similar does not strike us as a reason to buy the stock. We remain neutral.”

Operators linking the nation

Stagecoach UK Bus is one of Britain’s largest bus operators, operating express and local bus services across the country.

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It also operates budget inter-city coach operator megabus.com, which links 11 cities in Yorkshire with the rest of the country.

The bus operation connects communities in more than 100 towns and cities in the UK, running a fleet of some 7,000 buses and coaches, making it one of the largest in the country.

The group has invested more than £120m in new state-of-the-art vehicles over the past three years.

The new buses are designed to be fully accessible to elderly passengers, people with disabilities and families with young children.