Buses drive 39 per cent leap in profits for confident Stagecoach

Stagecoach bus
Stagecoach bus
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RISING fuel prices and traffic congestion will continue to drive passengers onto buses and trains, predicted Stagecoach, as it posted higher half-year sales and profits.

The train, coach, bus and tram operator reported a 39 per cent rise in first-half pre-tax profit to £123.7m for the six months to the end of October on sales 8.5 per cent higher at £1.4bn.

The group’s UK regional bus division grew sales 8.3 per cent during the period but its London bus business posted revenues down 0.6 per cent after a restructuring drive.

Chief executive Brian Souter: “In the UK, we have achieved further growth in our regional bus operations and we continue to make good progress at our contracted London bus business.

“Passenger revenue growth remains good on our UK rail networks and we have further developed the alliance with Network Rail at South West Trains.”

Stagecoach’s bus services in Yorkshire cover Hull, Sheffield, Barnsley, Rotherham, Huddersfield, Doncaster, Pontefract and Wakefield and employ more than 1,300 staff. They operate about 440 vehicles and serve about 57m passengers in Yorkshire annually.

The regional bus arm grew revenues to £488.3m from £450.9m. On a like-for-like basis, revenues increased 4.1 per cent. The division’s operating margin increased to 17.9 per cent from 17.7 per cent.

Like-for-like passenger journeys fell to 336.3m from 337.1m but full-fare passenger volumes rose 1.3 per cent.

“Our bus operations in the UK have proved robust and continued to perform well during weak macroeconomic conditions and a period of downward pressure on Government spending,” said the group.

“As conditions improve, we believe the division is well placed to grow further by capitalising on rising motoring costs, worsening road traffic congestion, and public policy and consumer opinion focused on greener lifestyles.”

The Perth-based group predicted revenue growth in its UK bus arm will be “relatively modest” during the rest of the year as growing commercial revenues are offset by pressure on concessionary, tendered and contract sales. It said the division should see “some growth” in operating profit for the year.

Stagecoach earns the bulk of its UK regional bus revenues from commercial services, “where we have greater flexibility to manage pricing, service patterns and frequencies”.

It saw slowing growth in concessionary revenues, which it blamed on poor summer weather and local council budget cuts.

The group’s rail business, which operates Virgin Rail services along the West Coast with Richard Branson’s Virgin Group, reported a 6.6 per cent rise in first-half sales to £600m, with a £22.7m profit from £6.9m losses last year. It expects “good revenue growth” and “good profit” in rail.

The new 13-year West Coast franchise was originally granted to rival FirstGroup ahead of Virgin Trains, but the Government was forced to pull the award in October when it discovered serious flaws in the way it had run the process. A deal to allow Virgin Rail to temporarily carry on running trains on the route is expected to be announced by the Government imminently.

Stagecoach said it would “support the government in delivering an improved, sustainable process” to help get the franchise programme restarted as soon as possible.

“The private sector has been central to the huge growth of UK rail travel over the past 15 years and it is important that a sustainable rail franchising programme is restarted as quickly as possible,” said Sir Brian.

The transport operator, which remains shortlisted for the new Great Western and Thameslink rail franchises, said it would re-evaluate its bids when the pause on these competitions is lifted and that it would continue to bid for rail franchises.

The group also runs the Sheffield Supertram, which carries about 15m passengers annually, employs 285 staff and runs 25 trams.

Experts welcome ‘solid outcome’

ANALYSTS at Investec Securities said Stagecoach delivered “another solid outcome, marginally ahead of our expectations”.

They said: “The group has also indicated that the Virgin Rail Group is nearing agreement on a short-term franchise extension (nine-13 months is likely).

“The group is confident of meeting its full-year expectations. Stagecoach is one of the more highly-rated stocks in the sub-sector, but we believe it is also one of the best managed.”