US bus business drives Stagecoach into £316m loss

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The Independent Online

Stagecoach, the bus and train operator, crashed to a £316m loss last year after being forced to take a huge write-down in the value of its troubled American bus business, Coach USA.

Rail disruption following the Hatfield accident last October, and a decline in profits from Stagecoach's UK bus operations also contributed to the loss. The Stagecoach chairman Brian Souter said it had been a "challenging and often difficult period" for the group.

The results for the year to 30 April include a £376m goodwill write-down at Coach USA, which was bought for £1.2bn in 1999 but has failed to perform as expected. Together with the £800m goodwill charge Stagecoach took at the time of the deal, it has now, in effect, written off its entire investment in Coach USA.

Soaring labour, fuel and insurance costs at the American company have cut profit margins from the 16-17 per cent level, forecast at the time of the takeover, to less than 10 per cent.

Stagecoach's chief executive Keith Cochrane, who was finance director at the time of the acquisition, said he was confident that Coach USA's costs were now under control, but he admitted that the outlook remained mixed for its bus, taxi and transit businesses.

"I don't regret buying the business though with the benefit of hindsight it is clear we paid too much," he said.

Stagecoach said that Frank Gallagher, one of the founders of Coach USA who stepped in as chief executive following the removal of the previous chief executive Larry King, has asked to stand down himself. All nine of the company's regional vice-presidents have also been replaced by new blood from outside the group.

The Hatfield disaster had cost Stagecoach a total of around £20m. It operates South West Trains and owns 49 per cent of Virgin Trains. The company recently won a 20-year extension of its SWT franchise and it is also bidding for Thameslink and the new Wessex franchise, which has not yet been let by the Strategic Rail Authority.

Mr Cochrane said Stagecoach was still interested in taking charge of track and signalling on parts of the network where it is the main operator such as commuter routes out of Waterloo station. But he also stressed that it was not in anyone's interest for Railtrack to be weakened.

Operating profits from the UK bus business, where Stagecoach controls around 16 per cent of the market, fell from £80m to £73m as higher costs and the impact of industrial action put pressure on margins.

But profits from its overseas bus division, which excludes Coach USA, rose to a record £36m while profit margins increased to 18.3 per cent.

Fears that the dividend might be cut were allayed by a 5.5 per cent increase in the payout for the year to 3.8p and Mr Cochrane re-affirmed Stagecoach's policy of pursuing a "progressive" dividend policy.

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