Railways will be no Wild West for Stagecoach

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Brian Souter, the executive chairman of Stagecoach, was in characteristically ebullient and aggressive mood yesterday, forecasting that by the end of the decade his bus and rail empire would be four times its present size and turning over a cool pounds 2bn. Whichever way you look at it, that is a lot of off-peak savers and short city hops for Mr Souter and his sister, Ann Gloag, who started the business 26 years ago with pounds 25,000 in redundancy pay and just two coaches plying the London-Dundee route.

Why shouldn't they be bullish about the future? After all, Stagecoach has just announced record pre-tax profits of pounds 44m and its share price is riding high, valuing the company at some pounds 720m against its flotation price three years ago of pounds 100m.

Since it began life in 1980 Stagecoach has collected small bus companies at the same rate as it has attracted investigations by the Office of Fair Trading and the Monopolies and Mergers Commission but that has not stunted its growth. Indeed the company seems positively to revel in being castigated for behaving in a manner which is "predatory, deplorable and against the public interest", as the MMC concluded last August after investigating its activities in Darlington.

Before executives at those few remaining independent bus operators don their full body armour, Mr Suter would like to point out that the exponential growth he is forecasting will come not from gobbling up yet more bus companies. Stagecoach has decided that the bus market is getting too expensive and that the fancy price-tags being commanded are no longer justified.

Instead he intends to grow the business through overseas expansion and the acquisition of more passenger rail franchises to add to South West Trains, which Stagecoach took over from BR in February.

It is easy to see why Stagecoach is attracted by rail. The up-front outlay is minimal since track, trains and stations are leased and it would take incompetence on a grand scale not to run the franchises more efficiently and profitably than BR, even with smaller subsidies.

Although it is still early days, the evidence thus far is that Stagecoach is making a decent fist of South West Trains. But so it ought to with the biggest commuter rail franchise in Europe and one that probably carries more opinion formers, high ranking civil servants and top bankers into central London than any other railway.

And yet why do the doubts linger? Well, for a start Stagecoach will need to achieve some spectacular growth in overseas markets, which last year accounted for just pounds 50m of turnover but are slated to bring in pounds 700m in four years' time.

Second, Stagecoach will need to win a good number of the 10 remaining passenger franchises, all of which it intends to bid for. Even then lines such as the South East Trains, for which it is a shortlisted bidder, are not of the same quality as South West Trains and suffer from much older rolling stock. The probability is that it will end up having to buy franchises from other operators.

Finally there is the question of regulation and what a future Labour government might do. In the bus industry Stagecoach might be confronted with an Ofbus, empowered to cap fares and break up local monopolies while the rail industry is already regulated.

The deregulation of the bus market created something akin to the Wild West, and investors in Stagecoach profited handsomely as it rode roughshod over the competition, but the rail industry will not be quite the same proposition.

Bank needs more than a reshuffle

Stable doors are slamming hard this week. Today, the Bank of England will put the finishing touches to its new supervisory structure, based on a review by the consultants Arthur Andersen.

So much work has gone into this over the past nine months that we can be sure it will be state of the art stuff. It will certainly need to be far more than a reshuffling of the management pack.

One of the biggest problems the Bank of England has faced is to rebuild the morale and motivation of the supervision department, and that means as a first priority making the best use of the resources it has got, rather than hiring hundreds of accountants to check returns from banks. The other slam came from the Securities and Futures Authority, whose enforcement committee yesterday debated a set of new rules designed to catch the bosses rather than just senior managers next time there is a serious scandal.

They could be dubbed the Peter Baring and Andrew Tuckey rules, since they have evolved from the SFA's quite natural embarrassment that these two top bankers escaped formal censure by the SFA earlier this year over their roles running Barings.

The underlying problem of supervision is that however well the Bank of England and the SFA run their own supervision departments, communication between different regulatory bodies around the world remains the biggest difficulty of all.

As the copper crisis has demonstrated, no matter how many international co-operation agreements the regulators sign, there will always be some serious problems that fall between the cracks.

Is history repeating itself at Filofax?

For a company that specialises in making personal organisers, Filofax is not looking particularly organised at the moment. Yesterday's profits warning was a stonker by any standards, but coming just five weeks after the company was talking bullishly about a good year and hitting the acquisition trail it looks even worse.

The real issue here is whether the company's problems are just an unfortunate collection of one-offs or symptoms of a deeper malaise which the move away from the yuppie and towards the housewife market has failed to address.

It is true that the expected cut in orders from W H Smith says more about the retailer than it does about Filofax. Smiths is keen to reduce products in some ranges but this is more about de-stocking than not stocking at all. Smiths is moving towards a new ordering system that will enable "just in time" deliveries so it can cut inventories. After this sudden blip, orders should pick up again.

Filofax's problems in America and Japan are of more concern. The US slowdown has not really been explained and the company has invested heavily in expensive display systems in shops.

The sudden halt in orders from Japan also seems odd. Filofax chief executive Robin Field insists that the problems are short-term and that the markets have not gone away. Investors may prefer to remember Filofax's previous collapse in 1989, brought on by high costs, erratic sourcing and a brand that was deemed tired and expensive, and wonder whether history is not repeating itself.

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