Stagecoach expansion yields profit boost, despite falling US revenues

The train, coach and bus operator Stagecoach has cashed in on growing demand for public transport, despite huge falls in oil prices – and expects the recently won East Coast mainline to generate significant profits.

UK rail operations for the company behind one half of the West Coast rail franchise, jumped 8.7 per cent in the year to end of April – the most impressive rise across its business portfolio.

Stagecoach did suffer, though, in its North American division, where the plunging oil prices had a bigger impact on pushing gas-guzzling citizens back into their cars.

Its chief executive Martin Griffiths said: “Our business strategy for 15 years is how do you persuade people in motorcars on to buses and on to trains. We’ve always been good at that but clearly when fuel drops the way it has, it makes that a lot harder.

“That has been more pronounced in North America, where fuel is far less taxed.”

North American revenues fell 0.8 per cent to $680.1m (£430.7m) and operating profits sank 7.1 per cent to $35.3m.

Back in the UK, the West Coast mainline is proving successful and Mr Griffiths added that the East Coast mainline will enjoy a £140m upgrade, including new trains, which could create “significant operating profits” even if price caps are introduced.

He added: “The prospects in the UK rail sector are encouraging, with a franchise model focused on a combination of taxpayer value, quality service for customers and an appropriate balance of reward and risk for operators.”

The future of its London bus business also looked positive, despite increased opposition to the high levels of pollution given off by buses.

However, Mr Griffiths insisted the answer to the problem was more buses, not fewer, as the company said it felt the pain of congestion.

He said: “The bus is the answer to some of our congestion. We need to get more cars out of city centres and roads and show that there’s a better alternative.”

Sales in the division rose 6.4 per cent to £260.6m, with operating profits up 10 per cent to £26.3m, despite the Government continuing to squeeze margins.

In Europe, efforts have been particularly focused on the expansion of the company’s intercity Megabus service, although this has come at a cost of £3m.

Mr Griffiths said the expansion into Europe would continue unabated, despite the looming referendum on Britain’s membership of the European Union.

He said: “As long as there is a good commercial opportunity then we will continue.

“People will still want to travel whether we’re in the EU or not. It’s business as usual for now and we’re still investing in Europe.”

Overall, total full-year revenues for the year to end of April rose 9.4 per cent to £3.2bn, with pre-tax profits up 4.6 per cent to £165.2m.

Stagecoach raised the dividend by 10.5 per cent, helping shares close up 10.4p at 417p.