06/09/2002
HELD AT THE LESSER CITY HALL, PERTH ON FRIDAY 6 SEPTEMBER 2002
In common with the transport sector as a whole, Stagecoach Group has faced unprecedented challenges over the past year. The economic aftermath of the tragic events of September 11 in the USA and the well-documented problems of the UK rail infrastructure network resulted in a difficult trading environment.
The results for the year to 30 April 2002 were in line with expectations, however we were disappointed with trading at the start of this financial year in Coach USA. As a result, the Board asked for a full review of our North American business. Keith Cochrane, who had responsibility for the management and strategy of the Coach USA operations, resigned as Group Chief Executive and the Board accepted this with regret. We will report the results of the full business review of our portfolio of businesses at Coach USA by December 2002.
2002 HIGHLIGHTS
Turnover for the year was £2,111.4m, up from £2,083.5m in 2001. Operating profit, before goodwill and exceptional items, was £166.6m compared to £198.9m the previous year. This decrease in overall profits largely reflects a decline in revenues and profits earned by Coach USA following the events of September 11 and the effect of industrial action and increased costs at South West Trains.
Adjusted earnings per share (before goodwill amortisation and exceptional items) fell from 7.5 pence to 6.3 pence.
The total proposed dividend for the year is 2.6 pence per share, down from 3.8 pence in 2001. This rebasing of the dividend reflects the reduction in current year profitability and the current outlook.
Key features of the last twelve months included:
- Agreement with Strategic Rail Authority on Virgin Rail Group which underpins the viability of the CrossCountry franchise and long-term shareholder value on the West Coast franchise;
- South West Trains deed of amendment signed
- Discussions are continuing on new franchise
- A new franchise agreement to be signed later this year;
- New rolling stock deliveries are progressing on our three major rail franchises;
- UK Bus saw strong growth in London and regional partnership centres;
- Rail development strategy on course, first international partnership with Wellington Regional Council;
- Continued strong performance from Overseas Bus;
- Coach USA costs under control; May/June/July revenues 8% below the prior year; full year operating profits expected to be no better than 2002
- Full business review of Coach USA to be undertaken by December 2002.
CURRENT TRADING
As indicated in our 2002 annual report, revenues and operating profits at Coach USA at the start of the new financial year are below our expectations. Revenues have not yet recovered to pre September 11 levels and the results for July 2002 show a similar pattern to May and June 2002. Overall, like for like revenues for the three months ended 31 July 2002 were approximately 8% below prior year levels. This reflects a softening US economy and an increasingly competitive market. As we explained when we announced our 2002 results, we do not anticipate trading to improve and expect 2002/03 operating profits for Coach USA to be no better than 2001/02.
At South West Trains we have seen a decline in season ticket revenues, in line with other London and South East operators. Although passenger volumes have seen a slight increase this has mainly been in the lower priced off-peak sector. Peak product sales have suffered from the decline in Central London employment. Overall revenues for the 16 weeks ended 17 August 2002 are 0.7% below prior year levels (1.7% below after excluding the period affected by industrial action in the prior year). The company continues to receive compensation payments from Railtrack related to poor infrastructure performance that have partly offset the revenue decrease to date. However, South West Trains’ own operational performance is still not meeting our expectations, especially in relation to train service performance. Remedial action is being taken to redress this situation.
At Virgin Rail Group revenues have increased in the early part of the year. Passenger revenues for the 16 weeks ended 17 August 2002 are 12.4% above prior year levels. Under the agreement reached with the Strategic Rail Authority, the West Coast Mainline franchise is operating under SRA support until March 2003 and the Cross Country franchise until March 2004. As a result, Virgin Rail Group is expected to break-even in the current financial year.
Our UK Bus business continues to benefit from strong revenue and passenger growth in the London market, arising as a result of our success in winning and retaining tenders. Provincial revenues and operating profits have increased slightly and are in line with our expectations. Overall revenues for the 16 weeks ended 17 August 2002 are 3.9% above the prior year.
Our overseas bus businesses continue to perform well. The New Zealand operations continue to show strong volume and revenue growth, particularly in the Auckland bus market. The operations in Hong Kong also show volume and revenue growth. Overseas trading results are in line with our expectations at this stage.
BOARD CHANGES
As a result of Keith Cochrane’s resignation, the Board has appointed me as Acting Non-Executive Chairman and Brian Souter as Acting Chief Executive. Following the completion of the business review of Coach USA, the Board will agree the most appropriate management structure for the Group going forward. I would like to thank Keith Cochrane for his significant contribution to the Group over the last eight years.
During the year, Iain Duffin joined our board as an independent non-executive director. His considerable managerial experience gained on both sides of the Atlantic is already benefiting the Group.
Brian Cox retired as Executive Director - UK Bus on his 55th birthday. Brian was instrumental in the reorganisation of our UK Bus operations and he has played a key role in the strengthened marketing and re-branding of our bus services. I would like to put on record my personal thanks for his strong and valued contribution to Stagecoach over the past 15 years.
FUTURE STRATEGY
The year ahead will be a challenging time for the Group but we have begun the year with actions that should secure our interests in South West Trains and Virgin Rail Group.
Our strategy remains focused on core bus and rail opportunities in selected geographic markets.
The detailed review of all of Coach USA’s operations that we announced in July is continuing under the direction of the Acting Chief Executive, and we shall provide an update on the results of this review in due course.
Negotiations with the Strategic Rail Authority are continuing on the replacement South West Trains franchise. I am confident that the new arrangements for the franchise will reflect the best risk and reward balance for shareholders.
It has been a particularly difficult and challenging year for the people who manage and deliver front-line services to customers. I want to record my grateful thanks for their energy, loyalty and hard work. We will continue to invest in our people; they have a crucial role to play at all levels in an increasingly competitive market place.
