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Stagecoach Group: last stop for the founders

A family company since the 1970s, Stagecoach announced founders and siblings Brian Souter and Ann Gloag are leaving as the once international empire is reduced to UK bus operations

Stagecoach Group PLC - Stagecoach Group: last stop for the founders

As Stagecoach Group PLC (LON:SGC) founders, siblings Brian Souter and Ann Gloag, ring the bell for their departure, they will look back on a four-decade ride that has been more of a rollercoaster than the serene ascent they may have originally dreamed. 

Indeed, 2019 has been a tough year that saw the transport group's rail franchises completely wiped out and ended with Souter stepping down from his position as chairman and Gloag retiring from her non-executive director position.

READ: Stagecoach looks abroad as founder disembarks after rail failures

The brother and sister oversaw the growth of what was originally a single-minibus family firm called Gloagtrotter to a (once) international transport conglomerate worth well over £1bn of market capital.

At the high point, when the shares topped 410p in 2015, the siblings were valued at £1.04bn according to that year’s Sunday Times Rich List.

While the shares have careened two thirds lower since, the pair were still reckoned to be worth a combined £875mln in the latest list.

Simple beginnings

The first years of the outfit can be traced back to 1976, when Gloag set up a small business providing minibus hire with her husband Robin.

Souter, a trained accountant, oversaw the company's blossoming after Margaret Thatcher's long-haul transport deregulation in the 1980 Transport Act, allowing the trio to launch an Aberdeen-Glasgow route and later a service from Dundee to London.

Meanwhile, Robin was being pushed out of the picture as the marriage with Ann collapsed, with his shares bought out in 1983.

Robin then set his own bus service, Highwayman Coaches, but was crushed by Stagecoach which offered free tickets and later bought the competitor when it was on the brink of collapse.

First acquisitions

Growth mushroomed thereafter, with Stagecoach taking advantage of the privatisation of national bus groups by buying firms from organisations such as London Regional Transport, the National Bus Company and Scottish Bus Group.

By 1992, pre-tax profits were £8.2mln from sales of £140.7mln, over three times the figures recorded in 1991, with 11,000 employees and 3,300 buses.

Rich flotation

Flotation came in April 1993 when the company managed to rack up over £1bn to fund its acquisitions: by 1995, it had bolted on nearly 40 additions to the portfolio including firms in the US, Australia, Kenya, Hong Kong, New Zealand, Nordic countries and Portugal.

But all these overseas operations were sold off between 1998 and 2005, excluding the US business which remained until earlier this year.

The mid-90s came with several accusations over predatory behaviour, prompting dozens of investigations by the Office of Fair Trading.

As a result, Stagecoach agreed in 1996 it would not raise prices or reduce bus services for three years on any route where its price cuts have forced a rival to abandon a service.

Meanwhile, as part of the privatisation of British Rail after 1994, Souter and Gloag entered the railway industry as the group won the South West Trains franchise and the first privatised train in Britain for 50 years chugging from Twickenham to Waterloo in 1996.

Management simplified processes and cut 10% of the workforce by offering generous payouts to cut costs, but in 1997 it found itself without drivers with enough experience to operate all the services.

A new boss and a change in staff management brought to record profits in 1998, when the siblings embarked in another form of transport by buying Scotland’s Prestwick Airport for £41mln, although characteristically this was sold in 2001 for £33.4mln to focus on core business.

The rail business

Expansion instead was done by rail, with a £159mln acquisition of 49% stake in Virgin Rail in 1998, followed by the takeover of East Midlands Trains and Manchester Metrolink franchises in 2007.

Bus remained a strong point, however, with the establishment of Megabus in 2003, a joint venture with Scottish Citylink in 2006.

In 2012, Souter stepped down as a chief executive, leaving the helm to finance director Martin Griffiths, as the co-founder became chairman at a time when revenues in both bus and rail division were reporting steady growth.

Empire falls

The Stagecoach empire started crumbling in 2015, hit by competition and lower oil prices, which forced a trimming of trim profit expectations, resulting in a 37% fall in pre-tax profits the following year.

It all went downhill from there, with the sale of the European Megabus retail arm ahead of Brexit disruption in 2016 and the government's halt of the South West Trains franchise in 2017 after 21 years.

Shares were already sinking when 2017 recorded a 80% plunge in profits, due to the underperforming Virgin Trains East Coast rail franchise which was brought back into state control months later.

As a result, Stagecoach was forced to slash the 2018 dividend after full-year revenue dropped from £3.9bn to £3.2bn, followed by the sale of the struggling US operations to private equity firm Variant Equity for US$271mln to focus on the UK.

Back home, however, business was not doing so well as the group was disqualified from three rail franchise tenders and was only left with bus, coaches and trams.

The company is now looking to expand abroad again and has eyed an opportunity in Sweden, but will have to do without Souter and Gloag.

Quick facts: Stagecoach Group PLC

Price: 44.24 GBX

LSE:SGC
Market: LSE
Market Cap: £243.56 m
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