After losing TWO major rail franchises, Stagecoach makes it easier for bosses to land their bonus

August 27, 2018

Stagecoach has come under fire for making it easier for bosses to be paid bonuses after it was stripped of the East Coast rail franchise by the Government.

Influential shareholder advisory group Glass Lewis is urging investors to vote against chief executive Martin Griffiths’ pay plan at the train and bus operator’s annual meeting on Friday.

In a report sent to investors, seen by The Mail on Sunday, Glass Lewis lambasts the firm for failing to explain why it lowered the profit targets for Griffiths to get a long-term performance bonus of up to £1 million.

Stagecoach has lost two major rail franchises since the previous target was set in June 2016.

The company came under fire earlier this year after Transport Secretary Chris Grayling took away the East Coast mainline franchise. The line from London to Edinburgh was supposed to have been operated from 2015 to 2023 by the Virgin Trains East Coast franchise – which is 90 per cent owned by Stagecoach and 10 per cent by Richard Branson’s Virgin.

But Grayling said the firms ‘got their bid wrong’ and overestimated how profitable it would be.

Last year, Stagecoach also lost its South West Trains franchise to a consortium including FirstGroup. It ran the service since its privatisation in 1996.

Griffiths agreed with his board that he should receive no bonus for the 2017-18 financial year, in part because of the East Coast fiasco. His total pay for the year was £987,000, but moving the goalposts on his bonus targets will make it easier for him to get one in future.

Under new rules, Griffiths and finance boss Ross Patterson need to pull in earnings of 24.4p to 25.7p per share to get bonuses, down from between 28.9p and 31.9p.

Glass Lewis says it ‘firmly questions’ the lack of an explanation to shareholders on why the target has been cut.

A Stagecoach spokesman said its pay policy was backed by 95 per cent of investors at last year’s annual meeting and noted that another shareholder advisory group, ISS, is recommending that investors back the board.

‘Challenging long-term incentive payment targets are also set every year, taking into account the nature and scale of the business, internal forecasts and market consensus,’ the spokesman added.

‘It is only proper that these targets will change from year to year.’

Source: This is Money

Stagecoach takes hit from East Coast franchise

June 30, 2018

STAGECOACH has seen profits tumble as the Perth-based transport giant booked a hefty charge linked to its problems on the East Coast rail franchise, and slashed its total dividend for the year.

And it warned operating profits from its UK rail operations will fall in the current year, with the cost of bidding for new franchises expected to offset profits from its East Midlands Trains contract.

The Edinburgh to London line was renationalised this month after the UK Government stripped Stagecoach and partner Virgin Trains East of the franchise in May. The partners had won the contract in 2014 with a deal to run the franchise until 2023.

The renationalisation came after Stagecoach reported mounting losses on the £3.3 billion franchise last year, with the company admitting its operation of the line had not led to the revenue and profits it anticipated when it won the contract.

Boss Martin Griffiths repeated that he was “surprised and disappointed” at Transport Secretary Chris Grayling’s move to renationalise the line as the company reported “significant exceptional costs” of £85.6 million relating to the franchise. Underlying profits at the group, founded by Sir Brian Souter and sister Ann Gloag in 1980, fell to £144.8m from £151m.

Group revenue was also down at the bus and rail giant, falling to £3.2 billion from £3.9bn as a result its South West Trains franchise ending in August. Revenue from UK rail dipped to £1.5bn from £2.1bn, with operating profit down 12.6% to £24.9 million.

However, Mr Griffiths highlighted “positive changes” to the franchise model, which he said will lead to the revenue risk being more evenly shared between operators and the Government.

He said: “We are pleased with the group’s underlying financial performance for the year ended 28 April 2018, when compared to our start of the year expectations.

“We were, however, surprised and disappointed by the Secretary of State for Transport’s decision to appoint an operator of last resort to take over the operation of InterCity East Coast train services from our Virgin Trains East Coast business. We are also disappointed to report significant exceptional costs in relation to that business.”

The company slashed the full-year dividend to 7.7p from 11.9p on its reduced exposure to rail. “Whilst the board understands the importance of dividends to its shareholders, the board also feels the dividend needs to be set at a level from which it can grow over time as well as being covered by normalised non-rail cash flows,” Mr Griffiths added.

Helal Miah, analyst at The Share Centre, said: “This slashing of the dividend may have been more drastic than expected but there was additional disappointment from management’s view that the rail business would continue to face declining profits while being exacerbated by new franchise bidding activity. Its bus operations however are doing well both in the UK and North America.”

The group said regional UK bus revenue was down 0.3% at just over £1bn. Its bus operation in North America saw revenue fall by 0.4% to $630m. Shares rose 4.3% or 5.8p, closing at 139.9p.

Source: Herald Scotland

Final day for Virgin Trains east coast route franchise

June 25, 2018

Virgin Trains East Coast (VTEC) is running services on the East Coast Main Line for the final day on Saturday following the failure of the franchise.

Trains on the route will be brought back under public control from Sunday, with the London North Eastern Railway (LNER) brand being resurrected from the 1940s.

The East Coast route connects London King’s Cross to stations in the North and Scotland including York, Leeds, Newcastle, Edinburgh, Aberdeen and Inverness.

VTEC, a joint venture between Stagecoach (90%) and Virgin (10%), began operating in March 2015.

The firms agreed to pay the Government £3.3bn to run trains until 2023, but the contract was ended prematurely after they failed to achieve revenue targets.

Stagecoach lost around £200m over the course of the contract.

Transport Secretary Chris Grayling refuted accusations from Labour and trade unions that his decision to end the deal early was a “bailout” worth £2bn.

“Stagecoach will be held to all of its contractual obligations in full,” the minister said.

VTEC managing director David Horne has been appointed to the same role at LNER.

All VTEC staff will transfer to the new franchise.

The switch from VTEC to LNER is costing an estimated £8m in terms of marketing and rebranding.

VTEC did report a 5% growth in passenger numbers in recent months, building on the 21.8 million journeys taken in 2017/18, up 1.3 million from when the franchise began.

Stagecoach chief executive Martin Griffiths said: “Our people can be fiercely proud of everything they’ve achieved: from delivering huge investment and high levels of customer satisfaction, to providing new services and benefits for passengers and creating hundreds of new jobs.

“The growth we’re now seeing proves our initiatives are paying off and the railway we hand over to LNER is not only better than we inherited, but one that has been positively transformed for customers and ready to continue our journey of improvement with the introduction of the new Azuma train fleet from December.”

Mr Grayling has not placed restrictions on Stagecoach or Virgin’s ability to bid for future franchises, stating that “there is no suggestion of either malpractice or malicious intent”.

VTEC is the third private operator to fail to complete the full length of a contract to run East Coast services.

GNER was stripped of the route in 2007 after its parent company suffered financial difficulties, while National Express withdrew in 2009.

Trains were run by the DfT for six years up to VTEC taking over.

Passengers are being assured that the transition to LNER will be smooth, with tickets, timetables and trains staying the same.

The first LNER train will be the 7.54am departure from Newcastle to London King’s Cross on Sunday.

Source: STV

Fresh East Coast agreement with Virgin and Stagecoach would be ‘real scandal’

May 17, 2018

It will be a “real scandal” if Virgin and Stagecoach continue running train services on the East Coast Main Line after their franchise agreement is terminated, Lord Adonis has said.

The Labour peer said the firms are already being given a “bailout” with the Government ending the £3.3 billion contract to operate services between London and Edinburgh early.

Transport Secretary Chris Grayling previously said he would either put the franchise into public control through an operator of last resort – a consortium led by Arup – or negotiate a short-term deal with the incumbent.

(PA Graphics)
(PA Graphics)

The Financial Times reported that a decision is expected before the end of the week.

In November 2014, Virgin Trains East Coast – a joint venture between Stagecoach (90%) and Virgin (10%) – was awarded the franchise to run trains for eight years.

Stagecoach reported losses on the line and in November last year Mr Grayling announced that the franchise would be terminated in 2020 to enable it to become a public-private railway.

Two months later Mr Grayling told the Commons the franchise would only be able to continue in its current form for a “very small number of months” as Stagecoach had “got its numbers wrong” and “overbid”.

He said the firms would only be allowed to continue running services on a “not-for-profit basis”, with any financial rewards being performance-related and delivered at the end of a new contract.

Network Rail launches digital rail strategy
Chris Grayling said Stagecoach had ‘got its numbers wrong’ (Danny Lawson/PA)

Mr Grayling added: “There is no question of anyone receiving a bailout.

“Stagecoach will be held to all of its contractual obligations in full.”

Lord Adonis, who resigned as chairman of the National Infrastructure Commission following the announcement, claimed a new agreement with the companies would be a “huge bailout by another name”.

He said: “Don’t fall for (the) words ‘not for profit’. Virgin and Stagecoach will do very nicely out of this ‘not for profit’ contract.

“It is a real scandal if they get it, since they have just been given a £2 billion bailout from their previous contract.”

Stagecoach chief executive Martin Griffiths told the Commons Public Accounts Committee the collapse of the franchise was a “very painful experience”.

He said Stagecoach will lose more than £200 million over the course of the franchise, including forfeiting a £165 million guarantee.

Virgin and Stagecoach have managed reverse alchemy

Aslef union leader Mick Whelan

Virgin Trains East Coast is the third private operator to fail to complete the full length of a contract to run services on the route.

GNER was stripped of the route in 2007 after its parent company suffered financial difficulties, while National Express withdrew in 2009. Services were run by the Department for Transport (DfT) for six years up to 2015.

Mick Whelan, general secretary of train drivers’ union Aslef, said: “This is the third time in 10 years that a private company has mucked up the East Coast Main Line. In contrast, when it was run in the public sector, it returned £1 billion to the Treasury.

“That shows what we have been saying all along – that Britain’s railways should be run, successfully, as a public service, not for private profit. Because they can’t do it.

“Virgin and Stagecoach have managed reverse alchemy – by turning gold into base metal, and profits into losses on the East Coast.”

The Department for Transport would not confirm when the decision on the future of the franchise will be announced.

Source: BT.com

Legal threat over East Coast rail franchise

April 21, 2018

Transport Secretary Chris Grayling is being threatened with legal action over his handling of the failed East Coast rail franchise.

A group which campaigns for the re-nationalisation of Britain’s railways claims it will seek a judicial review unless the companies which own Virgin Trains East Coast are banned from bidding for future train contracts.

Bring Back British Rail has instructed lawyers to write to Mr Grayling with a request to confirm whether “the costs of terminating the franchise have in fact been met or could be expected to be met by the fulfilment of Stagecoach’s obligations”.

A Department for Transport spokesman said: “There is no basis for legal action. Virgin Stagecoach have met all of their financial commitments as set out in the East Coast franchise agreements.”

In November 2014 Virgin Trains East Coast – a joint venture between Stagecoach (90%) and Virgin (10%) – was awarded the franchise to run trains on the line between London King’s Cross and Edinburgh for eight years.

Stagecoach reported losses on the line and in November last year Transport Secretary Chris Grayling announced the franchise would be terminated in 2020 to enable it to become a public-private railway.

But in February Mr Grayling told the Commons the franchise would only be able to continue in its current form for a “very small number of months”.

He said Stagecoach had “got its numbers wrong” and had “overbid”, with Labour describing the decision as a “bailout”.

Ellie Harrison of Bring Back British Rail said the East Coast franchise is a “fiasco” which “exemplifies the problems” of privatisation.

She went on: “The current Virgin Trains East Coast franchise has failed within three years yet the Secretary of State for Transport Chris Grayling is allowing its operators, Stagecoach and Virgin, to simply walk away, free to bid for rail franchises again.

“We want an investigation and we want action to stop this happening again.”

The group has raised almost £7,000 in support of its legal campaign.

Rosa Curling, of law firm Leigh Day which is representing Bring Back British Rail, said its client will have “no option but to seek the court’s intervention” if Mr Grayling refuses to stop Stagecoach and Virgin from bidding for more rail franchises.

Source: iTV