Stagecoach buys back its London buses business

TRANSPORT group Stagecoach is to drive back into the London bus market only four years after pulling out of the heavily regulated arena, but denied yesterday the move was a U-turn.

• Brian Souter, Stagecoach's chief executive

The Perth-based group is buying back the London bus operations it sold to Australia's Macquarie Bank for 263.6 million in June 2006, saying at the time that it wanted to focus on Scotland and the English regions.

Stagecoach made a consolidation gain on that disposal of 120m, and yesterday revealed it was buying back East London Bus Group (ELBG) for an enterprise value of 52.8m.

ELBG is London's third biggest bus operator, with a 15 per cent market share, some 1,200 buses and about 4,800 staff. The operations were owned by Stagecoach since 1994.

Brian Souter, chief executive and founder of the Scots bus and rail operator, said: "We operated a successful bus business in London for several years and are pleased to re-enter the London bus market at what we consider to be an attractive price.

"Whilst we do not underestimate the challenges we face in driving up the financial performance of the acquired business, we relish the opportunity to apply our expertise in managing UK bus businesses to create value from a turnaround situation."

In its last year in Stagecoach's ownership the London bus business made a profit of about 23m on revenues of 224m. Profits have dwindled, however, and the group said that last year the operations made a profit of 9m on revenues of 253.5m.

Martin Griffiths, Stagecoach's finance director, denied that the return to London, still a regulated market under Mayor Boris Johnson, was a strategic about-face.

"I don't think it's a U-turn," Griffiths insisted. "We look upon our businesses as a porfolio. We have never been scared to buy or sell if that's the right decision for shareholders.

"The world has changed a bit since then (2006]. We got a fantastic price at the time. London is not less regulated, but overriding that we look at things on a value basis. Stagecoach ran a profitable business there for a long time, we know the business well and it is a commercial opportunity particularly at this enterprise price."

He said there were "unlikely to be wholesale redundancies" at East London Bus Group, which had been renamed by Macquarie, but there was likely to be "some slimdown in administration, finance and management".

Stagecoach, which also runs the biggest British rail commuter franchise out of London Waterloo, said the acquisition was likely to be modestly earnings-accretive in the first full financial year."Building on recent steps to improve operational performance, we believe there is an opportunity to add value through a turnaround of the under-performing business and through synergies with Stagecoach," the company said.

Griffiths said the acquisition would mean no diminution of the group's commitment to Scotland and the English regions.

Stagecoach shares rose 2p to 185p yesterday.