annual report 2003
group headquarters 10 dunkeld road perth ph1 5tw scotland
t 44 0 1738 442 111 f 44 0 1738 643 648 wwwstagecoachgroupcom
annual report 2003 stagecoach group plc company no sc100764
2003
contents
1 highlights
2 group overview
4 chairman’s statement
6 chief executive’s statement
8 operating review
8 uk bus
9 coach usa
11 overseas bus
12 rail
14 investments
15 corporate social responsibility
19 finance director’s review
22 board of directors
23 directors’ report
26 corporate governance
30 remuneration report
35 auditors’ report
36 accounts
75 shareholder information
76 five year financial summary business highlights
ı continued profitability in all four key operating divisions
ı good progress in restructuring coach usa
ı c »300m of disposals announced post yearend
ı terms of new franchise at south west trains finalised
ı improved operational performance benefiting rail division
ı margin improvement at uk bus
ı strong revenue and volume growth in new zealand
financial highlights
ı turnover »2077m 2002  »2111m
ı total operating profit »146m 2002  »167m
ı profit before tax »113m 2002  »107m
ı »575m of exceptional writedowns from coach
usa review resulting in a statutory loss before tax of
»500m 2002  profit of »42m
ı earnings per share 64p up from 63p
ı free cash flow up 18 to »218m
ı net debt down »215m to »560m
ı full year dividend 26p 2002  26p
 excluding goodwill amortisation and exceptional items
highlights 2003
stagecoach group is a leading international
transport provider committed to developing
innovative solutions across our operations
1 group overview 2003
turnover »5984m »6030m
operating profit »670m »140m
no of vehicles


Summary:
 management has been clearly focused on the twin priorities of
restructuring coach usa and securing the new franchise at south
west trains i have been particularly pleased at the progress we
have made and this will give greater certainty to shareholders
we are seeing steady performance benefits across the group as
a result of our concentration on operationally led management
i believe this has reinvigorated the entrepreneurial approach of
management and we are well placed to deliver growth in our
operations despite the worldwide economic slowdown
i am pleased to report that we remain on course to restructure
our coach usa division and to meet our strategic aims for the
business within the 12 to 18 month timetable we outlined in
december 2002 we have already announced the disposals of
coach usa’s transit division new england west and south
central regions and a number of its taxi businesses together
the gross consideration for these amounts to over us220m
we intend to retain the north east and north central regions
which together accounted for around onethird of coach usa’s
turnover in the year ended 30 april 2003 we are developing the
businesses within the coach usa portfolio that perform well and
have predictable revenue streams as well as reducing our
exposure to charter and leisurerelated businesses in addition we
have successfully retained key management and further reduced
our corporate and regional overhead base trading at coach usa
as we predicted remains challenging and we have not seen any
major improvement in the trading environment nevertheless
coach usa remains cash generative and profitable we have
many strong performing businesses in the residual coach usa
portfolio and we are continuing to redeploy existing assets to
maximise asset utilisation and to eliminate unnecessary capital
expenditure
we have now agreed financial and commercial terms with the
sra for a new threeyear franchise at south west trains the
deal which has been recommended to the department for
transport and the treasury by the sra board is currently
awaiting final approval together with the current oneyear
extension this would result in a franchise for the period until
february 2007 this will cement our leading position within the
uk rail market and combines the right balance of risk and return
for our shareholders
our rail division has delivered a strong operating profit for the
year at south west trains our concentration on driving up
operational performance has resulted in significant improvements
and we are progressing well with the planned introduction of our
new »1bn desiro train fleet at virgin rail group the business is
benefiting from the focus on service delivery and significant
investment in new trains the replacement of the entire
crosscountry fleet has been completed with the introduction of
new virgin voyagers while the first of the new stateoftheart
pendolino trains are also in service
network infrastructure difficulties remain a concern however
and we have implemented a range of measures to mitigate the
effects on our operation as well as working closely with network
rail and the strategic rail authority
our uk bus division the traditional core of the group is
performing well we are benefiting from revenue and passenger
growth in provincial towns where we are working in partnership
with forwardlooking local authorities we have been particularly
successful in the london market where we have retained and
won a number of tenders new tenders and the operation of
additional vehicles on behalf of transport for london have
added »146m in revenue in the year ended 30 april 2003
passenger volumes in london are up 88 and we see further
opportunities for growth following the introduction of
congestion charging earlier this year operating profits and
margins for the uk bus division have risen despite increases
in pension and other labour costs
we are taking an industry lead in generating new ideas and
believe our ‘‘kick start’’ proposal which is now being taken
forward by the uk government can benefit communities across
chief executive’s statement 2003
management has been clearly focused on the twin priorities of restructuring
coach usa and securing the new franchise at south west trains i have
been particularly pleased at the progress we have made and this will give
greater certainty to shareholders
6 the country the proposal is that the government sets aside
funds which are used to give shortterm impetus for the
introduction of new services with the aim that such services
would become commercially viable within three years from their
commencement it can deliver more comprehensive bus services
reduced road congestion better value for the taxpayer with
important environmental and social inclusion benefits as well as
bidding for government funding in this area we will continue
with our own ‘‘kick start’’ programme of investment in buses for
routes identified as having organic growth potential and we are
looking at the development of a number of new products and
ideas targeted for growth in the next twelve months
in new zealand where we are the biggest bus operator our
operations have delivered further strong growth we continue to
work in close partnership with national and local government to
improve bus services investing heavily in our operation ‘‘kick
start’’ pumppriming funding has helped enhance services on key
corridors and bus passenger growth in auckland has continued to
be strong in addition we remain actively interested in running
the suburban rail networks in both wellington and auckland
under our ownership since 1999 our hong kong citybus
operation has produced strong organic growth in passenger
volumes and a significant reduction in operating costs following
an approach for the business we reviewed the strategic options
for stagecoach group in the region it was our view that there
were limited opportunities to develop significantly elsewhere in
other pacific rim countries and the longterm prospects for the
business in hong kong were uncertain a number of factors were
assessed in coming to a decision including the future economic
climate in hong kong the growing levels of regulation and the
inability to grow profit without very significant investment or
critical mass synergies while the outbreak of severe acute
respiratory syndrome ‘‘sars’’ earlier this year continues to
impact the profitability of the hong kong business our
assessment of the sale was based on a longterm view of the
profitability and capital requirements of the business and not the
immediate trading conditions the market for franchised bus
operations is competitive and the purchaser already had an
interest in a significant franchised bus operation the proposed
combination will benefit from synergies and economies of scale
and this will give a solid platform for the further investment that
is required in the hong kong franchised bus market on that
basis we believe the sale of citybus was in the best interests
of the business and stagecoach shareholders and it will allow
stagecoach management to continue to deliver our strategy
as a leading international transport provider
while still early in the new financial year the group has started
the year well and is trading in line with our expectations
i am delighted with the contribution our people across the globe
have made in meeting the challenges of the past year and
i would like to thank them and our customers for their continued
support i am certain we can deliver better services more value
to shareholders and continued security for our employees
brian souter
chief executive
25 june 2003
brian souter
chief executive
7