ONE thing the City has learned about Brian Souter is never to take anything for granted. While his maverick dress sense has long ceased to surprise, his decision to get behind the wheel of a bus during a recent stoppage was typical of a chief executive who likes to get up close and personal about the company he created.
Yet for all his unpredictability and eccentricity, last week he found that being upfront about his company's prospects didn't help him either.
Shares in Stagecoach plunged 16% on the day he announced a "very good set of numbers", leaving him to po
nder on his decision to spell out exactly how he sees the immediate future.
"Maybe we are being punished for our honesty," he joked. The punishment didn't stop there as 24 hours later the shares set a new 52-week low when they fell during the session to 126.40p, a 47.08% fall over the period. It was a setback that reversed the outperformance of the FTSE-250 in the earlier part of the year.
Souter took advantage of the slump to shell out £5m on two tranches of shares, taking his stake to about 15% excluding options, while fellow director Sir George Mathewson – the former banker – bought 35,800 shares for £50,000.
But their enthusiasm failed to inspire the market as investors continued to shun the shares whose fall was largely blamed on the company's confirmation that the recession will finally catch up with transport groups. Revenue growth on Stagecoach buses was up 11.8% and remains buoyant but rail rose by 8.2% and the rate of growth is expected to slow. More to the point, job losses in the City of London will mean fewer commuters on the normally busy rail routes into London. The train is clearly beginning to feel the strain.
While group pre-tax profits for the half year were up 24% to more than £105m, Souter admits it is no good trying to pretend the downturn will be somebody else's problem. "We have good volume growth on the railway; it is still growing, but everybody knows this is not just going to be a slowdown but a thumping enormous recession and if these forecasts are right we can't say that it won't have an impact."
Just how big an impact he won't say but it may explain why investors turned so aggressively negative on the shares. Uncertainty? Fears that profits will be at the lower end of forecasts?
The company has announced that it will reduce headcount, but Souter says it is too early to commit to numbers. Or maybe he knows but isn't saying. So is he truly being honest and upfront about prospects?
"Central London employment forecasts have to impact on the business next year. We cannot quantify it. We will be able to predict with more certainty in the next two to three months. All I can say is that there are significant and substantive savings we can make." He says these are likely to be in areas such as marketing and administration.
"It is hard to predict what a 4% drop in central London employment will do. Profits next year will be lower but not that significantly lower."
Indeed, house broker Credit Suisse reacted quickly, cutting its forecast for operating profits for the year to April 2010 from £214m to £173m. Nor did last week's interims from Stagecoach do much for sentiment in the sector generally. Shares in rival groups all fell.
Pushed to be more precise on the job fallout in the City he becomes a little agitated. "If I knew the answers to these questions I would be running the country, not running Stagecoach," he says. "The figures seem to change every four weeks. I don't know how deep and how bad this is going to get but I am not going to pretend everything is going to be okay. Only a fool would look at the trends (on jobs] and not plan."
Ironically, all this comes at a time when rail capacity is being expanded to cope with commuters switching from cars. There will be 30% more trains on the west coast line which Stagecoach operates with Virgin, and 20% more on its East Midlands franchise. There is a view that Britain's railways have never performed better and that despite sharp price rises that grab the headlines there are a lot of bargain fares available.
The company's own efficiency measures include installation of more automatic ticket barriers, while passengers were clearly taking their own steps to counter price rises and the squeeze on budgets by booking early and trading down, relinquishing first class for standard class tickets.
Almost 30 years after launching Stagecoach in the unfashionable bus sector with his sister Ann Gloag, Souter retains an almost schoolboy enthusiasm for the company, constantly seeking out new ideas, and still trying to persuade the public to get out of their cars. He remains keen to run hovercraft services across the Forth following the success of a trial and after running seven buses in Kilmarnock on chip fat the company now plans to operate 20 guided buses in Cambridge on recycled tallow and vegetable oil from April.
De-stigmatising bus travel remains an issue, though the ever-growing problem of congestion has encouraged commuters to switch. In the past year the rising cost of fuel has given it another push. Souter introduced wi-fi to encourage commuters and a new generation of travellers and he's invested in both the luxury and discount ends of the market, installing leather seats and air conditioning in some fleets while the launch of Megabus as a basic service at a knockdown price has also surpassed expectations. "Megabus is going gangbusters, particularly in America where people are looking for alternatives to flying," he says. Concessionary use is also rising as more people on tight budgets take advantage of their allowance.
As a way of encouraging more travellers to use public transport Souter urged the Chancellor earlier this year to scrap income tax for anyone earning less than £40,000. In these times of financial mayhem, who knows whether such ideas would be taken seriously, but Souter is one businessman who is never afraid to speak his mind, whether on religious, moral or political grounds.
He once sang a version of 'The Red Flag' to the Scottish Trades Union Congress and is a well-known supporter and financier of the Scottish National Party. He has also drawn on his wealth to support Scottish business, including the bailout of the Falkirk bus builder Alexander Dennis and a number of fledgling businesses. Among his more recent is an investment in a new mudflap that helps cut fuel costs, and the contribution of two old buses to young businessman Roman Rock, managing director of Bedlam, the paintball game company.
Last month Souter was back on the buses, driving the No 59 service from Northfield to Balnagask in Aberdeen after drivers went on strike in a dispute over pay. "I enjoyed it enormously and I ran to time," he says. He joined 160 other Stagecoach drivers from across the country who were drafted in to make sure the city's buses kept running. More than 200 drivers crossed the picket line on the first day of the dispute.
"We had not had a stoppage for 17 years," he says, admitting that he understood the hardships of ordinary working people. The company advertised for six rail conductors in Lincoln recently and attracted 400 applicants.
"You've got to have enormous sympathy for the working man," he says. "We've had 5% inflation, high food and fuel prices. Bus drivers are under enormous pressure in their household budgets."
The full article contains 1296 words and appears in Scotland On Sunday newspaper.
