The key elements of Stagecoach Group’s business strategy to deliver long-term shareholder value are:
- To deliver organic growth across all of the Group’s operations;
- To acquire businesses that are complementary to the Group’s existing operations, in areas where the Group’s management has proven expertise and which offer prospective returns on capital in excess of the Group’s weighted average cost of capital;
- In addition to organic and acquisition growth, to maintain and grow the Group’s Rail business by bidding for selected rail franchises and to seek to secure new franchises where the risk/return trade-off is acceptable.
How we create value
The Group’s overall business model is illustrated below.
The business model varies to some extent by division. The business model is intended to deliver the business objectives and long-term strategy explained above in that it is designed to preserve and add value through organic growth, targeted acquisitions and rail franchise wins. The overall model of the Group is based on a relatively decentralised management structure with short chains of command and close monitoring and direction from the centre. Across the Group, there is an emphasis on achieving strong operational performance as an underpin of strong financial performance.
The business model for the Group’s UK Bus (regional operations) and North America Divisions is designed to be sufficiently flexible to respond to developments in the markets in which they operate and to changes in demand. The key features of this business model are:
- A decentralised management structure enabling local management to quickly identify and respond to developments in each local market;
- An emphasis on lightly regulated bus operations enabling management to vary prices, operating schedules and timetables in response to developments in each local market without significant hindrance from regulation;
- A flexible cost base whereby operating mileage and operating costs can be flexed in response to changes in demand.
The business model of the UK Bus (London) and UK Rail Divisions is different. The businesses are more highly regulated and their cost base is less flexible so there is greater management focus on agreeing the right contractual arrangements, including appropriate risk-sharing arrangements, and ensuring these are appropriately managed for the duration of each contract.