The government said the group would pay £1.19bn for the right to run the routes for 10 years from February 2007.

The South Western Network will be made up of two existing franchises, South West Trains and Island Line, both of which are currently run by Stagecoach.

South West Trains runs services from London to destinations including Southampton, Bournemouth and Salisbury.

The South Western rail franchise, which is the UK's biggest commuter rail franchise, runs more than 1,600 trains a day.

Stagecoach said it expected the deal to generate annual profits of £15m to £20m during its early years.

"We submitted a high-quality, innovative and value-for-money bid, and the new franchise is an excellent result for passengers, taxpayers and our shareholders," said chief executive Brian Souter.

The group added it planned to boost capacity on rail routes by running longer trains and more services during peak times.

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Stagecoach: SW Rail Franchise Worth £530 Million In Revenue

Easy Bourse: September 22nd, 2006

LONDON - (Dow Jones)- Stagecoach Group said Friday that the new 10-year South Western rail franchise is worth more than GBP530 million in annual revenues and will run from Feb. 4, 2007.

The francise is expected to deliver good value for shareholders and to generate annual operating profit (profit before finance income/charges, amortisation of intangible assets and taxation) in the early years of the franchise of GBP15 million to GBP20 million, as well as annual finance income of GBP3 million to GBP4 million.

South Western combines the existing South West Trains and Island Line franchises, both of which are currently operated by the group.

The new franchise incorporates a multi-million-pound investment programme and will generate GBP1,191 million (net present value) in premium payments to the DfT over the 10-year period, the company said.

The key highlights of the new franchise - developed following extensive consultation with more than 100 local, regional and national stakeholder groups - include significant increase in capacity, with 21% more mainline peak seats and a 20% increase in peak suburban seating; and deployment of 17 additional Class 450 units ordered by DfT, as well as a rolling stock refurbishment programme, to deliver extra capacity.

Stagecoach Group said that maximum length trains will be used on almost all peak services, with additional morning peak service from Basingstoke to Waterloo, and plans to introduce 10-car trains on Windsor to Waterloo services in 2010.

The company will be investing GBP19 million in Smartcard technology to make ticket purchasing easier.

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Stagecoach secures South West franchise

The Times: September 23, 2006
By Angela Jameson

STAGECOACH may be afflicted with the winner’s curse after pledging to pay £1.2 billion to run the ten-year South West Trains franchise, the capital’s most important commuter network.

The Scottish-based group has acknowledged that its profits will fall 70 per cent in the first few years of the contract and that margins will be cut to the bone, leaving it vulnerable if the economy slides or there are more terrorist attacks in London.

Stagecoach said that it expected the new franchise to deliver operating profits of £15 million to £20 million, on revenues of £530 million in the first few years — a margin of only 2.8 per cent to 3.8 per cent. Last year its retained profits from the South West Trains franchise amounted to £59 million, after a £66 million payment to the Treasury.

The rail operator, which has been running South West Trains for ten years, saw off stiff competition from FirstGroup, Arriva and National Express Group. Stagecoach’s eye-watering bid comes as another rail franchise, the GNER operation on the East Coast Main Line, is on the verge of announcing many redundancies. GNER is paying £1.3 billion for its franchise but, in the second year, is having difficulty generating adequate income.

There are concerns that rail operators are paying too much and jeopardising their future. “When we saw how much [Stagecoach] had bid, there was a sharp intake of breath,” an industry source said yesterday. Stagecoach has pledged to deliver 21 per cent more peak-time seats and spend £40 million improving stations, including Waterloo, its base.