AN 88 year-old coach firm - an unlikely entry into our Fast 100? Stuart Anderson reports.
As the railways have slumped from crisis to crisis during the early part of the decade, the train operating companies losses were Fraser Eagle’s gain. Demand boomed for the nationwide network of rail replacement coaches the company co-ordinates and, by 2005, group turnover stood at £41 million, generating a pre-tax profit of £630,000. All a far cry from the charabanc trips to the seaside operated on a single coach by the newly-founded Fraser Motors Accrington Ltd back in 1919.
However, the recent completion of many engineering works, combined with the entry onto the market of competitors Stagecoach, National Express and First Group, has led to a falling-off in this line of business. As a result Fraser Eagle’s group sales took a significant hit last year. It also made some major investments, including a new £1.8 million HQ in Padiham, all of which means the company is less than eager to share its figures for the year to June 2006. It prefers, instead, to tell us its projected turnover for the 12 months to June 2007 of £40.3 million, with a retained profit of £870,000.
In the spirit of “if you can’t beat them, join them”, the company has decided to diversify into operating trains with an investment that will, from May this year, see it run three trains on the London Kings Cross-York-Sunderland route – with more services and routes envisaged for the future. Grand Central Trains is the brainchild of Ian Yeowart, a lifelong railwayman (and owner of a York-based go kart business) with whom Fraser Eagle’s managing director, Kevin Dean, had previously worked for 15 years. Yeowart asked Dean for help 18 months ago and Fraser Eagle now owns 79 per cent of Grand Central.
“It’s been one of the most frustrating, exasperating things that I’ve been involved in throughout my whole life,” says Dean, who joined Fraser Eagle from the railway industry in 2000 and rose to become group MD in 2005. “Every barrier that could be put in front of you has been, from the industry, the banks, just about everybody. And all of those obstacles have been overcome.”
One of those hurdles was £500,000 spent fighting a judicial review brought by current (though not for much longer, thanks to the financial troubles of parent Sea Containers) East Coast franchisee GNER. It objected to the fact that Grand Central would pay lower track access fees but the Court found in the new operator’s favour, ruling that the commercial risks it faces do not afford it the sort of revenue protections GNER has enjoyed.
“GNER’s argument was that they have to pay the full track access. They do, but what they don’t tell everyone is that the Government actually gives them a grant to pay it,” Dean fumes. “It’s typical of an industry like the railways. I was in there for 20 years and know it’s very incestuous: they like to think that it’s a club, and they’ll try to beat off anyone new trying to join.”
Funding the venture has also been a challenge. Dean echoes a common bugbear: “A lot of the banks and financial institutions want to help you sometimes but not all the time. I think they need to recognise companies like ourselves that are quite innovative and dynamic, and have the confidence to support us.
“I don’t think we’re the only ones. In your Fast 100 list, probably 75 per cent will struggle unless they find a vulture that will fund you now and strip you out later on.” Its Grand Central stake may be Fraser Eagle’s most ambitious diversification to-date, but it is looking to an operation run along similar lines to its rail replacement business (in which it operates a central control room that subcontracts work to a network of 3,800 independent coach companies) to keep sales up as rail engineering works dwindle.
Realising that train operators have to transport their drivers around and that other businesses, such as airlines, have similar needs, the company has set up a taxi network, sourcing cabs from 2,500 different operators. This division is set to turn over £9 million this year. Unlike the coach business, however, the control room is not based in drizzly Lancashire. Instead the company has “nearshored” the operation to Malta, a location Dean settled upon having attended a seminar on the subject in 2005.
The Maltese operation, he says, provides a significant enough cost saving in terms of accommodation and staff to enable it to take on competitors that have major corporate infrastructures behind them. “We employ a mixture of Maltese people and ex-pats,” he says. “There are loads of ex-pats in Malta, so we find highly-qualified people who have gone out there to semi-retire, and they are now working in our control room. We wouldn’t be able to employ that sort of person in the UK.”
The Maltese operation employs 32 people. In the UK, meanwhile, Fraser Eagle has a staff of around 300. On top of the rail replacement and taxi business, Fraser Eagle Management Services (or “FEMS”, as the division is known) now provides “disaster recovery”. Companies, especially in the financial sector, pay a retainer and, should they be unable to gain access to their own building and have to relocate to a disaster recovery site, Fraser Eagle will provide staff transport. This service was invoked in London following the July 2005 bombings and is, on average, called upon half a dozen times a year.
The group also operates a corporate travel division which books hotels, rail and air travel for, primarily, medium-sized companies. This is not, though, Fraser Eagle’s first foray into travel agency. In the 1990s it operated a number of high street shops across the North West as part of the giant Worldchoice consortium. “It was seen as an opportunity to generate cash,” Dean says. “Because of the way FEMS worked, our suppliers would want paying, but our customers rarely paid us on time.
“Then, of course, September 11 happened and the travel industry took a complete swiping. The way FEMS was being run had also changed and the requirement for cash was not as paramount – so the decision was taken to dispose of all but the Accrington shop. We still have that, and we have just opened another one here in our HQ.”
In a company clearly unafraid of diversification, travel agency was a logical follow-on from its original coach touring business. So, too, was the expansion of that coach touring business (which contributes ten per cent of group turnover) to provide match-day transport for players from Blackburn Rovers, Bolton Wanderers, Accrington Stanley and Wigan Warriors, as well as official supporters’ transport for a variety of football clubs.
Somewhat odder was the decision to purchase furniture manufacturer Easthams. Dean acknowledges that this was a mistake: “It was a bit of a disaster. We’re a brokerage, we’re a management agent, that’s what we’re good at. But we had invested quite a bit of money into it so we weren’t just going to turn the tap off and say goodbye – we needed to make it work.”
So it was transformed into Fraser Eagle Contracts, a design and project management company engaged in fit-out projects for high-end hotel operators. It has just completed a £2.1 million contract for the newly-built Quay Hotel in Deganwy, North Wales and is also refurbishing apartments for timeshare operator Sunterra. Would he consider selling it off now, since, though it might finally be making money, it isn’t exactly core?
“If it becomes appropriate to move it on in a year or two’s time, once it’s actually fulfilled its true potential, we’ll consider doing that,” Dean says. “But we’ve taken all the pain up to now so we’re not going to sell it until we actually get some pleasure.” Looking forward, meanwhile, Fraser Eagle has launched a Bus Partnerships division, which has no revenues as yet but is focused on procuring and managing school and community transport (buses and taxis) for local authorities: a multi-billion pound market currently managed by councils in a largely piecemeal fashion.
From 2009, the Government also plans to introduce “quality bus contracts” to replace the current free-for-all in many UK cities – and Fraser Eagle hopes to bid for some of these. Standing behind all of this is the chairman, Alan Dyson, who, along with the late Harry Knowles, bought Fraser Motors in 1965 and Eagle Coaches (hence the current name) in 1978.
Dyson is now sole owner of the original group businesses, although management have stakes in some recently-formed subsidiaries. Dyson very much takes a back (non-executive), seat in the running of the business nowadays, according to Dean: “It has to be quite a clinical relationship because otherwise it can get quite sentimental at times.”
With an owner rapidly approaching state pension age, has Dean considered an MBO? He has just described VCs as asset-stripping “vultures” so, presumably, he wouldn’t be over-keen on working with a private equity backer? “At the moment it suits me to have just one shareholder to deal with,” he says. “With an MBO it’s more difficult.
“We’ve struggled for five or six years so we’ll continue to struggle for another five or six. That keeps you keen. If we had millions of VC pounds in the bank would we be as hungry and aggressive? I’m not sure.” Looks like Dyson won’t get to cash in his chips just yet.