SHARES in Stagecoach touched a seven-year low yesterday as the Perth-based transport giant booked an £84 million exception charge against its loss-making Virgin Trains East Coast rail service.
Underlying pre-tax profits fell 15.2 per cent to £159m, while revenue grew more slowly than in recent years, climbing 1.8 per cent to £3.9 billion.
This came amid “subdued” conditions in the UK rail and bus sectors, including macroeconomic and political uncertainty, and increased terrorism concerns.
Revenue growth on the Virgin Trains East Coast (VTEC), which it runs with Virgin Group, was described by chief executive Martin Giffiths as “considerably below” what Stagecoach assumed in its 2013 bid for the franchise.
This business is expected to be loss-making for each of the next two years. And in addition to the £84.1m charge in anticipation of these losses, Stagecoach booked a £44.8 million impairment of intangible assets relating to the franchise.
Because revenue has been impacted by factors beyond the control of the operator, including changes to planned infrastructure spend, Stagecoach has opened talks with the Department of Transport to alter the commercial terms from 2019 until the franchise ends in 2023.
“We are not on risk for changes to infrastructure or the changes or delays in the introduction off the new trains, so the assumptions we were asked to make for a timetable, what this meant for revenue, for [premiums paid to the Government], is going to change,” said Mr Griffiths.
He added that Stagecoach had fulfilled its obligations on the route, and challenged the government to ensure the risk taken on by the private sector was commensurate with reward.
“We do have contractual protection,” he said. “[But] more recent franchises we feel… that protection is being eroded and we need to see as we go forward with bids that that risk allocation is right.”
He said the way operators have historically forecast demand is changing, and referring to the four bids it potentially has coming up, he said: “We as a group will need to be satisfied that the risk and reward is still worth doing in the UK. I think it will be but there is still a bit of work to do on that.”
Overall, Stagecoach said it remained cautious on the short-term outlook for revenue trends in the UK, but that the long-term outlook was positive.
Its UK rail business saw revenue grow 1.5 per cent to £2.2 billion. In August the company will end operation of the South West Trains franchise, but has been shortlisted for the new East Midlands and South Eastern franchises, and has formed a joint venture with Virgin and SNCF to bid for the West Coast Partnership franchise, which will ultimately include new high speed connections.
Across the UK, revenue growth in the franchised rail market remains low by historical standards. This was replicated in the bus market, with revenue down 1.7 per cent to £1bn regionally, and 1.4 per cent to £263m in London.
Its megabus Europe division saw revenue climb 9.8 per cent to £20.2m while the North American business fell 2.4 per cent to £489m.
A final dividend of 8.1p boosted the total dividend by 4.4 per cent to 11.9p.
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