STAGECOACH has flagged the profitability of its continuing rail operations – weeks after telling shareholders it would not turn its back on the sector after a bruising experience running the East Coast franchise.

The transport giant was criticised for racking up losses of £180 million on the failed Edinburgh to London service at its annual meeting in Perth recently, with the UK Government having stripped Stagecoach and partner Virgin Trains of the franchise in May after performance targets were missed. Stagecoach chief executive Martin Griffiths told investors it would not withdraw from rail despite its “disappointing” experience with the East Coast contract, declaring its other franchises were profitable.

That was underscored yesterday when, in a trading update, Stagecoach declared that it continued to achieve “good profitability” on both East Midlands Trains and the Virgin Rail Group’s West Coast Trains in the 16 weeks to August 18.

But investors reacted coolly, with shares dipping nearly two per cent.

Perth-based Stagecoach said yesterday that like-for-like revenue at Virgin Rail Group, in which it holds a 49 per cent stake, grew by 5.3% over the 16 weeks compared with the same period in 2017. Excluding Virgin Trains East Coast, which Stagecoach had run with Virgin since 2014, like-for-like revenue at the company’s UK rail division was up by 2.1% compared with last year.

Stagecoach, founded by Sir Brian Souter and sister Ann Gloag in 1980, said: “The financial performance of our rail businesses is broadly in line with our expectations with continued good profitability at both East Midlands Trains and Virgin Rail Group’s West Coast Trains. As expected, revenue growth at our East Midlands Trains franchise has been suppressed, due to the effects of both the reduced services to accommodate changes to the Thameslink network effective May 2018 and the current year re-signalling programme at Derby railway station.”

Meantime, Stagecoach linked a strong performance by its regional UK bus operations to the warm summer weather.

Like-for-like revenue from bus operations outside London were up 3.2% in the 16 weeks versus last year, with the company also noting that it had generated revenue from bus services added to replace rail routes disrupted by re-signalling work at Derby. “Our expectation is that revenue growth will moderate over the remainder of the year, reflecting the one-off benefits in the year to date,” the company added.

In London like-for-like revenue dipped 2.2%, which Stagecoach said reflected the loss of contracts in prior the year.

Stagecoach added: “Operating costs are higher than budgeted due to the lag in fuel price rises being reflected in contract revenue, higher operating costs during the hot weather and the start-up costs of our new sightseeing service.”

Elsewhere, the company highlighted challenges in the US, as like-for-like revenue declined 3.8% for the four months ended August 31. That included a like-for-like revenue fall of 1.8% on its megabus.com inter-city service.

Shares in Stagecoach closed down 2.6p at 155.9p.