SHARES in Stagecoach closed up nearly three per cent after the transport giant revealed its intention to effectively withdraw from bidding for major rail contracts.
The Perth-based company declared yesterday that it will no longer bid for UK train franchises, on the basis of the “current risk profile offered by the Department of Transport (DfT)”.
The dramatic move came amid legal action being taken by the bus and rail firm against the UK Government, mounted after it was ruled out of the bidding for three franchises in April.
READ MORE: Stagecoach raises stakes in rail fight with Government
The DfT disqualified the company’s bids to run the East Midlands, West Coast Partnership and South Eastern services because they did not make sufficient provision to cover liabilities on the Railway Pension scheme.
Stagecoach has since launched legal action to contest its disqualification from the three competitions. It argues that the level of risk demanded by the DfT for the pension scheme will lead to more rail franchises failing, stating it was barred from the competitions because it refused to pay more than £1 billion to cover liabilities.
Stagecoach has been a major player in UK rail since the industry was privatised in the 1990s, and has run some of the sector’s biggest franchises in the last 20 years.
However its presence in rail has dwindled in the last two years, with the loss of the South West Trains franchise in August 2017 and then the Virgin Trains East Coast contract last June.
READ MORE: Rail firm reveals franchise pension bill would have topped £1bn
The East Coast franchise was brought back in-house by the DfT after performance targets were missed, which left the Scottish firm nursing a £180 million bill.
And Stagecoach said it expects further cash outflows of around £100m in the year to May 2, 2020, stemming from the unwinding of the East Coast rail franchise and the transfer of the East Midlands contract, which will be run by ScotRail operator Abellio from August. The company’s current rail portfolio includes the West Coast franchise, which is expected to run until November, and East Midlands Trains, which ends in August. It also runs the Sheffield Supertram business.
Unveiling the company’s annual results, which revealed a rise in statutory profits to £101.2m from £77.6m, Stagecoach chief executive Martin Griffiths said: “I am pleased to report good financial results as we reposition the business.
“We continue to focus on driving growth at our core high quality bus and coach operations in the UK, but we have no intention to bid for new UK rail franchises on the current risk profile offered by the Department for Transport.”
READ MORE: Scottish transport giant survives boardroom coup but chairman quits
Stagecoach reported that revenue from continuing operations dipped to nearly £1.9 billion from £2.8bn. The loss of the South West and East Coast rail franchises saw revenue at the rail division slide by 62.1% to £589.5m.
Virgin Rail Group, the partnership between Stagecoach and Virgin Trains which runs the West Coast franchise, saw revenue climb to £609.5m from £574m.
Meanwhile, the company said total UK bus revenue edged up from £1.27bn to nearly £1.3bn.
The company noted it invested £80m-plus in new vehicles during the year to support its UK growth and air quality strategy.
It also completed the $271m sale of its North American division to US-based Variant Equity Advisors, which allowed it cut debt. That came shortly after the company slashed the book value of the US business amid challenging market conditions.
The US division, one of the biggest in the US with around 4,500 employees, ran the megabus.com inter-city coaches, commuter buses, airport transportation and sightseeing tours.
Meanwhile, Stagecoach said Dame Jayne-Anne Gadhia, the former chief executive of Virgin Money, will be stepping down as a non-executive director.
Dame Jayne-Anne, who joined in January, has been appointed chief executive at Snoop, a financial services start-up.
Shares in Stagecoach closed up 3.4p at 121p.
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