SCOTTISH transport giant Stagecoach signalled the “return of confidence in public transport” as it posted a significant six-month profit hike.

However, the volatility of the recovery was put into focus as the Perth-based company said there has been some softening of demand recently because of Storm Arwen and updated Covid restrictions.

The firm also said talks with Birmingham-based National Express over a potential merger are continuing in the update to October 31, in which it posted profit before tax of £18.4 million, set against £400,000 the year before.

Adjusted revenue was £579.4m, against £454.6m for the same six months the previous year.

Stagecoach described talks with National Express over the potential deal that would see National Express shareholders take a three-quarter stake in the new business as ongoing.

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“Constructive discussions are continuing with National Express Group plc on a potential combination of both groups that would deliver strong value creation for both sets of shareholders,” Stagecoach said.

If the businesses do combine, the new company will control around 30 per cent of the UK’s bus market.

Stagecoach said that it had a “positive outlook” whether it merges with National Express or continues on its own.

“In the meantime, it is business as usual for our business and our people,” Stagecoach said.

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Passengers were still travelling less than before the pandemic, with passenger journeys last month at 70% of where they were in November 2019, including the weather and new Covid guidance impact.

It said that “dependent on progress on the National Express transaction, it is our ambition to resume dividend payments in due course when supported by appropriate profit and cash flow generation, relative to our net debt and pension liabilities”.

The business will still be able to rely on Government support until next spring, it said, and also hailed new sustainability push and is set to complete a £21m investment in partnership with the Scottish Government in 46 new fully electric buses in Aberdeen, Kilmarnock and Perth this month.

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Stagecoach said: “In the summer, we also introduced the UK’s first fleet of six fully electric buses serving rural communities, connecting towns and villages in the west of Scotland.

“We have also just completed a partnership project in the Highlands of Scotland to trial a hydrogen bus on routes across Inverness and surrounding locations.”

Martin Griffiths, Stagecoach group chief executive, said that “while the pace of recovery may vary, we are well-placed to deliver on the extensive opportunities beyond the pandemic”.

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“In the first half of the financial year, we have delivered positive new contract wins, including key transport contracts for the Birmingham 2022 Commonwealth Games,” he said.

“We are also progressing several investments to enhance our customer offer, as well as new ticketing initiatives to respond to post-pandemic lifestyles.”

Mr Griffiths said the firm “maintains a solid financial position” with investment grade credit ratings, substantial available liquidity and appropriate headroom under its debt facilities.

It is also “continuing to manage effectively” the short-term operational challenges in the transport and logistics sector. Mr Griffiths also said “greener and smarter public transport is central to delivering government ambitions around decarbonisation”, adding: “We continue to see a positive outlook for our bus, coach and tram services, whether as a standalone business or as part of a combined future group."

Shares in Stagecoach closed down 0.2%, or 0.15p, at 76.5p, and National Express shares closed at 234.6p, down 2.49%, or 6p.