Stagecoach thrown off track by "onerous" East Coast contract as it takes £84m charge hitting profits

 
Rebecca Smith
The FTSE 250 firm said it was
The FTSE 250 firm said it was "disappointed" to report losses at Virgin Trains East Coast (Source: Getty)

Pre-tax profits at rail and bus operator Stagecoach slumped more than 80 per cent in the year to 29 April, sending shares dipping nearly six per cent in early trading.

Read more: Go-Ahead's Govia among shortlisted picks for Southeastern franchise

The figures

Pre-tax profit fell from £104.4m last year to £17.9m, with the FTSE 250 firm taking a hit from an £84.1m charge, to reflect the "onerous contract" and expected losses on Virgin Trains East Coast, as well as a £44.8m writedown on the value of the franchise.

Looking at the Virgin Trains East Coast franchise, Stagecoach said shortfalls in revenue and profit were "primarily due to macroeconomic and other external factors beyond its control". Recently, revenue had also been impacted by increased terrorism concerns and political uncertainty.

The firm said a brighter forecast was on the horizon from 2019 when the business is expected to be profitable.

Stagecoach reported adjusted earnings per share of 24.4p, down from 27.7p the year before, but in line with the board's expectations.

And it did say dividend per share for the year was up 4.4 per cent to 11.9p.

Why it's interesting

The company owns 90 per cent of Virgin Trains East Coast, running the east coast mainline between the capital and Scotland.

Julie Palmer, a partner at Begbies Traynor, said Stagecoach "continues to head down a bumpy track" as it struggles to maintain depleted passenger numbers in the face of "growing economic headwinds and rising inflation".

It has some positive prospects in the pipeline, having been shortlisted for the new East Midlands and Southeastern franchises. Palmer said what happens with these will be crucial.

“All hopes now rest with the rail division’s high-profile tenders for the new East Midlands, Southeastern and West Coast rail franchises, including the first few years of operation of HS2 services," she said. "While Stagecoach is only shortlisted at this stage, securing these significant opportunities would provide a much needed boost to shareholder morale following recent disappointments.”

What the company said

Stagecoach's chief executive, Martin Griffiths, said:

We are engaged in discussions with the department for transport regarding our respective contractual rights and obligations under the current Virgin Trains East Coast franchise and reflecting the reprioritisation of Network Rail's infrastructure programme.

However, separately we have made financial provisions to reflect the short-term outlook for that business over the next two years, including in view of the weak growth environment affecting the UK rail sector as a whole.

We are disappointed to report losses at Virgin Trains East Coast. However, I am confident that we can return the business to profitability and build on the significant benefits we have delivered to date for customers and taxpayers.

Read more: These are the companies shortlisted to run the first HS2 trains

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