Stagecoach in talks with Government after East Coast Main Line hit
Stagecoach is in talks with the Government over its contract to operate the East Coast Main Line after exceptional charges linked to the loss-making franchise saw profits at the company sink last year.
The train and bus operator said pre-tax profit plunged from £104.4 million to £17.9 million in the year to April 29 after booking an £84.1 million exceptional charge to "provide for anticipated losses" under the East Coast contract, which it jointly runs with Virgin.
Stagecoach was also hit by a £44.8 million non-cash exceptional impairment linked to the Virgin Trains East Coast franchise.
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."
To compound matters, Stagecoach also said that slowing economic growth, the Brexit vote and terrorism have begun to take their toll on the company.
Revenue is not growing as strongly as anticipated as sales are hit by "increased terrorism concerns and political uncertainty", as well as "macroeconomic" factors, the firm said.
Revenue came in at £3.9 billion last year compared with £3.8 billion.
The firm said it is taking action across its bus network, including targeted network, pricing and management changes.
The company operates routes such as South West Trains, East Midlands Trains, Virgin Trains East Coast and Virgin Rail Group's West Coast franchise.
It has also been shortlisted for new East Midlands and South Eastern rail franchises and has embarked on a n ew joint venture with Virgin and SNCF, which is shortlisted to bid for the West Coast Partnership rail franchise.
Stagecoach shares were derailed in morning trading, with the firm the biggest faller on the FTSE 250.
The stock was down more than 7% to 188.6p as investors digested the news.
Julie Palmer, partner at Begbies Traynor, said: "Despite cheaper fuel prices reducing the group's cost base, Stagecoach's profit margins continue to shrink as the transport giant struggles to maintain dwindling passenger numbers in the face of growing economic headwinds and rising inflation.
"All hopes now rest with the rail division's high-profile tenders for the new East Midlands, South Eastern and West Coast rail franchises, including the first few years of operation of HS2 services.
"Securing these significant opportunities would provide a much-needed boost to shareholder morale following recent disappointments."
Mick Cash, general secretary of the Rail, Maritime and Transport (RMT) union, said the announcement gives further weight to the idea that the franchise should be re-nationalised.
"RMT warned that re-privatising East Coast, after it had been successfully run in the public sector following the last private failure, was a gamble doomed to failure. We have been proved right.
"This is the third private operator to run the vital East Coast inter-city routes into the ground and rather than waiting for the inevitable financial collapse it should be brought back into public ownership immediately," he said.