STAGECOACH has seen profits tumble as the Perth-based transport giant booked a hefty charge linked to its problems on the East Coast rail franchise, and slashed its total dividend for the year.
And it warned operating profits from its UK rail operations will fall in the current year, with the cost of bidding for new franchises expected to offset profits from its East Midlands Trains contract.
The Edinburgh to London line was renationalised this month after the UK Government stripped Stagecoach and partner Virgin Trains East of the franchise in May. The partners had won the contract in 2014 with a deal to run the franchise until 2023.
The renationalisation came after Stagecoach reported mounting losses on the £3.3 billion franchise last year, with the company admitting its operation of the line had not led to the revenue and profits it anticipated when it won the contract.
Boss Martin Griffiths repeated that he was “surprised and disappointed” at Transport Secretary Chris Grayling’s move to renationalise the line as the company reported “significant exceptional costs” of £85.6 million relating to the franchise. Underlying profits at the group, founded by Sir Brian Souter and sister Ann Gloag in 1980, fell to £144.8m from £151m.
Group revenue was also down at the bus and rail giant, falling to £3.2 billion from £3.9bn as a result its South West Trains franchise ending in August. Revenue from UK rail dipped to £1.5bn from £2.1bn, with operating profit down 12.6% to £24.9 million.
However, Mr Griffiths highlighted “positive changes” to the franchise model, which he said will lead to the revenue risk being more evenly shared between operators and the Government.
He said: “We are pleased with the group’s underlying financial performance for the year ended 28 April 2018, when compared to our start of the year expectations.
“We were, however, surprised and disappointed by the Secretary of State for Transport’s decision to appoint an operator of last resort to take over the operation of InterCity East Coast train services from our Virgin Trains East Coast business. We are also disappointed to report significant exceptional costs in relation to that business.”
The company slashed the full-year dividend to 7.7p from 11.9p on its reduced exposure to rail. “Whilst the board understands the importance of dividends to its shareholders, the board also feels the dividend needs to be set at a level from which it can grow over time as well as being covered by normalised non-rail cash flows,” Mr Griffiths added.
Helal Miah, analyst at The Share Centre, said: “This slashing of the dividend may have been more drastic than expected but there was additional disappointment from management’s view that the rail business would continue to face declining profits while being exacerbated by new franchise bidding activity. Its bus operations however are doing well both in the UK and North America.”
The group said regional UK bus revenue was down 0.3% at just over £1bn. Its bus operation in North America saw revenue fall by 0.4% to $630m. Shares rose 4.3% or 5.8p, closing at 139.9p.
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