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CEO 'disappointed' by loss

Stagecoach takes £84m hit on ‘onerous’ east coast

Martin GriffithsStagecoach has taken an £84 million hit because of what it terms “onerous” conditions in the contract to run its east coast rail service.

The company’s chief executive Martin Griffiths (pictured) said he was “disappointed” to report losses on the Edinburgh-London operation but believes it will be profitable within two years.

The company booked an exceptional pre-tax charge of £84.1m.

In its annual figures the company says: “The calculation of that onerous contract provision takes account of the Stagecoach parent company’s £165m loan commitment to Virgin Trains East Coast, from which £57.5m was already loaned at 29 April 2017.

“We have also recorded a £44.8m impairment of intangible assets associated with the right to operate the franchise.  The impairment charge is essentially an acceleration of amortisation and is a non-cash charge.”

The company is also in talks with the Department for Transport over the west coast franchise. It expects to finalise new commercial terms during the next year.

“These will provide clarity for customers, staff, investors and other stakeholders on the future operation of the franchise, and offer value for money for taxpayers.  We look forward to continuing to deliver our vision and plans for the franchise through to at least 2023.”

The company has been shortlisted for the new East Midlands and South Eastern franchises and has formed a new joint venture with Virgin and SNCF to bid for the West Coast Partnership franchise

It says: “Across the UK, revenue growth in the franchised rail market remains low by historical standards. Growth rates in 2016/17 at our inter-city businesses out-performed those at our London commuter business.”

In UK bus operations, it says regional growth trends are mixed, reflecting the variable economic picture and retail environment in town and cities in different parts of the country.

“We have taken actions in response to the period of subdued revenue trends.  As well as strengthening our UK Bus management team, our low fares strategy has given us scope to have a targeted approach to pricing and network changes. We are pleased at the increasing take up of our digital offerings, which benefit our customers and allow us better insight into their needs.”

Reporting a sharp fall in statutory pre-tax profits from £104.4m to £17.9m, Mr Griffiths said: “I am pleased to report adjusted earnings per share for the year in line with our expectations and a further increase in our dividend per share.  We continue to manage the business with a focus on sustainable growth over the long-term.

“Our multi-million pound investment in greener vehicles, smart technology and skilled employees is delivering a better and easier travel experience for our customers.  Bus and rail services are an important part of achieving long-term growth for our communities and regional economies. We are working closely with public sector partners to deliver the full benefits of high quality public transport for customers and our business.

“We are delivering on our promised improvement programmes for customers and our significant financial commitments to the taxpayer across our existing rail portfolio.  There are a number of forthcoming rail opportunities.

“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.  

“Overall, we believe in the long-term prospects for the business and public transport remain positive.”

Highlights

·      Adjusted earnings per share of 24.4 pence (2016: 27.7 pence) in line with our expectations

·      Basic earnings per share of 5.5 pence (2016: 17.1 pence) reflect exceptional charges

·      Dividend per share for the year up 4.4% to 11.9 pence (2016: 11.4 pence)

·      Substantial further investment – net capital expenditure of £157.3m (2016: £187.0m)

·      Our expectation of 2017/18 earnings per share is broadly unchanged

Operational developments

·      Engaged in discussions with Department for Transport on contractual matters at Virgin Trains East Coast, including implications of Network Rail’s reprioritised infrastructure programme

£84.1m exceptional charge to provide for anticipated losses under current contract, over the next two years

Business expected to be profitable from 2019

£44.8m non-cash exceptional impairment of franchise intangible asset

High customer satisfaction and around £525m to date in premium payments to taxpayer – average monthly payments around 30% more than made by Directly Operated Railways

·      Shortlisted for new East Midlands and South Eastern rail franchises

·      New joint venture with Virgin and SNCF shortlisted to bid for West Coast Partnership rail franchise

·      Management action taken across our bus operations in response to period of subdued revenue trends – targeted network, pricing and management changes

·      Improving revenue trends and contract opportunities in North America

·      Progress with digital and technology programme, including new initiatives outside of our core operating divisions

 

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