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Disappointment at costs

Stagecoach ‘surprised’ at losing East Coast franchise

Virgin Trains

Stagecoach and Virgin lost the ECML franchise


 

Stagecoach chief executive, Martin Griffiths, expressed disappointment over the cost over-run at Virgin Trains but welcomed new revenue risk arrangements with the government on rail franchising.

The company and Virgin handed in the franchise on the East Coast Main Line at the weekend ahead of the contract expiry date and the service is now operating as publicly-owned LNER.

Stagecoach has taken an £85.6m charge to cover the cost of the failure of the franchise.

In a statement with its annual results the company said: “We regret the losses the group has experienced on the East Coast franchise, notwithstanding that these were significantly influenced by factors outside of our control.

“We nevertheless continue to see good opportunities in UK rail.  The introduction by the Department for Transport of a new Forecast Revenue Mechanism will result in the Department taking a greater share in revenue risk on new franchises and this reduction in revenue risk for train operators has been important in our decision to continue bidding for new UK rail franchises.

“While we were surprised and disappointed by the decision of the Secretary of State for Transport to transfer responsibility for operating the East Coast train services from Virgin Trains East Coast to a publicly owned company, we welcome the clarity that decision brings.”

Mr Griffiths added: “I am disappointed to be reporting significant exceptional costs in respect of Virgin Trains East Coast but I am pleased that there is now clarity for both customers and shareholders. 

“We have made significant progress elsewhere in our rail portfolio and continue to see value and opportunities.

“We welcome the positive changes by the Department for Transport to ensure a more balanced share of revenue risk between the Department and UK train operators.  We are continuing work on bids for new South Eastern, West Coast Partnership and East Midlands rail franchises and we will maintain a disciplined approach to all rail bids.”

The board is proposing a final dividend of 3.9p (2017: 8.1p), which will result in a full year dividend of 7.7p (2017: 11.9p) per share for the year ended 28 April 2018. 

Key financials

·      Earnings per share 12.3 pence (2017: 5.5 pence)

·      Adjusted earnings per share+ 22.3 pence (2017 restated++: 23.3 pence)

·      £85.6m* net exceptional expenses in respect of Virgin Trains East Coast

·      Profit before tax £95.3m (2017: £17.9m)

·      Full year dividend rebased to 7.7 pence per share (2017: 11.9 pence per share)



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