Stagecoach in talks over rail contract

● Perth transport group forced to take £84.1m charge for future losses on rail franchise run jointly with Virgin

Stagecoach is in talks with the UK government over amending its contract to operate the East Coast Main Line after exceptional charges linked to the franchise saw profits at the company sink last year.

The Perth-based operator said profits plummeted more than 80 per cent in the year to 29 April after booking an £84.1 million charge to “provide for anticipated losses” under the contract, which it jointly runs with Virgin.

Profits at Stagecoach plummeted by more than 80 per cent after being hit by exceptional charges over the lossmaking East Coast main line franchise.

The Perth-based transport giant is now in talks with the UK government over possible amendments to the contract to operate the franchise.

Pre-tax profit plunged from £104.4 million to £17.9 min the year to 29 April after booking an £84.1m exceptional charge to “provide for anticipated losses” under the East Coast contract, which it jointly runs with Virgin.

Chief executive Martin Griffiths said it was disappointing to report the losses but said he was “confident that we can return the business to profitability” although that is not expected until 2019.

“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,” he said.

“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.”

Stagecoach also said that slowing economic growth, the Brexit vote and terrorism have begun to take their toll on the company.

Revenue came in at £3.9 billion last year compared with £3.8bn. The firm said it is taking action across its bus network, including targeted network, pricing and management changes.

Liberum analyst Gerald Khoo said he thought any changes to the East Coast franchise agreement are unlikely to be imminent.

“Although the Department for Transport appears supportive, an agreement does not seem likely to be finalised in the short term and is not certain at all,” he said.

Julie Palmer at Begbies Traynor said hopes for the firm now rest with tenders for the new East Midlands, South Eastern and West Coast rail franchises.

Mick Cash, general secretaryof the rmt union, said the announcement added weight to the idea that the franchise should be re-nationalised.

“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.”