Stagecoach slashes divi after £85.6m hit over East Coast

● CEO says lessons learned over failure ● Payout to shareholders cut by a third

Stagecoach’s chief executive said lessons had been learned for future rail franchise bids after the company confirmed it suffered an £85.6 million hit after the UK government took the East Coast Main Line back into public hands at the weekend.

Martin Griffiths said he was disappointed by the costs of the failed Scotland-to-london franchise which it ran as a joint venture with Virgin but said there was now “clarity for both customers and shareholders”.

“We have examined our bid for and operation of the franchise closely and have also looked more broadly at our rail bid governance,” said Griffiths as the firm revealed it was slashing its full-year dividend by a third to 7.7p a share.

Griffiths said changes had now been made to “strengthen our approach to bidding and contract management in UK rail”.

“The lessons learnt have been reflected in our subsequent bids,” he added.

Details of the financial impact of losing the franchise after the joint venture failed to hit revenue targets came as Perth-headquartered Stagecoach reported a 4.1 per cent fall in underlying pre-tax profits to £144.8m for the year to 28 April.

It saw annual operating profits slump 12.6 per cent to £24.9m at its rail division, while revenues tumbled 30.8 per cent to £1.5 billion. But likefor-like rail revenues lifted 3.6 per cent over the year.

It warned that earnings for the rail arm are set to fall again over the new financial year as profits from its East Midlands franchise are offset by costs of bidding for new business.

Elsewhere in the business, its UK bus earnings fell to £112.9m from £117m the previous year, while the London bus business saw operating profits drop, to £13.3m from £18.4m.

Its north American arm, where it runs services including Megabus coach travel, delivered a rise in earnings to £21m from £18.2m. Helal Miah, investment research analyst at The Share Centre, said: “Investors in Stagecoach have been stung by management’s ambitions, over promising and under delivering. But Stagecoach would correctly argue that it has been a victim of the lack of infrastructure investment from Network Rail which led to the subsequent difficulties faced with the East Coast franchise.

“This will be a lesson for both private companies and public bodies to ‘get the maths right’ at the time of bidding for franchise.”

Emma-lou Montgomery, associate director at Fidelity Personal Investing, said there were signs of optimism for shareholders.

“The East Coast franchise may have come off the rails, but with its low-cost Megabus concept seeing a pick-up in business over the second half and a real focus on valuefor-money travel, Stagecoach appears well placed,” she said.

The East Coast Main Line is now being run by the Department for Transport and branded as London North Eastern Railway (LNER).