Stagecoach profits plummet – but West Coast performs well
Virgin trains operator Stagecoach saw its profits plummet in the face of exceptional charges relating to the East Coast Main Line franchise – but saw its share of profit on the West Coast rise.
Stagecoach's profits from its role in Virgin Rail Group, the West Coast Main Line operator which includes Virgin's trains between Shrewsbury and Telford and London, rose from £24.2 million in 2015-2016 to £24.8m in 2016-2017.
It said that the business continues to deliver strong profit margins for a franchised UK rail operator, despite the slowing of revenue growth in the UK rail sector.
Revenue growth from the franchise clocked in higher than the industry average, growing from £525.3m to £556.8m for the year to April 29.
But the group as a whole saw pre-tax profit plunge from £104.4 million to £17.9 million in the year to April 29 after booking an £84.1 million exceptional charge to "provide for anticipated losses" under the East Coast contract, which it jointly runs with Virgin.
To compound matters, Stagecoach also said that slowing economic growth, the Brexit vote and terrorism have taken their toll on the company, leading to revenue growth slowing down.
Revenue came in at £3.9 billion last year compared with £3.8 billion the year before.
Chief executive Martin Griffiths said: "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."
Meanwhile, Virgin Rail Group is in talks with the Government about a year-long franchise to cover the period between the end of the current West Coast franchise next March and the planned start of the West Coast Partnership franchise in April 2019.
Stagecoach and Virgin have also joined forces with French high speed operator SNCF to bid for the renewed West Coast Partnership franchise, which it would probably run under the Virgin brand. Stagecoach holds a 50 per cent stake in that vehicle.
The franchise will include current West Coast services and the first three to five years of operation of HS2 services.
Despite the positives, shares were down more than seven per cent to 188.6p as investors digested the news of the issues on the East Coast line.
