Stagecoach takes £85.6m hit from East Coast franchise

Transport operator Stagecoach posted a drop in full-year profit on Thursday as it took a hit from the loss of the East Coast rail contract.

In the year to 28 April, adjusted pre-tax profit dropped to £144.8m from £151m the year before as it took a £85.6m hit in respect of Virgin Trains East Coast after the government stripped it of the franchise in May.

Revenue for the year fell to £3.2bn from £3.9bn, reflecting the end of the South West Trains franchise in August last year. Meanwhile, adjusted earnings per share fell to 22.3p from 23.3p a year earlier, mostly due to lower operating profit from the bus divisions. Still, it was above the company's recent expectations, principally because of a lower-than-expected tax charge.

In addition, the company rebased its full-year dividend to 7.7p per share, down from 11.9p in 2017, saying it needs to be set at a level from which it can grow over time and be covered by normalised non-rail cash flow.

During the year, the UK bus regional operations division saw operating profit drop 3.5% to £112.9m, while revenue edged down 0.3% to £1.01bn. The London bus operations saw operating profit drop 27.7% to £13.3m and revenue decline 4.4% to £251.8m.

In UK rail, operating profit fell 12.6% to £24.9m and revenue slid 30.8% to £1.5bn.

It was a brighter picture in North America, however, with operating profit there up 19.6% to $28.1m, although revenue slipped 0.4% to $630m.

Chief executive Marin Griffiths said: "I am pleased to be reporting adjusted earnings per share that are ahead of our expectation. 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."