Contractual dispute settlement saves Stagecoach £100 million

Published on Thursday 17 June 2010 20:00

STAGECOACH dodged a potential £100 million dent in its revenues after a contractual dispute with the UK Department for Transport (DFT) was settled in the group's favour.

Shares in the Perth-based group closed up 2.5 per cent after the company said that the decision would allow its UK rail division to "remain profitable" during its current financial year.

An arbitrator ruled that the DFT should pay revenue shortfall support to the South Western Trains franchise from April 2010 and not February 2011 as the department had claimed.

If the outcome had gone against Stagecoach then analysts said it could have cost the group up to 100m in lost turnover.

But, on a second issue, the arbitrator came down in favour of the UK government by deciding that revenue from car parks should be included when calculating franchise agreements.

The blow will knock about 8m off the group's pre-tax profit for the current financial year, Stagecoach said.

"We are pleased at the outcome of the arbitration process, which has ruled in our favour on the central issue of revenue support. We believed this was a matter of integrity over a contract signed in good faith and we had strong legal advice in support of our position," said a spokesman.

But Bob Crow, general secretary of the RMT transport union, said the cash was "another 100m of taxpayers' money paid out in corporate welfare to a highly profitable private train operator to pump up their dividends to shareholders".

Many City analysts had already factored a Stagecoach victory into their forecasts.

After lowering his profit forecast for the group, Paul Hickman, an analyst at KBC Peel Hunt, said: "The relatively minor issue of car-park revenues drives a 5 per cent downgrade. But our fundamental confidence in the company continues, based on its strong presence in UK bus and balance-sheet potential."

Stagecoach's South West Trains franchise is centred around London's Waterloo station, carrying 162 million passengers each year and employing about 5,100 staff.

Other franchises within the group's UK rail division include East Midland Trains and the Isle of Wight's Island Line. Stagecoach also owns 49 per cent of Virgin Trains.

News of the arbitrator's decision came as UK transport minister Theresa Villiers unveils plans to consult the industry on the UK government's rail franchising policy.

Villiers said the current re-letting of the Greater Anglia and Essex Thameside franchises, which had begun in January, would be cancelled to allow them to be included in the new policy. There will also be a knock-on effect on the timetable for returning the East Coast franchise to the private sector.