Stagecoach warns trading 'tough'

Published on Tuesday 3 November 2009 20:00

STAGECOACH, the train and bus operator pursuing troubled rival National Express, has warned that trading remains tough, particularly in its rail business.

The group, whose efforts to merge with National Express were last week rebuffed, said in a trading update that revenue growth "remains below the rates observed in recent years".

The downbeat news came as it emerged that the Department of Transport (DoT) is to take control of National Express' East Coast mainline franchise on 12 December. The move means that the franchise is unlikely to gain a new commercial owner before mid-2011, analysts said.

An internal briefing from the DoT reveals that a new logo has been designed, but the name East Coast will continue to be used, although National Express branding will be removed "as cost effectively and as soon as is practicable".

Profit made by the franchise while it is in state hands will be returned to the public purse.

Meanwhile, Stagecoach said that in the 24 weeks to 18 October, like-for-like revenue in its UK bus operations rose 4.3 per cent, while its rail division had growth of 1.7 per cent. Revenue at Virgin Rail, in which Stagecoach holds a 49 per cent stake, jumped 6.9 per cent.

In its North American division, which includes megabus.com, revenue fell 6.8 per cent in the five months to 30 September.

Despite the warning, Stagecoach insisted the overall profitability of the group since 30 April had remained in line with management expectations.

It reiterated that its businesses were not immune to changes in economic conditions but that it was well positioned to trade through the economic cycle.

Last week, National Express walked away from a merger with Stagecoach after lawyers warned the board that there was a risk regulators would delay or block a deal on competition grounds unless the companies agreed to disposals.

Members of National Express' board were also concerned that a deal might not be completed by Christmas, when the group faces a further 5 million in penalty interest payments on its 1.2 billion debt mountain.

National is now pursuing a rights issue through which it could raise up to 400m.

Key shareholders in National Express are now calling for Jorge Cosmen, the company's deputy chairman, to resign after he contacted a number of investors urging them to reconsider Stagecoach's takeover offer.

And there was further turmoil in connection with the deal when it emerged that Aegon, one of National Express' institutional investors and its fourth-biggest shareholder, sold its 3.5 per cent stake last week after the company walked away from the Stagecoach merger talks.