Stagecoach gives red light to rail bidding as profits motor ahead

Stagecoach, the Perth-based transport giant, has reported higher annual profits but given a red light to rail franchise bidding as it remains embroiled in a legal spat with the UK government.

Stagecoach is led by its chief executive Martin Griffiths. Picture: Fraser Band
Stagecoach is led by its chief executive Martin Griffiths. Picture: Fraser Band

The group is losing three rail franchises, including East Midlands and the West Coast Main Line, which it operates with Virgin, after the Department for Transport (DfT) barred it from bidding unless it took on hefty pensions liabilities. It has launched legal action against the government over the decision.

Stagecoach's rail operations are set to end in November, bringing to a close more than two decades in the sector.

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Without the three franchises, the firm could lose its UK rail business, which generates a large slice of group revenues. Operating profit for 2019-2020 from the business is expected to be minimal.

Announcing its full-year results, the company said it would instead focus on its core bus and coach operations in the UK.

Chief executive Martin Griffiths told investors: "We continue to focus on driving growth at our core high-quality bus and coach operations in the UK, but we have no intention to bid for new UK rail franchises on the current risk profile offered by the Department for Transport."

The group posted a 3.6 per cent rise in full-year underlying profit to £132.9 million for the year to 27 April. On a statutory basis, profits jumped 30 per cent to £101.2m. The full-year dividend is maintained at 7.7p per share.

The firm's bids to renew existing rail franchises with partners were disqualified over pension responsibility concerns.

Bosses were told by officials that they could not submit a bid unless they were willing to take on potentially huge pensions liabilities, which is unviable, the company claims. Stagecoach said in May the DfT was forcing bidders to take on pension liabilities that could be more than £1 billion. The firm said it refuses to accept the potential pension risks.

Its full-year figures showed UK rail revenues made up nearly a third of group revenues, but slumped 62 per cent to £589.5m. Regional bus revenues lifted 2.9 per cent to £1bn, while London bus revenues edged ahead 0.4 per cent to £252.8m.

Stephen Martin, senior investment manager at Brewin Dolphin, said: "It’s a period of significant transition for Stagecoach following the sale of its North American division and its withdrawal from UK rail franchises.

"While these decisions have hit revenues, profits are up as the company focuses on its core coach and bus businesses.

"Stagecoach has a strong balance sheet, with net debt reducing by more than £100m and its expectations for the year remain in place. The business appears to be heading in the right direction."