Stagecoach earnings fall despite rise in revenue

Passenger transport operator Stagecoach released its preliminary results for the year to 29 April on Wednesday, claiming adjusted earnings per share of 24.4p - down from 27.7p year-on-year, but in line with the board’s expectations.

The FTSE 250 company’s revenue was higher than the previous year, at £3.94bn compared to £3.87bn, while its total operating profit fell to £192.8m from £228.8m.

Profit before tax was also down significantly, at £158.7m compared to £187.4m.

Basic earnings per share were 5.5p, a significant drop from 17.1p a year earlier, which the board said reflected exceptional charges.

It wasn’t all downbeat for shareholders, however, with the board confirming the dividend per share for the year was up 4.4% to 11.9p.

The board claimed “substantial” further investment, with a net capital expenditure of £157.3m, although that was down from £187.0m in the prior year.

It confirmed its expectations for 2017/18 earnings per share were “broadly unchanged”.

"I am pleased to report adjusted earnings per share for the year in line with our expectations and a further increase in our dividend per share,” said chief executive Martin Griffiths.

“We continue to manage the business with a focus on sustainable growth over the long-term.”

Griffiths said the company’s “multi-million pound investment” in greener vehicles, smart technology and skilled employees was delivering a “better and easier” travel experience for customers.

“Bus and rail services are an important part of achieving long-term growth for our communities and regional economies.

“We are working closely with public sector partners to deliver the full benefits of high quality public transport for customers and our business.”

The company was also delivering on its promised improvement programmes for customers, Griffiths explained, as well as its “significant” financial commitments to the taxpayer across its existing rail portfolio.

“There are a number of forthcoming rail opportunities.”

On the operational front, Stagecoach said it was primarily engaged in discussions with the Department for Transport on contractual matters at its majority-owned Virgin Trains East Coast franchise, including the implications of Network Rail's “reprioritised infrastructure programme”.

It said an £84.1m exceptional charge was accounted for, to provide for anticipated losses under the current InterCity East Coast contract, over the next two years.

The business was expected to be profitable from 2019, the board added.

It also accounted for a £44.8m non-cash exceptional impairment of the franchise’s intangible assets.

The board did point to “high customer satisfaction”, and around £525m to date in premium payments to the taxpayer since the franchise began.

Stagecoach claimed its average monthly payments back to the government were around 30% more than those made by its predecessor on the East Coast - the state-owned Directly Operated Railways.

The company had been shortlisted for new East Midlands and South Eastern rail franchises, though it also lost its long-running South Western franchise to a consortium headed by competitor FirstGroup earlier in the year.

Stagecoach had also formed a new joint venture with Virgin Group and French state railway SNCF, which this month had been shortlisted to bid for the West Coast Partnership high speed rail franchise.

Management action had been taken across the company’s bus operations, the board said, in response to a period of “subdued revenue trends”, with targeted network, pricing and management changes.

It did see improving revenue trends and contract opportunities in North America, and reported progress with its digital and technology programme, including new initiatives outside of Stagecoach’s core operating divisions.

“We are engaged in discussions with the Department for Transport regarding our respective contractual rights and obligations under the current Virgin Trains East Coast franchise and reflecting the reprioritisation of Network Rail's infrastructure programme,” Martin Griffiths explained.

“However, separately 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.”

Griffiths said the board and management team was “disappointed” to report losses at Virgin Trains East Coast.

“However, I am confident that we can return the business to profitability and build on the significant benefits we have delivered to date for customers and taxpayers.

"”Overall, we believe in the long-term prospects for the business and public transport remain positive.”