STAGECOACH GROUP says it retains a ‘positive outlook’ towards rail as it released its preliminary results for the year ending 28 April 2018.
The group as a whole saw a decline in revenue, which it attributes to the end of the South West Trains franchise in August 2017. It has also been affected by exceptional charges related to Virgin Trains East Coast, in which it held a 90% stake, with an £85.6 million exceptional expense attributed as a result of the issues with this franchise. The franchise came to an end on 23 June, after which the Department for Transport’s Operator of Last Resort took over (see story opposite); Stagecoach has again highlighted its surprise and disappointment at this decision, while welcoming the clarity it provides.
Stagecoach’s UK Rail businesses saw a 30.8% decline in operating revenue over the year, reflecting the end of the SWT operation. While operating profit also fell in absolute terms, margins were up from 1.3% to 1.7%. The company highlights positive revenue growth trends on the remaining businesses in the rail portfolio, with like-for-like revenue up 3.6% across the year. In the second half of 2017-18 Stagecoach reports like-for-like growth of 4.3%, while for the first 12 weeks of 2018-19 it says growth is stronger still at 5.6%. However, the company notes revenue growth remains ‘below levels typically seen since privatisation’.
With regards to VTEC, Stagecoach says it regrets the losses the Group has experienced and says it has ‘examined [its] bid for and operation of the franchise closely’. This has led it to make ‘changes to [its] processes to strengthen [its] approach to bidding and contract management in UK rail’, with the lessons learned reflected in subsequent bids.
The company reports like-for-like revenue growth of 3.5% at East Midlands Trains, with strong performance in the second half of the year. The direct award on EMT is expected to continue until August 2019, after which a competed franchise is set to begin, for which Stagecoach is shortlisted to bid.
Other franchising opportunities highlighted by Stagecoach include the South Eastern franchise, for which it has already submitted a bid. Stagecoach confirms its intention to form a relationship with Alstom for that franchise, with Alstom holding a 20% share of the company if the bid is successful.
Stagecoach is also bidding for the West Coast Partnership franchise in a joint venture with Virgin and SNCF, in which it holds a 50% stake. The current West Coast operation is run by Virgin Rail Group, a joint venture in which Stagecoach holds a minority 49% stake, and the company reports this operation delivered like-for-like revenue growth of 3.1% for the reporting year.
Stagecoach says it is ‘positive on new franchise opportunities’ and has welcomed the introduction by DfT of a new ‘forecast revenue mechanism’, which will result in the Department taking a greater share in revenue risk on new franchises and reducing risk for operators. It says this reduction in revenue risk ‘has been important in our decision to continue bidding for new UK rail franchises’. Taking account of this, alongside its expertise in rail bidding and operations and the relatively few bidders for each franchise, Stagecoach believes it ‘can earn good financial returns from UK rail in the coming years’.