Talks continue to see Virgin take greater stake in West Coast Mainline
TALKS between the Department for Transport and Virgin Rail Group which could potentially see the rail operator take a greater financial stake in the West Coast Mainline franchise are continuing, VRG’s minority shareholder has said.
Stagecoach, which owns a 49% stake in VRG, said the group continued to earn a fee equivalent to 1% of revenue from the WCML franchise with the DfT taking the risk that revenue and/or costs differ from those expected.
“VRG and the DfT are discussing revised commercial terms that could see VRG take greater revenue and cost risk for the period from a date to be agreed through to April 2017 for a commensurate financial return,” said Stagecoach in a trading update.
It is now almost 18 months since VRG should have handed over operation of the route to another franchisee. However, the tender process used to award the contract for the service was found to be flawed and in an embarrassing move, the DfT was forced to ask VRG to continue operating the service until new arrangements could be introduced.
In a pre-close update, Stagecoach said the overall profitability of the group remained satisfactory, and there had been no significant change to its expected adjusted earnings per share for the year ending April 30, 2014.
It also said that in term of like-for-like revenue growth for the financial year to date, VRG was up 5.9% for the 48 weeks to March 30, 2014.
The performance made it the best operation within the group, as over the same period, its UK Bus operation was up 4.8%; UK Bus (London) 4.6%; UK Rail 4.5% and it North American bus arm, 4.1%.
Stagecoach said it was also continuing to work on its bid with Virgin for the InterCity East Coast rail franchise and it now anticipated around £2m of the bid costs that had previously been expected to be incurred in the year ending April 30, 2014 would now be deferred until next year.
In outlook, the group said that although it faced a number of challenges to growing profit in the year ending April 30, 2015, overall current trading was satisfactory and the prospects for the group remained positive.
It will announce its preliminary results for the year to April 30, 2014 on Wednesday June 25.
