Stagecoach boosted by improved Virgin Rail performance
TRANSPORT group Stagecoach has been boosted by an improved performance from Virgin Rail Group.
Stagecoach is a minority shareholder (49%) in the rail company, which operates services on the West Coast Mainline under an agreement with the Department for Transport.
Latest interims from Stagecoach show that in the six months to October 31, 2014, Virgin grew like-for-like revenue to £247.4m (2013: £233.6m), with operating profit up to £11.2m (2013: £1.4m). Operating margin grew from 0.6% in the first half of last year to 4.5%.
The rail group’s position has also been made more secure by an extension to its agreement to continue operating the WCML service until at least March 31, 2017. The DfT has the discretion to extend the contract, on pre-agreed terms, by an additional year.
Under the terms of the franchise, Virgin takes the majority of revenue and cost risk. As a result of the significant transfer of risk to the rail group, the business has the opportunity to earn a commercial return. The franchise has benefited from lower than expected fuel and electric traction (EC4T) costs as well as good passenger revenue. Under the terms of the contract, the DfT benefits from this good performance as part of a profit share agreement.
In 2012, the DfT cancelled the competition for a new long-term West Coast Trains franchise. As a temporary measure, Virgin Rail Group operated the WCML franchise under a management contract from December 2012 to June 2014.
Stagecoach said that under this temporary arrangement, Virgin contractually earned a management fee equivalent to 1% of revenue from the rail franchise. As a result, prior year profitability was unusually low. Profit in the current year is more consistent with other commercial rail franchises, taking account of the transfer of risk to Virgin as a result of the new franchise that began in June 2014.
The group has also been boosted by a decision from the DfT to award it the new InterCity East Coast rail franchise, which it will operate in partnership with Virgin.
Martin Griffiths, chief executive, Stagecoach, said: “We are delighted to have been selected to operate the new InterCity East Coast rail franchise along with our partner, Virgin. Our plans will deliver a transformation in travel for passengers, as well as value for money for the taxpayer. We are shortlisted for the TransPennine Express franchise and look forward to agreeing new franchises with the Department for Transport to extend our time at East Midlands Trains and South West Trains.”
For its wider group, Stagecoach said the businesses across the UK, mainland Europe and North America had all performed well.
The group achieved further revenue and profit growth in the six months to October 31, 2014. Revenue for the period was up 4.8% at £1,545.0m (2013: £1,473.9m). Total operating profit (before intangible asset expenses and exceptional items) was up 2.6% at £129.8m (2013: £126.5m). Earnings per share before intangible asset expenses and exceptional items were 3.4% higher at 15.1p (2013: 14.6p).
The interim dividend is up 10.3% to 3.2p per share (2013: 2.9 pence). The dividend is payable to shareholders on the register at February 6, 2015 and will be paid on March 4, 2015.
“Overall the group is in excellent financial shape and we are well placed to drive value through new opportunities in our core bus and rail markets. While we have changed our view of the likely divisional mix of profit for the year ending April 30, 2015, with lower expected operating profit from our regional UK Bus and North America businesses broadly offset by other areas, we remain on course to achieve our expected adjusted earnings per share for the year,” added Griffiths.
