East Coast franchise boosts Stagecoach profits
Stagecoach’s UK rail division performed well during the financial year ended 30 April 2016 but revenue growth slowed in the second half and the group is cautious about the future.
Group revenue increased 20.8% to £3.871bn (2015/16: £3.204bn), but group operating profit rose only 1.1% to £204.0m (2014/15: £201.7m). Total group operating profit (including profits from joint ventures) was £228.8m (2014/15: £227.1m). This total includes exceptional items, intangible asset expenses and taxation. Removal of these factors reduced total operating profit to £171.1m (2014/15: £217.9m).
Net debt fell to £381.3m (2014/15: £399.3m).
Although Stagecoach now has interests in Europe and North America, its activities are still mainly UK-focused. The UK rail division accounted for just over half group revenue and around one third of group profits, whereas its UK regional bus division (excluding London) made up one quarter of group revenue but contributed about two-thirds of group profits.
Stagecoach operates the South West Trains (SWT) and East Midlands Trains (EMT) rail franchises, and has a 90% shareholding in Virgin Trains East Coast (VTEC). It also owns 49% of the joint venture Virgin Rail Group (VRG) that runs the Virgin Trains West Coast (VTWC) franchise (and is shown separately in the accounts).
The UK rail division revenue (the three main franchises) increased 44.0% to £2.129bn (2014/15: £1.478bn), and recorded a 148.0% rise in operating profit to £66.7m (2014/15: £26.9m). The sharp increase in both is due to the inclusion of the East Coast franchise since March 2015.
Stagecoach’s portion of VRG’s revenue was £525.3m (2014/15: £510.3m), up 2.9%; and its profit after tax increased 8.5% to £24.2m (2014/15: £22.3m).
VRG’s operating margin was 6.2% (2014/15: 5.5%), as against a collective 3.1% for the other three rail franchises (2014/15: 1.8%). Both rail results compared unfavourably against Stagecoach’s bus operating margins, namely: UK regional bus with 13.3% (2014/15: 14.0%); and London bus with 7.6% (2014/15: 10.1%).
Stagecoach paid out £935.7m in premia to the DfT and received back £274m in revenue support for the year ended 30 April 2016.
The individual premium payments by franchise for the year ended 31 March 2016 (note different accounting period) were as follows: South West Trains £582.1m; East Midlands Trains £158.1m; Virgin Trains East Coast £206.3m; and Virgin Trains West Coast £142.5m. Not all premiums were paid in full by Stagecoach due to the minority interests mentioned above.
Revenue grew by the following rates: VTEC 5.2%; VTWC 5.2%; EMT 4.1%; and SWT 2.4%.
Commenting on the results, chief executive Martin Griffiths said:
“The UK Rail Division has performed well during the year, which includes the first full year of operating the Virgin Trains East Coast franchise. However, the outlook for the UK rail industry has become more challenging in recent months. Revenue growth in our UK Rail Division slowed significantly in the second half of the year ended 30 April 2016. We believe the reduced rate of growth reflects the effects of weakening consumer confidence, increased terrorism concerns, sustained lower fuel prices, the related effects of car and air competition, slower UK GDP growth and slowing growth in real earnings.”
Griffiths also expressed concern about the threat posed to the group from future open access (non franchised) passenger operators on the ECML:
“We do not believe the granting of open access services within a franchised system and without a level playing field is in the best interests of passengers, taxpayers or communities . . .
“We do not believe a hybrid model of franchised and open access operators on the same network offers either a level playing field or the best use of limited network capacity. For inter-city networks, however, we believe a licensing system could boost competition and bring benefits to both passengers and government.”