Virgin Rail Group boosts Stagecoach results

A 700% increase in profits by the joint venture company, Virgin Rail Group, has boosted Stagecoach Group results for the six months to 31 October 2014.

Group revenue increased 4.8% to £1.545bn (H1 2013: £1.474bn), and group operating profit (before intangible asset expenses and exceptional items) increased 2.6% to £129.8m (H1 2013: £126.5m). However, EDIBTA (earnings before interest, tax, depreciation and amortisation) before exceptional items dropped slightly to £173.8m (H1 2013: £174.8m).

Net debt fell to £430.7m (H2 2013: £461.6m) & (H1 2013: £494.6m), but this is largely due to the high cash balances enjoyed by the rail train operating companies. This is unlikely to be sustainable, and debt levels are expected to rise by the financial year end due to the investment programme.

The Stagecoach Group has four main divisions: UK Rail; UK Bus (Regional); UK Bus (London); and North America. They account for 43%, 34%, 8.5% and 14.5% of the group turnover respectively.

Only the North American division reported an increase in operating margins (from 8.25% to 9.7%).

UK Rail: Stagecoach operates two rail franchises – South West Trains (SWT) and East Midlands Trains (EMT). The results apply to both companies (they are not disaggregated).

Revenue was 7.2% up to £664.3m (H1 2013: £619.5m), though operating profit slumped 20.0% to £14.4m (H1 2013: £18.0m), and the operating margin fell to 2.2% (H1 2013: 2.9%).

Stagecoach spent £2.3m in the bidding process for other franchise operations. It assumes responsibility for the East Coast franchise from 1 March 2015 – which with revenues of around £660m per annum – will double group’s rail turnover.

Virgin Rail Group (VRG): Stagecoach also has a 49% stake in the West Coast main line franchise (the other 51% is controlled by Virgin).These results are shown separately (from the UK Rail division).

Revenue increased by 5.9% to £247.4m (H1 2013: £233.6m), but the profit after tax shot up by 718% to £9.0m (H1 2013: £1.1m), and operating margin improved from 0.6% to 4.5%.

The results are mainly due to contractual changes: Since June 2014, the franchise has been operated on a commercial basis with VRG assuming the risk. From December 2012, it had been operated on a temporary management contract basis with VRG getting a management fee based on 1% of revenue (and which depressed previous results).

UK Bus (Regional):  Revenue was up 4.5% to £527.1m (H1 2013: £504.3m); but operating profit only increased by 0.5% to £77.3m (H1 2013: £76.9m); and the operating margin fell to 14.7% from 15.2%.   The report notes the decline is partly attributable to ‘the significant year-on-year reduction in the profitability of our Manchester business,’ which is a highly-competitive area.

UK Bus (London): Revenue increased 13.8% to £131.3m (H1 2013: £115.4m); operating profit was up 6.3% to £10.2m (H1 2013: £9.6m); and the operating margin declined to 7.8% from 8.3%. Stagecoach managed to hold on to four of five contracts that came up for renewal during this time.

662/Dec 14


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