LONDON (Reuters) - Rail and bus operator Stagecoach Group (SGC.L) reported a 15.3 percent drop in full-year pretax profit and took a 84 million pound charge against its unprofitable East Coast rail franchise on Wednesday, sending its shares to a seven-year low.
Chief Executive Martin Griffiths said revenue growth on the East Coast rail line had not met expectations when it bid for the franchise in 2013-2014, and it was making provisions to reflect losses over the next two years.
“But based on our contractual position, I am confident that Virgin Trains East Coast will become profitable again from 2019 onwards,” he said.
The East Coast line is the main rail link between London and Edinburgh, the Scottish capital, and it serves more than 20 million customers a year.
Stagecoach, which owns 90 percent of Virgin Trains East Coast, is talking to the government about new terms for the contract, he said, in part to reflect Network Rail’s investment plans.
Talks were not progressing as quickly as hoped due to political uncertainty, he said, but he expected a deal to be agreed in the next 12 months.
Griffiths said the short-term outlook for the rail and bus sector in general was “challenging”.
“The economy is tougher, political uncertainty and terrorism is impacting what we are seeing in our businesses and particularly in UK rail,” he said.
Shares in Stagecoach, which runs buses in Britain and North America, as well as rail services, were trading down 11 percent at 180 pence at 0949 GMT, the lowest level since December 2009.
Liberum analyst Gerald Khoo, who has a “sell” rating on the stock, said Stagecoach’s results were below his forecasts, although an unusually low tax rate saw earnings per share match expectations.
He said the exceptional charges, mostly related to the East Coast franchise, were “substantial”.
Stagecoach reported a pretax profit of 158.7 million pounds for the year ended April 29. Full-year revenue rose to 3.94 billion pounds from 3.87 billion pounds a year earlier.
“We remain cautious on the short-term outlook for revenue trends and operating profit in our bus and rail markets in the UK,” the company said.
Reporting by Sanjeeban Sarkar in Bengaluru and Paul Sandle in London; Editing by Amrutha Gayathri and Jane Merriman