Stagecoach warns of lower earnings from its UK bus business

Stagecoach has warned of lower earnings from its regional UK bus operations.

Stagecoach has warned of lower earnings from its regional UK bus operations. - Credit: PA

Transport operator Stagecoach today warned of lower earnings from its regional UK bus operations and US business this year but said its share of Virgin Rail operations should help make up the shortfall.

Stagecoach, which operates buses in a number of major cities including Cambridge and towns including Newmarket, Haverhill and Saffron Walden, said the performance of bus routes outside London in recent weeks had been worse than expected and it had revised down expected divisional operating profits for the financial year ending April 2015.

It also said falling fuel costs would not necessarily feed through to “an equivalent pound-for-pound change” in profit as these would also have to be reflected in setting fares as it competes with other bus and transport services as well as the lure of cheaper car driving.

Stagecoach reiterated its opposition to a Labour plan to give city and county regions more London-style power over public transport networks, which it described as “uncosted and unnecessary” and likely to land passengers with higher fares.

The group reported pre-tax profits of £98.3million for the six months to the end of October, marginally lower than last year’s £98.5m. Revenues rose 4.8% to £1.54billion.

It has just signed a joint venture deal to operate the East Coast rail mainline between London and Edinburgh with Virgin Group to start in March next year, although this is not expected to impact on profits until 2015/16.

Stagecoach already runs the West Coast mainline as part of Virgin Rail Group and also holds three other franchises – East Midlands Trains, which includes some services between Norwich and Peterborough, South West Trains and Island Line on the Isle of Wight.

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It has also been shortlisted for the TransPennine Express franchise and is in the process of agreeing extensions of the East Midlands and South West operations.

Chief executive Martin Griffiths said the company was “in excellent financial shape” but the group added: “In light of trading trends in recent weeks, we have changed our view of the likely divisional mix of profit.

“We are lowering our expectations of 2014-15 operating profit from our regional UK Bus and North America businesses but this is broadly offset by other areas, including the share of profit we expect from Virgin Rail Group.”

Its regional bus division in the UK posted higher revenues and operating profits for the half year and Stagecoach said the long-term outlook was positive.

But it said short-term earnings in recent weeks had been hit by a number of factors including strong competition in Manchester and lower than expected revenue growth in some other areas.

The group also expects the cost of filling staff vacancies to rise amid the improving economy, while taking over routes from other operators as well as the expansion of its intercity megabus operation into Europe are likely to drag on earnings too.

Stagecoach added that its North America operations had been hit by poor weather in November while falling fuel prices were likely to hit demand “in an already competitive market”, prompting a downgrade to the operating profit forecast for the remainder of the year.