Shares in Stagecoach (SCG) fell as much as a tenth on the day the transport group revealed most of its pre-tax profits had been wiped out by an impairment and onerous contract provision against the Virgin Trains East Coast Franchise (it has a 90 per cent stake in the operator). Taken together, they delivered a £129m hit to the income statement. Stagecoach said the "scope and timing" of improvements to rolling stock and infrastructure had changed from its original bid as Network Rail had changed its priorities. Chief executive Martin Griffiths said the company was in discussions with the Department for Transport about the obligations under the contract and expects new commercial terms to be finalised in the next year; the East Coast business should now become profitable in 2019.
The UK rail division as a whole fared better with like-for-like revenue up 2 per cent to £2.16bn, but the impact of the East Coast franchise helped more than halve operating profit to £31m. The group pointed to poor operating performance at Network Rail and increased competition from cars among reasons behind the slower growth here. As a result, passenger revenue growth at South West Trains (a franchise ending in August 2017) and Virgin Trains East Coast were not enough to cover higher costs and premia payments to the UK government.