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Stagecoach renegotiates contract over projected VTEC losses

Stagecoach Group is negotiating the terms of its Inter-City East Coast franchise with the Department for Transport (DfT) due to uncertainty over planned infrastructure upgrades on the East Coast Main Line (ECML) and lower than anticipated revenue and profits compared with the original franchise bid.

The announcement was made in the company’s preliminary full-year results for the year ended April 29, issued on June 28. Stagecoach says it expects to “finalise new commercial terms during the next year.” It adds that it expects to operate the franchise until at least 2023 and that from 2019 it will “have the potential to earn a profit margin commensurate with that of a direct award franchise.”

However, Stagecoach warns that Virgin Trains East Coast is expected to incur losses under the current contract, and in its full year results recorded a pre-tax charge of £84.1m to reflect “that the current contractual arrangements give rise to an onerous contract.”

Stagecoach UK rail operations revenue rose from £2.13bn in 2016 to £2.16bn in 2017, but profits more than halved from 66.7m in 2016 to 31m in 2017. 

The Department for Transport refused to comment on specific aspects of the negotiations, but RAIL understands they are taking place. Spokesman Hywel Barrett said: “We monitor all franchises and are in constant discussion with train operators over performance of their contractual obligations. We expect Stagecoach to honour its financial commitments, but we are unable to comment on the specific details of individual franchise agreements.”

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  • Glenys Goodwill - 29/06/2017 14:26

    If I was 'just' making £31m in a year, I wouldn't mind.

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  • FrankH - 30/06/2017 23:09

    Is this a case of a low (or unduly optimistic) bid to win the franchise coming to grief. Network rail has reprioritised its east coast infrastructure upgrade which may be a valid point depending on how severe the change is. They also think the Hitachi stock delivery timing is wrong (not what was presumed in their bid), Not changed as far as I'm aware. Lower revenue thus lower profits is a risk they took when bidding, they had the facts and figures based from the DOR run one which was quite successful and assumed in the bid they could give the government a premium of 30% more plus make a profit and pay shareholders a dividend. The revenue hasn't dropped because of NR changes or stock delivery, did they expect it to leap upwards on already full trains.

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  • Paul - 03/07/2017 12:24

    Would stagecoach ask for the contract to be renegotiated if they were making excessive profits, I think not. this is a business not a charity so except the losses and provide a service that passengers want to travel on just like your predecessor on the ECML did. Its your business model tat is at fault so you should not get any money from the taxpayers in any shape or form

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  • Robert D Black - 10/07/2017 14:12

    Bring the East Coast back into public hands. It was doing so well before the Government put it out to tender. East Coast was very clever using its trains for advertising i.e The 007 'Skyfall' and 'Sky TV'. It was also very good at using colours to remembering the past too. This news proves that Stagecoach using the Virgin brand doesn't always work.

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