Slowing Stagecoach in dispute over franchise

Jun 22 2009 by Iain Laing, The Journal

THIS week sees results from consumer electricals giant DSG International – the owners of Currys – while Bank of England Governor Mervyn King will appear before MPs.

The City will be hoping for positive news from Stagecoach on its dispute with the Government over its South West Trains franchise when the rail and bus firm reports results on Wednesday.

In April, the Perth-based group warned of “significant” operating losses in two years on its franchise for services between the south coast and London Waterloo if the row with the Department for Transport is not settled.

The key point of contention is a provision of the deal in which the Government agrees to pay a proportion of a franchisee’s losses if it fails to hit revenue targets.

SWT believes the contract entitles it to revenue support calculated from April 2010, but the DfT believes the start date should be February 2011.

There is also a dispute over whether car parking revenues should be included in the calculations. Stagecoach is committed to paying £1.2bn by 2016 for the right to operate the service.

It is an added headache for the firm at a time when the recession is bearing down on rail revenues. Stagecoach also runs East Midland train services, the Island Line and has a 49% stakeholding in Virgin Rail. There is likely to be better news from its bus arm, which carries around two million passengers in 100 towns and cities in the UK.

Consensus forecasts put pre-tax profits at around £187m for the year to April 30, compared with £174.4m last time.