Stagecoach Group PLC Rail Update (3022O)

TIDMSGC

RNS Number : 3022O

Stagecoach Group PLC

16 May 2018

16 May 2018

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

Stagecoach Group plc

Appointment of Operator of Last Resort at InterCity East Coast

Stagecoach Group plc ("the Company") notes today's media speculation regarding Virgin Trains East Coast ("VTEC").

We have now been advised by the Department for Transport that the Secretary of State for Transport plans to announce today that he intends to appoint the "Operator of Last Resort" ("the OLR") to operate the InterCity East Coast trains services.

The Company's subsidiary company, East Coast Mainline Company Limited ("ECML", trading as Virgin Trains East Coast) is the current operator of the InterCity East Coast rail franchise under an agreement with the Department for Transport ("DfT"). ECML has been negotiating a new direct award franchise with the DfT but we understand that the Secretary of State for Transport is no longer considering entering into a new franchise with ECML. The financial consequences of that are expected to be consistent with the Company's announcement of 5 February 2018:

-- The Company has already impaired intangible assets and provided for losses in relation to the current ECML franchise agreement in its consolidated financial statements for the year ended 29 April 2017. Consistent with the assumptions reflected in the 2016/17 consolidated financial statements, the Company has already funded its full GBP165m loan commitment to ECML.

-- In addition, the Company expects to fund an amount equivalent to the current performance bond outstanding in respect of ECML. As previously indicated, that is expected to result in a further net cash outflow of up to around GBP19m (Stagecoach's 90% share) from the Company to ECML or the DfT in addition to the amounts reflected in the 2016/17 consolidated financial statements.

-- Any residual net assets of ECML are not expected to be recoverable by ECML or the wider Stagecoach Group. An additional one-off net expense is expected in the Company's consolidated financial statements of up to around GBP75m (Stagecoach's 90% share). As explained in the Company's announcement of 5 February 2018, the c.GBP75m expense does not affect consolidated non-rail net debt.

Our understanding is that today's expected announcement does not directly affect other franchises and bids for franchises in which the Company has an involvement.

Stagecoach Group Chief Executive, Martin Griffiths, said: "We are surprised and disappointed that the Department for Transport has chosen not to proceed with our proposals. We believe our plans offered a positive, value-for-money way forward for passengers, taxpayers and local communities, ensuring the continuation of the exciting transformation already underway on East Coast and a smooth transition to the Government's new East Coast Partnership.

"However, we respect the Government's decision. We will work constructively with the DfT and the OLR in the weeks ahead to ensure a professional transfer to the new arrangements, supporting our employees and maintaining the same clear focus on our customers as we have over the past three years.

"Today's decision should not detract from the hard work and dedication of our people at Virgin Trains East Coast, who have been central to the transformation we have been delivering for our customers over the past three years. During that time, we have attracted more passengers, greatly increased investment, achieved industry leading customer satisfaction and made significant payments to the taxpayer to reinvest in public services.

"Despite today's news, we believe that we can continue to make a positive contribution to the UK rail market, delivering long-term customer benefits and sustainable returns for taxpayers and investors."

For further information, please contact:

 
Stagecoach Group plc                                     www.stagecoachgroup.com 
Investors and analysts 
Ross Paterson, Finance Director                          01738 442111 
Bruce Dingwall, Group Financial Controller               01738 442111 
Media 
Steven Stewart, Director of Corporate Communications 
 
 ENDS                                                     07764 774680 
 

This information is provided by RNS

The company news service from the London Stock Exchange

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May 16, 2018 07:36 ET (11:36 GMT)