Stagecoach revenue weakens in North America as growth continues in the UK

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North America sees 5.3% drop in revenue over the three months ended July 31

Stagecoach Group plc has published a trading update covering available information from April 30, 2015 to July 25, 2015.

Like-for-like revenue growth for the financial year to date stood at 1% in UK Bus regional operations (1.5% growth in London), 5.5% in UK Rail and 7.5% for Virgin Rail Group.

However, revenue was down 5.3% in North America including Megabus.com (for the three months ended July 31). The group claimed that the fall in fuel prices continues to adversely impact demand for Megabus.com inter-city coach services, with like-for-like revenue at Megabus.com North America being 3.4% below the equivalent period last year. The rest of the decline was attributed to some low-margin contracts that ended during the prior year, along with strong competition in the sightseeing and leisure sector and the continued strength of the US dollar.

Stagecoach said UK Bus’ like-for-like revenue growth continues to come principally from commercial on and off bus revenue. Growth in both commercial revenue and revenue from tendered and school services was affected by the timing of school holidays compared to last year – the company expects stronger growth over August and September as this effect reverses.

The expansion of the Megabus.com inter-city coach operations in mainland Europe is progressing and Stagecoach remains positive about the growth opportunities in that market. While the European business remains loss-making, progress to date has been ‘encouraging’ with strong demand for the recently launched domestic coach services in Germany and Italy.

Overall, estimated passenger journey numbers were 0.7% below last year, which was driven by a reduction in the number of concessionary passenger journeys. The operator attributed this to the poorer summer weather in various parts of the UK.

In London, the portfolio of contracts with Transport for London is of a similar size to the prior year and the reported revenue growth principally reflects a net increase in contract prices, resulting from the renewal of and/or variations to contracts. Low inflation and the fall in fuel prices have meant that the annual inflation-linked adjustment to each contract’s price is minimal.

Stagecoach added that the operating environment in London continues to be adversely affected by traffic disruption, including congestion resulting from road works, which affects the revenue the business receives as Quality Incentive Income based on its operational performance.

The group said it maintains a strong financial position with investment grade credit ratings and appropriate headroom under its debt facilities. Consolidated net debt has, as expected, increased from April 30, 2015, reflecting additional investment in its bus fleet and the reversal of some favourable UK Rail working capital timing differences in the previous financial year, partly offset by continued strong cash generation from operations.