STAGECOACH chief executive Martin Griffiths was grilled yesterday on whether shareholders could expect further losses from its rail operations after racking up a £180 million bill on its failed East Coast franchise.

The transport giant was controversially stripped of the contract it held with Virgin to run the Edinburgh to London line in May after the franchise did not deliver the revenues anticipated. It had been due to run the franchise, which was subsequently renationalised in June, until 2023, having secured the contract with Virgin in 2014.

Investors at the Stagecoach annual meeting in Perth were told that losses on the failed franchise totalled around £200m, with the listed Scottish firm incurring £180m as the 90% shareholder. The overall cost comprised parent company support of £165m, a performance bond (designed to ensure the public is not left out of pocket when a franchise is re-

tendered) of £21m, and the £11m cost of purchasing the business from the Government.

One shareholder lamented the losses as “appalling”, and declared that the company’s move to cut its dividend after being stripped of the franchise was “rubbing salt in the wound”. The shareholder then pressed Mr Griffiths on whether investors could expect “more losses chugging down the track”.

In response, the Stagecoach boss said that the shareholder’s “observation was a fair one”, noting that the loss of the East Coast franchise had been a “disappointing experience”.

Mr Griffiths said: “We can sit here and debate as to why things were different to what they were in 2014, but at the end of the day we signed a contract with other parties in the UK and that didn’t work out. We dealt with it, it was expensive for us and that is disappointing.”

Mr Griffiths added that it was important to reflect that Stagecoach and its shareholders had benefited from its participation in UK rail over the last 20 years, and said it was currently “comfortable” with its risk profile in the rail sector.

He said the company will consider new bids, and that the dividend was now sustainable on the basis of its reduced rail portfolio. The board moved to cut its full year dividend to 7.7p from 11.9p.

However, the response did not satisfy the investor, who said Mr Griffiths had not provided an answer. The shareholder insisted: “Are the rail losses finished?”

Mr Griffiths replied: “On Virgin Trains East Coast, yes. The rail franchises that we currently

operate are profitable and generating a lot of cash flow for the shareholders.”

Shareholders were told the loss of the East Coast franchise did not mean Stagecoach was turning its back on rail. It has secured extensions to the direct award West Coast and East Midlands franchises. It has also submitted a bid for the new South Eastern

franchise, and is progressing proposals for its shortlisted East Midlands and West Coast Partnership franchise bids.

Mr Griffiths said: “We’ve had the privilege to run railways for over 20 years for the Government. Indeed, if Stagecoach hadn’t taken the steps with the first railway that was privatised in 1996 we might not have seen the private sector on railways.”

He added: “While Virgin Trains East Coast was disappointing, we shouldn’t lose sight of the

positives that have come out of our involvement in UK rail, and we continue to bid and look forward positively.”

Meanwhile, on buses, Mr Griffiths cited the challenge brought by the difficulties being faced by structural change in the retail sector, and the impact being made on employment trends because of technological innovation.

But he said the biggest influences on bus operators are congestion, car ownership and fuel prices. He said buses can play a key role as local authorities take steps to improve air quality. “The bus is a very important part of the solution,” Mr Griffiths said. “Remembering, of course, that one double-decker will take 75 cars off the road.”

In a question and answer with shareholders, chairman Sir Brian Souter responded to concerns about the dividend cut, and the company’s flagging share price, by insisting the stock still offers a “reasonable” return on investment.

Stagecoach shares closed up 0.1p at 162.6p last night. The price had been 419.6p on June 25, 2015.

Asked by one shareholder whether media reports of the losses incurred on the East Coast line amounted to “fake news”, Sir Brian said: “I’d love it to be fake news.”

All resolutions proposed at the meeting were passed.