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Stagecoach mulls sale of US business as it swings to a first half loss

The transport group has been trialling autonomous buses carrying passengers between Edinburgh and Fife, thanks to £4.35mln Innovate UK funding
Stagecoach mulls sale of US business as it swings to a first half loss
Stagecoach said its Virgin Rail unit delivered good profitability in H1

Stagecoach Group PLC (LON:SGC) said it was in talk to sell its US business after taking an £85mln writedown in the division as first-half revenues tumbled.

The UK bus and train operator on Wednesday reported a pretax loss of £22.6mln for the six months to October 27, down from a profit of £96.7mln a year ago, on revenues around a third lower at £1.23bn.

READ: Stagecoach Group PLC posts like-for-like revenue growth at UK bus, rail divisions

The transport group said the company was seeing “competitive challenges" in some of its markets in the UK and US but was confident that public transport would remain key to delivering government plans.

Stagecoach said its first-half performance in North America had been in line with its revised expectations and that it had seen no significant change since its September trading update in  2018/19 profit expectations, but that it had taken a £85.4mln non-cash goodwill impairment charge to reflect a revised view on long-term profitability,

Stagecoach owns Megabus and CoachUSA/CoachCanada in North America. The division has struggled in recent years due to fierce competition and rising staff and fuel costs. It has also been hit by a national shortage of drivers in the bus and trucking sector which has been pushing up the price companies like Stagecoach have to pay for people behind the wheel.

“The rising oil price earlier this year should have theoretically pushed more individuals to use public transport rather than drive their own vehicles, however the recent sharp drop in the commodity price effectively removes that tailwind for Stagecoach," analysts at AJ Bell wrote in a note to clients.

“Last year the company sold its 50% stake in the Twin America sightseeing bus service in New York after it failed to make a material profit due to difficult economic conditions and ongoing competition," they added.

Stagecoach said it had delivered an encouraging performance from its regional UK bus operations and that commercial initiatives boosted passenger revenue growth with like-for-like revenue per vehicle mile up 4.4% in the first half.

The rail and bus firm, which held the interim dividend at 3.8p, also said it had trialled autonomous buses carrying passengers between Edinburgh and Fife, with £4.35mln Innovate UK funding.

The Megabus operator said it saw further opportunities in UK rail and that it was involved in shortlisted bids for three new franchises. It said it was making good progress on the negotiation of new Direct Award franchise at East Midlands Trains through to at least August 2019.

"While we recognise the competitive challenges in some of our markets in the UK and North America, we are confident that public transport will be central to delivering government priorities to grow the economy, connect people and communities, reduce road congestion and improve air quality. We are reviewing strategic options for the North America Division and that includes ongoing discussions regarding a possible sale of all or part of the business,” CEO Martin Griffiths said in a statement.

Shares in the transport group were 10% up at 169.0p in mid-morning trade.

- updates intro, adds analyst comment, share price - 

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