Stagecoach is in talks with the UK government over its contract to operate the East Coast main line after the loss-making franchise saw profits sink last year.
The train and bus operator said pre-tax profit plunged to £17.9 million in the year to 29 April, from £104.4m last time, after booking an £84.1m exceptional charge to “provide for anticipated losses” under the East Coast contract, which it jointly runs with Virgin.
Stagecoach was also hit by a £44.8m non-cash exceptional impairment linked to the Virgin Trains East Coast franchise.
Chief executive Martin Griffiths said: “We are engaged in discussions with the Department for Transport regarding our respective contractual rights and obligations under the current Virgin Trains East Coast franchise and reflecting the reprioritisation of Network Rail’s infrastructure programme.
“However, separately we have made financial provisions to reflect the short-term outlook for that business over the next two years, including in view of the weak growth environment affecting the UK rail sector as a whole.
“We are disappointed to report losses at Virgin Trains East Coast. However, I am confident that we can return the business to profitability.”
To compound matters, Stagecoach also said that slowing economic growth, the Brexit vote and terrorism have begun to take their toll on the company.
Revenue is not growing as strongly as anticipated as sales are hit by “increased terrorism concerns and political uncertainty”, as well as “macroeconomic” factors, the firm said.
Revenue came in at £3.9 billion last year, down from £3.8bn previously.
The firm said it is taking action across its bus network, including targeted network, pricing and management changes.
The company operates routes such as South West Trains, East Midlands Trains, Virgin Trains East Coast and Virgin Rail Group’s West Coast franchise.
It has also been shortlisted for new East Midlands and South Eastern rail franchises and has embarked on a new joint venture with Virgin and SNCF, which is bidding for the West Coast Partnership rail franchise.