Debt-ridden transport firm National Express made up to £20 million in first-half losses on its East Coast franchise before handing it back to the Government.
The profit warning came as it posted underlying revenues growth from the franchise of one per cent in the six months to June, with fewer journeys and “significant” downtrading from full and first class fares.
The performance is not strong enough because of the mounting franchise payments – £1.4 billion – National Express has to make to the Government over the life of the deal, which ends in 2015.
The Government revealed it was to take over the running of the London to Scotland rail route yesterday after National Express defaulted on its franchise.
Meanwhile, chief executive Richard Bowker announced he was stepping down from his position after three years in the role.
The overall rail division contributed £1.3 billion in revenues and £81.3 million in operating profits last year.
The group’s other rail franchises had also had slowing growth as unemployment rises but were not under the onerous terms of the East Coast deal.
The pressure on the business comes despite a cost-cutting drive involving job losses, slashing the dividend and selling off parts of the firm.
The company has debts of £1.2 billion and arranged breathing space on tougher lending terms until the end of the year last month.
But elsewhere its UK bus and coach business have also been hit, with its bus arm in the West Midlands reflecting the region’s slowdown.
The coach division has seen no growth this year, with a later Easter deterring trips over the May bank holiday weekends.
Shares in National Express fell more than ten per cent in just hours after it revealed its position to investors.
Investec analyst Joe Thomas said the UK rail business was the “greatest risk”, and could herald National Express’s departure from the sector altogether.
But he added that, while a potential UK rail exit “appears alarming at first sight”, it would allow the firm to reduce debts by calling on shareholders for funds and concentrate on the stronger areas of the business.
“It does pave the way for a £400 million-plus fund-raising later this year in our view. Trading in non-rail businesses appears reasonable and we think that, post a rights issue, the business would look attractively valued.”
Mr Bowker, who joined the group in 2006, will leave at the end of August to take up a new role as head of Union Railway in the United Arab Emirates.