Shares in bus and tram operator Stagecoach (SGC) pushed higher by 1.7% to 67.5p after it confirmed it would pass on dividends for the year to May and revealed a substantial cut in spending to shore up earnings.

Although the firm has seen a significant drop in passenger numbers across its London and regional bus services, support from the government together with cost savings and a healthy balance sheet put it in ‘as strong a position as possible and well-placed for the significant long-term opportunities that we still see for public transport.’

ESSENTIAL SERVICE

Due to the critical role that public transport plays in getting key workers such as healthcare staff to work, Transport for London (TfL) and the Department for Transport (DfT) have put support in place to keep services running.

In London, TfL has agreed that contracted revenues will continue to be paid to bus operators, under-writing their income, with any variable cost savings as a result of reduced services being returned to City Hall.

In the rest of England, the DfT has agreed up to £14m per week of additional funding ‘to support the continuity of bus services’ for 12 weeks from the middle of March, which can presumably be extended if the crisis lasts beyond mid-June.

The DfT support doesn’t include Stagecoach’s inter-city ‘megabus’ services, however, so the firm is temporarily winding them down and services will be suspended from Sunday night.

The Scottish and Welsh parliaments have also agreed support measures to keep school buses running and to keep payments at pre-crisis levels.

The firm said that ‘while it remains difficult to reliably estimate and forecast short-term income statement effects, the measures announced reduce the risk of substantial ongoing operating losses.’

On some of its local services, commercial sales are down to just 15% of normal levels and the firm says it expect its regional buses to operate ‘at break-even or at a modest operating loss for the time being.’

SELF-HELP MEASURES

As well as reducing the number of services it operates and putting the majority of its drivers and support staff on ‘furlough’, the company has cut its capital spending plans by more than half.

Expenditure for the 2020/21 financial year has been slashed from £105m of cash spending and £38 of new leases to just £40m of cash spending and £20m of leases.

The firm has over £500m of available liquidity, with £94m of outstanding net rail liabilities. It has £200m of cash on hand and the first tranche of its revolving credit facility, for £140m, expires in October 2021 so the company has ample funds available to it to see out the current crisis.

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Issue Date: 03 Apr 2020