UPDATE 2 – Shares of Perth-based rail and bus giant Stagecoach Group touched a seven-year low, falling as much as 10%, after it said statutory profit before tax slumped to £17.9 million in the year to April 29 from £104.4 million the year before amid problems at its Virgin Trains East Coast franchise.

Stagecoach, which owns 90% of Virgin Trains East Coast, said it is talking to the UK government about new terms for the contract and that it expects the business to be profitable from 2019.

Stagecoach said it took an £84.1 million exceptional charge related to Virgin Trains East Coast “to provide for anticipated losses under current contract, over the next two years” amid a “weak growth environment affecting the UK rail sector as a whole.”

Statutory revenue edged higher to £3.941 billion from £3.871 billion and full-year dividend will rise to 11.9p from 11.4p.

Stagecoach shares fell to around 185p to give it a current stock market value of just more than £1 billion.

Excluding “intangible asset expenses and exceptional items” Stagecoach said its profit before tax fell to £158.7 million from £187.4 million.

Stagecoach 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 and build on the significant benefits we have delivered to date for customers and taxpayers. 

“Overall, we believe in the long-term prospects for the business and public transport remain positive.”

Read full Stagecoach results statement here