INVESTORS will be looking keenly this week at how Stagecoach boss Brian Souter's measures have combated the effect of job losses in the south-east.
Despite a switch by commuters to public transport, year-end figures are likely to be affected by the downturn.
Souter claimed at the company's interims in December that Britain was in for a "thumping enormous recession" and his comments led to a
fall in the shares.
In a trading statement in April the company said the rail operations "faced challenges and uncertainties". It has cut costs, including jobs, but it expects the UK Rail Division and Virgin Rail Group to remain profitable in the current year.
The group is expected to report full-year profits of around £187 million for the 12 months to April 30, compared with £174.4m last year. Broker Charles Stanley said that it estimates a £50m profit contribution from its rail business, but said the outlook for 2010 is "highly uncertain".
The Perth-based firms runs East Midland train services, the Island line, a route between the south coast and London Waterloo and has a 40 per cent stake in Virgin Rail.
The economic downturn has led to a reduction in the number of commuters travelling by train. Charles Stanley said the revenue assumptions made by companies are likely to be too optimistic. It also warned that fare increases, which are linked to inflation, could decline.
Tony Shepard of Charles Stanley said: "These factors have led to a reassessment of the outlook for profitability of rail franchises, which has affected the value of bus/rail groups."
He added that Stagecoach is expected to report about £12m of exceptional restructuring charges relating to cost savings in its retail division. The measures could save about £50m in annual operating costs.
In April Stagecoach warned of "significant" operating losses in two years on its franchise for rail services between the south coast and London Waterloo if a row with the Department for Transport (Dft) is not settled.
Analysts will be hoping for positive news from Stagecoach on its dispute with the government over its South West Trains (SWT) franchise. The point of contention is a provision of the deal in which the Government agrees to pay a proportion of a franchisee's losses if it fails to hit revenue targets.
SWT believes the contract entitles it to revenue support calculated from April 2010, but the DfT has said the start date should be February 2011. There is also a disagreement over whether car parking revenues should be included in the calculations. Stagecoach is committed to paying £1.2 billion by 2016 for the right to operate the service.
There is likely to be better news from Stagecoach's bus arm which carries around two million passengers in 100 towns and cities in the UK.
It is the second largest UK bus company with a 14 per cent share of the market. Charles Stanley expects the bus division to make a profit contribution of £120m.
