Stagecoach has revealed an £85.6m hit on the back of the government's decision to take back control of the East Coast mainline.

The company - which held 90% of the Virgin Trains East Coast venture - used its annual results to reveal the sum, admitting it was disappointed but arguing it was "significantly influenced by factors outside of our control".

It was announced by the transport secretary Chris Grayling last month that the contract would be ripped up - with a public Operator of Last Resort to run the service instead under the historic LNER brand.

The renationalisation took effect last Sunday.

The decision was blamed on the private operators losing money by failing to meet their revenue targets - with Mr Grayling saying they had "got their bid wrong".


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Headwinds included lower-than-expected demand in a slowing economy.

Stagecoach told Sky News the £85.6m charge it had taken to cover the cost of the East Coast franchise took its total expected loss on the contract to around £200m. The company did not expect that figure to rise.

Stagecoach said on Thursday: "We regret the losses the group has experienced on the East Coast franchise, notwithstanding that these were significantly influenced by factors outside of our control.

"We have examined our bid for and operation of the franchise closely and have also looked more broadly at our rail bid governance.

"We involved external advisors in that and we have made changes to our processes to strengthen our approach to bidding and contract management in UK rail.

Will fares be coming down on LNER?

"The lessons learnt have been reflected in our subsequent bids."

The company's results for the year to 28 April showed statutory profit before tax rising significantly to £95.3m because of a drop in one-off costs.

However they dropped 4% on an underlying basis.

Stagecoach shares - down by more than a fifth in the year to date - fell by as much as 6.5% in early trading on Thursday.

The company slashed its final dividend and warned that operating profits in its rail division - which fell almost 13% in its last financial year - were on track to fall further in 2018/19 because of the costs of bidding for new franchises.

Chief executive Martin Griffiths said: "I am disappointed to be reporting significant exceptional costs in respect of Virgin Trains East Coast but I am pleased that there is now clarity for both customers and shareholders.

Image: LNER logos are displayed at York station as the franchise gets under way

"We have made significant progress elsewhere in our rail portfolio and continue to see value and opportunities.

"We welcome the positive changes by the Department for Transport to ensure a more balanced share of revenue risk between the Department and UK train operators.

"We are continuing work on bids for new South Eastern, West Coast Partnership and East Midlands rail franchises and we will maintain a disciplined approach to all rail bids."