BUS and rail group Stagecoach saw pre-tax interim profits dip due to problems on its East Midlands Trains franchise, but said fortunes will improve in the second half.

The business, which is Merseyside’s second biggest bus operator behind Arriva and holds a 49% stake in Virgin Trains, reported revenues in the six months to October 31 of £1.29bn compared with £1.13bn last year.

Pre-tax profits, before costs, fell from £108.7m to £88.7m, but this was affected by the £6.9m operating loss on its East Midlands rail franchise compared with an operating profit of £22.9m previously due to lower than forecast revenues.

Stagecoach said revenue support payments from the Government will return to business to profit for the second half of the year.

It also announced a £44m investment in 106 new vehicles for its Megabus budget coach operation in the US, Canada and the UK, which will receive 11 from the total order.

The UK bus division achieved a 1.3% increase in revenues of £450.9m and a 9.1% rise in operating profits of £80m.

UK rail’s revenues, from East Midlands Trains and South Western Trains, improved by 7.2% to £562.6m.

Virgin Rail revenues were 10.4% better at £216m, although operating profits were 10.9% down at £12.2m during the six months.

Chief executive Sir Brian Souter said today’s results were good, showing strong organic growth across the bus and rail businesses.

He added: “Against a background of pressure on household incomes and rising fuel costs, we are seeing continuing indications of modal shift from the car to bus and rail.”

Sir Brian welcomed the Government’s extension of its Virgin Rail West Coast franchise to December 2012 and said: “We will consider further franchise opportunities that we believe will deliver value to our shareholders.”

He continued: “We recently completed a £340m return of cash to shareholders and remain in a strong financial position.

“We have made a good start to the second half of the financial year and current trading remains in line with management expectations.

“We believe the outlook for the group is positive and our bus and rail services are well placed to benefit from the continuing consumer focus on service and value.”

Liverpool stockbroker Panmure Gordon reiterated its ‘buy’ recommendation on Stagecoach shares today, with analyst Gert Zonneveld describing today’s results as “excellent” and “ahead of expectations”.