Go-Ahead bus operations flat while Southern drags on rail

Passenger transport operator Go-Ahead Group announced its pre-close trading update for the year to 1 July on Thursday, ahead of its full year results announcement on 7 September.

The FTSE 250 firm said its overall expectations for the full year were unchanged, claiming it remained in a “strong” financial position with “good” cash generation and a “robust” balance sheet.

In its regional bus operations, the company was looking at a 1% rise in revenue, though passenger numbers were to remain flat year-on-year.

The board said the division had continued to deliver revenue growth “broadly in line” with our expectations and slightly ahead of wider industry trends.

Strong growth in passenger journeys in some regions had been offset by softer performance in other operating areas, however.

Growth in revenue and passenger numbers was also slightly subdued as a consequence of the restructuring of selected route networks to match passenger demand and reduce costs.

The company’s London bus operation - where performance was measured in mileage, rather than passenger numbers, due to the way Transport for London contracts operators - revenue was also up around 1%, while mileage was down 1.5%.

“Reflecting the timing of known contract renewals, revenue growth slowed and mileage operated fell slightly, in line with our expectations for the full year,” the board said.

Go-Ahead’s bus operation in Singapore continued to perform “well”, however, delivering “high levels of punctuality” on behalf of the country’s Land Transport Authority.

Its Govia rail division, which operates the Southeastern and London Midland franchises as well as the GTR ‘superfranchise’, which combines Southern, Thameslink and Great Northern, is a 65-35 joint venture with French public transport firm Keolis.

Passenger revenue was up 3% at Southeastern and 4.5% at London Midland, though it fell 4% for GTR.

Passenger journeys were 4% firmer at London Midland, while they fell 0.5% at Southeastern and 4% at GTR.

“In Southeastern, passenger growth has continued to slow, putting pressure on passenger revenue,” the board said.

“As previously reported, this pressure has been offset by a cost efficiency programme.”

Go-Ahead pointed out that the franchise continued to contribute to the Department for Transport through its profit share mechanism, adding that the DfT had started the tender process for the South Eastern franchise, with Govia being shortlisted also on Thursday morning.

“London Midland's financial performance remains strong; revenue and passenger numbers are growing ahead of the wider industry.

“This strong performance has enabled the franchise to continue making profit share payments to the DfT, which are expected to continue for the remainder of the contract to October 2017.”

Govia was currently awaiting the DfT's announcement regarding the outcome of the West Midlands franchise competition, for which it was shortlisted.

On the struggles in revenue and passenger count at GTR, Go-Ahead said there had been “no significant industrial action” on Southern services in the last five months, and as a result, service and performance levels had stabilised, allowing the company to deliver more reliable rail services to customers.

“Disappointingly, the ASLEF union has called for an overtime ban for Southern train drivers which, if it goes ahead, will result in unnecessary disruption for customers.

“GTR remains fully committed to resolving these issues to provide improved services for customers and reduce uncertainty for our stakeholders.”

For much of the financial year, the company had been embroiled in a spat with both the ASLEF and RMT unions over plans to revise the roles of guards and give full control of doors on Southern trains to drivers.

A series of strikes and other industrial action had caused serious disruption to the operations, resulting in significantly higher-than-usual delay repay applications from customers, along with stark scenes of protesting commuters at a number of Southern’s primary terminals.

“Progress is being made in the ongoing discussions with the DfT regarding a number of contractual variations.

“Management's judgement around these discussions and the potential impact on rail profitability remains consistent with previous guidance.”

Earlier in June, Go-Ahead was also awarded a 13-year rail contract by the Transport Ministry of Baden Württemberg in Germany.

Operation of the commuter route, which would generate around €20m of annual revenue, was set to commence in December 2019 between Stuttgart and Nuremberg.

“This contract is a valuable addition to our growing portfolio of German rail businesses.

“The mobilisation of the two German rail contracts previously won and due to commence in 2019, is progressing well.”

The board said bid activities in targeted international markets were continuing as planned, with the company working on a bid for the latest bus contract to be announced for tender by the Land Transport Authority in Singapore, due to be awarded in late autumn.

“[We] are considering a number of other opportunities in existing and new markets.”

On the financial front, Go-Ahead said the process of refinancing its sterling bond was “well underway”, and was scheduled to be complete later this month, ahead of its maturity in September.

“As a result of lower interest rates, we anticipate finance costs to reduce in 2017/18.”