Go-Ahead positive despite slashing outlook for GTR

Passenger transport operator Go-Ahead Group released a pre-close trading update on Tuesday, in which it said its full year expectations for the year to 2 July remain the same.

The FTSE 250 firm’s chief executive David Brown said on an adjusted basis, the year will represent another year of strong profit growth, with the company remaining in a strong financial position with robust cash flows.

“Bus revenues in London and the regions continue to grow, with stronger growth in those regions with growing economies.

“The company expects to hit the £100m bus profit target on an adjusted basis.”

Brown said both the London Midland and Southeastern rail franchises were continuing to trade well - both train operating companies are part of Govia, which is a joint venture between Go-Ahead and Keolis.

Go-Ahead holds 65% of the Govia joint venture.

On the Govia Thameslink Railway - which operates the Thameslink, Great Northern, Southern and Gatwick Express services - Brown was more pessimistic.

“GTR continues to work closely with industry partners and to invest in additional resources to deliver the best possible service to its customers in a very challenging operational and industrial relations environment,” he said.

“As previously reported, the additional resources being invested in GTR to support service delivery are depressing margins on that contract in the current year and will also impact on next year's margins.”

Brown said while Go-Ahead expects margins at GTR to improve in the longer term, it no longer expects to recover profit shortfalls as a result of a very challenging performance and industrial relations environment.

“As a result margins, on an adjusted basis, over the life of the contract are now more likely to be nearer to 1.5% than the 3% previously expected.”

Govia Thameslink Railway was awarded a seven year franchise in 2014, however unlike previous rail franchises, Govia has been awarded a flat £8.9bn fee for the life of the franchise with the Department for Transport taking all the revenue.

Strikes have plagued Southern services this year, with ongoing “staff shortages” and a continued breakdown in industrial relations causing regular chaos for passengers.

On regional buses, Go-Ahead said it expected revenue growth of 2.1% for the year, while passenger journeys were down 0.2%.

London buses, which are measured in mileage, are expected to see revenue growth of 6% and mileage jump by 2.2%.

In the rail division, Go-Ahead has forecast revenue growth at Southeastern of 5.1% and passenger journey growth of 2.3%, while London Midland is expected to report passenger revenue 11.2% higher and passenger journeys 8.8% higher.

Govia Thameslink Railway passenger revenue is forecast at 3.1% higher, Go-Ahead said, with passenger journeys rising 2.9%.

Go-Ahead is due to release its full-year results on 8 September.