Pre-close Trading Update
Good overall trading; rail performance ahead of management expectations
The Go-Ahead Group plc today announces its pre-close trading update for the year ending 28 June 2014 ahead of its full year results announcement on 4 September 2014.
David Brown, Group Chief Executive of Go-Ahead, said:
“Overall performance in our bus and rail businesses is good. Our full year expectations for our bus operations remain unchanged and we now expect the rail division to deliver operating profit ahead of our previous expectations, with second half profits slightly lower than first half.
“In May, we were delighted to be awarded the Thameslink, Southern and Greater Northern franchise by the Department for Transport and we are working hard to prepare for the start of the contract in September 2014. We look forward to delivering customer improvements and value for money for taxpayers through this important and complex franchise.
“Our regulated and deregulated bus operations continue to deliver a consistent performance and we remain on course to achieve our operating profit target of £100m by 2015/16.”
Bus:
Deregulated:
Solid underlying growth in revenue and passenger journeys has continued into the fourth quarter, with growth in both commercial and concessionary travel.
As previously reported, mileage has increased due to investment in our services and commercial contract wins. Mileage growth for the full year is expected to be around 1.5% which has resulted in higher associated costs.
Expected full year growth rates*:
Revenue
Passenger journeys
Total
(including Olympics)
Underlying
(excluding Olympics)
Total
(including Olympics)
Underlying
(excluding Olympics)
c.3.5%
c.4%
c.2%#
c.2%
#The Olympic contract was on a gross cost basis. Passenger journeys were not recorded.
Regulated:
Our London bus business has performed well during the year. Mileage growth declined slightly in the fourth quarter due to the timing of contract renewals. However, looking ahead to the next financial year we expect mileage to be largely flat with revenue growth anticipated to be broadly in line with inflation.
Expected full year growth rates*:
Revenue
Mileage
Total
(including Olympics)
Underlying
(excluding Olympics)
Total
(including Olympics)
Underlying
(excluding Olympics)
c.5%
c.6.5%
c.1%
c.1.5%
Rail:
Our rail division operates the Southern (including Gatwick Express), Southeastern and London Midland franchises through our 65% owned subsidiary Govia.
As a result of lower energy costs and better than expected operational performance in the fourth quarter, we now expect second half rail operating profit to be ahead of previous expectations, with second half profits slightly lower than first half.
Following the Government’s decision to limit January 2014 fare increases to RPI, we have seen a lower yield per passenger journey in the second half of the year. Passenger journey data across all companies continues to be impacted by changes in Travelcard allocations, inflating growth rates.
Expected full year growth rates*:
Passenger revenue
Passenger journeys
Total
(including Olympics)
Underlying
(excluding Olympics)
Total
(including Olympics)
Underlying
(excluding Olympics)
Southern
c.6%
c.6.5%
c.3.5%
c.4%
Southeastern
c.5%
c.6.5%
c.3%
c.5%
London Midland
c.7%
c.7.5%
c.4%
c.4.5%
Southeastern has delivered a good trading performance in the final quarter of the year. The franchise remains in 80% revenue support and will continue to deliver a seven-month extension on the original franchise terms until October 2014. As previously reported, this period will be unprofitable for the franchise. We continue discussions with the Department for Transport (DfT) regarding the planned extension of the franchise to June 2018.
As we reported in May, the rate of passenger revenue growth in the London Midland franchise is beginning to slow as a result of increased competition. London Midland has been awarded a seven-month extension which will run to March 2016, continuing on its original contract terms. We look forward to working with the DfT regarding the longer planned extension to June 2017.
Outlook:
Overall, trading across the Group has been good and we now expect to deliver a full year result ahead of previous expectations, driven by rail performance.
Due to our expectations of higher rail operating profit for the full year and slightly better working capital, we now anticipate net debt to be around £70m at the year end.
Looking ahead to next year, we expect our bus division to continue to make good progress towards our bus operating profit target of £100m by 2015/16. At this stage we expect a similar rail performance in the next financial year.
The Group remains in a good financial position with strong cash generation and a robust balance sheet, underpinning the dividend policy and allowing flexibility to pursue value-adding opportunities. We continue to focus on our key strengths of providing high quality, locally-focused and innovative transport services.
*The Olympic and Paralympic Games impacted on growth rates in the first quarter of the prior financial year. They have therefore been excluded for comparative purposes in these underlying figures.
N.B. Our £100m bus operating profit target excludes amortisation and exceptional items
