Go-Ahead rail operating profits slump by 25.7%
Operating profits in Go-Ahead Group’s rail division fell by 25.7% in the 12-month period ending June 30 2018, from £59.9 million to £44.5m. Total revenue fell by £51.8m (2%) to £2.53 billion.
Govia Thameslink Railway (GTR) reversed a 3.9% decline in passenger journeys in the previous year to record a 2.1% increase, alongside a 7.7% rise in passenger revenue (against a 4.1% fall the year before).
However, GTR and Southern recorded a £10m fall in operating profits compared with the previous year. The profit margin over the life of the contract is expected to be between 0.75% and 1.5%.
On Southeastern, passenger revenue grew by 0.6 percentage points (from 3.2% to 3.8%), with passenger numbers also rising faster than in the previous year (1.4% more carried). This follows the resumption of full services at London Bridge station after three years of rebuilding.
This franchise contributed £16.2m to the Department for Transport, via the profit sharing mechanism in the Direct Award contract under which it has operated since October 2014. Operating profits for Southeastern rose by £10.4m in 2017-18.
London Midland ceased operations on December 10 and recorded a £13m fall in operating profits compared with the previous financial year. However, Go-Ahead says assets with a net book value of £6.1m were sold to the incoming operator for £12.5m, resulting in a £6.4m profit on disposal.
Go-Ahead spent £13.9m on rail bids and contract mobilisation, although these primarily related to German rail contracts, the South Eastern franchise bids and bids for contracts in the Nordic countries.
Capital expenditure fell slightly from £29.2m to £27.1m, predominantly on GTR, which included station improvements and ticket machines. Depreciation more than doubled to £20.9m - the group says this reflects the high level of capital expenditure which is being depreciated over the life of the franchise.
Looking ahead, the company says it expects revenue and passenger journey growth on Southeastern to continue to improve, but that it expects the financial performance of the rail division to be affected by the expiry of London Midland and the scheduled end of the South Eastern franchise, which is due to finish on March 31 2019.
Discussions between Go-Ahead
and the Department for Transport (DfT) on a number of contractual variations on the GTR franchise are said to be ongoing, but the group says the impact on profitability is expected to be plus or minus £5m.
However, the group defended itself about poor performance following the May timetable change, saying: “These shortfalls are, in large measure, attributable to failings across the industry and are not the sole responsibility of GTR.”
It said discussions are continuing with the Department to apportion accountability for performance shortfalls, and acknowledged that it is possible the DfT will determine that a “sufficient part of these failings” are down to GTR and that it is in breach of its contractual obligations.
The company said the DfT could choose to require the production of a remedial plan, impose penalties, or seek to terminate the contract. In the latter case, Go-Ahead said it would contest costs the DfT might seek to recover from GTR, and that it is committed to working with the Department to resolve “long outstanding contract variations which support the delivery of new services and will address remaining contractual performance issues”.