Monday, 11 September 2017

Go Ahead Full Year Results 2017

"Challenging market and trading conditions in our bus and rail businesses"

Business overview
•   Results in line with expectations
•   Bus and rail operating profit at £90.7m (2016: £91.2m) and £59.9m (2016 restated: £71.4m), respectively
•   GTR service levels improving after impact and level of industrial action reduces
•   Agreement reached in July with the DfT on GTR contractual variations relating to industrial action has reduced financial uncertainty
•   Maintained sector-leading performance in customer satisfaction in regional bus, with score of 90%
•   Southeastern achieved the largest ever improvement in customer satisfaction of any UK rail operator
•   Proposed final dividend increase of 6.5%, in line with rise in interim dividend, resulting in a full year dividend of 102.08p
•   Clear strategy of protecting and growing our core business, winning new bus and rail contracts, and developing for the future of transport

International development

•   Progressing towards a new target for international operations to contribute 15% to 20% of Group profit within five years
•   Bus contract in Singapore commenced and delivering high performance levels
•   Third German rail contract secured and bus contract won in Dublin

•   Actively exploring further bus and rail opportunities in Nordic region and Australia

David Brown, Group Chief Executive, commented:

“Looking back on the year, our resilient business model has enabled us to operate through challenging market and trading conditions in our bus and rail businesses. If not for some one-off costs in regional bus, we would have seen profit growth, rather than the consistent performance delivered year on year.

 In London bus, we saw profit in what is a highly competitive market. While it was disappointing to be unsuccessful in our bid to retain London Midland, progress in our international strategy will see some of the lost revenue from the franchise replaced with contracts in the targeted markets of Singapore bus, Dublin bus and German rail.

“The UK rail network is one of the busiest in the world, with the number of annual passenger journeys more than doubling since privatisation in the 1990s. That is why significant investment is being made in infrastructure improvement projects, such as the Thameslink Programme, which we are delivering through Southeastern and GTR, to ensure network capacity grows and reliability improves. Unfortunately, as with any large-scale improvement programme, some disruption is inevitable before the long term benefits to improve the daily journeys of hundreds of thousands of people are delivered.
“We apologise to our Southern passengers who have been inconvenienced for many months by disruption caused by industrial relations issues. Service levels are beginning to improve but there is still a lot of work to be done to provide the level of service we and our customers expect. Our primary aim is to improve the experience for our passengers and we are resolute in this commitment.
“Go-Ahead’s regional bus operation received the highest levels of customer satisfaction in the sector, up to 90% in the latest survey and exceeding the levels of satisfaction achieved by some of Britain’s best-loved brands. Our local bus businesses are focused on improving customer experience, including making it easier to pay for travel. During the year, the latest contactless technology was introduced across a number of our operations. We plan for contactless payments to be available to every Go-Ahead bus customer by the end of the year.

“Our international development strategy is progressing well and, with five contracts won in three new markets, today we announce a target of 15% to 20% of Group profit to be generated from international operations within five years. We will continue to bid in markets that match our investment criteria, and where we can use our skills and experience to improve local transport services. In addition, we’re looking at opportunities that address future transport needs, complementing our existing operations and utilising our expertise and assets. This includes deploying our spare depot capacity in new ways and delivering new services for our customers.
“As one of the UK’s largest providers of public transport, Go-Ahead plays a vital role in building a thriving economy and connecting communities. By providing essential bus and rail services, we help people connect with each other and get where they want to go. We believe in creating shared value for our many stakeholders. We strive to deliver high quality services for our customers and sustainable returns for our shareholders. Our 29,000 employees, who are at the heart of the communities we serve, are key to our success and we believe in taking care of them. Effective partnership working is vital to delivering efficient transport systems; we work closely with key strategic partners to deliver improvement and change.
“The Group remains in a good financial position, with a robust balance sheet, allowing us to invest in our core UK businesses and providing flexibility to pursue value-adding opportunities in new and existing markets.”

Financial outlook

Regional bus trading in the early part of the year has been consistent with the fourth quarter of the prior year. We expect a slight improvement in performance as one-off costs in 2016/17 no longer impact results.

The London bus business has secured almost all its revenue for the coming year. However, increased competitive pressure has resulted in some recent contract losses which will have a slight impact on performance in 2017/18. This position is expected to improve when the market stabilises.
In rail, having been unsuccessful in the bid to retain the London Midland contract, the franchise will end on 10 December 2017 reducing profitability in 2017/18. The slowdown in the rate of growth in Southeastern passenger revenue is expected to continue as economic conditions impact customers’ travel patterns. This also reduces our expectations of rail division profitability for the current financial year.
As previously announced, discussions between GTR and the DfT about service changes and rolling stock cascades are ongoing. The outcomes of these discussions, relating to events up to 1 July 2017, is that the impact on rail profitability is likely to be within a range of plus or minus £5m. In addition, we now expect margins over the life of the GTR contract to be between 0.75% and 1.5%.
Internationally, we will be working towards our target of generating 15% to 20% of Group profit from operations outside the UK within five years.