Go-Ahead expects £15m hit to profits after sorting rail disputes

Published on : Tuesday, February 28, 2017

Go-Ahead expectsDetailed negotiations between rail company Go-Ahead and the Government relating to compensation for the fallout from industrial action on Southern trains will be required as the group warned of a potential £15m hit to profits due to the dispute.

 
The Govia Thameslink franchise, which encapsulates Southern, Southeastern and London Midland, has been dogged by strikes undertaken by unions since April last year and while the company said it had “a measure of protection” within the contract, the finer details of potential compensation are likely to be complex and difficult.

 
This is because the company will want to know, for instance, if it is entitled to compensation for disruption which occurs on the day after official strike action has finished because its trains are in the incorrect locations due to the prior day’s industrial action.

And the issue will become further protracted after the Rail, Maritime and Transport union voted in favour of strike action on Monday, March 13 on Southern on the contested issue of whether drivers or guards should be responsible for closing train doors. The RMT will also strike on Northern and Merseyrail on the same day.

 
This strike action was announced just hours after Go-Ahead said there could be as much as a £15m hit to its full-year profits because of the disruption on Southern. Earnings could rise by as much though, management said, if negotiations with the Department for Transport are successful.

 
The rail and bus group, reporting its results for the six months to December 31, said rail revenues rose 2.2pc to £1.26bn for the period but operating profit in this division dropped 35pc to £26.9m. This was the only division to see a drop in profits but was enough to drag group-wide pre-tax profit down 11.7pc to £67m.

 
Chief executive David Brown said roughly 40pc of trains on the Southern network operated with drivers controlling the closure of doors and that the safety of such a system had been approved by independent bodies.

 
Sales at Go-Ahead’s bus business rose by 5.5pc to £446.8m in the first six months of the year even though trading in the north east and Oxford had been “challenging”.

 

Management said passenger volumes had been subdued due to road congestion and lower high street footfall. There were also specific issues, such as in Oxford, where city centre redevelopment schemes have created traffic jams.

 
Revenue in its London bus division rose by 2.8pc to £259.2m. Congestion in the capital is also an issue because bus operators are paid a bonus for punctuality. This is known as a QIC bonus, but Go-Ahead said it was becoming “harder to run a reliable bus service” and so earn these payments.

 
Mr Brown said the company received more QIC payments than the previous year but less than the year before that. He noted the rise in the number of companies delivering goods as well as reduced road space in the capital due to cycle superhighways as issues which increased congestion.

 
In the UK, the company is bidding against Abellio to keep control of the London Midland franchise, the outcome of which will be announced later this year.

 
The Govia rail franchise is jointly owned by Go-Ahead with France’s Keolis. The company’s shares dropped 14pc yesterday morning to £19.96.

 
The company continues to focus efforts on overseas expansion with German rail franchise work due to begin in 2019 and management working on other bids it expects to submit this year. It has also established a bid team in Sweden to co-ordinate bids in Scandinavia. It has been shortlisted for a rail contract in Sweden and is now able to compete for Norwegian business too.

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