LONDON (Alliance News) - UK bus and rail operator Go-Ahead Group PLC Thursday raised its guidance for its current financial year, after its rail unit performed better than expected in the fiscal fourth quarter, and said it is expecting strong growth rates to continue in its next year.
The company owns 65% of the Govia rail joint venture with Keolis, which itself is a joint venture majority owned by French state rail operator SNCF. Govia currently runs the Southern, Southeastern and London Midland UK rail franchises, but last month was awarded the giant new rail franchise covering a swathe of southeast England that will combine the existing Southern, Great Northern and Thameslink franchises. That seven-year deal begins in September.
Ahead of that, Go-Ahead said its Southeastern franchise had delivered a good trading performance in the fourth quarter of its current financial year which ends June 28, while trading at Southern remained in line with its expectations. On top of that, energy costs had fallen.
"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," the company said in a statement.
Passenger revenue for the year to June 28 is expected to be up about 6% at Southern, 5% at Southeastern, and about 7% at London Midland, though the London Midland growth rate is beginning to slow, the company said. That's compared with 2012 when passenger numbers were boosted in June by the London Olympics.
Go-Ahead said it is continuing talks with the UK government about the planned extension of the Southeastern franchise to June 2018, and will also open talks on a planned extension for the London Midland franchise until June 2017.
The company also said it had experienced "solid" underlying growth in revenue in its deregulated bus operations outside London. It expects revenue to be up about 3.5% on the year. However, costs are up because it has increased mileage by about 1.5% compared with the last financial year.
It said its regulated London bus business "has perfomed well" during the year, with revenue expected to be up about 5%. Mileage growth declined slightly in the fourth quarter due to the timing of contract renewals, it said.
"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," it cautioned.
Still, the company said it expects its bus division to progress towards its 2015/16 operating profit target of GBP100 million, excluding amortisation and exceptional items, in its next financial year. It expects its rail business to perform in a similar fashion to this year.
It said that it now expects to end the current year with net debt of about GBP70 million due to its expectations for higher rail operating profit.
Go-Ahead shares were up 3.7% at 2,257 pence early Thursday, the third-biggest rise on the FTSE 250.
By Steve McGrath; stevemcgrath@alliancenews.com; @SteveMcGrath1
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