Transport company Go-Ahead Group PLC (LON:GOG) shares dropped as its full-year profits took a hit after labour strikes on Southern railways.
Go-Ahead, the majority owner of Southern’s operator Govia Thameslink Railway (GTR) said operating profit fell 7.4% to £150.6mln in the year to 1 July from £162.6mln last year.
Operating profit margins fell to 4.3% from 4.8%, particularly subdued by GTR.
Pre-tax profit dropped 5.7% to £136.8mln from £145.0mln the prior year. Revenue, however, rose 3.6% to £3.4bn from £3.3bn, as growth in its bus operations and West Midland and Southeastern rail divisions offset a decline in GTR.
The company, which lowered its full-year profit forecast in February following the strikes at Southern, said its results were in line with expectations and that it has set a target of generating 15% to 20% of its profit from outside the UK within five years.
Chief executive David Brown apologised to Southern passengers affected by the disruption caused by industrial action.
"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,” he said.
READ: Southern Rail owner Go-Ahead fined £13.4mln over travel chaos
Lost West Midlands franchise to impact profits
Go-Ahead warned that it expects profits in the next year to be hurt by its failure to retain its West Midlands rail franchise. Govia, the company’s venture with Keolis, lost the contract to a Dutch-Japanese joint venture last month after running the network in central England for 10 years. The franchise will end on 10 December 2017.
READ: Go-Ahead going down as it loses West Midlands rail franchise
“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,” said Brown.
A slowdown in revenue growth in Southeastern passenger revenue is also expected to continue, reducing the group’s expectations of rail division profitability for the current financial year. Southeastern saw a decrease in passenger numbers during in the year with Go-Ahead blaming changes in travel patterns due to “economic conditions”.
Meanwhile, discussions between with the Department of Transport and GTR about service changes and rolling stock cascades are ongoing and likely to impact on rail profits by “plus or minus” £5mln.
Go-Ahead expect margins over the life of the GTR contract to be between 0.75% and 1.5%.
Go-Ahead hikes final dividend
The final dividend was raised to 71.91p per share from 67.52p last year, taking the total payment for the year to 102.08p, up from 95.85p the previous year.
Free cash flow fell to £32.9mln from £68.2mln and the company ended the period with net cash of £230mln, down from £323.0mln last year. Adjusted net debt grew to £285.8mln from £239.3mln.
"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,” said Brown.
Shares fell 4.46% to 1,681p in early trading.