A poster informing passengers of industrial action by Southern Rail employees, stands on the concourse at London Victoria railway station in London, U.K., on Monday, Dec. 19, 2016. It is one of a number of industrial disputes that have hit the U.K. this holiday season, with strikes scheduled for the mail service, airport baggage handling and British Airways Plc cabin crew. Photographer: Chris Ratcliffe/Bloomberg
Poster informing passengers of industrial action at Victoria railway station in London © Bloomberg

Troubled transport group Go-Ahead suffered a fall in profits as its rail business weighed on its full-year results.

Pre-tax profits fell 5.7 per cent to £136.8m for the year ending on July 1 as strikes and operational issues undermined the performance of the rail and bus group.

Operating profits were also down 7 per cent over the same period to £150.6m, with profits from rail falling 16 per cent to £59.9m.

The company’s shares fell 8 per cent to £16.06 despite rising revenues and promises of more growth from abroad. Go-Ahead’s shares are down more than 25 per cent this year.

Revenue came in at £3.48bn, an increase of 3.6 per cent over the year before and slightly ahead of expectations.

The operator of the Southern rail franchise tried to steady investor nerves, saying a settlement reached with the government in July, under which it will pay £13.4m to fund improvements to the service, had reduced financial uncertainty. 

The company has been hit repeatedly by strikes but said service levels at Govia Thameslink Railway — a joint venture between Go-Ahead and France’s Keolis that runs the Southern franchise — were improving as the impact and level of industrial action reduces. 

David Brown, Go-Ahead’s chief executive, stressed a plan to generate 15 per cent to 20 per cent of group profit from international operations within five years and argued that the company’s troubles in the UK would help that growth.

“We aren’t taking a punt,” said Mr Brown. “When you take on a difficult complex contract, you have to assume there are going to be difficulties with it. We are able to take the learnings from what we have done.

“Although there are negatives in the UK those outside say you have to be in the UK to transfer those skills to the rest of the world.”

Martin Brown, an analyst at Shore Capital, applauded the target, but added that “with rail downgrades continuing, the absolute amount required to achieve this does appear to be getting smaller”.

Passenger numbers have suffered but if the strikes are not as disruptive in the future, then “service levels can continue to improve, and they can deliver for customers and investors”, said Alex Paterson, an analyst at Investec Securities.

Passenger revenue growth on the company’s Southeastern franchise also slowed and the company warned that it “is expected to continue as economic conditions impact customers’ travel patterns”.

The flagged loss of the company’s London Midland contract and a worsening outlook in rail troubled some analysts.

“The issues at GTR, while easing for passengers, are not getting any better for shareholders. Management originally expected to deliver a margin of 3.0 per cent over the life of the contract. In June 2016 this was reduced to 1.5 per cent and today this has been reduced to between 0.75 and 1.5 per cent,” said Mr Brown of Shore Capital.

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