The Go-Ahead Group has provided the below trading update for the year ending 27 June 2020, ahead of the Group’s full year results scheduled to be announced on 10 September 2020.
- During the COVID-19 crisis, we have three priorities: to safeguard the health and wellbeing of our colleagues and customers; to play our role in society in challenging times; and to protect our business.
- Go-Ahead has a resilient business model, with limited exposure to changes in passenger demand, and government support in all divisions.
- We are providing vital regional bus services in England supported by an essential Government funding package, which the Department for Transport has indicated will continue beyond June 2020.
- London & International bus performance is robust through contracts in London, Singapore and Ireland.
- Resilient financial performance in UK rail franchises offset by weaker than expected German rail operation.
- The Group has strong fundamentals. It is cash generative and is expected to have around £200m* available in unutilised facilities and cash at the year end. The Bank of England has confirmed our eligibility for up to £300m additional financing through its COVID Corporate Financing Facility. Adjusted net debt to EBITDA is expected to remain within target range at the year end.
- With the impact of COVID-19 and support measures, overall Group operating profit for the year ending 27 June 2020 is now expected to be in the range of £63m to £75m (£54m to £66m on a pre-IFRS 16 basis).
* Underlying liquidity has improved since the half year ended 28 December 2019. However, the total cash available has reduced as a result of around £80m of UK rail cash currently being classified as restricted due to the terms of the EMA.
Go-Ahead Group Chief Executive, David Brown, said: “The last nine weeks have been unlike any other, and I am extremely proud of how my colleagues across the business have responded, keeping vital services running for other key workers and increasing service levels to provide safe travel as people return to work. I thank them all for the part they are playing.
“Go-Ahead is an extended family of 30,000 people and our priority is safeguarding their health and wellbeing. Our thoughts are with our colleagues who are currently unwell as a result of COVID-19, and the families and friends of our people who have tragically lost their lives.
“Our businesses are key parts of the communities they serve and they have been fundamental in supporting these communities through this crisis. This support has come in many forms; we have amended timetables to align with hospital workers’ shift patterns, run shuttle services to hospitals and supported victims of domestic abuse to reach safe places. We have also supported efforts in tackling the crisis by bottling and distributing hand sanitiser for key workers, delivering food packages to those in need, and transporting medical equipment.
“We are pleased that governments have recognised the importance of essential public transport networks. By providing financial support they are enabling the delivery of vital transport links for key workers and supporting the recovery of our communities.
“While none of us know what the coming months will bring, I have no doubt that public transport will continue to play a critical role in society, supporting our economies and tackling climate change long into the future. Go-Ahead has a strong track record of delivery, and with a high proportion of secured revenues we are well positioned to protect our business for the long term.”
Details on the rail market
Both GTR and Southeastern franchises are currently operating around 75% of typical service levels, as specified by the DfT.
GTR
Following the DfT’s announcement on 23 March 2020, regarding the introduction of an Emergency Measures Agreement (EMA) to support rail operators until September 2020, GTR has been operating under these terms. The EMA has a maximum management fee of 2% of the pre-pandemic cost base, back dated to 1 March 2020, comprising a management fee of around 1.5% and a 0.5% performance-related payment. For the period it covers, initially until September 2020, the EMA contract restricts cash payments from the train operator to the owning group. While GTR was already a management contract, the new terms remove exposure to changes in the cost base and ancillary revenue such as car parking and retail commission.
Southeastern
As previously reported, Southeastern began operating an 18-month (plus six-month extension option) direct award contract (DAC) on 1 April 2020 running to 16 October 2021. The terms of this new management contract mirror those of the EMA introduced across the rail industry, but for the duration of the DAC. As with GTR, cash restrictions are also in place under the terms of Southeastern’s contract.
Germany
We are currently operating around 70% of contracted services in our German rail business, having operated around 55% throughout April. We expect to resume a full-service during June.
As reported in our half year results, the early stages of our rail contracts in Baden-Württemberg have been challenging. Issues around availability and reliability of rolling stock, and driver shortages have impacted operational performance and service reliability, resulting in penalties and unplanned costs being incurred.
While the reduced service levels in response to COVID-19 have enabled us to deliver strong operational performance during this time, the underlying challenges in this business remain, particularly driver numbers which remain below the levels required to operate a full service, and the pandemic has inevitably delayed our driver training programmes.
While we are now operating with expected levels of rolling stock, progress in recovering losses associated with the late delivery of trains from the rolling stock provider has been slower than anticipated. As a result, we now expect a more material loss from the German business for the full year.
In light of ongoing challenges, a comprehensive review of our German rail business is underway including an assessment of longer-term financial expectations.
Norway
As specified by our transport authority client, we are currently operating around 80% of contracted services in our Norwegian rail business. This has increased from around 50% in April, as restrictions begin to be lifted in Norway. While this is a revenue risk contract, the Norwegian government has supported the rail industry with a 12-week funding package back dated to 11 March, expected to cover the lost revenue for this period. Discussions are underway regarding ongoing funding to support increasing service levels while demand remains supressed.
Rail division financial expectations for 2019/20
For the full year ending 27 June 2020, we expect operating profit for the overall rail division to be in the range of £nil to £4m (-£8m to -£4m on a pre-IFRS 16 basis), with the loss in German rail offsetting profit from the UK rail business.
Click here for the full trading statement.
Photo credit: Busik/Shutterstock.com
