Transport group issues revenues warning after loss of rail franchise

London Midland

The parent of London Midland has warned shareholders the loss of the rail franchise will impact its revenue prospects moving forward.

In its full-year results statement, the Go-Ahead Group said it was disappointed the Department for Transport had awarded the West Midlands contract to a rival bid.

In a double-dose of bad news for shareholders, the group said slowing growth in sister franchise, Southeastern would likely continue.

It said: “Having been unsuccessful in the bid to retain the London Midland contract, the franchise will end on 10 December 2017 reducing profitability in 2017/18.

“The slowdown in the rate of growth in Southeastern passenger revenue is expected to continue as economic conditions impact customers’ travel patterns.

“This also reduces our expectations of rail division profitability for the current financial year.”

The gloomy forecast sent a chill through investors, with the group’s share price falling almost 10% at one stage.

The company, which also operates bus services in London, said its UK rail strategy was now focused on restoring service and value to its Thameslink operation, while continuing to bid for other new franchises when they became available.

It will also explore international opportunities with the aim of making these responsible for up to 20% of group profit within five years.

David Brown, group chief executive, said: “London Midland and its people have been part of our group’s rail business for ten years. In that time we have delivered significant improvements across the entire network which have seen London Midland transformed into an award-winning franchise with high levels of employee engagement and customer satisfaction.

“While we’re disappointed not to retain the franchise, we’re confident that we submitted a robust, high quality and price-disciplined bid.”

During the year to July 30, London Midland like for like passenger revenue grew by 5.2% (2016: 9.3%) and passenger numbers increased by 4.1% (2016: 5.9%).

The franchise, originally awarded in 2007, made profit share contributions of £8.7m to the DfT in the year, as performance exceeded expectations.

It said it expected London Midland to continue making contributions through its profit share mechanism until the franchise ends on December 10.

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