Go-Ahead shares fell 15% after the rail and bus operator said its contract to run the GTR train service, which includes Thameslink, would be less profitable than expected.
In a trading update brought forward from next week, Go-Ahead said the cost of extra investment in GTR would halve profit margins for the contract’s duration to 2021 to 1.5% from a forecast of 3%.
Go-Ahead shares fell to £20.70 as investors reacted to the news on Britain’s biggest rail franchise, won by Go-Ahead and its French partner, state-owned Keolis, two years ago.
The GTR network takes in the Thameslink commuter service from Brighton through London, the Great Northern service from London to Kings Lynn and Southern, which includes the Gatwick Express.
Go-Ahead and Keolis started operating the service in September 2014 and agreed to be paid a flat fee by the government of about £8.9bn. Govia, Go-Ahead’s joint venture with Keolis, took on the risk of extra costs after pledging to install new rolling stock and run more trains to win the franchise.
The UK company said hiring and training hundreds of train drivers, buying new trains and installing free Wi-Fi at GTR would cost more than expected. It also highlighted fraught industrial relations at GTR where conductors and drivers are in dispute over the introduction of driver-operated trains.
David Brown, Go-Ahead’s chief executive, said: “GTR continues to work closely with industry partners and to invest in additional resources to deliver the best possible service to its customers in a very challenging operational and industrial relations environment.
“As previously reported, the additional resources being invested in GTR to support service delivery are depressing margins on that contract in the current year and will also impact on next year’s margins.”
Brown said margins would improve as the contract wears on but Go-Ahead no longer expects to make up profit shortfalls. He said overall the company would have strong profit growth in the financial year to 2 July, in line with market expectations. The London Midland and Southeastern rail franchises, also operated by Go-Ahead are trading well, Brown said.
Brown said in February Go-Ahead’s service had to improve after it reported a 17% rise in first-half profit as a survey showed Thameslink and Southeastern had the worst customer satisfaction results among rail users.
