British bus and train operator Go-Ahead Group warned on Friday that the impact of rising fuel costs and reduced subsidies would hurt its full year profits, sending shares in the transport sector lower. The outlook came as the company reported it had met forecasts with a 14.5 percent rise in underlying first-half profit.
Chief Executive Keith Ludeman said while he expected rail passenger numbers to continue rising, "reduced subsidies and increased profit share are expected re Gordon analyst Gert Zonneveld said Go-Ahead had to face the potential negative impact of an economic slowdown combined with next year's expiry of its most profitable rail franchise, Southern.
"Rail uncertainties are likely to hold back the shares in the foreseeable future. The rail division accounts for nearly half of Go-Ahead's clean operating profit," he said. Go-Ahead shares fell as much as 19 percent to a 17-month low at 1,816 pence before recovering to 1,860 pence by 1330 GMT, valuing the company at 790 million pounds ($1.55 billion).
Other transport companies were also hit. FirstGroup Plc shares fell 7.4 percent, National Express Group Plc lost 6.0 percent, and Stagecoach Group Plc was down 10.4 percent. Ludeman said Go-Ahead had no fuel price-hedging in place beyond the end of its current financial year in June. Every penny on the price of a litre of diesel cost about 1 million pounds, and the company was looking for a price in the "low 30s" pence before hedging, he said. The price is currently around 35 pence a litre.
So while he forecast further growth from buses, "this is likely to be adversely affected by increased fuel costs". Ludeman said Go-Ahead would build on progress made to restore its aviation services businesses to profit. Go-Ahead made a pretax profit before exceptional items and amortisation of 58.3 million pounds ($115 million) in the half year to December 29, on revenue up 12.3 percent at 1.03 billion pounds. It raised its interim dividend 11 percent to 25.5p. Go-Ahead booked an 8.2 million pounds charge against its loss-making Go West Midlands bus operations "whilst we review options for the business". Go-Ahead also runs regulated buses in London and deregulated bus services around Britain, mainly in the northeast and southern England.
Its rail division, which includes the London Midland, South-eastern and Southern franchises, is operated via a 65 percent-owned joint venture with French peer Keolis. The London Midland franchise started last November, and the Southern franchise expires in September 2009.
The South-eastern franchise will include the operation of new high-speed trains on the domestic Channel Tunnel rail link into London St Pancras station from late 2009.
Separately on Friday, British finance minister Alastair Darling said the Department for Transport was "very focused" on the performance of FirstGroup's First Great Western franchise which operates in west and south-west England and south Wales.
Darling, visiting Bristol, west England, told reporters: "I know there have been very great problems with this particular franchise that have gone on far too long.
First Great Western made headlines earlier this year when passengers staged a ticket strike to protest about overcrowding, cancelled services, late trains and the rising cost of travel.