UPDATE: Go-Ahead Group Expects To Meet Expectations

24th Jun 2010 09:18

(Adds comment.) By Kaveri Niththyananthan Of DOW JONES NEWSWIRES LONDON (Dow Jones)--Bus and rail company Go-Ahead Group PLC (GOG.LN) Thursday remained cautious on the near-term prospects for the U.K. economy but said it was confident it would meet its expectations for the fiscal year and that maintaining its dividend was a priority. Finance Director Nick Swift told Dow Jones Newswire his cautiousness on the U.K economy centered on the falls in public expenditure and the planned increase in value-added tax to 20%, which will crimp consumer spending when it comes into force Jan 4. as the government attempts to tackle a budget deficit that will stand at 11% of Gross Domestic Product, or GBP155 billion for the fiscal year ending 2011. He praised the new coalition government for taking a more commercial approach, adding it is considering extending rail franchises beyond the current five- to seven-year tenures and will encourage operators to invest more heavily and to weather economic downturns more easily. However, Swift called for the government to step away from procurement-style contracts and instead work with operators as joint-venture partners where revenue could be shared 50/50, which, he said, would be a more stable approach to running rail franchises and would encourage both sides to boost the top line. He warned reductions in fuel duty rebates could force some independent bus operators to go under, while Go-Ahead may be forced to raise fares. Go-Ahead said its bus operations continued to perform well and it expects operating profit for the fiscal year to July 3 will be around GBP63 million compared with GBP66.6 million a year earlier. It expects revenue and mileage across its U.K.-regulated London bus operations to rise 6% over the 12-month period. However, on a like-for-like basis, it is expected to be just under 2%. Revenue and passenger numbers at its deregulated bus operations are expected to rise 7%, but, on a like-for-like basis, growth in passenger numbers will be 3% and revenue growth will be 4%, the company said. In its rail division, operating profit for the year should be about GBP34 million compared with GBP61.5 million a year ago. For the next financial year, it expects operating profit margin to fall, the company said without explanation. At its Southern franchise, it expects revenue to show growth of about 9%, with just over half that increase down to passenger numbers. Fiscal year passenger revenue growth at Southeastern is expected to be about 7%, supported by a slight increase in passenger numbers. At London Midland, passenger revenue was expected to be up 9% and the company said it is making progress on cost control. It said its North American yellow bus joint venture is making good progress and that it increased the number of buses to 120 from 100 but will maintain its "cautious approach to expansion in this market." The company said its cash flow, balance sheet and financing are strong, and it intends to maintain dividends at current levels. Last year it paid out 81 pence per share in dividends. At 0811 GMT, Go-Ahead's shares traded down 88 pence, or 6.7%, at 1231 pence, making it one of the biggest fallers in the FTSE 250 index, which traded down 0.9%. Bank of America Merrill Lynch said in a research note that trading was broadly in line but it described the outlook as cautious. It has a neutral rating on Go-Ahead's shares. -By Kaveri Niththyananthan, Dow Jones Newswires; 4420 7842 9299; [email protected] (END) Dow Jones Newswires June 24, 2010 04:18 ET (08:18 GMT)