Go-Ahead shares price slumps after Thameslink profit warning
Go-Ahead's share price has slumped over 16 per cent after it announced profits expected from Thameslink would be sharply less than expected.
In a trading update, Go-Ahead said the cost of extra investment in Govia Thameslink Railway (GTR) would halve its expected profit margins over the contract's lifetime.
It said that the expected profit margin is now 1.5 per cent, cut from a forecast of three per cent.
Govia is a joint business venture with Keolis, a French partner. It was awarded an £8.9bn seven-year contract to run services in 2014.
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But Govia agreed to the risk of taking on extra costs, having pledged to run more trains and install new rolling stock.
It also said that hiring and training more drivers, buying new trains and installing free Wi-Fi was going to cost more than expected.
"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," said David Brown, chief executive of Go-Ahead.
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"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.
"While we do expect margins to improve in the longer term; given the very challenging performance and industrial relations environments, we no longer expect to recover the profit shortfalls and as a result margins, on an adjusted basis, over the life of the contract are now more likely to be nearer to 1.5 per cent than the three per cent previously expected."
GTR has already faced criticism after the rebuild of London Bridge station caused significant disruption after it failed to predict the impact the development would have on its Thameslink route.