Go-Ahead regional bus business falters as costs mount

By Noor Zainab Hussain

(Reuters) - Rail and bus operator Go-Ahead <GOG.L> slightly lowered its expectations for its UK regional bus division's annual financial performance, as it takes longer to bring a new Manchester bus company up to speed and battles costs.

The company said on Thursday it had seen driver and engineering costs rise in its regional bus unit and was working to lower expenses and address underperforming areas of the business.

Go-Ahead, which operates bus services in the UK, Ireland and Singapore, said this would result in one-off restructuring costs in the first half of the year, sending its shares more than 6% lower to 2,136 pence and pushing rival Stagecoach's <SGC.L> share price into the red too.

Analysts at Jefferies said Go-Ahead was still settling wage deals broadly in-line with inflation, but seeing more overtime and staff turnover.

Engineering costs had stemmed from the delayed delivery of new buses and parts, the analysts said, adding they expect financial year 2020 operating profit estimates to move down by 1-3%. Jefferies reiterated its "hold" rating of the stock.

Go-Ahead, with a fleet of nearly 6,000 buses and about 23% share of London's busy bus market, said it had withdrawn its X90 Oxford to London coach service as the competitive environment prevented it from making enough money.

Like-for-like revenue from the start of the financial year rose about 2.5% in the regional bus unit, while London and international buses clocked growth of about 8%.

Go-Ahead said it will take longer than previously expected to "sustainably" bring the Manchester bus business "up to the Go-Ahead standard", adding this would have a slight short-term impact on the division's financial performance in the current year.

The company said its overall expectations for its rail business in the current financial year remain unchanged, with good performance in its British operations offsetting the impact of a painful start to its first two contracts in Germany.

Its rail business has suffered setbacks like the loss of the London Midland franchise, while victory for the opposition Labour Party in Britain's Dec. 12 election could see the rail network returned to public ownership.

Infrastructure operator Network Rail, which controls stations as well as tracks, tunnels and level crossings, is already in the public sector.

However, companies like Go-Ahead operate services under limited-term contracts and under Labour's plans, the government would wait for these contracts to expire and then take operations back into public hands.

(Reporting by Noor Zainab Hussain and Yadarisa Shabong in Bengaluru; editing by Uttaresh.V and Toby Chopra)