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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Go-ahead Group Plc | LSE:GOG | London | Ordinary Share | GB0003753778 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 1,546.00 | 1,546.00 | 1,548.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
TIDMGOG
RNS Number : 9594Z
Go-Ahead Group PLC
06 September 2018
The Go-Ahead Group plc 4 Matthew Parker Street, London, SW1H 9NP Telephone 020 7799 8999
PRESS RELEASE
THE GO-AHEAD GROUP PLC
("GO-AHEAD" OR "THE GROUP")
FULL YEAR RESULTS FOR THE YEARED 30 JUNE 2018
Business overview
-- Good progress made in all three strategic pillars: protect and grow the core; win new bus and rail contracts; prepare for the future of transport
-- Overall results ahead of expectations
-- Bus operating profit pre-exceptional items at GBP91.4m (2017: GBP90.7m); regional bus achieved highest ever passenger satisfaction score (91%)
-- Rail operating profit at GBP44.5m (2017: GBP59.9m), due in part to the expiry of the London Midland franchise in December 2017
-- GTR impacted by industry implementation of May timetable change; reliability significantly improved since subsequent July timetable amendment
-- Southeastern rail franchise extended to 1 April 2019; shortlisted for the replacement franchise
-- Further progress towards our international target; won second bus contract in Ireland and fourth rail contract in Germany
-- Successfully launched UK's largest demand responsive bus transport service
-- Maintained full year dividend of 102.08p (2017: 102.08p)
Financial summary
Hot Features
Premium
Increase/
(decrease)
FY'18 FY'17 %
================================================= ======= ======= ============
Revenue (GBPm) 3,461.5 3,481.1 (0.6)
================================================= ======= ======= ============
Operating profit pre-exceptional items (GBPm) 135.9 150.6 (9.8)
================================================= ======= ======= ============
Profit before tax (GBPm) 145.7 136.8 6.5
================================================= ======= ======= ============
Basic earnings per share pre-exceptional items
(p) 181.6 207.7 (12.6)
================================================= ======= ======= ============
Basic earnings per share after exceptional items
(p) 207.2 207.7 (0.2)
================================================= ======= ======= ============
Proposed full year dividend per share (p) 102.08 102.08 -
================================================= ======= ======= ============
Increase/
(decrease)
FY'18 FY'17 GBPm
========================================================= ===== ===== ===========
Cashflow generated from operations (excluding restricted
cash) (GBPm) 232.8 224.4 8.4
========================================================= ===== ===== ===========
Free cashflow (GBPm) 57.7 11.6 46.1
========================================================= ===== ===== ===========
Adjusted net debt (GBPm)* 289.0 285.8 3.2
========================================================= ===== ===== ===========
Adjusted net debt/EBITDA* 1.30x 1.30x
========================================================= ===== ===== ===========
* Adjusted net debt is net cash less restricted cash
David Brown, Group Chief Executive, commented:
"I'm pleased to report full year results that are ahead of our expectations. Our bus operations performed resiliently with profits slightly up on last year despite a challenging market environment. Rail profits fell partly due to the expiry of the London Midland franchise in December, but one-off disposal gains at the end of the franchise and some cost improvement benefits at Southeastern led to a better performance than originally expected.
"Our regional bus business received customer satisfaction levels of 91%, the highest ever recorded in the sector. Our London bus business also improved its operational performance with punctuality levels 12.5% better than last year. In rail, the timetable change in May was the largest in decades and will deliver substantial customer benefits. In Southern, the timetable change supported continuing improvement, with services now operating at the highest level of reliability since before the start of the current franchise.
"In Thameslink and Great Northern, collective industry failures over the timetable change resulted in a period of service performance which was severely below our expectations and those of our customers. We are sorry for the significant disruption that the change caused to our passengers and are working very hard with the rest of the industry to improve the service. The interim timetable that has been in place since mid-July is providing a much improved train service in terms of both reliability and punctuality. More services will be introduced over the coming months.
"Our international strategy has progressed well with two further contract successes - a second bus contract in Ireland and a fourth rail contract in Germany. Annualised revenue from the seven international contracts secured to date is now around GBP250m, and there is a good pipeline of upcoming opportunities in our target markets. We remain on track to meet our target of generating 15% to 20% of Group operating profit from international operations by 2022.
"As we look ahead, we recognise that future transport needs of customers and society are changing, and we are actively pursuing initiatives to further benefit our customers. Projects include the launch of the UK's largest demand responsive bus transport trial of high-quality minibuses in Oxford, working with logistics partners on utilising our spare depot capacity, environmentally friendly car sharing schemes, developing Mobility as a Service apps for end-to-end journeys, and launching a business accelerator programme for start-up and scale-up businesses looking to shape the future of transport.
"Go-Ahead is one of the UK's largest providers of public transport and we have a crucial role in building a thriving economy, connecting people and communities, reducing congestion and improving air quality. We are focused on doing business in the right way and strive to deliver value for all our stakeholders - great services for our customers; an attractive workplace for our people; sustainable returns for our shareholders; effective partnerships with government and suppliers; and connecting communities.
Outlook
"For the Group overall, we expect to deliver a robust performance in 2018/19, taking into account the expiry of the London Midland franchise last year which contributed positively for the first six months of 2017/18. We expect free cash flow generation to be strong, resulting in a further reduction in net debt excluding restricted rail cash.
"Looking forward, we remain confident that we are in a good position to deliver long term value for all our stakeholders and deliver our vision of a world where every journey is taken care of."
SNotes to editors
The annualised revenue figure of cGBP250m relates to annual revenues that we estimate we will derive from the international contracts that we have won. This includes expected annual revenues on a bus contract in Singapore, two bus contracts in Ireland and four rail contracts in Germany.
For further information, please contact: The Go-Ahead Group David Brown, Group Chief Executive 020 7799 8971 Patrick Butcher, Group Chief Financial Officer 020 7799 8973 Mitesh Kotecha, Interim Head of Investor Relations 07973 698 187 Citigate Dewe Rogerson 020 7638 9571 Michael Berkeley/Chris Barrie/Angharad Couch/Toby Moore
David Brown, Group Chief Executive, and Patrick Butcher, Group Chief Financial Officer, will be hosting a presentation for investors and analysts at 9.00am today at The London Stock Exchange, 10 Paternoster Square, London EC4M 7LS.
A live audio webcast of the presentation will be available on Go-Ahead's website - www.go-ahead.com. The presentation slides will be added to Go-Ahead's website www.go-ahead.com at around 7:30am today
Chairman's LETTER
Dear Shareholder,
The provision of an effective, safe and efficient public transport system is crucial to the lives of the people and communities we serve. As a leading provider of public transport services, we play a vital role in getting people to their work, leisure, shopping and other destinations, and in connecting communities.
As well as being focused on delivering good shareholder returns, including an attractive dividend, we believe in delivering value to a wide range of stakeholders. It is our strong belief that the delivery of shareholder value is totally consistent with, and dependent upon, delivering for our customers, our colleagues and our partners in an environmentally responsible and sustainable way.
Shifts in the socio-economic and technological landscapes are changing the way in which we all go about our lives. This includes changes in the way we work, the way we shop, and the consequent impact on our transportation needs and preferences. These changes create both challenges and opportunities. At Go-Ahead, we have adopted a forward thinking approach, by adapting our business to these changes to deliver improvements that will create long term benefits for all our stakeholders.
Our strategy
We have a clear and defined strategy with three core pillars: to protect and grow our core businesses; to win new bus and rail contracts; and to develop for the future of transport. We have been embedding these strategic priorities into everything we do and measuring our performance on the progress we have made.
The purpose of our strategy is to deliver value to our stakeholders and is supported by financial discipline, a rigorous approach to cost efficiency and capital allocation, a strong balance sheet and resilient profits in our bus division, which lay the foundation to our ability to pay an attractive dividend for our shareholders.
Our customers
Go-Ahead takes care of over a billion passenger journeys a year. We are the largest bus operator in London, have a well established, high quality regional bus business, and are the UK's busiest train operator. Our vision is a world where every journey is taken care of.
As customer habits change and we strive to be at the forefront of using technology to make transport ever easier, our innovation continues at pace. Contactless has been further rolled out with increasing customer adoption, and we are trialling and developing various other initiatives to benefit our customers.
GTR
In partnership with the industry, we embarked upon the introduction of the largest timetable change in decades for rail customers in May. This was a complex and ambitious project which will deliver new routes, greater connectivity and increased peak frequency through central London with the new automatic train operation technology. However, the implementation of these changes let down some of our customers and, alongside our industry partners, we take collective responsibility for the shortfall against expected service levels. We deeply regret and are sorry for the inconvenience caused to our customers. We are working hard in collaboration with our industry partners to improve the situation for our customers and are co-operating fully with the Office of Rail and Road (ORR) in its independent inquiry.
We also remain committed to working with the Department for Transport (DfT) to resolve the long outstanding contract variations which support the delivery of new services and will address remaining contractual performance issues, as explained in more detail on page 41 of the Annual Report.
Our people
The Board would like to thank all of our 28,000 colleagues who work diligently every day in pursuit of our vision. Without the commitment, professionalism and dedication of our people, we would not be able to provide the services we do. Our vision and strategy are supported by a set of beliefs and attitudes which we live and breathe.
At Go-Ahead, we are committed to taking care of our people, providing good working conditions and fair pay, and supporting them in their development. We are proud to be the first provider of bus and rail services to become an Employer Provider of Apprenticeships, gaining certification from the Education and Skills Funding Agency (ESFA) which operates under the Department for Education. We are also pleased to have been awarded two Investors in People Gold accreditations during the year, an internationally recognised standard which defines what it takes to lead, support and manage people effectively to promote a culture of high performance.
As an organisation dedicated to equality, inclusion and diversity, we have fairness enshrined in our pay practices and are determined to address the pay gap between men and women working across our businesses. The industry in which Go-Ahead operates has historically had a high proportion of male employees but, as reported in our Gender Pay Gap Report, the number of women in leadership and management roles in our UK bus workforce has increased from 13% to 15.4% over the past three years. The number of women in our UK rail workforce has increased to 17.3%, which is higher than the industry wide average. The Group is implementing an action plan to improve gender balance at all levels, including a pledge to attract 40% of train driver applications from females by 2021.
The environment
We have a commitment to help cities tackle key issues around congestion, air pollution and transport accessibility. Our business model is built on sustainability as we take cars off the road. A Euro 6 bus, for example, produces less nitrogen dioxide emissions than a Euro 6 car and can carry many more passengers to reduce pollution. We have been reducing our carbon footprint significantly, with a reduction in emissions per vehicle mile by over 30% over the past three years.
Traffic congestion in the UK is 11% worse than it was three years ago and a recent analysis by INRIX put the cost of congestion in the UK at over GBP37.7 billion in 2017 alone. A fully loaded double decker bus can take 75 cars off the road and we continue to promote solutions to reduce congestion. We also support the London Mayor's Transport Strategy which seeks to increase the proportion of journeys made on foot, by cycling or by public transport where travel by bus and rail has a crucial role to play.
Go-Ahead is the largest operator of electric buses in the UK, and the operator of the UK's only all-electric bus garage. We are working on further environmental initiatives including how we can make a positive impact in actioning the United Nations Sustainable Development Goals and incorporating the financial implications of climate change in our reporting going forward, in compliance with the Taskforce on Climate-Related Financial Disclosures (TCFD).
Our investors
Despite the challenging market backdrop that we have seen in our bus businesses this year, operational challenges in our GTR franchise, and the expiry of the London Midland franchise mid-way through the year, we have delivered results ahead of our expectations at the beginning of the year. As a result, the Board has recommended a final dividend of 71.91p which brings the full year dividend to 102.08p. Subject to shareholder approval, this will be paid on 23 November 2018 to shareholders on the register on 9 November 2018.
The Board continues to recognise the importance of dividends to shareholders and accordingly has updated its dividend policy. The Group will target a dividend payout ratio of 50% to 75% of net income. This better reflects the historic and expected future payout ratio and provides shareholders with more clarity and the Group with the appropriate flexibility to continue to pay an attractive dividend.
Your Board
The Board's focus this year has been on ensuring that good governance supports the delivery of our strategic objectives, particularly in respect of ensuring that we address the needs of all our stakeholders. The way in which we develop and monitor strategy has improved through the Board's Strategy Day, routine reporting to the Board and a clear forward looking agenda which enables us to discuss key priorities. An increased focus on innovation and building resilience has also enabled the Board to remain forward thinking with the Group's culture, reputation and stakeholder engagement now all an integral part of Board deliberations.
We have continued to build upon last year's Board development programme to improve the effectiveness of the Board. During the year, we were delighted to welcome Harry Holt and Leanne Wood as independent non-executive directors in October 2017. Together they have brought with them a diversity of experience and perspective which is already enhancing Board debate.
Patrick Butcher will be leaving the Group towards the end of the year. On behalf of the Board, I would like to thank Patrick for the valuable contribution he has made to the Group and the strong financial position that he has safeguarded. The Board has begun a process to appoint a successor.
The future
Our business has a clear strategy which I am confident positions us to address the industry challenges and opportunities we face and for the Group's future development. With the continued dedication of our colleagues and our ongoing focus on our customers, I believe that we are taking the necessary actions to deliver value to all our stakeholders whilst appropriately balancing short, medium and long term considerations.
chief executive's review
In a challenging market environment, our businesses have demonstrated a resilient financial performance and delivered an operating profit which is higher than our initial expectations. We are firmly of the view that this is a result of our clear and simple strategy, supported by our devolved business model and an ethos which seeks to deliver for all of our stakeholders.
Protect and grow the core
Go-Ahead has been a leading provider of bus and rail services to passengers across the UK for over 30 years. Our core bus operations in London and the UK regions provide us with stable profits and cash flows, and our UK rail operations generate additional cashflows and high returns on capital. The first pillar of our strategy is to protect and grow these activities through a strong, local customer focus, efficient operations and with appropriate investment in the future.
Bus
Operating profit, pre-exceptional items, in our bus division at GBP91.4m (2017: GBP90.7m) was slightly higher than last year, with a lower result in our regional bus business offset by an increased performance in London.
In regional bus, the industry backdrop for passenger volumes remains challenging with journeys across regional markets in England reducing by over 2%, driven largely by local authority cuts, congestion and changes in consumer behaviour. Our regional business, with its weighting towards urban areas in the south of the country, and with devolved management teams that have the flexibility and agility to respond effectively to local market conditions, saw a slightly better performance with a decline in like for like passenger volumes of 1.6%. Within this overall performance, trends remained mixed across our various markets with growth in some areas offset by declines in others. Our like for like passenger revenues grew by 0.4% and with a continued focus on cost efficiencies, our pre-exceptional operating profit of GBP45.8m (2017: GBP47.1m) was only slightly below last year's level with an operating margin of 11.9% remaining close to industry leading levels.
Air quality and congestion are high on the agenda and we remain resolute in our efforts to demonstrate that buses are the solution to these issues. The potential impact of the Bus Services Act remains unclear and we continue to monitor developments in Manchester, the first area where there could be changes to the current model. We believe that working with local authorities in a collaborative, mutually beneficial way is the best solution to deliver desired outcomes for passengers and taxpayers alike.
Our approach in regional bus is to focus on urban areas with growth potential. We retain our strong customer focus and are proud to have achieved the highest ever passenger satisfaction score of 91% from Transport Focus, including the highest scores for punctuality and journey time. We continue to use technology to promote bus use by making services simpler and more comfortable to use. The roll out of contactless continues across our regional bus business, accounting for up to 30% of transactions at some of our operators. Over 2,000 buses have been enabled, with Brighton and Go East Anglia also on track to provide contactless by the end of the year.
The market environment is presenting us with further consolidation and bolt-on acquisition opportunities. We remain very selective about those which we pursue and are pleased to have acquired Tom Tappin Limited, a small sightseeing operation in Oxford, and East Yorkshire Motor Services (EYMS), a larger, well established operator of over 300 buses and coaches. We are confident that these businesses will contribute positively to our results in the future.
In London, buses are still the most popular means of public transport, carrying 200 million more passenger journeys than all other Transport for London (TfL) services combined. We are the largest bus operator in the UK capital with just under a quarter of the market. Passenger demand in London is decreasing as it is in the rest of the country, with more people working from home and increasing online shopping. Budgetary pressure at TfL is resulting in a reduction in mileage for operators in London, with TfL's business plan suggesting a reduction of around 7.5% in mileage over the coming three years.
As anticipated, our mileage in London for the year was down by 1% reflecting contract tenders. In this environment, we have focused our efforts on quality, which has helped us to achieve strong Quality Incentive Contract income (QICs), and on tight cost control with the development of lean engineering. This has enabled our London bus division to deliver an increased operating profit of GBP45.6m (2017: GBP43.6m) with a stable operating margin of 8.3%.
Looking forward, we support the Mayor of London's aspiration to increase the number of trips made on foot, by cycle and by public transport and believe that buses have a key role to play in delivering that vision. London is still an attractive place to run buses, and we believe that as London heads towards a population of nine million people, population growth in the suburbs will continue to stimulate demand.
Rail
Operating profit in our rail division at GBP44.5m (2017: GBP59.9m) declined by 25.7% compared to last year.
London Midland performed very well during the first six months of the year prior to the expiry of the franchise and we were very disappointed that we were unsuccessful in our bid to retain the routes under the new West Midlands franchise.
Southeastern experienced a year on year reduction in passengers during the first half of the year, impacted by a shift in working patterns. This led us to accelerate our efforts to deliver business efficiencies which have borne fruit and supported profitability. During the second half of the year, passenger journeys and revenue growth showed an improvement, boosted by the resumption of full services through London Bridge station.
At GTR, prior to the introduction of the May timetable changes, operational performance was steadily improving with higher passenger satisfaction levels on our Thameslink service than at any point since 1999 according to the Spring 2018 National Rail Passenger Satisfaction (NRPS) survey. This showed an 86% overall satisfaction rate, an increase of 11 percentage points over the previous year.
In May, in partnership with the industry, we began the introduction of the largest timetable change in decades to provide new routes, greater connectivity and increased peak frequency through central London. Due mainly to the sheer number of changes required, approvals for service alterations being delayed and some timetable requests being amended, there was much less time than originally planned to prepare adequately for the new timetable. We are very sorry for the severe disruption this caused some of our passengers and we are working very hard with our industry partners to restore service to levels that we expect to deliver and our customers rightfully expect from us.
In July, we implemented a new timetable which focuses on running as many peak services as possible. I am pleased that this has stabilised the service and is now providing a schedule on which passengers can better rely and plan around. We continue to work hard to progressively implement the full benefits of the changes that had been planned for May by the next timetable change.
Win new bus and rail contracts
Our international expansion is a significant part of the second pillar of our strategy. Our extensive experience in the UK positions us well in international markets. Our bus contract in Singapore, which began operating in September 2016, has continued to perform well.
In Ireland, mobilisation of our first contract to operate bus services in the outer Dublin area is progressing apace and operations will commence in September 2018. Similar to the structure of bus contracts in London and Singapore, this contract will run for five years with a possible extension of two years. During the financial year, we were pleased to have been awarded a second bus contract in Ireland for services linking Dublin to commuter towns in Offaly, Laois, Kildare and Meath. These routes will begin operating in early 2019, also on a five-year contract with a possible two-year extension, and will bring the total number of routes in Ireland up to 30.
Mobilisation in Germany for the start of three rail contracts in 2019 is progressing according to plan and we were pleased to have been awarded a fourth contract to operate the E-Netz Allgäu routes. This new contract will provide regional services and important links between Munich and Lindau, within the German federal states of Bavaria and Baden-Württemberg, on a 12 year franchise which is due to start in 2021.
In total, we have now secured seven contract wins outside the UK which are expected to have an annualised turnover of around GBP250m once they are all operating. We are actively pursuing other opportunities in our existing and other targeted markets within a clear framework. International work enriches our market knowledge and expertise, and provides further opportunities for sharing of experiences and best practices across the Group. The goal of generating 15% to 20% of Group profit from international operations by 2022 remains unchanged and we are on a good trajectory to achieve this.
Develop for the future of transport
The third pillar of our strategy revolves around adapting to changes in the way people live their lives and how this impacts their mobility needs. We constantly strive to be more relevant to customers tomorrow than we are today so that we can continue to fulfil their evolving travel preferences. A forward thinking approach is key to future proofing the business as we seek new ways to apply skills, knowledge and assets to enable sustainable performance over the long term. We are focused on ensuring that we invest sufficiently to understand changing trends and are able to capture opportunities through a process of researching, testing and trialling.
In June, we launched the UK's largest on-demand bus service in Oxford, called PickMeUp. Passengers can summon buses via a mobile app to virtual bus stops nearby. There has been a positive initial response and we look forward to seeing how this develops with a possible roll out to other areas in the future.
During the financial year, we began working with logistics partners including the commencement of a pilot at our Crawley depot to manage deliveries in the area. Elsewhere, our Hammock IT consulting business uses existing retail and IT knowledge to provide technology solutions to local authorities and other customers and has been making good progress, winning two contracts this year. We also invested in a 12% stake in Mobileeee, a Frankfurt based, award winning start up to forge environmentally friendly car sharing schemes.
We are developing Mobility as a Service (MaaS) in Brighton to make public transport and not owning a car an easy, clear and transparent choice for end-to-end journeys. We also piloted the UK's first bus ticket system using iBeacons in Southampton earlier in the year.
In July, we launched the Billion Journey Project, a business accelerator programme to partner with scale-up businesses looking to innovate and improve the experience of travel. The programme, which will initially nurture 10 companies, offers technical assistance and mentorship from our team of transport experts and aims to support new businesses looking to change and shape the future of transport by focusing on improving passenger experiences.
Outlook
Whilst these are challenging times, we are convinced that such an environment can provide opportunities for agile, forward looking businesses. The provision of customer focused and efficient public transport services has an important role to play in local communities as an enabler of social and economic activity and it is also an answer to congestion and air quality issues. We are confident that our clear and focused strategy positions us well to address the challenges and capture the opportunities over the long term.
The business ethics and values which have always been important to us are becoming increasingly relevant. The people we have in our businesses, with our commitment to help them develop, along with our devolved management structure and forward thinking ethos, help us to keep one step ahead and our strong balance sheet provides us with the financial resources to capture opportunities and weather short term turbulence.
Looking to 2018/19, in our regional bus business, we remain focused on maintaining our leading passenger satisfaction scores, on the continued adoption of smart technology, and on capturing more benefits from the roll out of our Lean framework. Market conditions are expected to remain challenging, but we expect operating profit to show a slight improvement on the level achieved in 2017/18.
Our London bus business will see a reduction in mileage for 2018/19 resulting from TfL budget pressures and some contract losses towards the end of 2017/18. The value of our own contracts available for tender in 2018/19 is markedly lower than has been the case in the preceding two years and there are good opportunities to win work from competitors during the year.
In rail, our focus is on working with our industry partners to deliver an improved service for passengers, particularly for those travelling on services operated by our GTR franchise who experienced severe disruption after the timetable change in May. We remain hopeful of winning the new South Eastern franchise and have submitted a deliverable and economically sensible bid.
We will continue to execute our international strategy with the start of operations in Dublin and continued mobilisation in Germany, and we also expect to submit bids for additional international contracts in our targeted markets. Further progress will also be made on our various initiatives around developing for the future of transport.
For the Group overall, we expect to deliver a robust performance in 2018/19, taking into account the expiry of the London Midland franchise last year which contributed positively to the first six months of 2017/18. We expect free cashflow generation to be strong, resulting in a further reduction in net debt excluding restricted rail cash.
Looking forward, we remain confident that we are in a good position to deliver long term value for all our stakeholders and deliver our vision of a world where every journey is taken care of.
Business and finance review
All references to operating profit and margins are on a pre-exceptional basis unless otherwise detailed. A full reconciliation between pre- and post-exceptional operating profit is shown within the income statement and associated notes.
Financial overview
Revenue for the year was GBP3,461.5m, down GBP19.6m, or 0.6%, on last year (2017: GBP3,481.1m). This small decrease was attributable to the rail division, following the ending of the London Midland franchise in December 2017, partially offset by inflationary increases in revenue.
Profit attributable to shareholders for the year decreased by GBP0.1m, or 0.1%, to GBP89.0m (2017: GBP89.1m) and earnings per share fell by 0.2% to 207.2p (2017: 207.7p) with exceptional gains offsetting declining rail profit.
Excluding exceptional items, profits attributable to shareholders decreased by GBP11.1m or 12.5% to GBP78.0m and earnings per share by 12.6% to 181.6p (2017: 207.7p).
The adjusted net debt (excluding restricted cash) at the year end was GBP289.0m (2017: GBP285.8m). The higher net debt largely reflects the expiry of the London Midland franchise, working capital movements relating to the timing of franchise payments and increased capital expenditure in London bus, reflecting contract renewal commitments. The adjusted net debt (excluding restricted cash) to EBITDA ratio of 1.30x (2017: 1.30x) remains below our target range of 1.5x to 2.5x.
Group overview
Increase/ Increase/
2018 2017 (decrease) (decrease)
GBPm GBPm GBPm %
========================================= ======= ======= ============ ============
Group revenue 3,461.5 3,481.1 (19.6) (0.6)
========================================= ======= ======= ============ ============
Regional bus operating profit 45.8 47.1 (1.3) (2.8)
========================================= ======= ======= ============ ============
London bus operating profit 45.6 43.6 2.0 4.6
========================================= ======= ======= ============ ============
Total bus operating profit 91.4 90.7 0.7 0.8
========================================= ======= ======= ============ ============
Rail operating profit 44.5 59.9 (15.4) (25.7)
========================================= ======= ======= ============ ============
Group operating profit (pre-exceptional
items) 135.9 150.6 (14.7) (9.8)
========================================= ======= ======= ============ ============
Exceptional operating items 25.1 - 25.1 n/a
========================================= ======= ======= ============ ============
Group operating profit (post-exceptional
items) 161.0 150.6 10.4 6.9
========================================= ======= ======= ============ ============
Share of result of joint venture (1.1) (0.4) (0.7) (175)
========================================= ======= ======= ============ ============
Net finance costs* (14.2) (13.4) (0.8) (6.0)
========================================= ======= ======= ============ ============
Profit before tax 145.7 136.8 8.9 6.5
========================================= ======= ======= ============ ============
Total tax expense* (36.4) (25.3) (11.1) (43.8)
========================================= ======= ======= ============ ============
Profit for the period 109.3 111.5 (2.2) (2.0)
========================================= ======= ======= ============ ============
Non-controlling interests (20.3) (22.4) 2.1 9.4
========================================= ======= ======= ============ ============
Profit attributable to shareholders 89.0 89.1 (0.1) (0.1)
========================================= ======= ======= ============ ============
Profit attributable to shareholders
(pre-exceptional items) 78.0 89.1 (11.1) (12.5)
========================================= ======= ======= ============ ============
Weighted average number of shares
(m) 43.0 42.9 0.1 0.2
========================================= ======= ======= ============ ============
Proposed dividend per share (p) 102.08 102.08 - -
========================================= ======= ======= ============ ============
Reported results for the London bus division include our bus operation in Singapore, which started trading on 4 September 2016, due to similarities
between the contract structures.
* Including exceptional items
Bus
Go-Ahead is a leading bus operator in the UK, both in and outside London. Around two million passenger journeys are made on our services every day.
Bus overview
Increase/ Increase/
(decrease) (decrease)
2018 2017 GBPm %
================================ ====== ====== ============ ============
Total bus operations
================================ ====== ====== ============ ============
Revenue (GBPm) 934.2 902.0 32.2 3.6
================================ ====== ====== ============ ============
Operating profit (GBPm) 91.4 90.7 0.7 0.8
================================ ====== ====== ============ ============
Operating profit margin 9.8% 10.1% n/a (0.3ppt)
================================ ====== ====== ============ ============
Regional bus
================================ ====== ====== ============ ============
Revenue (GBPm) 383.7 376.6 7.1 1.9
================================ ====== ====== ============ ============
Operating profit (GBPm) 45.8 47.1 (1.3) (2.8) ================================ ====== ====== ============ ============ Operating profit margin 11.9% 12.5% n/a (0.6ppt) ================================ ====== ====== ============ ============ London bus ================================ ====== ====== ============ ============ Revenue (GBPm) 550.5 525.4 25.1 4.8 ================================ ====== ====== ============ ============ Operating profit (GBPm) 45.6 43.6 2.0 4.6 ================================ ====== ====== ============ ============ Operating profit margin 8.3% 8.3% n/a - ================================ ====== ====== ============ ============ Like for like revenue growth ================================ ====== ====== ============ ============ Regional bus 0.4% 1.0% n/a (0.6ppts) ================================ ====== ====== ============ ============ London bus 3.1% 1.5% n/a 1.6pts ================================ ====== ====== ============ ============ Like for like volume growth ================================ ====== ====== ============ ============ Regional bus passenger journeys (1.6%) (0.2%) n/a (1.4ppts) ================================ ====== ====== ============ ============ London bus miles operated (1.0%) (1.7%) n/a 0.7ppts ================================ ====== ====== ============ ============
Overall bus performance
Total bus revenue increased by 3.6%, or GBP32.2m, to GBP934.2m (2017: GBP902.0m) including the contribution of acquisitions and the full year impact of the Singapore business. While operating profit was slightly ahead of the prior year at GBP91.4m (2017: GBP90.7m), the operating profit margin decreased slightly by 0.3ppts to 9.8%. This performance, which was in line with our expectations for the year, reflected a good performance in London, offset by continued challenges in the regional bus business.
Regional bus
Regional bus revenue was GBP383.7m (2017: GBP376.6m), up GBP7.1m, or 1.9%, including the contribution of acquisitions. Like for like revenue growth of 0.4% was broadly in line with our expectations and slightly ahead of wider industry trends. Growth in passenger journeys in some regions was offset by softer performance in other operating areas including some contract losses, resulting in an overall decline in like for like passenger volumes of 1.6%. Growth in revenue and passenger numbers was also impacted by the restructuring of selected route networks to match passenger demand and reduce costs, and the impact of the extreme weather during early 2018.
Operating profit in the regional bus division fell GBP1.3m, or 2.8%, to GBP45.8m (2017: GBP47.1m), with operating profit margin down 0.6ppts to 11.9% (2017: 12.5%). Depreciation costs increased in the year, reflecting continued investment in buses. While the division benefited from a reduction in fuel costs due to lower hedge prices, inflationary increases impacted costs during the year.
GBPm
============================================ =====
2017 operating profit 47.1
============================================ =====
Changes:
============================================ =====
Net impact of acquisitions 0.3
============================================ =====
Prior year one offs 2.8
============================================ =====
Passenger volume (including weather impact) (4.6)
============================================ =====
Contract volumes (4.1)
============================================ =====
Yield, route restructures and pricing 8.8
============================================ =====
Net cost inflation (4.5)
============================================ =====
2018 operating profit 45.8
============================================ =====
London bus
Reported results for the London bus division include our bus operation in Singapore. London bus revenue grew by 4.8%, to GBP550.5m in the year (2017: GBP525.4m).
Quality Incentive Contract bonuses (QICs) were GBP13.2m (2017: GBP6.9m) as a result of improved performance against TfL quality targets. This has been achieved in partnership with TfL, which has implemented additional bus prioritisation measures and fewer roadworks on our routes, while we have further strengthened our service control capabilities. As anticipated, like for like mileage decreased by 1.0% due to the timing of contract renewals and TfL's route restructuring. Operating profit in the London bus division was GBP45.6m (2017: GBP43.6m), up GBP2.0m, or 4.6%, with operating profit margin stable at 8.3% (2017: 8.3%). As with regional bus, our London operations saw a reduction in fuel costs reflecting the lower hedge price, and higher depreciation as a result of significant capital expenditure.
GBPm
====================== =====
2017 operating profit 43.6
====================== =====
Changes:
====================== =====
Singapore 1.4
====================== =====
QIC bonuses 6.3
====================== =====
Volume (0.4)
====================== =====
Margin (1.1)
====================== =====
Net inflation 0.1
====================== =====
One offs (2.7)
====================== =====
Other (1.6)
====================== =====
2018 operating profit 45.6
====================== =====
Capital expenditure and depreciation
2018 2017
GBPm GBPm
================================================ ===== =====
Regional bus fleet (inc. vehicle refurbishment) 41.1 37.1
================================================ ===== =====
London bus fleet (inc. vehicle refurbishment) 46.2 60.0
================================================ ===== =====
Technology and other 8.4 8.8
================================================ ===== =====
Depots 3.9 6.8
================================================ ===== =====
Total capital expenditure 99.6 112.7
================================================ ===== =====
In London, the purchase of 135 new buses (2017: 261 buses) reflects the timing of contract renewals. In regional bus, demonstrating our commitment to maintaining a young and greener bus fleet, 173 new buses (2017: 102 buses) were bought. The average age of our buses is now 6.5 years (2017: 7.0 years).
Depreciation for the division was GBP61.8m (2017: GBP56.1m), reflecting the increased capital spend in recent years.
In 2018/19, we expect total capital expenditure for the bus division to be around GBP65m with a significantly lower level in London due to the timing of contract renewals and continued investment in our regional bus services.
Fuel
In the year, the bus division required around 137 million litres of fuel, with a net cost of GBP98.2m.
Bus fuel hedging prices
We have continued our bus fuel hedging programme which uses fuel swaps to fix the price of our diesel fuel in advance. Our core policy is to be fully hedged for the next financial year before the start of that year, at which point we aim to have also fixed at least 50% of the following year and 25% of the year after that. This hedging profile is then maintained on a month by month basis.
With Board approval, additional purchases can be made to lock in future costs for greater certainty. The table below reflects the year end position; no significant purchases have been made following the year end.
2019 2020 2021
======================== ===== ==== ====
% hedged Fully 55% 30%
======================== ===== ==== ====
Price (pence per litre) 32.5 33.2 33.9
======================== ===== ==== ====
At each period end, the fuel hedges are marked to market price. The change in the fuel hedge liability to a fuel hedge asset during the year represents the increase in the mark to market value of the fuel hedges during the year.
Bus financial outlook
Regional bus trading in the early part of the current year has been consistent with the fourth quarter of 2017/18. We expect a slight improvement in regional bus operating profit for 2018/19 despite market conditions remaining challenging.
The London bus business has already secured almost all of its revenue for the current year. While competitive pressure and TfL funding constraints continue to result in market contraction in bus miles operated, we have the opportunity to bid for around GBP95m of additional work in 2018/19.
Rail
Go-Ahead's rail operations are the busiest in the UK, responsible for around 30% of all train passenger journeys.
Rail performance
The rail division has delivered a financial result slightly ahead of the Board's expectations, supported by a better performance and one-off disposal gains at the end of the London Midland franchise in the first half, and some cost improvement benefits at Southeastern. Overall margins have remained at historically low levels, impacted in particular by GTR.
Rail overview
Increase/ Increase/
(decrease) (decrease)
2018 2017 GBPm %
======================================= ======= ======= ============ ============
Total rail operations
======================================= ======= ======= ============ ============
Total revenue (GBPm) 2,527.3 2,579.1 (51.8) (2.0)
======================================= ======= ======= ============ ============
Operating profit (GBPm) 44.5 59.9 (15.4) (25.7)
======================================= ======= ======= ============ ============
Operating profit margin 1.8% 2.3% n/a (0.5ppt)
======================================= ======= ======= ============ ============
Like for like passenger revenue growth
======================================= ======= ======= ============ ============
Southeastern 3.8% 3.2% 0.6ppt
======================================= ======= ======= ============ ============
GTR 7.7% (4.1)% 11.8ppt
======================================= ======= ======= ============ ============
Like for like passenger growth
======================================= ======= ======= ============ ============
Southeastern 1.4% (0.9)% 2.3ppt
======================================= ======= ======= ============ ============
GTR 2.1% (3.9)% 6.0ppt
======================================= ======= ======= ============ ============
Revenue
Total revenue decreased by 2.0%, or GBP51.8m, to GBP2,527.3m (2017: GBP2,579.1m), consisting of:
2018 2017 Increase/(decrease) Increase/(decrease)
GBPm GBPm GBPm %
================================== ======= ======= =================== ===================
Passenger revenue
================================== ======= ======= =================== ===================
Southeastern 786.3 755.6 30.7 4.1
================================== ======= ======= =================== ===================
London Midland 156.2 339.6 (183.4) (54.0)
================================== ======= ======= =================== ===================
GTR 1,271.3 1,148.2 123.1 10.7
================================== ======= ======= =================== ===================
Total passenger revenue 2,213.8 2,243.4 (29.6) (1.3)
================================== ======= ======= =================== ===================
Other revenue
================================== ======= ======= =================== ===================
Southeastern 34.1 43.2 (9.1) (21.1)
================================== ======= ======= =================== ===================
London Midland 35.1 55.1 (20.0) (36.3)
================================== ======= ======= =================== ===================
GTR 139.5 105.1 34.4 32.7
================================== ======= ======= =================== ===================
Germany 0.3 - 0.3 n/a
================================== ======= ======= =================== ===================
Total other revenue 209.0 203.4 5.6 2.8
================================== ======= ======= =================== ===================
Subsidy and revenue support
================================== ======= ======= =================== ===================
Southeastern subsidy 67.3 45.2 22.1 48.9
================================== ======= ======= =================== ===================
London Midland subsidy 36.6 87.0 (50.4) (57.9)
================================== ======= ======= =================== ===================
Southern revenue support* 0.6 (0.4) 1.0 n/a
================================== ======= ======= =================== ===================
London Midland revenue support - 0.5 (0.5) n/a
================================== ======= ======= =================== ===================
Total subsidy and revenue support 104.5 132.3 (27.8) (21.0)
================================== ======= ======= =================== ===================
Total revenue 2,527.3 2,579.1 (51.8) (2.0)
================================== ======= ======= =================== ===================
*Southern revenue support and core premium payments relate to the Southern franchise which ended in July 2015.
Premium payments, profit share payments and revenue share payments
Core premium payments, profit share payments and revenue share payments are included in operating costs.
2018 2017 Increase/(decrease) Increase/(decrease)
GBPm GBPm GBPm %
============================ ====== ====== =================== ===================
Southern core premium - (1.4) 1.4 n/a
============================ ====== ====== =================== ===================
Southeastern profit share 16.2 22.9 (6.7) (29.3)
============================ ====== ====== =================== ===================
London Midland profit share 4.4 8.7 (4.3) (49.4)
============================ ====== ====== =================== ===================
Operating profit
Operating profit in the rail division was down GBP15.4m at GBP44.5m (2017: GBP59.9m), with the operating profit margin decreasing to 1.8% (2017: 2.3%). This was mainly driven by the expiry of the London Midland franchise in December 2017.
GBPm
=========================== ======
2017 operating profit 59.9
=========================== ======
Changes:
=========================== ======
Southeastern 10.4
=========================== ======
London Midland (13.0)
=========================== ======
GTR / Southern (10.0)
=========================== ======
Bid and mobilisation costs (2.8)
=========================== ======
2018 operating profit 44.5
=========================== ======
Individual franchise performance
GTR
The business reported a 2.1% rise (2017: 3.9% decline) in passenger journeys and a 7.7% rise (2017: 4.1% decline) in passenger revenue. Prior to the timetable change in May 2018, train performance had consistently improved, especially when compared to the period of intense industrial action in the prior year. This led to increased passenger journeys and revenue, particularly on longer distance Southern services, which generate higher income. All passenger income is payable to the government.
In May, the rail industry began the introduction of the largest and most complex timetable change in decades to provide new routes, greater connectivity and increased peak frequency through central London. Unfortunately delays in finalising the timetable by the rail industry resulted in insufficient time to implement it smoothly and effectively, resulting in significant disruption across the rail network.
We continue to work hard to progressively implement the full benefits of the changes which had been planned for May.
Southeastern
Southeastern recorded a good trading performance. On a like for like basis, passenger revenue rose by 3.8% (2017: 3.2%) while passenger numbers increased by 1.4% (2017: 0.9% decrease). Underlying passenger journeys and revenue growth improved, following the resumption of full services through London Bridge station, after three years of partial closure. Continued good progress in the delivery of our efficiency programme also led to an increase in profit for the year.
Southeastern's strong financial performance enabled a contribution of GBP16.2m to be made to the DfT during the year through the profit sharing mechanism included in the directly awarded contract that it has operated under since October 2014.
London Midland
The London Midland franchise ceased operations on 10 December 2017. Assets with a net book value of GBP6.1m were sold to the incoming operator for GBP12.5m, resulting in a GBP6.4m profit on disposal.
Rail bid costs and international
Rail bid and contract mobilisation costs in the year were GBP13.9m (2017: GBP11.1m), primarily relating to the bids for, and mobilisation of German rail contracts, the South Eastern franchise bid and international bidding in the Nordic countries.
Capital expenditure and depreciation
Capital expenditure for the rail division was GBP27.1m (2017: GBP29.2m), predominantly relating to GTR, including expenditure on station improvements and ticket machines. Depreciation was GBP20.9m (2017: GBP9.3m), reflecting the high level of capex which is being depreciated over the life of the franchises.
In 2018/19, capital expenditure for the rail division is expected to be around GBP20m, reflecting continued investment in GTR and mobilisation of our German operations.
Rail financial outlook
The existing Southeastern franchise has now been extended until 31 March 2019. Passenger journeys and revenue growth for Southeastern are expected to continue the improvement shown in the second half of 2017/18, boosted by the resumption of full services through London Bridge station. However the 2018/19 financial performance of our rail division will be impacted by the expiry of the London Midland franchise and by the scheduled end of the Southeastern franchise.
We have submitted a deliverable and economically sensible bid for the South Eastern franchise which is currently scheduled to commence on 1 April 2019.
As previously announced, discussions between GTR and the DfT about a number of contractual variations remain ongoing, in particular regarding payment for operating more and longer trains as part of the Thameslink train service increases. The outcome of these discussions, relating to events up to 30 June 2018, is that the impact on rail profitability is likely to remain within a range of plus or minus GBP5m.
Following the implementation of a revised timetable in May, the performance of GTR services has been below certain contractual thresholds. These shortfalls are in large measure attributable to failings across the industry and are not the sole responsibility of GTR. Discussions are continuing with the DfT to apportion accountability for these shortfalls. It is possible that the DfT will determine that a sufficient part of these failings are down to GTR and that it is in breach of its contractual obligations. At that point, the DfT may choose, as is usual, to require the production of a Remedial Plan and/or seek to impose penalties or may seek to terminate the contract.
In the event of a termination, it is possible that there will be costs that the DfT will seek to recover from GTR. These are not possible to estimate at this stage and in any event would be contested. GTR continues to work hard to further stabilise and improve services for customers and remains committed to working with the DfT to resolve the long outstanding contract variations which support the delivery of new services and will address remaining contractual performance issues described above.
As previously announced, the margin over the life of the GTR contract is expected to be in the range of between 0.75% and 1.5%.
Financial review
Earnings per share
Earnings were GBP89.0m (2017: GBP89.1m), resulting in a decrease in earnings per share from 207.7p to 207.2p. Excluding exceptional items, earnings were GBP78.0m, resulting in decrease of earnings per share from 207.7p to 181.6p. The weighted average number of shares was 43.0 million and the number of shares in issue, net of treasury shares, was 43.1 million.
2018* 2017 2016 2015 2014
=================== ====== ====== ====== ====== ======
Earnings per share 181.6p 207.7p 218.2p 147.9p 174.3p
=================== ====== ====== ====== ====== ======
* Pre-exceptional
Dividend
The Board is proposing a total dividend for the year of 102.08p per share (2017: 102.08p), consistent with the prior year. This includes a proposed final payment of 71.91p per share (2017: 71.91p) payable on 23 November 2018 to shareholders registered at the close of business on 9 November 2018. Dividends of GBP43.8m (2017: GBP41.8m) paid in the period represent the payment of the prior year's final dividend of 71.91p per share (2017: 67.52p) and the interim dividend in respect of this year of 30.17p per share (2017: 30.17p). Dividends paid to non-controlling interests were GBP13.9m (2017: GBP21.3m), and dividend payout was 56% (2017: 49%) on a pre-exceptional earnings basis.
Summary cashflow
Increase/
2018 2017 (decrease)
GBPm GBPm GBPm
======================================================= ======= ======= ===========
EBITDA 221.9 219.1 2.8
======================================================= ======= ======= ===========
Working capital/other items (excluding restricted cash
movements) 10.9 5.3 5.6
======================================================= ======= ======= ===========
Cashflow generated from operations 232.8 224.4 8.4
======================================================= ======= ======= ===========
Tax paid (28.7) (34.1) 5.4
======================================================= ======= ======= ===========
Net interest paid (13.3) (12.7) (0.6)
======================================================= ======= ======= ===========
Net capital investment (119.2) (144.7) 25.5
======================================================= ======= ======= ===========
Dividends paid - minority partner (13.9) (21.3) 7.4
======================================================= ======= ======= ===========
Free cashflow 57.7 11.6 46.1
======================================================= ======= ======= ===========
Net acquisitions (7.5) (11.2) 3.7
======================================================= ======= ======= ===========
Other (9.1) (4.2) (4.9)
======================================================= ======= ======= ===========
Net cash on issue/purchase of shares (0.5) (0.9) 0.4
======================================================= ======= ======= ===========
Dividends paid (43.8) (41.8) (2.0)
======================================================= ======= ======= ===========
Increase in adjusted net debt* (3.2) (46.5) 43.3
======================================================= ======= ======= ===========
Opening adjusted net debt* (285.8) (239.3) n/a
======================================================= ======= ======= ===========
Closing adjusted net debt* (289.0) (285.8) n/a
======================================================= ======= ======= ===========
* Adjusted net debt is net cash less restricted cash.
Cashflow
Cash generated from operations before tax and excluding movements in restricted cash was GBP232.8m (2017: GBP224.4m). This increase of GBP8.4m is largely due to movements in working capital, primarily reflecting structural changes in rail franchises. Tax paid of GBP28.7m (2017: GBP34.1m) comprised payments on account in respect of the current and prior years' liabilities. Net interest paid of GBP13.3m (2017: GBP12.7m) was lower than the net charge for the period of GBP14.2m (2017: GBP13.4m) after excluding the impact of non-cash interest on pensions and the unwinding of discounting on provisions. Capital expenditure, net of sale proceeds, was GBP25.5m lower in the year at GBP119.2m (2017: GBP144.7m), predominantly due to lower investment in our London bus fleet from the prior year's elevated level, and the proceeds received from the sale of the London Midland assets. Net group capital investment is expected to be around GBP85.0m in 2018/19.
During the year, as part of a planned programme of monthly share purchases to satisfy future share awards, the Group purchased 64,012 ordinary shares for a total consideration of GBP1.1m (2017: 121,084 ordinary shares for a total consideration of GBP2.4m).
At the year end, significant medium term finance was secured through a revolving credit facility (RCF) and a GBP250m sterling bond. The GBP280m five year RCF had an initial maturity of July 2019 with two one-year extension options, the second of which was agreed on 20 June 2016, extending the maturity of the facility to July 2021. On 20 July 2018 an additional extension of two years was agreed, extending the maturity of the facility to July 2023. A further two one-year extensions are available which if exercised would extend the maturity to July 2025.
Capital expenditure
Expenditure on capital during the year can be summarised as:
2018 2017
GBPm GBPm
============= ===== =====
Regional bus 47.9 49.6
============= ===== =====
London bus 51.7 63.1
============= ===== =====
Total bus 99.6 112.7
============= ===== =====
Rail 27.1 29.2
============= ===== =====
Group total 126.7 141.9
============= ===== =====
Net cash/debt
Net cash of GBP149.9m (2017: GBP230.3m) comprised debt arising from the GBP250m sterling bond (2017: GBP200m sterling bond), amounts drawn down against the GBP280m five year RCF of GBP136.0m (2017: GBP156.0m), amounts drawn down against the EUR8m revolving credit facility and EUR10.6m financial facility of GBP11.2m (2017: GBP0.9), and hire purchase and lease agreements of GBP9.4m (2017: GBP3.0m), offset by cash and short term deposits of GBP556.5m (2017: GBP590.2m) including GBP438.9m of restricted cash in rail (2017: GBP516.1m). There were no overdrafts in use at the year end (2017: GBPnil).
Our primary financial covenant under the 2018 RCF is an adjusted net debt to EBITDA ratio of not more than 3.5x. Adjusted net debt (excluding restricted cash) to EBITDA of 1.30x (2017: 1.30x) remains below the target range of 1.5x to 2.5x.
Capital structure
2018 2017
GBPm GBPm
=========================================== ======= =======
Syndicated facility 2023 280.0 280.0
=========================================== ======= =======
7 year GBP250m 2.5% sterling bond 2024 250.0 -
=========================================== ======= =======
7.5 year GBP200m 5.375% sterling bond 2017 - 200.0
=========================================== ======= =======
Euro financing facilities 16.5 17.5
=========================================== ======= =======
Total core facilities 546.5 497.5
=========================================== ======= =======
Amount drawn down at 1 July 2017 397.2 356.9
=========================================== ======= =======
Balance available 149.3 140.6
=========================================== ======= =======
Restricted cash 438.9 516.1
=========================================== ======= =======
Net cash (149.9) (230.3)
=========================================== ======= =======
Adjusted net debt 289.0 285.8
=========================================== ======= =======
EBITDA 221.9 219.1
=========================================== ======= =======
Adjusted net debt/EBITDA 1.30x 1.30x
=========================================== ======= =======
Investment grade ratings from Moody's (Baa3, stable outlook) and Standard & Poor's (BBB-, stable outlook) have been recently reconfirmed and remain unchanged.
Exceptional items
On 28 March the Group and the Trustee of The Go-Ahead Group Pension Plan agreed to change the reference inflation index for the purpose of annual increases to the majority of pensions payable by the Bus Plan. From 1 April 2018 onwards, the Consumer Prices Index is used to increase pensions in payment rather than the Retail Prices Index. This change reduces the financial risks of the Plan and enhances the long term sustainability of the scheme, providing an improvement in the security of Plan members' benefit.
As a result of this change, the IFRS balance sheet valuation of the Group's pension liabilities has reduced by GBP35.2m and the Group has recognised a pre-tax, non-cash exceptional credit of this value in the income statement.
The Group has also reviewed the carrying value of goodwill and associated tangible assets on its regional bus businesses. This has led to an exceptional impairment charge of GBP10.1m.
Included within net finance costs and taxation are exceptional items relating to an ongoing HMRC enquiry as explained below. There were no exceptional operating items in the prior year
Amortisation
The amortisation charge for the year was GBP3.3m (2017: GBP3.1m), which relates to the non-cash cost of amortising software costs, franchise mobilisation costs and customer contracts.
Net finance costs
Net finance costs for the year were ahead of the prior year at GBP14.2m (2017: GBP13.4m) including finance costs of GBP16.7m (2017: GBP15.8m) less finance revenue of GBP2.5m (2017: GBP2.4m). Finance costs include an exceptional cost of GBP2.6m (2017: GBPnil) in respect of the estimated settlement of the HMRC capital allowances enquiry. The average net interest rate for the period was 4.1% (2017: 4.2%).
Taxation
Net tax for the year was GBP36.4m (2017: GBP25.3m), equivalent to an effective rate of 25.0% (2017: 18.5%). A provision has been made in the tax charge in relation to a current HMRC enquiry and is shown as exceptional. Excluding the impact of this one-off provision and the impact of exceptional items, the tax rate would have been 21.0%, as a result of non-deductible items such as bid costs in Germany and other international areas.
The statutory rate will reduce to 17% in 2020. We expect our effective tax rate to be 2% to 3% above the statutory rate in future years.
Non-controlling interest
The non-controlling interest in the income statement of GBP20.3m (2017: GBP22.4m) arises from our 65% holding in Govia Limited, which owns 100% of our current rail operations and therefore represents 35% of the profit after taxation of these operations.
Pensions
Operating profit includes the net cost of the Group's defined benefit pension plans for the year of GBP35.4m (2017: GBP37.4m) consisting of bus costs of GBP1.8m (2017: GBP0.4m) and rail costs of GBP33.7m (2017: GBP37.0m). Group contributions to the schemes totalled GBP40.3m (2017: GBP42.9m).
An exceptional gain of GBP35.2m (2017: GBPnil) was recognised in the year as explained above.
Bus pensions
Under accounting valuations, the net surplus after taxation on the bus defined benefit schemes was GBP30.3m (2017: a deficit of GBP17.3m), consisting of pre-tax assets of GBP36.8m (2017: liabilities of GBP20.9m) less a deferred tax liability of GBP6.5m (2017: deferred tax asset of GBP3.6m). The pre-tax asset consisted of assets of GBP829.3m (2017: GBP784.6m) less estimated liabilities of GBP792.5m (2017:GBP805.5m). The percentage of assets held in higher risk, return seeking assets was 48.5% (2017: 53.4%).
Rail pensions
As the long term responsibility for the rail pension schemes rests with the DfT the Group only recognises the share of surplus or deficit expected to be realised over the life of each franchise. As a result, our pre-tax liability continues to be GBPnil (2017: GBPnil).
Key Risks
The key risks described in the Group's Annual Report for the year ended 30 June 2018 can be summarised as below. More detail can be found in the 2018 Group Annual Report and Accounts, available on our website at www.go-ahead.com
External risks
Economic environment and society
Lower economic growth or reduction in economic activity.
Mitigating actions
-- Continue to focus our operations in more resilient geographical areas
-- Local management constantly assesses the needs of local markets and direct services and products accordingly
-- Provide attractive services and products
-- Focus on driving volumes through innovative and targeted marketing
-- Generate customer loyalty through initiatives such as smart ticketing
-- Proactive cost control
-- Make public transport easier to access and use
-- Robust bid modelling considers differing economic scenarios, including the UK's exit from the European Union
Political and regulatory framework
Changes to the legal and regulatory framework, the implementation of the Bus Services Act 2017, and the impact of the UK leaving the EU.
Mitigating actions
-- Limited exposure to local authority funding, as our operations are largely commercial
-- Actively participate in key industry, trade
and government steering and policy development groups
-- Collaboration and partnership working with local authorities
-- Devise strategy for bus franchising
-- Demonstrate the value delivered by the private sector through investment in services, responding quickly and flexibly to passenger needs
Strategic risks
Sustainability of rail profits or loss of franchise
Failure to retain Southeastern franchise on acceptable terms and failure to stabilise GTR's business performance, and comply with franchise terms.
Mitigating actions
-- Flexible and experienced management team which responds quickly and expertly to changing circumstances
-- Shared risk through the Govia joint venture, which is 65% owned by Go-Ahead and 35%
by Keolis
-- Invest in performance improvements
-- Work constructively with industry partners, such as Network Rail and the DfT, to deliver long term economic and infrastructure benefits
-- Significant resource and financial investment in bidding for new franchises
-- Regular Board review of rail performance,
and Board approval of overall rail bidding strategy
-- Compliance with franchise conditions closely monitored
-- Recovery plan for GTR
-- Reduce head office costs across the Group
-- Preparation for German rail contract ahead of its start date in 2019
Inappropriate strategy or investment
Failure to make appropriate strategic or investment decisions.
Mitigating actions
-- Comprehensive strategic discussions with main Board and advisors
-- Extensive valuation and due diligence, supported by external expertise
-- Maintain strong financial discipline when assessing viability of opportunities
-- Cautious approach to investment opportunities overseas and outside our core operating areas
-- The Board has a clear stated risk appetite that governs the acceptable level of risk in pursuit of objectives
Competition
Competition from existing and new market participants, loss of business to other modes and threats from market disruptors.
Mitigating actions
-- Disciplined and focused bidding
-- Adapt to changing customer requirements and technological advancements
-- Foster close relationships with stakeholders to ensure we are meeting requirements including service quality and price
-- Work in partnership with local authorities and other operators
-- Promote multi-modal travel, improving the overall door-to-door experience for passengers
-- Remain at the forefront of promoting and introducing inter-operable ticketing schemes
-- Focus on customer needs and expectations, including more channels for ticket purchase and journey planning
Operational risks
Catastrophic incident or severe infrastructure failure
An incident, such as a major accident, an act of terrorism, a pandemic, or a severe failure of rail infrastructure.
Mitigating actions
-- Rigorous, high profile health and safety programme throughout the Group
-- Appropriate and regularly reviewed and tested contingency and disaster recovery plans
-- Thorough and regular staff training
-- Work closely with our industry partners, such as rail infrastructure provider, Network Rail, and government agencies
-- We have maintained high levels of safety performance, demonstrating our continuing efforts to minimise this risk
Large scale infrastructure projects
Large scale infrastructure projects on and around the networks on which we operate, such as the Thameslink Programme, HS2 and major roadworks.
Mitigating actions
-- Work constructively with industry partners, such as Network Rail, to minimise the impact of any disruption on our passengers
-- Strong engagement with stakeholders, including our customers, to enable effective communication, especially during structural change programmes and disruption to the service
-- Good relationships with local authorities and industry bodies, such as the DfT
Labour costs, employee relations and resource planning
Failure to effectively engage with our people and trade unions in making change and managing costs, including pensions.
Mitigating actions
-- Work to maintain good relationships with employees and trade unions
-- Robust workforce planning with skill requirements identified
-- Robust and regularly reviewed recruitment and retention policies, training schemes, resource planning and working practices
-- Experienced approach to wage negotiations
-- Employee engagement surveys across all businesses to identify issues
-- Engaging all our people in the vision, beliefs and attitudes
-- Proactive management of pension risks
Information technology failure or interruption or security breach
Prolonged or major failure of the Group's IT systems or a significant data breach.
Mitigating actions
-- Implementation of the Group-wide GDPR project, to ensure compliance
-- Appointment of a Group Data Protection Officer
-- Robust processes and procedures in place to ensure compliance with the relevant laws and best practices
-- Process standardisation and continued investment in best practice systems, including 'light sites' and 'load bearing' servers
-- Clear and tested business continuity plans
-- Proactive approach to cyber security issues
-- Cyber Essentials, a government backed cyber security certification scheme, was achieved
-- Continued investment in and maintenance of IT systems across the Group
-- Test scenarios conducted across the Group
Consolidated income statement
for the year ended 30 June 2018
Exceptional
Pre-exceptional items Post-exceptional
2018 2018 2018 2017
Notes GBPm GBPm GBPm GBPm
=============================================== ===== =============== =========== ================ =========
Group revenue 4 3,461.5 - 3,461.5 3,481.1
Operating costs 5, 7 (3,325.6) 25.1 (3,300.5) (3,330.5)
=============================================== ===== =============== =========== ================ =========
Group operating profit 135.9 25.1 161.0 150.6
Share of result of joint venture (1.1) - (1.1) (0.4)
Finance revenue 4, 8 2.5 - 2.5 2.4
Finance costs 8 (14.1) (2.6) (16.7) (15.8)
=============================================== ===== =============== =========== ================ =========
Profit before taxation 123.2 22.5 145.7 136.8
Tax expense 9 (24.9) (11.5) (36.4) (25.3)
=============================================== ===== =============== =========== ================ =========
Profit for the year from continuing operations 98.3 11.0 109.3 111.5
Attributable to:
Equity holders of the parent 78.0 11.0 89.0 89.1
Non-controlling interests 20.3 - 20.3 22.4
=============================================== ===== =============== =========== ================ =========
98.3 11.0 109.3 111.5
=============================================== ===== =============== =========== ================ =========
Earnings per share
- basic 10 181.6p 25.6p 207.2p 207.7p
- diluted 10 181.2p 25.5p 206.7p 207.1p
Dividends paid (pence per share) 11 102.08p 97.69p
Final dividend proposed (pence per share) 11 71.91p 71.91p
=============================================== ===== =============== =========== ================ =========
Consolidated statement of comprehensive income
for the year ended 30 June 2018
2018 2017
Notes GBPm GBPm
==================================================== ===== ===== ======
Profit for the year 109.3 111.5
Other comprehensive income
Items that will not be reclassified to profit or
loss:
Remeasurement gains/(losses) on defined benefit
pension plans 27 18.9 (24.2)
Tax relating to items that will not be reclassified 9 (3.3) 4.1
==================================================== ===== ===== ======
15.6 (20.1)
Items that may subsequently be reclassified to
profit or loss:
Unrealised gains/(losses) on cashflow hedges 30.5 (3.2)
(Gains)/losses on cashflow hedges taken to income
statement - operating costs (2.3) 6.7
Tax relating to items that may be reclassified 9 (5.2) (0.9)
Foreign exchange gain/ (loss) 0.8 (0.3)
==================================================== ===== ===== ======
23.8 2.3
Other comprehensive gains/(losses) for the year,
net of tax 39.4 (17.8)
Total comprehensive income for the year 148.7 93.7
==================================================== ===== ===== ======
Attributable to:
Equity holders of the parent 128.4 71.3
Non-controlling interests 20.3 22.4
==================================================== ===== ===== ======
148.7 93.7
==================================================== ===== ===== ======
Consolidated statement of changes in equity
for the year ended 30 June 2018
Reserve Share Capital Total
Share for own Hedging premium redemption Retained shareholders' Non-controlling Total
capital shares reserve reserve reserve earnings equity interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================ ======= ======== ======== ======== ========== ======== ============= =============== =======
At 2 July 2016 72.1 (70.9) (10.8) 1.6 0.7 178.4 171.1 24.0 195.1
Profit for the
year - - - - - 89.1 89.1 22.4 111.5
Net movement on
hedges
(net of tax) - - 2.6 - - - 2.6 - 2.6
Remeasurement on
defined
benefit
retirement
plans
(net of tax)
(note 27) - - - - - (20.1) (20.1) - (20.1)
Foreign exchange
loss - - - - - (0.3) (0.3) - (0.3)
================ ======= ======== ======== ======== ========== ======== ============= =============== =======
Total
comprehensive
income - - 2.6 - - 68.7 71.3 22.4 93.7
Exercise of
share options - 1.4 - - - (1.4) - - -
Share based
payment charge
(and associated
tax)
(note 6) - - - - - 2.4 2.4 - 2.4
Acquisition of
own shares - (2.4) - - - - (2.4) - (2.4)
Share issue 1.5 - - - - - 1.5 - 1.5
Dividends (note
11) - - - - - (41.8) (41.8) (21.3) (63.1)
================ ======= ======== ======== ======== ========== ======== ============= =============== ======= At 1 July 2017 73.6 (71.9) (8.2) 1.6 0.7 206.3 202.1 25.1 227.2 Profit for the year - - - - - 89.0 89.0 20.3 109.3 Net movement on hedges (net of tax) - - 23.0 - - - 23.0 - 23.0 Remeasurement on defined benefit retirement plans (net of tax) (note 27) - - - - - 15.6 15.6 - 15.6 Foreign exchange gain - - - - - 0.8 0.8 - 0.8 ================ ======= ======== ======== ======== ========== ======== ============= =============== ======= Total comprehensive income - - 23.0 - - 105.4 128.4 20.3 148.7 Exercise of share options - 1.7 - - - (1.7) - - - Share based payment charge (and associated tax) (note 6) - - - - - 1.7 1.7 - 1.7 Acquisition of own shares - (1.1) - - - - (1.1) - (1.1) Share issue 0.6 - - - - - 0.6 - 0.6 Dividends (note 11) - - - - - (43.8) (43.8) (13.9) (57.7) ================ ======= ======== ======== ======== ========== ======== ============= =============== ======= At 30 June 2018 74.2 (71.3) 14.8 1.6 0.7 267.9 287.9 31.5 319.4 ================ ======= ======== ======== ======== ========== ======== ============= =============== =======
Consolidated balance sheet
as at 30 June 2018
2018 2017
Notes GBPm GBPm
====================================== ===== ========= =========
Assets
Non-current assets
Property, plant and equipment 12 628.7 575.2
Intangible assets 13 91.5 91.5
Deferred tax assets 9 0.1 6.1
Investments 28 0.3 -
Interests in joint ventures - 0.8
Other financial assets 23 8.1 -
Retirement benefit obligations 27 41.4 -
====================================== ===== ========= =========
770.1 673.6
====================================== ===== ========= =========
Current assets
Inventories 16 15.2 18.9
Trade and other receivables 17 342.9 332.5
Other financial assets 23 10.0 0.2
Assets classified as held for sale 15 13.1 1.7
Cash and cash equivalents 18 556.5 590.2
====================================== ===== ========= =========
937.7 943.5
====================================== ===== ========= =========
Total assets 1,707.8 1,617.1
====================================== ===== ========= =========
Liabilities
Current liabilities
Trade and other payables 19 (804.8) (836.6)
Other financial liabilities 23 - (7.3)
Interest-bearing loans and borrowings 20 (8.4) (201.5)
Current tax liabilities 9 (20.5) (12.0)
Provisions 24 (29.6) (40.3)
====================================== ===== ========= =========
(863.3) (1,097.7)
====================================== ===== ========= =========
Non-current liabilities
Trade and other payables 19 (1.0) (1.0)
Other financial liabilities 23 - (3.0)
Interest-bearing loans and borrowings 20 (394.8) (157.6)
Retirement benefit obligations 27 (4.6) (20.9)
Deferred tax liabilities 9 (51.0) (47.8)
Provisions 24 (73.7) (61.9)
====================================== ===== ========= =========
(525.1) (292.2)
====================================== ===== ========= =========
Total liabilities (1,388.4) (1,389.9)
====================================== ===== ========= =========
Net assets 319.4 227.2
====================================== ===== ========= =========
Capital & reserves
Share capital 25 74.2 73.6
Reserve for own shares 25 (71.3) (71.9)
Hedging reserve 25 14.8 (8.2)
Share premium reserve 25 1.6 1.6
Capital redemption reserve 25 0.7 0.7
Retained earnings 25 267.9 206.3
====================================== ===== ========= =========
Total shareholders' equity 287.9 202.1
Non-controlling interests 31.5 25.1
====================================== ===== ========= =========
Total equity 319.4 227.2
====================================== ===== ========= =========
Consolidated cashflow statement
for the year ended 30 June 2018
2018 2017
Notes GBPm GBPm
======================================================= ===== ======= =======
Profit after tax for the year 109.3 111.5
Net finance costs 8 14.2 13.4
Tax expense 9 36.4 25.3
Depreciation of property, plant and equipment 12 82.7 65.4
Amortisation of intangible assets 13 3.3 3.1
Goodwill/asset impairment 7 10.1 -
Share of result of joint venture 1.1 0.4
Profit on sale of assets held for sale (0.9) -
Profit on sale of property, plant and equipment (7.3) (0.3)
Share based payment charges 6 2.2 2.7
Difference between pension contributions paid and
amounts recognised in the income statement (6.3) (6.0)
Pension scheme exceptional items 7 (35.2) -
Decrease/(increase) in inventories 1.5 (0.3)
(Increase)/decrease in trade and other receivables (1.9) 8.0
Decrease in trade and other payables (18.9) (40.7)
Movement in provisions 0.7 (4.3)
======================================================= ===== ======= =======
Cashflow generated from operations 191.0 178.2
Taxation paid 9 (28.7) (34.1)
======================================================= ===== ======= =======
Net cashflows from operating activities 162.3 144.1
======================================================= ===== ======= =======
Cashflows from investing activities
Interest received 2.5 2.4
Proceeds from sale of property, plant and equipment 15.4 2.2
Proceeds from sale of assets held for sale 1.7 -
Purchase of property, plant and equipment (126.7) (141.9)
Purchase of property, plant and equipment held
for sale (11.4) -
Purchase of intangible assets (10.1) (5.0)
Purchase of businesses 14 (9.2) (11.7)
Cash acquired with subsidiary 2.0 0.5
Transferred with franchise (23.5) -
Acquisition of investments (0.3) -
======================================================= ===== ======= =======
Net cashflows used in investing activities (159.6) (153.5)
======================================================= ===== ======= =======
Cashflows from financing activities
Interest paid (15.8) (15.1)
Dividends paid to members of the parent 11 (43.8) (41.8)
Dividends paid to non-controlling interests (13.9) (21.3)
Payment to acquire own shares (1.1) (2.4)
Foreign exchange gain/(loss) 0.8 (0.3)
Repayments of borrowings (222.5) -
Proceeds from borrowings 260.2 43.8
Proceeds from issue of shares 0.6 1.5 Payment of finance lease and hire purchase liabilities (0.9) (1.1) ======================================================= ===== ======= ======= Net cash outflows on financing activities (36.4) (36.7) ======================================================= ===== ======= ======= Net decrease in cash and cash equivalents (33.7) (46.1) Cash and cash equivalents at 1 July 2017 18 590.2 636.3 ======================================================= ===== ======= ======= Cash and cash equivalents at 30 June 2018 18 556.5 590.2 ======================================================= ===== ======= =======
Cash balances of GBP438.9m (2017: GBP516.1m) were restricted at 30 June 2018, further details are shown in note 18.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of preparation and directors' responsibility statement
Basis of preparation
The financial information set out herein does not constitute the Company's statutory accounts for the years ended 30 June 2018 or 2017 but is derived from those accounts. Statutory accounts for 2017 have been delivered to the Registrar of Companies and those for 2018 will be delivered in due course. The auditor's reports on the 2018 and 2017 accounts were unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. The 2018 Annual Report has been authorised for issue and signed by the Board of directors at the time of this announcement.
Directors' responsibility statement
The responsibility statement has been prepared in connection with the preparation of the company's full annual report for the 52 week period ended 30 June 2018. Certain parts thereof are not included within this announcement.
We confirm to the best of our knowledge:
1. the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
2. the Chairman's Statement, Group Chief Executive's Review, and the Finance Review will form part of the Strategic Report and will be incorporated into the directors' report. They include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole.
The announcement was approved by the Board of directors on 5 September 2018 and is signed on its behalf by:
David Brown Group, Chief Executive
Patrick Butcher Group, Chief Financial Officer
2. Critical accounting judgements and key sources of estimation uncertainty
The preparation of the financial statements requires management to make judgements, estimates and assumptions. Although these judgements and estimates are based on management's best knowledge, actual results ultimately may differ from these estimates.
Critical accounting judgements
The following are the critical judgements, apart from those involving estimations, that the directors have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in the financial statements:
Exceptional operating items
In certain years the Group presents as exceptional operating items on the face of the income statement, material items of revenue or expense which, because of the size or the nature and expected infrequency of the events giving rise to them, merit separate presentation to allow better understanding of financial performance. The determination of whether items merit treatment as exceptional in a particular year is therefore a matter of judgement.
During the year, the following items have been classified as exceptional and further details are given in note 7, a gain on the change in pension plan assumptions from RPI to CPI, certain goodwill and asset impairments and provisions in respect of an ongoing HMRC capital allowances taxation enquiry.
There were no exceptional items in the comparative year.
Accounting for the rail pension schemes
The train operating companies participate in the RPS, a defined benefit pension scheme which covers the whole of the UK rail industry. This is partitioned into sections and the Group is responsible for the funding of these schemes whilst it operates the relevant franchise. In contrast to the pension schemes operated by most businesses the RPS is a shared cost scheme which means that costs are formally shared 60% employer 40% employee. The Group only recognises its share of costs in the income statement.
Uninsured claims
The measurement of uninsured liabilities is based on an assessment of both the expected settlement of known claims and of the cost of claims not yet reported to the Group, as detailed in note 24. In order to assess the appropriate level of provisions the Group engages with its brokers and claims handlers to ensure external expertise is adequately factored in to the provision for known claims.
Key sources of estimation uncertainty
The key sources of estimation uncertainty that have a significant risk of causing material adjustments to the carrying value of assets and liabilities within the next financial year are in relation to:
Contract and franchise accounting
The commercial entities in the UK rail industry were created at the time of privatisation and the relationships between them are governed by a number of contracts between the major participants, the DfT, Network Rail and train operating companies. These contracts include detailed performance regimes which determine the allocation of financial responsibility relating to the attribution of delays. The processes for attribution, whilst well understood, require detailed assessment and can take significant time to resolve, particularly in unusual circumstances.
The Group makes provision for income and costs relating to performance regimes and contractual obligations relating to operating delays caused by Network Rail, or caused by our own operating companies. This process can be based primarily on previous experience of settling such claims, or, in certain circumstances, based on management's view of the most likely outcome of individual claims. The Group has significant internal expertise to assess and manage these aspects of the agreements and the issues relating to delay attribution to enable management to assess the most probable outcomes, nonetheless significant judgements are required, which can have material impacts on the financial statements.
Accordingly judgements in these and other areas are made on a continuing basis with regard to amounts due and the recoverable carrying value of related assets and liabilities arising from franchises and other contracts. Regular reviews are performed on the expected outcome of these arrangements, which require assessments and judgements relating to the expected level of revenues and costs. The GTR franchise is complex and there are a number of contractual discussions underway with the DfT that have a range of reasonably possible outcomes. Management's judgements are that, relating to events up to 30 June 2018, the impact on rail profitability of these outcomes is likely to be within a range of plus or minus GBP5m.
Following the implementation of a revised timetable in May, the performance of GTR services has been below certain contractual thresholds. These shortfalls are in large measure attributable to failings across the industry and are not the sole responsibility of GTR. Discussions are continuing with the DfT to apportion accountability for these shortfalls. It is possible that the DfT will determine that a sufficient part of these failings are down to GTR and that it is in breach of its contractual obligations. At that point, the DfT may choose, as is usual, to require the production of a Remedial Plan and/or seek to impose penalties or may seek to terminate the contract.
In the event of a termination, it is possible that there will be costs that the DfT will seek to recover from GTR. These are not possible to estimate at this stage and in any event would be contested. GTR continues to work hard to further stabilise and improve services for customers and remains committed to working with the DfT to resolve both the long outstanding contract variations which support the delivery of new services and will address remaining contractual performance issues described above.
Contract and franchise accounting specific to the rail business is disclosed in the segmental analysis in note 3.
Measurement of franchise commitments
The measurement of franchise commitments, comprising dilapidation provisions on rolling stock, depots and stations and also income claims from other rail franchise operators, is set out in note 24. Significant elements of the provisions required are subject to interpretation of franchise agreements and rolling stock agreements. The Group has significant internal expertise to assess and manage these aspects of the agreements and to enable management to assess the most probable outcomes. Where appropriate, and specifically in assessing dilapidation provisions, this process is supported by valuations from professional external advisors to support provision levels.
Retirement benefit obligations - Bus schemes
The measurement of defined benefit pension obligations requires the estimation of future changes in salaries, inflation, longevity of current and deferred members and the selection of a suitable discount rate, as set out in note 27. The Group engages Willis Towers Watson, a global professional services company whose specialisms include actuarial advice, to support the process of establishing reasonable bases for all of these estimates, to ensure they are appropriate to the Group's particular circumstances. Management also benchmark these assumptions on a periodic basis with other professional advisors.
3. Segmental analysis
The Group's businesses are managed on a divisional basis. Selected financial data is presented on this basis below.
For management purposes, the Group is organised into three reportable segments: regional bus, London bus and rail. Operating segments within those reportable divisions are combined on the basis of their long term characteristics and similar nature of their products and services, as follows:
The regional bus division comprises UK bus operations outside London.
The London bus division comprises bus operations in London under control of Transport for London (TfL), rail replacement and other contracted services in London, bus operations in Singapore under control of the Land Transport Authority (LTA) of Singapore and bus operations in Ireland under the control of the National Transport Authority (NTA) of Ireland. The Irish operations are currently being mobilised. These are aggregated as a segment given the similar contractual nature of the business.
The rail division comprises UK and overseas rail operations. The UK rail operation through an intermediate holding company, Govia Limited, is 65% owned by Go-Ahead and 35% by Keolis and comprises two rail franchises: Southeastern and GTR. The division is aggregated for the purpose of segmental reporting under IFRS 8 as each operating company has similar objectives, to provide passenger rail services and achieve a modest profit margin through its franchise arrangements with the Department for Transport (DfT). Each company targets similar margins, has similar economic risks and is viewed and reacted to as one segment by the chief operating decision maker, considered to be the Group Chief Executive. The registered office of Keolis (UK) Limited is in England and Wales.
Overseas rail operations are currently being mobilised in Germany and are 100% owned by Go-Ahead. The German rail franchises are included with the UK rail operations for reporting purposes and will be considered in further detail when operational in June 2019.
The information reported to the Group Chief Executive in his capacity as chief operating decision maker does not include an analysis of assets and liabilities and accordingly IFRS 8 does not require this information to be presented.
Transfer prices between operating segments are on an arm's length basis similar to transactions with third parties.
The following tables present information regarding the Group's reportable segments for the year ended 30 June 2018 and the year ended
1 July 2017.
Year ended 30 June 2018
Regional London Total Total
bus bus bus Rail operations
GBPm GBPm GBPm GBPm GBPm
================================================ ======== ======= ======= ========= ===========
Segment revenue 418.8 571.2 990.0 2,554.7 3,544.7
Inter-segment revenue (35.1) (20.7) (55.8) (27.4) (83.2)
================================================ ======== ======= ======= ========= ===========
Group revenue 383.7 550.5 934.2 2,527.3 3,461.5
Operating costs (337.9) (504.9) (842.8) (2,482.8) (3,325.6)
================================================ ======== ======= ======= ========= ===========
Group operating profit (pre-exceptional
items) 45.8 45.6 91.4 44.5 135.9
Exceptional operating items 25.1
Group operating profit (post-exceptional
items) 161.0
Share of result of joint venture (1.1)
Net finance costs (14.2)
================================================ ======== ======= ======= ========= ===========
Profit before tax and non-controlling interests 145.7
Tax expense (36.4)
================================================ ======== ======= ======= ========= ===========
Profit for the year 109.3
================================================ ======== ======= ======= ========= ===========
Within exceptional items, a charge of GBP10.1m, relating to goodwill and asset impairment, is within the regional bus segment. The other exceptional items relate to central activities and therefore cannot be allocated between the operating segments.
Regional London Total Total
bus bus bus Rail operations
GBPm GBPm GBPm GBPm GBPm
========================== ======== ====== ===== ===== ===========
Other segment information
Capital expenditure:
- Additions 47.9 51.7 99.6 27.1 126.7
- Acquisitions 20.7 - 20.7 - 20.7
- Intangible assets 4.6 2.0 6.6 5.4 12.0
Depreciation 34.1 27.7 61.8 20.9 82.7
========================== ======== ====== ===== ===== ===========
At 30 June 2018, there were non-current assets included within London bus of GBP7.2m (2017: GBP2.1m) relating to operations in Singapore and Ireland. The operations in Singapore commenced trading on 4 September 2016 and the revenue generated during the year to 30 June 2018 was GBP52.1m (2017: GBP39.7m). Operations in Ireland are currently being mobilised and trading is due to commence in September 2018. Non-current assets included within rail of GBP11.0m (2017: GBP3.0m) relate to operations being mobilised in Germany.
We have two major customers which individually contribute more than 10% of Group revenue, one of which contributed GBP1,278.5m (2017: GBP1,148.6m), and the other contributed GBP491.8m (2017: GBP479.1m).
Year ended 1 July 2017
Regional London Total Total
bus bus bus Rail operations
GBPm GBPm GBPm GBPm GBPm
================================================ ======== ======= ======= ========= ===========
Segment revenue 406.8 545.3 952.1 2,594.6 3,546.7
Inter-segment revenue (30.2) (19.9) (50.1) (15.5) (65.6)
================================================ ======== ======= ======= ========= ===========
Group revenue 376.6 525.4 902.0 2,579.1 3,481.1
Operating costs (329.5) (481.8) (811.3) (2,519.2) (3,330.5)
================================================ ======== ======= ======= ========= ===========
Group operating profit 47.1 43.6 90.7 59.9 150.6
Share of result of joint venture (0.4)
Net finance costs (13.4)
================================================ ======== ======= ======= ========= ===========
Profit before tax and non-controlling interests 136.8
Tax expense (25.3)
================================================ ======== ======= ======= ========= ===========
Profit for the year 111.5
================================================ ======== ======= ======= ========= ===========
Regional London Total Total
bus bus bus Rail operations
GBPm GBPm GBPm GBPm GBPm
========================== ======== ====== ===== ===== ===========
Other segment information
Capital expenditure:
- Additions 49.6 63.1 112.7 29.2 141.9
- Acquisitions 8.7 - 8.7 - 8.7
- Intangible assets 8.4 - 8.4 3.3 11.7
Depreciation 31.5 24.6 56.1 9.3 65.4
========================== ======== ====== ===== ===== ===========
4. Group revenue
This note provides an analysis of Group revenue. For accounting policies see 'Revenue recognition', 'Rendering of services', 'Rental income' and 'Profit and revenue sharing/support agreements' in notes to the accounts.
2018 2017
GBPm GBPm
=============================================== ======= =======
Rendering of services 3,319.5 3,322.9
Rental income 37.5 25.9
Franchise subsidy receipts and revenue support 104.5 132.3
=============================================== ======= =======
Group revenue 3,461.5 3,481.1
Finance revenue 2.5 2.4
=============================================== ======= =======
Total Group revenue 3,464.0 3,483.5
=============================================== ======= =======
5. Operating costs
Detailed below are the key amounts recognised in arriving at our operating costs. For accounting policies see 'Profit and revenue sharing/support agreements', 'Property, plant and equipment', 'Government grants' and 'Franchise bid costs' in notes to the accounts.
2018 2017
GBPm GBPm
============================================================= ======= =======
Employee costs (note 6) 1,224.4 1,237.6
Operating lease payments
- bus vehicles 14.5 14.0
- non-rail properties 2.0 2.6
- other non-rail 0.1 0.1
- rail rolling stock 478.1 465.9
- other rail 188.1 165.5
============================================================= ======= =======
Total lease and sublease payments recognised as an expense
(excluding rail access charges)1 682.8 648.1
- rail access charges 482.4 489.4
============================================================= ======= =======
Total lease and sublease payments recognised as an expense2 1,165.2 1,137.5
DfT franchise agreement receipts (24.6) (35.2)
Other operating income (24.0) (17.9)
Depreciation of property, plant and equipment
- owned assets 82.1 64.9
- leased assets 0.6 0.5
============================================================= ======= =======
Total depreciation expense 82.7 65.4
Intangible amortisation 3.3 3.1
Auditor's remuneration
- audit fee for the audit of the parent financial statements 0.1 0.1
- audit fee for the audit of the subsidiary financial
statements 0.7 0.6
Total audit fees for the audit of the financial statements 0.8 0.7
============================================================= ======= =======
- other non-audit3 0.1 0.4
============================================================= ======= =======
Total non-audit fees 0.1 0.4
============================================================= ======= =======
Total auditor's remuneration 0.9 1.1
Trade receivables not recovered 0.2 0.7
Energy costs
- bus fuel 98.2 102.7
- rail diesel fuel 7.0 10.8
- rail electricity 128.1 120.6
- cost of site energy 16.2 15.4
============================================================= ======= =======
Total energy costs 249.5 249.5
Government grants (4.7) (2.1)
Profit on disposal of property, plant and equipment (7.3) (0.9)
Profit on sale of assets held for sale (0.9) -
Costs expensed relating to franchise bidding activities 13.9 11.1
DfT profit share 20.6 33.5
Other operating costs 626.5 647.1
============================================================= ======= =======
Total operating costs (pre-exceptional operating items) 3,325.6 3,330.5
============================================================= ======= =======
1. The total lease and sublease payments recognised as an expense (excluding rail access charges) are made up of minimum lease payments of GBP696.4m (2017: GBP661.9m), net of sublease payments of GBP13.6m (2017: GBP13.8m) relating to other rail leases.
2. The total lease and sublease payments recognised as an expense (including rail access charges) are made up of minimum lease payments of GBP1,178.8m (2017: GBP1,151.3m), net of sublease payments of GBP13.6m (2017: GBP13.8m) relating to other rail leases.
3. Other non-audit services of GBP0.1m (2017: GBP0.4m) are detailed in the section on how we have complied with the 2016 UK Corporate Governance Code in the Annual Report.
Government grant income of GBP4.7m (2017: GBP2.1m) is mainly attributable to service improvements including smart ticketing, deliverable over a period of up to five years.
6. Employee costs
This note shows total employment costs, inclusive of share based payment charges. We have a number of share plans used to award shares to directors and employees. A charge is recognised over the vesting period in the consolidated income statement, based on the fair value of the award at the date of grant. The note also shows the average number of people employed by the Group during the year. For accounting policies see 'Share based payment transactions' in notes to the accounts.
2018 2017
GBPm GBPm
============================ ======= =======
Wages and salaries 1,067.5 1,077.8
Social security costs 105.1 107.2
Other pension costs 49.6 49.9
Share based payments charge 2.2 2.7
============================ ======= =======
1,224.4 1,237.6
============================ ======= =======
The average monthly number of employees during the year, including directors, was:
2018 2017
=============================== ====== ======
Administration and supervision 3,263 3,189
Maintenance and engineering 2,583 2,698
Operations 22,308 23,187
=============================== ====== ======
28,154 29,074
=============================== ====== ======
The information required by Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 is provided in the directors' remuneration report.
Sharesave scheme
Shareholder approval was obtained at the 2013 AGM for the introduction of a new HM Revenue & Customs approved Savings-Related Share Option scheme, known as The Go-Ahead Group plc 2013 Savings-Related Share Option Scheme (the Sharesave scheme) for employees of the Group and its operating companies.
The Sharesave scheme is open to all full time and part-time employees (including executive directors) who have completed at least six months of continuous service with a Go-Ahead Group company at the date they are invited to participate in a scheme launch. To take part, qualifying employees have to enter into a savings contract for a period of three years under which they agree to save a monthly amount, from a minimum of GBP5 to a maximum (not exceeding GBP500) specified by the Group at the time of invitation. For the February 2016 launch (Sharesave 2016), the maximum monthly savings limit set by the Group was GBP50. At the end of the savings period, employees can buy shares at a 20% discount of the market price set at the date of invitation or take their full savings back. Sharesave 2016 will mature on 1 May 2019.
The fair value of equity-settled share options granted is estimated as at the date of grant using the Black-Scholes model, taking into account the terms and conditions upon which the options were granted. The key assumptions input into the model are future share price volatility, future dividend yield, future risk free interest rate, forfeiture rate and option life.
There are savings-related options at 30 June 2018 as follows:
1 May 1 May
Scheme maturity 2019 2017
=========================================== ======= ======
Option price (GBP) 19.11 17.34
No. of options unexercised at 30 June 2018 249,242 -
No. of options exercised during the year 400 33,954
=========================================== ======= ======
No. of options exercisable at 30 June 2018 - -
=========================================== ======= ======
The expense recognised for the scheme during the year to 30 June 2018 was GBP0.6m (2017: GBP0.8m).
The following table illustrates the number and weighted average exercise price (WAEP) of share options for the Sharesave scheme:
2018 2017
2018 WAEP 2017 WAEP
No. GBP No. GBP
========================================= ========= ===== ======== =====
Outstanding at the beginning of the year 589,744 18.32 764,904 18.19
Granted during the year - - - -
Forfeited during the year (306,148) 17.79 (89,693) 18.14
Exercised during the year (34,354) 17.36 (85,467) 17.34
========================================= ========= ===== ======== =====
Outstanding at the end of the year 249,242 19.11 589,744 18.32
========================================= ========= ===== ======== =====
The weighted average exercise price at the date of exercise for the options exercised in the period was GBP17.36 (2017: GBP17.34).
At the year end no options (2017: 262,816) were exercisable and the weighted average exercise price of the options was GBPnil (2017: GBP18.32).
The options outstanding at the end of the year have a weighted average remaining contracted life of 0.83 years (2017: 1.01 years).
Long Term Incentive Plans
The executive directors participate in The Go-Ahead Group Long Term Incentive Plan 2005 and 2015 (LTIP). The LTIP provides for executive directors to be awarded nil cost shares in the Group conditional on specified performance conditions being met over a period of three years. Refer to the directors' remuneration report for further details of the LTIP.
The expense recognised for the LTIP during the year to 30 June 2018 was GBP0.8m (2017: GBP0.6m).
The fair value of LTIP options granted is estimated as at the date of grant using a Monte Carlo model, taking into account the terms and conditions upon which the options were granted. The inputs to the model used for the options granted in the year to 30 June 2018 and
1 July 2017 were:
2018 2017
% per % per
annum annum
=============================== ======= =======
The Go-Ahead Group plc:
Future share price volatility 29.0 28.0
FTSE Mid-250 index comparator:
Future share price volatility 25.0 25.0
Correlation between companies 30.0 30.0
=============================== ======= =======
The weighted average fair value of options granted during the year was GBP12.92 (2017: GBP14.90).
The following table shows the number of share options for the LTIP:
2018 2017
========================================= ======== ========
Outstanding at the beginning of the year 111,724 84,415
Granted during the year 72,755 57,771
Forfeited during the year (9,815) (3,047)
Exercised during the year (11,520) (27,415)
========================================= ======== ========
Outstanding at the end of the year 163,144 111,724
========================================= ======== ========
The LTIP award granted to the Group Chief Executive in November 2015 will lapse in full from November 2018 as none of the performance measures were achieved following the three year performance period ending 30 June 2018. The weighted average share price of the options at the year end was GBP15.88 (2017: GBP17.77).
All of the LTIP awards granted to the Group Chief Financial Officer will lapse on his cessation of employment in 2018/19.
The weighted average remaining contractual life of the options was 1.25 years (2017: 1.33 years). The weighted average exercise price at the date of exercise for the options exercised in the period was GBP16.23 (2017: GBP20.33).
Deferred Share Bonus Plan
The Deferred Share Bonus Plan (DSBP) provides for executive directors and certain other senior employees to be awarded shares in the Group conditional on the achievement of financial and strategic targets. The shares are deferred over a three year period. Refer to the directors' remuneration report for further details of the DSBP.
The expense recognised for the DSBP during the year to 30 June 2018 was GBP0.8m (2017: GBP1.3m).
The DSBP options are not subject to any market based performance conditions. Therefore the fair value of the options is equal to the share price at the date of grant.
The weighted average fair value of options granted during the year was GBP16.30 (2017: GBP20.08).
The following table shows the number of share options for the DSBP:
2018 2017
========================================= ======== ========
Outstanding at the beginning of the year 176,258 165,646
Granted during the year 34,804 44,490
Forfeited during the year (7,654) (7,711)
Exercised during the year (56,175) (26,167)
========================================= ======== ========
Outstanding at the end of the year 147,233 176,258
========================================= ======== ========
At the year end, 20,752 options related to DSBP awards, which vested before the year-end, which have not yet been exercised by participants.
Of these 20,752 options, 5,165 options related to the award granted in November 2013 and 15,587 related to the award granted in November 2014. 50,924 options, relating to the DSBP award granted in November 2015, will be eligible to vest from November 2018 following the end
of a three year deferral period. The weighted average share price of the options at the year-end was GBP15.88 (2017: GBP17.77).
All of the DSBP awards granted to the Group Chief Financial Officer will lapse on his cessation of employment in 2018/19.
The weighted average remaining contractual life of the options was 0.67 years (2017: 0.81 years). The weighted average exercise price at the date of exercise for the options exercised in the period was GBP16.01 (2017: GBP20.10).
Share incentive plans
The Group operates an HM Revenue & Customs (HMRC) approved share incentive plan, known as The Go-Ahead Group plc Share Incentive Plan (SIP). The SIP is open to all Group employees (including executive directors) who have completed at least six months' service with a Group company at the date they are invited to participate in the plan.
The SIP permits the Group to make four different types of awards to employees (free shares, partnership shares, matching shares and dividend shares), although the Group has, so far, made awards of partnership shares only. Under these awards, the Group invites qualifying employees to apply between GBP10 and GBP150 per month in acquiring shares in the Group at the prevailing market price. Under the terms of the scheme, certain tax advantages are available to the Group and employees.
7. Exceptional items
This note identifies items of an exceptional nature that have a significant impact on the results of the Group in the period. For accounting policies see 'Exceptional items' in notes to the accounts.
2018 2017
GBPm GBPm
====================================== ====== =====
Gain on change in RPI/CPI assumptions 35.2 -
Goodwill and asset impairment (10.1) -
Exceptional operating items 25.1 -
====================================== ====== =====
Year ended 30 June 2018
Total exceptional operating items in the year were GBP25.1m.
During the year The Go-Ahead Group Pension Plan (the Go-Ahead Plan) changed the reference inflation index used to estimate the annual increases to the majority of pensions payable. From 1 April 2018, the Consumer Prices Index (CPI) is used to increase pensions in payment rather than the Retail Prices Index (RPI). The change reduces the financial risks of the Go-Ahead Plan and enhances the long term sustainability of the scheme, providing an improvement in the security of Plan members' benefits. A one-off gain of GBP35.2m has been recognised in respect of this change in line with IAS 19 and the Group's accounting policies set out on page 135 of the Annual Report.
During the year, goodwill of GBP8.4m has been impaired relating to Konectbus, Thames Travel and Carousel bus operations, following a period of underperformance in all three individual cash-generating units. More details of the impairment reviews are given in note 13. The carrying value of the goodwill in Konectbus, Thames Travel and Carousel is now GBPnil. Assets with a carrying value of GBP2.4m were also deemed to be impaired within the East Anglian and Oxford bus operations.
During the year, negative goodwill of GBP0.7m arose on the business combinations in the year.
The tax impact of the above exceptional items plus accrued amounts relating to an ongoing HMRC capital allowances enquiry is GBP11.5m (2017: GBPnil). In addition, an accrued amount of GBP2.6m has been provided for within finance costs in relation to the interest payable of this enquiry.
Year ended 1 July 2017
There were no exceptional items in the year ended 1 July 2017.
8. Finance revenue and costs
Finance revenue comprises interest received from bank deposits. Finance costs mainly arise from interest due on the bond and bank loans. For accounting policies see 'Finance revenue' and 'Interest-bearings loans and borrowings' in notes to the accounts.
2018 2017
GBPm GBPm
======================================================== ====== ======
Bank interest receivable on bank deposits 2.5 2.4
======================================================== ====== ======
Finance revenue 2.5 2.4
======================================================== ====== ======
Interest payable on bank loans and overdrafts (2.5) (2.7)
Interest payable on GBP200m sterling 7.5 year bond (2.6) (11.0)
Interest payable on GBP250m sterling 7 year bond (6.3) -
Other interest payable (4.3) (1.7)
Unwinding of discounting on provisions (0.4) (0.2)
Interest payable under finance leases and hire purchase
contracts (0.2) (0.2)
Interest on net pension liability (0.4) -
======================================================== ====== ======
Finance costs (16.7) (15.8)
======================================================== ====== ======
Other interest payable includes an exceptional accrued interest charge of GBP2.6m (2017: GBPnil) in relation to the ongoing HMRC capital allowances taxation enquiry.
9. Taxation
This note explains how our Group tax charge arises. The deferred tax section of the note sets out the deferred tax assets and liabilities held across the Group. For accounting policies see 'Taxation' in notes to the accounts.
The Group tax policy can be found at www.go-ahead.com.
a. Tax recognised in the income statement and in equity
Tax relating to items charged or credited in the income statement:
2018 2017
GBPm GBPm
=============================================================== ===== =====
Current year tax charge 23.9 27.2
Adjustments in respect of current tax of previous years 13.3 -
=============================================================== ===== =====
Total current tax 37.2 27.2
=============================================================== ===== =====
Deferred tax relating to origination and reversal of temporary
differences at 19.0% (2017: 19.75%) 6.6 1.9
Adjustments in respect of deferred tax of previous years (7.4) 0.3
Impact of opening deferred tax rate reduction - (4.1)
=============================================================== ===== =====
Total deferred tax (0.8) (1.9)
=============================================================== ===== =====
Tax reported in consolidated income statement 36.4 25.3
=============================================================== ===== =====
The tax reported in consolidated income statement includes exceptional amounts arising on the change in RPI/CPI assumptions on The Go-Ahead Group Pension Plan (the Go-Ahead Plan) and amounts in relation to the HMRC enquiry, as discussed in note 7.
Tax relating to items charged or credited outside of the income statement:
2018 2017
GBPm GBPm
======================================================== ===== =====
Tax on remeasurement gains/(losses) on defined benefit
pension plans 3.3 (4.1)
Deferred tax on cashflow hedges 5.2 0.9
Deferred tax on share based payments (taken directly to
equity) 0.5 0.3
Tax reported outside of profit or loss 9.0 (2.9)
======================================================== ===== =====
b. Reconciliation
A reconciliation of income tax applicable to accounting profit before taxation, at the statutory tax rate, to tax at the Group's effective tax rate for the years ended 30 June 2018 and 1 July 2017 is as follows:
2018 2017
GBPm GBPm
========================================================== ===== =====
Accounting profit before taxation 145.7 136.8
========================================================== ===== =====
At United Kingdom tax rate of 19.0% (2017: 19.75%) 27.7 27.0
Bid costs not allowable for tax purposes 0.6 0.6
Share scheme costs not allowable for tax purposes 0.7 0.3
Non-qualifying depreciation 1.1 0.6
Expenditure not allowable for tax purposes 1.4 0.4
Adjustments in respect of deferred tax of previous years (7.4) 0.3
Movement on unrecognised deferred tax on losses carried
forward (0.2) 0.6
Effect of the difference between current year corporation
tax and deferred tax rates (0.8) (0.4)
Impact of opening deferred tax rate reduction - (4.1)
Adjustments in respect of current tax of previous years 13.3 -
========================================================== ===== =====
Tax reported in consolidated income statement 36.4 25.3
========================================================== ===== =====
Effective tax rate 25.0% 18.5%
========================================================== ===== =====
The Group had subsidiary companies in Germany, Ireland, Scandinavia and Singapore during the year.
Singapore profits have been taxed at the appropriate local taxation rates and have been included in the total statutory tax charge. Germany and Ireland are currently in mobilisation and so have not made a profit in the financial year.
Costs incurred by the Scandinavia companies were either expensed in the UK without tax relief being claimed or were carried forward as prepayments without tax relief being claimed during the year.
The Group has not recognised a deferred tax asset of GBP1.1m (2017: GBP0.9m) based on a rate of 30% (2017: 29%) in respect of losses incurred in Germany carried forward.
c. Reconciliation of current tax liabilities
A reconciliation of the current tax liability is provided below:
2018 2017
GBPm GBPm
========================================================== ====== ======
Current tax liability at start of year 12.0 18.9
Corporation tax reported in consolidated income statement 37.2 27.2
Paid in the year (28.7) (34.1)
========================================================== ====== ======
Current tax liability at end of year 20.5 12.0
========================================================== ====== ======
d. Deferred tax
The deferred tax included in the balance sheet is as follows:
2018 2017
GBPm GBPm
========================================================= ====== ======
Deferred tax liability
Accelerated capital allowances (20.2) (25.0)
Other temporary differences (9.6) (10.8)
Revaluation of land and buildings treated as deemed cost
on conversion to IFRS (11.4) (12.0)
Cashflow hedges (3.3) -
Retirement benefit obligations (6.5) -
========================================================= ====== ======
Deferred tax liability included in balance sheet (51.0) (47.8)
========================================================= ====== ======
Deferred tax asset
Retirement benefit obligations - 3.6
Cashflow hedges - 1.9
Share based payments 0.1 0.6
========================================================= ====== ======
Deferred tax asset included in balance sheet 0.1 6.1
========================================================= ====== ======
The deferred tax asset is recognised as it is considered probable that there will be future taxable profits available.
The deferred tax liabilities and assets included in the balance sheet have been calculated using applicable enacted rates.
The movements in deferred tax in the income statement and other comprehensive income for the years ending 30 June 2018 and 1 July 2017 are as follows:
Year ended 30 June 2018
Recognised
Recognised in other Recognised
At 1 July in income comprehensive directly At 30
2017 statement income in equity Acquisitions June 2018
GBPm GBPm GBPm GBPm GBPm GBPm
====================================== ========= ========== ============== ========== ============ ==========
Accelerated capital allowances (25.0) 5.8 - - (1.0) (20.2)
Asset backed funding pension
arrangement (10.1) 0.2 - - - (9.9)
Other temporary differences (0.7) 1.0 - - - 0.3
Revaluation of land and buildings
treated as deemed cost on conversion
to IFRS (12.0) 0.6 - - - (11.4)
Retirement benefit obligations 3.6 (6.8) (3.3) - - (6.5)
Cashflow hedges 1.9 - (5.2) - - (3.3)
Share based payments 0.6 - - (0.5) - 0.1
====================================== ========= ========== ============== ========== ============ ==========
(41.7) 0.8 (8.5) (0.5) (1.0) (50.9)
====================================== ========= ========== ============== ========== ============ ==========
Year ended 1 July 2017
Recognised
Recognised in other Recognised
At 2 July in income comprehensive directly At 1 July
2016 statement income in equity Acquisitions 2017
GBPm GBPm GBPm GBPm GBPm GBPm
====================================== ========= ========== ============== ========== ============ =========
Accelerated capital allowances (28.4) 3.2 - - 0.2 (25.0)
Asset backed funding pension
arrangement (8.3) (1.8) - - - (10.1)
Other temporary differences (0.1) 0.2 - - (0.8) (0.7)
Revaluation of land and buildings
treated as deemed cost on conversion
to IFRS (13.3) 1.3 - - - (12.0)
Retirement benefit obligations 0.5 (1.0) 4.1 - - 3.6
Cashflow hedges 2.8 - (0.9) - - 1.9
Share based payments 0.9 - - (0.3) - 0.6
====================================== ========= ========== ============== ========== ============ =========
(45.9) 1.9 3.2 (0.3) (0.6) (41.7)
====================================== ========= ========== ============== ========== ============ =========
The deferred tax included in the Group income statement is as follows:
2018 2017
GBPm GBPm
============================================================== ===== =====
Accelerated capital allowances 0.5 (0.4)
Revaluation (0.6) (0.6)
Retirement benefit obligations 6.7 1.0
Temporary differences arising on pension spreading - 2.3
Other temporary differences - (0.4)
============================================================== ===== =====
6.6 1.9
Adjustments in respect of prior years (7.4) 0.3
Adjustments in respect of opening deferred tax rate reduction - (4.1)
============================================================== ===== =====
Deferred tax expense (0.8) (1.9)
============================================================== ===== =====
e. Factors affecting tax charges
The standard rate of UK corporation tax reduced from 20% to 19% from 1 April 2017. A rate of 19% therefore applies to the current tax charge arising during the year ended 30 June 2018.
In addition to the change in rate of corporation tax identified above, further reductions in the rate to 17% from 1 April 2020 were substantively enacted prior to the balance sheet date and have been applied where applicable to the Group's deferred tax balance at the balance sheet date.
The current tax charge, reported in the consolidated income statement, of GBP37.2m includes amounts provided for in relation to an ongoing HMRC capital allowances taxation enquiry. In addition, the deferred tax relating to origination and reversal of temporary differences includes a movement which relates to the exceptional gain of GBP35.2m arising on the change in RPI/CPI assumptions on The Go-Ahead Group Pension Plan and the adjustments in respect of deferred tax of previous years include amounts in relation to the HMRC enquiry.
10. Earnings per share
Basic earnings per share is the amount of profit generated for the financial year attributable to equity shareholders divided by the weighted average number of shares in issue during the year.
Basic and diluted earnings per share
Exceptional
Pre-exceptional items Post-exceptional
2018 2018 2018 2017
GBPm GBPm GBPm GBPm
========================================== =============== =========== ================ =====
Net profit attributable to equity holders
of the parent 78.0 11.0 89.0 89.1
========================================== =============== =========== ================ =====
Exceptional
Pre-exceptional items Post-exceptional
2018 2018 2018 2017
============================================= =============== =========== ================ ======
Basic weighted average number of shares
in issue ('000) 42,958 - 42,958 42,902
Dilutive potential share options ('000) 101 - 101 122
============================================= =============== =========== ================ ======
Diluted weighted average number of shares
in issue ('000) 43,059 - 43,059 43,024
============================================= =============== =========== ================ ======
Earnings per share:
Basic earnings per share (pence per share) 181.6 25.6 207.2 207.7
Diluted earnings per share (pence per share) 181.2 25.5 206.7 207.1
============================================= =============== =========== ================ ======
The weighted average number of shares in issue excludes treasury shares held by the Group, and shares held in trust for the LTIP and DSBP arrangements.
No shares were bought back and cancelled by the Group in the period from 30 June 2018 to 5 September 2018.
11. Dividends paid and proposed
Dividends are one type of shareholder return, historically paid to our shareholders in April and November.
2018 2017
GBPm GBPm
=========================================================== ===== =====
Declared and paid during the year
Equity dividends on ordinary shares:
Final dividend for 2017: 71.91p per share (2016: 67.52p) 30.9 28.9
Interim dividend for 2018: 30.17p per share (2017: 30.17p) 12.9 12.9
=========================================================== ===== =====
43.8 41.8
=========================================================== ===== =====
2018 2017
GBPm GBPm
========================================================= ===== =====
Proposed for approval at the AGM (not recognised as a
liability as at 30 June 2018)
Equity dividends on ordinary shares:
Final dividend for 2018: 71.91p per share (2017: 71.91p) 31.0 31.0
========================================================= ===== =====
Payment of proposed dividends will not have any tax consequences for the Group.
12. Property, plant and equipment
The Group holds significant investments in land and buildings, bus vehicles and plant and equipment, which form our tangible assets. All assets (excluding freehold land) are depreciated over their useful economic lives. For accounting policies see 'Property, plant and equipment' in notes to the accounts.
Long term Short
Freehold leasehold term leasehold Plant
land land land and
and buildings and properties and properties Bus vehicles equipment Total
GBPm GBPm GBPm GBPm GBPm GBPm
============================== ============== =============== =============== ============ ========== =======
Cost:
At 2 July 2016 198.9 0.4 14.7 572.8 211.3 998.1
Additions 8.2 - 1.0 97.1 35.6 141.9
Acquisitions 4.0 - - 4.5 0.2 8.7
Disposals - - (0.1) (28.6) (8.3) (37.0)
Transfer categories - - - 1.7 (1.7) -
Transfer of assets held for
sale (1.7) - - - - (1.7)
Transfer of intangible assets - - - - (1.8) (1.8)
============================== ============== =============== =============== ============ ========== =======
At 1 July 2017 209.4 0.4 15.6 647.5 235.3 1,108.2
Additions 4.8 2.0 1.7 87.3 30.9 126.7
Acquisitions 3.5 1.2 - 15.7 0.3 20.7
Disposals (24.1) - - (45.8) (47.4) (117.3)
Transfer categories - (0.4) 0.4 (0.6) 0.6 -
Transfer of assets held for
sale 0.5 - - - - 0.5
Transfer of intangible assets - - - - 0.3 0.3
============================== ============== =============== =============== ============ ========== =======
At 30 June 2018 194.1 3.2 17.7 704.1 220.0 1,139.1
============================== ============== =============== =============== ============ ========== =======
Depreciation and impairment:
At 2 July 2016 32.1 - 8.8 295.0 167.9 503.8
Charge for the year 1.1 - 1.4 50.0 12.9 65.4
Disposals - - (0.1) (27.8) (8.1) (36.0)
Impairment of assets 0.7 - - - 0.2 0.9
Transfer assets held for sale (0.8) - - - - (0.8)
Transfer of intangible assets - - - - (0.3) (0.3)
============================== ============== =============== =============== ============ ========== =======
At 1 July 2017 33.1 - 10.1 317.2 172.6 533.0
Charge for the year 2.1 - 1.2 54.6 24.8 82.7
Disposals (22.9) - - (44.3) (40.9) (108.1)
Impairment of assets - - - 1.9 0.5 2.4
Transfer assets held for sale 0.4 - - - - 0.4
At 30 June 2018 12.7 - 11.3 329.4 157.0 510.4
============================== ============== =============== =============== ============ ========== =======
Net book value:
At 30 June 2018 181.4 3.2 6.4 374.7 63.0 628.7
============================== ============== =============== =============== ============ ========== =======
At 1 July 2017 176.3 0.4 5.5 330.3 62.7 575.2
============================== ============== =============== =============== ============ ========== =======
At 2 July 2016 166.8 0.4 5.9 277.8 43.4 494.3
============================== ============== =============== =============== ============ ========== =======
The net book value of leased assets and assets acquired under hire purchase contracts is:
2018 2017
GBPm GBPm
============= ===== =====
Bus vehicles 14.7 0.7
============= ===== =====
13. Intangible assets
The consolidated balance sheet contains significant intangible assets mainly in relation to goodwill, software, franchise set-up costs and customer contracts. Goodwill, which arises when Group acquires a business and pays a higher amount than the fair value of the net assets primarily due to the synergies the Group expect to create, is not amortised but is subject to annual impairment reviews. Software is amortised over its expected useful life. Franchise set-up costs are amortised over the life of the franchise/franchise extension. Customer contracts are amortised over the life of the contract. For further details see 'Software', 'Franchise set-up costs', 'Business combinations and goodwill', 'Impairment of assets' and 'Customer contracts' in notes to the accounts.
Franchise
Software set-up Rail franchise Customer
Goodwill costs costs asset contracts Total
GBPm GBPm GBPm GBPm GBPm GBPm
============================= ======== ======== ========= ============== ========== =====
Cost:
At 2 July 2016 80.8 21.3 11.5 16.7 12.3 142.6
Additions - 1.9 3.1 - - 5.0
Acquisitions 5.6 - - - 1.1 6.7
Transfer from tangible fixed
assets - 1.8 - - - 1.8
Disposals - (1.9) - - - (1.9)
============================= ======== ======== ========= ============== ========== =====
At 1 July 2017 86.4 23.1 14.6 16.7 13.4 154.2
Additions 0.4 3.3 6.4 - - 10.1
Acquisitions 0.6 - - - 1.3 1.9
Transfer from tangible fixed
assets - (0.3) - - - (0.3)
At 30 June 2018 87.4 26.1 21.0 16.7 14.7 165.9
============================= ======== ======== ========= ============== ========== =====
Amortisation and impairment:
At 2 July 2016 4.9 17.3 9.3 16.7 11.6 59.8
Charge for the year - 1.8 0.8 - 0.5 3.1
Transfer from tangible fixed
assets - 0.3 - - - 0.3
Disposals - (0.5) - - - (0.5)
============================= ======== ======== ========= ============== ========== =====
At 1 July 2017 4.9 18.9 10.1 16.7 12.1 62.7
Charge for the year - 2.3 0.8 - 0.2 3.3
Impairment 8.4 - - - - 8.4
At 30 June 2018 13.3 21.2 10.9 16.7 12.3 74.4
============================= ======== ======== ========= ============== ========== =====
Net book value:
At 30 June 2018 74.1 4.9 10.1 - 2.4 91.5
============================= ======== ======== ========= ============== ========== =====
At 1 July 2017 81.5 4.2 4.5 - 1.3 91.5
============================= ======== ======== ========= ============== ========== =====
At 2 July 2016 75.9 4.0 2.2 - 0.7 82.8
============================= ======== ======== ========= ============== ========== =====
Software costs
Software costs capitalised exclude software that is integral to the related hardware. Software is amortised on a straight-line basis over its expected useful life of three to five years.
Franchise set-up costs
A part of the Group's activities is the process of bidding for and securing franchises to operate rail and bus services in the UK and overseas. Directly attributable, incremental costs incurred after achieving preferred bidder status or entering into a franchise extension are capitalised as an intangible asset and amortised over the life of the franchise/franchise extension.
Rail franchise asset
This reflects the cost of the right to operate a rail franchise, and relates to the cost of the intangible asset acquired on the handover of the franchise assets relating to the Southeastern rail franchise. The intangible asset was being amortised on a straight-line basis over the original life of the franchise.
Customer contracts
This relates to the value attributed to customer contracts and relationships purchased as part of the Group's acquisitions. The value is calculated based on the unexpired term of the contracts at the date of acquisition and is amortised over that period.
Goodwill
Goodwill acquired through acquisitions has been allocated to individual cash-generating units for impairment testing on the basis of the Group's business operations. The carrying value of goodwill is tested annually for impairment by cash-generating unit and is as follows:
2018 2017
GBPm GBPm
================= ===== =====
Go South Coast 34.6 34.2
Brighton & Hove 12.7 12.7
Plymouth Citybus 13.0 13.0
Go-Ahead London 10.5 10.5
Go North East 2.7 2.7
Oxford 0.6 -
Konectbus - 3.6
Thames Travel - 2.7
Carousel - 2.1
================= ===== =====
74.1 81.5
================= ===== =====
The recoverable amount of goodwill has been determined based on a value in use calculation for each cash-generating unit, using cashflow projections based on financial budgets and forecasts approved by senior management covering a three year period which have then been extended over an appropriate period. The directors feel that the extended period is justified because of the long term stability of the relevant income streams. Growth has been extrapolated forward from the end of the three year forecasts over a total period of ten years plus a terminal value using a growth rate of 2.0% which reflects the directors' view of long term growth rates in each business, and the long term recurrent nature of the businesses.
The Group's weighted average cost of capital has been initially calculated as 5.2% (2017: 4.6%). Given the current low weighted average cost of capital the calculation of value in use has been initially derived based on the internal rate of return that the Group uses to appraise investments, currently 8.0%, to identify any goodwill balances requiring further consideration and review. The economic conditions that the cash-generating units operate in are considered similar enough, primarily being UK based, to use the same discount rate.
The calculation of value in use for each cash-generating unit is most sensitive to the forecast operating cashflows, the discount rate and the growth rate used to extrapolate cashflows beyond the budget period. The operating cashflows are based on assumptions of revenue, employee costs and general overheads. These assumptions are influenced by several internal and external factors. The directors consider the assumptions used to be consistent with the historical performance of each unit and to be realistically achievable in light of economic and industry measures and forecasts.
Following this impairment review, the goodwill of Konectbus (a division of the East Anglian business), Thames Travel and Carousel (both separate divisions of the Oxford bus business) have been fully impaired reflecting their continued underperformance and this being reflected in budgets and forecasts going forward. Goodwill totalling GBP8.4m has been impaired in respect of the three businesses. In respect of the East Anglian tangible assets of GBP1.7m have also been impaired but in the case of Thames Travel and Carousel the tangible assets represent buses which can be utilised or sold without further impairment being applicable.
A 0.5% increase in the internal rate of return or revenue growth falling by 1.0% are considered the most likely sensitivities that could impact recoverable amounts. Following the impairments noted above the remaining cash-generating units have significant headroom when the impairment testing has been completed and accordingly these sensitivities would not cause the carrying value to exceed their recoverable amount.
14. Business combinations
This note details acquisition transactions carried out in the current and prior periods. For accounting policies see 'Business combinations and goodwill' and 'Customer contracts' in notes to the accounts.
Year ended 30 June 2018
During the year the following acquisitions were made:
-- On 7 December 2017, The City of Oxford Motor Services Limited, a wholly owned subsidiary of the Group, acquired 100% of
Tom Tappin Limited. The company operates the Guide Friday and City Sightseeing Oxford city bus tours.
-- On 16 June 2018, Go North East Limited, a wholly owned subsidiary of the Group, acquired 100% of The East Yorkshire Motor Services Group Limited (EYMS). The EYMS group operates buses and coaches throughout Hull, East Riding and the North Yorkshire coast.
Aggregate net assets at date of acquisition:
Total acquisitions
- Provisional
fair value
to Group
GBPm
========================================= ==================
Property, plant and equipment 20.7
Intangible assets 1.3
Inventories 0.3
Cash and cash equivalents 2.0
Deferred tax liabilities (1.0)
Trade and other receivables 2.9
Trade and other payables (5.3)
Current taxation liabilities (0.1)
Interest-bearing loans and borrowings (7.3)
Retirement benefit obligations (3.0)
Provisions (1.2)
========================================= ==================
Net assets 9.3
========================================= ==================
Negative goodwill arising on acquisition (0.7)
Goodwill arising on acquisition 0.6
========================================= ==================
Cash 9.2
========================================= ==================
Total consideration 9.2
========================================= ==================
Acquisition costs of GBP0.2m have been expensed through operating costs.
Negative goodwill of GBP0.7m (2017: GBPnil) has been included as an exceptional item.
From the dates of acquisition in the period, the acquisitions recorded an operating profit of less than GBP0.1m and revenue of GBP0.7m. Had the acquisitions been completed on the first day of the financial period, the impact on the Group's operating profit would have been an increase of GBP0.6m and the impact on revenue would have been an increase of GBP31.5m.
Year ended 1 July 2017
As disclosed in the 2017 Annual Report, Go South Coast Limited, a wholly owned subsidiary of the Group, acquired the Excelsior group of companies on 4 October 2016 and Thamesdown Transport Limited on 3 February 2017. The total consideration paid was GBP11.7m and no significant changes to the fair values previously reported were subsequently identified. Given the size and prior year disclosures further detail is not replicated in the annual report.
15. Assets classified as held for sale
This note identifies any non-current assets or disposal groups that are held for sale. The carrying amounts of these assets will be recovered principally through a sale rather than through continuing use. For accounting policies see 'Non-current assets held for sale' in notes to the accounts.
At 30 June 2018, assets held for sale, with a carrying value of GBP1.7m, related to property, plant and equipment available for sale, and were included in the regional bus segment (2017: GBP1.7m). Assets held for sale with a carrying value of GBP11.4m related to bus rolling stock available for sale and were included in the London bus segment (2017: GBPnil).
The Group expects to sell GBP13.1m within 12 months of them going onto the 'for sale' list and being actively marketed or reflecting contracts already in place for certain bus assets. Assets held for sale of GBP1.7m relate to land and buildings, within property, plant and equipment, whereby offers have been made which management are currently assessing. The value at each balance sheet date represents management's best estimate of their resale value less disposal costs.
During the year ended 30 June 2018, assets held for sale were sold for a profit of GBP0.9m (2017: GBPnil), which is included within operating costs in the income statement.
At 1 July 2017, assets held for sale, with a carrying value of GBP1.7m, related to property, plant and equipment available for sale, and were included in the regional bus segment.
16. Inventories
Inventory primarily consists of vehicle spares and fuel and is presented net of allowances for obsolete products. For accounting policies see 'Inventories' in notes to the accounts.
2018 2017
GBPm GBPm
============================== ===== =====
Raw materials and consumables 15.2 18.9
============================== ===== =====
The amount of any write down of inventories recognised as an expense during the year is immaterial.
17. Trade and other receivables
Trade and other receivables mainly consist of amounts owed by principal contracting authorities and other customers, amounts paid to suppliers in advance, amounts receivable from central government and taxes receivable. Trade receivables are shown net of an allowance for bad or doubtful debts.
2018 2017
GBPm GBPm
============================================== ===== =====
Current
Trade receivables 168.1 147.5
Less: Provision for impairment of receivables (1.7) (2.1)
============================================== ===== =====
Trade receivables - net 166.4 145.4
Other receivables 10.8 37.2
Prepayments 76.7 68.2
Accrued income 29.2 42.4
Receivable from central government 59.8 39.3
============================================== ===== =====
342.9 332.5
============================================== ===== =====
As at 30 June 2018 and 1 July 2017, the ageing analysis of trade receivables was as follows:
Past due
but not
impaired
Neither - more
past due Less than 30-60 60-90 90-120 than 120
Total nor impaired 30 days days days days days
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
===== ===== ============= ========= ===== ===== ====== =========
2018 166.4 152.5 9.5 1.6 1.0 1.1 0.7
2017 145.4 130.8 4.9 1.9 3.3 1.2 3.3
===== ===== ============= ========= ===== ===== ====== =========
Trade receivables at nominal value of GBP1.7m (2017: GBP2.1m) were impaired and fully provided for. Movements in the provision for impairment of receivables were as follows:
Total
GBPm
======================== =====
At 1 July 2017 2.1
Charge for the year 0.2
Utilised (0.4)
Unused amounts reversed (0.3)
On acquisitions 0.1
======================== =====
At 30 June 2018 1.7
======================== =====
As at 30 June 2018, the ageing analysis of impaired and fully provided for trade receivables is as follows:
2018 2017
GBPm GBPm
=================== ===== =====
60-90 days 0.1 0.1
90-120 days - -
More than 120 days 1.6 2.0
======================== ===== =====
1.7 2.1
=================== ===== =====
18. Cash and cash equivalents
The majority of the Group's cash is held in bank deposits which have a maturity of three months or less to comply with DfT short term liquidity requirements. For accounting policies see 'Cash and cash equivalents' in notes to the accounts.
2018 2017
GBPm GBPm
========================== ===== =====
Cash at bank and in hand 89.9 87.0
Cash and cash equivalents 466.6 503.2
========================== ===== =====
556.5 590.2
========================== ===== =====
Cash at bank and in hand earns interest at floating rates based on daily bank deposit rates. Short term deposits are made for varying periods of between one day and three months, depending on the immediate cash requirements of the Group, and earn interest at the respective deposit rates. The fair value of cash and cash equivalents is not materially different from book value.
Amounts held by rail companies included in cash at bank and on short term deposit can be distributed only with the agreement of the DfT, normally up to the value of distributable reserves or based on a working capital formula. As at 30 June 2018, balances amounting to GBP438.9m (2017: GBP516.1m) were restricted. Part of this amount is to cover deferred income for rail season tickets, which was GBP162.8m at 30 June 2018 (2017: GBP178.0m).
19. Trade and other payables
Trade and other payables mainly consist of amounts owed to suppliers that have been invoiced or accrued, deferred income and deferred season ticket income. They also include taxes and social security amounts due in relation to our role as an employer and amounts owed to central government.
2018 2017
GBPm GBPm
====================================== ===== =====
Current
Trade payables 240.9 266.0
Other taxes and social security costs 31.8 32.4
Other payables 53.0 77.3
Deferred season ticket income 165.9 178.0
Accruals 133.5 114.6
Deferred income 45.0 54.2
Payable to central government 130.9 108.9
Government grants 3.8 5.2
====================================== ===== =====
804.8 836.6
====================================== ===== =====
2018 2017
GBPm GBPm
================== ===== =====
Non-current
Government grants 1.0 1.0
================== ===== =====
1.0 1.0
================== ===== =====
Terms and conditions of the above financial liabilities are as follows:
-- Trade payables are non-interest-bearing and are normally settled on 30 day terms
-- Other payables are non-interest-bearing and have varying terms of up to 12 months
20. Interest-bearing loans and borrowings
The Group's sources of borrowing for funding and liquidity requirements come from a range of committed bank facilities and a capital market bond. For accounting policies see 'Interest-bearing loans and borrowings' and 'Cash and cash equivalents' in notes to the accounts.
Net cash/debt and interest-bearing loans and borrowings
The net cash/debt position comprises cash, short term deposits, interest-bearing loans and borrowings, and can be summarised as:
Year ended 30 June 2018
Current Non-current
===================================== ========= ============ ========= ======================= =======
After
one year After
Effective but not more than
interest Within more than five
rate one year five years years Total
% Maturity GBPm GBPm GBPm GBPm
===================================== ========= ============ ========= =========== ========== =======
Syndicated loans 1.00 Over 5 years - - 136.0 136.0
Debt issue costs on syndicated
loans (0.3) (0.3) - (0.6)
GBP250m sterling 7 year bond 2.50 Over 5 years - - 250.0 250.0
Debt issue costs on GBP250m sterling
7 year bond (0.6) (2.2) - (2.8)
EUR8m revolving credit facility 1.30 0-1 years 6.5 - - 6.5
EUR10.6m financing facility 1.50 Over 5 years - 1.6 3.1 4.7
Finance leases and HP commitments
(note 21) 7.74 0-5 years 2.8 5.9 0.7 9.4
===================================== ========= ============ ========= =========== ========== =======
Total interest-bearing loans and
borrowings 8.4 5.0 389.8 403.2
Debt issue costs 0.9 2.5 - 3.4
===================================== ========= ============ ========= =========== ========== =======
Total interest-bearing loans and
borrowings
(gross of debt issue costs) 9.3 7.5 389.8 406.6
Cash and short term deposits (note
18) (556.5) - - (556.5)
===================================== ========= ============ ========= =========== ========== =======
Net cash (547.2) 7.5 389.8 (149.9)
===================================== ========= ============ ========= =========== ========== =======
Restricted cash* 438.9 ===================================== ========= ============ ========= =========== ========== ======= Adjusted net debt 289.0 ===================================== ========= ============ ========= =========== ========== =======
Year ended 1 July 2017
Current Non-current
=================================== ========= ========= ========= ======================= =======
After
one year After
Effective but not more than
interest Within more than five
rate one year five years years Total
% Maturity GBPm GBPm GBPm GBPm
=================================== ========= ========= ========= =========== ========== =======
Syndicated loans 1.00 0-4 years - 156.0 - 156.0
Debt issue costs on syndicated
loans (0.3) (0.5) - (0.8)
GBP200m sterling 7.5 year bond 5.38 0-1 years 200.0 - - 200.0
EUR20m revolving credit facility 1.30 0-1 years 0.9 - - 0.9
Finance leases and HP commitments
(note 21) 4.96 0-5 years 0.9 2.0 0.1 3.0
=================================== ========= ========= ========= =========== ========== =======
Total interest-bearing loans and
borrowings 201.5 157.5 0.1 359.1
Debt issue costs 0.3 0.5 0.8
=================================== ========= ========= ========= =========== ========== =======
Total interest-bearing loans and
borrowings
(gross of debt issue costs) 201.8 158.0 0.1 359.9
Cash and short term deposits (note
18) (590.2) - - (590.2)
=================================== ========= ========= ========= =========== ========== =======
Net cash (388.4) 158.0 0.1 (230.3)
=================================== ========= ========= ========= =========== ========== =======
Restricted cash* 516.1
=================================== ========= ========= ========= =========== ========== =======
Adjusted net debt 285.8
=================================== ========= ========= ========= =========== ========== =======
* Restricted cash balances are amounts held by rail companies which are included in cash and cash equivalents. The restricted cash can only be distributed with the agreement of the DfT, normally up to the value of revenue reserves or based on the working capital formula.
Analysis of Group net cash
Hire purchase/ GBP200m GBP250m
Cash and Syndicated finance sterling sterling EUR10.6m
cash equivalents loan facility leases bond bond EURRCF loan Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=============== ================= ============== ============== ========= ========= ====== ======== ======
2 July 2016 636.3 (113.0) (0.3) (200.0) - - - 323.0
Cashflow (46.6) (43.0) 1.1 - - (0.9) - (89.4)
On acquisition 0.5 - (3.8) - - - - (3.3)
=============== ================= ============== ============== ========= ========= ====== ======== ======
1 July 2017 590.2 (156.0) (3.0) (200.0) - (0.9) - 230.3
Cashflow (35.7) 20.0 0.9 200.0 (250.0) (5.6) (4.7) (75.1)
On acquisition 2.0 - (7.3) - - - - (5.3)
=============== ================= ============== ============== ========= ========= ====== ======== ======
30 June 2018 556.5 (136.0) (9.4) - (250.0) (6.5) (4.7) 149.9
=============== ================= ============== ============== ========= ========= ====== ======== ======
Reconciliation of liabilities arising from financing activities
Total
liabilities
Hire purchase/ GBP200m GBP250m from
Syndicated finance sterling sterling EUR10.6m financing
loan facility leases bond bond EURRCF loan activities
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=============== ============== ============== ========= ========= ====== ======== ============
1 July 2017 (156.0) (3.0) (200.0) - (0.9) - (359.9)
Cashflow 20.0 0.9 200.0 (250.0) (5.6) (4.7) (39.4)
On acquisition - (7.3) - - - - (7.3)
=============== ============== ============== ========= ========= ====== ======== ============
30 June 2018 (136.0) (9.4) - (250.0) (6.5) (4.7) (406.6)
=============== ============== ============== ========= ========= ====== ======== ============
Syndicated loan facility
On 16 July 2014, the Group re-financed and entered into a GBP280.0m five year syndicated loan facility. The loan facility is unsecured and interest is charged at LIBOR + Margin, where the margin is dependent upon the gearing of the Group. The facility had an initial maturity of July 2019, with two one-year extensions, the second of which was agreed on 20 June 2016, extending the maturity of the facility to July 2021 from that date. On 20 July 2018, an additional extension of two years was agreed, extending the maturity of the facility to July 2023. A further two one-year extensions are available which if exercised would extend the maturity to July 2025.
As at 30 June 2018, GBP136.0m (2017: GBP156.0m) of the facility was drawn down.
GBP200m sterling bond
On 24 March 2010, the Group raised a GBP200.0m bond of 7.5 years which matured, and was repaid, on 29 September 2017. The bond had a coupon rate of 5.375%.
GBP250m sterling bond
On 6 July 2017, the Group raised a GBP250.0m bond of 7 years maturing on 6 July 2024, with a coupon rate of 2.5%. This replaced the GBP200.0m sterling bond which was repaid on 29 September 2017.
EUR8m revolving credit facility (RCF)
On 27 April 2017, the Group's subsidiary, Go-Ahead Verkehrgesellschaft Deutschland GmbH, entered into a EUR20m one year RCF. On 24 October 2017, EUR12.0 m of this facility was replaced with a EUR10.6m 10.5 year loan facility with the Group's subsidiary,
Go-Ahead Facility GmbH, leaving a EUR8.0m RCF.
As at 30 June 2018, EUR7.4m or GBP6.5m (2017: EUR1.0 or GBP0.9m) was drawn down. The facility is unsecured and interest is charged at
1.3% plus EURIBOR.
EUR10.6m loan facility
On 24 October 2017, the Group's subsidiary, Go-Ahead Facility GmbH, entered into a EUR10.6m loan facility.
As at 30 June 2018, EUR5.2m or GBP4.7m (2017: EURnil) was drawn down and is repayable over the 10.5 year term. The facility is secured against the German land and buildings included within plant, property and equipment. Interest is charged at 1.5% plus EURIBOR until 1 June 2019 when interest will be charged at a fixed rate of 2.79%.
Debt issue costs
There are debt issue costs of GBP0.6m (2017: GBP0.8m) on the syndicated loan facility.
The GBP250m sterling 7 year bond has debt issue costs of GBP2.8m (2017: GBPnil).
The Group is subject to two covenants in relation to its borrowing facilities. The covenants specify a maximum adjusted net debt to EBITDA and a minimum net interest cover. At the year end and throughout the year, the Group has not been in breach of any bank covenants.
21. Finance lease and hire purchase commitments
This note details finance lease and hire purchase commitments. For accounting policies see 'Interest bearing loans and borrowings' in notes to the accounts.
The Group has finance leases and hire purchase contracts for bus vehicles and various items of plant and equipment. These contracts have no terms of renewal or purchase option escalation clauses. Future minimum lease payments under finance leases and hire purchase contracts, together with the present value of the net minimum lease payments, are as follows:
2018 2017
============================================ ======================= =======================
Present Present
Minimum value Minimum value
payments of payments payments of payments
GBPm GBPm GBPm GBPm
============================================ ========= ============ ========= ============
Within one year 2.9 2.8 0.9 0.9
After one year but not more than five years 6.3 5.9 2.3 2.0
Over five years 0.7 0.7 0.1 0.1
============================================ ========= ============ ========= ============
Total minimum lease payments 9.9 9.4 3.3 3.0
Less amounts representing finance charges (0.5) - (0.3) -
============================================ ========= ============ ========= ============
Present value of minimum lease payments 9.4 9.4 3.0 3.0
============================================ ========= ============ ========= ============
22. Financial risk management objectives and policies
This note details our treasury management and financial risk management objectives and policies, as well as the exposure and sensitivity of the Group to interest rate, liquidity, foreign exchange and credit risk, and the policies in place to monitor and manage these risks.
Financial risk factors and management
The Group's principal financial instruments comprise bank loans, a sterling bond, hire purchase and finance lease contracts, and cash and short term deposits. The main purpose of these financial instruments is to provide an appropriate level of net debt to fund the Group's activities, namely working capital, fixed asset expenditure, acquisitions and dividends. The Group has various other financial instruments such as trade receivables and trade payables, which arise directly from its operations.
It is Group policy to enter into derivative transactions, primarily fuel swaps and interest rate swaps. The purpose of these is to manage the fuel price and interest rate risks arising from the Group's operations and its sources of finance. At the year end, the Group did not hold any interest rate swaps.
It is, and has been throughout 2016/17 and 2017/18, the Group's policy that no trading in derivatives shall be undertaken and derivatives are only purchased for internal benefit.
The main financial risks arising from the Group's activities are interest rate risk, liquidity risk and credit risk. Commodity price risk is managed via fuel derivatives. Risks arising from these are explained in note 23.
Interest rate risk
The Group borrows and deposits funds and is exposed to changes in interest rates. The Group's policy toward cash deposits is to deposit cash short term on UK money markets.
The Group manages interest rate risk through a combination of fixed rate instruments and/or interest rate derivatives. During the years ended 30 June 2018 and 1 July 2017 the Group had no interest rate swaps in place. The Group has net cash and hence the present adverse risk is a decrease in interest rates.
The maturity and interest rate profile of the financial assets and liabilities of the Group (excluding unamortised debt issue costs) as at 30 June 2018 and 1 July 2017 is as follows:
Average Within More than
rate 1 year 1-2 years 2-3 years 3-4 years 4-5 years 5 years Total
% GBPm GBPm GBPm GBPm GBPm GBPm GBPm
==================================== ======= ======= ========= ========= ========= ========= ========= =======
Year ended 30 June
2018
Floating rate (assets)/liabilities
Syndicated loans 1.00 - - - - - 136.0 136.0
Euro revolving credit
facility 1.30 6.5 - - - - - 6.5
EUR10.6m financing
facility 1.50 - 0.4 0.4 0.4 0.4 3.1 4.7
==================================== ======= ======= ========= ========= ========= ========= ========= =======
Gross floating rate
liabilities 6.5 0.4 0.4 0.4 0.4 139.1 147.2
Cash assets (556.5) - - - - - (556.5)
==================================== ======= ======= ========= ========= ========= ========= ========= =======
Net floating rate
(assets)/liabilities (550.0) 0.4 0.4 0.4 0.4 139.1 (409.3)
==================================== ======= ======= ========= ========= ========= ========= ========= =======
Fixed rate liabilities
GBP250m sterling 7
year bond 2.50 - - - - - 250.0 250.0
Obligations under finance
lease and hire purchase
contracts 7.74 2.8 2.0 1.5 1.4 1.0 0.7 9.4
==================================== ======= ======= ========= ========= ========= ========= ========= =======
Net fixed rate liabilities 2.8 2.0 1.5 1.4 1.0 250.7 259.4
==================================== ======= ======= ========= ========= ========= ========= ========= =======
Year ended 1 July 2017
Floating rate (assets)/liabilities
Syndicated loans 1.00 - - - 156.0 - - 156.0
Euro revolving credit
facility 1.30 0.9 - - - - - 0.9
==================================== ======= ======= ========= ========= ========= ========= ========= =======
Gross floating rate
liabilities 0.9 - - 156.0 - - 156.9
Cash assets 0.31 (590.2) - - - - - (590.2)
==================================== ======= ======= ========= ========= ========= ========= ========= =======
Net floating rate
(assets)/liabilities (589.3) - - 156.0 - - (433.3)
Fixed rate liabilities
GBP200m sterling 7.5
year bond 5.38 200.0 - - - - - 200.0
Obligations under finance
lease and hire purchase
contracts 4.96 0.9 0.6 0.5 0.4 0.5 0.1 3.0
==================================== ======= ======= ========= ========= ========= ========= ========= =======
Net fixed rate liabilities 200.9 0.6 0.5 0.4 0.5 0.1 203.0
==================================== ======= ======= ========= ========= ========= ========= ========= =======
The expected maturity of the financial assets and liabilities in the table above is the same as the contractual maturity of the financial assets and liabilities.
Interest on financial instruments classified as floating rate is re-priced at intervals of less than one year. Interest on financial instruments classified as fixed rate is fixed until the maturity of the instrument. The other financial instruments of the Group that are not included in the tables above are non-interest bearing and are therefore not subject to interest rate risk.
Interest rate risk table
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group's profit before tax (through the impact on floating rate borrowings) based on recent historic changes.
Increase/ Effect
decrease on profit Effect
in before on
basis tax equity
points GBPm GBPm
===== ========= ========== =======
2018
GBP 50.0 (0.6) (0.6)
GBP (50.0) 0.6 0.6
===== ========= ========== =======
2017
GBP 50.0 (0.8) (0.8)
GBP (50.0) 0.8 0.8
===== ========= ========== =======
Liquidity risk
The Group has in place a GBP280.0m syndicated loan facility which allows the Group to maintain liquidity within the desired gearing range.
On 16 July 2014, the Group re-financed and entered into a GBP280.0m five year syndicated loan facility, with two one-year extensions replacing the previous GBP275.0m five year syndicated loan facility. The second of the one-year extensions was agreed on 20 June 2016, extending the maturity of the current facility to July 2021. On 20 July 2018, an additional extension of two years was agreed, extending the maturity of the facility to July 2023. A further two one-year extensions are available which, if exercised, would extend the maturity to July 2025.
On 24 March 2010, the Group raised a GBP200.0m bond of 7.5 years which matured, and was repaid, on 29 September 2017. The bond had a coupon rate of 5.375%.
On 6 July 2017, the Group raised a GBP250m bond of 7 years maturing on 6 July 2024 with a coupon rate of 2.5% which replaced the GBP200m sterling bond.
On 27 April 2017, the Group's subsidiary, Go-Ahead Verkehrgesellschaft Deutschland GmbH, entered into a EUR20m one year revolving credit facility. On 24 October 2017, EUR12.0 m of this facility was replaced with a EUR10.6m 10.5 years loan facility with the Group's subsidiary, Go-Ahead Facility GmbH.
The level of drawdowns and prevailing interest rates are detailed in note 20.
Available liquidity as at 30 June 2018 and 1 July 2017 was as follows:
2018 2017
GBPm GBPm
=========================================== ===== =====
Syndicated loans 280.0 280.0
GBP200m 7.5 year 5.375% sterling bond 2017 - 200.0
GBP250m 7 year 2.5% sterling bond 2024 250.0 -
Euro revolving credit facility 7.1 17.5
EUR10.6m financing facility 9.4 -
=========================================== ===== =====
Total core facilities 546.5 497.5
=========================================== ===== =====
Amount drawn down at year-end 397.2 356.9
=========================================== ===== =====
Headroom 149.3 140.6
=========================================== ===== =====
The Group's bus vehicles can be financed by hire purchase or finance lease arrangements, or term loans at fixed rates of interest over two to five year primary borrowing periods. This provides a regular inflow of funding to cover expenditure as it arises.
Foreign currency risk
The Group has foreign exchange exposure in respect of cashflow commitments to its operations in Germany, Singapore, Scandanavia and Ireland. These are currently not material to the Group.
Credit risk
The Group's credit risk is primarily attributable to its trade receivables (see note 17) and cash deposits (see note 18). The maximum credit
risk exposure of the Group comprises the amounts presented in the balance sheet, which are stated net of provisions for doubtful debt. A provision is made where there is an identified loss event which, based on previous experience, is evidence of a reduction in the recoverability of future cashflows.
The majority of the Group's receivables are with public (or quasi-public) bodies (such as the DfT). The Group does not consider these counterparties to be a significant credit risk. Risk of exposure to non-return of cash on deposit is managed through a treasury policy of holding deposits with banks rated A- or A3 or above by at least one of the credit rating agencies. The treasury policy outlines the maximum level of deposit that can be placed with any one given financial institution.
Contractual payments
The tables below summarise the maturity profile of the Group's financial liabilities at 30 June 2018 and 1 July 2017 based on contractual undiscounted payments.
Year ended 30 June 2018
Less than More than
On demand 3 months 3-12 months 1-5 years 5 years Total
GBPm GBPm GBPm GBPm GBPm GBPm
============================= ========= ========= =========== ========= ========= =====
Interest-bearing loans and
borrowings - 0.3 7.2 6.7 139.2 153.4
GBP250m sterling 7 year bond - 6.1 - - 247.4 253.5
Trade and other payables 24.6 424.2 110.3 - - 559.1
============================= ========= ========= =========== ========= ========= =====
24.6 430.6 117.5 6.7 386.6 966.0
============================= ========= ========= =========== ========= ========= =====
Year ended 1 July 2017
Less than More than
On demand 3 months 3-12 months 1-5 years 5 years Total
GBPm GBPm GBPm GBPm GBPm GBPm
=============================== ========= ========= =========== ========= ========= =====
Interest-bearing loans and
borrowings - 0.3 3.7 162.4 0.1 166.5
GBP200m sterling 7.5 year bond - 210.7 - - - 210.7
Other financial liabilities - 2.0 5.5 3.0 - 10.5
Trade and other payables 18.2 458.5 84.3 - - 561.0
=============================== ========= ========= =========== ========= ========= =====
18.2 671.5 93.5 165.4 0.1 948.7
=============================== ========= ========= =========== ========= ========= =====
Managing capital
The primary objective of the Group's capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. Details of the issued capital and reserves are shown in note 25. Details of interest-bearing loans and borrowings are shown in note 20.
To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the years ended 30 June 2018 and 1 July 2017.
The Group applies the primary objective by managing its capital structure such that net debt (adjusted to exclude restricted cash) to EBITDA* is within a range which retains an investment grade debt rating of at least BBB-.
In the year ended 2 July 2011, the Group obtained investment grade long term credit ratings from Standard & Poor's and Moody's as follows:
Standard & Poor's BBB- (Stable outlook) Moody's Baa3 (Stable outlook)
Those ratings have been maintained in the year ended 30 June 2018 and recently reconfirmed.
The Group's policy is to maintain an adjusted net debt to EBITDA ratio of 1.5x to 2.5x. The Group's calculation of adjusted net debt is
set out in note 20 and includes cash and short term deposits, interest-bearing loans and borrowings, and excludes restricted cash. During the year no specific actions were required to be taken by the Group with regard to this ratio or to ensure the investment grade debt rating.
Our primary financial covenant under the 2023 syndicated loan facility is an adjusted net debt to EBITDA ratio of not more than 3.5x and at
30 June 2018 it was 1.30x (2017: 1.30x).
* Operating profit before interest, tax, depreciation and amortisation.
Operating leases
The Group uses operating leases for bus and coach purchases across the Group primarily where the vehicles service specific contracts
to mitigate the risk of ownership at the end of the contract. This results in GBP1.8m (2017: GBP1.5m) of cost within operating charges which
would otherwise have been charged to interest. The Group holds operating leases for its bus fleet with an asset capital value of GBP45.9m
(2017: GBP30.2m).
The majority of assets in the rail division are financed by operating leases, in particular rolling stock.
23. Derivatives and financial instruments
A derivative is a security whose price is dependent upon or derived from an underlying asset. The Group uses energy derivatives to hedge its risks associated with fuel price fluctuations. Financial instruments held by the Group include fuel hedge derivatives and finance lease/hire purchase contracts. For accounting policies see 'Financial assets and derivatives', 'Fair value measurement' and 'Interest bearing loans and borrowings' in notes to the accounts.
a. Fair values
The fair values of the Group's financial instruments carried in the financial statements have been reviewed as at 30 June 2018 and 1 July 2017 and are as follows:
2018 2017
GBPm GBPm
========================== ===== ======
Non-current assets 8.1 -
Current assets 10.0 0.2
========================== ===== ======
18.1 0.2
========================== ===== ======
Current liabilities - (7.3)
Non-current liabilities - (3.0)
========================== ===== ======
- (10.3)
========================== ===== ======
Net financial derivatives 18.1 (10.1)
========================== ===== ======
Year ended 30 June 2018
Held for
trading
- Fair
value
through Total
Amortised income carrying
cost statement value Fair value
GBPm GBPm GBPm GBPm
========================================= ========= ========== ========= ==========
Fuel price derivatives - 18.1 18.1 18.1
========================================= ========= ========== ========= ==========
Net financial derivatives - 18.1 18.1 18.1
Obligations under finance lease and hire
purchase contracts (9.4) - (9.4) (9.4)
========================================= ========= ========== ========= ==========
(9.4) 18.1 8.7 8.7
========================================= ========= ========== ========= ==========
Year ended 1 July 2017
Held for
trading
-Fair
value
through Total
Amortised income carrying
cost statement value Fair value
GBPm GBPm GBPm GBPm
========================================= ========= ========== ========= ==========
Fuel price derivatives - (10.1) (10.1) (10.1)
========================================= ========= ========== ========= ==========
Net financial derivatives - (10.1) (10.1) (10.1)
Obligations under finance lease and hire
purchase contracts (3.0) - (3.0) (3.0)
========================================= ========= ========== ========= ==========
(3.0) (10.1) (13.1) (13.1)
========================================= ========= ========== ========= ==========
The fair values of all other assets and liabilities in notes 17, 19 and 20 are not significantly different from their carrying amount, with the exception of the GBP250m sterling 7 year bond which has a fair value of GBP245.4m (2017: GBP200m sterling bond with a fair value of GBP202.1m) but is carried at its amortised cost of GBP250.0m (2017: GBP200m). The fair value of the GBP250m sterling 7.5 year bond has been determined by reference to the price available from the market on which the bond is traded. The fuel price derivatives were valued externally by the respective banks by comparison with the market fuel price for the relevant date.
All other fair values shown above have been calculated by discounting cashflows at prevailing interest rates.
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly
or indirectly; and
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data
As at 30 June 2018 and 1 July 2017, the Group has used a level 2 valuation technique to determine the fair value of the fuel price derivatives. The valuations are based on the external Mark-to-Market (MtM) valuations provided by the derivative providers and are prepared in accordance with the providers own internal models and calculation methods based upon well recognised financial principles, relevant current market conditions and reasonable estimates about relevant future market conditions.
During the year ended 30 June 2018, there were no transfers between valuation levels.
b. Hedging activities
Fuel derivatives
The Group is exposed to commodity price risk as a result of fuel usage. The Group closely monitors fuel prices and uses fuel derivatives to hedge its exposure to increases in fuel prices, when it deems this to be appropriate.
The movement during the year on the hedging reserve was GBP23.0m credit (net of tax) (2017: GBP2.6m credit (net of tax)) taken through other comprehensive income.
Bus
As at 30 June 2018, the Group had derivatives against bus fuel of 182 million litres for the three years ending June 2021. The fair value of the asset or liability has been recognised on the balance sheet. The value has been generated since the date of the acquisition of the instruments due to the movement in market fuel prices.
As at 30 June 2018 the amounts hedged are as follows:
2019 2020* 2021*
========================= ==== ===== =====
Actual percentage hedged 100% 55% 30%
========================== ==== ===== =====
Litres hedged (million) 97 55 30
========================== ==== ===== =====
Price (pence per litre) 32.5 33.2 33.9
========================== ==== ===== =====
* Assuming consistent usage and that hedging is completed at June 2018 market price.
Rail
As at 30 June 2018 the Group had no derivatives against rail fuel for the 2019 financial year (2017: 4 million litres).
24. Provisions
A provision is a liability recorded in the consolidated balance sheet, where there is uncertainty over the timing or amount that will be paid, and is therefore often estimated. The main provisions we hold are in relation to uninsured claims and dilapidation provisions relating to franchise commitments. For accounting policies see 'Provisions' and 'Uninsured liabilities' in notes to the accounts.
Franchise Uninsured
commitments claims Other Total
GBPm GBPm GBPm GBPm
============================= ============ ========= ===== ======
At 2 July 2016 60.1 42.1 3.5 105.7
Provided (after discounting) 8.8 22.3 1.7 32.8
Utilised (6.3) (15.7) - (22.0)
Released (9.7) (4.5) (0.3) (14.5)
Unwinding of discounting 0.1 0.1 - 0.2
============================= ============ ========= ===== ======
At 1 July 2017 53.0 44.3 4.9 102.2
Provided (after discounting) 24.1 18.3 1.5 43.9
Utilised (16.1) (14.8) - (30.9)
Released (9.0) (3.1) (0.6) (12.7)
On acquisition - 0.9 0.3 1.2
Unwinding of discounting (0.1) (0.3) - (0.4)
============================= ============ ========= ===== ======
At 30 June 2018 51.9 45.3 6.1 103.3
============================= ============ ========= ===== ======
2018 2017
GBPm GBPm
============ ===== =====
Current 29.6 40.3
Non-current 73.7 61.9
============ ===== =====
103.3 102.2
============ ===== =====
Franchise commitments
Franchise commitments comprise GBP51.5m (2017: GBP50.5m) dilapidation provisions on vehicles, depots and stations across our two (2017: three) active rail franchises, and GBP0.4m (2017: GBP2.5m) provisions relating to other franchise commitments. Of the dilapidations provisions, GBP15.1m (2017: GBP21.2m) are classified as current. All of the GBP0.4m (2017: GBP2.5m) provision relating to other franchise commitments is classified as current. During the year GBP9.0m (2017: GBP9.7m) of provisions previously provided were released following the successful renegotiation of certain contract conditions. The dilapidations will be incurred as part of a rolling maintenance contract over the next three years. The provisions are based on management's assessment of most probable outcomes, supported where appropriate by valuations from professional external advisors.
Uninsured claims
Uninsured claims represent the cost to the Group to settle claims for incidents occurring prior to the balance sheet date based on an assessment of the expected settlement, together with an estimate of settlements that will be made in respect of incidents that have not yet been reported to the Group by the insurer. Of the uninsured claims, GBP13.4m (2017: GBP13.2m) are classified as current and GBP31.9m (2017: GBP31.1m) are classified as non-current based on past experience of uninsured claims paid out annually. It is estimated that the majority of uninsured claims will be settled within the next six years. Both the estimate of settlements that will be made in respect of claims received, as well as the estimate of settlements made in respect of incidents not yet reported, are based on historic trends which can alter over time reflecting the length of time some matters can take to be resolved. No material changes to carrying values are expected within the next 12 months.
Other
The other provisions of GBP6.1m (2017: GBP4.6m) relate to dilapidations in the bus division of which GBP0.7m (2017: GBP3.1m) are classified as current, and GBP5.4m (2017: GBP1.5m) are classified as non-current. It is expected that the dilapidations will be incurred within two to five years. Reflecting the nature of the judgements associated with the provisioning for dilapidations it is not practicable to provide further sensitivity analysis of the extent by which these amounts could change in the next financial year. In the prior year, the remaining other current provision of GBP0.3m related to completion claims regarding the sale of our aviation business.
25. Issued capital and reserves
Called up share capital is the number of shares in issue at their par value. For accounting policies see 'Treasury shares' in notes to the accounts.
Allotted, called up and fully
paid
===================================
2018 2017
Millions GBPm Millions GBPm
=================================== ========= ====== ========= =====
As at 30 June 2018 and 1 July 2017 47.0 4.7 47.0 4.7
=================================== ========= ====== ========= =====
The Group has one class of ordinary shares which carry no right to fixed income and have a par value of 10p per share.
Share capital
Share capital represents proceeds on issue of the Group's equity, both nominal value and share premium.
Reserve for own shares
The reserve for own shares is in respect of 4,060,479 ordinary shares (8.6% of share capital), of which 158,249 are held for LTIP and DSBP arrangements.
The remaining shares were purchased in order to enhance shareholders' returns and are being held as treasury shares for future issue in appropriate circumstances. During the year ended 30 June 2018 the Group has repurchased 64,012 shares for LTIP and DSBP arrangements (2017: 121,084 shares purchased). The Group has not cancelled any shares during the year (2017: no shares cancelled).
Hedging reserve
The hedging reserve records the movement in value of fuel price derivatives, offset by any movements recognised directly in equity.
Share premium reserve
The share premium reserve represents the premium on shares that have been issued to fund or part fund acquisitions made by the Group. This treatment is in line with Section 612 of the Companies Act 2006.
Capital redemption reserve
The redemption reserve reflects the nominal value of cancelled shares.
26. Commitments
A commitment is a contractual obligation to make a payment in the future, mainly in relation to operating leases and agreements to
procure assets. These amounts are not recorded in the consolidated financial statements as we have not yet received the goods or services from the supplier.
Capital commitments
2018 2017
GBPm GBPm
=========================================================== ===== =====
Contracted for but not provided - acquisition of property,
plant and equipment 34.8 45.7
=========================================================== ===== =====
Operating lease commitments - Group as lessee
The Group has entered into commercial leases on certain properties and other items. Renewals are at the option of the lessee. There are no restrictions placed upon the lessee by entering into these leases.
The Group's train operating companies hold agreements under which they lease rolling stock from rolling stock operating companies, and agreements with Network Rail for access to the railway infrastructure (track, stations and depots).
Future minimum rentals payable under non-cancellable operating leases as at 30 June 2018 and 1 July 2017 were as follows:
As at 30 June 2018
Bus vehicles Rail rolling Rail access
and other Bus property stock charges Rail other Total
GBPm GBPm GBPm GBPm GBPm GBPm
======================= ============ ============ ============ =========== ========== =======
Within one year 11.0 1.3 575.8 361.4 134.9 1,084.4
In the second to fifth
years inclusive 27.2 5.0 1,060.8 239.1 243.2 1,575.3
Over five years - 5.2 162.4 - - 167.6
======================== ============ ============ ============ =========== ========== =======
38.2 11.5 1,799.0 600.5 378.1 2,827.3
======================= ============ ============ ============ =========== ========== =======
As at 1 July 2017
Bus vehicles Rail rolling Rail access
and other Bus property stock charges Rail other Total
GBPm GBPm GBPm GBPm GBPm GBPm
============================= ============ ============ ============ =========== ========== =======
Within one year 12.7 1.5 584.0 387.4 156.6 1,142.2
In the second to fifth years
inclusive 28.3 5.4 1,389.2 183.0 334.2 1,940.1
Over five years - 5.0 163.9 - - 168.9
============================= ============ ============ ============ =========== ========== =======
41.0 11.9 2,137.1 570.4 490.8 3,251.2
============================= ============ ============ ============ =========== ========== =======
Operating lease commitments - Group as lessor
The Group's rail operating companies sub lease access to stations and depots to other commercial organisations.
Future minimum rentals receivable under non-cancellable operating leases as at 30 June 2018 and 1 July 2017 were as follows:
2018 2017
======================================= ======================= =======================
Other Other
Land and rail Land and rail
buildings agreements buildings agreements
GBPm GBPm GBPm GBPm
======================================= ========== =========== ========== ===========
Within one year 2.3 11.1 2.9 9.3
In the second to fifth years inclusive 0.4 62.7 0.2 51.2
Over five years - - - -
2.7 73.8 3.1 60.5
======================================= ========== =========== ========== ===========
Performance bonds and other guarantees
The Group has provided bank guaranteed performance bonds of GBP76.9m (2017: GBP76.9m), a loan guarantee bond of GBP36.3m (2017: GBP36.3m), and season ticket bonds of GBP154.1m (2017: GBP226.2m) to the DfT in support of the Group's UK rail franchise operations. In addition the Group, together with Keolis, has a joint parental company commitment to provide funds of GBP136.0m (2017: GBP136.0m) to the DfT in respect of the Govia Thameslink Railway franchise, of which Group has a 65% share equating to GBP88.4m. At the year end GBPnil (2017: GBPnil) has been provided.
To support subsidiary companies in their normal course of business, the Group has provided parental company guarantees and indemnified certain banks and insurance companies who have issued certain performance bonds and a letter of credit. The letter of credit at 30 June 2018 is GBP58.0m (2017: GBP72.0m).
The Group has a bond of $4.2m SGD (2017: $4.2m SGD) to the Land Transport Authority (LTA) of Singapore in support of the Group's Singapore bus operations. At the year end exchange rate this equates to GBP2.4m (2017: GBP2.4m).
The Group has a bond of EUR5.0m (2017: EUR4.6m) in favour of the Ministry of Transport of BW and bonds of EUR1.1m (2017: EUR1.1m) in favour of the Ministry of Transport of BW and the Bavarian Rail Authority. Both are in support of the Group's German rail operations, currently being mobilised. At the year end exchange rate these equate to GBP5.4m (2017: GBP4.9m).
The Group has provided a parental company guarantee to provide funds of EUR35.0m (2017: EUR35.0m) in respect of the Germany operations, of which EURnil (2017: EURnil) has been provided for at year end. At the year end exchange rate this equates to GBP31.0m (2017: GBP30.1m).
The Group has bonds of EUR8.0m (2017: EURnil) in favour of the National Transport Authority in Ireland in support of the Group's Irish bus operations which will commence trading in September 2018. At the year end exchange rate this equates to GBP7.1m (2017: GBPnil).
27. Retirement benefit obligations
The Group operates a defined contribution pension scheme and a workplace saving scheme for our employees. We also administer a defined benefit pension scheme, which is closed to new entrants and future accruals. The train operating companies participate in the Rail Pension Scheme, a defined benefit scheme which covers the whole of the UK rail industry. This is partitioned into sections and the Group is responsible for the funding of these schemes whilst it operates the relevant franchise. For accounting policies see 'Retirement benefits' in notes to the accounts.
Retirement benefit obligations consist of the following:
2018 2017
=========================================== =================== =====================
Bus Rail Total Bus Rail Total
GBPm GBPm GBPm GBPm GBPm GBPm
=========================================== ===== ===== ===== ====== ===== ======
Pre-tax pension scheme asset/(liabilities) 36.8 - 36.8 (20.9) - (20.9)
=========================================== ===== ===== ===== ====== ===== ======
2018 2017
========================================= ======================= ========================
Bus Rail Total Bus Rail Total
GBPm GBPm GBPm GBPm GBPm GBPm
========================================= ===== ======= ======= ====== ======= =======
Remeasurement gains/(losses) due
to:
Experience on benefit obligations (4.7) (23.8) (28.5) 8.0 9.7 17.7
Changes in demographic assumptions - 38.3 38.3 (0.1) - (0.1)
Changes in financial assumptions 16.4 58.5 74.9 (52.8) (193.5) (246.3)
Return on assets greater than discount
rate 7.2 62.6 69.8 20.7 128.8 149.5
Franchise adjustment movement - (135.6) (135.6) - 55.0 55.0
========================================= ===== ======= ======= ====== ======= =======
Remeasurement gains /(losses) on
defined benefit pension plans 18.9 - 18.9 (24.2) - (24.2)
========================================= ===== ======= ======= ====== ======= =======
Bus schemes
The Go-Ahead Group Pension Plan
For the majority of bus employees, the Group operates one main pension scheme, The Go-Ahead Group Pension Plan (the Go-Ahead Plan), which consists of funded defined benefit sections and defined contribution sections as follows.
The defined contribution sections of the Go-Ahead Plan are not contracted-out of the State Second Pension Scheme. The Money Purchase Section is now closed to new entrants, except by invitation from the Company, and has been replaced by the Workplace Saving Section, which is also defined contribution. The expense recognised for the Money Purchase Sections of the Go-Ahead Plan is GBP9.9m (2017: GBP9.6m), being the contributions paid and payable. The expense recognised for the Workplace Saving Scheme is GBP4.0m (2017: GBP2.9m), being the contributions paid and payable.
The defined benefit sections of the Go-Ahead Plan are contracted-out of the State Second Pension Scheme and provide benefits based
on a member's final pensionable salary. The assets of the defined benefit sections are held in a separate trustee-administered fund. Contributions to these sections are assessed in accordance with the advice of an independent qualified actuary. The defined benefit sections of the Go-Ahead Plan have been closed to new entrants and closed to future accrual from 31 March 2014.
The Go-Ahead Plan is a plan for related companies within the Group where risks are shared. The overall costs of the Go-Ahead Plan have been recognised in the Group's financial statements according to IAS 19 (revised). Each of the participating companies accounts on the basis of contributions paid by that company. The Group accounts for the difference between the aggregate IAS 19 (revised) cost of the scheme and the aggregate contributions paid.
The Go-Ahead Plan is governed by a Trustee Company in accordance with a Trust Deed and Rules. It is also subject to regulation from the Pensions Regulator and relevant UK legislation. This regulatory framework requires the Trustees of the Go-Ahead Plan and the Group to agree upon the assumptions underlying the funding target, and the necessary contributions as part of each triennial valuation. The last actuarial valuation of the Go-Ahead Plan had an effective date of 31 March 2015, and the next will have an effective date of 31 March 2018.
The investment strategy of the Go-Ahead Plan, which aims to meet liabilities as they fall due, is to invest plan assets in a mix of equities, other return seeking assets and liability driven investments to maximise the return on plan assets and minimise risks associated with lower than expected returns on plan assets. Trustees are required to regularly review investment strategy.
Other pension plans
Some employees of Plymouth Citybus Limited are members of a Devon County Council defined benefit scheme. This scheme is externally funded and no further entrants can join. Contributions to the scheme are assessed in accordance with the advice of an independent qualified actuary.
Some employees of EYMS Group Limited, which was acquired during the year, are members of the EYMS Group pension defined benefit scheme. The scheme was closed to future accrual with effect from 6 January 2011 having previously been closed to new entrants with effect from 6 April 2001. Contributions to the scheme are based on advice from an independent qualified actuary. Existing contributions are based on the 5 April 2014 valuation.
The actuarial assumptions disclosed are in respect of the Go-Ahead Plan given the respective sizes of the three bus pension schemes.
Summary of bus schemes year end assumptions
2018 2017
% %
============================================================= ==== ====
Retail price index inflation 3.1 3.3
Consumer price index inflation 2.1 2.3
Discount rate 2.7 2.6
Rate of increase in salaries n/a n/a
Rate of increase of pensions in payment and deferred pension 1.8 2.0
============================================================= ==== ====
The discount rate is based on the anticipated return of AA rated corporate bonds with a term matching the maturity of the scheme liabilities.
The most significant non-financial assumption is the assumed rate of longevity. The table below shows the life expectancy assumptions used in the accounting assessments based on the life expectancy of a male member of each pension scheme at age 65.
2018 2017
Years Years
============== ====== ======
Pensioner 21 21
Non-pensioner 22 22
============== ====== ======
Sensitivity analysis
In making the valuation, the above assumptions have been used. For bus pension schemes, the following is an approximate sensitivity analysis of the impact of the change in the key assumptions. In isolation, the following adjustments would adjust the pension deficit as shown.
2018 2017
Pension Pension
deficit deficit
% %
============================================================ ======== ========
Discount rate - increase of 0.1% (1.7) (1.7)
Price inflation - increase of 0.1% 1.5 1.5
Rate of increase in salaries n/a n/a
Rate of increase of pensions in payment - increase of 0.1% 0.9 0.9
Increase in life expectancy of pensioners or non-pensioners
by 1 year 3.6 3.6
============================================================ ======== ========
The sensitivity analysis presented above has been calculated using approximate methods. The use of 0.1% and 1 year in the sensitivity analysis is considered to be a reasonable illustrative approximation of possible changes, as these variations can regularly arise.
Maturity profile of bus schemes defined benefit obligation
The following tables shows the expected future benefit payments of the plan at 30 June 2018.
2018
GBPm
======================= =====
June 2019 31.1
June 2020 31.7
June 2021 32.5
June 2022 33.1
June 2023 33.7
June 2024 to June 2028 179.8
======================== =====
Category of assets at the year end
2018 2017
===================================== ============ ============
GBPm % GBPm %
===================================== ===== ===== ===== =====
Equities 95.3 11.5 306.3 39.1
Bonds 109.3 13.2 15.4 2.0
Property 53.9 6.5 43.5 5.5
Liability driven investing portfolio 246.9 29.8 341.4 43.5
Cash/other 323.9 39.0 78.0 9.9
===================================== ===== ===== ===== =====
829.3 100.0 784.6 100.0
===================================== ===== ===== ===== =====
All of the asset categories above are held within pooled funds and are classed as quoted in an active market where the underlying assets are exchanged, traded or can be valued with a reasonable degree of certainty based on market data. Any liquidity funds have been classed as unquoted in active markets.
Funding position of the Group's pension arrangements
2018 2017
GBPm GBPm
==================================== ======= =======
Employer's share of pension scheme:
Liabilities at the end of the year (792.5) (805.5)
Assets at fair value 829.3 784.6
==================================== ======= =======
Pension scheme asset/(liability) 36.8 (20.9)
==================================== ======= =======
Pension cost for the financial year
2018 2017
GBPm GBPm
================================= ====== =====
Service cost - -
Administration costs 1.7 1.6
Settlement gain (35.2) (1.2)
Interest cost on net liabilities 0.4 -
================================= ====== =====
Total pension costs (33.1) 0.4
================================= ====== =====
On 28 March 2018 the Group and the Trustee of the Go-Ahead Plan agreed to change the reference inflation index for the purpose of annual increases to the majority of pensions payable by the Bus Plan. From 1 April 2018 onwards, the Consumer Prices Index (CPI) is used to increase pensions in payment rather than the Retail Prices Index (RPI). The change reduces the financial risks of the Go-Ahead Plan and enhances the long-term sustainability of the scheme, providing an improvement in the security of Plan members' benefit.
As a result of this change, a pre-tax, non-cash exceptional settlement gain of GBP35.2 million has been recognised in the income statement.
In the prior year, the GBP1.2m settlement gain represents a gain made by the pension scheme in respect of the pension increase exchange exercise undertaken in the prior year.
Analysis of the change in the pension scheme liabilities over the financial year
2018 2017
GBPm GBPm
============================================== ====== ======
Pension scheme liabilities - at start of year 805.5 765.8
Interest cost 20.5 20.7
Settlement gain (35.2) (1.2)
Remeasurement (gains)/losses due to:
Experience on benefit obligations 4.7 (8.0)
Changes in demographic assumptions - (0.1)
Changes in financial assumptions (16.4) 52.8
Benefits paid (28.5) (24.5)
On acquisition 41.9 -
============================================== ====== ======
Pension scheme liabilities - at end of year 792.5 805.5
============================================== ====== ======
Analysis of the change in the pension scheme assets over the financial year
2018 2017
GBPm GBPm
========================================================= ====== ======
Fair value of assets - at start of year 784.6 763.1
Interest income of plan assets 20.1 20.7
Remeasurement gains due to return on assets greater than
discount rate 7.2 20.7
Actuarial gain on assets - (0.3)
Administration costs (1.7) (1.6)
Group contributions 6.6 6.5
Benefits paid (28.5) (24.5)
On acquisition 41.0 -
========================================================= ====== ======
Fair value of plan assets - at end of year 829.3 784.6
========================================================= ====== ======
Estimated contributions for future
GBPm
======================================================== ====
Estimated Group contributions in financial year 2019 7.3
Estimated employee contributions in financial year 2019 -
======================================================== ====
Estimated total contributions in financial year 2019 7.3
======================================================== ====
Rail schemes
The Railways Pension Scheme (RPS)
The majority of employees in our train operating companies are members of sections of the Railways Pensions Scheme (RPS), an industry-wide defined benefit scheme. The Group is obligated to fund the relevant section of the scheme over the period for which the franchise is held.
The RPS is governed by the Railways Pension Trustee Company Limited and is subject to regulation from the Pensions Regulator and relevant UK legislation.
All the costs, and any deficit or surplus, are shared 60% by the employer and 40% by the members. The RPS sections are all open to new entrants and the assets and liabilities of each company's section are separately identifiable and segregated for funding purposes.
In addition, at the end of the franchise, any deficit or surplus in the scheme passes to the subsequent franchisee with no compensating payments from or to the outgoing franchise holder. The Group's obligations are therefore limited to its contributions payable to the schemes during the period over which it operates the franchise.
Changes in financial assumptions includes the effect of changes in the salary cap agreed to offset additional national insurance costs as a result of the schemes no longer "opting out".
The accounting treatment for such pensions scheme is not explicitly considered by IAS 19 Employee Benefits (Revised). However, since the contributions currently committed to being paid to each train operating company section are lower than the share of the service cost (for current and future service) that would normally be calculated under IAS 19 (Revised), the Group does not account for uncommitted contributions towards the sections' current or expected future deficits. This reflects the legal position that some of the existing deficit and some of the service costs in the current year will be funded in future years beyond the term of the current franchise. As a result, the Group consequently reduces any section deficit balance that would otherwise remain after reflecting the cost sharing with the members and reduces any service costs that would give rise to an increase in such deficit through the use of a franchise adjustment with movements in that franchise adjustment meaning that the service costs appropriately reflect contracted contributions resulting over the term of the franchise, as occurred on the transfer of the London Midland franchise during the year.
British Railways Additional Superannuation Scheme (BRASS) matching AVC Group contributions of GBP0.6m (2017: GBP0.6m) were paid in the year.
Summary of year end assumptions
2018 2017
% %
============================================================= ==== ====
Retail price index inflation 3.1 3.3
Consumer price index inflation 2.1 2.3
Discount rate 2.7 2.6
Rate of increase in salaries 3.4 3.5
Rate of increase of pensions in payment and deferred pension 2.1 2.3
============================================================= ==== ====
The discount rate is based on the anticipated return of AA rated corporate bonds with a term matching the maturity of the scheme liabilities.
The most significant non-financial assumption is the assumed rate of longevity. The table below shows the life expectancy assumptions used in the accounting assessments based on the life expectancy of a male member of each pension scheme at age 65.
2018 2017
Years Years
============== ====== ======
Pensioner 21 22
Non-pensioner 23 24
============== ====== ======
The mortality assumptions adopted as at 30 June 2018 and 1 July 2017 are based on the results of the latest funding valuation as at 31 December 2013.
Sensitivity analysis
Due to the nature of the franchise adjustment, the balance sheet position in respect of the rail pension schemes is not sensitive to small movements in any of the assumptions and therefore we have not included any quantitative sensitivity analysis.
Category of assets at the year end
2018 2017
========= ============== ==============
GBPm % GBPm %
========= ======= ===== ======= =====
Equities 1,859.3 98.0 2,154.2 96.8
Property 34.1 1.8 69.0 3.1
Cash 3.8 0.2 2.2 0.1
========= ======= ===== ======= =====
1,897.2 100.0 2,225.4 100.0
========= ======= ===== ======= =====
All of the asset categories above are held within pooled funds and therefore quoted in active markets.
Funding position of the Group's pension arrangements
2018 2017
GBPm GBPm
======================================== ========= =========
Employer's 60% share of pension scheme:
Liabilities at the end of the year (2,474.1) (3,010.9)
Assets at fair value 1,897.2 2,225.4
======================================== ========= =========
Gross deficit (576.9) (785.5)
Franchise adjustment 576.9 785.5
======================================== ========= =========
Pension scheme liability - -
======================================== ========= =========
Pension cost for the financial year
2018 2017
GBPm GBPm
============================================= ====== ======
Service cost 95.4 92.6
Administration costs 3.5 7.2
Franchise adjustment to current period costs (65.2) (62.8)
Interest cost on net liabilities 18.9 18.7
Interest on franchise adjustments (18.9) (18.7)
============================================= ====== ======
Pension cost 33.7 37.0
============================================= ====== ======
Analysis of the change in the employer's 60% share of pension scheme liabilities over the financial year
2018 2017
GBPm GBPm
======================================================== ======= =======
Pension scheme liabilities less members' share (40%) of
the deficit - at start of year 3,010.9 2,625.8
Franchise adjustment (100%) (785.5) (649.0)
======================================================== ======= =======
2,225.4 1,976.8
Liability movement for members' share of assets (40%) 80.9 126.4
Service cost (60%) 95.4 92.6
Interest cost (60%) 49.6 51.1
Interest on franchise adjustment (100%) (18.9) (18.7)
Franchise adjustment to current period costs (100%) (65.2) (62.8)
Remeasurement losses/(gains) due to:
Experience on benefit obligations (60%) 23.8 (9.7)
Changes in demographical assumptions (60%) (38.3) -
Changes in financial assumptions (60%) (58.5) 193.6
Benefits paid (100%) (61.3) (68.9)
Transfer of franchise (628.4) -
Franchise adjustment on transfer of franchise 157.1 -
Franchise adjustment movement (100%) 135.6 (55.0)
======================================================== ======= =======
1,897.2 2,225.4
Franchise adjustment (100%) 576.9 785.5
======================================================== ======= =======
Pension scheme liabilities less members share (40%) of
the deficit - at end of year 2,474.1 3,010.9
======================================================== ======= =======
Analysis of the change in the pension scheme assets over the financial year
2018 2017
GBPm GBPm
========================================================= ======= =======
Fair value of assets - at start of year (100%) 2,225.4 1,976.8
Interest income of plan assets (60%) 30.7 32.5
Remeasurement gains due to return on assets greater than
discount rate (60%) 62.5 128.8
Administration costs (100%) (5.9) (12.0)
Group contributions (100%) 33.1 36.4
Benefits paid (100%) (61.3) (68.9)
Transfer of franchise (471.3) -
Members' share of movement of assets (40%) 84.0 131.8
========================================================= ======= =======
Fair value of plan assets - at end of year (100%) 1,897.2 2,225.4
========================================================= ======= =======
Estimated contributions for future
GBPm
======================================================== ====
Estimated Group contributions in financial year 2019 28.4
Estimated employee contributions in financial year 2019 19.0
======================================================== ====
Estimated total contributions in financial year 2019 47.4
======================================================== ====
Franchise adjustment
The effect of the franchise adjustment on the financial statements is provided below:
2018 2017
GBPm GBPm
============================================= ======= =======
Balance sheet
Defined benefit pension plan (576.9) (785.5)
Deferred tax asset 98.1 133.5
============================================= ======= =======
(478.8) (652.0)
============================================= ======= =======
Other comprehensive income
Remeasurement gains (135.6) 55.0
Tax on remeasurement gains 23.1 (9.4)
============================================= ======= =======
(112.5) 45.6
============================================= ======= =======
Income statement
Franchise adjustment to current period costs (65.2) (62.8)
Interest on franchise adjustments (18.9) (18.7)
Deferred tax charge 14.3 13.9
============================================= ======= =======
(69.8) (67.6)
============================================= ======= =======
Risks associated with defined benefit plans
Rail schemes
Despite remaining open to new entrants and future accrual, the risks posed by the RPS are limited as under the franchise arrangements, the train operating companies are not responsible for any residual deficit at the end of a franchise. As such, there is limited short term cashflow risk within this business and if agreed it would also be proportionately borne by the employees as well as the Group.
Bus schemes
The number of employees in defined benefit plans is reducing, as these plans are closed to new entrants, and, in the case of the Go-Ahead Plan and the EYMS Plan, closed to future accrual.
The key risks relating to the defined benefit pension arrangements and the steps taken by the Group to mitigate them are as follows:
Risk Description Mitigation
================ ======================================== ======================================
Asset volatility The liabilities are calculated Asset liability modelling has
using a discount rate set with been undertaken recently in
reference to bond yields with all significant plans to ensure
maturity profiles matching pension that any risks taken are rewarded
maturity; if assets underperform and that we have a balance of
this yield, this will create risk seeking and liability driven
a deficit. Most of the defined investments.
benefit arrangements hold a proportion
of return-seeking assets (equities,
diversified growth funds and
global absolute return funds),
and to offset the additional
risk, hold a proportion in liability
driven investments, which should
reduce volatility.
================ ======================================== ======================================
Inflation A significant proportion of the The business has some inflation
risk UK benefit obligations are linked linking in its revenue streams,
to inflation, and higher inflation which helps to offset this risk.
will lead to higher liabilities. During the year, changes in
assumptions were made from RPI
to CPI when looking at future
pension payments, which will
help offset the risk.
================ ======================================== ======================================
Life expectancy The majority of the Scheme's The Group final salary scheme
obligations are to provide benefits has closed to future accrual,
for the life of the member, so reducing exposure to increases
increases in life expectancy in life expectancy risk.
will result in an increase in
the liabilities.
================ ======================================== ======================================
Legislative Future legislative changes are The Group final salary scheme
risk uncertain. In the past these has closed to future accrual,
have led to increases in obligations, reducing risk to legislative
introducing pension increases, change. The Group takes professional
and vesting of deferred pensions, advice to keep abreast of legislative
or reduced investment return changes.
through the ability to reclaim
Advance Corporation Tax. The
UK government has legislated
to end contracting out in 2016.
Further legislation could result
in an increase in the value of
Guaranteed Minimum Pension. If
this legislation is implemented,
this would increase the defined
benefit obligation of the arrangements.
================ ======================================== ======================================
DISCLOSURE GUIDANCE AND TRANSPARENCY RULE 6.3.5
In accordance with FCA's Disclosure Guidance and Transparency Rule 6.3.5, the information set out below, together with the condensed set of the Group's financial statements, information on important events that have occurred during the year ended 30 June 2018 and their impact on the financial statements, and the Group's principal risk,uncertainties and mitigating actions as detailed above, constitute the requirements of DTR 6.3.5 which is required to be communicated to the media in full unedited text through a Regulatory Information Service. This announcement is not a substitute for reading the full 2017/18 Annual Report and Accounts. Page references in the text below refer to page numbers in the 2017/18 Annual Report and Accounts.
RELATED PARTY DISCLOSURES AND GROUP UNDERTAKINGS
The information below is extracted from pages 176 to 180 of the 2017/18 Group's Annual Report and Accounts and is repeated here for the purposes of DTR 6.3.5:
28. Related party disclosures and Group undertakings
Our subsidiaries listed below each contribute to the profits, assets and cashflow of the Group. The Group has a number of related parties including joint ventures, pension schemes and directors. For accounting policies see 'Interests in joint arrangements' in notes to the accounts.
The consolidated financial statements include the financial statements of The Go-Ahead Group plc and the following Group undertakings:
% equity interest
===================
Country of incorporation
and principal
Name place of business 2018 2017
============================================== ========================= ========= ========
Trading subsidiaries
Go-Ahead Holding Limited United Kingdom2 100 100
Go North East Limited United Kingdom 100 100
London General Transport Services Limited United Kingdom 100 100
Go-Ahead London Rail Replacement Services
Limited United Kingdom 100 100
Brighton & Hove Bus and Coach Company Limited United Kingdom 100 100
The City of Oxford Motor Services Limited United Kingdom 100 100
Go South Coast Limited United Kingdom 100 100
Plymouth Citybus Limited United Kingdom 100 100
Konectbus Limited United Kingdom 100 100
Thames Travel (Wallingford) Limited United Kingdom 100 100
Carousel Buses Limited United Kingdom 100 100
Hedingham & District Omnibuses Ltd. United Kingdom 100 100
Anglian Bus Limited United Kingdom 100 100
HC Chambers & Son Limited United Kingdom 100 100
Aviance UK Limited United Kingdom 100 100
New Southern Railway Limited United Kingdom1 65 65
London & South Eastern Railway Limited United Kingdom1 65 65
London & Birmingham Railway Limited United Kingdom1 65 65
Southern Railway Limited United Kingdom1 65 65
Govia Thameslink Railway Limited United Kingdom1 65 65
Govia Limited United Kingdom1 65 65
Go-Ahead Scotland Limited United Kingdom 100 100
Go-Ahead Verkehrsgesellschaft Deutschland
GmbH Germany 100 100
Go-Ahead Baden Württemberg GmbH Germany 100 100
Go-Ahead Facility GmbH Germany 100 100
Go-Ahead Seletar PTE. Ltd Singapore 100 100
Go-Ahead Singapore PTE. Ltd Singapore 100 100
Go-Ahead Sverige AB Sweden 100 100
Go-Ahead Norge AS Norway 100 100
Go-Ahead Transport Services (Dublin) Limited Ireland 100 -
Tom Tappin, Limited United Kingdom 100 -
EYMS Group Limited United Kingdom 100 -
East Yorkshire Motor Services Limited United Kingdom 100 -
Jointly controlled entities
On Track Retail Limited United Kingdom3 50 50
Investments
Mobileeee GmbH Germany4 12 -
============================================== ========================= ========= ========
1. The rail companies are 65% owned by The Go-Ahead Group plc and 35% owned by Keolis (UK) Limited and held through Govia Limited.
2. Held by The Go-Ahead Group plc. All other companies are held through subsidiary undertakings.
3. On Track Retail Limited is a joint venture with Assertis Limited.
4. Mobileeee GmbH is an investment of Go-Ahead Verkehrsgesellschaft Deutschland GmbH.
The above trading subsidiaries have one class of ordinary shares which carry no right to fixed income, with the exception of On Track Retail Limited, which also has redeemable preference shares.
The registered office of all trading subsidiaries incorporated in the United Kingdom is: 3rd Floor, 41-51 Grey Street, Newcastle upon Tyne, NE1 6EE.
The registered offices of trading subsidiaries incorporated outside of the United Kingdom are as follows:
Subsidiary Registered office
===================================== =========================================
Go-Ahead Verkehrsgesellschaft Jean-Monnaie-Straße 2, D-10557,
Deutschland GmbH Berlin, Germany
Go-Ahead Baden Württemberg Büchsenstraße 20, D-73457,
GmbH Stuttgart, Germany
Go-Ahead Facility GmbH Bahnhof 2, D-73457, Essingen, Germany
Go-Ahead Sverige AB Mäster Samuelsgatan 20, SE 101 39,
Stockholm, Sweden
Go-Ahead Norge AS Filipstad Brygge 1, NO 0125, Oslo, Norway
Go-Ahead Seletar PTE Ltd and Go-Ahead 2 Loyang Way, Singapore 508776
Singapore PTE Ltd
Go-Ahead Dublin Services (Transport) Holmes O'Malley Sexton Solicitors 2-4
Limited Ely Place Dublin 2
===================================== =========================================
% equity interest
===================
Name Company number Country of incorporation 2018 2017
===================================== ============== ======================== ========= ========
Dormant subsidiaries
East Midlands Railway Limited 7164882 United Kingdom 100 100
Go Wear Buses Limited 2019645 United Kingdom 100 100
Go-Reading Limited 3158846 United Kingdom 100 100
GA Retail Services Limited 4173713 United Kingdom 100 100 The Go-Ahead Group Trustee Company limited 2125799 United Kingdom 100 100 Go-Ahead Property Development Limited 7128594 United Kingdom 100 100 Go-Ahead XX Limited 8205871 United Kingdom 100 100 GHI Ltd 4262016 United Kingdom 100 100 Southern Vectis Limited 2005917 United Kingdom 100 100 Birmingham Passenger Transport Services Limited 2901263 United Kingdom 100 100 Go Coastline Limited 2018469 United Kingdom 100 100 Go London Limited 2849983 United Kingdom 100 100 Go West Midlands Limited 2490584 United Kingdom 100 100 Levers Coaches Limited 2524573 United Kingdom 100 100 MetroCity (Newcastle) Limited 4153866 United Kingdom 100 100 Thames Trains Limited 3007943 United Kingdom 100 100 Victory Railway Holdings Limited 3147927 United Kingdom 100 100 Thameslink Rail Limited 3013232 United Kingdom1 65 65 London and South East Passenger Rail Services Limited 6537238 United Kingdom1 65 65 London & East Midlands Railway Limited 5814586 United Kingdom1 65 65 London and West Midlands Railway Limited 5537947 United Kingdom1 65 65 Abingdon Bus Company Limited 3151270 United Kingdom 100 100 Reed Investments Limited 4236536 United Kingdom 100 100 Gatwick Handling Limited 2984113 United Kingdom 100 100 GH Heathrow Ltd. 2813292 United Kingdom 100 100 GH Manchester Ltd 1883900 United Kingdom 100 100 GH Stansted Limited 1983429 United Kingdom 100 100 Midland Airport Services Limited 1592083 United Kingdom 100 100 Oxford Newco Limited 9542008 United Kingdom 100 100 London General Trustee Company Limited 6953098 United Kingdom 100 100 Go-Ahead Finance Company 4699524 United Kingdom 100 100 Hants & Dorset Motor Services Limited 2752603 United Kingdom 100 100 Hants & Dorset Trim Limited 2017829 United Kingdom 100 100 Solent Blue Line Limited 2103030 United Kingdom 100 100 Marchwood Motorways (Services) Limited 2201331 United Kingdom 100 100 Marchwood Motorways (Southampton) Limited 1622531 United Kingdom 100 100 The Southern Vectis Omnibus Company Limited 0241973 United Kingdom 100 100 Tourist Coaches Limited 3006529 United Kingdom 100 100 Wilts and Dorset Bus Company Limited 1671355 United Kingdom 100 100 Wilts & Dorset Investments Limited 4613075 United Kingdom 100 100 Wilts & Dorset Holdings Limited 2091878 United Kingdom 100 100 Dockland Buses Limited 3420004 United Kingdom 100 100 Blue Triangle Buses Limited 3770568 United Kingdom 100 100 Go-Ahead Leasing Limited 5262810 United Kingdom 100 100 Go Northern Limited 0132492 United Kingdom 100 100 London Central Bus Company Limited 2328565 United Kingdom 100 100 Metrobus Limited 1742404 United Kingdom 100 100 Hants & Dorset Transport Support Services Limited 8669065 United Kingdom 100 100 Thamesdown Transport Limited 1997617 United Kingdom 100 100 Excelsior Coaches Limited 4329621 United Kingdom 100 100 Excelsior Transport Ltd. 4329645 United Kingdom 100 100 Excelsior Travel Limited 4342549 United Kingdom 100 100 East Yorkshire Concert Tours Limited 2142740 United Kingdom 100 - East Yorkshire Coach Holidays Limited 0243051 United Kingdom 100 - Bus UK Limited 2232813 United Kingdom 100 - Buscall Limited 3887602 United Kingdom 100 - Connor and Graham Limited 0546796 United Kingdom 100 - East Yorkshire Buses Limited 0254844 United Kingdom 100 - East Yorkshire Coaches Limited 0331077 United Kingdom 100 - East Yorkshire Properties Limited 2256485 United Kingdom 100 - East Yorkshire Tours Limited 0172326 United Kingdom 100 - East Yorkshire Travel Limited 3225828 United Kingdom 100 - East Yorkshire Holiday Tours Limited 2140988 United Kingdom 100 - Frodingham Coaches Limited 2135501 United Kingdom 100 - Hull and District Motor Services Limited 2183936 United Kingdom 100 - Hull Park and Ride Limited 3886603 United Kingdom 100 - Kingstonian Travel Services Limited 3561955 United Kingdom 100 - EYMS Bus & Coach Training Limited 2123369 United Kingdom 100 - Scarborough and District Motor Services Limited 2133854 United Kingdom 100 - Go-Ahead Mobility UG - Germany 100 - ===================================== ============== ======================== ========= ======== Jointly controlled dormant entities South Tyneside Smartzone Limited 09907829 United Kingdom 50 50 Newcastle Smartzone Limited 09907839 United Kingdom 33 33 North Tyneside Smartzone Limited 09907842 United Kingdom 33 33 Sunderland Smartzone Limited 09907836 United Kingdom 33 33 ===================================== ============== ======================== ========= ========
The rail companies are 65% owned by The Go-Ahead Group plc and 35% owned by Keolis (UK) Limited and held through Govia Limited.
The registered office of all dormant subsidiaries incorporated in the United Kingdom is: 3rd Floor, 41-51 Grey Street, Newcastle upon Tyne, NE1 6EE.
The registered office of all dormant subsidiaries incorporated in Germany is: Jean-Monnaie-Straße 2, D-10557, Berlin, Germany.
The registered office of all jointly controlled dormant entities is: Kepier House, Belmont Business Park, Durham, DH1 1TH.
All dormant companies listed above, incorporated in the United Kingdom, have taken advantage of the UK Companies Act 2006, S480 exemption from audit.
Transactions with other related parties
The Group meets certain costs of administering the Group's retirement benefit plans, including the provision of meeting space and office support functions to the trustees. Costs borne on behalf of the retirement benefit plans amounted to GBP0.2m (2017: GBP0.2m).
Joint ventures
The Group's joint venture, On Track Retail Limited (OTR), has its principal place of business in the United Kingdom. The principal activity of OTR is the development and provision of web ticketing applications for the rail industry. The activities of the joint venture are strategically important to the business activities of the Group. The Group owns 50% of the ordinary share capital of OTR.
Investments
The Group's subsidiary, Go-Ahead Verkehrsgellschaft Deutschland Gmbh acquired a 12% shareholding in Mobileeee Betriebsgesellschaft mbh & Co KG, an all-electric car-sharing service based in Germany.
Compensation of key management personnel of the Group
The key management are considered to be the directors of the parent company.
2018 2017
GBPm GBPm
============================= ===== =====
Short term employee benefits 2.0 1.4
Long term employee benefits* 0.4 0.3
Post employment benefits 0.1 0.1
============================= ===== =====
2.5 1.8
============================= ===== =====
* The long term employee benefits relate to LTIP and DSBP.
Material partly owned subsidiaries
Financial information of subsidiaries that have material non-controlling interests is provided below:
Proportion of equity interest held by non-controlling interests:
Country of incorporation
and operation 2018 2017
========================================== ========================= ==== ====
Govia Limited United Kingdom 35% 35%
London and South Eastern Railway Limited* United Kingdom 35% 35%
Southern Railway Limited* United Kingdom 35% 35%
London and Birmingham Railway Limited* United Kingdom 35% 35%
Govia Thameslink Railway Limited* United Kingdom 35% 35%
Thameslink Rail Limited* United Kingdom 35% 35%
New Southern Railway Limited* United Kingdom 35% 35%
========================================== ========================= ==== ====
* Subsidiary of Govia Limited.
2018 2017
GBPm GBPm
================================================================= ===== =====
Accumulated balances of material non-controlling interest:
Govia Limited 31.1 23.7
Total comprehensive income allocated to material non-controlling
interest:
Govia Limited 20.3 22.4
================================================================= ===== =====
The summarised financial information of these subsidiaries is provided below. The information is based on amounts before inter-company eliminations:
Summarised income statement of Govia Limited and its subsidiary companies for the year ended 30 June 2018 and 1 July 2017:
2018 2017
GBPm GBPm
================================================ ========= =========
Revenue 2,527.0 2,579.1
Operating costs (2,457.7) (2,499.8)
Finance revenue 2.4 2.3
Finance costs (1.8) (1.9)
================================================ ========= =========
Profit before taxation 69.9 79.7
Tax expense (11.9) (16.4)
================================================ ========= =========
Profit for the year from controlling operations 58.0 63.3
================================================ ========= =========
Total comprehensive income 58.0 63.3
================================================ ========= =========
Attributable to non-controlling interests 20.3 22.4
================================================ ========= =========
Dividends paid to non-controlling interests 13.9 21.3
================================================ ========= =========
Summarised balance sheet of Govia Limited and its subsidiary companies as at 30 June 2018 and 1 July 2017:
2018 2017
GBPm GBPm
=============================================================== ======= =======
Current assets - inventories, trade and other receivables,
cash 807.1 850.7
Non-current assets - property, plant and equipment, intangible
assets, deferred tax 46.5 51.9
Current liabilities - trade and other payables, provisions (704.4) (776.0)
Non-current liabilities - provisions (60.2) (58.9)
=============================================================== ======= =======
Total equity 89.0 67.7
=============================================================== ======= =======
Attributable to:
Equity holders of the parent 57.8 44.0
Non-controlling interest 31.1 23.7
=============================================================== ======= =======
These balance sheet amounts are shown before intercompany eliminations.
Summarised cashflow information of Govia Limited and its subsidiary companies for the year ended 30 June 2018 and 1 July 2017:
2018 2017
GBPm GBPm
========================================== ====== ======
Operating 12.9 (18.4)
Investing (9.4) 30.0
Financing (41.4) (62.9)
========================================== ====== ======
Net decrease in cash and cash equivalents (37.9) (51.3)
========================================== ====== ======
DIRECTORS' RESPONSIBILITY STATEMENT
This statement is repeated here solely for the purposes of complying with Disclosure Guidance and Transparency Rule 6.3.5. This statement relates to and is extracted from page 108 of the 2017/18 Annual Report and Accounts. Responsibility is for the full 2017/18 Annual Report and Accounts and not for the condensed statements required to be set out in this full year results announcement.
Each of the current directors, whose names and functions are listed on pages 54 and 55 of the 2017/18 Annual Report and Accounts, confirms that, to the best of their knowledge:
-- The Group financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group and the undertakings included in the consolidation taken as a whole
-- The strategic report includes a fair view of the development and performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face
-- The Annual Report and Accounts, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group's performance, business model and strategy
corporate information
www.go-ahead.com
Secretary and Registered Office
Carolyn Ferguson
The Go-Ahead Group plc
3rd Floor, 41-51 Grey Street
Newcastle upon Tyne, NE1 6EE
Tel: 0191 232 3123
Head Office
The Go-Ahead Group plc
4 Matthew Parker Street,
London, SW1H 9NP
Tel: 020 7799 8999
Registrar
Equiniti Ltd
Aspect House, Spencer Road
Lancing
West Sussex, BN99 6DA
Tel: 0371 384 2193*
Auditor
Deloitte LLP
1 New Street Square
London, EC4A 3HQ
Joint Corporate Broker
Investec Bank plc
2 Gresham Street
London, EC2V 7QP
Joint Corporate Broker
Jefferies Hoare Govett Ltd
Vintners Place
Upper Thames Street
London, EC4V 3BJ
Principal Banker
The Royal Bank of Scotland plc
Corporate Banking
9th Floor, 280 Bishopsgate
London, EC2M 4RB
Financial PR Advisors
Citigate Dewe Rogerson
3 London Wall Buildings
London, EC2M 5SY
* Lines are open 8:30am to 5:30pm Monday to Friday (excluding public holidays in England and Wales)
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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