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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 |
From Apr 2019 to Apr 2024
TIDMGOG
RNS Number : 9869Z
Go-Ahead Group PLC
24 September 2020
THE GO-AHEAD GROUP PLC
("GO-AHEAD OR THE GROUP")
FULL YEAR RESULTS FOR THE YEARED 27 JUNE 2020
Business overview
-- Results slightly above our revised guidance, with overall financial performance significantly impacted by COVID-19 in regional bus and losses in German rail
o Regional bus heavily impacted by COVID-19, operating profit* GBP20.5m (2019: GBP44.5m). Government support enabled breakeven performance since March
o Resilient London & International bus businesses, operating profit of GBP48.5m (2019: GBP51.2m). Revenue protected by contracted income
o Rail operating profit* of GBP8.9m (2019: GBP25.4m) impacted by lower contractual margins in Southeastern and significant operational and commercial challenges in German rail
-- During the COVID-19 crisis, we have three priorities: to safeguard the health and wellbeing of our colleagues and customers; to play our role in society in challenging times; and to protect our business
-- Resilient business model - 90 per cent of revenues secured through contracts with no revenue risk from changes in passenger demand
-- Public transport remains critical to environmental sustainability, economic recovery, the delivery of health and wellbeing outcomes, and keeping communities connected
-- Robust balance sheet, strong cashflows and good liquidity
o Adjusted net debt to EBITDA of 1.96x**, comfortably within target range of 1.5 to 2.5x and well below 3.5x bank covenant
o Underlying business remains cash generative
o Unrestricted cash and unutilised facilities of c.GBP230m at the year end has since increased to c.GBP240m
o Committed to resumption of dividend payments when appropriate
*Before exceptional items of GBP26.7m in regional bus and GBP30.4m in German rail businesses. Details are provided in Note 7 to the financial statements.
** On a pre-IFRS 16 basis, in line with bank covenants.
Financial summary
Hot Features
Premium
2020 2020 2020 2019
Under IFRS IFRS 16 Under IAS Under
16 effect 17 IAS 17
------------------------------------------ ----------- -------- ---------- --------
Revenue (GBPm) 3,898.4 - 3,898.4 3,674.2*
Operating profit pre-exceptional items
(GBPm) 77.9 9.7 68.2 121.1
Operating profit post-exceptional items
(GBPm) 20.8 9.7 11.1 104.3
Profit before tax pre-exceptional items
(GBPm) 56.9 (4.0) 60.9 113.8
(Loss)/profit before tax post-exceptional
items (GBPm) (0.2) (4.0) 3.8 97.0
Basic earnings per share pre-exceptional
items (p) 51.6 (5.0) 56.6 169.4
Basic earnings per share post-exceptional
items (p (66.5) (5.0) (61.5) 136.8
------------------------------------------ ----------- -------- ---------- --------
* Restated by GBP132.9m (decrease to revenue and offset by the same amount within operating costs) to reflect changes in the presentation of certain rail revenue streams.
2020 2020 2020 2019
Under IFRS IFRS 16 Under IAS Under IAS
16 effect 17 17
---------------------------------------------- ----------- -------- ---------- ----------
Cashflow generated from operations (excluding
restricted cash) (GBPm) 508.6 385.5 123.1 209.9
Free cashflow (GBPm)** 352.8 371.8 (19.0) 74.1
Adjusted net debt (GBPm)^ 965.9 644.3 321.6 270.3
Adjusted net debt/EBITDA^ 1.76x 0.2x 1.96x 1.32x
---------------------------------------------- ----------- -------- ---------- ----------
** Before IFRS 16 lease charges (GBP371.8m) and restriction of previously unrestricted cash in rail (GBP45.7m) underlying free cashflow was GBP26.7m (H1: (GBP7.7m), H2 GBP34.4m). A detailed IFRS 16 reconciliation is provided in the notes to the Annual Report and Accounts 2020.
^ Adjusted net debt excludes restricted cash
CEO comment
David Brown, Group Chief Executive, commented:
"Throughout this challenging period, my thoughts have been with the families and friends of our colleagues who have tragically lost their lives as a result of COVID-19.
"Our absolute priority is safeguarding the health and wellbeing of our colleagues and customers. Colleagues have been provided with additional protective equipment and cash handling has been reduced, aided significantly by our mobile ticketing, smartcards and contactless payment channels across all Go-Ahead bus and rail services.
"Our financial results for the year have been significantly impacted by the pandemic despite only four months of the crisis period falling within our financial year.
"Ninety percent of Go-Ahead revenues are secured through contractual arrangements, largely comprising revenues from our London & International bus business and UK rail franchises.
"While our German rail contracts have not been materially impacted by the crisis, this business continues to face significant operational and commercial challenges associated with the delayed delivery of trains and driver shortages. Through management action, we have seen operational performance improve and we have a clear plan to deliver profitability over the medium term.
"Our regional bus business has been heavily impacted by the crisis as the number of passengers travelling on our services reduced significantly in March as a result of lockdown restrictions. While we hope to be operating under more normal circumstances as soon as possible, we welcome the vital financial support that these services receive through government funding until passenger numbers recover.
"We are pleased to see more and more people travelling on our buses and trains. Our regional bus services are now carrying around 50 to 60 per cent of normal passenger numbers, enabling us to contribute to economic recovery while supporting social distancing requirements.
"Our devolved structure, strong values, resilient business model, disciplined financial management and risk appetite gave us a stable footing as the crisis unfolded. I believe these attributes will continue to support our business as we look to the future.
"While we live with the uncertainty that the pandemic has brought to our communities and our business, public transport continues to provide vital connectivity between jobs, education and leisure. We believe that the only way the UK Government can achieve its Net Zero carbon commitment, economic recovery and its health and wellbeing strategy, is through increased investment and focus on the use of public transport."
Chairman's letter
Playing an important role in society is inherent in our purpose
Dear Shareholder,
When I took on the role of Chairman in October 2019, I did not anticipate I would be addressing you in my first annual report in the midst of a global pandemic. People's lives across the world fundamentally changed in a matter of weeks, and the crisis continues to have an unprecedented impact on global economies and businesses, including Go-Ahead.
Whilst much of our report to you focuses on the crisis, it is important to reflect on the eight months of our financial year that came before the impact of COVID-19 was felt on our business.
First impressions
I joined the Group early in the financial year, giving me the opportunity to learn about the business under more normal circumstances. It soon became evident that the real strength of this business is its people. At all levels of the organisation I have been impressed by my colleagues; from our experienced Board of Directors, to our capable local management teams and everyone in operational roles keeping our services running around the clock with their can-do attitudes.
The Group's devolved operating model really leverages its engaged colleague base, empowering our teams to provide a service that is right for their local communities. This model works well with the business units successfully operating independently but also collaborating to share knowledge, experience and expertise. While some things, such as risk appetite and capital allocation, are determined at Group level, the people running our businesses are best placed to make local decisions, and this approach enables maximum agility and responsiveness to changing customer needs.
Our customers, both our passengers and our transport authority clients, are at the centre of everything we do and there is a culture of continuous improvement that motivates our teams around the Group to deliver more efficient and innovative ways to meet our customers' expectations.
The strengths I observed early in my tenure are attributes that have helped make the Group resilient during the COVID-19 crisis.
COVID-19
David Brown's strong and down-to-earth leadership as our Chief Executive, his passion and ambition for the business, and his depth of experience in public transport have been more valuable than ever during the COVID-19 crisis. Under his direction, our teams have achieved incredible results; keeping services running through the most challenging of circumstances, always with an unwavering focus on our customers and a commitment to supporting our people.
Our devolved model, which sets Go-Ahead apart in the industry, has proved invaluable during this time. The virus has impacted different geographical areas in different ways and a tailored response specific to those communities has enabled us to respond quickly; altering timetables to ensure adequate provision to hospitals; addressing specific colleague concerns and working collaboratively with local authorities and other stakeholders to deliver appropriate solutions as we navigate through this crisis.
This approach has been fundamental in our response to the COVID-19 crisis and will continue to support the Group's resilience as we move forward.
The safety and wellbeing of our colleagues and our customers is our priority and we have no tolerance for safety risk exposure. We recognise that we have been, and continue to be, operating through a time of heightened risk, both to health and to operating practices at a time of much change. We have, therefore, taken appropriate measures to protect our colleagues and ensure that travelling by public transport remains a safe and convenient option for customers.
This crisis has reinforced that public transport is critical to the functioning of society and it will always be needed. Governments around the world have invested billions of pounds in public transport networks by supporting the provision of services at this time and safeguarding them for the future. In the UK, I appreciate the Department for Transport's rapid response and continued support of our industry, acknowledging how fundamental a resilient public transport network is to economic recovery. Before the pandemic, 90 per cent of journeys into London were made using public transport and two billion journeys were made annually on regional bus services in England. No other mode can sustainably transport this volume of people.
Go-Ahead has been a leading voice as the industry has worked collectively to find the right solutions for customers, colleagues, governments and private businesses. It has become apparent over recent months how valuable the experience of Go-Ahead colleagues has been in influencing these solutions, and how important continuous and meaningful two-way stakeholder engagement is.
The experience and expertise of our Board members have also been valuable as we develop a framework within which the business can withstand this period of extended uncertainty and heightened risk. This has involved the modelling of various operational and financial scenarios so the Group can emerge from the crisis robust and resilient.
Throughout the crisis, we have had to make difficult decisions. Some decisions have impacted our people, like the furloughing of many colleagues. Others have impacted our shareholders, such as the suspension of dividend payments. I recognise the sacrifices that have been made and the impact of these decisions on people's lives. The Board understands the importance of dividends to Go-Ahead's shareholders and will continue to assess the appropriate timing for the resumption of dividend payments.
Alongside these big decisions, we have also taken action in small, but collectively meaningful, ways to conserve cash and protect the financial strength of the Group. These actions have touched all areas of our business.
Performance
Some parts of the business have been particularly resilient throughout the crisis, such as our London & International bus division, which comprises contract-based businesses, and our UK rail franchises. However, our regional bus division has experienced the most financially challenging year on record. Across the Group, our teams have worked tirelessly to maintain safe and convenient services for passengers during this time, but also to protect our business.
The implications of the crisis on our financial performance cannot be ignored but I would also like to focus on other aspects of performance: the highest customer satisfaction in the industry in regional bus; the improvements in punctuality across our rail businesses; the progress we are making towards transitioning to a greener fleet. It is these fundamental strengths that will enable us to return to strong financial performance in the future.
Our international development story was something of a tale of two halves in the year. We had some great successes, such as the introduction of more commuter bus routes in Ireland and the smooth start to our first Norwegian rail operation in December 2019, followed by the announcement of a two-year extension of our bus contract in Singapore after the year end. However, we have faced significant challenges in our German rail operation following its introduction in June 2019 which weighed heavily on the financial performance of the rail division. We are taking decisive action to turn around performance and have also chosen to pause development activities in the German rail market while the Board considers its strategic options.
The Board
Katherine Innes-Ker will retire from the Board at our Annual General Meeting in November 2020 after over ten years as a non-executive director, over eight years as Remuneration Committee Chair and seven years as Senior Independent Director. On behalf of the Board, I would like to thank Katherine for the valuable contribution she has made over this time and, personally, for supporting my induction and the smooth transition of the role of Chairman.
As a Board, we collectively took the decision to temporarily reduce our fees and salaries by 20 per cent in April to support the Group's cash preservation during the crisis.
I came into this role with the intention of upholding the highest standards of corporate governance and nothing has changed my view. I have undertaken a thorough and structured induction and the external Board evaluation which had to be postponed earlier in the year, is now underway.
A word of thanks and reflection
As I reflect on the events of recent months, I am truly saddened by the loss of valued colleagues across the business. My thoughts are with their families and friends as well as all our colleagues, who have been affected by the virus.
I would like to thank all of our 30,000 people for their commitment to Go-Ahead and its customers, particularly at the current time. From those working on the front line delivering vital services, to colleagues who have been furloughed, each of you is playing an important part. I would also like to thank you, our shareholders, for your loyalty and support during this challenging period for the Group.
Whilst the challenges are not over, I believe that we are taking the right steps to both protect the Group in the near term and prepare the business for opportunities in the future; confident that we have the right people in place to see us through these unprecedented times.
Clare Hollingsworth
Chairman
23 September 2020
Group Chief Executive's review
Resilient business model, dedicated people and strong values
Had I been writing this in early 2020 I would have been talking about a new dawn for bus travel, the Government's plans to introduce a National Bus Strategy and the role we are playing in the fight against climate change. All of these are still very much on the agenda for us and our industry but, along with the rest of the world, COVID-19 has tested us, stretched our resources and shifted our immediate focus.
Our financial results for the year to 27 June 2020 have been significantly impacted by the pandemic despite the effects of it only being felt for a little over a quarter of our financial year.
The pre-crisis period
The scale of the crisis was only just beginning to emerge as we reported our half year results in March - on the day that the US introduced a ban on international travel. Alongside those results, I outlined a step change in public transport policy, the UK Government's commitment to invest billions in public transport and rail reform. I set out our growing international footprint with new operations beginning in Norway, Germany and Ireland over the previous 12 months. I also reflected on the growth from our UK operations with the introduction of Go North West in Manchester and the recent significant bus contract win in Cornwall. We had maintained our sector leading customer satisfaction levels and delivered improved punctuality in our UK rail businesses. We continued to strengthen our Group for the future, welcoming more graduates and apprentices to the Go-Ahead family and increasing the diversity of our workforce. Our fleet continued to become cleaner and greener, introducing more zero or low emission vehicles across the business and rolling out more of our air filtering buses.
As well as the successes, I also communicated the challenges we faced and the plans in place to improve performance. Despite carrying more passengers on our regional bus services, the division's profitability was impacted by increasing depreciation and engineering costs, associated with investing in and maintaining an increasingly green fleet. Profit improvement plans were underway across the business along with specific local action to target the most challenging areas of the cost base. Our German rail operations were continuing to experience difficulties with availability and reliability of rolling stock and driver shortages impacting operational performance, resulting in significant financial penalties and unplanned costs.
In response to the specific challenges in German rail, a comprehensive review of the businesses operations was initiated, resulting in decisive action, including management changes. Following the review, operational performance has subsequently materially improved over recent months. All rolling stock is now in service and we have made progress in training and recruiting drivers, notwithstanding setbacks due to COVID-19 restrictions. Despite these improvements, financial performance remains challenging.
Progress in recovering losses associated with the late delivery of trains from the rolling stock provider has been slower than we had hoped and we continue to incur costs associated with temporary drivers. However, we have a plan to deliver profitability in the medium term.
A huge amount has changed in the period since I reported on our half year results but some things have remained the same, the dedication of our people, our resilient business model and the values that have seen us through previous challenging times. These have been pivotal to our effective response to the COVID-19 crisis.
COVID-19
Proud of our people
The past six months have been unlike any other and we have all had to adapt to living and working in a different way. While many of our colleagues have successfully adapted to home working, for the majority of our people, working from home is not an option. They are key workers who have played an essential role throughout this pandemic, something of which I will always be very proud. I have great respect for and gratitude to our people who have come to work every day to keep our services running.
Throughout this challenging period, my thoughts have been with the families and friends of our colleagues who have tragically lost their lives as a result of COVID-19. I am devastated by the loss and we are doing everything we can to support their families and colleagues.
Our three priorities during the crisis
Our overall strategy remains in place with our three strategic objectives being: protect and grow the core; win new bus and rail contracts; and develop for the future of transport. At the outset of the pandemic, we identified three priorities under our objective to protect and grow the core that have focused our efforts throughout the crisis and continue to guide our decisions and behaviours: to safeguard the health and wellbeing of our colleagues and customers, to play our role in society in challenging times, and to protect our business.
Safeguarding our people and customers
Safety is always our priority and we strive continually to improve our already high safety standards. Over the past six months we have been operating in an environment of heightened risk and we have taken additional precautions to safeguard the health and wellbeing of our colleagues and customers.
Every business has operated within the rules and guidelines set out by local and national governments, the World Health Organization and relevant advisory bodies. In keeping with our devolved operating model, we have taken af tailored approach in each business, engaging with our colleagues, local union representatives and other stakeholders to ensure appropriate measures are taken.
Go-Ahead is an extended family of 30,000 people and our absolute priority is safeguarding their health and wellbeing. Colleagues have been provided with additional protective equipment and measures have been taken to minimise contact between colleagues and passengers and cash handling has been reduced. This has been aided significantly by our mobile ticketing app and contactless payment channels on 100 per cent of Go-Ahead bus services. Our industry-leading tap-on/tap-off capped contactless payment channel is now available on 25 per cent of our buses, offering a simple and hassle-free way to pay.
We have partnered with companies from our Billion Journey Project to use artificial intelligence and big data to inform customers about the best times to travel. All our regional bus businesses rolled out the 'When2Travel' app following the Government's lifting of restrictions on travel. This information, available through our apps and websites, allows customers to choose specific journey times and bus stops via a map to see how busy their services are and plan their journeys accordingly.
Enhanced cleaning of vehicles and other workplaces follows rigorous schedules and social distancing measures remain in place, including the provision of information to help our colleagues and customers adhere to government guidelines. Research by the Rail Safety and Standards Board found the risk of infection from COVID-19 on trains to be less than 0.01 per cent, based on an hour-long train journey in a carriage with no social distancing or face coverings.
For colleagues working from home, we have taken steps to ensure people are working safely.
We acknowledge that some colleagues are at greater risk from COVID-19 for a range of reasons and have taken steps to protect these individuals and provide additional support where appropriate.
Of course, safeguarding people is about more than physical health and safety. This crisis has brought to the fore the importance of mental health and wellbeing. Across the business, we have enhanced some of the actions already in place, such as open lines of communication with line managers and promoting the use of independent colleague assistance lines. We have introduced some new measures in light of the crisis, such as virtual colleague forums and social events.
Every one of our people, from the customer-facing colleagues keeping our customers moving to those who have been furloughed, is important. We acknowledge the different circumstances in which people are living and working and have endeavoured to provide suitable support, recognising that colleagues in different roles come up against different challenges and have different concerns.
Playing our part
Playing an important role in society is inherent in our purpose. Recent months have really shone a light on how vital this role is, and we have risen to the challenge of keeping people moving through the most challenging of times.
At the height of lockdown, key workers, such as those employed by the NHS, emergency services, supermarkets and food production facilities, continued to rely on our services to reach their places of work.
Since travel restrictions were put in place in mid-March we have maintained regular and reliable services enabling people to plan and complete their journeys as seamlessly as before. We recognised that the lockdown period was not about running a pre-existing timetable, it was about making sure people who needed to travel could get where they needed to be, safely.
Our local teams listened to customer feedback and made changes to services as quickly as possible. For example, we increased service frequency and extended running hours on routes serving hospitals and responded to customers telling us our timetable did not accommodate their new shift patterns.
Playing our part hasn't only meant maintaining a reliable core transport network throughout the pandemic. We have taken on a wider role to support the crisis response. Where possible, we have put underutilised resources to use to deliver crucial medical supplies, bottle and distribute hand sanitiser to other key workers and supporting colleagues to volunteer in different roles, such as monitoring CCTV footage across our extensive network to identify vulnerable people. We have supported our communities at the time they needed it most: collecting and distributing donations for hospital workers, delivering food packages to those in need and holding virtual 'Chatty Bus' events. We have helped vulnerable individuals by supporting, for example, victims of domestic abuse to reach safe places.
The importance of morale should not be underestimated at a time of global crisis. We have endeavoured to boost the morale of our people and our communities throughout this time by, for example, embracing the clap for carers initiative and updating bus and train livery to include rainbow designs.
Protecting our business
On 12 March, when we announced our half year results, our operations were largely unaffected by COVID-19 with a small number of, mainly tourist, bus services in the UK seeing a small reduction in demand. Within a week of that announcement, the UK Government urged people to avoid anything but essential travel and two days after that, it took the decision to close schools. By 23 March the country was in lockdown and passenger numbers were down to around 10 per cent of typical levels. The rate at which this change took place required us to act quickly and decisively as a business, and collaboratively as an industry.
Difficult decisions had to be taken quickly: the interim dividend to shareholders was suspended, all-but-essential expenditure ceased and investment in new vehicles was postponed. None of these decisions were taken lightly but they were essential to conserving cash and protecting our business.
The strong reputation and positive stakeholder relationships we have developed over many years have never been more important than during this pandemic. We have worked closely and collaboratively with key industry partners, such as the Department for Transport (DfT) and Transport for London (TfL), to find solutions which ensure that service provision remains at the right level, government policy is brought into effect, and transport operators receive funding to enable essential services to be delivered.
Our disciplined approach to risk and financial management, alongside our established business model, have positioned us well to withstand this challenging period. The Group has a robust balance sheet and strong liquidity, with around GBP230m of available cash and unutilised facilities. Our devolved structure places experienced leaders at the heart of local operations meaning better decisions are made and rapid action is taken. Over 90 per cent of Group revenue is generated through contracts. These contracted businesses have remained resilient throughout the crisis. Under current arrangements, the 10 per cent of revenue typically generated through passenger fares is being partially supported by government funding.
The reasons we were successful before the pandemic - customer focused decision making, an innovative and agile approach, a collaborative and inclusive culture, to name a few - are the reasons we have remained resilient throughout the crisis.
In regional bus, although the number of journeys made was around 10 per cent of usual capacity, service levels were maintained at between 40 and 50 per cent to ensure adequate service provision and to enable social distancing. This created a misalignment between revenue and our cost base, which has largely been mitigated through specific bus industry funding arrangements and (the COVID-19 Bus Services Support Grant) through the use of the UK Government's Coronavirus Job Retention Scheme. In August, the DfT confirmed bus funding would remain available until it is no longer required.
Our London & International bus division, which is made up of gross cost contracts, has remained resilient with no change to core contracted revenue. Quality Incentive Contract income reduced in London, reflecting the reduction in mileage operated during the lockdown period and the timing of settlements with TfL.
Our rail division comprises four distinct businesses with different contractual arrangements - GTR and Southeastern in the UK, and German and Norwegian operations. The tendering authorities for all of these contracts have supported service provision and, as a result, the pandemic has not materially impacted the financial performance of this division in the year. The DfT, in particular, moved very quickly to introduce Emergency Measures Agreements (EMAs) in the UK enabling key transport links to remain open. The EMA terms were extended to a direct award contract of at least 18-months for Southeastern, which took effect on 1 April. Southeastern has been an important part of Go-Ahead since 2006 and we are pleased it will remain within the Group until at least October 2021. In September, an Emergency Recovery Measures Agreement (ERMA) was introduced for GTR to replace the EMA. The new arrangement, which generates a margin of up to 1.5 per cent, is a management contract with no exposure to changes in passenger demand or ancillary revenue, such as car parking and retail commission.
While I hope to be operating under more normal circumstances as soon as possible, it is important to acknowledge that such support and funding has been, and continues to be, essential. It has enabled an adequate public transport provision to continue over the past six months, and ensured the viability of transport businesses through this period.
Although short term action has been taken to protect the business in recent months, all decisions have been made with consideration of the longer term impacts and the sustainability of our business. We have taken active steps to safeguard our essential supply chain; continuing to pay suppliers in line with the Prompt Payment Code and applying a fair and structured process when the reduction of supplier services has been necessary, in line with our Sustainable Supply Chain Charter.
An acceleration of trends
The crisis has seen an acceleration of the trends we have observed for a number of years: home working, online shopping, virtual socialising and home entertainment. We have been adapting to these trends for some time, developing our customer offering to provide more flexibility in travel, attracting new younger customers who will develop a habit of bus travel and introducing contactless payments to make travelling on our services as easy as possible. We do not know the pace at which these trends will continue, but they are unlikely to reverse in the medium term. A trend that I hope continues is that of increased active travel - it is great to see more people walking and cycling. This is something Go-Ahead has supported for many years through initiatives like active travel marketing campaigns, partnerships with cycle hire schemes, and even mobile gym buses. People who use public transport are more active than those travelling by car, benefiting from 26 minutes more daily activity, and have more associated health benefits. We will continue to promote walking and cycling alongside our buses and trains with facilities like station cycle hubs, walking maps, cycle storage on buses and holistic journey planners.
While we do not know how these trends will evolve, what we do know is that people have missed visiting family and friends, they have missed socialising in pubs and restaurants, and they have missed interacting and collaborating with colleagues. We also know that climate change and air quality remain two of the greatest challenges we, as a society, face. We are certain that public transport is essential to achieving the necessary targets to reduce carbon emissions and improve air quality. We need to encourage people back out of their cars and onto public transport; otherwise, we risk one public health crisis leading to another.
Outlook
We are in a very different place today than we were during the period of national lockdown in the UK. Services are now running at around 90 per cent of pre-COVID-19 levels in our regional bus businesses, carrying 50 to 60 per cent of typical passenger journeys, and around 90 per cent of our UK rail services are now in operation. However, the coming months remain uncertain for us all.
Due to this uncertainty, we are unable to reinstate meaningful financial guidance for our regional bus business for the 2021 financial year. Instead, we are considering a range of scenarios and the associated potential impact on the division, set out on pages 60 to 62 of 2020 Annual Report and Accounts. The contracted nature of the remainder of the business provides greater visibility of future financial performance. For the 2021 financial year, we expect our London & International bus division to generate operating profit similar to that delivered in 2020. Our rail division is expected to deliver a breakeven operating performance.
The aftermath of the pandemic will undoubtedly present us with challenges. We may see increasing levels of home working, more online medical appointments and fewer international trips, all of which could impact demand for our services. However, we may see more domestic holidays, more people moving out of cities and commuting from the countryside and more activity in our local communities, with more home-workers shopping close to home and socialising in their local towns and cities. We will adapt to evolving trends and will strive to maximise the arising opportunities. It is important that we take forward the strengths we have displayed so well throughout the crisis and become even more agile, more innovative and more collaborative.
I am hopeful that before too long, we can, as a society, move away from some of the changes COVID-19 has required - social distancing, mandatory face coverings in public and limited contact with friends and family. I do, however, believe that some of the changes we have introduced as a business - such as increased usage of artificial intelligence, better online information, reduced cash payments and more flexible working - will be here to stay.
The crisis is not yet over and we still have an important part to play in national responses in all our geographies. We also have a key role in the recovery efforts. In July, the Chancellor of the Exchequer, Rishi Sunak, spoke about a green recovery. There is no question that public transport is pivotal to this and we will wholeheartedly support this transition.
While our decisions continue to be guided by our three priorities: to safeguard the health and wellbeing of our colleagues and customers, to play our role in society in challenging times, and to protect our business, we remain committed to delivering against our core strategic objectives to protect and grow the core, win new bus and rail contracts and develop for the future of transport.
Our long-established culture, strong values, resilient business model, disciplined financial management and risk appetite gave us a stable footing as the crisis unfolded. I believe these attributes will continue to support our business as we look to the future.
David Brown
Group Chief Executive
23 September 2020
Group Chief Financial Officer's review
Strong financial discipline, a robust balance sheet and good liquidity
The Group has strong fundamentals and ended the 2020 financial year with a robust balance sheet and good liquidity. The majority of Go-Ahead's revenue is secured through contractual arrangements. Financial support packages are currently in place to mitigate the impact of COVID-19 on revenue in the parts of the business that are exposed to changes in passenger demand. We have strong financial discipline and robust risk management.
Profitability
The COVID-19 pandemic and a challenging performance in our German rail operation have weighed heavily on the Group's profitability for the year. Overall Group operating profit was GBP77.9m before exceptional items. On a comparable basis with last year's result, operating profit was GBP68.2m (before exceptional items and on a pre-IFRS 16 basis) (2019: GBP121.1m).
The pandemic has mostly impacted the financial performance of our regional bus business. Government funding, which will continue for as long as required, has prevented material losses in this division for the period it has covered. Regional bus operating profit was GBP20.5m (before exceptional items). On a comparable basis with last year's result, operating profit was 20.2m (before exceptional items and on a pre-IFRS 16 basis) (2019: GBP44.5m).
Our London & International bus division has remained particularly resilient, with contracted revenue secured at pre-crisis levels throughout the pandemic. Operating profit for the division was 48.5m. On a comparable basis with last year's result, operating profit was GBP47.9m (on a pre-IFRS 16 basis) (2019: GBP51.2m).
Ongoing operational and commercial challenges in our German rail operations have resulted in significant losses in the year, heavily impacting the overall profitability of the rail division. In the UK, Emergency Measures Agreements (EMAs) were introduced for GTR and Southeastern, enabling a small profit margin and in Norway, government funding has prevented material losses for our rail operation. Rail operating profit was 8.9m before exceptional items. On a comparable basis with last year's result, operating profit was GBP0.1m (before exceptional items and on a pre-IFRS 16 basis) (2019: 25.4m).
Exceptional items
Exceptional charges, which are largely non-cash, totalling GBP57.1m have been reflected in the accounts. Asset impairment and restructuring in regional bus of GBP26.7m relates predominantly to our coach operations which have been heavily impacted by the pandemic. The remaining GBP30.4m is in respect of our German rail operation and includes asset impairments, contract provisions and restructuring costs. Details of these items can be found in the Business and Finance Review.
Cash management
The Group's cash discipline is strong and cash flows are closely monitored. We entered the crisis in a strong position with liquidity of around GBP250m, similar to that reported for the first half of the year, and rapidly took action to conserve cash, restricting all but essential outflows. Actions taken include suspension of the interim dividend, a 20 per cent reduction in Board members' salaries and fees, efficient use of the Government's job retention scheme, a freeze on all discretionary expenditure and restrictions on capital spend.
Before the effects of COVID-19 were felt on the business, we anticipated total Group capital expenditure for the year
of around GBP140m, mainly comprising bus vehicles for our regional and London & International bus businesses. We responded quickly to the rapidly developing crisis and identified vehicle orders that could be delayed or, in some cases, converted into leases. Despite being almost nine months into the financial year. we delivered a saving of around GBP50m on capital expenditure compared with our expectations in early March.
Liquidity and bank covenant
At 27 June 2020, the Group held GBP229.8m in cash and unutilised facilities.
The Group has no debt maturities until 2024, when our GBP250m sterling bond and RCF matures. We have a 12 month extension option on the RCF which if exercised will extend its maturity to 2025.
No additional facilities have been arranged during the year and, while we are eligible to access GBP300m through the Bank
of England's COVID Corporate Financing Facility, we have not needed to do so.
A requirement of the EMAs in UK rail resulted in the temporary restriction of cash held in the franchises. Excluding this temporary restriction of rail cash, the Group's cash position has improved since the half year, reflecting the action we have taken to conserve cash throughout the crisis.
The Group has remained cash generative throughout the crisis.
We entered the crisis in a strong position. Our balance sheet was conservative, at the bottom end of our target leverage range of 1.5 to 2.5 times, at 1.53 times, as a result of our good financial discipline and low to moderate appetite for risk. These factors have also enabled us, along with specific cash conservation measures, to remain resilient through this most challenging period.
Our primary bank covenant continues to be assessed on a pre-IFRS 16 basis. At the year end, adjusted net debt was GBP321.6m on a pre-IFRS 16 basis (2019: GBP270.3m). Consequently, reflecting a reduction of GBP41.6m in EBITDA (on a pre-IFRS 16 basis) to GBP163.9m, adjusted net debt to EBITDA was 1.96 times, comfortably within our target range of 1.5 to 2.5 times and allowing adequate headroom on our primary bank covenant of 3.5 times. Under the modelled scenarios within our going concern assessment, positive liquidity headroom exists throughout the going concern period and the Group remains in compliance with its bank covenants.
We maintain a positive dialogue with our lenders and keep our current facilities under review. In the final quarter of the year, Moody's and S&P reaffirmed credit ratings at Baa3 and BBB-, respectively; both consider the Group's outlook to be stable.
Shareholder returns
The proposed interim dividend of 30.17p per share was suspended following the half year results to retain around GBP13m of cash within the Group, and no final dividend has been proposed. The Board, which fully recognises the importance of shareholder returns, will continue to assess the appropriate timing for the resumption of dividend payments.
IFRS 16
We adopted IFRS 16 on 30 June 2019 and the first set of results reported under the new standard was our half year results announced on 12 March 2020. The change in accounting standard does not have a material impact on reported results for our regional bus or London & International bus businesses. However, the results of the rail division are more materially impacted as they include significant rolling stock leases in the UK franchises. Total leased assets in the rail division were around 570m as at 27 June 2020. The impact of the standard on the balance sheet is, therefore, also material. However, due to the short remaining durations of GTR and Southeastern (September 2021 and October 2021, respectively), this liability will unwind rapidly over the next year, subject to further extensions. Our adjusted net debt to EBITDA bank covenant will continue to be assessed on a pre-IFRS 16 basis, and we will continue to disclose the ratio on this basis, alongside statutory reporting.
Risk
Reflecting the COVID-19 crisis and ongoing challenges in our German rail operations, we have identified increased areas of risk within a number of our principal risks. The Group maintains a low tolerance to risk in its core activities and a moderate tolerance in relation to growth opportunities.
Going concern
Having assessed the Group's ability to continue as a going concern in light of current and anticipated economic conditions, the Board is satisfied that the Group has adequate resources to continue operating over the next 12 months.
Outlook
Due to ongoing uncertainty, we are unable to reinstate meaningful financial guidance for our regional bus business for the 2021 financial year. Instead, we have considered a range of scenarios through our going concern assessment. Details are set out in our going concern statement.
The contracted nature of the remainder of the business provides greater visibility of future financial performance. For the 2021 financial year, we expect our London & International bus division to generate operating profit similar to that achieved in the 2020 financial year. Our rail division is expected to deliver a breakeven operating result in 2021.
Elodie Brian
Group Chief Financial Officer
23 September 2020
Business and finance review
A resilient performance in challenging times and government commitment to supporting public transport, enabled by strong management and decisive action.
Group overview
IFRS 16 IAS 17 Increase/ Increase/
2020 2019 * (decrease) (decrease)
GBPm GBPm GBPm %
----------------------------------------------------- ------- ------- ----------- -----------
Group revenue 3,898.4 3,674.2 224.2 6.1
Regional bus operating profit 20.5 44.5 (24.0) (53.9)
London & International bus operating profit 48.5 51.2 (2.7) (5.3)
----------------------------------------------------- ------- ------- ----------- -----------
Total bus operating profit 69.0 95.7 (26.7) (27.9)
Rail operating profit 8.9 25.4 (16.5) (65.0)
----------------------------------------------------- ------- ------- ----------- -----------
Group operating profit (pre-exceptional
items) 77.9 121.1 (43.2) (35.7)
Exceptional operating items (57.1) (16.8) (40.3) (239.9)
----------------------------------------------------- ------- ------- ----------- -----------
Group operating profit (post-exceptional
items) 20.8 104.3 (83.5) (80.1)
Share of result of joint venture (0.6) (0.5) (0.1) (20.0)
Net finance costs (20.4) (6.8) (13.6) (200.0)
----------------------------------------------------- ------- ------- ----------- -----------
(Loss)/profit before tax (0.2) 97.0 (97.2) (100.2)
Total tax expense (11.9) (21.9) 10.0 45.7
----------------------------------------------------- ------- ------- ----------- -----------
(Loss)/profit for the period (12.1) 75.1 (87.2) (116.1)
Non-controlling interests (16.5) (16.3) (0.2) (1.2)
----------------------------------------------------- ------- ------- ----------- -----------
(Loss)/profit attributable to shareholders (28.6) 58.8 (87.4) (148.6)
----------------------------------------------------- ------- ------- ----------- -----------
Profit attributable to shareholders (pre-exceptional
items) 22.2 72.8 (50.6) (69.5)
----------------------------------------------------- ------- ------- ----------- -----------
Weighted average number of shares (m) 43.0 43.0 - - ----------------------------------------------------- ------- ------- ----------- ----------- Earnings per share (pre-exceptional items) (p) 51.6p 169.4p (117.8)p (69.5) (Loss)/earnings per share (post-exceptional items) (p) (66.5)p 136.8p (203.3)p (148.6) ----------------------------------------------------- ------- ------- ----------- ----------- Proposed dividend per share (p) - 102.08 (102.08) (100.0) ----------------------------------------------------- ------- ------- ----------- -----------
At 30 June 2019, the Group implemented IFRS 16 Leases using the modified retrospective transition method. As a result, the comparative figures have not been restated and are presented on an IAS 17 basis.
* Restated
All references to operating profit, EBITDA 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.
Following adoption of IFRS 16 Leases in the year, all results are presented on this basis, unless otherwise stated. A reconciliation between pre and post-IFRS 16 results in the notes to consolidated financial statements.
Prior year restatement
During the year, there was a change to how certain revenue streams in the rail division in relation to GTR and Southeastern have been recognised.
In accordance with IFRS 15, revenue and costs for year ended 29 June 2019 have both been re-stated by GBP132.9m (decrease to both). There is no impact to operating profit and no impact on the other primary statements as a result of this restatement.
Financial overview
Revenue for the year was GBP3,898.4m, up GBP224.2m, or 6.1%, on last year (2019: GBP3,674.2m restated). This increase was primarily attributable to additional revenue generated by UK rail franchises and the introduction of new contracts, partially offset by the impact of the COVID-19 crisis on the Group.
Loss before tax of GBP0.2m (2019: GBP97.0m profit) includes GBP57.1m of exceptional items and reflects the impact of COVID-19 on our regional bus business and the losses in the German rail business. Profit attributable to shareholders (excluding exceptional items), decreased by GBP50.6m or 69.5% to GBP22.2m (2019: GBP72.8m) and earnings per share by 69.5% to 51.6p (2019: 169.4p). Including exceptional items of GBP57.1m (2019: GBP16.8m) relating to regional bus and German rail, profit attributable to shareholders for the year reduced by GBP87.4m, or 148.6%, to a loss of GBP28.6m (2019: profit of GBP58.8m) and earnings per share fell by 148.6% to a loss per share of 66.5p (2019: 136.8p).
Adjusted net debt (excluding restricted cash) at the year end was GBP321.6m, on a pre-IFRS 16 basis (2019: GBP270.3m), as reconciled in the cashflow statement. The increase in net debt reflects the temporary restriction of additional cash in the rail businesses following the introduction of the Emergency Measures Agreements (EMAs), partially offset by management action to limit cash outflows from the outset of the crisis, including lower capital investment and suspension of the interim dividend. The pre-IFRS 16 adjusted net debt (excluding restricted cash) to EBITDA ratio of 1.96x (2019: 1.32x) is at the mid-point of our target range of 1.5x to 2.5x, well below our primary bank covenant of 3.5x.
Impact of IFRS 16
The new accounting standard, IFRS 16 Leases, became effective for accounting periods beginning on or after 1 January 2019 and was adopted by the Group on 30 June 2019.
The new standard establishes principles for the recognition, measurement, presentation and disclosure of leases and eliminates the operating lease classification meaning lessees are required to recognise right of use assets and lease liabilities for all leases on the balance sheet. On the income statement, the operating lease expense has been replaced by a combination of depreciation and interest.
On transition, the Group has applied IFRS 16 using the modified retrospective approach on a lease by lease basis. The Group recognised GBP782.7m right of use assets and GBP781.1m of lease liabilities as at 30 June 2019. Prior periods have not been restated and are presented as previously reported under IAS 17 (referred to as pre-IFRS 16 throughout).
The adoption of IFRS 16 has impacted the Group's rail division's results more significantly than the bus divisions.
2020 2019
------------------------ ------
IFRS 16 IFRS 16 IAS 17 IAS 17
basis effect basis basis
GBPm GBPm GBPm GBPm
------------------------------------------ ------- ------- ------ ------
EBITDA 547.8 383.9 163.9 205.5
Operating profit before exceptional items 77.9 9.7 68.2 121.1
Operating profit after exceptional items 20.8 9.7 11.1 104.3
Net finance costs (20.4) (13.7) (6.7) (6.8)
(Loss)/profit before tax (0.2) (4.0) 3.8 97.0
Cashflow from operations 508.6 385.5 123.1 209.9
Free cashflow 352.8 371.8 (19.0) 74.1
Adjusted net debt 965.9 644.3 321.6 270.3
------------------------------------------ ------- ------- ------ ------
Adjusted net debt/EBITDA 1.76x 0.20x 1.96x 1.32x
------------------------------------------ ------- ------- ------ ------
Bus
Go-Ahead is a leading bus operator. We transport passengers on our bus services across the UK, Ireland and Singapore.
Bus overview
Increase/ Increase/
(decrease) (decrease)
2020 2019 GBPm %
----------------------- ------- ------- ----------- -----------
Total bus operations
Revenue (GBPm) 1,012.9 1,002.2 10.7 1.1
Operating profit
(GBPm) 69.0 95.7 (26.7) (27.9)
Operating profit
margin 6.8% 9.5% n/a (2.7ppt)
----------------------- ------- ------- ----------- -----------
Regional bus
Revenue (GBPm) 408.8 433.0 (24.2) (5.6)
Operating profit
(GBPm) 20.5 44.5 (24.0) (53.9)
Operating profit
margin 5.0% 10.3% n/a (5.3ppt)
----------------------- ------- ------- ----------- -----------
London & International
bus
Revenue (GBPm) 604.1 569.2 34.9 6.1
Operating profit
(GBPm) 48.5 51.2 (2.7) (5.3)
Operating profit
margin 8.0% 9.0% n/a (1.0ppt)
----------------------- ------- ------- ----------- -----------
Like for like revenue
growth
Regional bus (11.4%) 4.0% n/a (15.4ppt)
London & International
bus 3.0% 0.4% n/a 2.6ppt
----------------------- ------- ------- ----------- -----------
Like for like volume
growth
Regional bus passenger
journeys (24.7%) 3.3% n/a (28.0ppt)
London & International
bus miles operated* 0.4% (3.4%) n/a 3.8ppt
----------------------- ------- ------- ----------- -----------
* On a like for like basis, excluding the impact of Go-Ahead Ireland's first year of operation.
Overall bus performance
Total bus revenue increased by 1.1%, or GBP10.7m, to GBP1,012.9m (2019: GBP1,002.2m) including the contribution of acquisitions, offset by reductions in the last four months of the year due to the impact on demand of COVID-19. Operating profit was GBP69.0m (2019: GBP95.7m) and the operating profit margin decreased by 2.7ppts to 6.8% (2019: 9.5%). This reflected consistent performance in London & International bus and a lower level of profit in the regional bus business due to a significant reduction in passenger journeys in the final four months of the year due to the impact of COVID-19.
Regional bus
In the first half of the year, work was underway to integrate Go North West into the Group following its acquisition in June 2019. We also received the news that the division would expand further following the successful bid for a large bus contract in Cornwall, providing around 50% of the county's bus services. The already established businesses began to deliver yield improvements and retained passenger numbers following a successful focus on passenger growth in the prior year.
On 16 March, the UK Government advised against all but essential travel, followed by an announcement on 18 March that schools would close. On 23 March the UK went into lockdown and travel restrictions were put in place. Passenger volumes fell rapidly to a low point of around 10% of pre-COVID-19 levels. These recovered to around 25% by the end of the year. We are now carrying around 50 to 60% of typical levels, ensuring compliance with social distancing requirements.
Following passenger growth of 0.2% in the first half of the year, the reduction of passenger demand in the last four months of the year had a significant impact on overall passenger volumes, leading to a 24.7% decline. This is on a like for like basis, excluding Go North West, which was acquired in June 2019, and a large bus contract in Cornwall which commenced in April 2020. Including these new businesses, passenger volumes fell by 18.9% in the year.
In response to the significant reduction in bus travel, the UK Government introduced a package of financial support for the industry on 3 April, backdated to 17 March. The COVID-19 Bus Service Support Grant (CBSSG) was designed to safeguard the vital bus network and prevent operators from incurring material losses while they worked to provide key services.
The Government's Coronavirus Job Retention Scheme (CJRS) was utilised immediately to furlough around 60% of colleagues in this part of the business. This reduced to around 20% at the end of June and is now less than 10%, reflecting the increase in service levels from around 40 to 50% during the UK lockdown to over 85% now. The total CJRS utilised in the period was GBP21.6m in regional bus.
Regional bus revenue for the year was GBP408.8m (2019: GBP433.0m), down GBP24.2m, or 5.6%, predominantly as result of significantly reduced travel since March, offset by the CBSSG and the inclusion of revenue from new businesses and operations. Excluding the impact of acquisitions, revenue declined by 11.4%.
Operating profit in the regional bus division fell GBP24.0m, or 53.9%, to GBP20.5m (2019: GBP44.5m), with the operating profit margin down 5.3ppts to 5.0% (2019: 10.3%). This significant reduction demonstrates the impact of COVID-19 on passenger demand. Income from the CBSSG, of which GBP20.1m has been recognised in other operating income, reflects amounts the Group considers it is reasonably certain to receive in line with the terms and conditions of this scheme.
The amount of CBSSG funding receivable for all bus operators is subject to a reconciliation process every 12 weeks. The first reconciliation process covering the period 17 March to 8 June is yet to be concluded by the DfT. The Group has identified a potential GBP7.3m upside to the GBP20.1m recognised in the 2020 financial year upon conclusion of the reconciliation. Some services are not eligible for CBSSG funding, such as coaching. As a result, a number of these services were either suspended or terminated as it became uneconomical to operate them. In addition to reviewing services in light of the impact of COVID-19, strategic reviews were carried out following a decline in the operational performance of the regional bus division. As a result of these reviews, several restructuring programmes of varying degrees were initiated during 2020 and a number of specific contracts, services and routes were terminated. Reflecting these reviews, an exceptional item of GBP26.7m has been recognised comprising GBP15.9m of plant, property and equipment impairments, GBP3.8m of intangible asset impairments (including GBP0.6m of goodwill), GBP5.5m of restructuring costs, GBP0.5m impairment of assets held for sale and GBP1.0m impairment of right of use assets.
Around 30% of regional bus revenue is derived from contracts and concessionary income. In the vast majority of cases, local authorities across the country have continued to fund these services at pre-crisis levels. The Bus Services Operators Grant (BSOG), relating to fuel duty, has also been maintained at pre-COVID-19 levels. The introduction of IFRS 16 has had very little impact on our regional bus division as most vehicles are owned by the Group.
GBPm
------------------------------------------------- ------
2019 operating profit 44.5
------------------------------------------------- ------
Net impact of acquisitions (1.2)
Pre-COVID-19 net movement (3.8)
Costs saved from reduced service due to COVID-19 7.6
CJRS funding 21.6
CBSSG revenue 20.1
Passenger revenue impact of COVID-19 (68.6)
------------------------------------------------- ------
2020 IAS 17 basis 20.2
------------------------------------------------- ------
Impact of IFRS 16 0.3
------------------------------------------------- ------
2020 operating profit 20.5
------------------------------------------------- ------
London & International bus
The London & International bus division, which includes our operations in London, Singapore and Ireland, performed well in the year. In the pre-COVID-19 period operational and financial performance was good across all three operations and, due to the contracted nature of these businesses, they have been resilient throughout the crisis.
Our businesses in London, Singapore and Ireland operate contracts on behalf of transport authority clients, including Transport for London (TfL), on a gross cost basis, without exposure to changes in passenger demand. Transport authorities responded to changes in travel demand by adjusting service levels. Despite this, like for like mileage for the division increased by 0.4% mainly due to the timing of contract renewals and route wins in London.
Our transport authorities clients, including TfL, continued to pay contracted revenues at pre-crisis levels, with the variable cost savings associated with the temporary service reductions returned to the client.
Divisional revenue grew by 6.1%, to GBP604.1m in the year (2019: GBP569.2m), reflecting the introduction of new contracts in London and the impact of full operation of the contracts in Ireland.
Operating profit in the London & International bus division was GBP48.5m (2019: GBP51.2m), down GBP2.7m, or 5.3%, resulting in a corresponding reduction in operating profit margin to 8.0% (2019: 9.0%). This reflects the lower level of Quality Incentive Contract (QICs) income earned in London, down GBP4.0m to GBP14.3m (2019: GBP18.3m), due to temporarily operating a reduced schedule since March 2020 and the timing of settlements with TfL. This reduction was partially offset by additional contract revenue in London and a stronger year on year performance from our bus contracts in Singapore and Ireland.
GBPm
--------------------------------------------------------- -----
2019 operating profit 51.2
--------------------------------------------------------- -----
Changes:
QIC bonuses (4.0)
Non-recurrence of additional contract work in prior year (2.0)
Net volume increases/cost inflation 1.0
International bus 0.6
Other 1.1
--------------------------------------------------------- -----
2020 IAS 17 basis 47.9
--------------------------------------------------------- -----
Impact of IFRS 16 0.6
--------------------------------------------------------- -----
2020 operating profit 48.5
--------------------------------------------------------- -----
Capital expenditure and depreciation
2020 2019
GBPm GBPm
----------------------------------------------- ----- -----
Regional bus fleet
(inc. vehicle refurbishment) 31.2 27.1
London & International bus fleet (inc. vehicle
refurbishment) 13.5 5.4
Technology and other 8.8 10.4
Depots 3.1 7.1
----------------------------------------------- ----- -----
Total capital expenditure 56.6 50.0
----------------------------------------------- ----- -----
In London, the purchase of 39 new buses (2019: 14 buses) reflects the timing of contract wins and renewals. In regional bus, 133 new buses (2019: 109 buses) were purchased. The majority of expenditure took place in the pre-COVID-19 period in the first three quarters of the year. Capital expenditure was largely placed on hold at the outset of the crisis with only essential, committed expenditure taking place. The average age of our buses is 7.6 years (2019: 7.3 years).
Depreciation on owned assets for the division was GBP66.2m (2019: GBP65.1m), reflecting the increased capital spend in recent years including the higher cost associated with transitioning to a greener fleet. Depreciation on the right of use assets was GBP21.7m (2019:GBPnil).
In 2021, we expect total capital expenditure for the bus division to be around GBP55m. This includes expenditure which was deferred in 2020 as a result of management action to conserve cash and disruption in the supply chain caused by the COVID-19 outbreak. A modest increase in capital expenditure in London & International bus is expected reflecting vehicle requirements associated with known contract wins and renewals in London.
Fuel
In the year, the bus division required around 135 million litres of fuel, with a net cost of GBP98.3m.
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 50% of the following year and 25% of the year after that. This hedging profile is then maintained on a month by month basis. Following the impact of COVID-19 in March 2020 the Group ceased further hedging for the 2021 year to take account of changes in our vehicle mileage.
The table below reflects the year end position; no significant purchases have been made following the year end.
2021 2022 2023
------------------------ ---- ---- ----
% hedged 100 50 25
Price (pence per litre) 35.3 36.2 34.7
------------------------ ---- ---- ----
At each period end, the fuel hedges are marked to market price.
Bus financial outlook
In regional bus, in light of the continuing uncertainty due to COVID-19, we expect market conditions to remain challenging. In order to accurately forecast financial performance, greater clarity is required around three key variables: passenger demand, service levels operated and level of government funding. We are, therefore, not able to provide financial guidance for this part of the business at this time.
A range of scenarios for regional bus were considered as part of the going concern assessment for the Group.
One scenario which assumed passenger volumes return to 80% of normal levels and service levels stablise at 95% of pre-COVID operations would be expected to result in a seven percentage point impact on profit margins in the period after CBSSG ceased. In a different scenario in which service levels return to pre-COVID levels with 90% of normal passenger volumes, the expected margin impact would be four percentage points. These scenarios do not consider the introduction of any mitigating actions.
In August, the DfT confirmed that regional bus funding will continue until is no longer required as it announced an eight-week GBP218.4m funding package, following which up to GBP27.3m will be available weekly. It is assumed that CBSSG funding will deliver a breakeven operating result for the period it covers. In our going concern assessment, our base case scenario assumes this funding will run until December 2020.
Our London & International bus division has already secured all of its expected revenue for the current year through successful contract bidding in London. While this remains a challenging and competitive market, especially in the context of COVID-19, in 2021 we expect the London & International bus division to deliver a similar operating result to 2020.
Rail
Go-Ahead's rail operations carry passengers on our services across the UK, Germany and Norway.
The rail division comprises contracts in the UK, Germany and Norway. UK franchises are operated by Govia, a 65% owned subsidiary, while our international contracts are 100% owned by Go-Ahead.
Rail overview
Increase/ Increase/
(decrease) (decrease)
2020 2019 * GBPm %
------------------------------- ------- ------- ----------- -----------
Total rail operations
Total revenue (GBPm) 2,885.5 2,672.0 213.5 8.0
Operating profit (GBPm) 8.9 25.4 (16.5) (65.0)
Operating profit margin 0.3% 1.0% n/a (0.7ppt)
------------------------------- ------- ------- ----------- -----------
Like for like revenue growth
Southeastern (20.9%) 6.0% n/a (29.6ppt)
GTR (19.6%) 8.0% n/a (27.6ppt)
------------------------------- ------- ------- ----------- -----------
Like for like passenger growth
Southeastern (22.2%) 3.7% n/a (25.9ppt)
GTR (21.6%) 7.7% n/a (29.3ppt)
------------------------------- ------- ------- ----------- -----------
* Restated (see note 2)
Rail performance
Revenue
Total rail revenue increased by 8.0%, or GBP213.5m, to GBP2,885.5m (2019: GBP2,672.0m restated) reflecting increased revenue in the UK rail franchises and the introduction of new international contracts. The restatement in the prior year relates to a change in the presentation of certain rail revenue streams, further details of which are provided in the notes to the 2020 Annual Report and Accounts.
Increase/ Increase/
(decrease) (decrease)
2020 2019 * GBPm %
------------------------ ------- ------- ----------- -----------
Passenger revenue
GTR 1,242.6 1,528.7 (286.1) (18.7)
Southeastern 666.3 828.3 (162.0) (19.6)
Germany 28.9 0.7 28.2 4,028.6
Nordics 11.2 - 11.2 n/a
------------------------ ------- ------- ----------- -----------
Total passenger revenue 1,949.0 2,357.7 (408.7) (17.3)
------------------------ ------- ------- ----------- -----------
Other revenue
GTR 151.1 172.8 (21.7) (12.6)
Southeastern 19.5 23.0 (3.5) (15.2)
Germany 4.6 1.3 3.3 253.8
Other revenue 0.9 2.6 (1.7) (65.4)
------------------------ ------- ------- ----------- -----------
Total other revenue 176.1 199.7 (23.6) (11.8)
------------------------ ------- ------- ----------- -----------
Subsidy
GTR 375.5 - 375.5 n/a
Southeastern 360.6 114.4 246.2 215.2
Germany 17.9 0.7 17.2 2,457.1
Nordic 7.3 - 7.3 n/a
Other subsidy (0.9) (0.5) (0.4) 80
------------------------ ------- ------- ----------- -----------
Total subsidy 760.4 114.6 645.8 563.5
------------------------ ------- ------- ----------- -----------
Total revenue 2,885.5 2,672.0 213.5 8.0
------------------------ ------- ------- ----------- -----------
* Restated (see note 2)
Operating profit
Operating profit was significantly lower than the prior year at GBP8.9m (2019: GBP25.4m), driven by significant losses in our German business and the effect of lower margins in Southeastern as a result of new contractual terms early in the year and the introduction of the EMA as of 1 March 2020. These factors were partially offset by an improvement in GTR following stronger operational performance, one-off gains from the close out of balances on previous rail contracts and the impact of IFRS 16, which effects the Group's rail division more significantly than in other parts of the Group. Due to the nature of our rail contracts, IFRS 16 is only currently applicable to rolling stock leases in our UK rail franchises.
The operating profit margin decreased by 0.7ppts to 0.3% (2019: 1.0% restated).
GBPm
---------------------- ------
2019 operating profit 25.4
---------------------- ------
GTR 24.0
Southeastern (28.5)
Other 9.9
Germany (28.2)
Norway (2.5)
---------------------- ------
2020 IAS 17 basis 0.1
---------------------- ------
Impact of IFRS 16 8.8
---------------------- ------
2020 operating profit 8.9
---------------------- ------
GTR
Before the crisis, GTR's operational performance was strong, with all GTR brands ranking highly in industry performance tables. Overall punctuality was 82% contributing to one of the highest customer satisfaction scores achieved by the franchise at 82%. This strong operational performance supported the financial performance of the franchise and it began contributing to the Group's profitability in the first half of the year.
On 23 March 2020, the DfT announced the introduction of an industry-wide EMA, back dated to 1 March 2020, to support rail operators until 20 September 2020. While GTR was already operating within a management contract, the new terms removed the exposure to changes in the cost base and ancillary revenue such as car parking and retail commission, enabling a small operating margin to be generated.
On 19 September, an Emergency Recovery Measures Agreement (ERMA) was signed with the DfT for GTR which will run until at least September 2021. The agreement has a management fee of 0.5% of the pre-COVID cost base and a potential 1% performance-related incentive payment.
Southeastern
In the pre-COVID-19 period, Southeastern performed well both operationally and financially and had some of the highest punctuality and customer satisfaction scores in the industry at 81% and 83% respectively in the first half of the year.
The previous contract ended on the 31 March 2020, two weeks after passenger demand was significantly impacted by COVID-19. A new 18-month (plus six-month extension option) direct award contract was put in place from 1 April 2020 running to 16 October 2021 under terms mirroring those of the EMA introduced across the rail industry. However, unlike for the majority of franchises, these terms will remain in place for the duration of the contract generating a management fee of 1.5% with a potential 0.5% performance-related incentive payment.
Germany
German rail services commenced operations in June 2019 with additional services introduced in December 2019. Challenging operational performance has resulted in significant losses in the year. While initial operating losses were expected as revenues stepped up throughout the year, the level of losses was higher than originally anticipated as a result of operational penalties and higher than expected costs. This was caused by late delivery of trains and subsequent reliability issues, and driver shortages.
The German rail business operates within management contracts and is not exposed to changes in passenger demand. As a result, the impact of COVID-19 on the financial performance of the business has been limited.
A comprehensive review of the business has been undertaken and management changes have taken place. Operational performance has improved over recent months with all rolling stock now in service. Despite delays due to the crisis, we are making progress in training and recruiting drivers. Performance penalties have reduced to below 10% of revenue compared with highs of 30% earlier in the year. We have a plan to deliver profitability over the medium term.
Liquidated and consequential damage claims are ongoing against the rolling stock provider. Due to the current status of claims, the Group has not recognised these as an asset nor shown them as a contingent asset in the notes to the financial statements. The maximum upside in relation to these claims is GBP26m.
A total of GBP30.4m of exceptional costs were recognised in the year relating to our German operations. This includes GBP23.6m of provisions and impairments of franchise set up costs, GBP4.4m impairment of freehold land and buildings and GBP0.7m of software costs. Restructuring costs of GBP1.7m have also been recognised.
Norway
In December 2019, we began operating rail services in Norway; our first contract in this market and the first commercially run network in the country. The operation, which will run for eight years with an optional two-year extension, delivered high levels of punctuality, at 92%, in the early stages of the contract leading to strong customer satisfaction in passengers travelling on our 170 weekday services between Oslo and Stavanger.
The effects of the pandemic were felt just three months into this contract. We have a strong and experienced local management team in place which has steered the business through the crisis successfully with effective engagement with the transport authority client and the Government. While this is a revenue risk contract, the Norwegian government has supported the rail industry with a funding package covering the lost revenue since March 2020, enabling a broadly breakeven operating performance.
Bidding and international developments
Bidding and international development costs in the year were GBP5.2m (2019: GBP16.0m), primarily relating to bidding in the Nordic and Australasian markets.
Capital expenditure and depreciation
Capital expenditure for the rail division was GBP16.0m (2019: GBP22.6m), predominantly relating to the building of a depot in Germany as part of the mobilisation of the contracts and short term improvement programmes in Southeastern.
Depreciation on owed assets was GBP17.9m (2019: GBP14.2m), reflecting the timing of capex which is being depreciated over the life of the franchises. Depreciation on right of use assets was GBP353.8m (2019: GBPnil) as a result of IFRS 16.
In 2021, capital expenditure for the rail division is expected to be around GBP10m.
Rail financial outlook
In the UK, GTR and Southeastern will operate under ERMA and EMA contracts respectively for the remainder of their contractual terms. This provides visibility of financial performance with defined upside and downside operating profit margins.
In Germany, although operational performance has improved markedly in recent months, driver shortages continue to impact performance resulting in financial penalties. Plans are in place to continue improving service reliability and we expect our current operations in Baden-Württemberg to contribute to Group profitability in the 2023 financial year. Claims against the rolling stock provider are ongoing. Our two contracts in Bavaria commence in December 2021 and December 2022. Work is underway to ensure a smooth introduction of these contracts, in line with our current financial expectations which reflect impairments and provisions recognised in the 2020 accounts.
In Norway, the financial support provided by the Government is expected to continue while passenger demand remains suppressed.
Overall, in 2021, we expect the rail division to deliver a breakeven operating result.
Financial review
Earnings per share
Excluding exceptional items, earnings were GBP22.2m (2019: GBP72.8m), resulting in a decrease of pre-exceptional earnings per share from 169.4p in 2019 to 51.6p. Earnings were a loss of GBP28.6m (2019: gain of GBP58.8m), resulting in a decrease in earnings per share from 136.8p to a loss per share of 66.5p. The weighted average number of shares was 43.0 million and the number of shares in issue, net of treasury shares, was 43.0 million.
2020 * 2019 * 2018 * 2017 2016
------------------- ------ ------ ------ ------ ------
Earnings per share 51.6p 169.4p 181.6p 207.7p 218.2p
------------------- ------ ------ ------ ------ ------
* Pre-exceptional items.
Dividend
Reflecting the Group's action to conserve cash, the Board is not proposing to pay a final dividend (2019: 71.91p). No interim dividend was paid in the current year (2019: 30.17p). Dividends of GBP30.9m (2019: GBP43.8m) paid in the year represent the payment of the prior year's final dividend.
Dividends paid to non-controlling interests were GBP14.6m (2019: GBP12.7m). This represents the 35% share of the UK rail business owned by Keolis through our subsidiary, Govia Ltd.
Summary cashflow
2020 2019
------- ------- ------- ------- -----------
IFRS 16 IFRS 16 IAS 17 IAS 17 Increase/
basis effect basis basis (decrease)
GBPm GBPm GBPm GBPm GBPm
------------------------------------- ------- ------- ------- ------- -----------
EBITDA 547.8 383.9 163.9 205.5 342.3
Cash restricted under EMA (45.7) - (45.7) - (45.7)
Working capital 6.5 1.6 4.9 4.4 2.1
------------------------------------- ------- ------- ------- ------- -----------
Cashflow generated from operations 508.6 385.5 123.1 209.9 298.7
Tax paid (28.2) - (28.2) (32.5) 4.3
Net interest paid (19.9) (13.7) (6.2) (9.5) (10.4)
Net capital investment (93.1) - (93.1) (81.1) (12.0)
Dividends paid to non controlling
interests (14.6) - (14.6) (12.7) (1.9)
------------------------------------- ------- ------- ------- ------- -----------
Free cashflow 352.8 371.8 (19.0) 74.1 278.7
Net acquisitions - - - (11.5) 11.5
Net cash on issue/purchase of shares (0.2) - (0.2) (0.5) 0.3
Dividends paid (30.9) - (30.9) (43.8) 12.9
Inception of new leases (235.0) (235.0) - - (235.0)
IFRS lease liabilities onto balance
sheet (781.1) (781.1) - - (781.1)
Other (1.2) - (1.2) 0.4 (1.6)
------------------------------------- ------- ------- ------- ------- -----------
Movement in adjusted net debt* (695.6) (644.3) (51.3) 18.7 (714.3)
Opening adjusted net debt* (270.3) - (270.3) (289.0) n/a
------------------------------------- ------- ------- ------- ------- -----------
Closing adjusted net debt* (965.9) (644.3) (321.6) (270.3) 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 GBP508.6m (2019: GBP209.9m).
This increase of GBP298.7m is largely due to the impact of IFRS 16 which results in EBITDA increasing by GBP383.9m, offset by lower earnings as a result of COVID-19 and challenges in the German rail operations. Tax paid of GBP28.2m (2019: GBP32.5m) comprised payments on account in respect of the current and prior years' liabilities. Net interest paid of GBP19.9m (2019: GBP9.5m) was lower than the net charge for the period of GBP20.4m (2019: GBP6.8m) which includes the impact of non-cash interest on pensions, the unwinding of discounting on provisions. Changes are higher than in the previous year due to the introduction of IFRS 16.
Total capital expenditure, net of sale proceeds and including spend on intangible costs was GBP12.0m higher in the year at GBP93.1m (2019: GBP81.1m). This is around GBP50m below forecast levels, reflecting swift management action to reduce expenditure at the outset of the pandemic. Ahead of the crisis, investment in our London bus fleet increased year on year reflecting contractual requirements, offset by a reduction in freehold land and buildings expenditure in Germany and timing of assets held for resale. Net Group capital investment is expected to be around GBP65m in 2021, lower than typical levels in response to the ongoing impact of COVID-19.
During the year, as part of a planned programme of monthly share purchases to satisfy future share awards, the Group purchased 39,770 ordinary shares for a total consideration of GBP0.7m (2019: 56,482 ordinary shares for a total consideration of GBP1.0m). This share purchase programme was placed on hold in March 2020 as part of the Group's cash preservation strategy.
Capital expenditure
Expenditure on capital during the year can be summarised as:
2020 2019
GBPm GBPm
--------------------------- ----- -----
Regional bus 39.1 40.4
London & International bus 17.5 9.6
--------------------------- ----- -----
Total bus 56.6 50.0
Rail 16.0 22.6
--------------------------- ----- -----
Group total 72.6 72.6
--------------------------- ----- -----
Net debt/cash
Net debt of GBP491.1m (2019: net cash of GBP214.6m) has increased mainly due the recognition of lease liabilities on the adoption of IFRS 16.
Adjusted net debt comprised debt arising from the GBP250m sterling bond, amounts drawn down against the GBP280m five year syndicate facility of GBP147.4m (2019: GBP144.7m), amounts drawn down against the Euro loan facilities of GBP14.9m (2019: GBP15.4m), and lease agreements of GBP648.6m (2019: GBP6.1m), offset by cash and short term deposits of GBP569.8m (2019: GBP630.8m) including GBP474.8m of restricted cash in rail (2019: GBP484.9m). There were no overdrafts in use at the year end (2019: GBPnil).
Our primary financial covenant under the syndicated facility is an adjusted net debt to EBITDA ratio of not more than 3.5x. Adjusted net debt (excluding restricted cash) to EBITDA of 1.96x, on a pre-IFRS 16 basis, (2019: 1.32x) is comfortably within our target range of 1.5x to 2.5x.
Capital structure
2020 2019
GBPm GBPm
--------------------------------------- ----- -------
Syndicated facility 2024 280.0 280.0
7 year GBP250m 2.5% sterling bond 2024 250.0 250.0
Euro financing facilities 17.1 16.7
--------------------------------------- ----- -------
Total core facilities 547.1 546.7
Amount drawn down at 27 June 2020 412.3 410.1
--------------------------------------- ----- -------
Balance available 134.8 136.6
--------------------------------------- ----- -------
Restricted cash 474.8 484.9
Net debt/(cash) 491.1 (214.6)
--------------------------------------- ----- -------
Adjusted net debt 965.9 270.3
EBITDA 547.8 205.5
Adjusted net debt/EBITDA 1.76x 1.32x
--------------------------------------- ----- -------
At the year end, significant medium-term finance was available through a GBP280m five year syndicated facility and a GBP250m sterling bond. A further one year extension is available which, if exercised, would extend the maturity to July 2025.
The Bank of England confirmed our eligibility for up to GBP300m additional financing through its COVID Corporate Financing Facility, which we have not utilised.
Investment grade ratings from Moody's (Baa3) and Standard & Poor's (BBB-) were reconfirmed recently with both considering the outlook to be 'stable'.
Exceptional items
Exceptional costs of GBP57.1m (2019: GBP16.8m) have been recognised in the year. They relate to action taken as a result of the COVID-19 crisis, a pre-COVID-19 strategic review of regional bus and a comprehensive review of the German rail business.
In regional bus, exceptional costs and asset impairments totalling GBP26.7m have been recognised, consisting of GBP15.9m of tangible assets impairment, GBP5.5m of restructuring costs, GBP3.8m of intangible assets impairment, GBP0.5m write down of assets held for sale and GBP1.0m right of use assets.
A further GBP30.4m of exceptional costs have been recognised in association with the Group's German rail operations. This includes GBP24.3m of intangible asset impairments and associated contract provisions, GBP4.4m of tangible asset impairment and GBP1.7m of restructuring and other one-off costs.
Amortisation
The amortisation charge for the year was GBP9.4m (2019: GBP4.8m), which relates to the non-cash charge of amortising software costs, franchise mobilisation costs and customer contracts. Following an IFRIC update in March 2020, the accounting policy over the capitalisation of training costs was changed and has resulted in an accelerated amortisation charge of GBP2.0m in relation to franchise set-up costs during the year.
Net finance costs
Net finance costs for the year were higher than the prior year at GBP20.4m (2019: GBP6.8m) due to the impact of IFRS 16 which accounted for an additional GBP13.7m of finance costs during the year. Finance costs of GBP25.8m (2019: GBP11.9m) were offset by finance revenue of GBP5.4m (2019: GBP5.1m). The average net interest rate for the period was 3.3% (2019: 3.4%).
Taxation
Net tax for the year was GBP11.9m (2019: GBP21.9m). During the year, exceptional costs arising as a result of the COVID-19 crisis, a strategic review in regional bus and a comprehensive review of the German rail business were recognised, the pre-exceptional effective tax rate is 32.0% (2019: 21.7%). This includes a charge in relation to the change in the UK deferred taxation rate from 17% to 19%, excluding this the effective tax rate is 22.3%. In the reporting period, the effective tax rate was higher due to the impact of higher local tax rates in our international markets.
Non-controlling interest
The non-controlling interest in the income statement of GBP16.5m (2019: GBP16.3m) arises from our 65% holding in Govia Limited, which owns 100% of our current UK 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 GBP37.7m (2019: GBP35.3m) consisting of bus costs of GBP2.1m (2019: GBP2.0m) and rail costs of GBP35.6m (2019: GBP33.3m). Group contributions to the schemes totalled GBP44.1m (2019: GBP41.5m).
Bus pensions
Under accounting valuations, the net surplus after taxation on the bus defined benefit schemes was GBP42.9m (2019: a surplus of GBP40.2m), consisting of pre-tax assets of GBP53.0m (2019: GBP48.7m) less a deferred tax liability of GBP10.1m (2019: GBP8.5m). The pre-tax asset consisted of assets of GBP934.4m (2019: GBP858.8m) less estimated liabilities of GBP881.4m (2019: GBP810.1m). The percentage of assets held in higher risk, return seeking assets was 33.8% (2019: 35.3%).
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 (2019: GBPnil).
Principal risks and uncertainties
The principal risks described in the Group's Annual Report for the year ended 27 June 2020 (2020 Annual Report and Accounts) have been summarised below. Further information on these risks, including their potential impact and changes to the risks during the year, can be found within the 2020 Annual Report and Accounts on pages 54 to 58, available on our website.
External risks
1. Economic environment and society post COVID-19
Slow recovery from the COVID-19 pandemic. Reduction in economic activity and passenger demand accelerated by the pandemic.
Mitigating actions
-- 90 per cent of revenue currently contract based; discussing continuation of funding with clients and governments. Main area of exposure is regional bus
-- Take all required actions to provide a safe environment and reassure about public transport -- Continue to focus our operations in more resilient geographical areas -- Promote public transport as a safe and accessible form of travel -- Constantly assess the needs of local markets and design services and products accordingly
-- Optimise the network and cost base through route rationalisation, proactive cost control and back-office synergies; supported by robust scenario modelling in regional bus
2. Political and regulatory framework
Changes to the legal and regulatory framework, impact of the UK leaving the EU, momentum around air quality agenda and national bus strategy. Potential increased appetite for state control of key industries including transport.
Mitigating actions
-- Maintain strong levels of punctuality and customer satisfaction -- Limit exposure to local authority funding through optimisation of network and cost base
-- Active participation in key industry, trade and Government steering and policy development groups, including the Williams Rail Review, national bus strategy and bus franchising
-- Collaboration and partnership working with local authorities
-- Strong track record on air quality initiatives: air filtering bus, climate change taskforce, fleet conversion to cleaner emission standards
-- Brexit contingency measures in place including operational plan in Southeastern, increased stock levels of spare parts maintained across bus and rail, and colleague engagement plans to support recruitment and retention
Strategic risks
3. Sustainability of UK rail profits or loss of franchise
Failure to retain UK rail franchises on acceptable terms and deliver target profit range in GTR
Mitigating actions
-- New Southeastern direct award contract allows for longer Emergency Measures Agreement (EMA) terms, withdrawing revenue and cost risk
-- GTR has signed an Emergency Recovery Measures Agreement (ERMA) succeeding the EMA, which holds no revenue or cost risks
-- Flexible and experienced management team which responds quickly and expertly to changing circumstances
-- Shared risk through the Govia joint venture, which is 65 per cent owned by Go-Ahead and 35 per cent by Keolis
-- Regular Board review of rail performance and Board approval of overall rail bidding strategy -- Close monitoring of compliance with franchise obligations
4. Inappropriate investment
Failure to deliver strategy or make appropriate investment decisions. Failure to deliver expected returns in German rail
Mitigating actions
-- Comprehensive strategic discussions with main Board and advisors
-- Extensive valuation and due diligence, supported by external expertise, and strong financial discipline when assessing viability of opportunities
-- Restructure of the German business; decision to cease business development activities in Germany and rail business development in new geographies
-- Cautious approach to investment opportunities overseas and outside our core operating areas
-- Clear risk appetite statement that governs the acceptable level of risk in pursuit of strategic objectives
-- Thorough review of underperforming parts of the business, e.g. closure of PickMeUp and route rationalisation across the business
5. Competition
Competition from existing and new market participants, loss of business to other modes and threats from market disruptors.
Mitigating actions
-- Promote safe use of public transport -- 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, including through interoperability
-- Promote multi-modal travel, improving the overall door-to-door experience for passengers
-- Focus on customer needs and expectations, including improved channels for ticket purchase and journey planning
Operational risks
6. 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; high levels of safety performance; promotion of safety culture; and reassurance over the use of public transport
-- Crisis management policy updated and rolled out across the operating companies -- Appropriate and regularly reviewed and tested contingency and disaster recovery plans -- Thorough and regular training of colleagues
-- Work closely with our industry partners, such as rail infrastructure provider Network Rail and Government agencies
-- COVID-19 has created a precedent for strong Government support to the industry and reinforced its role within local communities
7. Large scale infrastructure projects
Disruption caused by large scale infrastructure projects on and around the networks on which we operate, such as HS2, Gatwick Airport station 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
8. Employee relations, resource planning and talent management
Failure to effectively engage with our people and trade unions in providing reassurance, managing costs and driving change. Failure to attract, retain and develop talent.
Mitigating actions
-- Succession planning exercise carried out annually -- Apprenticeship, graduate and leadership development programmes
-- High level of colleague engagement across our businesses supported by surveys and action planning; strong response and relationships during the COVID-19 crisis
-- Refreshed approach to the Group's vision, beliefs and attitudes
-- Robust and regularly reviewed recruitment and retention policies, training schemes, resource planning and working practices
-- Experienced approach to wage negotiations and proactive engagement on driver fatigue
-- Proactive management of pension risks including active engagement with The Pensions Regulator and DfT over the review of the Railways Pension Scheme
-- Widening the recruitment pool through initiatives aimed at attracting diverse talent, for example through the Women in Bus network and active recruitment of female drivers
9. Information technology failure/interruption/security breach
Prolonged or major failure of the Group's IT systems or a significant data breach.
Mitigating actions
-- Data protection officers in place in all operating companies to monitor Group-wide GDPR compliance
-- 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
-- Continued investment in and maintenance of IT systems across the Group -- Design Authority Board in place for change control -- Clear and tested business continuity plans; test scenarios conducted across the Group -- Achieved Cyber Essentials standard
-- Restructured IT function to refocus on operational delivery; now effectively implementing action plan following external maturity assessment
-- GTR and Southeastern successfully audited against the NIS framework
-- Adoption of a cyber security strategy and Information Security Management System (ISMS) framework across the Group, with the publication of monthly KPIs measuring mitigating measures
10. Mobilisation of international rail contracts
Failure to fully mobilise contracts within contractual timescales, especially driver recruitment and delivery of rolling stock, and to deliver required levels of operational performance.
Mitigating actions
-- Experienced local teams; ability to mobilise internal UK rail and bus expertise -- Building strong relationships with local authorities
-- Compliance with strong local regulation; established Safety Management Systems and Group Safety Audits
-- Lessons being learnt from Baden-Württemberg mobilisation to avoid repeat in Bavaria -- Appointment of restructuring consultancy to transform performance in Germany
Consolidated income statement
for the year ended 27 June 2020
Pre- Exceptional Post- Pre- Exceptional Post-
exceptional items exceptional exceptional items exceptional
2020 2020 2020 2019* 2019 2019*
Notes GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ----- ------------ ----------- ------------ ------------ ----------- ------------
Group revenue 4 3,898.4 - 3,898.4 3,674.2 - 3,674.2
Operating costs 5-7 (3,820.5) (57.1) (3,877.6) (3,553.1) (16.8) (3,569.9)
----------------------------- ----- ------------ ----------- ------------ ------------ ----------- ------------
Group operating profit 77.9 (57.1) 20.8 121.1 (16.8) 104.3
Share of result of joint
venture (0.6) - (0.6) (0.5) - (0.5)
Finance revenue 8 5.4 - 5.4 5.1 - 5.1
Finance costs 8 (25.8) - (25.8) (11.9) - (11.9)
----------------------------- ----- ------------ ----------- ------------ ------------ ----------- ------------
Profit/(loss) before taxation 56.9 (57.1) (0.2) 113.8 (16.8) 97.0
Tax expense 9 (18.2) 6.3 (11.9) (24.7) 2.8 (21.9)
----------------------------- ----- ------------ ----------- ------------ ------------ ----------- ------------
Profit/(loss) for the year
from continuing operations 38.7 (50.8) (12.1) 89.1 (14.0) 75.1
Attributable to:
Equity holders of the parent 22.2 (50.8) (28.6) 72.8 (14.0) 58.8
Non-controlling interests 16.5 - 16.5 16.3 - 16.3
----------------------------- ----- ------------ ----------- ------------ ------------ ----------- ------------
38.7 (50.8) (12.1) 89.1 (14.0) 75.1
----------------------------- ----- ------------ ----------- ------------ ------------ ----------- ------------
Earnings per share
- basic 10 51.6p (118.1)p (66.5)p 169.4p (32.6)p 136.8p
- diluted 10 51.5p (117.9)p (66.4)p 169.0p (32.5)p 136.5p
----------------------------- ----- ------------ ----------- ------------ ------------ ----------- ------------
Dividends paid (pence per
share) 11 71.91p 102.08p
----------------------------- ----- ------------ ----------- ------------ ------------ ----------- ------------
Final dividend proposed
(pence per share) 11 - 71.91p
----------------------------- ----- ------------ ----------- ------------ ------------ ----------- ------------
Consolidated statement of comprehensive income
for the year ended 27 June 2020
2020 2019
Notes GBPm GBPm
---------------------------------------------------- ----- ------ ------
(Loss)/profit for the year (12.1) 75.1
Other comprehensive income
Items that will not be reclassified to profit or
loss:
Remeasurement (losses)/gains on defined benefit
pension plans 28 (3.1) 21.6
Tax relating to items that will not be reclassified 9 0.4 (3.7)
---------------------------------------------------- ----- ------ ------
(2.7) 17.9
---------------------------------------------------- ----- ------ ------
Items that may subsequently be reclassified to
profit or loss:
Unrealised losses on cashflow hedges 23 (25.3) (4.9)
Losses/(gains) on cashflow hedges taken to income
statement - operating costs 23 5.7 (8.8)
Tax relating to items that may be reclassified 9 3.8 2.4
Foreign exchange differences on translation of
foreign operations (1.8) -
---------------------------------------------------- ----- ------ ------
(17.6) (11.3)
---------------------------------------------------- ----- ------ ------
Other comprehensive (losses)/gains for the year,
net of tax (20.3) 6.6
---------------------------------------------------- ----- ------ ------
Total comprehensive (losses)/income for the year (32.4) 81.7
---------------------------------------------------- ----- ------ ------
Attributable to:
Equity holders of the parent (48.9) 65.4
Non-controlling interests 16.5 16.3
---------------------------------------------------- ----- ------ ------
(32.4) 81.7
---------------------------------------------------- ----- ------ ------
Consolidated statement of changes in equity
for the year ended 27 June 2020
Reserve
for Share Capital Total Non-
Share own Hedging premium redemption Translation Retained shareholders' controlling Total
capital shares reserve reserve reserve reserve earnings equity interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------- ------- ------- ------- ---------- ----------- -------- ------------- ----------- ------
At 30 June 2018 74.2 (71.3) 14.8 1.6 0.7 - 267.9 287.9 31.5 319.4
Profit for the
year - - - - - - 58.8 58.8 16.3 75.1
Net movement on
hedges (net of
tax) (note 23) - - (11.3) - - - - (11.3) - (11.3)
Remeasurement on
defined benefit
retirement
plans
(net of tax)
(note
28) - - - - - - 17.9 17.9 - 17.9
---------------- ------- ------- ------- ------- ---------- ----------- -------- ------------- ----------- ------
Total
comprehensive
income/(losses) - - (11.3) - - - 76.7 65.4 16.3 81.7
Exercise of
share
options - 1.0 - - - - (1.0) - - -
Share based
payment
charge (and
associated
tax) (note 6) - - - - - - 1.1 1.1 - 1.1
Acquisition of
own shares - (1.0) - - - - - (1.0) - (1.0)
Share issue 0.5 - - - - - - 0.5 - 0.5
Dividends (note
11) - - - - - - (43.8) (43.8) (12.7) (56.5)
---------------- ------- ------- ------- ------- ---------- ----------- -------- ------------- ----------- ------
At 29 June 2019 74.7 (71.3) 3.5 1.6 0.7 - 300.9 310.1 35.1 345.2
(Loss)/profit
for
the year - - - - - - (28.6) (28.6) 16.5 (12.1)
Net movement on
hedges (net of
tax) (note 23) - - (15.8) - - - - (15.8) - (15.8)
Remeasurement on
defined benefit
retirement
plans
(net of tax)
(note
28) - - - - - - (2.7) (2.7) - (2.7)
Foreign exchange - - - - - (1.8) - (1.8) - (1.8)
---------------- ------- ------- ------- ------- ---------- ----------- -------- ------------- ----------- ------
Total
comprehensive
(losses)/income - - (15.8) - - (1.8) (31.3) (48.9) 16.5 (32.4)
Exercise of
share
options - 0.7 - - - - (0.7) - - -
Share based
payment
charge (and
associated
tax) (note 6) - - - - - - 1.6 1.6 - 1.6
Acquisition of
own shares - (0.7) - - - - - (0.7) - (0.7)
Share issue 0.5 - - - - - - 0.5 - 0.5
Dividends (note
11) - - - - - - (30.9) (30.9) (14.7) (45.6)
---------------- ------- ------- ------- ------- ---------- ----------- -------- ------------- ----------- ------
At 27 June 2020 75.2 (71.3) (12.3) 1.6 0.7 (1.8) 239.6 231.7 36.9 268.6
---------------- ------- ------- ------- ------- ---------- ----------- -------- ------------- ----------- ------
Consolidated balance sheet
as at 27 June 2020
2020 2019
Notes GBPm GBPm
------------------------------------------ --------- ---------
Assets
Non-current assets
Property, plant and equipment 12 589.0 631.9
Right of use assets 13 648.9 -
Goodwill and intangible assets 14 96.1 108.8
Deferred tax assets 9 2.9 0.2
Other financial assets 23 0.1 1.5
Retirement benefit assets 28 63.3 53.8
-------------------------------------- --------- ---------
1,400.3 796.2
-------------------------------------- --------- ---------
Current assets
Inventories 17 19.7 16.8
Trade and other receivables 18 268.5 350.3
Other financial assets 23 0.1 4.4
Assets classified as held for sale 16 7.2 2.7
Current tax asset 9 4.9 -
Cash and cash equivalents 19 569.8 630.8
-------------------------------------- --------- ---------
870.2 1,005.0
-------------------------------------- --------- ---------
Total assets 2,270.5 1,801.2
-------------------------------------- --------- ---------
Liabilities
Current liabilities
Trade and other payables 20 (718.0) (847.7)
Other financial liabilities 23 (9.9) (0.8)
Interest-bearing loans and borrowings 21 (6.1) (5.5)
Lease liabilities 13 (517.3) (1.8)
Current tax liabilities 9 (0.9) (13.1)
Provisions 24 (46.1) (34.8)
-------------------------------------- --------- ---------
(1,298.3) (903.7)
-------------------------------------- --------- ---------
Non-current liabilities
Trade and other payables 20 (15.6) (9.0)
Other financial liabilities 23 (5.6) (0.8)
Interest-bearing loans and borrowings 21 (403.9) (401.6)
Lease liabilities 13 (131.3) (4.3)
Retirement benefit obligations 28 (10.3) (5.1)
Deferred tax liabilities 9 (49.0) (49.5)
Provisions 24 (87.9) (82.0)
-------------------------------------- --------- ---------
(703.6) (552.3)
-------------------------------------- --------- ---------
Total liabilities (2,001.9) (1,456.0)
-------------------------------------- --------- ---------
Net assets 268.6 345.2
-------------------------------------- --------- ---------
Capital and reserves
Share capital 25 75.2 74.7 Reserve for own shares 25 (71.3) (71.3) Hedging reserve 25 (12.3) 3.5 Share premium reserve 25 1.6 1.6 Capital redemption reserve 25 0.7 0.7 Translation reserve 25 (1.8) - Retained earnings 239.6 300.9 -------------------------------------- --------- --------- Total shareholders' equity 231.7 310.1 Non-controlling interests 36.9 35.1 -------------------------------------- --------- --------- Total equity 268.6 345.2 -------------------------------------- --------- ---------
Consolidated cashflow statement
for the year ended 27 June 2020
2020 2019
Notes GBPm GBPm
----------------------------------------------------- ----- ------- ------
(Loss)/profit after tax for the year (12.1) 75.1
Net finance costs 8 20.4 6.8
Tax expense 9 11.9 21.9
Depreciation of property, plant and equipment 12 84.1 79.3
Depreciation of right of use assets 13 375.5 -
Amortisation of intangible assets 14 9.4 4.8
Asset impairment 0.9 -
Investment impairment - 0.3
Exceptional items 7 57.1 16.8
Share of result of joint venture 0.6 0.5
Loss on sale of assets held for sale - 0.1
Profit on sale of property, plant and equipment (0.9) (0.2)
Share based payment charges 6 1.6 1.0
Difference between pension contributions paid and
amounts recognised in the income statement (7.3) (7.1)
Increase in inventories (2.9) (1.6)
Decrease/(increase) in trade and other receivables 78.4 (10.6)
(Decrease)/increase in trade and other payables (128.1) 55.6
Movement in provisions, excluding exceptional items 9.9 13.5
----------------------------------------------------- ----- ------- ------
Cashflows generated from operations 498.5 256.2
Taxation paid 9 (28.2) (32.5)
----------------------------------------------------- ----- ------- ------
Net cashflows from operating activities 470.3 223.7
----------------------------------------------------- ----- ------- ------
Cashflows from investing activities
Interest received 5.5 5.0
Proceeds from sale of property, plant and equipment 0.7 3.4
Proceeds from sale of property, plant and equipment
held for sale 2.0 12.4
Purchase of property, plant and equipment (72.6) (72.6)
Purchase of property, plant and equipment held
for sale (4.8) (2.1)
Purchase of intangible assets (18.4) (22.2)
Purchase of businesses 15 - (11.5)
----------------------------------------------------- ----- ------- ------
Net cashflows used in investing activities (87.6) (87.6)
----------------------------------------------------- ----- ------- ------
Cashflows from financing activities
Interest paid on lease liabilities (13.9) (0.3)
Other interest paid (11.5) (14.2)
Dividends paid to members of the parent 11 (30.9) (43.8)
Dividends paid to non-controlling interests (14.6) (12.7)
Proceeds from issue of shares 0.5 0.5
Payment to acquire own shares (0.7) (1.0)
Repayments of borrowings (0.8) (0.7)
Proceeds from borrowings 2.5 13.7
Payment of lease liabilities (374.3) (3.3)
----------------------------------------------------- ----- ------- ------
Net cashflows used in financing activities (443.7) (61.8)
----------------------------------------------------- ----- ------- ------
Net (decrease)/increase in cash and cash equivalents (61.0) 74.3
Cash and cash equivalents at 29 June 2019 19 630.8 556.5
Effect of foreign exchange rate changes - -
----------------------------------------------------- ----- ------- ------
Cash and cash equivalents at 27 June 2020 19 569.8 630.8
----------------------------------------------------- ----- ------- ------
At 30 June 2019, the Group implemented IFRS 16 Leases using the modified retrospective transition method. As a result, the comparative figures have not been restated and are presented on an IAS 17 basis.
Cash balances of GBP474.8m (2019: GBP484.9m) were restricted at 27 June 2020. Following the introduction of the Emergency Measures Agreements (EMAs) in the UK rail companies on the 1 March 2020, all cash balances in these businesses became restricted. Further details are shown in note 19.
Notes to the consolidated financial statements
1 Basis of preparation
Basis of preparation
The financial information set out herein does not constitute the Company's statutory accounts for the years ended 27 June 2020 or 29 June 2019 but is derived from those accounts. Statutory accounts for 2019 have been delivered to the Registrar of Companies and those for 2020 will be delivered in due course. The auditor's reports on the 2020 and 2019 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 2019 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 27 June 2020. 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 23 September 2020 and is signed on its behalf by:
David Brown, Group Chief Executive
Elodie Brian, 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.
No areas of critical accounting judgements or key sources of estimation uncertainty have been identified in relation to Brexit.
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:
Going concern
During the financial year, and up to the date of signing the annual report and accounts, the COVID-19 pandemic has had a significant impact on the Group. Whilst the Group has seen positive trends emerging in the past few weeks, it is difficult to assess what the long-term impact of the pandemic will be to the wider economy and, in particular, the transport section in which the Group operates. Owing to this, the going concern assessment is considered a critical accounting judgement. However the directors' have considered the Group's current and future prospects and continue to adopt the going concern basis of preparation as they are satisfied that the Group can continue to pay its liabilities as they fall due for a period of at least 12 months from the date of approval of these financial statements. Please refer to the directors' report for the Group's going concern statement.
COVID-19: Rail - Emergency Measures Agreements (EMAs)
The COVID-19 pandemic has had a major impact on the global economy and has had an impact on the Group's operational performance during the current year. The Group has received government support in each area of its divisional operations and it is expected that this support will continue as operations gradually return to normal.
In the rail division, from 1 March 2020, UK operations have seen all the revenue and cost risk being transferred to the Government by way of Emergency Measures Agreements (EMAs).
As part of these agreements, signed by the DfT, GTR and Southeastern, there are two income streams. A management fee to run a revised National Rail timetable across the UK and a performance payment bonus receivable from the DfT once the EMA term ends. The term end for GTR was 19 September 2020 and for Southeastern it is 17 October 2021.
The management fee is recognised within franchise subsidy revenue, in line with the revenue recognition policy for subsidy receipts received from the DfT.
The performance payment bonus is assessed through an EMA review process, which awards the rail franchisees with a score of 1, 2 or 3 against three criteria over the entire term of the EMA in areas of operational performance, customer experience and acting as a good and efficient operator. The performance payment bonus can range between GBPnil and GBP4.7m over the EMA term for GTR and between GBPnil and GBP8.0m for Southeastern. The EMA review process is subjective, and the directors' consider there is not a sufficent basis to recognise any revenue in respect of these performance payments, in the year ended 27 June 2020.
Whilst GTR was already operating within a management contract, the new terms have removed the risk to changes in the cost base but also other revenue such as car parking and retail commission. The GTR EMA was in place for an initial period to 19 September 2020. Post this date, GTR is operating under an Emergency Recovery Measures Agreement (ERMA) for a further 12 months. The ERMA is similar in nature to that of the EMA with GTR continuing to receive a management fee for the remainder of its franchise.
In Southeastern, the EMA is in place until 16 October 2021 due to a new 18-month (plus six-month extension option) direct award contract being agreed from 1 April 2020. The terms of this EMA were backdated and were effective from 1 March 2020.
In Germany, the rail contracts currently in operation are management contracts. Consequently, there is no material revenue risk associated with these contracts.
In Norway, the rail contract is partly subject to revenue risk, in relation to the unsubsidised part of the contract. The Norwegian Government has supported the rail industry with a package covering revenue lost since March 2020. This is expected to continue while demand remains suppressed.
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 strategic reviews took place and resulted in material, one-off costs arising. A review of the regional bus operation was initiated during the financial year, following a decline in the operational performance which resulted in restructuring in some operations with certain routes being terminated due to them no longer being financially viable. In addition, the impact of COVID-19 brought about further challenges which led to asset impairments.
Further exceptional costs have been recognised in association with the Group's German business, which has had a challenging first year of operation. This includes restructuring, one-off costs, asset impairments and a provision recognised as a result of irrecoverable future franchise set-up costs. Further details are given in note 7.
During the prior year, a charge in relation to the impact of the Guaranteed Minimum Pensions (GMP) ruling on the Group defined benefit schemes was classified as exceptional.
Accounting for the Railways Pension Scheme (RPS)
The UK train operating companies participate in the Railways Pension Scheme (RPS), a defined benefit pension scheme which covers the whole of the UK rail industry. 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 and 40% employee. The Group only recognises amounts in relation to its share of costs in the income statement. The RPS is partitioned into sections and the Group is responsible for the funding of these sections whilst it operates the relevant franchise. At the end of the franchise term, responsibility for the funding, and consequently any deficit or surplus existing at that date, is passed to the next franchisee. At each balance sheet date a franchise adjustment is recognised to the IAS 19 net pension asset or liability to reflect that portion expected to pass to the next franchisee.
The directors view this arrangement as synonymous to the circumstances described in paragraphs 92-94 of IAS 19 Employee Benefits (Revised), with a third party taking on the obligation for future contributions. As there is no requirement to make contributions to fund the current deficit, then it is assumed that all of the current deficit will be funded by another party and hence none of the deficit is attributable to the current franchisee. In respect of the future service costs, there is currently no pension obligation in respect of those costs. When the costs are recognised in the income statement, the extent to which the committed contributions fall short determines the amount that is to be covered by contributions of another party in the future, which is recognised as an adjustment to service cost in the income statement. As a result, any portion of service cost not expected to be covered by contributions paid during the franchise but expected to transfer at the end of the franchise is treated as an adjustment to the income statement.
Under circumstances where contributions are renegotiated, for example, following a statutory valuation, an adjustment will be recognised in the income statement, whilst changes in actuarial assumptions continue to be recognised through the statement of other comprehensive income.
The directors deem this to be the most appropriate interpretation of IAS 19 to reflect the specific circumstances of the RPS where the franchise commitment is only to pay contributions during the period in which we run the franchise. An alternative approach would involve not limiting the measurement of the service cost through the recognition of an income statement franchise adjustment, but recognising all movements on the franchise adjustment as a movement in a reimbursement right in other comprehensive income. For the year ended 27 June 2020, the impact of this alternative treatment, on a post-tax basis, would be an increase in costs of GBP72.6m (2019: GBP59.5m) to the income statement and a debit to other comprehensive income of GBP185.0m (2019: debit of GBP74.5m). Since the franchise contract only refers to the contribution requirements during the franchise term, and not any reimbursement rights, the directors consider that viewing the treatment as contribution sharing with the next franchisee is most appropriate.
German rail franchises
The Group has a number of contractual commitments in Germany in respect of its current rail franchises in Baden-Württemberg and Bavaria. IAS 37 Provisions, Contingent Liabilities and Contingent Assets requires a provision to be made for an onerous contract where it is probable that the future economic benefits to be derived from the contract are less than the unavoidable costs under the contract.
The estimation of both the forecasts and discount rate involves a significant degree of judgement. Cashflow forecasts are derived from the most recent corporate plan for 2020/21 and the Group's three-year plan. Cashflows for the remainder of the contract years are extrapolated based on the third year of the corporate plan, updated to reflect the past performance and expected future developments. The pre-tax discount rates applied are derived from the Group's weighted average cost of capital, adjusted for country-specific risk, in order to match the discount rate with the underlying risk in the cash generating units.
The Group has concluded that the assets in relation to the Baden-Württemberg franchise are impaired, however, it holds the view that the contract is not onerous as the estimated value in use is positive, based on expected future cashflows and using a risk-adjusted discount rate.
The future forecasts, relating to the Baden-Württemberg franchise, are most sensitive to a change in assumptions used most notably on the assessment of future performance penalties and that of driver costs. A change of 0.5% in the level of performance penalties would increase or decrease the present value of future cashflows by approximately GBP4.0m and an increase in driver costs of 5% would decrease the present value of future cashflows by approximately GBP3.0m. In addition, liquidated and consequential damage claims are ongoing against the rolling stock provider. Due to the current status of the claims these are not recognised as an asset or contingent asset in the financial statements, but any settlement in part of full in relation to these claims would increase future cashflows. The maximum amount of upside in relation to these claims is GBP26.0m.
In relation to the Bavarian franchise, the Group has concluded that the assets are impaired and a provision of GBP7.2m relating largely to committed, irrecoverable franchise set-up costs has been recognised during the current year due to uncertainty surrounding the estimated value in use of the contract, based on expected future cashflows and using a risk-adjusted discount rate. The franchise forecasts are most sensitive to changes the assessment of future performance penalties, driver costs and the costs of franchise set-up. A change of 0.5% in the level of performance penalties would increase or decrease the present value of future cashflows by approximately GBP5.0m and an increase in driver costs of 5% would decrease the present value of future cashflows by approximately GBP3.0m. Changes in franchise set up costs relating driver training and recruitment costs of 5% would result in a change of GBP1.0m to the provision. The provision is included within franchise commitments and further details can be found in note 24.
Leases
At the lease commencement date, the lease liability is calculated by discounting the lease payments. The discount rate used should be the interest rate implicit in the lease (IRIIL). However, if that rate cannot be readily determined, the lessee's incremental borrowing rate (IBR) is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right of use asset in a similar economic environment with similar terms, security and conditions. Due to the capital structure of the Group, the Group's cost of debt forms the base of the IBR with specific finance and lease adjustments made, when applicable, which are linked to the lease term, country of lease and start date.
Management exercises judgement in determining the likelihood of exercising break or extension options in determining the lease term. Break and extension options are aligned with specific contract and franchise agreements which contain possible extension options, with the awarding of such extensions outside the control of the Group. Hence at commencement of the lease, break or extension options are not typically considered reasonably certain that they will be exercised. Leases are regularly reviewed and will be revalued if it becomes likely that a break clause or option to extend the lease is exercised.
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:
COVID-19: Bus - Bus Services Support Grant (CBSSG)
In the regional bus division, government support has been received in the form of the COVID-19 Bus Services Support Grant (CBSSG) from 17 March 2020. This is a grant payable to bus operators in respect of commercial services in return for making available sufficient capacity to run an agreed level of commercial miles. In the year ended 27 June 2020, the Group has recognised revenue of GBP20.1m, being the amount the Group considers it is reasonably certain to receive in line with the terms and conditions of this scheme. This grant income has been recognised within other revenue in the income statement.
Estimating the amount receivable for the year ended 27 June 2020 involves significant estimation uncertainty. The scheme is subject to a cap on the level of funding available for the scheme and therefore the extent to which that budget cap is sufficient to cover the relevant shortfalls of revenue versus costs of all eligible operators is a function of all those operators' revenues and costs.
While the Group has visibility of its own revenues and costs, it does not have visibility of other operators' revenues and costs and the grant mechanism is subject to interpretation. As such, estimating the extent to which the budget cap will limit the Group's CBSSG grant income involves estimation uncertainty.
The Group's operating companies have initially estimated that should the budget cap not be applicable, they are potentially entitled to CBSSG of GBP27.4m for the year ended 27 June 2020, GBP7.3m higher than the amount recognised in the financial statements.
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 (TOC's). 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.
Please refer to note 27 for details of contingent liabilities relating to these judgements and estimations.
As a result of the COVID-19 pandemic, on 23 March 2020 the UK Government suspended all rail franchise agreements and introduced an industry-wide Emergency Measures Agreement (EMA) scheme to support train operating companies. The GTR EMA was in place for an initial period to 19 September 2020. Post this date, GTR is operating under an Emergency Recovery Measures Agreement (ERMA) for a further 12 months. The ERMA is similar in nature to that of the EMA with GTR continuing to receive a management fee for the remainder of its franchise.
The accounting for EMAs is deemed to be a critical accounting judgement, rather than a source of estimation uncertainty and as such no sensitivity analysis has been disclosed.
Contract and franchise accounting specific to the rail business is disclosed in the segmental analysis in note 4.
Measurement of franchise commitments
The measurement of franchise commitments, comprising dilapidation provisions on rolling stock, depots and stations, within the UK rail franchises, and a provision relating to the franchise set-up costs of the German Bavaria franchise, is set out in note 24.
Significant elements of the dilapidation provisions 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.
The forecasts in relation to the estimated value in use of the German franchise are subject to estimation due to the assumptions used. The most sensitive assumptions relate to the assessment of future performance penalties, driver costs and costs of franchise set up.
Sensitivity analysis with respect to franchise commitments is provided in note 24.
Retirement benefit schemes - bus
The measurement of defined benefit pension schemes 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 28. 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. Sensitivity analysis on the bus retirement defined benefit schemes is detailed in note 28.
3. Reconciliation of alternative profit measures (APMs)
The Group uses a number of alternative performance measures (APMs) throughout the Annual Report and Accounts. Management believes that adjusting for these items provide them with a better understanding of the Group's operating performance and financial position.
The APMs used by the Group are disclosed below:
Operating profit pre-exceptional items
Exceptional operating items represent material items of revenue or expenses which, because of the size or nature and the expected infrequency of the events giving rise to them, distort the Group's underlying performance.
Reconciliation of pre and post operating profit:
2020 2019
GBPm GBPm
-------------------------------------------------------- ----- -----
Operating profit 20.8 104.3
Exceptional items:
- Asset impairments and restructuring costs - regional
bus 26.7 -
- Asset impairments, provisions and restructuring costs
- rail 30.4 -
- Charge in relation to GMP equalisation - 16.8
-------------------------------------------------------- ----- -----
Operating profit pre-exceptional items 77.9 121.1
-------------------------------------------------------- ----- -----
Further detailed information on the exceptional items is given in note 7.
A summary of impact of the exceptional items on other statutory measures is as follows:
Pre- Post- Pre- Post-
exceptional Exceptional exceptional exceptional Exceptional exceptional
2020 2020 2020 2019 2019 2019
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- ------------ ----------- ------------ ------------ ----------- ------------
Group operating profit 77.9 (57.1) 20.8 121.1 (16.8) 104.3
------------------------------- ------------ ----------- ------------ ------------ ----------- ------------
Profit/(loss) before taxation 56.9 (57.1) (0.2) 113.8 (16.8) 97.0
Tax expense (18.2) 6.3 (11.9) (24.7) 2.8 (21.9)
------------------------------- ------------ ----------- ------------ ------------ ----------- ------------
Profit/(loss) for the year
from continuing operations 38.7 (50.8) (12.1) 89.1 (14.0) 75.1
Attributable to:
- Equity holders of the parent 22.2 (50.8) (28.6) 72.8 (14.0) 58.8
- Non-controlling interests 16.5 - 16.5 16.3 - 16.3
------------------------------- ------------ ----------- ------------ ------------ ----------- ------------
38.7 (50.8) (12.1) 89.1 (14.0) 75.1
------------------------------- ------------ ----------- ------------ ------------ ----------- ------------
Earnings per share
- basic 51.6p (118.1)p (66.5)p 169.4p (32.6)p 136.8p
- diluted 51.5p (117.9)p (66.4)p 169.0p (32.5)p 136.5p
------------------------------- ------------ ----------- ------------ ------------ ----------- ------------
Adjusted net debt
Adjusted net debt is the net cash/debt position of the Group adjusted to reflect the impact of restricted cash on cashflows. Net cash/debt is the value of cash and cash equivalents offset by borrowings, including interest-bearing loans and borrowings and lease liabilities. Restricted cash represents amounts held in the rail division which can only be distributed with the agreement of the relevant local transport authorities and are therefore outside of management's control.
The components of adjusted net debt are shown within note 21.
Free cashflow
Free cashflow is used by management to determine the amount of cash the Group has generated in the year from its operations that can utilised for strategic purposes. A summary of free cashflow and the reconciliation between the cashflow statement and the adjusted net debt position is presented as part of the consolidated cashflow statement.
4. 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 & International bus and rail. Operating segments are reported to the chief operating decision maker, considered to be the Group Chief Executive, on a periodic basis for the purposes of resource allocation and assessment of segmental performance. Segments are organised based on the long term economic characteristics as well as the similar nature of the business activities and are reported as follows:
The regional bus division comprises UK bus operations outside London.
The London & International bus division comprises bus operations in London under the control of Transport for London (TfL), rail replacement and other contracted services in London, bus operations in Singapore under the 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. These are aggregated as a single segment for internal management purposes given the similar contractual nature of the services and how these services are provided, the type of customer, the similar economic characteristics and the similar regulatory environment. The operations are also governed and controlled by a distinct management team.
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 registered office of Keolis (UK) Limited is in England and Wales. Overseas rail operations commenced on 15 June 2019 in Germany and on 15 December 2019 in Norway. A further two contracts are being mobilised in Germany. These operations are 100% owned by Go-Ahead.
Rail operating companies have similar business activities and objectives, to provide passenger rail services and to achieve a modest profit margin through franchise arrangements with the relevant local transport authorities in their respective countries. Each company targets similar margins, has similar economic risks and operates services under heavily controlled regimes and specifications, set by the local transport authorities. The operations are internally controlled and governed by a distinct management team and are viewed as one segment by the chief operating decision maker.
Management will continue to assess the appropriateness of the operating reporting segments, in accordance with the requirements of IFRS 8 Operating Segments, going forward.
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. Segment performance is evaluated based on operating profit or loss, on a pre- and post-exceptional basis below.
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 27 June 2020 and the year ended 29 June 2019.
Year ended 27 June 2020
London
&
Regional International Total Total
bus bus bus Rail operations
GBPm GBPm GBPm GBPm GBPm
----------------------------------------- -------- -------------- ------- --------- -----------
Passenger revenue 347.1 - 347.1 1,949.0 2,296.1
Contract revenue 67.6 627.3 694.9 0.6 695.5
Other revenue 31.6 3.7 35.3 211.2 246.5
Franchise subsidy - - - 760.4 760.4
----------------------------------------- -------- -------------- ------- --------- -----------
Segment revenue 446.3 631.0 1,077.3 2,921.2 3,998.5
Inter-segment revenue (37.5) (26.9) (64.4) (35.7) (100.1)
----------------------------------------- -------- -------------- ------- --------- -----------
Group revenue 408.8 604.1 1,012.9 2,885.5 3,898.4
Operating costs (388.3) (555.6) (943.9) (2,876.6) (3,820.5)
----------------------------------------- -------- -------------- ------- --------- -----------
Group operating profit (pre-exceptional
items) 20.5 48.5 69.0 8.9 77.9
Exceptional operating items (57.1)
----------------------------------------- -------- -------------- ------- --------- -----------
Group operating profit (post-exceptional
items) 20.8
Share of result of joint venture (0.6)
Net finance costs (20.4)
----------------------------------------- -------- -------------- ------- --------- -----------
Loss before tax and non-controlling
interests (0.2) Tax expense (11.9) ----------------------------------------- -------- -------------- ------- --------- ----------- Loss for the year (12.1) ----------------------------------------- -------- -------------- ------- --------- -----------
Further information on exceptional operating items is disclosed in note 7.
London
&
Regional International Total Total
bus bus bus Rail operations
GBPm GBPm GBPm GBPm GBPm
-------------------------- -------- -------------- ----- ----- -----------
Other segment information
Capital expenditure
- Additions 39.1 17.5 56.6 16.0 72.6
- Intangible assets 2.0 2.4 4.4 14.0 18.4
- Right of use assets 8.2 23.6 31.8 205.1 236.9
Depreciation
- Owned assets 38.0 28.2 66.2 17.9 84.1
- Right of use assets 5.0 16.7 21.7 353.8 375.5
-------------------------- -------- -------------- ----- ----- -----------
Inter-segment revenue relates to transactions between the Group's operating segments and includes rail replacement services and sub-leasing of rolling stock.
At 27 June 2020, there were non-current assets included within the London & International bus segment of GBP12.4m (2019: GBP12.1m) relating to operations in Singapore and Ireland. Operations in Singapore generated a revenue of GBP56.9m (2019: GBP59.6m) and operations in Ireland generated a revenue of GBP33.4m (2019: GBP16.5m) during the year.
Non-current assets included within rail of GBP34.6m (2019: GBP37.7m) relate to international operations in Germany and the Nordics. The revenue generated in the year from these operations was GBP69.9m (2019: GBP2.6m).
We have two major customers which individually contribute more than 10% of Group revenue, one of which contributed GBP736.1m (2019: GBP114.4m restated), and the other contributed GBP506.4m (2019: GBP486.2m). No other individual customer contributed 10% or more to the Group's revenue in either the current or prior year.
Year ended 29 June 2019
London
& Total
Regional International Total operations
bus bus bus Rail* *
GBPm GBPm GBPm GBPm GBPm
----------------------------------------- -------- -------------- ------- --------- -----------
Passenger revenue 384.1 - 384.1 2,357.7 2,741.8
Contract revenue 69.1 592.4 661.5 - 661.5
Other revenue 14.4 4.5 18.9 242.8 261.7
Franchise subsidy - - - 114.6 114.6
----------------------------------------- -------- -------------- ------- --------- -----------
Segment revenue 467.6 596.9 1,064.5 2,715.1 3,779.6
Inter-segment revenue (34.6) (27.7) (62.3) (43.1) (105.4)
----------------------------------------- -------- -------------- ------- --------- -----------
Group revenue 433.0 569.2 1,002.2 2,672.0 3,674.2
Operating costs (388.5) (518.0) (906.5) (2,646.6) (3,553.1)
----------------------------------------- -------- -------------- ------- --------- -----------
Group operating profit (pre-exceptional
items) 44.5 51.2 95.7 25.4 121.1
Exceptional operating items (16.8)
----------------------------------------- -------- -------------- ------- --------- -----------
Group operating profit (post-exceptional
items) 104.3
Share of result of joint venture (0.5)
Net finance costs (6.8)
----------------------------------------- -------- -------------- ------- --------- -----------
Profit before tax and non-controlling
interests 97.0
Tax expense (21.9)
----------------------------------------- -------- -------------- ------- --------- -----------
Profit for the year 75.1
----------------------------------------- -------- -------------- ------- --------- -----------
* Restated
London
&
Regional International Total Total
bus bus bus Rail operations
GBPm GBPm GBPm GBPm GBPm
-------------------------- -------- -------------- ----- ----- -----------
Other segment information
Capital expenditure:
- Additions 40.4 9.6 50.0 22.6 72.6
- Acquisitions 11.9 - 11.9 - 11.9
- Intangible assets 3.1 4.8 7.9 14.3 22.2
Depreciation 36.9 28.2 65.1 14.2 79.3
-------------------------- -------- -------------- ----- ----- -----------
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 set-up costs' in the notes to the 2020 Annual Report and Accounts.
2020 2019 *
GBPm GBPm
-------------------------------------------------------- ------- -------
Employee costs (note 6) 1,355.9 1,272.7
Rail operating charges1 (see below) 990.8 1,247.2
Energy costs (see below) 261.8 262.7
DfT franchise agreement payments/(receipts) 93.3 (1.1)
Depreciation (see below) 459.6 79.3
Intangible amortisation 9.4 4.8
Auditor's remuneration (see below) 1.3 1.0
Impairment losses on trade receivables 2.6 0.9
Loss on sale of assets held for sale - 0.1
Other operating income (27.1) (28.7)
Government grants (3.6) (2.7)
Government grants: COVID-19 (27.2) -
Profit on disposal of property, plant and equipment (0.9) (0.2)
Other operating costs 704.6 717.1
-------------------------------------------------------- ------- -------
Total operating costs (pre-exceptional operating items) 3,820.5 3,553.1
-------------------------------------------------------- ------- -------
* Restated
1. Rail operating charges constitute costs that were previously classified as operating leases payments under IAS 17.
Further analysis of the above operating costs is as follows:
2020 2019
GBPm GBPm
------------------------------------------------------------- ----- -------
Rail operating charges 1
- bus vehicles - 16.1
- non-rail properties - 2.1
- other non-rail - 0.1
- rail rolling stock 212.9 522.7
- other rail 194.4 173.9
------------------------------------------------------------- ----- -------
Total lease and sublease payments recognised as an expense
(excluding rail access charges) 407.3 714.9
- rail access charges 583.5 532.3
------------------------------------------------------------- ----- -------
Total lease and sublease payments recognised as an expense 990.8 1,247.2
------------------------------------------------------------- ----- -------
Depreciation
- owned assets 84.1 78.0
- right of use assets 375.5 1.3
------------------------------------------------------------- ----- -------
Total depreciation expense 459.6 79.3
------------------------------------------------------------- ----- ------- 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 1.1 0.8 ------------------------------------------------------------- ----- ------- Total audit fees for the audit of the financial statements 1.2 0.9 Total non-audit fees 0.1 0.1 ------------------------------------------------------------- ----- ------- Total auditor's remuneration 1.3 1.0 ------------------------------------------------------------- ----- ------- Energy costs - bus fuel 98.3 103.2 - rail diesel fuel 2.4 3.1 - rail electricity 145.1 140.9 - cost of site energy 16.0 15.5 ------------------------------------------------------------- ----- ------- Total energy costs 261.8 262.7 ------------------------------------------------------------- ----- -------
1. Rail operating charges constitute costs that were previously classified as operating leases payments under IAS 17.
The Group adopted IFRS 16 Leases on 30 June 2019. The Group previously categorised the majority of its bus leases (vehicles and property) and rail rolling stock leases as operating leases, under IAS 17. These have now been taken to the balance sheet as right of use assets. On adoption, the rail rolling stock leases in the Southeastern franchise were classified as short term assets, as the franchise had less than a year to run, and so were not recognised as right of use assets on transition. On 1 April 2020 Southeastern entered a direct award contract, with a term exceeding 12 months, and all associated leases became right of use assets at that point.
The Group's rail operating companies hold agreements with different local entities for access to the railway infrastructure (track, stations and depots). These are now classified as rail operating charges as they do not consitute a right of use asset.
Government grant income of GBP3.6m (2019: GBP2.7m) is mainly attributable to the release of grants received to support the mobilisation of international business operations and service improvements including smart ticketing, deliverable over a period of up to 15 years.
Government grant income in relation to the COVID-19 pandemic of GBP27.2m (2019: GBPnil) primarily relates to the Coronavirus Job Retention Scheme (CJRS) in the UK, and the equivalent schemes in our international operations. The amounts recognised reflect the grants receivable in respect of the year ended 27 June 2020 and relate to the costs reclaimable for furloughed employees to the extent that it is reasonably certain that the grant will be received.
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 the notes to the 2020 Annual Report and Accounts.
2020 2019
GBPm GBPm
---------------------------- ------- -------
Wages and salaries 1,181.2 1,109.7
Social security costs 117.0 111.2
Other pension costs 56.1 50.8
Share based payments charge 1.6 1.0
---------------------------- ------- -------
1,355.9 1,272.7
---------------------------- ------- -------
The average monthly number of employees during the year, including directors, was:
2020 2019
------------------------------- ------ ------
Administration and supervision 3,643 3,489
Maintenance and engineering 2,763 2,581
Operations 23,594 22,125
------------------------------- ------ ------
30,000 28,195
------------------------------- ------ ------
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. Aggregate directors emoluments are also disclosed in note 29.
Sharesave scheme
Shareholder approval was obtained at the 2013 AGM for a 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. Participants were given the choice of taking their money back, or to purchase Go-Ahead Group shares at a 20% discount of the market price set at the date of invitation. Sharesave 2016 participants had six months from the maturity date to exercise their options. Sharesave 2016 matured on 1 May 2019. There are no current active Sharesave schemes in place.
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 no savings-related options at 27 June 2020.
The expense recognised for the scheme during the year to 27 June 2020 was GBPnil (2019: GBPnil).
The following table illustrates the number and weighted average exercise price (WAEP) of share options for the Sharesave scheme:
2020 2019
---------------- ---------------
WAEP WAEP
No. GBP No. GBP
----------------------------------------- --------- ----- -------- -----
Outstanding at the beginning of the year 174,606 19.11 249,242 19.11
Forfeited during the year (144,554) 19.11 (52,698) 19.11
Exercised during the year (30,052) 19.11 (21,938) 19.11
----------------------------------------- --------- ----- -------- -----
Outstanding at the end of the year - - 174,606 19.11
----------------------------------------- --------- ----- -------- -----
The weighted average exercise price at the date of exercise for the options exercised in the period was GBP19.11 (2019: GBP19.11).
At the year end no options (2019: 174,606) were exercisable and the weighted average exercise price of the options at year end was GBPnil (2019: GBP19.11).
The options outstanding at the end of the year have a weighted average remaining contracted life of nil years (2019: nil years).
Long Term Incentive Plans
The executive directors participate in The Go-Ahead Group Long Term Incentive Plan 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 27 June 2020 was GBP0.7m (2019: GBP0.4m).
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 27 June 2020 and 29 June 2019 were:
2020 2019
% per % per
annum annum
------------------------------- ------- -------
The Go-Ahead Group plc:
Future share price volatility 31.0 33.0
FTSE Mid-250 index comparator:
Future share price volatility 25.0 25.0
Correlation between companies 30.0 30.0
------------------------------- ------- -------
The following table shows the number of share options for the LTIP:
2020 2019
----------------------------------------- -------- --------
Outstanding at the beginning of the year 143,603 163,144
Granted during the year 58,927 53,912
Forfeited during the year (39,698) (73,453)
Exercised during the year - -
----------------------------------------- -------- --------
Outstanding at the end of the year 162,832 143,603
----------------------------------------- -------- --------
The LTIP award granted to the Group Chief Executive in November 2017 will lapse in full from November 2020 as none of the performance measures were achieved following the three-year performance period ending 27 June 2020.
The weighted average share price of the options at the year end was GBP9.06 (2019: GBP19.72). The weighted average fair value of options granted during the year was GBP21.12 (2019: GBP15.74). The weighted average remaining contractual life of the options was 1.05 years (2019: 1.10 years). The weighted average exercise price at the date of exercise for the options exercised in the period was GBPnil (2019: GBPnil).
The estimated amounts due to the relevant tax authorities in relation to the above transactions are detailed in the directors' remuneration report.
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 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 expense recognised for the DSBP during the year to 27 June 2020 was GBP0.9m (2019: GBP0.6m).
The following table shows the number of share options for the DSBP:
2020 2019
----------------------------------------- -------- --------
Outstanding at the beginning of the year 150,420 147,233
Granted during the year 63,125 59,677
Forfeited during the year (1,476) (6,770)
Exercised during the year (32,014) (49,720)
----------------------------------------- -------- --------
Outstanding at the end of the year 180,055 150,420
----------------------------------------- -------- --------
The weighted average fair value of options granted during the year was GBP21.12 (2019: GBP15.74). At the year end, 24,196 options related to DSBP awards, which vested before the year end, which have not yet been exercised by participants. Of these 24,196 options, 942 options related to the award granted in November 2013, 4,315 related to the award granted in November 2014, 5,025 related to the award granted in November 2015 and 13,914 related to the award granted in November 2016. 34,365 options, relating to the DSBP award granted in November 2017, will be eligible to vest from November 2020 following the end of a three-year deferral period. The weighted average share price of the options at the year end was GBP9.06 (2019: GBP19.72).
The weighted average remaining contractual life of the options was 0.91 years (2019: 1.02 years). The weighted average exercise price at the date of exercise for the options exercised in the period was GBP20.86 (2019: GBP17.72).
Share incentive plans
The Group operates a 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' continuous 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 the notes to the 2020 Annual Report and Accounts.
2020 2019
GBPm GBPm
--------------------------------------------------------- ----- -----
Asset impairments and restructuring costs - regional bus 26.7 -
Asset impairments, provisions and restructuring costs
- rail 30.4 -
Charge in relation to GMP equalisation - 16.8
--------------------------------------------------------- ----- -----
Exceptional operating items 57.1 16.8
--------------------------------------------------------- ----- -----
Year ended 27 June 2020
Total exceptional operating items in the year comprised a charge of GBP57.1m to the income statement.
Asset impairments and restructuring costs - regional bus
During the year, strategic reviews were carried out following a decline in the operational performance of the regional bus division and the impact of COVID-19. As a result of these reviews, several restructuring programmes of varying degrees were initiated during 2020 and a number of specific contracts, services and routes were terminated. In addition, COVID-19 has had a significant impact on certain bus operations, in particular, coaching contracts, airline and other holiday routes. Related assets have also been impaired to reflect the changing environment. An exceptional item of GBP26.7m has been recognised and comprises GBP15.9m of plant, property and equipment impairments, GBP3.8m of intangible asset impairments (including GBP0.6m of goodwill), GBP5.5m of restructuring costs, GBP0.5m impairment of assets held for sale and GBP1.0m impairment of right of use assets.
Asset impairments, provisions and restructuring costs - rail
German rail operations commenced on 15 June 2019 and have faced a number of challenges during the first year of operation. A comprehensive review of the overall business, including future franchises, has been undertaken and this has identified that there were indicators for possible impairments across the business. A full impairment review was subsequently carried out and an exceptional item of GBP30.4m has been recognised during the year. Impairments and provisions have been identified in relation to intangible assets and committed, irrecoverable franchise set-up costs. These include, GBP23.6m of franchise set-up costs and GBP0.7m of software, plus a GBP4.4m impairment of the freehold land and buildings. Restructuring costs of GBP1.7m have also been recognised as an exceptional item.
Year ended 29 June 2019
Total exceptional operating items in the year comprised a charge of GBP16.8m to the income statement.
On 26 October 2018, the High Court ruled that Guaranteed Minimum Pensions (GMP) should be equalised between men and women. As a result, pension scheme trustees were obliged to adjust benefit payments in order that benefits received by male and female members with equivalent age, service and earnings histories are equal. The judgement had implications for many defined benefits schemes, including those in which the Go-Ahead Group participates.
We worked with our actuarial advisors to understand the implications of the judgement and the GBP16.8m pre-tax exceptional expense in the year reflected our best estimate of the effect on our reported pension liabilities.
8. Finance revenue and costs
Finance revenue mainly 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 the notes to the 2020 Annual Report and Accounts.
2020 2019
GBPm GBPm
------------------------------------------------- ------ ------
Bank interest receivable on bank deposits 3.8 4.1
Interest on net pension asset 1.3 0.9
Other interest receivable 0.3 0.1
------------------------------------------------- ------ ------
Finance revenue 5.4 5.1
------------------------------------------------- ------ ------
Interest payable on bank loans and overdrafts (4.4) (2.7)
Interest payable on GBP250m sterling 7 year bond (6.3) (6.3)
Other interest payable (0.4) (1.7)
Unwinding of discounting on provisions (0.7) (0.8)
Interest payable on lease liabilities (13.9) (0.3)
Interest on net pension liability (0.1) (0.1)
------------------------------------------------- ------ ------
Finance costs (25.8) (11.9)
------------------------------------------------- ------ ------
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 the notes to the 2020 Annual Report and Accounts.
The Group taxation policy can be found at www.go-ahead.com.
a. Tax recognised in the income statement and in other comprehensive income
Tax relating to items charged or credited in the income statement:
2020 2019
GBPm GBPm
--------------------------------------------------------------- ----- ------
Current year tax charge 11.2 26.4
Adjustments in respect of current tax of previous years (0.1) (1.3)
--------------------------------------------------------------- ----- ------
Total current tax 11.1 25.1
--------------------------------------------------------------- ----- ------
Deferred tax relating to origination and reversal of temporary
differences at 19.0% (2019: 19.0%) (4.4) (3.3)
Adjustments in respect of deferred tax of previous years (0.3) 0.1
Impact of opening deferred tax rate 5.5 -
--------------------------------------------------------------- ----- ------
Total deferred tax 0.8 (3.2)
--------------------------------------------------------------- ----- ------
Tax reported in consolidated income statement 11.9 21.9
--------------------------------------------------------------- ----- ------
The tax reported in the consolidated income statement in the current year includes exceptional amounts relating to asset impairments and restructuring costs in the regional bus division. The prior year includes exceptional amounts arising on the GMP equalisation charge. See note 7 for further details.
Tax relating to items charged or credited outside of the income statement:
2020 2019
GBPm GBPm
---------------------------------------------------------- ----- -----
Tax on remeasurement gains on defined benefit pension
plans (0.4) 3.7
Deferred tax on cashflow hedges (3.8) (2.4)
Deferred tax on share based payments (taken directly to
equity) 0.2 (0.1)
---------------------------------------------------------- ----- -----
Tax reported outside of the consolidated income statement (4.0) 1.2
---------------------------------------------------------- ----- -----
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 27 June 2020 and 29 June 2019 is as follows:
2020 2019
GBPm GBPm
---------------------------------------------------------- ---------- -----
Accounting (loss)/profit before taxation (0.2) 97.0
---------------------------------------------------------- ---------- -----
At United Kingdom tax rate of 19.0% (2019: 19.0%) - 18.4
Share scheme costs not allowable for tax purposes 0.3 -
Non-qualifying depreciation 0.9 0.7
Expenditure not allowable for tax purposes 1.1 1.8
Adjustments in respect of deferred tax of previous years (0.3) 0.1
Movement on unrecognised deferred tax on losses carried
forward 4.5 1.6
Effect of the difference between current year corporation
tax and deferred tax rates - 0.3
Adjustments in respect of current tax of previous years (0.1) (1.3)
Overseas tax rate difference - 0.3
Impact of opening deferred tax rate 5.5 -
---------------------------------------------------------- ---------- -----
Tax reported in consolidated income statement 11.9 21.9
---------------------------------------------------------- ---------- -----
Effective tax rate (5,950.0%) 22.6%
---------------------------------------------------------- ---------- -----
The 2020 effective tax rate on a pre-exceptional basis is 32.0% (2019:21.7%). The pre and post-exceptional effective tax rates include a GBP5.5m charge in relation to the UK corporation tax rate change from an opening rate of 17.0% to a closing rate of 19.0%. This change was substantively enacted at the balance sheet date and maintained the UK rate at 19.0% from 1 April 2020. Excluding this charge, the effective tax rate is 22.3% (2019: 21.7%).
The Group had subsidiary trading companies in Germany, Ireland, Norway and Singapore during the year. The tax residencies of these companies are the same as the countries of incorporation, which are disclosed in note 29.
Singapore and Ireland profits are generated through the provision of bus passenger services and have been taxed at the appropriate local taxation rates of 17.0% and 12.5% respectively and have been included in the total statutory tax charge. Germany has faced trading difficulties which has resulted in a loss, therefore no taxation has been recognised during the financial year. Norway commenced trading on 15 December 2019 and its trading result for the financial year is immaterial.
The Group has not recognised a deferred tax asset of GBP13.1m (2019: GBP5.1m) based on a taxation rate of 30.0% (2019: 30.0%) in respect of losses incurred in Germany carried forward. There is no time limit on the utilisation of these assets in Germany and they have not been recognised due to the uncertainty over their recovery in future periods.
c. Reconciliation of net current tax (asset)/liability
A reconciliation of the net current tax (asset)/liability is provided below:
2020 2019
GBPm GBPm
---------------------------------------------------------- ------ ------
Current tax liability at the start of the year 13.1 20.5
Corporation tax reported in consolidated income statement 11.1 25.1
Net paid in the year (28.2) (32.5)
---------------------------------------------------------- ------ ------
Net current tax (asset)/liability at the end of the year (4.0) 13.1
---------------------------------------------------------- ------ ------
d. Deferred tax
The deferred tax included in the balance sheet is as follows:
2020 2019
GBPm GBPm
--------------------------------------------------------- ------ ------
Deferred tax liability
Accelerated capital allowances (18.8) (20.1)
Other temporary differences (8.6) (9.1)
Revaluation of land and buildings treated as deemed cost
on conversion to IFRS (11.5) (10.9)
Cashflow hedges - (0.9)
Retirement benefit obligations (10.1) (8.5)
--------------------------------------------------------- ------ ------
Deferred tax liability included in balance sheet (49.0) (49.5)
--------------------------------------------------------- ------ ------
Deferred tax asset
Cashflow hedges 2.9 -
Share based payments - 0.2
--------------------------------------------------------- ------ ------
Deferred tax asset included in balance sheet 2.9 0.2
--------------------------------------------------------- ------ ------
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 ended 27 June 2020 and 29 June 2019 are as follows:
Year ended 27 June 2020
Recognised Recognised Recognised
At 30 in in other directly At 27
June income comprehensive in June
2019 statement income equity 2020
GBPm GBPm GBPm GBPm GBPm
----------------------------------------- ------ ---------- -------------- ---------- ------
Accelerated capital allowances (20.1) 1.3 - - (18.8)
Asset backed funding pension arrangement (9.7) (0.8) - - (10.5)
Other temporary differences 0.6 1.3 - - 1.9
Revaluation of land and buildings
treated as deemed cost on conversion
to IFRS (10.9) (0.6) - - (11.5)
Retirement benefit obligations (8.5) (2.0) 0.4 - (10.1)
Cashflow hedges (0.9) - 3.8 - 2.9
Share based payments 0.2 - - (0.2) -
----------------------------------------- ------ ---------- -------------- ---------- ------
(49.3) (0.8) 4.2 (0.2) (46.1)
----------------------------------------- ------ ---------- -------------- ---------- ------
Year ended 29 June 2019
Recognised Recognised Recognised
in in other directly At 29
At 1 July income comprehensive in June
2018 statement income equity Acquisitions 2019
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------- --------- ---------- -------------- ---------- ------------ ------
Accelerated capital allowances (20.2) 0.5 - - (0.4) (20.1)
Asset backed funding pension
arrangement (9.9) 0.2 - - - (9.7)
Other temporary differences 0.3 0.3 - - - 0.6
Revaluation of land and buildings
treated as deemed cost on conversion
to IFRS (11.4) 0.5 - - - (10.9)
Retirement benefit obligations (6.5) 1.7 (3.7) - - (8.5)
Cashflow hedges (3.3) - 2.4 - - (0.9)
Share based payments 0.1 - - 0.1 - 0.2
-------------------------------------- --------- ---------- -------------- ---------- ------------ ------
(50.9) 3.2 (1.3) 0.1 (0.4) (49.3)
-------------------------------------- --------- ---------- -------------- ---------- ------------ ------
The deferred tax included in the Group income statement is as follows:
2020 2019
GBPm GBPm
--------------------------------------------------- ----- -----
Accelerated capital allowances (3.8) (0.5)
Revaluation (0.6) (0.5)
Retirement benefit obligations 1.4 (1.7)
Other temporary differences (1.4) (0.6)
--------------------------------------------------- ----- -----
(4.4) (3.3)
Adjustments in respect of prior years (0.3) 0.1
Adjustment in respect of opening deferred tax rate 5.5 -
--------------------------------------------------- ----- -----
Deferred tax expense 0.8 (3.2)
--------------------------------------------------- ----- -----
e. Factors affecting tax charges
The standard rate of UK corporation tax is 19.0% and therefore 19.0% applies to the current tax charge arising during the year ended 27 June 2020. Previous legislation advised a reduction in the UK corporation tax rate to 17.0% from 1 April 2020 and this rate was applied, where applicable, to the Group's deferred tax balance at the prior year end. Legislation substantively enacted in the Finance Bill 2020 amended this rate to 19.0% with effect from April 2020 and therefore 19.0% has been applied, where applicable, to the Group's deferred tax balance as at the balance sheet date.
10. Earnings per share
Basic earnings per share is the amount of profit after tax 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
Pre- Exceptional Post- Pre- Exceptional Post-
exceptional items exceptional exceptional items exceptional
2020 2020 2020 2019 2019 2019
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------------ ----------- ------------ ------------ ----------- ------------
Net profit/(loss) attributable
to equity holders of the parent 22.2 (50.8) (28.6) 72.8 (14.0) 58.8
--------------------------------- ------------ ----------- ------------ ------------ ----------- ------------
Pre- Exceptional Post- Pre- Exceptional Post-
exceptional items exceptional exceptional items exceptional
2020 2020 2020 2019 2019 2019
--------------------------------- ------------ ----------- ------------ ------------ ----------- ------------
Basic weighted average number
of shares in issue ('000) 42,998 - 42,998 42,985 - 42,985
Dilutive potential share options
('000) 104 - 104 97 - 97
--------------------------------- ------------ ----------- ------------ ------------ ----------- ------------
Diluted weighted average number
of shares in issue ('000) 43,102 - 43,102 43,082 - 43,082
--------------------------------- ------------ ----------- ------------ ------------ ----------- ------------
Earnings per share:
Basic earnings per share (pence
per share) 51.6 (118.1) (66.5) 169.4 (32.6) 136.8
Diluted earnings per share
(pence per share) 51.5 (117.9) (66.4) 169.0 (32.5) 136.5
--------------------------------- ------------ ----------- ------------ ------------ ----------- ------------
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 27 June 2020 to 23 September 2020.
11. Dividends paid and proposed
Dividends are one type of shareholder return, historically paid to our shareholders in April and November.
2020 2019
GBPm GBPm
--------------------------------------------------------- ----- -----
Declared and paid during the year
Equity dividends on ordinary shares:
Final dividend for 2019: 71.91p per share (2018: 71.91p) 30.9 30.9
Interim dividend for 2020: nil per share (2019: 30.17p) - 12.9
--------------------------------------------------------- ----- -----
30.9 43.8
--------------------------------------------------------- ----- -----
2020 2019
GBPm GBPm
------------------------------------------------------ ----- -----
Proposed for approval at the AGM (not recognised as a
liability as at 27 June 2020)
Equity dividends on ordinary shares:
Final dividend for 2020: nil per share (2019: 71.91p) - 31.0
------------------------------------------------------ ----- -----
Payment of proposed dividends does 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 the notes to the 2020 Annual Report and Accounts.
Short
Long term term
Freehold leasehold leasehold Plant
land land land and
and buildings and properties and properties Bus vehicles equipment Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- -------------- --------------- --------------- ------------ ---------- -------
Cost
At 30 June 2018 194.1 3.2 17.7 704.1 220.0 1,139.1
Additions 17.6 1.1 1.5 32.5 19.9 72.6
Acquisitions 4.6 - - 7.3 - 11.9
Disposals - - - (37.2) (5.0) (42.2)
Transfer categories 1.2 (1.2) - 0.5 (0.5) -
---------------------------- -------------- --------------- --------------- ------------ ---------- -------
At 29 June 2019 217.5 3.1 19.2 707.2 234.4 1,181.4
Additions 10.2 - 3.8 44.7 13.9 72.6
Disposals - - (8.0) (24.9) (58.1) (91.0) Transfer categories 1.9 (3.1) 3.1 1.1 (3.0) - Transfer of assets held for sale (2.3) - - - - (2.3) Transfer of ROU assets - - - (11.4) - (11.4) Effect of foreign exchange rate changes 0.3 - (0.1) - 0.1 0.3 ---------------------------- -------------- --------------- --------------- ------------ ---------- ------- At 27 June 2020 227.6 - 18.0 716.7 187.3 1,149.6 ---------------------------- -------------- --------------- --------------- ------------ ---------- ------- Depreciation and impairment At 30 June 2018 12.7 - 11.3 329.4 157.0 510.4 Charge for the year 1.2 0.5 0.9 56.7 20.0 79.3 Disposals - - - (35.3) (4.9) (40.2) ---------------------------- -------------- --------------- --------------- ------------ ---------- ------- At 29 June 2019 13.9 0.5 12.2 350.8 172.1 549.5 Charge for the year 1.9 - 2.1 57.1 23.0 84.1 Impairment 5.4 - 0.8 15.0 0.1 21.3 Disposals - - (7.2) (24.8) (58.1) (90.1) Transfer categories 1.6 (0.5) 0.3 (0.4) (1.0) - Transfer of ROU assets - - - (4.2) - (4.2) Effect of foreign exchange rate changes - - (0.1) - 0.1 - ---------------------------- -------------- --------------- --------------- ------------ ---------- ------- At 27 June 2020 22.8 - 8.1 393.5 136.2 560.6 ---------------------------- -------------- --------------- --------------- ------------ ---------- ------- Net book value At 27 June 2020 204.8 - 9.9 323.2 51.1 589.0 ---------------------------- -------------- --------------- --------------- ------------ ---------- ------- At 29 June 2019 203.6 2.6 7.0 356.4 62.3 631.9 ---------------------------- -------------- --------------- --------------- ------------ ---------- ------- At 30 June 2018 181.4 3.2 6.4 374.7 63.0 628.7 ---------------------------- -------------- --------------- --------------- ------------ ---------- -------
During the year, a Group-wide exercise was undertaken to assess the carrying value of property, plant and equipment. This resulted in several assets, with a brought forward net book value of GBPnil, being identified as no longer being owned by the Group. These assets are included within the disposals line in both cost and depreciation during the year. The impact on the income statement in relation to these was GBPnil.
The impairment charge in the year includes GBP20.3m (2019: GBPnil) which arose following strategic reviews in the regional bus and rail divisions and is included within exceptional items in the income statement. Of this charge, GBP15.9m relates to the regional bus division and GBP4.4m relates to the rail division. Please refer to note 7 for further details.
13. Leases
This note details right of use assets and the associated lease liabilities. For accounting policies see 'Leases' in the notes to the 2020 Annual Report and Accounts
The Group has lease liabilities for land and buildings, rail rolling stock, bus vehicles and various items of plant and equipment. These contracts have no terms of renewal or purchase option escalation clauses.
Right of use assets
The right of use assets were brought onto the balance sheet on 30 June 2019 on the Group's transition to IFRS 16 Leases.
Leasehold Plant
land Rolling and
and properties stock equipment Total
GBPm GBPm GBPm GBPm
---------------------------------------- --------------- ------- ---------- -------
Cost
At 29 June 2019 - - - -
On transition to IFRS 16 25.0 757.4 0.3 782.7
Additions 4.6 232.3 - 236.9
Disposals - (0.7) - (0.7)
Transfer from owned assets - 11.4 - 11.4
Effect of foreign exchange rate changes 0.1 - - 0.1
---------------------------------------- --------------- ------- ---------- -------
At 27 June 2020 29.7 1,000.4 0.3 1,030.4
---------------------------------------- --------------- ------- ---------- -------
Depreciation and impairment
At 29 June 2019 - - - -
Charge for the year 5.7 369.7 0.1 375.5
Impairment - 1.0 - 1.0
Disposals - (0.3) - (0.3)
Transfer from owned assets - 4.2 - 4.2
Other 1.1 - - 1.1
---------------------------------------- --------------- ------- ---------- -------
At 27 June 2020 6.8 374.6 0.1 381.5
---------------------------------------- --------------- ------- ---------- -------
Net book value
At 27 June 2020 22.9 625.8 0.2 648.9
---------------------------------------- --------------- ------- ---------- -------
At 29 June 2019 - - - -
---------------------------------------- --------------- ------- ---------- -------
Lease liabilities
The balance sheet includes the following amounts:
2020 2019
GBPm GBPm
------------ ----- -----
Current 517.3 1.8
Non-current 131.3 4.3
------------ ----- -----
648.6 6.1
------------ ----- -----
The remaining contractual maturities of the lease liabilities, which are gross and undiscounted, are as follows:
2020 2019
GBPm GBPm
----------------------------------- ----- -----
Less than one year 525.9 1.9
One to two years 97.0 1.5
Two to three years 14.7 1.5
Three to four years 9.3 1.0
Four to five years 8.2 0.5
More than five years 5.8 -
----------------------------------- ----- -----
Total undiscounted lease liability 660.9 6.4
----------------------------------- ----- -----
See note 21 for a reconciliation of the opening to closing lease liabilities.
Amounts recognised in the Group income statement
2020 2019
GBPm GBPm
------------------------------------------------------------ ----- -----
Depreciation expense on right of use assets 375.5 1.3
Interest payable on lease liabilities 13.9 0.3
Variable payment expenses not included in lease liabilities - -
Expenses relating to short term leases 112.6 -
Expenses relating to low value leases 0.3 -
------------------------------------------------------------ ----- -----
502.3 1.6
------------------------------------------------------------ ----- -----
Amounts recognised in the Group cashflow statement
2020 2019
GBPm GBPm
------------------------------- ----- -----
Total cash outflow for leases 388.2 3.6
------------------------------- ----- -----
Sale and leaseback transactions
A number of bus vehicles in the Group are leased with some purchased and sold immediately at fair value and for the same value as the carrying value of the asset at no gain or loss. This is to match vehicles to specific income streams. The cashflow impact of these transactions results in the cash received for the sale of vehicles offsetting the payments made for the purchase of vehicles. Cash payments are subsequently made over the life of the lease and over the income streams the vehicle is operating on.
Service concession agreements
International rail operations are similar in nature and consist of the operation of service concession agreements and the provision of transport services on behalf of local government bodies. The Group has access to infrastructure whilst operating the service agreement which is returned to the grantor at the end of the contract. Consideration received is determined by the franchise agreement with variable elements attributable to performance and revenue is accounted for and classified in line with IFRS 15. There are no construction or upgrade elements to the service agreement; therefore, no financial or intangible assets have been recognised.
Terminations
A significant number of the Group's rolling stock lease contracts include extension options which mirror potential franchise and revenue agreement extensions. The award of revenue extensions is at the discretion of the customer and outside the control of the Group. Therefore, it is management's judgement that it is not reasonably certain that the lease will be extended and therefore the lease term excludes extension periods.
14. Goodwill and 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 the Group acquires a business and pays a higher amount than the fair value of the net assets primarily due to the synergies the Group expects 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. 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 the notes to the 2020 Annual Report and Accounts.
Franchise
Software set-up Rail franchise Customer
Goodwill costs costs asset contracts Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- -------- -------- --------- -------------- ---------- -----
Cost
At 30 June 2018 87.4 26.1 21.0 16.7 14.7 165.9
Additions - 6.1 16.1 - - 22.2
Disposals - (5.4) - - - (5.4)
---------------------------- -------- -------- --------- -------------- ---------- -----
At 29 June 2019 87.4 26.8 37.1 16.7 14.7 182.7
Additions - 5.3 13.1 - - 18.4
Disposals - (3.5) (0.1) - (4.7) (8.3)
Effect of foreign exchange
rate changes - (0.1) - - - (0.1)
---------------------------- -------- -------- --------- -------------- ---------- -----
At 27 June 2020 87.4 28.5 50.1 16.7 10.0 192.7
---------------------------- -------- -------- --------- -------------- ---------- -----
Amortisation and impairment
At 30 June 2018 13.3 21.2 10.9 16.7 12.3 74.4
Charge for the year - 2.8 1.7 - 0.3 4.8
On disposal - (5.3) - - - (5.3)
---------------------------- -------- -------- --------- -------------- ---------- -----
At 29 June 2019 13.3 18.7 12.6 16.7 12.6 73.9
Charge for the year - 3.0 6.1 - 0.3 9.4
Impairment 0.6 3.4 16.4 - 1.1 21.5
On disposal - (3.4) (0.1) - (4.7) (8.2)
---------------------------- -------- -------- --------- -------------- ---------- -----
At 27 June 2020 13.9 21.7 35.0 16.7 9.3 96.6
---------------------------- -------- -------- --------- -------------- ---------- -----
Net book value
At 27 June 2020 73.5 6.8 15.1 - 0.7 96.1
---------------------------- -------- -------- --------- -------------- ---------- -----
At 29 June 2019 74.1 8.1 24.5 - 2.1 108.8
---------------------------- -------- -------- --------- -------------- ---------- -----
At 30 June 2018 74.1 4.9 10.1 - 2.4 91.5
---------------------------- -------- -------- --------- -------------- ---------- -----
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.
During the year GBP3.4m (2019: GBPnil) of software assets have been fully impaired to a net book value of GBPnil. Of these, GBP2.0m related to the regional bus division and GBP1.4m to the rail division. GBP2.7m of the impairments have been recognised as an exceptional item in the year. Please refer to note 7 for further details.
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, entering into a franchise extension or winning an international bid are capitalised as an intangible asset and amortised on a straight-line basis over the life of the franchise, currently between 5 and 13 years.
During the year GBP16.4m (2019: GBPnil) of franchise set-up costs, relating to specific contracts within the German rail operation, have been fully impaired to a net book value of GBPnil. The impairments have been recognised as an exceptional item in the year. Please refer to note 7 for further details.
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 on a straight-line basis. The value is calculated based on the unexpired term of the contracts at the date of acquisition and is amortised over that period. The unexpired term is 7.5 years.
During the year GBP1.1m (2019: GBPnil) of customer contracts, relating to the regional bus division, have been fully impaired to a net book value of GBPnil. The impairments have been recognised as an exceptional item in the year. Please refer to note 7 for further details.
Goodwill
Goodwill acquired through acquisitions has been allocated to individual cash generating units (CGUs) 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:
2020 2019
GBPm GBPm
----------------- ----- -----
Go South Coast 34.6 34.6
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
----------------- ----- -----
73.5 74.1
----------------- ----- -----
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. The assumptions used are consistent with the historical performance of each unit and are expected to be realistically achievable in light of economic and industry measures and forecasts. The directors have also considered the implications of climate change, when assessing the medium to long term projections. The Group, as a public transport services provider, has a vital role to play in helping reduce carbon emissions, and they therefore feel there is no adverse impact on the assumptions used.
Growth has been extrapolated forward, using a growth rate of 2.0%, from the end of the three-year forecasts over a total period of five 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, on a pre-IFRS 16 basis, has been initially calculated as 5.5% (2019: 5.5%). Historically, the economic conditions that the cash generating units operate in were considered similar enough, primarily being UK based, to use the same discount rate. Following the adoption of IFRS 16, separate discount rates have been calculated for the different cash generating units due to the varying impact of IFRS 16 on the underlying cashflows. 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.
Growth rate used
Pre-tax and post-IFRS to
16 extrapolate
discount rate cashflows
----------------------- ------------------
2020 2019 2020 2019
% % % %
------------- ----------- ---------- -------- --------
Regional bus 6.7 6.8 2.0 2.0
London bus 6.6 6.8 2.0 2.0
------------- ----------- ---------- -------- --------
The assessment of the value in use for regional bus cash generating units is dependent on judgements surrounding the return of passenger numbers to pre-COVID-19 levels. This is deemed to be a key assumption and is based on management's experience of the local markets and past trends.
Financial modelling adopting the assumptions outlined confirms that the carrying amount of the CGUs does not exceed their recoverable amount and no impairment charge is required with the exception of Tom Tappin, Limited (a subsidiary of the Oxford regional bus business). Tom Tappin, Limited is the cash generating unit for the City Sightseeing tourist buses in the Oxford area which have been impacted by COVID-19. This uncertainty has been reflected in budgets and forecasts going forward and the goodwill of GBP0.6m has been fully impaired.
The calculation of value in use for each CGU is most sensitive to the principal assumptions of discount rate, growth rates and margins achievable. Sensitivity analysis has been performed to understand what the percentage change in the principal assumptions would erode the headroom to zero. Details have been disclosed below of where a possible change in key assumptions would cause the carrying amount of a CGU to exceed its recoverable amount, on a worst case basis.
Regional
bus
%
--------------------- --------
Discount rate 9.3
Terminal growth rate 0.3
Terminal margin 10.1
---------------------- --------
15. 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 the notes to the 2020 Annual Report and Accounts.
Year ended 27 June 2020
No business combinations occurred during the current year.
Year ended 29 June 2019
As disclosed in the 2019 Annual Report and Accounts, on 2 June 2019, the Group acquired the Queens Road bus depot in Manchester along with the associated trade and assets, from FirstGroup plc, in line with the Group's strategic vision and its objective to win new bus and rail contracts. The total consideration paid was GBP11.5m and no significant changes to the fair value previously reported were subsequently identified. Given the size and prior year disclosures, further detail is not replicated in this Annual Report and Accounts.
16. 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 the notes to the 2020 Annual Report and Accounts.
At 27 June 2020, assets held for sale had a carrying value of GBP7.2m (2019: GBP2.7m) and related to property, plant and equipment. Assets held for sale, relating to bus rolling stock, have a carrying value of GBP4.8m (2019: GBP2.1m) and are included in the London & International bus division. Assets held for sale, relating to land and buildings, have a carrying value of GBP2.4m (2019: GBP0.6m). Of these, GBP0.2m (2019: GBP0.6m) are included with regional bus and GBP2.2m (2019: GBPnil) are included within the rail division.
The Group expects to sell GBP7.2m 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 GBP0.2m relate to land and buildings, within property, plant and equipment. The value at each balance sheet date represents management's best estimate of their resale value less disposal costs.
During the year ended 27 June 2020, assets held for sale were sold for a profit of GBPnil (2019: loss of GBP0.1m), included within operating costs in the income statement.
17. Inventories
Inventory primarily consists of vehicle spares and fuel and is presented net of allowances for obsolete products. For accounting policies see 'Inventories' in the notes to the 2020 Annual Report and Accounts.
2020 2019
GBPm GBPm
------------------------------ ----- -----
Raw materials and consumables 19.7 16.8
------------------------------ ----- -----
The amount of any write down of inventories recognised as an expense during the year is immaterial.
18. 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.
2020 2019
GBPm GBPm
---------------------------------------------- ----- -----
Current
Trade receivables 55.4 163.0
Less: provision for impairment of receivables (4.1) (2.1)
---------------------------------------------- ----- -----
Trade receivables - net 51.3 160.9
Other receivables 16.5 18.9
Prepayments 76.4 27.8
Accrued income 33.2 42.0
Receivable from central government 91.1 100.7
---------------------------------------------- ----- -----
268.5 350.3
---------------------------------------------- ----- -----
Contract assets
2020 2019 2018
GBPm GBPm GBPm
---------------- ----- ----- -----
Contract assets 124.3 142.7 89.0
---------------- ----- ----- -----
Accrued income and amounts receivable from central government principally comprises amounts relating to contracts with customers. Accrued income primarily comprise contract income which is billed on a regular basis and which is reclassified to trade receivables at the point at which it is billed. Contract assets have reduced during the year as a result of the COVID-19 pandemic.
Ageing of trade receivables
As at 27 June 2020 and 29 June 2019, the ageing analysis of trade receivables and the provision for impairment of receivables based on expected credit losses were as follows:
Year ended 27 June 2020
Neither
past Greater
due nor Less than 30-60 60-90 90-120 than
Total impaired 30 days days days days 120 days
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ----- --------- --------- ----- ----- ------ ----------
Expected rate of credit
losses 7.4% - 4.3% - 67.7% 36.4% 76.5%
Trade receivables 55.4 39.0 6.9 3.6 3.1 1.1 1.7
------------------------- ----- --------- --------- ----- ----- ------ ----------
Provision for impairment
of receivables 4.1 - 0.3 - 2.1 0.4 1.3
------------------------- ----- --------- --------- ----- ----- ------ ----------
Year ended 29 June 2019
Neither
past Greater
due nor Less than 30-60 60-90 90-120 than
Total impaired 30 days days days days 120 days
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ----- --------- --------- ----- ----- ------ ---------
Expected rate of credit
losses 1.3% - - - 7.4% - 82.6%
Trade receivables 163.0 149.3 4.7 3.3 2.7 0.7 2.3
------------------------- ----- --------- --------- ----- ----- ------ ---------
Provision for impairment
of receivables 2.1 - - - 0.2 - 1.9
------------------------- ----- --------- --------- ----- ----- ------ ---------
Provision for impairment of receivables
Trade receivables at nominal value of GBP4.1m (2019: GBP2.1m) were impaired and fully provided for. Movements in the provision for impairment of receivables were as follows:
2020 2019
GBPm GBPm
------------------------ ----- -----
At 29 June 2019 2.1 1.7
Charge for the year 2.6 0.9
Utilised (0.4) (0.6)
Unused amounts reversed (0.2) 0.1
------------------------ ----- -----
At 27 June 2020 4.1 2.1
------------------------ ----- -----
The credit risk associated with the Group's trade and other receivables is explained in note 22.
19. 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 the notes to the 2020 Annual Report and Accounts.
2020 2019
GBPm GBPm
-------------------------- ----- -----
Cash at bank and in hand 139.6 86.8
Cash and cash equivalents 430.2 544.0
-------------------------- ----- -----
569.8 630.8
-------------------------- ----- -----
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 UK 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. Following the introduction of the Emergency Measures Agreements (EMAs), from 1 March 2020, all of the cash held within the current operating UK rail companies (Southeastern and GTR) is now restricted. As at 27 June 2020, balances amounting to GBP474.8m (2019: GBP484.9m) were restricted. Part of this amount is to cover deferred income for rail season tickets, which was GBP21.3m at 27 June 2020 (2019: GBP167.8m).
20. 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.
Current trade and other payables
2020 2019
GBPm GBPm
-------------------------------------- ----- -----
Trade payables 129.2 152.8
Other taxes and social security costs 28.8 31.3
Other payables 72.1 61.8
Deferred season ticket income 21.3 167.8
Accruals 265.2 224.2
Deferred income 94.9 50.3
Payable to central government 102.6 156.6
Government grants 3.9 2.9
-------------------------------------- ----- -----
718.0 847.7
-------------------------------------- ----- -----
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
Non-current trade and other payables
2020 2019
GBPm GBPm
------------------ ----- -----
Government grants 15.6 9.0
------------------ ----- -----
Contract liabilities
2020 2019 2018
GBPm GBPm GBPm
--------------------- ----- ----- -----
Contract liabilities 116.2 218.1 210.9
--------------------- ----- ----- -----
Deferred season ticket income and deferred income principally comprise amounts relating to contracts with customers.
Contract liabilities at each balance sheet date are expected to be recognised as revenue within the next financial year. The balance as at 27 June 2020 has primarily decreased due to reduced season ticket sales in the rail division, as a direct result of the COVID-19 pandemic.
21. 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', 'Cash and cash equivalents' and 'Leases' in the notes to the 2020 Annual Report and 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 27 June 2020
Current Non-current
------------------------------- ---------------------------------
After
one year
but not
Effective more After
interest Within than more than
rate one year five years five years Total
% Maturity GBPm GBPm GBPm GBPm
-------------------------------- --------- --------- --------- ----------- ----------- -------
Syndicated loans 0.69 0-4 years - 147.4 - 147.4
Debt issue costs on syndicated
loans (0.1) (0.5) - (0.6)
GBP250m sterling seven-year
bond 2.50 0-4 years - 250.0 - 250.0
Debt issue costs on GBP250m
sterling seven-year bond (0.6) (1.1) - (1.7)
EUR8m revolving credit facility 2.10 0-1 years 5.8 - - 5.8
Over 5
EUR10.85m loan 2.79 years 1.0 3.6 4.5 9.1
Leases liabilities (note
13) 2.07 0-8 years 517.3 124.3 7.0 648.6
-------------------------------- --------- --------- --------- ----------- ----------- -------
Total interest-bearing loans
and borrowings 523.4 523.7 11.5 1,058.6
Debt issue costs 0.7 1.6 - 2.3
-------------------------------- --------- --------- --------- ----------- ----------- -------
Total interest-bearing loans
and borrowings
(gross of debt issue costs) 524.1 525.3 11.5 1,060.9
Cash and short term deposits
(note 19) (569.8) - - (569.8)
-------------------------------- --------- --------- --------- ----------- ----------- -------
Net debt/(cash) (45.7) 525.3 11.5 491.1
-------------------------------- --------- --------- --------- ----------- ----------- -------
Restricted cash* 474.8
-------------------------------- --------- --------- --------- ----------- ----------- -------
Adjusted net debt 965.9
-------------------------------- --------- --------- --------- ----------- ----------- -------
Year ended 29 June 2019
Current Non-current
------------------------------- --------------------------------
After
one year
but not
Effective more After
interest Within than five more than
rate one year years five years Total
% Maturity GBPm GBPm GBPm GBPm
-------------------------------- --------- --------- --------- ---------- ----------- -------
Over 5
Syndicated loans 1.00 years - - 144.7 144.7
Debt issue costs on syndicated
loans (0.4) (0.4) - (0.8)
GBP250m sterling seven-year Over 5
bond 2.50 years - - 250.0 250.0
Debt issue costs on GBP250m
sterling seven-year bond (0.6) (1.6) - (2.2)
EUR8m revolving credit facility 1.30 0-1 years 5.7 - - 5.7
Over 5
EUR10.6m loan 2.79 years 0.8 3.5 5.4 9.7
Lease liabilities (note 13) 7.60 0-4 years 1.8 4.3 - 6.1 -------------------------------- --------- --------- --------- ---------- ----------- ------- Total interest-bearing loans and borrowings 7.3 5.8 400.1 413.2 Debt issue costs 1.0 2.0 - 3.0 -------------------------------- --------- --------- --------- ---------- ----------- ------- Total interest-bearing loans and borrowings (gross of debt issue costs) 8.3 7.8 400.1 416.2 Cash and short term deposits (note 19) (630.8) - - (630.8) -------------------------------- --------- --------- --------- ---------- ----------- ------- Net (cash)/debt (622.5) 7.8 400.1 (214.6) -------------------------------- --------- --------- --------- ---------- ----------- ------- Restricted cash* 484.9 -------------------------------- --------- --------- --------- ---------- ----------- ------- Adjusted net debt 270.3 -------------------------------- --------- --------- --------- ---------- ----------- -------
* 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. Following the introduction of the Emergency Measures Agreements (EMA), from 1 March 2020, all of the cash held within the current operating UK rail companies (GTR and Southeastern) is now restricted.
Analysis of Group net debt/(cash)
Cash and GBP250m
cash Syndicated Lease sterling
equivalents loan facility liabilities bond Euro RCF Euro loan Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ------------ -------------- ------------ --------- -------- ---------- -------
At 30 June 2018 556.5 (136.0) (9.4) (250.0) (6.5) (4.7) 149.9
Cashflow 74.3 (8.7) 3.3 - 0.8 (5.0) 64.7
--------------------------- ------------ -------------- ------------ --------- -------- ---------- -------
At 29 June 2019 630.8 (144.7) (6.1) (250.0) (5.7) (9.7) 214.6
Cashflow (61.0) (2.5) 373.6 - - 0.8 310.9
Inception of new leases - - (235.0) - - - (235.0)
Effect of foreign exchange
rate changes - (0.2) - - (0.1) (0.2) (0.5)
On transition to IFRS
16 - - (781.1) - - - (781.1)
--------------------------- ------------ -------------- ------------ --------- -------- ---------- -------
At 27 June 2020 569.8 (147.4) (648.6) (250.0) (5.8) (9.1) (491.1)
--------------------------- ------------ -------------- ------------ --------- -------- ---------- -------
Reconciliation of liabilities arising from financing activities
Total
GBP250m liabilities
Syndicated Lease sterling from financing
loan facility liabilities bond Euro RCF Euro loan activities
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- -------------- ------------ --------- -------- ---------- ---------------
At 30 June 2018 (136.0) (9.4) (250.0) (6.5) (4.7) (406.6)
Cashflow (8.7) 3.3 - 0.8 (5.0) (9.6)
--------------------------- -------------- ------------ --------- -------- ---------- ---------------
At 29 June 2019 (144.7) (6.1) (250.0) (5.7) (9.7) (416.2)
Cashflow (2.5) 373.6 - - 0.8 371.9
Inception of new leases - (235.0) - - - (235.0)
Effect of foreign exchange
rate changes (0.2) - - (0.1) (0.2) (0.5)
On transition to IFRS 16 - (781.1) - - - (781.1)
--------------------------- -------------- ------------ --------- -------- ---------- ---------------
At 27 June 2020 (147.4) (648.6) (250.0) (5.8) (9.1) (1,060.9)
--------------------------- -------------- ------------ --------- -------- ---------- ---------------
Syndicated loan facility
On 16 July 2014, the Group entered into a GBP280.0m 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 original facility was for five years and has had a number of extensions, the most recent agreed on 9 July 2019, extending the maturity to July 2024. A further one-year extension is available which, if exercised, would extend the maturity to July 2025.
As at 27 June 2020, GBP147.4m (2019: GBP144.7m) of the facility was drawn down.
GBP250m sterling bond
On 6 July 2017, the Group raised a GBP250.0m bond of seven years maturing on 6 July 2024, with a coupon rate of 2.5%.
Euro RCF
On 24 October 2017, the Group's subsidiary, Go-Ahead Verkehrsgesellschaft Deutschland GmbH, entered into an EUR8.0m one-year revolving credit facility.
As at 27 June 2020, EUR6.4m or GBP5.8m (2019: EUR6.4m or GBP5.7m) was drawn down. The facility is unsecured and interest is charged at 2.1% plus EURIBOR.
Euro loan
On 24 October 2017, the Group's subsidiary, Go-Ahead Facility GmbH, entered into a EUR10.6m 10.5 year loan, which subsequently increased to EUR10.85m.
As at 27 June 2020, EUR10.0m or GBP9.1m (2019: EUR10.8m or GBP9.7m) was outstanding. The loan is secured against the German land and buildings included within property, plant and equipment. Interest is charged at a fixed rate of 2.79%.
Debt issue costs
There are debt issue costs of GBP0.6m (2019: GBP0.8m) on the syndicated loan facility.
The GBP250m sterling seven-year bond has debt issue costs of GBP1.7m (2019: GBP2.2m).
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. These covenants are on a pre-IFRS 16 basis. At the year end and throughout the year, the Group has not been in breach of any bank covenants.
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, 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 relating to fuel swaps. The purpose of these is to manage the fuel price risks arising from the Group's operations.
It is, and has been throughout 2018/19 and 2019/20, 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, credit risk and commodity price risk, managed via fuel derivatives.
COVID-19
The Group reduced vehicle mileage in response to the COVID-19 situation and as a result, fuel usage reduced. Due to the timing of the reduction in volumes, hedging volumes were altered in advance of year end and in respect of the forthcoming year based upon revised assumptions as outlined in our going concern scenarios. The COVID-19 situation means that there is greater estimation uncertainty in our forecast fuel consumption; however, the Government's current support via CBSSG and its desire to operate as close to 100% of existing services during this period of support, mitigates and reduces the commodity price risk and sensitivity.
Interest rate risk
The Group borrows and deposits funds and is exposed to changes in interest rates. The Group's policy towards cash deposits is to deposit cash short term on UK money markets.
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 27 June 2020 and 29 June 2019 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 27 June
2020
Floating rate (assets)/liabilities
Syndicated loans 0.69 - - - - 147.4 - 147.4
EUR8m revolving credit
facility 2.10 5.8 - - - - - 5.8
---------------------------------- ------- ------- ---------- ---------- --------- --------- --------- -------
Gross floating rate
liabilities 5.8 - - - 147.4 - 153.2
Cash assets (569.8) - - - - - (569.8)
---------------------------------- ------- ------- ---------- ---------- --------- --------- --------- -------
Net floating rate
(assets)/liabilities (564.0) - - - 147.4 - (416.6)
---------------------------------- ------- ------- ---------- ---------- --------- --------- --------- -------
Fixed rate liabilities
GBP250m sterling seven-year
bond 2.50 - - - - 250.0 - 250.0
EUR10.85m loan 2.79 1.0 0.9 0.9 0.9 0.9 4.5 9.1
Lease liabilities 2.07 517.3 95.6 13.8 8.7 6.2 7.0 648.6
---------------------------------- ------- ------- ---------- ---------- --------- --------- --------- -------
Net fixed rate liabilities 518.3 96.5 14.7 9.6 257.1 11.5 907.7
---------------------------------- ------- ------- ---------- ---------- --------- --------- --------- -------
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 29 June
2019
Floating rate (assets)/liabilities
Syndicated loans 1.00 - - - - - 144.7 144.7
EUR8m revolving credit
facility 1.30 5.7 - - - - - 5.7
---------------------------------- ------- ------- ---------- ---------- --------- --------- --------- -------
Gross floating rate
liabilities 5.7 - - - - 144.7 150.4
Cash assets (630.8) - - - - - (630.8)
Net floating rate
(assets)/liabilities (625.1) - - - - 144.7 (480.4)
---------------------------------- ------- ------- ---------- ---------- --------- --------- --------- -------
Fixed rate liabilities
---------------------------------- ------- ------- ---------- ---------- --------- --------- --------- -------
GBP250m sterling seven-year
bond 2.50 - - - - - 250.0 250.0
EUR10.6m financing
facility 2.79 0.8 0.8 0.9 0.9 0.9 5.4 9.7
Lease liabilities 7.60 1.8 1.4 1.4 1.0 0.5 - 6.1
---------------------------------- ------- ------- ---------- ---------- --------- --------- --------- -------
Net fixed rate liabilities 2.6 2.2 2.3 1.9 1.4 255.4 265.8
---------------------------------- ------- ------- ---------- ---------- --------- --------- --------- -------
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 repriced 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 historical changes.
Increase/ Effect
(decrease) on profit Effect
in before on
basis tax equity
points GBPm GBPm
----- ----------- ---------- -------
2020
GBP 50.0 (0.8) (0.8)
GBP (50.0) 0.8 0.8
----- ----------- ---------- -------
2019
GBP 50.0 (0.6) (0.6)
GBP (50.0) 0.6 0.6
----- ----------- ---------- -------
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 entered into a GBP280.0m 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 original facility was for five years and has had a number of extensions, the most recent was agreed on 9 July 2019, extending the maturity to July 2024. A further one-year extension is available which, if exercised, would extend the maturity to July 2025.
On 6 July 2017, the Group raised a GBP250m bond of seven years maturing on 6 July 2024 with a coupon rate of 2.5%.
On 24 October 2017, the Group's subsidiary, Go-Ahead Verkehrsgesellschaft Deutschland GmbH, entered into an EUR8.0m one-year revolving credit facility. The facility is unsecured and interest is charged at 2.1% plus EURIBOR. As at 27 June 2020, EUR6.4m or GBP5.8m (2019: EUR6.4m or GBP5.7m) was drawn down.
On 24 October 2017, the Group's subsidiary, Go-Ahead Facility GmbH, entered into a EUR10.6m 10.5 year loan which subsequently increased to EUR10.85m. The loan is secured against the German land and buildings included within property, plant and equipment. Interest is charged at a fixed rate of 2.79%.
The level of drawdowns and prevailing interest rates are detailed in note 21.
Available liquidity as at 27 June 2020 and 29 June 2019 was as follows:
2020 2019
GBPm GBPm
--------------------------------- ----- -----
Syndicated loans 280.0 280.0
GBP250m sterling seven-year bond 250.0 250.0
EUR8m revolving credit facility 7.3 7.2
EUR10.85m loan 9.8 9.5
--------------------------------- ----- -----
Total core facilities 547.1 546.7
--------------------------------- ----- -----
Amount drawn down at year end 412.3 410.1
--------------------------------- ----- -----
Headroom 134.8 136.6
--------------------------------- ----- -----
The Group's rail rolling stock and bus vehicles can be financed by lease arrangements, or term loans at fixed rates of interest over two to eight year primary borrowing periods. This provides a regular inflow of funding to cover expenditure as it arises.
Currency risk
The Group has foreign exchange exposure in respect of cashflow commitments to its operations in Germany, Singapore, the Nordics, Ireland and Australia. These are currently not material to the Group.
Credit risk
The Group's credit risk is primarily attributable to its financial assets, comprising trade and other receivables (see note 18), cash and cash equivalents (see note 19) and fuel hedge derivatives (see note 23). The maximum credit risk exposure of the Group as at the year end was GBP762.1m (2019: GBP959.2m) and comprises amounts from a number of unconnected parties.
The considerable majority of the Group's receivables are with public (or quasi-public) bodies (such as the DfT) or sales are paid as they arise and historically the annual cost of bad debts has been immaterial so limited disclosures are therefore provided. The trade receivables from such public bodies are not considered to present a significant credit risk, which is supported by cash payment performance.
Smaller sundry individual trade receivables with third parties that have arisen are assessed as required for credit loss and a provision accrued when considered appropriate. The Group applies the IFRS 9 simplified approach and measures the loss allowance on the lifetime expected credit losses at each reporting date. Expected credit losses are assessed based on the number of days past due, the customer type, a judgement on credit risk, consideration of macroeconomic forecasts, as well as past experience when relevant. Movement in the provisions for the impairment of trade receivables are recorded within operating costs within the income statement.
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.
Commodity price risk
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 Group operates a bus fuel hedging policy which uses fuel hedges to fix the price of diesel fuel in advance. The core policy is to be fully hedged for the next financial year before the start of that year, with at least 50% of the following year fixed and 25% of the year thereafter. This hedging profile is then maintained on a month by month basis. Additional purchases can be made to lock in future costs, subject to Board approval. Risk component hedging has been adopted under IFRS 9, meaning that the hedged price risk component of the purchased fuel matches that of the underlying derivative commodity. The hedged risk component is considered to be separately identifiable and reliably measurable. Gasoil is considered to be the risk component and there is a strong correlation between the movements in the price of the derivative and the fuel price purchased. Variances in pricing between the derivative commodity and the purchased price relate to underlying costs such as duty and delivery and are excluded from the hedge relationship. Further details are given in note 23.
Contractual payments
The tables below summarise the maturity profile of the Group's financial liabilities at 27 June 2020 and 29 June 2019 based on contractual undiscounted payments.
Year ended 27 June 2020
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 6.5 151.1 4.4 162.3
GBP250m sterling seven year
bond - 6.2 - 250.0 - 256.2
Lease liabilities - 131.5 394.4 129.2 5.8 660.9
Other financial liabilities - 2.5 7.4 5.6 - 15.5
Trade and other payables 101.1 368.3 99.8 - - 569.2
---------------------------- --------- --------- ----------- --------- --------- -------
101.1 508.8 508.1 535.9 10.2 1,664.1
---------------------------- --------- --------- ----------- --------- --------- -------
Year ended 29 June 2019
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 7.9 7.8 150.2 166.2
GBP250m sterling seven year
bond - 5.7 - - 248.3 254.0
Trade and other payables 49.3 455.4 90.7 - - 595.4
---------------------------- --------- --------- ----------- --------- --------- -------
49.3 461.4 98.6 7.8 398.5 1,015.6
---------------------------- --------- --------- ----------- --------- --------- -------
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 21.
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 27 June 2020 and 29 June 2019.
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 27 June 2020 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 21 and includes cash and short term deposits, interest-bearing loans and borrowings, and excludes restricted cash. During the year, following the impact on revenue following COVID-19, the Group suspended its interim dividend and placed a freeze on all discretionary expenditure and capital investment. These actions were taken by the board as a measure to protect this ratio and the Group's investment grade debt rating.
Our primary financial covenant under the 2024 syndicated loan facility is an adjusted net debt to EBITDA ratio of not more than 3.5x and at 27 June 2020 it was 1.96x (2019: 1.32x). This is on a pre-IFRS 16 basis.
* Operating profit before interest, tax, depreciation and amortisation.
Rail operating charges (previously operating lease arrangements)
The Group previously categorised its rail rolling stock, and a number of bus and coach vehicles as operating leases. From 30 June 2019, these have been recognised as right of use assets and lease liabilities on the balance sheet, except for short term and low value leases, as a result of the transition to IFRS 16. Further details are given in note 13.
Lease arrangements continue in respect of UK rail charges for track, station and depot access, along with rolling stock leases in the international rail business. These lease arrangements are not considered to be right of use assets, in line with industry standards. These arrangements are now referred to as rail operating charges.
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. For accounting policies see 'Financial instruments', 'Fair value measurement' and 'Interest-bearing loans and borrowings' in the notes to the 2020 Annual Report and Accounts.
a. Fair values
The fair values of the Group's financial instruments carried in the financial statements have been reviewed as at 27 June 2020 and 29 June 2019 and are as follows:
2020 2019
GBPm GBPm
---------------------------------------------------------- ------ -----
Non-current financial assets: fuel price derivatives 0.1 1.5
Current financial assets: fuel price derivatives 0.1 4.4
---------------------------------------------------------- ------ -----
0.2 5.9
---------------------------------------------------------- ------ -----
Current financial liabilities: fuel price derivatives (9.9) (0.8)
Non-current financial liabilities: fuel price derivatives (5.6) (0.8)
---------------------------------------------------------- ------ -----
(15.5) (1.6)
---------------------------------------------------------- ------ -----
Net financial derivatives (15.3) 4.3
---------------------------------------------------------- ------ -----
The carrying value of the Group's financial assets and liabilities is as follows:
Year ended 27 June 2020
Derivatives
used for Total
Amortised cashflow carrying
cost hedging value Fair value
GBPm GBPm GBPm GBPm
-------------------------------------- --------- ----------- ---------- ----------
Financial assets and derivatives
Trade and other receivables 192.1 - 192.1 192.1
Cash and cash equivalents 569.8 - 569.8 569.8
Fuel price derivatives - 0.2 0.2 0.2
-------------------------------------- --------- ----------- ---------- ----------
761.9 0.2 762.1 762.1
-------------------------------------- --------- ----------- ---------- ----------
Financial liabilities and derivatives
Interest-bearing loans and borrowings (410.0) - (410.0) (400.3)
Lease liabilities (648.6) - (648.6) (648.6)
Trade and other payables (598.0) - (598.0) (598.0)
Fuel price derivatives - (15.5) (15.5) (15.5)
-------------------------------------- --------- ----------- ---------- ----------
(1,656.6) (15.5) (1,672.1) (1,662.4)
-------------------------------------- --------- ----------- ---------- ----------
Year ended 29 June 2019
Derivatives
used for Total
Amortised cashflow carrying
cost hedging value Fair value
GBPm GBPm GBPm GBPm
-------------------------------------- --------- ----------- --------- ----------
Financial assets and derivatives
Trade and other receivables 322.5 - 322.5 322.5
Cash and cash equivalents 630.8 - 630.8 630.8
Fuel price derivatives - 5.9 5.9 5.9
-------------------------------------- --------- ----------- --------- ----------
953.3 5.9 959.2 959.2
-------------------------------------- --------- ----------- --------- ----------
Financial liabilities and derivatives
Interest-bearing loans and borrowings (413.2) - (413.2) (411.7)
Trade and other payables (626.7) - (626.7) (626.7)
Fuel price derivatives - (1.6) (1.6) (1.6)
-------------------------------------- --------- ----------- --------- ----------
(1,039.9) (1.6) (1,041.5) (1,040.0)
-------------------------------------- --------- ----------- --------- ----------
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
-- Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data
The fair values of all other assets and liabilities in notes 18, 19 and 20 are not significantly different from their carrying amount, with the exception of the GBP250m sterling seven-year bond which has a fair value of GBP240.3m (2019: GBP248.5m) but is carried at its amortised cost of GBP250.0m (2019: GBP250.0m). The fair value of the GBP250m sterling seven-year bond has been determined by reference to the price available from the market on which the bond is traded, and is therefore a level 1 valuation. 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.
As at 27 June 2020 and 29 June 2019, 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 provider's own internal models and calculation methods based upon well recognised financial principles, relevant current market conditions and reasonable estimates about relevant future market conditions.
There are a small number of foreign currency hedges in place as at 27 June 2020 and 29 June 2019. The foreign currency hedge valuations are based on the external MtM valuations and are currently not material to the Group.
During the years ended 27 June 2020 and 29 June 2019, there were no transfers between valuation levels.
b. Hedging activities
Fuel derivatives
As discussed in note 22, the Group is exposed to commodity price risk as a result of fuel usage.
Bus
As at 27 June 2020, the Group had derivatives against bus fuel of 184 million litres for the three years ending June 2023. 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 27 June 2020 the Group's external hedging profile is as follows:
<1 year 1-2 years 2-5 years Total
-------------------------------------- ------- --------- --------- -----
Actual percentage hedged Fully 50% 25%
Litres hedged (million) 103 54 27 184
Average hedged rate (pence per litre) 35.3 36.2 34.7 35.4
-------------------------------------- ------- --------- --------- -----
The changes in the fair values of the fuel derivatives during the year are as follows:
2020 2019
GBPm GBPm
-------------------------------------------- ------ ------
Changes in fair value of hedged item (19.6) (13.7)
Changes in fair value of hedging instrument 19.6 13.7
Changes in fair value through the hedging
reserves (net of tax) (15.8) (11.3)
---------------------------------------------- ------ ------
The maturity of the hedge profile is between July 2020 and June 2023.
In relation to the hedging reserve, the following balances are included with respect to the fuel derivatives:
2020 2019
GBPm GBPm
------------------------------------------------------------- ------ -----
Balance in the cashflow hedging reserve for continuing
hedges (12.3) 3.5
Balance in the cashflow hedging reserve arising from hedging
relationships for which hedge accounting is no longer
applied - 0.5
------------------------------------------------------------- ------ -----
Rail
As at 27 June 2020 the Group had no derivatives against rail fuel for the 2020 financial year (2019: nil).
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 the notes to the 2020 Annual Report and Accounts.
Franchise Uninsured
commitments claims Other Total
GBPm GBPm GBPm GBPm
----------------------------- ------------ --------- ----- ------
At 30 June 2018 51.9 45.3 6.1 103.3
Provided (after discounting) 33.7 15.1 3.6 52.4
Utilised (19.6) (11.8) (0.2) (31.6)
Released (2.2) (4.8) (0.1) (7.1)
Unwinding of discounting 0.2 (0.4) - (0.2)
----------------------------- ------------ --------- ----- ------
At 29 June 2019 64.0 43.4 9.4 116.8
Provided (after discounting) 18.2 24.8 2.9 45.9
Utilised (7.0) (16.2) (1.0) (24.2)
Released (2.0) (1.8) (0.8) (4.6)
Unwinding of discounting 0.4 (0.3) - 0.1
----------------------------- ------------ --------- ----- ------
At 27 June 2020 73.6 49.9 10.5 134.0
----------------------------- ------------ --------- ----- ------
2020 2019
GBPm GBPm
------------ ----- -----
Current 46.1 34.8
Non-current 87.9 82.0
------------ ----- -----
134.0 116.8
------------ ----- -----
Franchise commitments
Franchise commitments comprise GBP73.6m (2019: GBP64.0m) and relate to dilapidation provisions on vehicles, depots and stations across our two (2019: two) active UK rail franchises as well as a provision for future franchise set-up costs for the German Bavarian franchise. Of these provisions, GBP26.6m (2019: GBP21.6m) are classified as current.
During the year GBP2.0m (2019: GBP2.2m) of dilapidation 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 two years. The provisions are based on management's assessment of most probable outcomes, supported where appropriate by valuations from professional external advisors.
Estimation uncertainties arise with respect to dilapidation provisions, due to the complex nature of the assets. Estimated dilapidations can range significantly depending on the specific asset been considered. The range of outcomes are assessed on an asset by asset basis and the range can vary between a plus or minus 5%-20% dependant on procurement, production or maintenance efficiencies as well as potential economies of scale. Based on the individual assessments, the provision at the year end could fall between an estimated range of GBP55.0m to GBP82.0m.
The provision for the German franchise commitment mainly relates to expected forecasted franchise set-up costs in respect of driver recruitment and training costs before the contract becomes operational in December 2021. Estimation uncertainties arise around the costs of recruitment and training. An increase in these costs of 5% would lead to an increase in the provision of GBP1.0m.
Uninsured claims
Uninsured claims represent the cost 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, GBP17.2m (2019: GBP12.6m) are classified as current and GBP32.7m (2019: GBP30.8m) 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 historical 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.
Uninsured claims are provided on a gross basis and a separate reimbursement asset, for amounts due back from the insurance providers, of GBP3.5m is included within other receivables.
Other
The other provisions of GBP10.5m (2019: GBP9.4m) relate to dilapidations in the bus division, of which GBP2.3m (2019: GBP0.6m) are classified as current and GBP8.2m (2019: GBP8.8m) are classified as non-current. It is expected that the dilapidations will be incurred within two to six 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.
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 the notes to the 2020 Annual Report and Accounts.
Allotted, called up and fully
paid
-----------------------------------
2020 2019
Millions GBPm Millions GBPm
------------------------------------ --------- ------ --------- -----
As at 27 June 2020 and 29 June 2019 47.1 4.7 47.1 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 4,071,553 ordinary shares (8.6% of share capital), of which 169,323 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 27 June 2020 the Group repurchased 39,770 shares for a total consideration of GBP0.7m for LTIP and DSBP arrangements (2019: 56,482 shares repurchased for a total consideration of GBP1.0m). This programme was suspended on 20 April 2020 due to COVID-19 and the Group's decision to conserve cash. The Group has not cancelled any shares during the year (2019: 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.
Translation reserve
The translation reserve records exchange differences arising from the translation of the balance sheets of foreign currency denominated subsidiaries.
2020 2019
GBPm GBPm
------------------------- ----- -----
At 30 June 2019 - -
Movement during the year (1.8) -
------------------------- ----- -----
At 27 June 2020 (1.8) -
------------------------- ----- -----
26. Commitments
A commitment is a contractual obligation to make a payment in the future, mainly in relation to rail operating charges 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
2020 2019
GBPm GBPm
----------------------------------------------------------- ----- -----
Contracted for but not provided - acquisition of property,
plant and equipment 37.4 69.6
----------------------------------------------------------- ----- -----
Lease commitments
2020 2019
GBPm GBPm
------------------------------------------------------- ----- -----
Contracted for but not commenced - right of use assets 268.9 -
------------------------------------------------------- ----- -----
Rail operating charges - Group as lessee
The Group previously categorised the majority of bus leases (vehicles and property) and rail leases (rolling stock, access charges, stations and depots) as operating leases, under IAS 17.
The majority of bus leases and rail rolling stock leases are now deemed to be right of use assets, following the implementation of IFRS 16, and are now recognised on the balance sheet, with a corresponding lease liability. The exception is for short term and low value assets.
The Group's train operating companies hold agreements with various different local entities for access to the railway infrastructure (track, stations and depots). These are now classified as rail operating charges, as they do not result in a right of use asset. The leases typically run for a period until the end of the relevant franchise.
Future minimum rentals payable under non-cancellable rail operating arrangements as at 27 June 2020 and operating lease commitments as at 29 June 2019 were as follows:
As at 27 June 2020
Rail
rolling Rail access Rail and
stock charges other Total
GBPm GBPm GBPm GBPm
----------------------- --------- ----------- -------- -------
Within one year 252.4 668.2 135.2 1,055.8
In the second to fifth
years inclusive 176.3 198.2 44.7 419.2
Over five years 171.7 12.1 9.1 192.9
------------------------ --------- ----------- -------- -------
600.4 878.5 189.0 1,667.9
----------------------- --------- ----------- -------- -------
As at 29 June 2019
Bus vehicles Rail rolling Rail access
and other Bus property stock charges Rail other Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- ------------ ------------ ------------ ----------- ---------- -------
Within one year 15.7 4.4 558.1 376.3 150.8 1,105.3
In the second to fifth
years inclusive 28.2 12.8 725.7 281.1 186.4 1,234.2
Over five years - 7.9 267.8 6.7 22.9 305.3
------------------------ ------------ ------------ ------------ ----------- ---------- -------
43.9 25.1 1,551.6 664.1 360.1 2,644.8
----------------------- ------------ ------------ ------------ ----------- ---------- -------
Rail operating charges - 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 rail operating arrangements as at 27 June 2020 and operating lease commitments as at 29 June 2019 were as follows:
2020 2019
----------------------- -----------------------
Other Other
Land and rail Land and rail
buildings agreements buildings agreements
GBPm GBPm GBPm GBPm
--------------------------------------- ---------- ----------- ---------- -----------
Within one year 1.2 8.0 1.1 23.9
In the second to fifth years inclusive 1.6 1.7 1.6 39.2
Over five years - - - -
--------------------------------------- ---------- ----------- ---------- -----------
2.8 9.7 2.7 63.1
--------------------------------------- ---------- ----------- ---------- -----------
27. Contingencies
Performance bonds and other guarantees
The Group has provided bank guaranteed performance bonds of GBP70.7m (2019: GBP67.1m), a loan guarantee bond of GBP36.3m (2019: GBP36.3m) and season ticket bonds of GBP165.0m (2019: GBP151.9m) 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 (2019: GBP136.0m) to the DfT in respect of the Govia Thameslink Railway franchise, of which the Group has a 65% share equating to GBP88.4m (2019: GBP88.4m). At the year end GBPnil (2019: 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 which have issued certain performance bonds and a letter of credit. The letter of credit at 27 June 2020 is GBP62.0m (2019: GBP58.0m).
The Group has a bond of $4.2m SGD (2019: $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 GBP2.5m (2019: GBP2.5m).
The Group has bonds of EUR30.8m (2019: EUR11.1m) in favour of the local rail authorities in support of the Group's German rail operations. At the year end exchange rate these equate to GBP28.0m (2019: GBP9.9m). The Group has provided a parental company guarantee to provide funds of EUR134.3m (2019: EUR35.0m) in respect of the Germany operations, of which EURnil (2019: EURnil) has been provided for at year end. At the year end exchange rate this equates to GBP122.1m (2019: GBP31.3m).
The Group has bonds of EUR10.0m (2019: EUR10.0m) in favour of the National Transport Authority in Ireland in support of the Group's Irish bus operations. At the year end exchange rate this equates to GBP9.1m (2019: GBP9.0m).
The Group has a bond of 271.3m NOK (2019: 200m NOK) in favour of the local rail authorities in Norway in support of the Group's Nordic rail operations. At the year end exchange rate this equates to GBP22.5m (2019: GBP18.4m).
Contingent liabilities
Boundary zone fare proceedings
On 27 February 2019 a Collective Proceedings Application was filed at the Competition Appeal Tribunal under Section 47B of the Competition Act 1998 against one of the Group's subsidiary companies, London and Southeastern Railway Limited (LSER). The claim alleges that the company failed to make Boundary Zone Fares sufficiently available to those rail passengers who held TfL travelcards across its multiple sales channels and failed to ensure that customers were aware of these. Equivalent applications were made against South West Trains and South Western Railway.
The proceedings are at a early stage with the next step being that the Competition Appeal Tribunal will initially decide whether this is a claim that meets the legislative criteria for this type of claim. A hearing in relation to this is scheduled for later in 2020. If the criteria were met, it would allow the claim to proceed to a full trial.
The claim is disputed in respect of its technical merits and the basis of the claim appears to be an initial estimate with assumptions that cannot initially be substantiated. No provision associated with the claim (other than legal costs) has accordingly been made.
There is no legal precedent both in respect of this type of claim or how it would be valued if found to be a valid claim. Finally, determining how such a claim would be allocated amongst the various parties, and other stakeholders including the Department for Transport (DfT), is highly uncertain.
Accordingly, the Group cannot make a reliable estimate of any contingent liability in respect of this matter at the time of publishing the Annual Report and Accounts.
Profit share dispute
On 31 March 2020, the Secretary of State for Transport notified one of the Group's subsidiary companies, London and Southeastern Railway Limited (LSER) that it was required to recalculate the Profit Share payable over the period from 12 October 2014 to 29 June 2019 pursuant to the Franchise Agreement dated 10 September 2014.
LSER has subsequently provided the Secretary of State for Transport with an explanation for the historical calculation of profit share and has recognised a best estimate of the assessed outcome within these financial statements. Any additional amounts payable are disputed due to LSER's statement of position being supported by express terms or agreement, correspondence between LSER and the Secretary of State for Transport, treatment in practice and the development and terms of the Franchise Agreement.
Should the Secretary of State for Transport's notification prove successful then the outflow of resources could be in the region of GBP8.0m.
28. Retirement benefit schemes
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 UK train operating companies participate in the Railways Pension Scheme (RPS), 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 the notes to the 2020 Annual Report and Accounts.
Retirement benefit obligations consist of the following:
2020 2019
--------------------- -------------------
Bus Rail Total Bus Rail Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ------ ----- ------ ----- ----- -----
Pre-tax pension scheme asset 53.0 - 53.0 48.7 - 48.7
Deferred tax liability (10.1) - (10.1) (8.5) - (8.5)
------------------------------ ------ ----- ------ ----- ----- -----
Post-tax pension scheme asset 42.9 - 42.9 40.2 - 40.2
------------------------------ ------ ----- ------ ----- ----- -----
The net surplus before taxation on the bus defined benefit schemes was GBP53.0m (2019: GBP48.7m), consisting of estimated assets of GBP934.4m (2019: GBP858.8m) less liabilities of GBP881.4m (2019: GBP810.1m). During the prior year an exceptional charge of GBP16.8m has been taken to the income statement as a result of the GMP equalisation ruling which directly impacted the bus pension scheme liabilities.
The net deficit before taxation on the rail schemes was GBPnil (2019: GBPnil). The nature of these schemes means 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 under the franchise.
2020 2019
------------------------ -------------------------
Bus Rail Total Bus Rail Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------- ------ ------- ------- ------ -------- -------
Remeasurement gains/(losses)
due to:
Experience on benefit obligations 5.5 42.8 48.3 24.3 - 24.3
Changes in demographic assumptions (0.1) - (0.1) 22.5 - 22.5
Changes in financial assumptions (87.6) (319.6) (407.2) (54.5) (156.7) (211.2)
Return on assets greater than
discount rate 79.1 48.4 127.5 29.3 67.0 96.3
Franchise adjustment movement - 228.4 228.4 - 89.7 89.7
----------------------------------- ------ ------- ------- ------ -------- -------
Remeasurement (losses)/gains
on defined benefit pension
plans (3.1) - (3.1) 21.6 - 21.6
----------------------------------- ------ ------- ------- ------ -------- -------
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 a defined contribution plan. The expense recognised for the Money Purchase Section of the Go-Ahead Plan is GBP10.0m (2019: GBP9.3m), being the contributions paid and payable. The expense recognised for the Workplace Saving Scheme is GBP7.8m (2019: GBP6.4m), 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 since 1 October 1994 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 account 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 2018, and the next will have an effective date of 31 March 2021.
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 East Yorkshire Motor Services Limited 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 2017 valuation.
The actuarial assumptions disclosed are in respect of the Go-Ahead Plan and EYMS plan only, given the respective sizes of the three bus pension schemes.
Summary of bus schemes year end assumptions
2020 2019
% %
------------------------------------------------------------- ---- ----
Retail price index inflation 2.9 3.2
Consumer price index inflation 2.1 2.2
Discount rate 1.5 2.3
Rate of increase in salaries n/a n/a
Rate of increase of pensions in payment and deferred pension 2.2 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.
2020 2019
Years Years
-------------- ------ ------
Pensioner 21 21
Non-pensioner 23 23
-------------- ------ ------
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.
2020 2019
Pension Pension
deficit deficit
% %
------------------------------------------------------------ -------- --------
Discount rate - increase of 0.5% (7.0) (7.3)
Price inflation - increase of 0.5% 6.8 6.8
Rate of increase in salaries n/a n/a
Rate of increase of pensions in payment - increase of
0.5% 4.8 4.8
Increase in life expectancy of pensioners or non-pensioners
by one year 4.3 4.3
------------------------------------------------------------ -------- --------
The sensitivity analysis presented above has been calculated using approximate methods. The use of 0.5% and one 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 table shows the expected future benefit payments of the bus schemes at 27 June 2020.
2020
GBPm
----------------------- -----
June 2021 28.6
June 2022 29.3
June 2023 29.9
June 2024 30.6
June 2025 31.2
June 2026 to June 2030 166.4
------------------------ -----
Category of assets at the year end
2020 2019
------------ ------------
GBPm % GBPm %
-------------------------------------- ----- ----- ----- -----
Equities 95.3 10.2 75.8 8.8
Bonds 87.8 9.4 77.6 9.0
Property 56.1 6.0 57.0 6.6
Liability driven investment portfolio 457.9 49.0 399.1 46.5
Cash/other 237.3 25.4 249.3 29.1
-------------------------------------- ----- ----- ----- -----
934.4 100.0 858.8 100.0
-------------------------------------- ----- ----- ----- -----
Most of the asset categories are held within pooled funds and are classed as quoted in an active market where the underlying assets are exchanged or 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. Asset categories requiring judgement, mainly relating to property portfolios, are subject to significant uncertainty due to the unknown market situation relating to COVID-19 and a higher degree of caution should be given than in normal circumstances.
The plan invests a significant portion of its assets in a 'Liability Driven Investment' (LDI) portfolio which aims to match the Go-Ahead Plan's liabilities. This is expected to reduce the volatility of the Go-Ahead Plan's funding level due to changes in interest rates and inflation. The plan also has a 'Journey Plan' in place, which means that over time as opportunities arise, the level of risk within the investment strategy is expected to reduce, with a larger portion of the plan's assets transitioned to matching assets. The plan measures the LDI portfolio at fair value at each reporting date using the following fair value hierarchy:
-- 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
-- Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data
At 27 June 2020, the LDI portfolio was valued, using a level 1 valuation, as follows:
-- At the closing bid price or, if single priced, at the closing single price -- At the latest available net asset value (NAV)
Funding position of the Group's pension arrangements
2020 2019
GBPm GBPm
------------------------------------ ------- -------
Employer's share of pension scheme:
Liabilities at the end of the year (881.4) (810.1)
Assets at fair value 934.4 858.8
------------------------------------ ------- -------
Pension scheme asset 53.0 48.7
------------------------------------ ------- -------
Pension cost for the financial year
2020 2019
GBPm GBPm
--------------------------------- ----- -----
Administration costs 2.1 2.0
Settlement charge - 16.8
Interest cost on net liabilities (1.2) (0.8)
--------------------------------- ----- -----
Total pension costs 0.9 18.0
--------------------------------- ----- -----
In the prior year, on 26 October 2018, the High Court ruled that Guaranteed Minimum Pensions (GMP) should be equalised between men and women. As a result, pension scheme trustees will be obliged to adjust benefit payments in order that benefits received by male and female members with equivalent age, service and earnings histories are equal. The judgement has implications for many defined benefit schemes, including those in which the Group participates.
As a result of this change, a pre-tax, non-cash exceptional settlement charge of GBP16.8m was recognised in the income statement.
Analysis of the change in the pension scheme liabilities over the financial year
2020 2019
GBPm GBPm
---------------------------------------------- ------ ------
Pension scheme liabilities - at start of year 810.1 792.5
Interest cost 17.8 20.9
Settlement loss - 16.8
Remeasurement (gains)/losses due to:
Experience on benefit obligations (5.5) (24.3)
Changes in demographic assumptions 0.1 (22.5)
Changes in financial assumptions 87.6 54.5
Benefits paid (28.7) (27.8)
---------------------------------------------- ------ ------
Pension scheme liabilities - at end of year 881.4 810.1
---------------------------------------------- ------ ------
Analysis of the change in the pension scheme assets over the financial year
2020 2019
GBPm GBPm
--------------------------------------------------------- ------ ------
Fair value of assets - at start of year 858.8 829.3
Interest income of plan assets 19.1 21.7
Remeasurement gains due to return on assets greater than
discount rate 79.1 29.3
Actuarial loss on assets (0.4) -
Administration costs (2.1) (2.0)
Group contributions 8.5 8.2
Benefits paid (28.6) (27.7)
--------------------------------------------------------- ------ ------
Fair value of plan assets - at end of year 934.4 858.8
--------------------------------------------------------- ------ ------
Estimated contributions for future
GBPm
-------------------------------------------------------- ----
Estimated Group contributions in financial year 2021 8.3
Estimated employee contributions in financial year 2021 -
-------------------------------------------------------- ----
Estimated total contributions in financial year 2021 8.3
-------------------------------------------------------- ----
Rail schemes
The Railways Pension Scheme (RPS)
The majority of employees in our train operating companies are members of sections of the Railways Pension 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 include 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 policy for the Railways Pension Scheme (RPS) is detailed in the notes to the 2020 Annual Report and Accounts and the accounting judgements are covered in the Critical accounting judgements and key sources of estimation uncertainty section in the Group financial statements.
British Railways Additional Superannuation Scheme (BRASS) matching AVC Group contributions of GBP0.3m (2019: GBP0.3m) were paid in the year.
Summary of year end assumptions
2020 2019
% %
------------------------------------------------------------- ---- ----
Retail price index inflation 2.8 3.2
Consumer price index inflation 2.1 2.2
Discount rate 1.6 2.4
Rate of increase in salaries 3.1 3.5
Rate of increase of pensions in payment and deferred pension 2.1 2.2
------------------------------------------------------------- ---- ----
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.
2020 2019
Years Years
-------------- ------ ------
Pensioner 21 21
Non-pensioner 23 23
-------------- ------ ------
The mortality assumptions adopted as at 27 June 2020 are based on the initial results of the funding valuation as at 31 December 2016, which has not yet been completed, and 29 June 2019 are based on the results of the 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 RPS 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
2020 2019
-------------- --------------
GBPm % GBPm %
--------- ------- ----- ------- -----
Equities 2,138.8 98.4 2,023.0 98.6
Property 22.4 1.0 26.7 1.3
Cash 13.5 0.6 2.0 0.1
--------- ------- ----- ------- -----
2,174.7 100.0 2,051.7 100.0
--------- ------- ----- ------- -----
All of the asset categories above are held within pooled funds and therefore unquoted in active markets.
Funding position of the Group's pension arrangements
2020 2019
GBPm GBPm
---------------------------------------- --------- ---------
Employer's 60% share of pension scheme:
Liabilities at the end of the year (3,231.0) (2,790.0)
Assets at fair value 2,174.7 2,051.7
---------------------------------------- --------- ---------
Gross deficit (1,056.3) (738.3)
Franchise adjustment 1,056.3 738.3
---------------------------------------- --------- ---------
Pension scheme liability - -
---------------------------------------- --------- ---------
Pension cost for the financial year
2020 2019
GBPm GBPm
--------------------------------------------- ------ ------
Service cost 103.1 85.7
Administration costs 3.9 3.4
Franchise adjustment to current period costs (71.4) (55.8)
Interest cost on net liabilities 18.2 15.9
Interest on franchise adjustments (18.2) (15.9)
--------------------------------------------- ------ ------
Pension cost 35.6 33.3
--------------------------------------------- ------ ------
Analysis of the change in the employer's 60% share of pension scheme liabilities over the financial year
2020 2019
GBPm GBPm
-------------------------------------------------------- ------- -------
Pension scheme liabilities less members' share (40%) of
the deficit - at start of year 2,790.0 2,474.1
Franchise adjustment (100%) (738.3) (576.9)
-------------------------------------------------------- ------- -------
2,051.7 1,897.2
Liability movement for members' share of assets (40%) 73.0 85.1
Service cost (60%) 102.9 85.4
Interest cost (60%) 47.9 47.0
Interest on franchise adjustment (100%) (18.2) (15.9)
Franchise adjustment to current period costs (100%) (71.4) (55.8)
Remeasurement losses/(gains) due to:
Experience on benefit obligations (60%) (42.8) -
Changes in financial assumptions (60%) 319.6 156.7
Benefits paid (100%) (59.6) (58.3)
Franchise adjustment movement (100%) (228.4) (89.7)
-------------------------------------------------------- ------- -------
2,174.7 2,051.7
Franchise adjustment (100%) 1,056.3 738.3
-------------------------------------------------------- ------- -------
Pension scheme liabilities less members' share (40%) of
the deficit - at end of year 3,231.0 2,790.0
-------------------------------------------------------- ------- -------
Analysis of the change in the pension scheme assets over the financial year
2020 2019
GBPm GBPm
--------------------------------------------------------- ------- -------
Fair value of assets - at start of year (100%) 2,051.7 1,897.2
Interest income of plan assets (60%) 29.8 31.1
Remeasurement gains due to return on assets greater than
discount rate (60%) 48.4 67.0
Administration costs (100%) (6.4) (5.7)
Group contributions (100%) 35.3 33.0
Benefits paid (100%) (59.6) (58.3)
Members' share of movement of assets (40%) 75.5 87.4
--------------------------------------------------------- ------- -------
Fair value of plan assets - at end of year (100%) 2,174.7 2,051.7
--------------------------------------------------------- ------- -------
Estimated contributions for future
GBPm
-------------------------------------------------------- ----
Estimated Group contributions in financial year 2021 38.4
Estimated employee contributions in financial year 2021 25.6
-------------------------------------------------------- ----
Estimated total contributions in financial year 2021 64.0
-------------------------------------------------------- ----
Franchise adjustment
The effect of the franchise adjustment on the financial statements is provided below:
2020 2019
GBPm GBPm
--------------------------------------------- --------- -------
Balance sheet
Defined benefit pension plan (1,056.3) (738.3)
Deferred tax asset 200.7 125.5
--------------------------------------------- --------- -------
(855.6) (612.8)
--------------------------------------------- --------- -------
Other comprehensive income
Remeasurement losses 228.4 89.7
Tax on remeasurement losses (43.4) (15.2)
--------------------------------------------- --------- -------
185.0 74.5
--------------------------------------------- --------- -------
Income statement
Franchise adjustment to current period costs (71.4) (55.8)
Interest on franchise adjustments (18.2) (15.9)
Deferred tax charge 17.0 12.2
--------------------------------------------- --------- -------
(72.6) (59.5)
--------------------------------------------- --------- -------
Risks associated with defined benefit plans
UK 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. Following the conclusion of The Pension Regulator's ongoing investigation into rail pensions, the risks associated with the Group's rail schemes will be reviewed.
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 all
reference to bond yields with significant plans to ensure that
maturity profiles matching pension unrewarded risks are hedged where
maturity; if assets underperform appropriate and that we have
this yield, this may lead to a balance of risk seeking and
a deficit. Most of the defined liability driven 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 relative to
the liabilities.
---------------- --------------------------------------- --------------------------------------
Inflation A significant proportion of the The business has some inflation
risk UK benefit obligations linking in its revenue streams,
are linked to inflation, and which helps to offset this risk.
higher expected inflation will During the 2018 financial year,
lead to higher liabilities. the key inflation measure for
the Group final salary scheme
was changed from RPI to CPI when
looking at future pension increases,
which has helped to lower the
magnitude of the inflation risk.
---------------- --------------------------------------- --------------------------------------
Life expectancy The majority of the scheme's The Group final salary scheme
obligations are to provide benefits has recently carried out a pensioner
for the life of the member, so buy-in for a small subset of
increases in life expectancy the pensioner population. This
will result in an increase in has mitigated the longevity risk
the liabilities. for the members included in the
buy-in. The assumptions used
to fund the scheme are regularly
reviewed and updated to reflect
changes in expected life expectancy.
---------------- --------------------------------------- --------------------------------------
Legislative Future legislative changes are The Group takes professional
risk uncertain. In the past these advice to keep abreast of legislative
have led to increases in obligations, changes.
introducing pension increases,
and vesting of deferred pensions,
or reduced investment return
through the ability to reclaim
Advance Corporation Tax. The
UK Government has legislated
to end contracting out in 2016.
On 26 October 2018 the High Court
ruled that Guaranteed Minimum
Pensions (GMP) should be equalised
between men and women. The judgement
has had an impact on the Plan's
defined benefit pension liabilities
(see note 7 for further details).
---------------- --------------------------------------- --------------------------------------
29. 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 the notes to the 2020 Annual Report and 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 2020 2019
---------------------------------------------- ------------------------- --------- --------
Trading subsidiaries
United Kingdom
Go-Ahead Holding Limited 1 100 100
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
United Kingdom
New Southern Railway Limited 2 65 65
United Kingdom
London & South Eastern Railway Limited 2 65 65
United Kingdom
London & Birmingham Railway Limited 2 65 65
United Kingdom
Southern Railway Limited 2 65 65
United Kingdom
Govia Thameslink Railway Limited 2 65 65
United Kingdom
Govia Limited 2 65 65
Go-Ahead Scotland Limited United Kingdom 100 100
Tom Tappin, Limited United Kingdom 100 100
EYMS Group Limited United Kingdom 100 100
East Yorkshire Motor Services 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 Bayern 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 Finland Oy Finland 100 100
Go-Ahead Transport Services (Dublin) Limited Ireland 100 100
Go North West Limited United Kingdom 100 100
GA Retail Services Limited United Kingdom 100 100
Go-Ahead Australia Pty. Limited Australia 100 -
Jointly controlled entities
United Kingdom
On Track Retail Limited 3 50 50
Investments
Mobileeee GmbH Germany 4 10 12
---------------------------------------------- ------------------------- --------- --------
1. Held by The Go-Ahead Group plc. All other companies are held through subsidiary undertakings.
2. The rail companies are 65% owned by The Go-Ahead Group plc and 35% owned by Keolis (UK) Limited and held through Govia Limited.
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 Deutschland Jean-Monnet-Straße 2, D-10557,
GmbH Berlin, Germany
Go-Ahead Baden Württemberg GmbH Büchsenstraße 20, D-73457,
Stuttgart, Germany
Go-Ahead Facility GmbH Bahnhof 2, D-73457, Essingen,
Germany
Go-Ahead Bayern GmbH Ludwigstr, 186150 Augsburg
Go-Ahead Sverige AB Mäster Samuelsgatan 20, SE
101 39, Stockholm, Sweden
Go-Ahead Norge AS Jernbanetorget 1, DA-bygget, 0154
Oslo, Norway
Go-Ahead Finland Oy Bulevardi 1A, 00100 Helsinki,
Finland
Go-Ahead Seletar PTE Ltd and Go-Ahead
Singapore PTE Ltd 2 Loyang Way, Singapore 508776
Go-Ahead Dublin Services (Transport) Ballymount Road Lower, Dublin
Limited 12, D12 X201
Go-Ahead Australia Pty. Limited DW Accounting & Advisory Pty Ltd,
Level 4, 91-97 William Street,
Melbourne Vic 3000, Australia
----------------------------------------- ------------------------------------
% equity interest
-------------------
Company
Name number Country of incorporation 2020 2019
---------------------------------------- ------- ------------------------ --------- --------
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
The Go-Ahead Group Trustee Company
limited 2125799 United Kingdom 100 100
Go-Ahead Property Development Limited 7128594 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
United Kingdom
Thameslink Rail Limited 3013232 1 65 65
London and South East Passenger United Kingdom
Rail Services Limited 6537238 1 65 65
United Kingdom
London & East Midlands Railway Limited 5814586 1 65 65
London and West Midlands Railway United Kingdom
Limited 5537947 1 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 100 100
East Yorkshire Coach Holidays Limited 0243051 United Kingdom 100 100
Bus UK Limited 2232813 United Kingdom 100 100
Buscall Limited 3887602 United Kingdom 100 100
Connor and Graham Limited 0546796 United Kingdom 100 100
East Yorkshire Buses Limited 0254844 United Kingdom 100 100
East Yorkshire Coaches Limited 0331077 United Kingdom 100 100
East Yorkshire Properties Limited 2256485 United Kingdom 100 100
East Yorkshire Tours Limited 0172326 United Kingdom 100 100
East Yorkshire Travel Limited 3225828 United Kingdom 100 100
East Yorkshire Holiday Tours Limited 2140988 United Kingdom 100 100
Frodingham Coaches Limited 2135501 United Kingdom 100 100
Hull and District Motor Services
Limited 2183936 United Kingdom 100 100
Hull Park and Ride Limited 3886603 United Kingdom 100 100
Kingstonian Travel Services Limited 3561955 United Kingdom 100 100
EYMS Bus & Coach Training Limited 2123369 United Kingdom 100 100
Scarborough and District Motor Services
Limited 2133854 United Kingdom 100 100
Hedingham & District Omnibuses Ltd. 0863658 United Kingdom 100 100
Anglian Bus Limited 1260689 United Kingdom 100 100
HC Chambers & Son Limited 0327497 United Kingdom 100 100
Aviance UK Limited 1036291 United Kingdom 100 100
---------------------------------------- ------- ------------------------ --------- --------
% equity interest
-------------------
Company
Name number Country of incorporation 2020 2019
------------------------------------ -------- ------------------------ --------- --------
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
------------------------------------ -------- ------------------------ --------- --------
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.
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 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, Section 480 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 (2019: 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 and the Group's share of OTR's result for the year is disclosed on the face of the income statement.
Investments
The Group's subsidiary Go-Ahead Verkehrsgellschaft Deutschland GmbH holds a 10.4% 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.
2020 2019
GBPm GBPm
----------------------------- ----- -----
Short term employee benefits 1.5 1.8
Long term employee benefits1 - 0.4
Post-employment benefits - -
----------------------------- ----- -----
1.5 2.2
----------------------------- ----- -----
1. 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 2020 2019
------------------------------------------ ------------------------- ---- ----
Govia Limited United Kingdom 35% 35%
London and South Eastern Railway Limited1 United Kingdom 35% 35%
Southern Railway Limited1 United Kingdom 35% 35%
London and Birmingham Railway Limited1 United Kingdom 35% 35%
Govia Thameslink Railway Limited1 United Kingdom 35% 35%
Thameslink Rail Limited1 United Kingdom 35% 35%
New Southern Railway Limited1 United Kingdom 35% 35%
------------------------------------------ ------------------------- ---- ----
1. Subsidiary of Govia Limited.
2020 2019
GBPm GBPm
----------------------------------------------------------------- ----- -----
Accumulated balances of material non-controlling interest:
Govia Limited 35.1 33.0
Total comprehensive income allocated to material non-controlling
interest:
Govia Limited 16.5 16.3
----------------------------------------------------------------- ----- -----
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 years ended 27 June 2020 and 29 June 2019:
2020 2019*
GBPm GBPm
------------------------------------------------ --------- ---------
Revenue 2,814.7 2,669.4
Operating costs (2,744.8) (2,612.7)
Finance revenue 3.7 4.1
Finance costs (14.1) (1.9)
------------------------------------------------ --------- ---------
Profit before taxation 59.5 58.9
Tax expense (12.1) (12.7)
------------------------------------------------ --------- ---------
Profit for the year from controlling operations 47.4 46.2
------------------------------------------------ --------- ---------
Total comprehensive income 47.4 46.2
------------------------------------------------ --------- ---------
Attributable to non-controlling interests 16.5 16.3
------------------------------------------------ --------- ---------
Dividends paid to non-controlling interests 14.6 12.7
------------------------------------------------ --------- ---------
* Restated
Summarised balance sheet of Govia Limited and its subsidiary companies as at 27 June 2020 and 29 June 2019:
2020 2019
GBPm GBPm
--------------------------------------------------------------- --------- -------
Current assets - inventories, trade and other receivables,
cash 705.1 873.6
Non-current assets - property, plant and equipment, intangible
assets, deferred tax 598.5 41.1
Current liabilities - trade and other payables, provisions (1,075.8) (766.9)
Non-current liabilities - provisions (127.3) (53.4)
--------------------------------------------------------------- --------- -------
Total equity 100.5 94.4
--------------------------------------------------------------- --------- -------
Attributable to:
Equity holders of the parent 65.3 61.4
Non-controlling interest 35.2 33.0
--------------------------------------------------------------- --------- -------
These balance sheet amounts are shown before intercompany eliminations.
Summarised cashflow information of Govia Limited and its subsidiary companies for the year ended 27 June 2020 and 29 June 2019:
2020 2019
GBPm GBPm
----------------------------------------------------- ------- ------
Operating 320.8 103.4
Investing (3.1) (5.7)
Financing (408.3) (38.2)
----------------------------------------------------- ------- ------
Net (decrease)/increase in cash and cash equivalents (90.6) 59.5
----------------------------------------------------- ------- ------
At 30 June 2019 the Group implemented IFRS 16 Leases using the modified retrospective transition method. As a result, the comparative figures have not been restated and are presented on an IAS 17 basis.
The non-controlling interests have no significant restrictions on the ability of the Group to access or use assets and settle liabilities.
There are no terms or conditions relating to any related party transactions which need to be separately disclosed.
30. Post balance sheet events
London & International bus
On 26 August 2020, the Land Transport Authority (LTA) of Singapore awarded the Group a two year contract extension to the existing contract and will now run to September 2023.
Rail
On 19 September 2020, the Department for Transport (DfT) awarded an Emergency Recoveries Measurement Agreement (ERMA) to the GTR franchise. This agreement replaces the existing franchise agreement and has been awarded for a period of 12 months. The contract end date of September 2021 is the same as the previous franchise agreement.
Disclosure guidance and transparency rule (DTR) 6.3.5
In accordance with the Financial Conduct Authority's DTR 6.3.5, this announcement contains the condensed set of the Group's financial statements, information on important events that have occurred during the year ended 27 June 2020 and their impact on the financial statements, the Group's principal risks, uncertainties and mitigating actions, and related party disclosures and Group undertakings. Together with the directors' responsibility statement below, these 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 2020 Annual Report and Accounts, which is available on our website. Page references refer to page numbers in the 2020 Annual Report and Accounts.
Directors' responsibilities in respect of the preparation of the financial statements
This statement is repeated here solely for the purpose of complying with DTR 6.3.5. It relates to and is extracted from page 116 of the 2020 Annual Report and Accounts, included therein in compliance with DTR 4.1.12. R esponsibility is for the full 2020 Annual Report and Accounts and not for the condensed statements required to be set out in this full year results announcement.
Company law requires the directors to prepare Group financial statements for each financial year. The directors are required to
prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by
the European Union.
Each of the directors, whose names and functions are listed on pages 66 and 67 of the 2020 Annual Report and Accounts, confirm that, to the best of their knowledge:
-- The Group financial statements, which have been prepared in accordance with the applicable set of accounting standards, 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 whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and 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
Head office
The Go-Ahead Group plc
4 Matthew Parker Street
Westminster
London
SW1H 9NP
Tel switchboard: 0191 232 3123
Registrar
Equiniti Ltd
Aspect House, Spencer Road
Lancing
West Sussex
BN99 6DA
Tel: 0371 384 2193
(Lines are open 9.00am to 5.00pm, Monday to Friday (excluding public holidays in England and Wales)
Auditor
Deloitte LLP
1 New Street Square
London
EC4A 3HQ
Joint corporate broker
Investec Bank plc
30 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
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.
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