8th Sep 2006 07:00
Go-Ahead Group PLC08 September 2006 8 September 2006 THE GO-AHEAD GROUP PLC ("GO-AHEAD" or "the group") PRELIMINARY RESULTS FOR THE YEAR ENDED 1 JULY 2006 Go-Ahead is one of the UK's leading providers of passenger transport managementservices operating in the bus, rail and aviation sectors. Employing over 24,000staff across the country, over 800 million passenger journeys are undertaken onits services each year. In addition to the travelling public, customers includeTransport for London, BAA, major airlines, local authorities and the Departmentfor Transport. HIGHLIGHTS • Revenue increased to £1,464 million (2005 - £1,302 million) • Operating profit, before exceptional items and amortisation rose to £97.8 million (2005 - £97.0 million) • Profit before exceptional items, amortisation and tax was £91.9 million (2005 - £95.5 million) • Adjusted earnings per share were 118.4p (2005 - 116.3p) • Final dividend of 38.0p per share (2005 - 33.0p) is proposed making a total dividend for the year of 56.0p per share (2005 - 48.0p), an increase of 17% • Integration of Southern Vectis with Wilts & Dorset Bus Company completed • Acquisition of Birmingham Coach Company and Probus Management has established a business base in Birmingham • London bus businesses increase market share • Award of Integrated Kent Franchise has resulted in Southeastern franchise commencing operations in April 2006 • In Southern rail franchise, record operating performance was achieved • Aviation services improved trading performance Commenting on Go-Ahead's strategy and prospects, Chairman, Sir Patrick Brownsaid: "The new financial year has started in line with the board's expectations. Thegroup's strategy, focusing on organic growth and selective acquisitions in theUK, provides a firm basis for increasing returns in the years ahead. Strong cashflow will continue to support dividend growth and the share buy-back programme,the authority for which will be renewed at the forthcoming annual generalmeeting." For further information, please contact: The Go-Ahead Group plcKeith Ludeman, Group Chief Executive 8 September : 0207 067 0700Ian Butcher, Group Finance Director Thereafter : 0208 929 8650 / 0191 232 3123 Weber Shandwick Square Mile (WSSM) Tel : 0207 067 0700Richard Hews/Rachel Taylor/Stephanie Badjonat An analyst's presentation will be held at 9.30am at WSSM's offices, Fox Court,14 Gray's Inn Road, London, WC1X 8WS. Copies of the presentation will be available on the Company's website: www.go-ahead.com. NOTES TO EDITORS BUSThe group's bus division operates over 3,600 buses, providing over 505 millionpassenger journeys and covering around 236 million vehicle kilometres each year.Operations fall into four main geographical areas: deregulated services in northeast; deregulated services in West Midlands; deregulated services in south east/ southern England; and regulated services for Transport for London in thecapital. The newest addition to this division is Go West Midlands (formerly theBirmingham Coach Company / Probus Management), acquired during this financialyear. RAILThe group's rail division operates a fleet of 630 trains on which over 280million passenger journeys are undertaken. Concentrated in the south east ofEngland both our franchises, Southern and Southeastern, operate a mix ofsuburban commuter and mainline routes throughout south London, Kent, Surrey andSussex. The Southeastern franchise will include the operation of new high speedtrains on the domestic Channel Tunnel Rail Link into St Pancras from 2009. AVIATION SERVICESThe group's aviation services division undertakes a wide range of supportservices for national and international airlines. Services provided includecargo handling, passenger check-in, baggage handling, information desks,executive lounges, ground handling and customs clearance. In the last year 45million passengers were handled as well as over half a million aircraftmovements. The division includes Meteor Parking which is the second largestparking company in the UK, managing over 58,000 parking spaces predominantly atBAA airports, with a range of customers, including BAA, local authorities,retail outlets, NHS trusts, hotels and rail stations. Well known brands include'Pink Elephant', 'Park 1' and 'eparking'. PRELIMINARY RESULTS FOR THE YEAR ENDED 1 JULY 2006 CHAIRMAN'S STATEMENT Against a challenging background, the group has delivered a creditableperformance and made good progress in developing its operations for the future.Revenue increased to £1,464 million (2005 - £1,302 million), with profit beforeexceptional items, amortisation and tax of £91.9 million (2005 - £95.5 million).Adjusted earnings per share were 118.4p (2005 - 116.3p). The board proposes afinal dividend of 38.0p (2005 - 33.0p) per share payable on 24 November 2006 toshareholders on the register at the close of business on 3 November 2006. Thisrepresents a total dividend for the year of 56.0p (2005 - 48.0p), an increase of17 per cent, reducing the dividend cover to 2.1 times (2005 - 2.4 times)adjusted earnings, in line with our stated policy of reducing dividend cover to2.0 times by the year ending 2007. Shortly after the year-end, events were overshadowed by the illness of ChrisMoyes and his consequent resignation from the board and as chief executive.Chris has made a major contribution to the development of the group sinceprivatisation and, indeed, to the transport industry as a whole. He is a likedand well-respected figure in the industry and will be missed. The group isfortunate, however, to have a strong executive team and the board is confidentthat, under the leadership of Keith Ludeman, formerly chief executive of ourrail division, the strategy that has been so successful for the group willcontinue to deliver value. The year started with rising fuel costs and the terrorism of 7 and 21 July inLondon which particularly affected demand for our rail services. The group hasmade good progress in dealing with these problems. In our bus business, we have completed the integration of Southern Vectis withWilts & Dorset, delivering significant cost and operational benefits. We haveestablished a business base in Birmingham. The process of integrating andupgrading the businesses acquired, to provide further growth opportunity for thegroup, is underway. The depot infrastructure upgrade of our Metrobus subsidiaryis now complete. First class operating performance in our London bus businesses,where we have consistently topped the TfL quality league tables, has providedthe platform to increase market share. Other projects to improve efficiency arenow producing benefits. The board is confident that the bus business willincrease revenues and profit in the coming year, despite the continued pressurefrom fuel prices. In rail, the group's success in winning the Integrated Kent franchise hasestablished a platform for earnings growth in what is now called theSoutheastern franchise. Operations commenced on 1 April 2006 and it has startedwell. Meanwhile, the Southern business, having quickly recovered from the eventsof July 2005, has pushed its quality standards to new heights, supportingpassenger growth. The end of nine years of our ownership of the Thameslinkfranchise was marked by record levels of operating and financial performance.Looking beyond the current year, the main operating challenge for the railbusiness is likely to be the increasing cost of traction energy. There are other opportunities to expand in rail and in June the group was shortlisted to bid for the TfL London Rail Concession. We also intend to enter theimminent competition for franchises in the Midlands. In aviation, our cargo business was particularly successful in increasing bothvolume and profits during the year. General ground handling services have beenrestructured following the change of management last September. As well asreducing its cost base, the division has improved the quality of its businessand shown encouraging growth at Heathrow. Recent high profile contract winsthere, and other prospective developments, underpin an improving trading outlookfor this division despite the recent terrorist threats. During the year there have been several key management changes in oursubsidiaries. These have strengthened the group's ability to deliver profitablegrowth, and I wish to thank all the management teams and their staff for theirachievements in what was not an easy year. The new financial year has started in line with the board's expectations. Thegroup's strategy, focusing on organic growth and selective acquisitions in theUK, provides a firm basis for increasing returns in the years ahead. Strong cashflow will continue to support dividend growth and the share buy-back programme,the authority for which will be renewed at the forthcoming annual generalmeeting. Sir Patrick BrownChairman7 September 2006 OPERATING AND FINANCIAL REVIEW SUMMARY 2006 2005 £m £mRevenue 1,463.6 1,302.1Operating profit* 97.8 97.0Cash flow generated from operations 116.9 131.7Profit before exceptional items, amortisation and tax 91.9 95.5 Earnings per share (adjusted) 118.4p 116.3pDividends paid and proposed 56.0p 48.0p * Before exceptional items and amortisation Underlying the lower profit before exceptional items, amortisation and taxcompared with the previous year is a significant recovery in the second half ofthe year compared to the first. In the first six months, operating profits weredown from £50.9 million in 2005 to £46.3 million this year. In the second half,operating profits increased to £51.5 million from £46.1 million last year. The year started with the pressure of high fuel costs in our bus division andthe events of July 7th and 21st putting pressure on rail division volumes. Thegroup has recovered from these factors for the following reasons: • the group was successful in winning the Integrated Kent railway franchise. The operation of the resulting Southeastern rail franchise in the final quarter of our financial year delivered a better than expected contribution. • rail volumes, particularly in Southern, recovered from the consequences of the July events, partly through the achievement of record operating performance, delivering the double benefits of improved performance regime payments and improved passenger volumes. • continuing progress in our aviation operations which showed particular improvement in the second half of the year. • cost management and restructuring in the deregulated bus division delivering benefits in the second half. With a full year of the Southeastern franchise, the continuing recovery ofderegulated bus margins, the growth in aviation profitability and continuingsolid results in the London regulated bus market, prospects for 2007 areencouraging. The share buy-back programme and effective management of the group's taxexposure have delivered growth in adjusted earnings per share despite the fallin profits. Risk factors remain, particularly the continuing pressure on energy prices andthe effects of terrorist activities disrupting the flow of, and demand for,transport services. The group is, however, well positioned to meet thesechallenges. DIVISIONAL REVIEW BUS 2006 2005 £m £mRevenue Continuing 450.0 412.9 Acquisitions 10.0 - ______________________________ 460.0 412.9 ______________________________Operating profit* Continuing 47.2 51.6 Acquisitions (0.5) - ______________________________ 46.7 51.6 ______________________________Margin Continuing 10.5% 12.5% Acquisitions (5.0)% - ______________________________ Overall 10.2% 12.5% Revenue growth Regulated 5.5% 7.9% Deregulated 19.4% 8.1% Volume growth Regulated - miles operated 1.3% 0.6% Deregulated - passenger journeys 12.2% (1.0)% * Before exceptional items and amortisation On a like for like basis, compared to last year, the cost of fuel increased by£9 million on top of a £6 million increase last year, decreasing further themargins posted for this division since a peak was achieved in the first sixmonths of 2004 when margins reached 14.4%. Excluding the acquisition ofoperations in Birmingham, however, margins increased from 10.3% in the firsthalf to 10.9% in the second half of the year. Margin progression is expected tocontinue in the current financial year, including Birmingham. A number of initiatives have been instigated to improve margins. As well asactions to address fuel consumption, mainly related to vehicle engineering, fueltechnology and driver training, initiatives have been, and are being, put inplace to reduce utility costs and improve labour productivity. Examples ofbenefits achieved to date are a 1% reduction in absenteeism levels over the yearand improved rostering productivity. Specific actions have also been taken, particularly in the deregulated area ofbusiness, on a company by company basis: • Integration of the group's South Coast operations following the acquisition of Southern Vectis in June 2005 saving over £1.3million of overheads on an annualised basis. • Network revisions on the South Coast, particularly the Isle of Wight, Southampton, Poole and Bournemouth, delivering volume growth on reduced mileage operated. • Completion of the Metrobus Depot expansion programme delivering greater capacity with much reduced costs expected into the new financial year. • Investment in new vehicles linked with network revisions in Oxford delivering passenger growth for the first time in several years. • Quality improvements in the North East stabilising patronage linked with a new commercial strategy designed to deliver selective growth at lower cost in the current year. During the year volumes have increased. Excluding acquisitions made in thecurrent and prior years, like for like deregulated bus passenger journeysincreased by 0.7%. Growth momentum was particularly strong towards the end ofthe year, the principal examples being as follows: • During the last month of the year Southern Vectis achieved 16% volume growth on the Isle of Wight compared to the previous year, driven by the revised network and the new free concessionary fare scheme. • Despite a 10% reduction in mileage in the Poole, Bournemouth and Christchurch conurbation, patronage was up 23% year on year. • In Oxford the patronage increase, compared to the previous year, was 5.7% in the last quarter. Growth prospects are further underpinned by recent acquisitions: a new operatingbase in Birmingham has been established with the acquisition of Birmingham CoachCompany Limited in December 2005 and the business assets of Probus ManagementLimited in March 2006; the acquisition of Hants & Dorset Trim Limited in January2006 in the Southampton area; and the acquisition from Stagecoach by theBrighton & Hove subsidiary of operations around Lewes. As part of the North Eastrationalisation programme the group also sold its operations in the South Durhamarea. Other than in Birmingham, these actions have helped support the improvement inthe division's second half profitability. In Birmingham, initial start-upissues, particularly in upgrading engineering standards to the qualityrequirements of the group, have been detrimental to profitability in the shortterm. These initial stages are now complete and plans are being developed todeliver profitable and growing operations in the key West Midlands conurbation,the biggest deregulated bus market in the country. Continuing property investment is being made to support growth. As well as forMetrobus, the group has built new depot facilities in Brighton and is about tostart a project in the North East to develop a new 'super' depot replacing threeexisting depots, funded by property disposal proceeds. Property disposalproceeds have been realised on the Isle of Wight, allowing the development of anew bus station in Newport. Investment upgrades to the depots in Birmingham willtake place this year, including expenditure to allow the re-opening of theRedditch depot, 'mothballed' by the previous Probus management. The Blandfordsite in Dorset, referred to last year, now has planning consent and will bedeveloped shortly while expansion plans are in hand at the Eastleigh depot inSouthampton. The London regulated market has been the main beneficiary of the development ofthe Metrobus depot capacity. Whilst the table above shows volume growth in theregulated market of only 1.3%, this was much more marked in the second half ofthe year. By the end of the year the peak vehicle requirement of the group'soverall London operations had increased by 7.5% compared to the start of theyear and this growth in volume will be reflected in mileage operated in thecoming year. This trend is in line with that predicted in last year's report andby the end of the year, the group's London operations were at their largestscale to date. A major factor in this success had been the achievement of recordoperating performance. This has been reflected for most of the year in LondonGeneral and London Central generally being top of the TfL performance leaguetables in the critical areas of mileage operated (before losses due to traffic)and excess waiting time. The benefit not only underpins the group's credibilityand ability to win contracts but has also delivered £11 million in qualityincentive bonuses (2005 - £9 million). It has also allowed the group'sbusinesses to take advantage, under the quality incentive regime, of extendingall its eligible contracts for a further two years at the end of their normalfive year period. The regulated market, however, remains competitive andmanagement remains focused on the cost reduction measures noted above. Asexpected last year, operating margins continued to reduce in the year leading toa reduction in absolute profit despite the modest growth in volume. In thecurrent year, growth in volume is expected to offset a further fall in marginsto what is expected to be a sustainable level in the longer term. The growth of overall bus operating margins in the current year is, therefore,expected to be delivered entirely by improvement in the deregulated bus market.The principal risk in achieving this growth is a further material escalation inthe price of fuel. No hedging is in place for the current year. Every penny ofmovement in the cost of a litre of ULS diesel alters divisional costs byapproximately £1 million per annum. The group constantly monitors the price offuel and seeks opportunities to put in place appropriate instruments to providea hedge against future fuel price volatility. Given the high fuel price andpremium required for forward cover, however, the group has not entered into fuelhedges in the recent past. RAIL 2006 2005 £m £mRevenue 744.9 617.9Operating profit* 42.5 39.9Margin 5.7% 6.5%Passenger income growth** Southern 7.1% 6.1% Thameslink 5.3% 2.2%Volume growth** Southern 2.8% 4.6% Thameslink 8.8% (0.8)% * Before exceptional items and amortisation** The passenger income and volume growth figures for the three months of Southeastern operation are not included in the above table as comparable figures for last year are not available This was a very successful year for the group's rail businesses, despite theinitial difficulties following the events of 7/21 July. The fate of Thameslinkwas already determined before the start of the year but transfer management hasproved successful. In Southern, superb operating performance and consequentvolume growth provided an excellent result. The Southeastern franchise hasstarted well. By the second half, Thameslink had recovered its volume growth pattern and this,combined with tight cost control, excellent operating performance, and the assettransfer values achieved at the end of the franchise, meant that the result forthe period to the end of March was ahead of expectations this time last year. In Southern, record operating performance was achieved. The public performancemeasure was showing over 90% of trains running on time by the year-end. The hugeinvestment in new rolling stock and support facilities is helping to deliverthis and has had several benefits: • the performance regime has delivered £10.7 million net benefit compared to the previous year. • the 5% discount given to season ticket holders as compensation for the company's past underperformance was removed in the year for the first time since 2001. • the quality of product now being delivered is supporting growth in passenger journeys. Whilst the overall growth in passenger journeys was relatively modest, thisreflects the initial effects of 7/21 July. In the final third of the year,volume was up by 5%. It is indeed gratifying that Southern was recently awarded best rail company inthe National Transport Awards. Passengers are clearly enjoying the improvementswith the customer satisfaction rating reaching 81% from 71% last year. Both Southern and Thameslink were subject during the year, to profit sharingregimes with the DfT. This mitigates the full benefit of the year's achievementsbeing realised in these results. This does not apply to the new Southeasternfranchise where a revenue share mechanism is in place, which has not beentriggered to date. The new Southeastern franchise has had a number of challenges. To date thesehave been robustly tackled and in the last quarter the business made a goodcontribution to the group's result beyond plan. Key issues being addressed areorganisational structure, where significant cost benefits will be realised inthe near future, and ensuring that customers can and do pay for travel.Investment in staff and equipment in the retail environment is moving at a pace. The principal risk for Southern and Southeastern in the last quarter of thecurrent year and beyond is the 65% prospective price increase for tractionelectricity. Compared to the current price the annualised cost of this increaseto the division is £21 million. Discussions are taking place with industry andregulatory bodies to explore how this might be mitigated. Management actions toboost revenue and reduce costs in all areas are also being investigated toensure that the effects of the traction electricity are mitigated as far aspossible. This issue, together with other cost increases and subsidy changes, isexpected to affect the results of the division in the current year. As seen inJuly 2005, terrorist action, or equivalent incidents affecting the rail network,can have a material impact on future results and the group remains vigilant. The group continues to pursue opportunities when attractive franchises are upfor re-tender. This approach has proved highly successful to date and has meantthat third party costs expensed in the income statement for bidding in the yearwere limited to £1.4 million (2005 - £1.3 million). As well as the success inwinning the Integrated Kent franchise, the group has been short listed for theTfL London Rail Concession. In the current year the group has also submittedpre-qualification submissions for new franchises in the Midlands region. AVIATION SERVICES 2006 2005 £m £mRevenue 258.7 271.3Operating profit* 8.6 5.5Margin 3.3% 2.0%Revenue growth General handling (2.9)% 5.0% Cargo 10.4% 6.0% Car parking (7.0)% 22.0%Volume growth General handling - aircraft turnarounds (5.8)% 4.0% Cargo - tonnes 6.8% 4.0% Car parking - transaction volume (3.1)% 51.0% * Before exceptional items and amortisation In the general handling business, the reduction in turnarounds reflects thestrategy to increase focus on the full service airline sector away from highvolume but low margin charter and 'low cost' sector. The result has been thatground handling revenue has reduced but the value per turnaround has increasedby 5%. This, combined with a strategy to improve efficiency by restructuring thecost base, has increased operating margins in general handling from 0.5% in 2005to 1.75% in the last year. This modest success disguises the improving trend asthe year progressed. Recent contract wins at Heathrow, where the group is theleading independent handler, of Emirates and South African Airways will furthersupport the growth in profitability. The division is also well positioned tosupport airline outsourcing strategies. Current opportunities are beinginvestigated with a number of major airlines. There have been further successesin establishing new contracts with airport authorities at Cardiff for baggagehandling and Aberdeen and Durham/Tees Valley for new ramp operations. The groupis also prominent as the first handling agent of the new A380 aircraft atHeathrow. The first airline expected to deploy these aircraft at Heathrow in thecurrent year is an 'aviance' customer. The cargo area was the most rewarding activity in the last year. The largevolume increase was a combination of organic growth from successful existingcustomers and new and recent customer wins. These include SAS at Heathrow andEtihad at Manchester. This has meant improved utilisation of operatinginfrastructure and margins have improved from 6.4% for 2005 to 9.4% in the lastyear. A new 65,000 sq. ft. warehouse is currently being built at Heathrow tostart up operations in April 2007. Negotiations are nearing completion topre-sell all this space. The sector remains competitive and subject to volatility in customer strategy,world economy and events, including terrorism. In recent months customers havebeen trimming their schedules to optimise returns and cargo growth has slowed.Although the recent terrorist threat will put further pressure on consumerdemand, the division is well placed to balance consequent losses with gainsdriven by continuous improvement of operational quality and efficiency. The Meteor car parking business has held its own in profitability terms againstthe background of a declining airport business. Airports remain a dominant areaof business for the company with over 80% of revenue being derived here.However, the landscape has been changing with airport authorities seeking toimprove their revenue from car parking operations which, in most cases, is theleading source of airport revenue. This has resulted in lost business inEdinburgh, Newcastle and short-stay at Stansted and a change in arrangements atHeathrow to a management contract from the previous concession, all of which hascontributed to the 7.0% fall in revenue. The value of Meteor's diversification, referred to last year, is now proving ofbenefit, if not in replacing volume, in replacing profits with higher marginbusiness. In the current year this re-focusing will continue with growth of theairport valet parking product, rail contracts, retail parking, security,technology and other related activities around the core business. The progress being made in the division, as a whole, is illustrated by comparingthe financial performance of the respective half year results. In the first halfprofits were the same as the previous year at £3.7 million. In the second halfprofits increased to £4.9 million from £1.8 million in the previous year. Theprospects for the division in the current year are encouraging. ADDITIONAL FINANCIAL MATTERS EXCEPTIONAL ITEMS The exceptional items recorded are mainly in respect of redundancy andreorganisation costs. As noted in the respective divisional reviews, significantreorganisations have taken place in the aviation division and the South Coastbus operations. Actual and planned redundancies on the new Southeastern railfranchise had either been completed by the year end or detailed plans had beencommunicated to the workforce in respect of redundancies to take place inSeptember this year. All these costs have been provided for in these financialstatements. In the Metrobus subsidiary significant additional costs wereincurred during the depot restructuring programme referred to above and thesecosts have been treated as exceptional due to the infrequency of such are-organisation. Separately, the group has concluded a number of propertydisposals in the year which yielded a net profit of £1.2m. The sales wereprincipally of former bus depot sites. GOODWILL AND INTANGIBLE AMORTISATION Amortisation in the year is in respect of goodwill, and intangible assetsassociated with the Southern and Southeastern railway franchises, as well asamortisation on computer software costs. Amortisation also includes that of theintangible assets associated with pensions accounting in the railway companies. PENSIONS Pensions have been accounted for in accordance with IAS 19. IAS 19 has beenapplied to the rail schemes in accordance with the approach adopted by otherrailway operators. This accounting treatment applies a franchise adjustment toreduce the full actuarial deficit or surplus to recognise that individual trainoperating companies are exposed to pension deficits or surpluses only in so faras they are expected to be funded by the train operating companies over theanticipated period of franchise ownership. Any net liability or asset therebyrecognised at the start of a franchise is matched by a corresponding intangibleasset or deferred income balance so that the balance sheet effect is initiallyneutral. The respective balances are amortised over the period of the franchiseand as a consequence, over the franchise as a whole, the net charge for pensionsto the profit and loss account reflects the equivalent of employer cashcontributions paid. Under the terms of IAS 19, the rate of net charge to profit is determined byactuaries at the commencement of the respective financial year. Materialdeviations from the actuarial assumptions used in calculating the charge aredealt with through the consolidated statement of recognised income and expense.In the last year, the particular feature consequently not recorded in the profitand loss account is the high returns on the group's non-rail pension assets overand above the return assumed in the actuarial calculations. In the year theadditional return amounted to £29.9 million. This is the principal reason forthe fall in the non-rail IAS 19 pension deficit from £101.1 million to £87.5million. The most material change in actuarial assumptions this year is toincrease mortality rates. TAXATION In comparison to last year, under IFRS, the tax charge has been materiallyreduced from 27.4% to 23.2%. Part of the reduced rate against the standard rateof 30% is due to settlement of outstanding issues at the end of last year withHMRC. The effective management of asset finance arrangements has also deliveredbenefit. In 2005, under UK GAAP, the tax rate was recorded at 23.4%. Theprincipal reason for the difference is that last year the tax deductionavailable in respect of the group's share scheme was deemed a permanent taxdifference. Under IFRS, the tax deductions for scheme costs recognised underIFRS2 are dealt with through deferred tax. DIVIDENDS The total dividend for the year of 56p, comprising this year's interim dividendpaid and proposed final dividend, represents an increase of 17% over last year.The dividend cover is now 2.1 times adjusted earnings compared to 2.4 times lastyear. The board's stated intention remains to reduce cover to 2.0 times by theyear ending 2007. CASH FLOW Cash generated from operations was £116.9 million (2005 - £131.7 million). Theresult for the year is distorted by cash flow movements in connection with thetransfer of the Southeastern rail franchise. In particular, cash has beenabsorbed by the rapid build-up of working capital from the date of transfer, asthe transfer of franchise assets excluded debtors. This was somewhat compensatedby cash that was received at the date of transfer of the franchise ascompensation for the transfer of net creditors from the previous franchisee. Capital expenditure was, again, high at £70.9 million (2005 - £72.3 million).New bus expenditure amounted to £50.2 million (2005 - £29.6 million). This washigher than expected at the start of the year because of the success in winningnew regulated bus contracts in the London market. A significant feature in the year has been the share buy-back programme in whichthe group has invested £52.6 million (2005 - £14.1 million) in acquiring3,204,000 shares, representing 6.2 per cent of the issued share capital. Theprogramme has continued in the current year and shareholders will be asked torenew the authority at the forthcoming annual general meeting to enable theprogramme to be extended. Shares held in treasury as a consequence of buy backsto date represent 9.3% of the issued share capital. Over the year as a whole, the group has increased net borrowing by £75.4 million(2005 - £31.9 million). In addition to capital expenditure and share buy-backs,the group has continued to be active in its acquisition policy and has absorbedfurther cash through its dividend policy. BALANCE SHEET Year end net debt amounts to £138.8 million (2005 - £63.4 million). Excludingrestricted rail cash deposits, the figure is £199.5 million (2005 - £146.5million). In addition, there are off balance sheet operating lease commitments,banking bonds and guarantees and the pension deficit which affect the group'seffective debt capacity. Other elements of the balance sheet have been materially affected byacquisitions and transfer of rail franchises, in the year. In particular,Southeastern has led to material increases in the carrying values of variouscategories of asset and liability. After recognising distributions to shareholders in the form of dividends of£25.3 million and share buy back of £52.6 million, net assets have notmaterially changed in the year. ACCOUNTING POLICES AND INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) As reported last year, the material issues affecting the group's profit are inrelation to pensions (IAS 19) and share based payments (IFRS 2) both of whichhave resulted in increased charges to group profit compared to UK GAAP. CONSOLIDATED INCOME STATEMENTfor the year ended 1 July 2006 2006 2005 Notes £m £m GROUP REVENUE 2 1,463.6 1,302.1 Operating costs (excluding amortisation and exceptional items) (1,365.8) (1,205.1) _________________________Group operating profit (before amortisation and exceptional items) 2 97.8 97.0 Goodwill and intangible amortisation (5.1) (4.0)Exceptional items 3 (3.2) 2.4Share of post tax results of joint venture - 0.3 _________________________Group operating profit (after amortisation and exceptional items) 89.5 95.7 Finance revenue 4.9 4.3Finance costs (10.8) (6.1) _________________________Profit on ordinary activities before taxation 83.6 93.9 Analysed as: _________________________ Before amortisation and exceptional items | 91.9 95.5 | Amortisation and exceptional items | (8.3) (1.6) | |_________________________| Tax expense 4 (19.4) (25.7) _________________________Profit for the year from continuing operations 64.2 68.2 ========================= Attributable to: Equity holders of the parent 53.7 57.9 Minority interest 10.5 10.3 _________________________ 64.2 68.2 ========================= Earnings per share from continuing operations - basic 5 108.1p 113.8p - diluted 5 107.0p 111.5p - adjusted 5 118.4p 116.3p Dividends paid (pence per share) 6 51.0p 42.0pFinal dividend proposed (pence per share) 6 38.0p 33.0p CONSOLIDATED BALANCE SHEETas at 1 July 2006 Notes 2006 2005 £m £mASSETSNon-current assetsProperty, plant and equipment 425.2 350.1Intangible assets 118.8 76.5Retirement benefit asset - 0.9Trade and other receivables 1.7 2.4Deferred tax assets 32.2 32.2 _________________________ 577.9 462.1 _________________________Current assetsInventories 10.0 6.3Trade and other receivables 179.3 138.8Cash and short-term deposits 90.2 98.7 _________________________ 279.5 243.8 Assets classified as held for sale 0.3 2.3 _________________________TOTAL ASSETS 857.7 708.2 ========================= LIABILITIESCurrent liabilitiesTrade and other payables (337.1) (264.9)Interest-bearing loans and borrowings (61.9) (38.2)Current tax liabilities (6.6) (8.4) _________________________ (405.6) (311.5)Non-current liabilitiesInterest-bearing loans and borrowings (167.1) (123.9)Retirement benefit obligations (103.8) (101.1)Deferred tax liabilities (57.6) (45.8)Other liabilities (6.1) (8.0)Provisions (8.0) (8.0) _________________________ (342.6) (286.8) Liabilities directly associated with assets classified as held for sale (0.2) - _________________________TOTAL LIABILITIES (748.4) (598.3) _________________________ NET ASSETS 109.3 109.9 ========================= CAPITAL & RESERVESShare capital 8 65.6 61.3Reserve for own shares 8 (67.1) (14.5)Revaluation reserve 8 12.4 -Other reserves 8 1.6 0.6Retained earnings 8 93.1 53.6 _________________________Total shareholders' equity 105.6 101.0 Minority interest 8 3.7 8.9 _________________________TOTAL EQUITY 109.3 109.9 ========================= CONSOLIDATED CASH FLOW STATEMENTfor the year ended 1 July 2006 Notes 2006 2005 £m £m Group operating profit (after amortisation and exceptional items) 89.5 95.7 Depreciation of property, plant and equipment 38.0 35.2Amortisation of goodwill and intangible assets 5.1 4.0Profit on sale of property, plant and equipment (1.3) (3.3)Share based payments 0.7 -Difference between pension contributions paid and amounts recognised in the income statement 5.4 1.9Decrease/(increase) in inventories 0.5 (0.3)Increase in trade and other receivables (31.6) (43.4)Increase in trade and other payables 10.6 42.2Share of post tax results of joint venture - (0.3) ____________________Cash flow generated from operations 116.9 131.7 Taxation paid (15.3) (28.0)Net receipt on transfer of rail franchises 7.9 - ____________________Net cash flows from operating activities 109.5 103.7 ____________________ Cash flows from investing activitiesInterest received 5.2 4.0Proceeds from sale of property, plant and equipment 3.0 15.3Purchase of property, plant and equipment (70.9) (72.3)Acquisition of intangible assets (3.5) -Purchase of businesses (11.6) (34.2)Cash acquired with subsidiaries 0.9 5.6 ____________________Net cash flows used in investing activities (76.9) (81.6) ____________________ Cash flows from financing activitiesInterest paid (10.6) (6.4)Dividends paid to members of the parent (25.3) (21.5)Dividends paid to minority interests (15.1) (10.2)Proceeds from issue of shares 4.3 4.7Payment to acquire own shares (52.6) (14.1)Repayment of borrowings (81.5) (22.0)Proceeds from borrowings 147.3 102.8Proceeds from finance lease and hire purchase 13.5 31.2Payment of finance lease and hire purchase liabilities (18.4) (73.1)Repayment of loan notes (0.1) - ____________________Net cash outflows on financing activities (38.5) (8.6) ____________________ Net (decrease)/ increase in cash and cash equivalents (5.9) 13.5 Cash and cash equivalents at 2 July 2005 86.3 72.8 ____________________Cash and cash equivalents at 1 July 2006 9 80.4 86.3 ==================== CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEfor the year ended 1 July 2006 Notes 2006 2005 £m £mIncome and expense recognised directly in equity Share based payments 0.7 -Actuarial gains/(losses) on defined benefit pension plans 16.9 (39.5)Revaluation of land and buildings 12.4 -Tax recognised directly in equity 4 (6.5) 14.5 ___________________Net income / (expense) recognised directly in equity 23.5 (25.0) Profit for the year 64.2 68.2 ___________________Total recognised income and expense for the period 87.7 43.2 =================== Attributable to: Equity holders of the parent 77.5 31.9 Minority interest 10.2 11.3 ___________________ 87.7 43.2 =================== NOTES TO THE PRELIMINARY ANNOUNCEMENTfor the year ended 1 July 2006 1. ACCOUNTING POLICIES These results have been prepared using accounting policies that comply withInternational Financial Reporting Standards ("IFRS"). The results for the yearended 1 July 2006 represent the group's first annual report and financialstatements prepared under IFRS. Previously the group reported under UK GAAP.Detailed UK GAAP to IFRS reconciliations, including the group's accountingpolicies under IFRS, were issued on 17th February 2006. Adoption of the industryapproach to the accounting for the Railway Pension Scheme has resulted in adeparture from the requirements of IAS 19 "Employee Benefits". 2. SEGMENTAL ANALYSIS The group's primary reporting format is business segments and its secondaryformat is geographical segments. The operating businesses are organised andmanaged separately according to the nature of the products and servicesprovided, with each segment representing a strategic business unit that offersdifferent products and serves different markets, as detailed in the divisionalreview in the Operating and Financial Review. Business segmentsThe following tables present revenue and profit information regarding thegroup's business segments for the years ended 1 July 2006 and 2 July 2005. Year ended 1 July 2006 Aviation Bus Rail services Total £m £m £m £mSegment revenue 474.6 748.5 263.7 1,486.8Inter-segment revenue (14.6) (3.6) (5.0) (23.2) ________________________________________Group revenue 460.0 744.9 258.7 1,463.6 ======================================== Operating profit (before amortisation and exceptional items) 46.7 42.5 8.6 97.8 Goodwill and intangible amortisation (0.5) (4.4) (0.2) (5.1)Exceptional items 0.1 (1.8) (1.5) (3.2) ________________________________________Group operating profit (after amortisation and exceptional items) 46.3 36.3 6.9 89.5 ============================Net finance costs (5.9) ________Profit before tax and minority interest 83.6Tax expense (19.4) ________ Profit for the year 64.2 ======== Year ended 2 July 2005 Aviation Bus Rail services Total £m £m £m £mSegment revenue 415.4 617.9 273.1 1,306.4Inter-segment revenue (2.5) - (1.8) (4.3) __________________________________________Group revenue 412.9 617.9 271.3 1,302.1 ========================================== Operating profit (before amortisation and exceptional items) 51.6 39.9 5.5 97.0 Goodwill and intangible amortisation (0.5) (3.3) (0.2) (4.0)Exceptional items 2.4 - - 2.4Share of post tax results of joint venture - - 0.3 0.3 __________________________________________Group operating profit (after amortisation and exceptional items) 53.5 36.6 5.6 95.7Net finance costs ================================ (1.8) ________Profit before tax and minority interest 93.9Tax expense (25.7) ________ Profit for the year 68.2 ======== 3. EXCEPTIONAL ITEMS 2006 2005 £m £mRedundancy and reorganisation costs (3.8) -Property relocation costs (0.6) -Profit on sale of properties 1.2 3.1Loss on transfer of Thames Trains franchise - (0.7) ____________________________ (3.2) 2.4 ============================ The redundancy and reorganisation costs are as a result of significantreorganisations in the aviation division and the south coast bus operations,plus actual and planned redundancies following the handover of the Southeasternrail franchise. Property relocation costs are costs incurred during the major depotrestructuring programme at Metrobus. The profit on sale of properties relates to disposals of various bus depots. 4. TAXATION Tax recognised in the Income statement and in equity 2006 2005 £m £mCurrent tax charge 19.2 22.9Adjustments in respect of current tax of previous years (1.3) (2.1) ____________________ 17.9 20.8Deferred tax relating to origination and reversal of temporary differences 2.2 4.2 Previously unrecognised deferred tax of a prior period (0.7) 0.7 ____________________Tax reported in consolidated income statement 19.4 25.7 ==================== Tax relating to items charged or credited to equity 2006 2005 £m £mCorporation tax on share based payments (3.2) (3.0)Deferred tax on share based payments 1.5 0.4Tax on actuarial losses on defined benefit pension plans 5.0 (11.9)Revaluation of fuel hedge (0.1) -Revaluation of properties 3.3 - ____________________Tax reported in equity 6.5 (14.5) ==================== 5. EARNINGS PER SHARE Basic earnings per share 2006 2005Net profit attributable to equity holders of the parent (£m) 53.7 57.9Weighted average number of shares in issue (thousands) 49,674 50,901 ____________________ Basic earnings per share (pence per share) 108.1 113.8 ==================== The weighted average number of shares in issue excludes treasury shares held bythe company, and shares held in trust for the directors' long term incentiveplan. Diluted earnings per share 2006 2005Net Profit attributable to equity holders of the parent (£m) 53.7 57.9 ____________________Weighted average number of shares in issue (thousands) 49,674 50,901 ____________________Effect of dilution: Dilutive potential ordinary shares under share option schemes (thousands) 491 1,018 ____________________Adjusted weighted average number of shares (thousands) 50,165 51,919 ____________________Diluted earnings per share (pence per share) 107.0 111.5 ==================== The dilution calculation assumes conversion of all potentially dilutive ordinaryshares. Adjusted earnings per share Adjusted earnings per share is also presented to eliminate the impact ofgoodwill and intangible amortisation and non-recurring exceptional costs andrevenues in order to show a 'normalised' earnings per share. This is analysed asfollows: 2006 2005 £m £mNet profit attributable to equity holders of the parent 53.7 57.9Adjustment in respect of exceptional items 3.2 (2.4)Adjustment in respect of amortisation of goodwill and intangible assets 5.1 4.0Adjustment in respect of minority interest element of the above (2.0) (1.3)Adjustment in respect of taxation of the above (1.2) 1.0 ____________________Adjusted profit attributable to equity holders of the parent 58.8 59.2 ____________________Adjusted earnings per share (pence per share) 118.4 116.3 ===================== 6. DIVIDENDS PAID AND PROPOSED 2006 2005 £m £mDeclared and paid during the yearEquity dividends on ordinary shares:Final dividend for 2005: 33p per share (2004: 27p) 16.4 13.8Interim dividend for 2006: 18p per share (2005: 15p) 8.9 7.7 ____________________ 25.3 21.5 ==================== 2006 2005 £m £mProposed for approval at AGM (not recognised as a liability as at 1 July)Equity dividends on ordinary shares:Final dividend for 2006: 38p per share (2005: 33p) 18.8 16.6 ==================== 7. BUSINESS COMBINATIONS On 25 September 2005, Brighton & Hove Bus and Coach Company Limited, a 100%owned subsidiary of the group acquired the business interests of Stagecoach inLewes and Seaford for £2.8 million (including expenses). 15 buses were acquiredand 65 staff transferred under TUPE, together with goodwill relating to threekey bus routes. On 2 December 2005, the group acquired 100% of the share capital of BirminghamPassenger Transport Services Limited, the holding company of Birmingham CoachCompany Limited, for a total consideration of £2.2m (including expenses),satisfied by the issue of 64,020 10 pence ordinary shares at £15.62 each beingthe fair value of the shares on 2 December 2005, deferred loan notes of £0.5m,and cash of £0.7m. Birmingham Coach Company Limited is a company incorporatedwithin the United Kingdom providing bus and coach services in the West Midlands. On 6 February 2006, the group acquired 100% of the share capital of Hants &Dorset Trim Limited, a company providing bus refurbishment, accident repair andseat re-trimming services to bus and coach operators, for a total cashconsideration of £5.5m (including expenses) on a debt free/cash free basis. On 22 February 2006, Birmingham Passenger Transport Services Limited, a 100%owned subsidiary of the group, acquired the trade and assets of ProbusManagement Limited, a bus operator in the Birmingham area, for a totalconsideration of £2.5m (including expenses). The above transactions have been accounted for as acquisitions in accordancewith IFRS3. The acquisition balance sheet has been adjusted to reflect fairvalues and the goodwill arising has been capitalised as an intangible asset.Management believes that the goodwill represents future growth opportunities andcreated value to the group in respect of non contractual relationships, customerloyalty, and an assembled workforce, for which the recognition of a discreteintangible asset is not permitted. A property valuation has been completed. 8. STATEMENT OF CHANGES IN EQUITY Reserve Revalu- Share for own ation Other Retained Total Minority capital shares reserve reserve earnings equity interests Total £m £m £m £m £m £m £m £mAt 3 July 2004 56.6 - - 0.6 42.8 100.0 7.5 107.5Shares issued for share option scheme 4.7 - - - - 4.7 - 4.7Acquisition of own shares - (14.1) - - - (14.1) - (14.1)Transfer re: own shares (0.4) - - 0.4 - - -Issue of preference shares - - - - - - 0.3 0.3Total recognised income and expense - - - - 31.9 31.9 11.3 43.2Dividends - - - - (21.5) (21.5) (10.2) (31.7) _______________________________________________________________________________________________________At 2 July 2005 61.3 (14.5) - 0.6 53.6 101.0 8.9 109.9Effect of implementing IAS32/39 - - - - (0.3) (0.3) (0.3) (0.6) _______________________________________________________________________________________________________ At 3 July 2005 61.3 (14.5) - 0.6 53.3 100.7 8.6 109.3Total recognised income and expense - - 12.4 - 65.1 77.5 10.2 87.7Dividends - - - - (25.3) (25.3) (15.1) (40.4)Arising on shares issued for acquisitions - - - 1.0 - 1.0 - 1.0Arising on shares issued for options 4.3 - - - - 4.3 - 4.3Acquisition of own shares - (52.6) - - - (52.6) - (52.6) _______________________________________________________________________________________________________At 1 July 2006 65.6 (67.1) 12.4 1.6 93.1 105.6 3.7 109.3 ======================================================================================================= Share capitalShare capital represents proceeds on issue of the company's equity, both nominalvalue and share premium. Reserve for own sharesThe reserve for own shares is in respect of 4,229,000 ordinary shares (8.3% ofshare capital). The shares were purchased in order to enhance shareholders'returns and are being held as treasury shares for future issue in appropriatecircumstances. During the year ended 1 July 2006 the group has repurchased3,204,000 shares (2005: 1,025,000 shares) for a consideration of £52.6m (2005:£14.1m). Other reserveThe other reserve represents the premium on shares that have been issued to fundor part fund acquisitions made by the group. This treatment is in line withSection 131 of the Companies Act. 9. ANALYSIS OF NET DEBT Cash and cash Loans HP/Finance Loan notes Total equivalents leases £m £m £m £m £m4 July 2004 72.8 (20.9) (82.7) (0.7) (31.5)Cash flow 9.5 (80.9) 41.9 0.1 (29.4)Acquisition 4.0 (2.2) (4.3) - (2.5) ____________________________________________________________2 July 2005 86.3 (104.0) (45.1) (0.6) (63.4)Cash flow (5.0) (65.8) 4.9 0.1 (65.8)Non-cash Movements - - (5.6) - (5.6) Acquisition (0.9) (0.7) (2.3) (0.1) (4.0) ____________________________________________________________1 July 2006 80.4 (170.5) (48.1) (0.6) (138.8) ============================================================ 10. STATUTORY ACCOUNTS The board approved the preliminary statement covering the year ended 1 July 2006on 7 September 2006. The financial information set out above does not constitutethe group's statutory accounts for the years ended 2 July 2005 and 1 July 2006.The financial information is derived from the group financial statements for theyear ended 1 July 2006. The group financial statements on which the auditorshave given an unqualified audit report, does not contain a statement undersection 237(2) or (3) of the Companies Act 1985. The financial statements forthe year ended 1 July 2006 will be sent to shareholders and delivered to theRegistrar of Companies in due course. They will also be available at theregistered office of the company, 3rd Floor, 41 - 51 Grey Street, Newcastle uponTyne, NE1 6EE during normal business hours or on the company's website,www.go-ahead.com. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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