9th Sep 2005 07:00
Go-Ahead Group PLC09 September 2005 9 September 2005 THE GO-AHEAD GROUP PLC ("GO-AHEAD" or "the group") PRELIMINARY RESULTS FOR THE YEAR ENDED 2 JULY 2005 Go-Ahead is one of the UK's leading providers of passenger transport managementservices operating in the bus, rail and aviation sectors. Employing over 20,000staff across the country, around 700 million passenger journeys are undertakenon its services each year. In addition to the travelling public, customersinclude Transport for London, BAA, major airlines, local authorities and theDepartment for Transport. HIGHLIGHTS---------- • Turnover, including joint venture, increased by 5% to £1,306 million (2004 - £1,244 million) • Pre-tax profits, before goodwill and exceptional items, up 5% to £95.9 million (2004 - £91.3 million) • Pre-tax profits £97.3 million (2004 - £19.7 million) • Adjusted earnings per share rose 11% to 122.5p (2004 - 110.3p). Basic earnings per share of 125.1p (2004 - loss of 32.1p) • Final dividend of 33p per share (2004 - 27p per share) is proposed, increasing the total dividend for the year by 26% to 48p per share (2004 - 38p per share) • £20 million so far invested in the share buy-back policy, to be continued in the current year • Operating cash flow £157 million (2004 - £150 million) before £25 million contribution to pension scheme at year-end now fully funded on an ongoing basis • Acquisition of Southern Vectis plc in June 2005 for £14 million and Plane Handling in August 2004 for £20 million. • Investment in expanding bus depot capacity of £16 million • Record performance levels at Southern achieved by year-end; robust and competitive bid submitted for Integrated Kent franchise • Turnaround and overall performance of aviation division showing signs of accelerating Commenting on Go-Ahead's prospects, Chairman Sir Patrick Brown said: "Although industry costs have risen sharply, the commitment of our managementand staff, together with the prospects for continuing growth in our markets,give us confidence in the future of your company" For further information, please contact:The Go-Ahead Group plcChris Moyes, Chief Executive 9 September : 020 7067 0700Ian Butcher, Group Finance Director Thereafter : 0191 2323123 Weber Shandwick Square Mile (WSSM) Tel: 020 7067 0700Richard Hews/Rachel Taylor/Stephanie Badjonat An analysts' 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 beavailable on the Company's website: www.go-ahead.com. PRELIMINARY RESULTS FOR THE YEAR ENDED 2 JULY 2005 CHAIRMAN'S STATEMENT I am pleased to report on another solid performance by the group based on ourfocus on the UK, in particular on regions of stronger economic and demographicgrowth. Turnover in the year increased to £1,306 million (2004 - £1,244million), with profit before exceptional items, goodwill and tax rising to £95.9million (2004 - £91.3 million). Adjusted earnings per share rose to 122.5p (2004- 110.3p). Safety remains at the heart of the business and we continue to ensure that oursystems and procedures meet the highest standards. We are, therefore, pleasedthat Routemaster buses on normal services were withdrawn shortly after theyear-end, and the operation of slam-door trains is due to end on schedule inNovember. Although occurring just after the year-end, the recent terrorist activity inLondon underlines the need for our proactive approach to on-board CCTV and extrasecurity measures. Although our services were not directly affected, I shouldlike to record the board's appreciation of the professionalism of our staff incoping with the aftermath of the attacks and in returning services to normalityas quickly as possible. Go-Ahead has invested consistently in training and developing the skills of allstaff, and in facilities and equipment used to operate services to provide forfuture growth. During the year, we have opened a new depot for the Oxford BusCompany, acquired a substantial new site for Metrobus in Croydon, and startedreconstructing the Metrobus depot in Orpington and modernising the Lewes Roaddepot in Brighton. Our investment in new trains and modernised depots at ourSouthern rail franchise is now delivering significantly improved train services. Growth has continued on our bus and rail services in London and on the SouthCoast. We were therefore pleased to buy Southern Vectis plc shortly before theyear-end. This business adds local bus services in Southampton and the Isle ofWight, complementing those taken on two years ago through the acquisition ofWilts and Dorset. The aviation services market remains highly competitive but the performance ofour businesses has improved, assisted by the acquisition of the remaining 50%shareholding in Plane Handling from Virgin Aviation. The group now has astronger presence and growing reputation at Heathrow. The failure to pre-qualify for the Thameslink and Great Western franchises wasdisappointing. However, we continue to compete for the Integrated Kent franchiseand intend to retain a strong presence in the UK rail market. Although industry costs have risen sharply, the commitment of our management andstaff, together with the prospects for continuing growth in our markets, give usconfidence in the future of your company. With this background, your board remains committed to a progressive dividend andshare buy-back policy. Therefore, we propose a final dividend of 33.0p (2004 -27.0p) per share payable on 25 November 2005 to shareholders on the register atthe close of business on 4 November 2005. This would produce a total dividendfor the year of 48.0p (2004 - 38.0p), reducing the dividend cover to 2.6 times(2004 - 2.9 times) adjusted earnings, in line with our stated policy of reachingthe peer group average. £20 million has so far been invested in the sharebuy-back policy announced in February 2005 following the interim results andthis will be continued in the current year. Sir Patrick BrownChairman 8 September 2005 OPERATING AND FINANCIAL REVIEW SUMMARY------- 2005 2004 ---- ---- (52 weeks) (53 weeks) --------- ----------- £m £m Turnover (including share of joint venture) 1,306.0 1,244.0Operating profit before exceptional items and goodwill 97.7 95.7Operating cash flow 131.7 150.3Profit before exceptional items, goodwill and tax 95.9 91.3 _______ _______Earnings per share (adjusted) 122.5p 110.3pDividend per share 48.0p 38.0p The underlying strength of the group's businesses is demonstrated by the strongoperating cash flow generation of £157 million, after adding back an additional£25 million contribution to the group's pension scheme. The growth in profitshas been achieved against a background of a £6 million increase in bus fuelcosts. Earnings have been further enhanced by effective management of thegroup's tax charge. The year has seen significant investment in people, property, equipment andfurther earnings enhancing acquisitions. The prospects for the current year areaffected by the continuing rise in fuel costs, terrorist attacks in London andthe economic slow down - but the actions taken in the last year, together withcontinuing focused management, adding value for shareholders, provide confidencefor the future. DIVISIONAL REVIEW----------------- BUS 2005 (52 weeks) 2004 (53 weeks) --------------- --------------- £m £m -- -- Turnover 412.9 387.5Operating profit 52.4 54.2 _______ _______Margin 12.7% 14.0% Adjusting for the acquisition of Wilts & Dorset in August 2003, and for 52 weeksagainst 53 weeks in 2004, turnover has grown by 8%. The London regulated market,representing over 50% of the division's turnover, grew by 7.9%, whilst theprovincial deregulated market grew by 8.1%. In London, where volume is dictatedby miles operated rather than passengers carried, volume growth was small withcontract gains and losses broadly equal. This contrasts sharply with 2004 whichshowed a 7% increase in mileage operated, consistent with the growth in themarket around the time of the introduction of the congestion charge. In theprovincial deregulated market, where revenue is dictated by the number ofpassengers carried, passenger volumes decreased by 1%. It can be seen that priceincreases have played a significant part in revenue growth. In the case ofLondon, a further contributor was the continued growth in quality incentivebonuses rising from £7 million in 2004 to nearly £9 million this year. This wasa result of continued excellent operating performance consistently above 99.5%of contracted mileage operated before losses due to traffic congestion, the keymeasure of quality in this market. Despite the overall growth in revenue, profit margins have been squeezed byrising costs. 65% of the division's costs are for labour and, during the year,the unit cost of labour rose by 7.8%. The biggest increases were in London with8.9% growth and the rest of the division averaged just over 5%. The cost of fuelper operating mile increased by 30% in the year adding 2% (£6 million) tooverall costs of bus operations, despite the benefit of the partial hedging inplace at the start of the financial year. There have also been some positivecontributions in reducing costs. In particular, the continuing development ofthe group's risk management systems has delivered over £1 million in costreductions in the area of third party claim and insurance costs, against markettrends. The second half of the year was disappointing with margins declining compared tothe first half from 14.1% to 11.2%. Margins normally weaken in the second halfof the year but the rising cost of fuel was a key factor in exaggerating thedecline this year, together with passenger volume slowing against expectations.Hence the expectation of an improvement in bus margins this year, noted in lastyear's review, was not achieved. During the year there has been significant activity designed to improve thequality of the business, supporting margins in future years, in the form ofinvestment in people, vehicles and depots. In the short term, these activitieshave reduced profits but the benefits will help underpin future profitability. Increased pay and improved staff training has had a short-term negative effect,but the benefits are now showing, particularly in reduced staff turnover. Thisis a critical factor in a labour intensive business. Several years ago staffturnover in London exceeded 30% per annum. This has now reduced to below 15% andsimilar achievements have been registered elsewhere. In the north-east where payincreases have been held at a relatively low level, in line with local marketconditions, high turnover has continued. This has manifested itself in decliningservice quality and reliability, exacerbating the decline of an alreadydeclining market. This is being addressed with more generous pay settlements andthe introduction of bus drivers from Poland from where 82 are now employed or intraining. The projects to expand depot capacity for Metrobus at Crawley and Orpington havesignificantly increased short-term costs (estimated at £0.5 million) in the yearas a consequence of using more remote temporary depot facilities. This programmewill be complete by January 2006 and, also by then, a new depot purchased at theend of the year in Croydon will be deployed to replace the inadequate Godstonefacilities. This positions Metrobus well for further expansion of its business,adding to the London contracts won in the year and those acquired in the secondhalf of the year from Tellings Golden Miller. This will also enable Metrobus totake full advantage of its recent successful bid for phase III of the GatwickFastway, expanding the business north of Horley in Surrey and continued growthof the Crawley town network which grew by 14% in volume during the year. Oxford and Brighton have also seen significant developments in depot facilities.In Oxford, the whole of the depot operations were moved from the old antiquateddepot site to a new purpose built depot in Cowley. Whilst the move createdsignificant additional short-term costs, operational benefits can now beexpected into the future. This will support action plans in the coming year toaddress the recent relatively poor performance in the face of stiff competition. In Brighton, a major upgrade of facilities at the Lewes Road depot is currentlybeing undertaken to support continuing strong patronage growth in the city whereoverall patronage growth, since 1994, has been more than 57% under Go-Ahead'sownership. This will be further enhanced in the immediate future by the expectedconclusion of discussions with Stagecoach to take over their operations based inLewes. Growth in the city is expected to continue with major developmentsrequiring a significant role for public transport, including a planned new parkand ride system on the outskirts of the city linked to rapid transport services. The Wilts & Dorset depot network has also been reviewed following acquisition inAugust 2003 and further investments are planned here. A new site at Blandfordwas acquired at the end of the year and it is hoped that three outdated existingdepots can be consolidated here. Of more significance in this market has beenthe investment in vehicles, following the award of the Bournemouth Universitycontract to operate a dedicated network of bus services for students and staff,and the launch of the "more" services into the Bournemouth market using vehicleswith full air conditioning, "2 + 1" layout seating and CCTV. High specificationvehicles have also been acquired to support additional park and ride services inSalisbury. Expansion here has also meant the need to recruit almost 100additional drivers which has been successfully achieved. Despite thedisappointing proposed sale of the Bournemouth Borough Council owned Yellow Busto a third party, notwithstanding a strong Go-Ahead bid, it is intended tocontinue to invest in the Bournemouth/Poole operation to expand market share inthis area. Investment in people and vehicles continues in the north east business, despitethe demographic decline and increase in car ownership leading to a fall inpatronage numbers. The decline has, however, led to further reductions in depotcapacity and, in the second half of the year, the operating base in SouthTyneside was closed and further network reductions were put in place. This is acontinuing process in this market and further action might be expected in thecurrent year. Overall, during the year, the group has invested in 269 new buses (2004 - 319)with a capital value of £37 million (2004 - £45 million). The group's fleetremains one of the newest in the industry with the average age currentlystanding at 5.5 years (2004 - 5.2 years) excluding the heritage routemasterfleet which have been taken out of service since the year-end. With a continuing rise in the oil price, margins will continue to be underpressure going forward. Whilst volume in London will again be broadly static inthe new financial year, following recent investment in depot capacity, we expectgrowth to resume thereafter. The actions and investments noted above, togetherwith careful cost management, will support margins over the division as a wholein the new financial year, despite continuing inflationary pressures. With onlymodest fuel hedging in place, however, the continuing increase in fuel priceremains a risk. The board maintains its confidence in the growth and development of a profitablebus business in the UK and continues to seek appropriate acquisitions in thisarea of business. A recent manifestation of this policy is the acquisition ofSouthern Vectis plc shortly before the year-end. Action plans are already beingdeveloped to significantly enhance its profitability as part of the group. The group will continue to actively seek further opportunities though, given theconsolidation in the market, these are few and relatively small. Nevertheless,significant value can be added to the group's returns, at low risk, through thisroute. RAIL 2005 (52 weeks) 2004 (53 weeks) --------------- --------------- £m £m -- -- Turnover 618.3 619.9Operating profit 39.3 40.9 _______ _______Margin 6.4% 6.6% The 2004 result includes that of Thames Trains which ceased to be a part of thedivision (turnover of £82 million and operating profit of £3.8 million) on 31March 2004. The result for 2005 consists of those for the Thameslink andSouthern (formerly South Central) franchises, both owned by Govia, a 65%/35%partnership between the group and Keolis. Excluding Thames Trains and adjusting 2004 to 52 weeks, passenger incomeincreased by 9%. Passenger journeys have (decreased)/increased by (1)% and 5%respectively in Thameslink and Southern. The other main dynamics in evaluating these results are the financialconsequences of operating performance and, in the case of Thameslink, thecompensation received in respect of the 35-week period of blockade of thefranchise at St Pancras. In both cases remarkable results were achieved. For Southern, the biggest challenge in the year was managing the near completionof the £1 billion investment programme delivering 742 new rail vehicles to thenetwork. This included a major investment programme to upgrade outdated butworking depots to meet the needs of the new fleet. In the first half of theyear, this created huge management pressure until technical teething problemswere resolved and operating performance suffered as a consequence. However, asthe year progressed, a turnaround was established so that, by the end of theyear, record performance levels were being achieved. This had a significantlybeneficial effect in the second half of the year. For Thameslink, the major challenge was the blockade. In effect, this requiredthe closure of Thameslink's cross-London link with trains from the northterminating at St Pancras whilst trains from the south terminated at Kings CrossThameslink. This challenge required huge advance planning, includingconstruction of a completely new maintenance facility at Bedford (now managed bySouthern personnel) and a comprehensive £2.1 million communications plan to keepcustomers, staff and stakeholders informed of the changes. This latter programmewon the HSBC Rail Award for PR Campaign of 2004. Management of the changesthemselves proved highly successful, not only sustaining passenger volumes butalso delivering significantly improved operating performance, again benefitingthe performance related payments. Thameslink also successfully negotiatedfinancial compensation for the costs and disruption caused by the blockade,amounting to £34.5 million against £4.6 million received in the previous yearfor the relatively minor disruption suffered then. Key measures of the quality of performance of the railway industry are thenumber of complaints received and national passenger survey results. Complaintsfell, year on year, by 16% and 28% respectively for Southern and Thameslink andboth companies improved their national passenger survey results. Indeed,Southern was the most improved UK train operator for the year in this respect. Continued investment has been undertaken by both franchises in depots, stationimprovements, train upgrades and the introduction of modern ticketing systemsand automatic ticket machines. Further measures have been introduced to improvesafety and security. Thameslink won the Gold RoSPA Occupational, Health andSafety Award for the second year running. The introduction by Southern of "TheSouthern Task Force" has made a significant contribution in reducing low levelcrime and further investment in CCTV is supporting this trend. Despite the very successful track records of the group's franchises,particularly over the past year, Govia failed to pre-qualify in its bid for thenew enlarged Thameslink franchise, due to commence operations in April 2006. Thegroup remains committed to the industry, however, and the group submitted thefinal bid for the Integrated Kent franchise on 29 July. It is hoped thepreferred bidder for this franchise will be announced before the end of thecalendar year and the group is confident that it has submitted a robust andcompetitive bid. Further franchise bid opportunities will be considered whateverthe outcome. Discussions are currently taking place with the DfT on implementingthe Brighton Main Line Route Utilisation Study, with a view to speeding upjourney times, improving performance and relieving congestion. The bidding process is becoming ever more expensive. The cost charged in theseaccounts against operating profit for activity during the year was £1.3 millionagainst £0.5 million last year. Looking ahead for the new financial year the recent London terrorist attackswill clearly have a negative impact on revenue, though the effect is partiallymitigated by existing revenue and profit share arrangements with the franchisingauthority. AVIATION SERVICES 2005 (52 weeks) 2004 (53 weeks) --------------- --------------- £m £m -- -- Turnover 274.8 236.6Operating profit 6.0 0.6 _______ _______Margin 2.2% 0.3% Includes the group's share of joint venture The aviation services division engages in three main streams of activity. Thesemay be summarised as passenger and aircraft handling, cargo and car parking. Inthe passenger and aircraft handling business, turnover has grown by 5% afteradjusting for the change in ownership structure of Plane Handling and the53-week year in 2004. The underlying driver of revenue in this area is aircraftturnarounds and these have grown by 4% in the year. Cargo revenue is determinedby the number of tonnes weight handled. Growth here has been 4% in the year withturnover up 6%. Revenue in car parking grew by 22%, driven by an increase inspaces managed of 9% and growth in related services, as well as prices. Passenger and aircraft handling recorded a small operating profit in the yearreversing the modest loss recorded last year. Large variations were experiencedin the performance of different stations. Heathrow delivered a £2 millioncontribution against £0.25 million last year. This success was driven bysignificant contract wins both before and after the withdrawal of Swissport fromthe airport. Combined with the activities of Plane Handling, the division is byfar the biggest handler at this station, other than British Airways who selfhandle. Losses at Gatwick were reduced from £2.3 million to £0.8 million, whilstStansted delivered a contribution of over £0.1 million against losses last yearof over £0.85 million. Much of this benefit was lost, however, due to adifficult year at Manchester where labour shortages, followed by the loss of acore contract, meant the station suffered a loss of £0.5 million against acontribution last year of £1.3 million. In addition, the Reed distributionbusiness, accounted for within this part of the division, delivered a loss thisyear against a contribution last year. Actions are in hand to turn round thesetwo businesses and maintain momentum in other areas but the market continues tobe characterised by stiff competition where airlines continue to pursue pricereductions. Management continue to focus on delivery of good operational performance and, inthe year, 98.4% of all flights handled were serviced on time. Service qualityhas helped to support the signing during the year of five-year contracts withtwo principal customers in BMI and Virgin. Longer-term contracts are alsobecoming the norm with scheduled carriers at Heathrow providing more stabilityto the business. Meanwhile, the group's deliberate policy of reducing exposureto charter carriers provides better visibility going forward. In August 2004 the group purchased the 50% share in Plane Handling owned byVirgin Aviation Services. This is now the principal cargo handling unit of thedivision. Following this acquisition, reorganisation of back office functions,to capitalise on the synergy available with the main aviance business, has ledto significant cost reductions which will be fully realised in the coming year.In addition, it has achieved an improvement in revenue yield per tonne handledas well as increasing volume. Full ownership has meant a more than doubling ofturnover from 2004, when it was accounted for as "joint venture", from £19million to £39 million. Further investment for growth is planned for the comingyear. This has been another successful year for the group's car parking business(Meteor Parking). Significant growth has been achieved, particularly in valueadded airport services. The airport chauffeured parking product, acquiredthrough the acquisition of Chauffeured Parking Services at the end of last year,has been more successful than anticipated. The business has also developedcomplementary airport services, including airside and landside bussing, crewtransfers, forecourt and taxi management and other associated schemes.Development of rail station parking has been supplemented with the rapidexpansion in Meteor's security involvement in rail and Meteor is now providinggate line and on train security services to Southern, in addition to operatingall the group's rail car parks and those of First Great Western Link. As aconsequence of car park and other relevant security involvement, the business isalso establishing a small, but growing, technology capability. It has recentlywon contracts for the installation and maintenance of on-board CCTV cameras withthe group's bus operations. Retail and hospital contract sectors are alsogrowing. These varied developments have helped to diversify the business riskcurrently dependent on contracts with airport operators. These operators aremoving towards management agreements that limit scope for management tocontribute to, and gain benefits from, growth into the future. The turnaround and the overall financial performance of the division are showingsigns of accelerating. In the first half of the year profits grew compared tothe equivalent half last year by £1.7 million. Whereas in 2004 the divisiondelivered a loss of £1.4 million in the second half, £2.3 million profit hasbeen delivered in the second half of this year. With nearly full UK coverage ofairports in the passenger and ground handling area, the focus of future growthwill be a continuation of the turnaround, supplemented by more investment incargo. The group will also continue to pursue organic and non-organic growthopportunities within car parking. ADDITIONAL FINANCIAL MATTERS----------------------------EXCEPTIONAL ITEMS The only exceptional items recorded are a profit of £4.5 million in respect ofproperty disposals in the first half of the year and £0.7 million in respect ofresidual costs of the Thames Trains closure during last year. Re-organisationcosts incurred within the aviation services division, amounting to £0.7 million,have been treated as normal operating charges. The group also treats the railfranchise bid costs of £1.3 million (2004 - £0.5 million) as normal operatingcosts since participating in the rail industry requires that such costs beincurred each year on an ongoing basis. GOODWILL In contrast to 2004, the impairment review of the carrying value of purchasedgoodwill under FRS 11, in accordance with the group's accounting policy, doesnot require any impairment to be recorded. The only goodwill charge in the yearis £2.4 million in respect of amortisation of goodwill associated with theacquisition of Southern which is being amortised over the period of the currentfranchise. TAXATION Effective management has been applied in the year to the group's tax charge. Theresult is a considerably reduced effective rate of tax, before goodwill charges,of 22.9% (2004 - 28.6%). Permanent differences made a significant contributionincluding £3 million in respect of the group's SAYE scheme. In the current year,the rate is also expected to be well below the standard rate of 30%. DIVIDENDS The total dividend for the year of 48.0p represents an increase of 26%,following last year's increase of 52%. This is in line with the board's policyto reduce dividend cover levels. Last year cover was 2.9 times adjusted earningsand the proposed cover is reduced to 2.6 times. Future dividend cover levelswill be further reduced towards 2 times, providing the prospect of a growingreturn to shareholders who have already seen growth of over 280% since 2002 whenthe dividend was 17p per share. CASH FLOW Operating cash flow of £132 million (2004 - £150 million) was in line withEBITDA. Working capital movements were broadly neutral in contrast to last yearwhen a net £19 million was generated, mainly from growth in creditors. However,as announced on 5 July 2005, the group made a payment to the pension scheme on20 June of £25 million and this has been absorbed within operating cash flownumbers, reflected as an increase in debtors under SSAP 24. Without thispayment, operating cash flow would have been £157 million. As noted earlier in the review, the year has been significant in the quantum ofcapital expenditure. In particular, opportunities for property investment of £24million have been taken, not wholly envisaged last year. More than half of thisexpenditure was within the bus division but further investment was made tosupport the depots development project in Southern. Disposals of property,however, generated cash covering nearly half of this expenditure. Whilst a largeproportion of the remaining capital expenditure continues to be in respect ofnew buses, amounting to £34 million (2004 - £29 million) (not including busesfinanced by operating lease amounting to £3 million (2004 - £16 million)),significant expenditure was invested in the rail and aviation services division,respectively amounting to £7 million and £8 million. An increasing amount ofexpenditure can be expected in these two divisions next year with a particularemphasis on aviation services which has had very little investment in recentyears. In addition to the acquisitions in the year of the 50% shareholding in PlaneHandling and Southern Vectis at a net aggregate cash cost of £33 million, thegroup has invested £14 million on a share buy-back programme. This programmewill continue during the current year, an additional £6 million having alreadybeen spent in early July. With increasing dividend payments and the pensioncontribution, overall the group has absorbed £25 million cash over the year. BALANCE SHEET------------- Net assets have grown by £31 million despite the effect of the share buy-backprogramme. The shares purchased are held as treasury shares and may be re-issuedat some future time if required although the accounting treatment is theequivalent to cancellation, the shares being held as a negative reserve. Year end net debt is now £63 million (2004 - £31 million). Excluding restrictedrail cash deposits, the figure is £147 million (2004 - £85 million). Debt andbank facilities have been restructured. Despite operating lease commitments andbanking guarantees, the group's spare debt capacity remains high. PENSIONS-------- Following the £25 million contribution to the Go-Ahead scheme at the end of theyear, the scheme is now fully funded on an ongoing basis. Consequently, employercontributions have been reduced from 1 July to the long term rates advised bythe actuary. Continued improvement in equity markets mean the scheme is in avery strong position compared to many in the UK. The £25 million contribution,which is tax deductible, puts the group in a relatively robust position for thedetermination of its Pension Protection Fund Levy and has a favourable impactfor IAS 19 accounting. The Wilts & Dorset and, more recently, Southern Vectisschemes are relatively small and will continue to be dealt with separately fromthe Go-Ahead scheme for the time being. Both have deficits on an ongoing basisbut the current levels of contributions are expected to eliminate these deficitswithin 8 and 5 years respectively. Next year, the group will be required to account for pensions under IAS 19 and,for the non-rail schemes, the effects will be similar to those of FRS 17.Discussions continue with the group's auditors as to the appropriate treatmentof the rail pension schemes under IAS, where, because the group has no rights orobligations on the expiry of a franchise, in the opinion of the directors, theapplication of IAS 19 would not show a true and fair view of profit or balancesheet position. The FRS 17 deficits have increased significantly, in contrast to the ongoingvaluation basis. This is entirely due to the discount rate applied in valuingliabilities falling from 6.0% to 5.2% in line with bond rates of return at therespective accounting dates, as required under FRS 17. The ongoing basis valuesliabilities based on the expected return on assets. ACCOUNTING POLICIES AND INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)-------------------------------------------------------------------------- There were no material changes in accounting standards or policies applied tothe financial statements in the year. The group is making significant progress in preparation for its first set ofIFRS interim statements for the six months ended 31 December 2005. The materialissues affecting the group's profit under IFRS are in relation to Pensions (IAS19) and share based payments (IFRS 2), both of which will result in additionalcharges. The total group pretax pension charge for the year of £17.4m under current UKGAAP, would be £18.2m under IAS (2005/06 - currently estimated at £18.7m). Thisassumes the group adopts the emerging transport industry norm for the treatmentof Rail Pension Schemes under IAS. Under IFRS 2, there would be an additional charge to profit as a result of therecent savings related share option scheme. In the current year this would be£0.1m (2005/06 - currently estimated at £0.5m). There will also be changes in the treatment of dividends to a cash basis andchanges to the tax charge. Adjustments for other relevant items, includingdepreciation of assets (based on their revalued amount) and fair value ofderivatives, are not expected to be material. The group's net assets will be reduced by the IAS19 pension deficits. Thisimpact is currently expected to be partially mitigated by the upward revaluationof group properties to fair value, as permitted on transition to IAS. CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 2 JULY 2005 Notes 2005 2004 ----- ---- £m £m -- -- Turnover: group and share of joint venture 2 1,306.0 1,244.0Less: share of joint venture turnover (3.5) (19.1) --------- ---------Turnover - continuing operations 1,267.3 1,224.9 - acquisition 35.2 - --------- ---------GROUP TURNOVER 1,302.5 1,224.9Operating costs (excluding goodwill charges and exceptional items) (1,205.4) (1,129.7) Goodwill charges (2.4) (69.4) Exceptional items 3 - 1.0 --------- --------- (1,207.8) (1,198.1) --------- ---------Operating Profit - continuing operations 91.2 26.8 - acquisition 3.5 - Share of operating profit in joint venture 2 0.6 0.5 --------- ---------TOTAL OPERATING PROFIT 2 95.3 27.3Analysed as: Before goodwill charges and exceptional items 97.7 95.7 Goodwill charges and exceptional items (2.4) (68.4) Loss on disposal of business 3 (0.7) (3.2)Profit on disposal of properties 3 4.5 - --------- ---------PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST 99.1 24.1 Net interest payable - group (1.8) (4.3) - share of joint venture - (0.1) --------- ---------PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 97.3 19.7 Analysed as: Before goodwill charges and exceptional items 95.9 91.3 Goodwill charges and exceptional items 1.4 (71.6) Taxation - group 4 (22.5) (26.6) - share of joint venture 4 (0.3) (0.1) --------- ---------PROFIT/(LOSS) ON ORDINARY ACTIVITIES AFTER TAXATION 74.5 (7.0) Equity minority interests (10.8) (9.3) --------- ---------PROFIT/(LOSS) ATTRIBUTABLE TO MEMBERS OF THE PARENT COMPANY 63.7 (16.3) Dividends 6 (24.3) (19.3) --------- ---------RETAINED PROFIT/(LOSS) FOR THE FINANCIAL YEAR 39.4 (35.6) --------- ---------EARNINGS/(LOSS) PER SHARE - basic 5 125.1p (32.1p) - adjusted 5 122.5p 110.3p - diluted 5 122.7p (31.4p) There were no recognised gains or losses relating to 2005 or 2004 other thanthose included in the above profit and loss account. CONSOLIDATED NOTE OF HISTORICAL COST PROFITS AND LOSSES FOR THE YEAR ENDED 2 JULY 2005 2005 2004 ---- ---- £m £m -- -- Reported profit on ordinary activities before taxation 97.3 19.7Realisation of property revaluation gains of previous years 0.8 0.2 Difference between historical cost depreciation charge and that calculated on the revalued amount 0.1 0.1 ------ ------Historical cost profit on ordinary activities before taxation 98.2 20.0 ------ ------Historical cost profit/(loss) for the year retained after taxation, minority interests and dividends 40.3 (35.3) ------ ------ CONSOLIDATED BALANCE SHEET AS AT 2 JULY 2005 Notes 2005 2004 ---- ---- £m £m -- --FIXED ASSETS Intangible assets 70.2 47.3 Tangible assets 277.9 238.0 Investments Investment in joint venture - share of gross assets - 8.5 - share of gross liabilities - (4.8) -------- -------- - 3.7 -------- -------- 348.1 289.0 -------- --------CURRENT ASSETS Stocks 6.3 5.6 Debtors amounts falling due within one year 137.8 111.4 amounts falling due after more than one year 48.1 24.8 Cash on deposit 75.3 60.0 Cash at bank and in hand 23.4 14.7 -------- -------- 290.9 216.5CREDITORS: amounts falling due within one year (409.0) (311.4) -------- --------NET CURRENT LIABILITIES (118.1) (94.9) -------- --------TOTAL ASSETS LESS CURRENT LIABILITIES 230.0 194.1 CREDITORS: amounts falling due after more than one year (58.0) (57.5) PROVISIONS FOR LIABILITIES AND CHARGES (28.9) (24.4) -------- --------NET ASSETS 143.1 112.2 -------- --------CAPITAL AND RESERVES Called up share capital 8 5.2 5.1 Share premium 8 56.1 51.5 Revaluation reserve 8 10.6 11.5 Other reserve 8 0.6 0.6 Reserve for own shares 8 (14.5) - Profit and loss account 8 75.8 35.1 -------- --------EQUITY SHAREHOLDERS' FUNDS 133.8 103.8 MINORITY INTERESTS Equity 9.0 8.4 Non-Equity 0.3 - -------- -------- 143.1 112.2 -------- -------- CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 2 JULY 2005 2005 2004 Notes ---- ---- To Cash Flow £m £m -------------- -- -- NET CASH INFLOW FROM OPERATING ACTIVITIES 1 131.7 150.3 -------- --------DIVIDENDS RECEIVED FROM JOINT VENTURE - 0.1 -------- --------RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest received 4.0 2.5 Interest paid (3.0) (3.4) Interest element of finance lease rental payments (3.8) (3.2) Dividends paid to minority interests (10.2) (7.7) -------- -------- (13.0) (11.8) -------- --------TAXATION Corporation tax paid (28.0) (21.6) -------- --------CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT Purchase of tangible assets (72.3) (46.3) Purchase of intangible assets - (0.4) Sale of tangible assets 15.3 4.9 -------- -------- (57.0) (41.8) -------- --------ACQUISITIONS AND DISPOSALS Purchase of subsidiary undertakings - 2 consideration (34.2) (32.6) cash acquired 1.6 2.9 -------- -------- (32.6) (29.7) -------- --------EQUITY DIVIDENDS PAID (21.4) (14.7) -------- --------MANAGEMENT OF LIQUID RESOURCES Increase in cash on deposit (11.3) (31.9) -------- --------FINANCING Issue of ordinary share capital 4.7 0.2 Issue of non-equity shares by subsidiaries 0.3 - Repayment of long term-loans (21.9) (37.8) Receipts from long term-loans 102.8 - Receipts from hire purchase and lease finance 31.2 67.5 Repayment of capital element of hire purchase and finance lease (73.1) (33.2) Purchase of treasury shares (14.1) - Repayment of loan notes (0.1) - -------- -------- 29.8 (3.3) -------- --------DECREASE IN CASH 3 (1.8) (4.4) -------- -------- NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT 1. RECONCILIATION OF GROUP OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING ACTIVITIES 2005 2004 ---- ---- £m £m ---- ---- Operating profit 94.7 26.8 Exceptional items (0.7) 1.0 Depreciation 35.5 34.5 Goodwill charges 2.4 69.4 Amortisation of franchise bid costs 0.5 0.4 Profit on disposal of tangible assets (0.2) (1.2) Decrease in stocks (0.3) 0.4 Increase in debtors (42.3) (5.9) Increase in creditors 42.1 24.9 -------- -------- Net cash inflow from operating activities 131.7 150.3 -------- -------- 2. PURCHASE OF SUBSIDIARY UNDERTAKINGS 2005 2004 ---- ---- £m £m ---- ---- Net Assets acquired: Tangible fixed assets 13.7 23.4 Stocks 0.4 0.4 Debtors 10.2 3.1 Creditors (11.1) (9.1) Cash at bank 1.6 2.6 Cash on deposit 4.0 9.4 Loans and finance leases (6.5) (9.2) Deferred tax 0.1 0.2 -------- -------- 12.4 20.8 Goodwill 25.8 12.5 -------- -------- 38.2 33.3 -------- -------- Satisfied by Cash 33.6 32.1 Expenses 0.6 0.5 Loan notes - 0.7 Net assets previously held 4.0 - -------- -------- 38.2 33.3 -------- -------- During the year, the subsidiary undertakings acquired contributed £3.1m to thegroup's net operating cash flows, paid £1.4m in respect of taxation, utilised£0.9m for capital expenditure and received £0.3m in financing. 3 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT 2005 2004 ---- ---- £m £m -- -- Decrease in cash (1.8) (4.4)Cash flow from movement in debt and leasing/hire purchase obligations (38.9) 3.5Increase in cash on deposit 11.3 31.9 -------- --------Change in net debt resulting from cash flows (29.4) 31.0 -------- -------- Loans of subsidiaries acquired in the year (2.2) -Leasing obligations of subsidiaries acquired in year (4.3) (9.2)Cash on deposit acquired in the year 4.0 9.1Issue of loan notes - (0.7) -------- --------Change in net debt resulting from non-cash flows (2.5) (0.8) -------- --------Movement in net debt in the year (31.9) 30.2 -------- --------Net debt at 3 July 2004 (31.5) (61.7) -------- --------Net debt at 2 July 2005 (63.4) (31.5) -------- -------- NOTES TO THE PRELIMINARY STATEMENT 1. ACCOUNTING POLICIES The accounting policies used in the preparation of these results are consistentwith those used in the 2004 Annual Review. 2. SEGMENTAL ANALYSIS The turnover of the group is revenue from road passenger transport, railpassenger transport and aviation services. Rail passenger transport turnoverincludes financial support receivable from the Strategic Rail Authority andassociated income. 2005 2004 ------ ------ Inter Inter Gross segment Gross segment turnover turnover Turnover turnover turnover Turnover --------- -------- -------- -------- -------- -------- £m £m £m £m £m £m -- -- -- -- -- -- Bus - ongoing 415.4 (2.5) 412.9 389.4 (1.9) 387.5Rail - ongoing 618.3 - 618.3 619.9 - 619.9Aviation - ongoing 237.9 (1.8) 236.1 218.8 (1.3) 217.5 - acquisitions 35.2 - 35.2 - - - -------- -------- -------- -------- -------- --------Group turnover 1,306.8 (4.3) 1,302.5 1,228.1 (3.2) 1,224.9Share of joint venture turnover - aviation services 3.5 - 3.5 19.1 - 19.1 -------- -------- -------- -------- -------- --------Turnover:group and share of joint venture 1,310.3 (4.3) 1,306.0 1,247.2 (3.2) 1,244.0 -------- -------- -------- -------- -------- -------- Operating profit 2005 2004 ---- ---- £m £m -- -- Bus - ongoing 52.4 54.2 Rail - ongoing 39.3 40.9 Aviation services - ongoing 1.9 0.1 - acquisitions 3.5 - Goodwill charges (2.4) (69.4) Exceptional items (note 4) - 1.0 -------- -------- Group operating profit 94.7 26.8 Share of joint venture operating profit - aviation services 0.6 0.5 -------- -------- Total operating profit 95.3 27.3 -------- --------Net assets/(liabilities) Bus 251.2 191.3 Rail (65.7) (37.4) Aviation services 75.5 45.4 -------- -------- 261.0 199.3 Unallocated net liabilities: Taxation (37.9) (42.0) Dividends proposed and payable (16.6) (13.7) Interest bearing net liability (63.4) (31.4) -------- -------- Total net assets 143.1 112.2 -------- -------- 3. EXCEPTIONAL ITEMS 2005 2004 ------ ------ £m £m ---- ---- Recognised before operating profit: Reorganisation costs and other employee claims - (1.8) Onerous contract provision released /(created) - 2.8 ----- ----- - 1.0 ----- ----- The cash outflow arising from operating exceptional charges was £1.5m (2004 -£3.1m). The tax effect in the profit and loss account relating to the exceptional itemsrecognised in operating profit in 2004 was a charge of £0.3m. Recognised after operating profit: 2005 2004 ------ ------ £m £m ---- ---- (Loss)/gain on disposal of Thames Trains (0.7) 1.0 Reinstated goodwill in respect of Thames Trains - (4.2) Profit on disposal of properties 4.5 - ----- ----- 3.8 (3.2) ----- ----- Following the end of the Thames Trains franchise in the year to July 2004; inthe year to July 2005 further residual costs have been recognised. The profit on disposal of properties of £4.5m relates to the disposal of a busdepot and the disposal of an office building. The tax effect in the profit and loss account of these exceptional items is acharge of £0.1m (2004 - £0.3m). The net cash inflow arising from the exceptional items was £4.5m. 4. TAXATION 2005 2004 ------ ------ £m £m ---- ---- (a) Tax on profit on ordinary activities The taxation charge is made up as follows: Group Corporation tax On the profit for the year 20.0 27.7 Relating to prior years (2.1) (0.5) ----- ----- 17.9 27.2 Share of joint venture Corporation tax 0.3 0.1 ----- ----- Total current tax 18.2 27.3 Group Deferred tax Origination and reversal of timing differences 4.6 (0.6) ----- ----- Tax on profit on ordinary activities 22.8 26.7 ----- ----- Analysed as: Group 22.5 26.6 Share of joint venture 0.3 0.1 ----- ----- 22.8 26.7 ----- ----- 5. EARNINGS PER SHARE The calculation of basic earnings per share is based upon a profit of £63.7m(2004 - loss of £16.3m) and on 50,901,366 ordinary shares (2004 - 50,685,421)being the weighted average number of shares in issue during the period. An adjusted earnings per share is also presented to eliminate the impact ofexceptional items and goodwill charges. This is analysed as follows: 2005 2004 ------ ------ pence pence per share per share ----------- ----------- Earnings/(loss) per share - unadjusted 125.1 (32.1)Exceptional items (7.5) 4.3Goodwill charges 4.7 136.9Taxation on exceptional items 0.2 1.2 ----- -----Adjusted earnings per share 122.5 110.3 ----- ----- Diluted earnings per share is based on 51,918,572 ordinary shares (2004 -51,802,592), the difference from the basic calculation being due to theinclusion of 1,017,206 (2004 - 1,117,171) dilutive ordinary shares under shareoption schemes. 6. DIVIDENDS Subject to shareholder approval, a final dividend of 33p per ordinary share isproposed. This will be paid on 25 November 2005 to all shareholders on theregister at the close of business on 4 November 2005. 7. ACQUISITIONS Plane Handling Limited On 31 August 2004, aviance Limited (a wholly owned subsidiary of the group)acquired full ownership of Plane Handling Limited, its cargo handling jointventure by acquisition of the remaining 50% shareholding. The totalconsideration for the 50% share was £20.1m including fees payable in cash. Thishas been accounted for as an acquisition in accordance with FRS 6. The fair value of the assets acquired was £8.0 million including net cashbalances of £1.6 million. This gave rise to goodwill of £16.1 million. Southern Vectis plc On 20 June 2005, the group, acquired Southern Vectis plc, for a totalconsideration of £14.1m including fees payable in cash. This has been accountedfor as an acquisition in accordance with FRS6. The provisional fair value of the assets acquired was £4.4 million includingcash on deposit of £4.0 million. This gave rise to goodwill of £9.7 million. 8. SHARE CAPITAL AND RESERVES Total Reserve Profit Capital Share Share Revaluation Other for own & Loss & Capital Premium Reserve Reserve Shares Reserve Reserves ------- ------- ------- ------- ------ ------- -------- £m £m £m £m £m £m £m -- -- -- -- -- -- -- At 28 June 2003 5.1 51.3 11.8 0.6 - 66.2 135.0 Goodwill reinstated on disposal of company - - - - - 4.2 4.2 Retained loss for the year - - - - - (35.6) (35.6) Revaluation reserve amortisation - - (0.1) - - 0.1 - Realised revaluation surplus on sale of property - - (0.2) - - 0.2 - Arising on shares issued for option schemes - 0.2 - - - - 0.2 ---- ---- ---- ---- ---- ---- ----At 3 July 2004 5.1 51.5 11.5 0.6 - 35.1 103.8 ---- ---- ---- ---- ---- ---- ---- Retained profit for the year - - - - - 39.4 39.4 Revaluation reserve amortisation - - (0.1) - - 0.1 - Realised revaluation surplus on sale of property - - (0.8) - - 0.8 - Arising on shares issued for option schemes 0.1 4.6 - - - - 4.7 Acquisition of Treasury shares - - - - (14.1) - (14.1) Transfer re: own shares - - - - (0.4) 0.4 - ---- ---- ---- ---- ---- ---- ----At 2 July 2005 5.2 56.1 10.6 0.6 (14.5) 75.8 133.8 ---- ---- ---- ---- ---- ---- ---- For acquisitions prior to 27 June 1998, cumulative positive goodwill written offamounts to £55.3m (2004 - £55.3m), of which £7.2m has been written off to otherreserves and the remainder written off to the profit and loss account.Cumulative negative goodwill of £3.3m (2004 - £3.3m) has been credited to theprofit and loss account. 9. STATUTORY ACCOUNTS The board approved the preliminary statement covering the year ended 2 July 2005on 8 September 2005. The financial information set out above does not constitutethe group's statutory accounts for the years ended 3 July 2004 and 2 July 2005.The financial information is based on the audited statutory accounts for bothyears, upon which the auditors have issued unqualified audit opinions. Theaccounts for the year ended 3 July 2004 have been delivered to the Registrar ofCompanies. The accounts for the year ended 2 July 2005 will be sent toshareholders and delivered to the Registrar of Companies in due course. Theywill also be available at the registered office of the company, 3rd Floor, 41 -51 Grey Street, Newcastle upon Tyne, NE1 6EE during normal business hours or onthe 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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