Final Results

5th Sep 2008 07:00



5 September 2008

THE GO-AHEAD GROUP PLC 

("Go-Ahead" or "the Group")

PRELIMINARY Results for the year ended 28 JUNE 2008

We are pleased to report another year of record results for the Group, significantly ahead of last year and above our expectations in June. 

Highlights

Strong finish to the year

Favourable cost settlements this year in rail of £7m

Accelerated growth in bus and rail passenger numbers

Addition of London Midland and Gatwick Express rail franchises

Increase in year on year operating profit* by all twelve operating companies

 

Financial highlights	2008 £'m	2007 £'m	Increase £'m	Increase %
Revenue	2,199.1	1,826.9	372.2	20.4%
Operating profit*	144.9	118.1	26.8	22.7%
Profit before tax*	131.1	110.1	21.0	19.1%
Profit before tax	103.1	94.8	8.3	8.8%
Cashflow generated from operations	192.5	191.2	1.3	0.7%
Basic earnings per share (p)	128.8	124.2	4.6	3.7%
Adjusted earnings per share (p)*	174.8	140.7	34.1	24.2%
Dividend paid and proposed (p)#	81.0	70.0	11.0	15.7%

* Before amortisation and exceptional items

# Includes interim dividend paid and final dividend proposed

Commenting on Go-Ahead's strategy and prospects, Chairman, Sir Patrick Brown said:

"We believe we are well placed for the year ahead, whilst mindful of the current economic uncertainty.

We have improved the composition of our business through the disposal of Go West Midlands, the addition of London Midland and Gatwick Express rail franchises and the restructuring of aviation services. We have also reduced risk in areas such as fuel hedging, pensions and financing. Demand for our bus and rail services continues to rise as people change the way they travel, and our balance sheet and cashflows remain strong.

Our strategy continues to focus on providing high quality public transport services in the UK. We will target growth organically and from value-adding capital investment and acquisitions, whilst maintaining our financial discipline and progressive dividend policy.

Retaining the Southern franchise is a high priority for us and we were pleased to have been shortlisted by the DfT to bid for the new franchise.

We have started the new year well and trading has been in line with the Board's expectations."

 

For further information, please contact:

The Go-Ahead Group
Keith Ludeman, Group Chief Executive	020 7821 3920
Nick Swift, Group Finance Director	020 7821 3922
Weber Shandwick Financial
Richard Hews/ Rachel Martin/ Hannah Marwood	020 7067 0700

An analysts' presentation will be held at 9.00am today at the City Presentation Centre, 4 Chiswell Street,Finsbury Square, London EC1Y 4UP

 

Copies of the presentation will be available on the Company's website: www.go-ahead.com 

 

Notes to Editors

Go-Ahead is one of the UK's leading providers of passenger transport services operating in the bus, rail and aviation services sectors. Employing over 27,500 people across the country, around 920 million passenger journeys are undertaken on our services each year. In addition to the travelling public, customers include the Department for Transport (DfT), Transport for London (TfL), local authorities, British Airports Authority (BAA) and major airlines.

 

BUS 

Go-Ahead is one of the UK's largest bus operators. With a fleet of over 3,400 buses, we carry, on average, around 1.6 million passengers every day. Our operations are focused on high density commuter markets. We have a strong presence in London, with around 20% market share, where we provide regulated services for Transport for London (TfL). We operate deregulated services in the north east; Oxford; the south east and southern England.

 

RAIL 

The rail operation, Govia, is 65% owned by Go-Ahead and 35% by Keolis. It is the busiest rail operation in the UK, responsible for nearly 30% of all UK passenger rail journeys through its three rail companies: Southern (which includes the Gatwick Express), Southeastern and London Midland. The Southeastern franchise will include the operation of new high speed trains on the domestic Channel Tunnel Rail Link into St Pancras International from 2009, significantly reducing current journey times.

 

AVIATION SERVICES 

The Group's aviation services division is one of the UK's largest providers of cargo services (primarily Plane Handling), ground handling (primarily Aviance UK) and car parking (Meteor). The division operates from 16 airports and services major airline operators such as British Airways (BA), Virgin and bmi. Market leading services within Meteor include 'Meet & Greet' and 'Pink Elephant' services. 

Legal disclaimer

Certain statements included in this press release contain forward-looking information concerning the Group's strategy, operations, financial performance or condition, outlook, growth opportunities or circumstances in the sectors or markets in which the Group operations. By their nature, forward-looking statements involve uncertainty because they depend of future circumstances, and relate to events, not all of which are within the Company's control or can be produced by the Company. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Actual results could differ materially from those set out in the forward-looking statements. Nothing in this press release should be construed as a profit forecast, and no part of these results constitutes, or shall be taken to constitute, an invitation or inducement to invest in The Go-Ahead Group plc or any other entity, and must not be relied upon in anyway in connection with any investment decision. Except as required by law, the Company undertakes no obligation to update any forward-looking statements.

PRELIMINARY RESULTS FOR THE YEAR ENDED 28 JUNE 2008

Chairman's Statement

We are pleased to report another year of record results for the Group, significantly ahead of last year and above our expectations in June. We enjoyed a strong finish to the year due to further favourable cost settlements in rail, which totalled £7m for the year, and accelerated growth in bus and rail passenger numbers. 

Business performance highlights

Revenue increased by £372.2m, or 20.4%, to £2,199.1m (2007: £1,826.9m) and operating profit* rose by £26.8m, 22.7%, to £144.9m (2007: £118.1m). Profit before tax* was up £21.0m, 19.1%, to £131.1m (2007: £110.1m) and profit before tax, after amortisation and exceptional items, grew by £14.1m, or 13.7%, to £116.9m (2007: £102.8m). Adjusted earnings per share* increased by 34.1p, 24.2%, to 174.8p (2007: 140.7p).

 

All three of our divisions increased operating profit*, benefiting from strong demand for our services. Passenger growth in both bus and rail accelerated in the second half of the year. Our bus operating profit* margin improved by 1.0 percentage point (ppt) and we have hedged all of next financial year's fuel requirements, which account for around 10% of our bus costs. We achieved record levels of punctuality and customer satisfaction in our rail operations and full year rail passenger growth rates were ahead of those achieved in the first half. Our aviation services division was returned to profitability through restructuring and improved financial focus.

We strengthened our portfolio of bus operations through four bolt-on acquisitions and the disposal of the under-performing Go West Midlands operation. Our rail operations expanded with the addition of the London Midland franchise in November 2007 and Gatwick Express in June 2008. We are now the busiest rail operator in the UK, providing nearly 30% of all UK passenger journeys. 

Returns to shareholders

The Board is proposing a final dividend of 55.5p per share, payable on 21 November 2008 to shareholders on the register at the close of business on 31 October 2008. Together with the interim dividend of 25.5p, the total dividend of 81.0p represents a year-on-year increase of 11.0p, or 15.7%, and provides a dividend cover* of 2.16 times. Returns to shareholders were further supplemented during the year by the share buyback programme, with 3.6 million shares purchased at a cost of £87.3m.

Our annual dividend has grown by 324.0% since 2003 and we will continue with our progressive dividend policy. Despite the recent fall in the equity markets, total shareholder return has been 139.6% since 2003. 

The Board of Directors and Governance

Nick Swift joined the Board as Group Finance Director on 17 July 2007. Christopher Collins will retire from the Board at the Annual General Meeting to be held on 23 October 2008, after nine years as a Non-Executive Director. We are very grateful for Christopher's significant contribution to the Group. Christopher will be succeeded by Andrew Allner who will join the Board as a Non-Executive Director from 24 October 2008. Andrew brings significant Executive and Non-Executive Director experience and will replace me as Chairman of the Audit Committee. 

Corporate governance and risk management remain a priority for the Group. Our flat management structure enables us to manage these issues in a particularly effective manner. Each of our twelve operating companies meet with the Group's two Executive Directors on a monthly basis to monitor the performance and risks in that business. Operating management routinely undertake formal safety inspections at their managed sites to demonstrate the importance of a high quality health and safety culture.

We have reduced a number of risks in the Group this year. Improvements include increased fuel hedging, longer term secured finance and a lower risk pension investment allocation. As part of our continuous improvement of controls, we are also implementing new processes and systems to optimise procurement across the Group.

Outlook 

We believe we are well placed for the year ahead, whilst mindful of the current economic uncertainty.

We have improved the composition of our business through the disposal of Go West Midlands, the addition of London Midland and Gatwick Express rail franchises and the restructuring of aviation services. We have also reduced risk in areas such as fuel hedging, pensions and financing. Demand for our bus and rail services continues to rise as people change the way they travel, and our balance sheet and cashflows remain strong.

Our strategy continues to focus on providing high quality public transport services in the UK. We will target growth organically and from value-adding capital investment and acquisitions, whilst maintaining our financial discipline and progressive dividend policy.

Retaining the Southern franchise is a high priority for us and we were pleased to have been shortlisted by the DfT to bid for the new franchise.

We have started the new year well and trading has been in line with the Board's expectations.

Group Chief Executive's Review

This year's results again demonstrate how we have translated our strategy into success. We manage the Group through twelve operating companies in three divisions. All twelve companies increased their operating profit* this year compared to last year.

Operating profit* by division	2008	2007	Increase
	£'m	£'m	£'m
Bus	66.2	55.8	10.4
Rail	77.2	66.1	11.1
Aviation Services	1.5	(3.8)	5.3
Total	144.9	118.1	26.8

* Before amortisation and exceptional items

Overview of operating performance

Operating profit* increased by £26.8m, or 22.7%, to £144.9m for the year (2007: £118.1m). The increase consisted of an improvement in bus of £10.4m, rail of £11.1m and aviation services of £5.3m. Organic growth accounted for £18.7m of the increase in operating profit* across the divisions, equivalent to an increase of 15.8%. The balance of £8.1m was due to contributions from acquisitions with £1.5m in bus, £6.3m in rail and £0.3m in aviation services.

Bus overview

We improved operating profit* in both our regulated bus operations in London and in each of our five deregulated bus operations. Our operating profit* margin increased by 1.0 ppt to 11.9%, despite cost pressure from the significant increases in fuel prices during the year.

In London, we achieved a material increase in the scale of our operations, adding 12.7% to the mileage we operate in the capital. As always, delivering a high quality of service is crucial to reputational and financial success. We were pleased to increase the amount of quality incentive bonus we earned in the year - not without its challenges at present given the high number of roadworks in the city. 

We improved our portfolio of deregulated operations through the sale of our under-performing Go West Midlands operation in February 2008, following a strategic review of the options for this business. 

Our remaining five deregulated operations recorded a total increase in passenger numbers of 2.9% compared to last year, including growth of 4.9% in the fourth quarter. We believe that this acceleration in passenger growth is due to both the expansion of the concessionary fare scheme across the country in April 2008 and modal shift from car to bus, prompted in part by the higher cost of fuel. 

Cost control is an ongoing feature across all of our bus operations. Fuel accounts for around 10% of our costs and we have now hedged all of our requirements for the year to June 2009 and around half of the following year's requirements. In addition, we are making good progress with fuel efficiency savings through driver training and monitoring technology.

We continue to progress cost reductions through productivity initiatives, and to encourage high performance standards from our staff.

Rail overview

Our rail division delivered an excellent performance. Operating profit* increased in both our Southern and Southeastern franchises, and we took ownership of the London Midland franchise in November 2007 and of the Gatwick Express franchise in June 2008.

The quality of our services continued to strengthen, with improved punctuality and customer satisfaction ratings. We believe that quality of service is one of the causal factors behind the sustained growth in passenger numbers for the year, which amounted to 6.7% in Southern and 6.4% in Southeastern. This led to an increase in passenger revenue of 13.2% in Southern and 13.0% in Southeastern for the year, totalling £97.5m. 

Revenue growth was also strong in London Midland, exceeding our bid assumptions and leading to an element of revenue share with the DfT for the period. We are pleased with the way this franchise has started.

This year's results include the favourable settlement of a number of commercial issues, which amounted to around £7m. This process is part of the routine resolution of cross-industry matters, but the outcome is uncertain each year, and we may not benefit to the same extent next year.

Aviation services overview

We achieved our aim of returning the division to an operating profit* for the year following a difficult year in 2006/07. 

Over 70% of the £5.3m improvement in operating profit* was achieved in our ground handling operations. The year started with the mobilisation of the new British Airways (BA) contract, followed by significant restructuring of the ground handling operations. The improvement plans will continue to be implemented during the 2008/09 year.

Our cargo operation achieved a strong improvement in its operating profit* in the year. We reduced capacity and costs at Gatwick, and improved the utilisation of our increased capacity at Heathrow in response to changes in the cargo market. 

Our Meteor operations also enjoyed a good year, increasing operating profit* by £0.4m, including the full year impact of acquisitions made last year. This was supplemented by tight control of costs and overtime.

Our strategy

Our strategy is to provide high quality passenger transport services in the UK. 

We seek organic earnings growth from all of our operations, and manage payments and receipts closely to convert operating profit* into operating cash. We support this growth through investment in capital to both maintain and enhance our operations. We continue to assess acquisition opportunities, primarily in the UK, but these will only be pursued if we believe they will add value for our shareholders. In addition, we are prepared to make disposals if doing so adds value. Finally, we will maintain our financial discipline, returning value to shareholders through our progressive dividend policy whilst preserving an appropriately strong capital structure. 

Our devolved management structure and local branding distinguishes us from the other large transport groups in the UK and supports our culture of customer care, social responsibility and performance ownership. Our aim is to maintain the value of this strong local culture whilst securing the benefits of scale and best practice transfer available to a Group of our size.

Operating and Financial Review - Bus

Our bus division performed well this year, with strong demand for our services and ongoing cost control more than offsetting the significant increase in fuel prices. 

	2008	2007
Revenue (£'m)	557.7	514.0
Operating profit* (£'m)	66.2	55.8
Margin	11.9%	10.9%
Revenue growth
Regulated	12.4%	11.6%
Deregulated**	8.2%	12.0%
Volume growth
Regulated - miles operated	12.7%	8.4%
Deregulated - passenger journeys**	2.9%	6.8%
* Before amortisation and exceptional items ** 2008 growth % excludes Go West Midlands

Revenue increased by 8.5%, or £43.7m, to £557.7m (2007: £514.0m) and operating profit* rose by 18.6%, or £10.4m, to £66.2m (2007: £55.8m). This resulted in an increase in operating profit* margin of 1.0 ppt from 10.9% to 11.9%. 

During the year we strengthened our bus portfolio through the addition of four bolt-on acquisitions and the disposal of our under-performing Go West Midlands operations. 

We acquired FirstGroup's regulated bus operations in Orpington, which were transferred into our Metrobus operations in that area. The bus operations of Northumbria Coaches, Stanley Taxis and Redby Buses were incorporated into our North East operation. The total consideration for those acquisitions was £5.5m and they contributed £5.3m of revenue and £0.8m of operating profit* to the current year's results. The incremental contribution from a full year of ownership of Blue Triangle, Docklands and Marchwood, which were acquired last year for a total of £19.5m, added a further £14.2m of revenue and £0.7m of operating profit*.

Go West Midlands was sold for £2.0m in February 2008. This year's results include revenue of £7.2m (2007: £15.7m) and an operating loss of £3.9m for the first eight months of this financial year prior to disposal (2007: £4.1m loss). The loss on sale was included in the exceptional item of £8.4m relating to impairment and onerous lease costs. 

Excluding the impact of the above disposal and acquisitions, like for like revenue increased by 6.4%, or £32.6m, and operating profit* rose by 15.6%, or £8.7m. 

Ongoing cost control remained a priority across the division and increases in the overall like for like operating costs were held to 5.3%, or £24.4m, despite the significant increase in fuel prices. 

The average underlying cost of fuel (before delivery, duty and duty rebate through the bus services operating grant) increased from 26.4p per litre last year to 33.7p this year. We consume around 110m litres of fuel each year, of which approximately 50% was hedged at 29p for 2007/8. This resulted in a net cost increase, including the benefit of the hedge, of £8.0m for the year. Despite these increases, fuel remains a relatively small part of our cost base at around 10%. We have hedged all of our expected fuel consumption for the year to June 2009 at an average cost of 43p per litre and around half of the following year's requirement at 52p per litre. Our hedging policy is to maintain this level of cover, rolling forward on a quarterly basis. We remain confident that we can recover these increases over time through a combination of fuel efficiency programmes and fare increases.

Two thirds of our operating costs consist of labour and our operating companies continue to progress productivity initiatives during annual wage negotiations. In addition, the division benefited from a net reduction in pension costs of £3.0m. 

Total depreciation for the division was £30.9m (2007: £29.0m), and capital expenditure was £36.3m (2007: £36.1m).We have the youngest deregulated bus fleet in the sector with an average age of 6.4 years.

Regulated bus operations

Our London bus business achieved a significant increase in the scale of its operations during the year and delivered another strong performance. 

Revenue increased by 12.4% and mileage operated increased by 12.7%. Around half of this increase was due to acquisitions, with the balance due to net contract wins and existing contract extensions. 

Quality incentive bonuses totalled £13.7m (2007: £13.0m). This included a particularly strong performance from the regulated operations of Metrobus. We continue to frequently top the TfL quality league tables and operated 99.6% of our target mileage before losses due to traffic congestion. 

We own around 90% of our depot capacity on a freehold basis, which provides a strong base for contract renewals. Nevertheless, the competitive nature of TfL route tendering means that there is usually some turnover of route operations and at this time we expect our peak vehicle requirements to reduce by around 4% during the course of next year as a result of recent tenders awards.

Overall, in our regulated operations, we increased operating profit* and held margins at similar levels to last year despite the higher fuel costs.

Deregulated bus operations

Revenue, operating profit* and margin improved in each of our five deregulated operations. 

Demand for our deregulated bus services was strong in the year. Excluding Go West Midlands, growth in revenue was 8.2% and passenger numbers increased by 2.9% with a fourth quarter increase in passengers of 4.9%. This was led by an increase in concessionary passenger journeys. Concessionary schemes were extended nationally on 1 April 2008 and now represent some 30% of our passenger numbers and around 20% of revenue. We have agreed satisfactory reimbursement rates with local authorities for around two thirds of these schemes and are looking to agree the remainder at rates which give us a fair return for the services provided. 

The overall number of fare paying passengers remained similar to last year, with the expected reduction from passengers switching to concessionary fares being offset by new fare paying passengers. The recent changes in the concessionary schemes have clouded visibility on these underlying trends, but we believe that the new passengers are due in part to modal shift, with customers switching from car to bus in response to recent increases in fuel prices. 

Outlook

We have started the new year with a stronger base than last year, following the disposal of Go West Midlands, the bolt-on acquisitions and the hedging of all of next year's fuel requirements. 

We are pleased with the progress we have made to date to recover fuel price rises through a combination of fare increases and consumption efficiency. We are maintaining tight control over all of our costs, although our net pension costs for next year are likely to be around £3m higher than this year. We have a number of cost saving initiatives planned, supported by targeted capital investment. In London, we currently expect the negative impact of contract changes on operating profit* to be limited to around £1m and we will continue to be competitive in tenders and maximise our quality incentive bonuses. In our deregulated operations, we will look to maximise the opportunity from modal shift by continuing to provide high quality services, supported by initiatives to encourage motorists to leave their cars and use our services.

Operating and Financial Review - Rail

Our rail division delivered another excellent performance this year. 

	2008	2007
Revenue (£'m)	1,378.4	1,071.3
Operating profit* (£'m)	77.2	66.1
Margin	5.6%	6.2%
Passenger income growth
Southern	13.2%	14.1%
Southeastern	13.0%	12.4%
Volume growth
Southern	6.7%	9.1%
Southeastern	6.4%	7.0%
* Before amortisation and exceptional items

Revenue increased by 28.7%, or £307.1m, to £1,378.4m (2007: £1,071.3m) and operating profit* rose by 16.8%, or £11.1m to £77.2m (2007: £66.1m). The operating profit* margin reduced by 0.6 ppts from 6.2% to 5.6% reflecting the addition of the lower margin London Midland franchise. 

Our London Midland franchise commenced operations on 11 November 2007, and has subsequently performed well, contributing £239.7m of revenue, including £103.0m of passenger revenue and £113.1m of subsidy, and £6.3m of operating profit* for the period. 

The transfer of Gatwick Express into our Southern franchise on 22 June 2008 also went smoothly. There was no significant impact on the division's revenue or operating profit* for the year to 28 June 2008. 

This year's results include £0.3m of bid costs relating to the new Southern franchise. Last year included £1.9m of revenue and £1.0m of operating profit* relating to end of franchise adjustments and bid costs for London Midland. 

Excluding the above items, total revenue for the Southern and Southeastern franchises increased by 6.5%, or £69.2m, to £1,138.7m (2007: £1,069.5m) and operating profit* increased by 9.4%, or £6.1m, to £71.2m (2007: £65.1m).

Like for like passenger revenue in our Southern and Southeastern franchises increased by 13.1%, or £97.6m, to £842.0m (2007: £744.4m). This was ahead of our expectations, and we believe that this reflects the structural improvements in rail, resulting from sustained investment coupled with operational improvements in punctuality, frequency and service quality, together with the impact of increased road congestion and higher fuel costs for motorists. 

Subsidies from the DfT to these two franchises reduced by 13.7%, or £39.4m, to £247.7m in accordance with the terms of the franchises. Operating costs in the two franchises increased by 6.3%, or £63.2m, to £1,067.5m. 

The integrated nature of the rail industry means that there are a number of complex operational allocation issues to resolve each year. As with last year, this year's operating profit* includes a number of favourable settlements in respect of certain of these items, some of which were resolved close to the year end. The benefit of settlements for the year was approximately £7m. 

Total depreciation for the division was £11.3m (2007: £9.2m), and capital expenditure was £9.3m (2007: £4.9m). We were also shortlisted to provide services for the Pendolino Lengthening Project on the West Coast Main Line, although this work was ultimately awarded to the current franchise operator.

Southern

Our operating performance reached record levels in Southern with the public performance measure (PPM) demonstrating that 90.1% of our trains arrived on time. Our customer satisfaction rating remained at 81%, in line with last year.

Passenger revenue increased by 13.2% and growth in passenger numbers has remained particularly strong, with a full year increase of 6.7% following a first half increase of 6.1%. 

Improvements to the network included a new timetable in December 2007, additional capacity on the south coast, and improvements to customer services such as ticketing and cycling facilities. 

In February 2008, Southern agreed to procure a further 11 four-car Electrostar units for the DfT as part of the preparations for the Thameslink programme. Under this agreement, Southern paid a 40% deposit of £21.2m from restricted cash at the end of March 2008, with the balance due in March 2009. This confidential agreement also included a favourable reprofiling of the DfT's profit share in Southern from 1 January 2008 to September 2009.

Southeastern 

Our operating performance also reached record levels in Southeastern, with a PPM of 91.1%. Some of this improvement is a result of reducing congestion between London Bridge and Lewisham through the introduction of a comprehensively revised timetable in December 2007. Our customer satisfaction rating increased to 79%, compared to 74% last year.

Passenger revenue increased by 13.0% compared to last year. Growth in passenger numbers was 6.4%, following a first half increase of 5.9%. 

Preparations continue for the launch of significant timetable changes across the whole of Kent from December 2009, which includes the introduction of the new high speed services. These will result in significant journey time reductions, as well as providing new journey opportunities. 

London Midland

Mobilisation of this new franchise was complex although the transition to new ownership was seamless. Despite some problems with the Network Rail led West Coast Route Modernisation Project, operating performance has been good. The franchise achieved a PPM of 88.6% and a customer satisfaction rating of 81% in line with our improvement plans. We have completed a number of key developments such as the integration of the Bletchley and Birmingham control centres, engineering depot consolidation and securing the Investor in People status two years in advance of our target. Further initiatives are underway, such as revenue protection through enhanced gating, and a significant timetable change in December 2008 involving the introduction of new trains.

Revenue growth has been above the franchise bid assumptions, triggering revenue share to the DfT of 50% for amounts above 102%, and 80% of the revenue in excess of 106%.

Outlook

Our rail operations start the new year with record levels of operational performance and high levels of customer satisfaction. We will benefit from a full year's contribution from London Midland and from the re-profiling of Southern's profit share. Gatwick Express is expected to add around £70m of revenue and be broadly neutral in operating profit* contribution under the terms of the transfer.

We have benefited from particularly strong increases in passenger numbers over the last two years, as well as a number of favourable settlements. There is no certainty that we will continue to benefit to this extent in future years. Our aim is to continue improving operational performance, customer satisfaction and cost control while meeting, and exceeding, our franchise obligations.

A high priority for the Group is to retain our Southern rail operations. We have been shortlisted by the DfT to bid for the new franchise and we are mobilising our strong and experienced bid team to accelerate preparations for our bid to retain this important franchise. The new franchise will run for five years ten months from September 2009, with an optional two year extension. Costs associated with the bid will be expensed during the bid process, with the franchise expected to be awarded to the successful bidder by May 2009.

Operating and Financial Review - Aviation Services

We are pleased to have achieved our aim of returning the division back to profitability this year. 

	2008	2007
Revenue (£'m)	263.0	241.6
Operating profit* (£'m)	1.5	-3.8
Margin	0.6%	-1.6%
Revenue growth
Ground handling	12.7%	-1.8%
Cargo	4.2%	4.6%
Car Parking	4.0%	-21.3%
Volume growth
Ground handling - aircraft turnarounds	13.4%	-4.8%
Cargo - tonnes	4.7%	0.8%
Car Parking - transaction volume	9.7%	-23.7%
* Before amortisation and exceptional items

Revenue increased by 8.9%, or £21.4m, to £263.0m (2007: £241.6m) and operating profit* rose by £5.3m to £1.5m (2007: £3.8m loss). The operating profit* margin increased by 2.2 ppts from (1.6)% to 0.6%. 

The above includes £67.1m (2007: £64.5m) of revenue and £2.2m (2007: £1.8m) of operating profit* attributable to our Meteor parking and security operations. 

Revenue for the ground handling and cargo operations totalled £195.9m (2007: £177.1m), of which around 75% was attributable to ground handling. Operating profit* improved by £4.8m to a loss of £0.7m compared to a loss of £5.5m last year. 

Total depreciation for the division totalled £6.9m (2007: £6.4m), and capital expenditure was £9.9m (2007: £16.6m), of which £1.4m (2007: £1.5m) was spent in Meteor.

The total cost of restructuring the ground handling and cargo operations is shown as an exceptional cost of £8.0m, and is expected to have a payback period of around one year. 

Ground handling

Revenue from our ground handling operations increased by 12.7%, supported by a 13.4% increase in the number of aircraft turnarounds. The majority of this increase was due to the new BA contract for services at Aberdeen, Edinburgh, Glasgow and Manchester airports which started in July 2007. Mobilisation of these contracts was difficult due to staff shortages and a terrorist incident at Glasgow. The first half operating profit* includes an estimated £1.0m of additional costs related to this mobilisation and these contracts are now performing well.

The net changes to other contracts were favourable in the year and, towards the end of the year, we negotiated extensions to our contracts with bmi through to 2011. 

Labour represents around 70% of the cost base and a significant amount of attention has been given to improving the management structure and focus of this operation. It now has a dedicated Managing Director and Finance Director to complement the Commercial Director. The Operations Director has been replaced by a number of regional general managers to enhance local profit responsibility in addition to service quality. Restructuring plans are being implemented for a number of underperforming airports, including the closure of our operations at Durham Tees airport in February and the potential closure of our operations at Gatwick in October 2008. This is a necessary part of securing the future for these operations and we acknowledge the support and constructive attitude of our employees through this process of significant change. 

  

Cargo 

Revenue from our cargo operations increased by 4.2%, supported by a 4.7% increase in tonnage handled. The overall increases continued the trend of significant growth at Heathrow more than compensating for weakness at Gatwick. Accordingly, over the last two years we have added 100,000 tonnes of capacity through a new cargo facility and additional equipment at Heathrow and we have reduced our facilities at Gatwick from 75,000 tonnes to 25,000 tonnes. 

The additional revenue, supplemented by tight cost control in areas such as procurement and overtime, led to a further increase in the operating profit* of our cargo operation for the year compared to last year. 

Meteor operations

Revenue from our Meteor operations increased by 4.0%, supported by a 9.7% increase in transactions. 

Operating profit* increased by £0.4m. The full year contribution of security services company Nikaro Limited, acquired in February 2007, added £1.7m of revenue and £0.3m of operating profit*. 

The improvement in like for like operating profit* was due to the airport related businesses, which account for the majority of Meteor's operations, and the expanded rail services, which includes car parking and revenue protection. In the airport division, we extended the car parking contract at Heathrow for five years but did not retain the Stansted contract which now expires in September 2008. In the rail division, car park capacity is becoming a constraint at a number of railway stations, and Meteor has developed a cost effective way of constructing an additional level of decking for parking at these sites. 

Outlook

We are expecting a challenging market for ground handling next year given the pressures facing the aviation industry. The restructuring of our operations should provide significant help towards mitigating the impact of these challenges. We will continue to prioritise service quality and tight cost control. Our cargo operations should continue to benefit from our extensive facilities at Heathrow. We will also continue to look for opportunities to grow our Meteor operations to compensate for the loss of the contract at Stansted.

Financial Review

Operating profit* increased by 22.7%, leading to a 24.2% increase in adjusted earnings per share. Cashflow conversion remained strong, with cashflow generated from operations of £192.5m matching operating profit before depreciation, amortisation and exceptional items (EBITDA) of £194.0m. Adjusted net debt to EBITDA was 1.65x, comfortably within our 1.5x to 2.5x target range for our capital structure. Funding is supported by a five year syndicated loan facility, secured to December 2012, with £78.0m of headroom at 28 June 2008.

 

EBITDA

Operating profit before amortisation and exceptional items was £144.9m (2007: £118.1m) and the depreciation charge for the year was £49.1m (2007: £44.6m), giving an EBITDA before exceptional items of £194.0m, up 19.2% compared to £162.7m achieved last year.

 

Exceptional items

The exceptional loss of £16.4m before tax consists of £8.4m for Go West Midlands, relating to the impairment, onerous lease costs and disposal in February 2008, and £8.0m for the restructuring costs incurred in the second half in our aviation services division. 

Goodwill and intangible asset amortisation

The £11.6m (2007: £8.4m) charge for the year primarily represents the non cash cost of amortising goodwill and intangibles, including assets associated with pension accounting, relating to the rail franchises. Other items include the amortisation of non-rail intangibles and computer software costs.

 

The increase against last year is due primarily to the impact of a full year of ownership of last year's bus acquisitions and the addition of the London Midland rail franchise. 

 

Net finance costs 

The net finance cost for the year increased to £13.8m (2007: £8.0m), largely due to the increase in net debt during the year to improve the Group's capital structure. The average net interest rate was 6.4% (2007: 5.9%) for the year and the proportion of net debt held at fixed interest rates was 30.2% (2007: 64.7%) at the end of the year.

 

Pensions

Pensions have been accounted for in accordance with IAS19, including a franchise adjustment to recognise that our obligations under the rail schemes are limited to the term of the franchise.

 

The net pension cost of the Group's defined benefit pension plans for the year was £24.9m (2007: £24.3m), consisting of a service cost of £38.2m (2007: £31.9m) less a net financing benefit of £13.3m (2007: £6.3m) and a franchise adjustment of £Nil (2007: £1.3m). The rail related charge increased to £24.1m (2007: £18.8m) due to the addition of London Midland. The non rail cost reduced to £0.8m (2007: £5.5m) due to a higher than expected return on assets.

 

The net deficit before taxation on the non rail defined benefit schemes was £59.4m (2007: £24.5m), consisting of estimated liabilities of £436.2m (2007: £404.5m) less assets of £376.8m (2007: £380.0m). In the first half of the year we de-risked the asset allocation of the scheme by reducing the amount of scheme assets held in equities and increasing the amount held in duration matched bonds. As a result, 47.2% of our non rail assets were held in equities at the year end (2007: 67.8%) and 45.3% were held in bonds (2007:15.6%). 

 

The net deficit on the rail schemes was £Nil (2007: £2.3m). The nature of these schemes means that we only recognise the share of surplus or deficit expected to be funded/benefited from over the franchise period, and consequently we have not recognised any individual scheme surplus in the financial statements.

 

Company contributions to the schemes totalled £41.7m (2007: £26.3m). This was £16.8m higher than the net pension cost in the income statement and included an additional cash contribution of £7.5m paid to the non rail schemes in July 2007. In addition, a further £10.4m was paid to the London Midland scheme as part of the mobilisation of the franchise.

 

Taxation

The effective tax rate for the year was in line with our half year expectations at 25.5% (2007: 24.9%). The principal reason for the reduced rate compared to the UK statutory tax rate for the period of 29.5% (2007: 30%) relates to the effective management of asset finance arrangements. 

 

Minority interest

The minority interest in the income statement of £20.8m (2007: £12.6m) arises from our 65% holding in Govia Limited, which owns 100% of the rail operations, and therefore represents 35% of the profit after tax from these operations.

 

Adjusted earnings per share

Adjusted profit attributable to members* was £76.0m (2007: £66.4m). This consisted of profit attributable to 

members of £56.0m (2007: 58.6m) adjusted to add back members' share of post tax amortisation (£6.4m, 2007: £4.7m) and exceptional items (£13.6m, 2007: £3.1m). 

 

The weighted average number of shares reduced to 43.5 million (2007: 47.2 million) and the closing number of shares was 42.8 million (2007; 45.9 million) following our share buybacks in the year. We will seek renewal of the authority for the share buyback programme at the forthcoming Annual General Meeting.

 

Earnings per share* increased by 24.2%, or 34.1p, to 174.8 pence per share (2007: 140.7p), with 20.3p of the increase due to the increase in adjusted profit attributable to members* and 13.8p due to a lower weighted average number of shares.

 

Dividends

The total dividend for the year of 81.0p (2007: 70p) consists of the interim dividend paid of 25.5p (2007: 23p) and a proposed final dividend of 55.5p (2007: 47p). This represents a total increase of 11.0p, or 15.7%, resulting in a dividend cover (based on adjusted eps) of 2.16 times. We will look to continue our policy of progressive dividend growth whilst maintaining dividend cover of approximately two times adjusted earnings through the cycle.

 

Cashflow

Cash generated from operations before taxation was £192.5m, an increase of £1.3m against £191.2m last year. This consists of an EBITDA* of £194.0m (£162.7m) and a net reduction due to movements in working capital and other items of £1.5m (2007: increase £28.5m). 

 

Tax paid of £18.1m (2007: £11.5m) was primarily the current portion of the tax charge of £16.8m (2007: £16.0m after a reduction of £3.1m in the current year) and net interest paid of £14.0m (2007: £8.1m) follows the net finance cost in the income statement of £13.8m (2007: £8.0m). Capital expenditure, net of sale proceeds, totalled £54.7m (2007: £54.9m), equivalent to 111% (2007: 123%) of depreciation. 

Cash used to purchase businesses totalled £5.5m (2007: £22.9m, plus £4.3m of acquired debt), less £2.0m proceeds and less £0.2m of finance leases from the sale of Go West Midlands. The transfer of the London Midland and Gatwick Express franchises resulted in a net payment of £5.5m, consisting of a pension contribution of £10.4m and net cash received on the transfer of £4.9m. The prepayment of £21.2m was for 40% of the Electrostar train units paid by Southern out of restricted cash, and referred to in the rail division narrative.

 

 Dividends paid to parent company shareholders increased to £31.4m (2007: £28.9m) and dividends to minority interests were £16.7m (2007: £14.7m). During the year we repurchased 3,571,000 shares (2007: 2,425,000) at a cost of £87.3m (2007: £55.6m) and issued 523,000 (2007: Nil) on exercise of share options for proceeds of £6.4m resulting in a net cash cost of £80.9m (2007: £51.6m).

 

Balance sheet

Net debt increased by £53.3m, from £144.5m to £197.8m. Bank loans and loan notes were £314.8m (2007: £223.0m), of which £262.0m was drawn down against a new five year syndicated loan facility of £340m completed in December 2007. Hire purchase and finance leases were £34.3m (2007: £50.1m), resulting in a gross debt figure of £349.1m (2007: £273.1m). This was partly offset by cash and short term deposits of £151.3m (2007: £128.6m), which included restricted rail cash deposits of £122.9m (2007: £92.7m). Adjusted net debt, consisting of net debt excluding restricted cash, was £320.7m (2007: £237.2m), equivalent to 1.65x (2007: 1.46x) EBITDA* (defined above) in line with our aim to move to an adjusted net debt to EBITDA ratio of 1.5x to 2.5x through the cycle. 

 

In December 2007, we changed our accounting policy of carrying land and buildings at valuation in favour of the cost model. This resulted in a reduction in fixed assets of £22.6m at 30 June 2007.

 

Net assets totalled £67.8m at the end of the year compared to £131.6m at 30 June 2007. The reduction includes the profit for the year of £76.8m and net gains on hedges of £26.6m, less an increase in the pension deficit of £44.6m, net acquisition of own shares of £87.3m and dividends paid of £48.1m.

  CONSOLIDATED INCOME STATEMENT

 for the year ended 28 June 2008

		2008	2007
	Notes	£m	£m

GROUP REVENUE	2	2,199.1	1,826.9
Operating costs (excluding amortisation and exceptional items)		(2,054.2)	(1,708.8)
Group operating profit (before amortisation and exceptional items)	2	144.9	118.1
Goodwill and intangible asset amortisation		(11.6)	(8.4)
Exceptional items	3	(16.4)	(6.9)
Group operating profit (after amortisation and exceptional items)		116.9	102.8
Finance revenue		8.8	6.1
Finance costs		(22.6)	(14.1)
Profit on ordinary activities before taxation		103.1	94.8
Analysed as:
Before amortisation and exceptional items		131.1	110.1
Amortisation and exceptional items		(28.0)	(15.3)
Tax expense	4	(26.3)	(23.6)
Profit for the year from continuing operations		76.8	71.2
Attributable to:
Equity holders of the parent		56.0	58.6
Minority interest		20.8	12.6
		76.8	71.2
Earnings per share from continuing operations
- basic	5	128.8p	124.2p
- diluted	5	127.3p	122.6p
- adjusted	5	174.8p	140.7p
Dividends paid (pence per share)	6	72.5p	61.0p
Final dividend proposed (pence per share)	6	55.5p	47.0p

CONSOLIDATED BALANCE SHEET

as at 28 June 2008

	Notes	2008 £m	Restated 2007 £m
Assets
Non-current assets
Property, plant and equipment		426.6	424.7
Intangible assets		136.2	129.4
Trade and other receivables		1.5	1.8
Other financial assets		8.7	-
Deferred tax assets		17.2	11.9
		590.2	567.8
Current assets
Inventories		12.0	9.3
Trade and other receivables		238.2	171.7
Cash and short-term deposits		157.1	128.9
Other financial assets		18.6	0.7
		425.9	310.6
Assets classified as held for sale		2.6	0.9
Total Assets		1,018.7	879.3
Liabilities
Current liabilities
Trade and other payables		(444.0)	(365.3)
Interest-bearing loans and borrowings		(38.6)	(42.5)
Current tax liabilities		(6.0)	(14.0)
		(488.6)	(421.8)
Non-current liabilities
Interest-bearing loans and borrowings		(314.6)	(230.4)
Retirement benefit obligations	9	(59.4)	(26.8)
Deferred tax liabilities		(77.9)	(59.7)
Other liabilities		(9.8)	(7.7)
Provisions		(0.9)	(1.3)
		(462.6)	(325.9)
Total Liabilities		(951.2)	(747.7)
Net Assets		67.5	131.6
Capital & Reserves
Share capital	8	71.3	65.4
Reserve for own shares	8	(68.8)	(80.6)
Hedging reserve	8	17.5	0.5
Other reserves	8	1.6	1.6
Capital redemption reserve	8	0.7	0.2
Retained earnings	8	31.9	138.7
Total shareholders' equity		54.2	125.8
Minority interest	8	13.3	5.8
Total equity		67.5	131.6

  CONSOLIDATED CASHFLOW STATEMENT

for the year ended 28 June 2008

		2008	2007
	Notes	£m	£m
Profit for the year		76.8	71.2
Net finance costs		13.8	8.0
Tax expense	4	26.3	23.6
Depreciation of property, plant and equipment		49.1	44.6
Amortisation of goodwill and intangible assets		11.6	8.4
Impairment of goodwill		3.8	-
Loss on sale of property, plant and equipment		1.7	0.6
Share based payments		2.5	2.0
Loss on sale of subsidiary		1.8	-
Difference between pension contributions paid and amounts recognised in the income statement		(16.8)	(2.0)
Movement in provisions		(0.4)	(6.7)
Decrease in inventories		1.3	0.8
(Increase)/decrease in trade and other receivables		(45.4)	11.0
Increase in trade and other payables		66.4	29.7
Cashflow generated from operations		192.5	191.2
Taxation paid		(18.1)	(11.5)
Net cashflows from operating activities		174.4	179.7
Cashflows from investing activities
Interest received		8.5	6.0
Proceeds from sale of property, plant and equipment		6.2	3.7
Purchase of property, plant and equipment		(55.5)	(57.4)
Purchase of intangible assets		(5.4)	(1.2)
Purchase of subsidiaries	7	(5.5)	(22.9)
Overdraft acquired with subsidiaries		-	(0.1)
Proceeds from sale of subsidiaries		2.0	-
Net receipt on transfer of rail franchises		4.9	-
Deposit paid on rolling stock		(21.2)	-
Additional contribution to railways pension scheme		(10.4)	-
Net cashflows used in investing activities		(76.4)	(71.9)
Cashflows from financing activities
Interest paid		(22.5)	(14.1)
Dividends paid to members of the parent		(31.4)	(28.9)
Dividends paid to minority interests		(16.7)	(14.7)
Proceeds from issue of shares		6.4	-
Payment to acquire own shares	8	(87.3)	(51.6)
Repayment of borrowings		(259.0)	(136.7)
Proceeds from borrowings		351.2	188.8
Proceeds from finance lease and hire purchase		4.5	21.2
Payment of finance lease and hire purchase liabilities		(20.1)	(23.4)
Repayment of loan notes	10	(0.4)	(0.2)
Net cash outflows on financing activities		(75.3)	(59.6)
Net increase in cash and cash equivalents		22.7	48.2
Cash and cash equivalents at 30 June 2007	10	128.6	80.4
Cash and cash equivalents at 28 June 2008	10	151.3	128.6

  CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE 

for the year ended 28 June 2008

	Notes	2008 £m	Restated 2007 £m
Income and expense recognised directly in equity
Actuarial (losses)/gains on defined benefit pension plans		(44.6)	75.0
Unrealised gains on cashflow hedges		33.3	0.7
Gains on cashflow hedges taken to income statement		(6.7)	-
Tax recognised directly in equity	4	5.1	(19.8)
Net expense / (income) recognised directly in equity		(12.9)	55.9
Profit for the year		76.8	71.2
Total recognised income and expense for the year		63.9	127.1
Attributable to:
Equity holders of the parent		39.5	110.5
Minority interest		24.4	16.6
		63.9	127.1
		2008 £m	Restated 2007 £m
Effect on change in accounting policy		-	(24.0)
Decrease in revaluation reserve		-	1.4
Reversal of impairment charges		-	6.6
Deferred tax on the above		-	(16.0)

  NOTES TO THE PRELIMINARY ANNOUNCEMENT

for the year ended 28 June 2008

1. ACCOUNTING POLICIES

The accounting policies used in the preparation of these results are consistent with those used in the 2008 Annual Report.

Change in accounting policy

The Group has elected to change its accounting policy of carrying land and buildings at valuation and apply the cost model under IAS 16 Property, Plant and Equipment. On first time adoption of IAS16 on 3 July 2004, the Group elected to measure properties at their fair value and use those fair values as deemed cost as at that date. The directors still believe that the use of this election was appropriate since it allowed properties to be measured on a consistent basis under IFRS. In addition, the Group determined at the time to apply the revaluation model in IAS16, with property recognised initially at cost and thereafter measured at fair value less any subsequent depreciation and impairment.

This policy of revaluation was adopted in part because it seemed to reflect better the underlying value of these properties to the business and because it was believed that other transport companies would move to a revaluation model. However, this has proved not to be the case, with all our major peers adopting the cost model. After consideration, the Group has decided that the use of the cost model improves comparability with other major transport companies and provides more reliable and relevant information on the financial position and performance of the Group.

Accordingly prior year comparatives have been restated to reflect this change in policy, as required by IAS8 'Accounting Policies, Changes in Accounting Estimates and Errors'. As a result of the change in the accounting policy the carrying value of fixed assets has decreased by £11.0m at 1 July 2006 and a further £11.6m at 30 June 2007 with a corresponding decrease in the revaluation reserve. The deferred tax liability has reduced by £3.4m at 1 July 2006 and £6.6m at 30 June 2007. Revenue reserves have increased by £4.8m at 1 July 2006 and £8.0m at 30 June 2007. The impact of the change on the income statement is not material.

2. SEGMENTAL ANALYSIS

The Group's primary reporting format is business segments and its secondary format is geographical segments. The operating businesses are organised and managed separately according to the nature of the products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets.

Business segments

The following tables present revenue and profit information regarding the Group's business segments for the years ended 28 June 2008 and 30 June 2007.

Year ended 28 June 2008

	Bus	Rail	Aviation services	Total
	£m	£m	£m	£m
Segment revenue	578.5	1,381.4	267.0	2,226.9
Inter-segment revenue	(20.8)	(3.0)	(4.0)	(27.8)
Group revenue	557.7	1,378.4	263.0	2,199.1
Group operating profit (before amortisation and exceptional items)	66.2	77.2	1.5	144.9
Goodwill and intangible amortisation	(1.9)	(9.3)	(0.4)	(11.6)
Exceptional items	(8.4)	-	(8.0)	(16.4)
Segment result	55.9	67.9	(6.9)	116.9
Net finance costs				(13.8)
Profit before tax and minority interest				103.1
Tax expense				(26.3)
Profit for the year				76.8

Year ended 30 June 2007 (restated)

	Bus	Rail	Aviation services	Total
	£m	£m	£m	£m
Segment revenue	520.2	1,073.4	244.8	1,838.4
Inter-segment revenue	(6.2)	(2.1)	(3.2)	(11.5)
Group revenue	514.0	1,071.3	241.6	1,826.9
Group operating profit (before amortisation and exceptional items)	55.8	66.1	(3.8)	118.1
Goodwill and intangible amortisation	(0.7)	(7.5)	(0.2)	(8.4)
Exceptional items	-	(6.9)	-	(6.9)
Segment result	55.1	51.7	(4.0)	102.8
Net finance costs				(8.0)
Profit before tax and minority interest				94.8
Tax expense				(23.6)
Profit for the year				71.2

3. EXCEPTIONAL ITEMS

	2008	2007
	£m	£m
Redundancy and reorganisation costs	(8.0)	-
Impairment charges and loss on sale of business	(8.4)	-
EC4T	-	(6.9)
	(16.4)	(6.9)

The redundancy and re-organisation costs relate to the closure and restructuring of a number of our operations within our aviation business.

The impairment charges and loss on sale of business relates to the sale of The Birmingham Omnibus Company Ltd (formerly known as Go West Midlands and The Birmingham Coach Company Ltd) on 29 February 2008.

EC4T is electricity purchased by the train companies to operate electric trains from Network Rail. During the prior year our rail companies negotiated a new basis for determining the cost of electricity going forward. In return for agreeing to revise the terms of the related track access agreements to reflect this new basis, Network Rail required the Group to make a one-off compensation payment. This cost was identified as an exceptional item, given the size of this payment and the fact that it was made to secure a fundamental change to the basis on which the Group is charged for EC4T. 

4. Taxation

(a) Tax recognised in the income statement 

	2008 £m	2007 £m
Current tax charge	16.8	19.1
Adjustments in respect of current tax of previous years	(3.1)	-
	13.7	19.1
Deferred tax relating to origination and reversal of temporary differences	9.6	6.9
Impact of deferred tax rate change 30% to 28%	-	(1.7)
Previously unrecognised deferred tax of a prior period	3.0	(0.7)
Tax reported in consolidated income statement	26.3	23.6

Tax relating to items charged or credited to equity

	2008 £m	Restated 2007 £m
Corporation tax on share based payments	-	(0.1)
Deferred tax on share based payments	2.3	(1.4)
Tax on actuarial gains on defined benefit pension plans	(12.5)	23.1
Tax on IAS39 asset	7.4	0.2
Revaluation of land and buildings	-	(5.4)
Tax reported in equity	(2.8)	16.4

(b) Reconciliation

A reconciliation of income tax applicable to accounting profit before tax at the statutory tax rate to tax at the Group's effective tax rate for the years ended 28 June 2008 and 30 June 2007 is as follows:

	2008 £m	2007 £m
Profit on ordinary activities before taxation	103.1	94.8

At United Kingdom tax rate of 29.5% (2007 - 30%)	30.4	28.4
Adjustments in respect of current tax of previous years	(3.1)	-
Previously unrecognised deferred tax of a prior period	3.0	(0.7)
Expenditure not allowed for tax purposes	2.5	1.1
Goodwill amortisation and impairment charges	1.4	0.8
Differences re: tax efficient financing	(7.4)	(4.3)
Deferred tax rate change 30% to 28%	-	(1.7)
Rate change due to timing differences 29.5% to 28%	(0.5)	-
Tax reported in consolidated income statement at affective tax rate of 25.5% (2007 - 24.9%)	26.3	23.6

5. EARNINGS PER SHARE

Basic earnings per share

	2008	2007
Net profit attributable to equity holders of the parent (£m)	56.0	58.6
Weighted average number of shares in issue (000)	43,481	47,188
Basic earnings per share (pence per share)	128.8	124.2

The weighted average number of shares in issue excludes treasury shares held by the company, and shares held in trust for the Directors' Long Term Incentive Plan.

Diluted earnings per share

	2008	2007
Net Profit attributable to equity holders of the parent (£m)	56.0	58.6
Weighted average number of shares in issue (000)	43,481	47,188
Effect of dilution: Dilutive potential ordinary shares under share option schemes (000)	505	601
Adjusted weighted average number of shares (000)	43,986	47,789
Diluted earnings per share (pence per share)	127.3	122.6

The dilution calculation assumes conversion of all potentially dilutive ordinary shares.

Adjusted earnings per share

Adjusted earnings per share is also presented to eliminate the impact of goodwill and intangible amortisation and non-recurring exceptional costs and revenues in order to show a 'normalised' earnings per share. This is analysed as follows:

				2008
	Profit for the year	Exceptional items	Amortisation	Total
	£m	£m	£m	£m
Profit before taxation	103.1	16.4	11.6	131.1
Less: Taxation	(26.3)	(2.8)	(2.7)	(31.8)
Less: Minority Interest	(20.8)	-	(2.5)	(23.3)
Adjusted profit attributable to equity holders of the parent	56.0	13.6	6.4	76.0
Adjusted earnings per share (pence per share)				174.8

				2007
	Profit for the year	Exceptional items	Amortisation	Total
	£m	£m	£m	£m
Profit before taxation	94.8	6.9	8.4	110.1
Less: Taxation	(23.6)	(2.1)	(1.7)	(27.4)
Less: Minority Interest	(12.6)	(1.7)	(2.0)	(16.3)
Adjusted profit attributable to equity holders of the parent	58.6	3.1	4.7	66.4
Adjusted earnings per share (pence per share)				140.7

6. DIVIDENDS PAID AND PROPOSED

	2008	2007
	£m	£m
Declared and paid during the year
Equity dividends on ordinary shares:
Final dividend for 2007: 47p per share (2006 - 38p)	20.5	18.1
Interim dividend for 2008: 25.5p per share (2007 - 23p)	10.9	10.8
	31.4	28.9

	2008	2007
	£m	£m
Proposed for approval at AGM (not recognised as a liability as at 28 June)
Equity dividends on ordinary shares:
Final dividend for 2008: 55.5p per share (2007 - 47p)	23.2	21.6

7. BUSINESS Combinations

 

On 10 September 2007, Go North East Limited, a wholly owned subsidiary of the Group, acquired the commercial bus operations and associated assets of Northumbria Coaches, a small independent Northumberland bus operator. On 15 October 2007, Go North East Limited acquired the commercial bus operations and associated assets of Stanley Taxis, a small independent Durham bus operator. On 28 January 2008 Go North East Limited acquired the commercial bus operations and associated assets of Redby Buses, a small independent Sunderland bus operator. On 8 December 2007 Metrobus Limited, a wholly owned subsidiary of the Group, acquired FirstGroup's regulated bus operations in Orpington.

The total cash consideration for the above acquisitions was £5.5m. They have been accounted for as acquisitions in accordance with IFRS3. The acquisition balance sheets have been adjusted to reflect provisional fair values and the goodwill arising has been capitalised as an intangible asset.

Intangible assets acquired represent customer contracts of £1.2m.

Management believes that the goodwill represents future growth opportunities and created value to the Group in respect of non-contractual relationships, customer loyalty, and an assembled workforce, for which the recognition of a discrete intangible asset is not permitted. A property valuation has been completed.

8. STATEMENT OF CHANGES IN EQUITY

	Share capital	Reserve for own shares	Revalu- ation reserve	Hedging reserve	Other reserve	Capitalredem-ptionreserve	Retained earnings	Total equity	Minority interests	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
At 1 July 2006	65.6	(67.1)	12.4	-	1.6	-	93.1	105.6	3.7	109.3
Impact of change in accounting policy	-	-	(12.4)	-	-	-	4.8	(7.6)	-	(7.6)
At 1 July 2006  (as restated)	65.6	(67.1)	-	-	1.6	-	97.9	98.0	3.7	10.17
Total recognised income and expense	-	-	-	0.5	-	-	109.8	110.3	16.8	127.1
Share based payment charge	-	-	-	-	-	-	2.0	2.0	-	2.0
Dividends	-	-	-	-	-	-	(28.9)	(28.9)	(14.7)	(43.6)
Acquisition of own shares	-	(55.6)	-	-	-	-	-	(55.6)	-	(55.6)
Share cancellation	(0.2)	42.3	-	-	-	0.2	(42.3)	-	-	-
Reserve transfer	-	(0.2)	-	-	-	-	0.2	-	-	-
At 30 June 2007	65.4	(80.6)	-	0.5	1.6	0.2	138.7	125.8	5.8	131.6
Total recognised income and  expense	-	-	-	17.0	-	-	22.5	39.5	24.4	63.9
Share based payment charge	-	-	-	-	-	-	1.2	1.2	(0.2)	1.0
Dividends	-	-	-	-	-	-	(31.4)	(31.4)	(16.7)	(48.1)
Acquisition of own shares	-	(87.3)	-	-	-	-	-	(87.3)	-	(87.3)
Arising on shares issued for share options	6.4	-	-	-	-	-	-	6.4	-	6.4
Share cancellation	(0.5)	101.1	-	-	-	0.5	(101.1)	-	-	-
Reserve transfer	-	(2.0)	-	-	-	-	2.0	-	-	-
At 28 June 2008	71.3	(68.8)	-	17.5	1.6	0.7	31.9	54.2	13.3	67.5

Share capital

Share capital represents proceeds on issue of the company's equity, both nominal value and share premium.

Reserve for own shares

The reserve for own shares is in respect of 3,970,224 ordinary shares (8.5% of share capital), of which 67,994 are held for Directors' bonus plans. The remaining shares were purchased in order to enhance shareholders' returns and are being held as treasury shares for future issue in appropriate circumstances. During the year ended 28 June 2008 the Company has repurchased 3,571,000 shares (2007 - 2,425,000 shares) for a consideration of £87.3m (2007 - £55.6m).  The Company cancelled 4,571,000 shares during the year.

Other reserve

The other reserve represents the premium on shares that have been issued to fund or part fund acquisitions made by the Group. This treatment is in line with Section 131 of the Companies Act.

Hedging reserve

The hedging reserve records the movement in value of fuel price derivatives, offset by any movements recognised directly in equity.

Capital Redemption Reserve

The redemption reserve reflects the nominal value of cancelled shares. 

  9. PENSIONS

Summary of year-end assumptions

	2008 %	2007 %
Price Inflation	3.8	3.2
Discount rate	6.2	5.9
Rate of increase in salaries	5.3	4.7
Rate of increase of pensions in payment and deferred pension*	3.8	3.2

* in excess of any Guaranteed Minimum Pension (GMP) element

The most significant non-financial assumption is the assumed rate of longevity. The table below shows the life expectancy assumptions used in the accounting assessments based on the life expectancy of a male member of each pension scheme at age 65.

		Rail		Non-rail
	2008 Years	2007 Years	2008 Years	2007 Years
Pensioner	20	18	18	18
Non-Pensioner	22	19	19	19

The expected return on assets has been derived as the weighted average of the expected returns from each of the main asset classes (i.e equities and bonds). The expected return for each asset class reflects a combination of historical performance analysis, the forward looking views of the financial markets (suggested by the yields available), and the views of investment organisations.

Sensitivity analysis

	Non-Rail
	Pension Deficit £m	2009  Pension Cost  £m
Discount Factor - increase of 0.1%	(8.6)	(0.4)
Price Inflation - increase of 0.1%	7.3	0.3
Rate of increase in salaries - increase of 0.1%	2.7	0.3
Rate of increase of pensions in payment - increase of 0.1%	3.7	0.4
Increase in life expectancy of pensioners or non-pensioners by 1 year	16.3	1.6

Funding position of the Group's pension arrangements

				Rail		Non-Rail
			2008 £m	2007 £m	2008 £m	2007 £m
Employer's share of pension scheme:
Liabilities at the end of the year			(1,026.5)	(652.0)	(436.2)	(404.5)
Assets at Fair Value			869.7	651.8	376.8	380.0
Gross deficit			(156.8)	(0.2)	(59.4)	(24.5)
Franchise adjustment			156.8	(2.1)	-	-
Pension scheme liability			-	(2.3)	(59.4)	(24.5)

Pension cost for the financial year 

				Rail		Non-Rail
			2008 £m	2007 £m	2008 £m	2007 £m
Service cost			31.5	24.4	6.7	7.5
Interest cost on liabilities			30.4	20.5	23.8	22.5
Expected return on assets			(37.8)	(24.8)	(29.7)	(24.5)
Interest on franchise adjustments			-	(1.3)	-	-
Pension cost			24.1	18.8	0.8	5.5

 

10. ANALYSIS OF GROUP NET DEBT

		Cash and cash equivalents	Loans	Hire Purchase /Finance leases	Loan notes	Total
		£m	£m	£m	£m	£m
1 July 2006		80.4	(170.5)	(48.1)	(0.6)	(138.8)
Cashflow		48.3	(52.1)	2.2	0.2	(1.4)
Acquisitions		(0.1)	-	(4.2)	-	(4.3)
30 June 2007		128.6	(222.6)	(50.1)	(0.4)	(144.5)
Cashflow		17.8	(92.2)	15.6	0.4	(58.4)
Acquisitions		4.9	-	-	-	4.9
Disposals		-	-	0.2	-	0.2
28 June 2008		151.3	(314.8)	(34.3)	-	(197.8)

11. STATUTORY ACCOUNTS

The Board approved the preliminary statement covering the year ended 28 June 2008 on 4 September 2008. The financial information set out above does not constitute the Group's statutory accounts for the years ended 30 June 2007 and 28 June 2008. The financial information is derived from the Group financial statements for the year ended 28 June 2008. The Group financial statements on which the auditors have given an unqualified audit report does not contain a statement under section 237(2) or (3) of the Companies Act 1985. The financial statements for the year ended 28 June 2008 will be sent to the shareholders and delivered to the Registrar of Companies in due course. They will 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 on the company's website, www.go-ahead.com.

ENDFR USVBRWBRKRAR

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