Full Year Results

THE GO-AHEAD GROUP PLC

("Go-Ahead" or "the Group")

full year Results for the 12 months ended 2 JUly 2011

We are pleased to report a set of strong results for the Group, in line with our expectations reported in June 2011.

Highlights

·; Operating profit up 14% to £115.1 million

·; Continued strong cash management and robust balance sheet

·; Total dividend for the year maintained at 81.0 pence per share

·; Passenger revenue growth in bus and rail divisions

·; Further evidence of consumers switching from cars to public transport

·; New financial year started well and trading in line with the Board's expectations

* Before amortisation and exceptional items

** Restated to exclude discontinued operations

# Includes interim dividend paid and final dividend proposed

Commenting on Go-Ahead's results, Chairman, Sir Patrick Brown, said:

I am pleased with the performance of the Group this year. Despite facing challenging economic conditions in the last 12 months and the adverse weather in the first half of the year, all of our operations have seen growth in like-for-like passenger revenue and passenger journeys.

Our bus and rail operations remain fundamentally strong and have benefited from passengers leaving their cars at home and choosing better value public transport alternatives.

Our outlook for the next financial year has not changed since our trading update in June 2011. We are assuming that the broad underlying operating trends experienced in the financial year will continue throughout the financial year to 30 June 2012 and that around £13m of the rail contract management benefits achieved in 2011 will not recur.

In bus, we anticipate that the performance of the business will remain strong despite the reduction in the Bus Service Operators Grant (BSOG) in April 2012 which will impact on the last quarter of the next financial year. Our fuel requirements are fully hedged for the next year at 41p per litre, in line with the cost in the financial year just ended. In rail, we will continue to drive revenue and control costs to help offset the challenges of reduced subsidies/increased premia in our franchises.

Our balance sheet, cash flow and financing are strong and we continue to view the maintenance of the dividend as a priority.

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

For further information, please contact:

David Brown, Group Chief Executive and Keith Down, Group Finance Director will be hosting a presentation for analysts at 9.00am today (1 September 2011) at Investec, 2 Gresham Street, London EC2V 7QP,Tel: +44 (0) 20 7597 5970

A live audio webcast will be available for analysts to listen to the presentation from Go-Ahead's website -www.go-ahead.com. The presentation slides will be added to Go-Ahead's website (www.go-ahead.com) at around 7:30am today and a PDF copy of the Group's Annual Report and Accounts for the year ended 2 July 2011 will also be available to download from the website today.

Notes to Editors

Go-AheadGo-Ahead is a leading UK public transport operator, providing high quality services in the bus and rail sectors. Employing over 22,000 people across the country, over one billion passenger journeys are undertaken on our services each year. We are committed to operating our companies in a safe, socially and environmentally responsible way and are proud to have been awarded the Carbon Trust Standard after taking action on climate change. In addition to the travelling public, our customers include the Department for Transport, Transport for London (TfL) and local authorities.

BUS

Go-Ahead is one of the UK's largest bus operators. With a fleet of around 3,800 buses, we carry, on average, around 1.7 million passengers every day. Our operations are focused on high density commuter markets. We have a strong presence in London, with around 21% market share, where we provide regulated services for TfL. We operate deregulated services in Oxford, East Anglia, south east, southern and north east England. We also have a yellow school bus joint venture in North America.

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 around 30% of all UK passenger rail journeys through its three rail franchises: Southern (which includes Gatwick Express), Southeastern and London Midland.

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 operates. By their nature, forward-looking statements involve uncertainty because they depend on 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 any way in connection with any investment decision. Except as required by law, the Company undertakes no obligation to update any forward-looking statement.

FULL YEAR RESULTS FOR THE YEAR ENDED 2 JULY 2011

CHAIRMAN'S STATEMENT

I am pleased with the performance of the Group this year. Despite facing challenging economic conditions in the last 12 months and the adverse weather in the first half of the year, all of our operations have seen growth in like-for-like passenger revenue and passenger journeys. We have worked hard to continue providing a high quality, value for money service to our customers and have made good progress in understanding who our customers are and what their priorities are.

In the first half of the year, we disposed of the remainder of our aviation services division and began operating our first contracts through our yellow school bus joint venture in North America. The second half of the year saw the acquisition of the Thames Travel bus business.

We welcomed the findings of the McNulty review in May and are working closely with the Government and key organisations within the rail industry to shape the future of rail franchising.

We have refinanced our main bank facilities during the year and maintained our investment grade credit ratings. We remain in good financial shape and continue to believe in the fundamental strengths of public transport having seen an evident modal shift from private car usage to public transport over the last 12 months.

Overall, revenue increased by £129.7m, or 6.0%, to £2,297.0m (2010: £2,167.3m), with increases in our deregulated bus division and our rail division more than offsetting a slight reduction in our regulated bus division. Operating profit* was up 14.0% to £115.1m, in line with our expectations (2010: £101.0m).

Adjusted earnings per share* increased by 6.5% to 135.2p (2010: 126.9p). Basic earnings per share, including exceptional items and discontinued operations, was 157.1p (2010: 40.1p) and profit attributable to members was £67.4m (2010: £17.2m).

Business development and acquisitionsThis year has seen us dispose of the remainder of our aviation services division. The residual operations disposed in the first half of the year are classified as discontinued and are excluded from the results discussed throughout this report.

Our North American yellow school bus joint venture operations have been running successfully for a year, having started with two contracts in St Louis, Missouri in August 2010. We have established ourselves as a reliable and credible operator in the market.

Towards the end of the financial year we acquired Thames Travel, a small bus company based in Oxfordshire. This demonstrates our commitment to acquisitive growth through bolt-on acquisitions in our deregulated bus business.

DividendsWe know that our dividend policy is key to the investment decision for many shareholders. The Board remains committed to maintaining the dividend per share which is supported by the Group's strong balance sheet and cash generation. The Board is proposing a final dividend of 55.5p per share (2010: 30.0p) to maintain the total dividend for the year at 81.0p (2010: 81.0p). The final dividend is payable on 18 November 2011 to registered shareholders at the close of business on 4 November 2011.

The Board of Directors and GovernanceFollowing a 40 year career in the transport industry, Keith Ludeman retired as Group Chief Executive in July 2011. It has been a pleasure to work with Keith and I wish him well in his retirement.I am delighted to welcome David Brown and Keith Down to the Board of Go-Ahead. Both David and Keith bring new strengths to the Board and are committed to continuing the excellent progress we are making in line with our strategy.

David Brown was appointed to the Board in April 2011 as Deputy Group Chief Executive and following a handover period he became Group Chief Executive on 3 July 2011, following Keith Ludeman's retirement. Keith Down was appointed to the Board as Group Finance Director in March 2011. Both David and Keith will stand for election at the Annual General Meeting (AGM) in October 2011.

In May 2010, the Financial Reporting Council issued a new edition of the Combined Code, called the UK Corporate Governance Code, which outlined a number of changes designed to reinforce Board quality, focus on risk and improve accountability to shareholders. The Board has implemented changes accordingly, including all Directors being subject to annual election by shareholders at the AGM, which took effect from October 2010.

In addition to this, we acknowledged the Financial Reporting Council's new guidance on Board Effectiveness and changes to the code following the Financial Reporting Council's consultation on gender diversity on Boards.

Corporate responsibilityFor Go-Ahead, corporate responsibility is about operating our trains and buses safely, reducing the impact of our operations on the environment and being passenger focused. It also means developing our staff and enriching our local communities while growing our business profitably for our shareholders. Environmental and social issues have continued to play an important role this year. These issues are at the heart of our business and we work closely with our many stakeholder groups to innovate so we remain at the forefront of our sector. Our aim is to provide passengers with quality bus and rail services which are sustainable and meet the requirements of the communities in which we operate.

Our approach to corporate responsibility covers five main areas: safety, environment, passengers, employees and community. The safety and security of our passengers, our people and the general public is an absolute priority for the Group and we continually strive to improve our already high safety performance. We are committed to improving the energy efficiency of our bus and rail operations as this not only has important environmental benefits, but also helps to reduce operating costs. Our Driving Energy Further initiatives, aimed at reducing our CO2 emissions per passenger journey by 20% by 2015, have continued this year. Investment, innovation and the commitment of our employees means we have made good progress against our target, achieving a 12% reduction against our 2007/08 baseline - a 3% improvement on last year.

EmployeesThe average number of employees in the Group for the financial year was 22,201, below last year's average of 22,570, primarily due to the disposal of the remainder of our aviation services division. I would like to thank our employees for their continuing dedication and hard work through these challenging economic conditions to ensure that we remain a strong and successful Group.

OutlookOur bus and rail operations remain fundamentally strong and have benefited from passengers leaving their cars at home and choosing better value public transport alternatives. Whilst we are encouraged by our performance this year, we remain cautious on the medium term wider economic outlook.

Our outlook for the next financial year has not changed since our trading update in June 2011. We are assuming that the broad underlying operating trends experienced in the financial year will continue throughout the financial year to 30 June 2012 and that around £13m of the rail contract management benefits achieved in 2011 will not recur.

In bus, we anticipate that the performance of the business will remain strong despite the reduction in the Bus Service Operators Grant (BSOG) in April 2012 which will impact on the last quarter of the next financial year. Our fuel requirements are fully hedged for the next year at 41p per litre, in line with the cost in the financial year just ended.

 In rail, we will continue to drive revenue and control costs to help offset the challenges of reduced subsidies/increased premia in our franchises.

Our balance sheet, cash flow and financing are strong and we continue to view the maintenance of the dividend as a priority.We have started the new financial year well and trading has been in line with the Board's expectations.

GROUP CHIEF EXECUTIVE'S REVIEWIn my first review as Group Chief Executive, I am pleased to report strong operational performance across our businesses. While the wider economy is still facing real challenges our local market focus has ensured we are in a strong position to meet the needs of our passengers while leveraging the benefits of scale that a large group can bring. The combination of strong government commitment to public transport and increasing modal shift from cars means the growth prospects for public transport, particularly in urban areas, are strong. We are therefore well placed to grow organically and, where appropriate, make value-enhancing acquisitions. The future still holds challenges, but the prospects for the business are good.

Summary of performanceIn the year, our operating performance was in line with our expectations. The increase in operating profit* to £115.1m was driven by increased profits in deregulated bus and rail, offset by the anticipated reduction in turnover and margin in our regulated bus business. As we completed the disposal of our aviation services division during the year, these businesses are classed as discontinued and, unless otherwise stated, their results are excluded from this review. The disposal of this division has enabled us to focus solely on our bus and rail divisions. As part of our constant review of best practice we now report on our regulated and deregulated bus businesses separately and have reclassified some elements of insurance liability and leased asset dilapidations as provisions rather than accruals. In accordance with IFRS we have presented a restated balance sheet for the year to 3 July 2010 to clearly show these changes.

Cash management remains a focus for the Group and this resulted in cashflow from operations being ahead of expectations at £137.9m (2010: £160.6m) and net debt reducing to £69.8m (2010: £88.3m). Capital investment remains slightly ahead of depreciation, due to ongoing franchise commitments in both Southern and London Midland but also due to maintaining the high quality asset base in our expanding bus division.

We continue to seek bolt-on acquisitions and, on 24 May 2011, we acquired Thames Travel, a quality operator based in Oxfordshire that strengthens our presence in and around Oxford and opens up new local markets for us.

Our refinancing was completed during the year. We replaced our revolving credit facility with a new five year £275m revolving credit facility, maturing in February 2016. This is in addition to our £200m sterling bond which matures in September 2017. Our investment grade credit ratings from Moody's and Standard & Poor's have retained their stable outlook.

This financial strength and profitability ensures we can maintain our full year dividend to shareholders at 81.0p per share (2010: 81.0p).

Market environmentWhile the wider economic environment remains challenging, we are encouraged by the level of growth across our business. The Government continues to strongly support public transport. Last year the industry was concerned about the impact of government spending cuts and, while these have indeed been difficult, the underlying growth in our business has more than compensated for the impact. We welcome the publication of the Government-commissioned McNulty Report on rail franchising and look forward to playing a key role in transforming the rail industry in the months and years ahead. In the medium term, we fully expect to benefit from both a cyclical economic recovery and from the underlying strengths of public transport in the UK.

Our strategyThe Board remains committed to the Group's strategy to continue to focus on providing high quality passenger transport.

The underlying elements of this strategy are to:

- Run our companies in a socially and environmentally responsible manner;

- Provide high quality, locally focused passenger transport services;

- Prioritise high density, urban markets; and

- Maintain strong financial discipline to deliver shareholder value.

Each element has a number of performance indicators, both financial and non-financial, which are routinely measured for improvement trends and comparison between operating companies.

In the near term, our priority is to deliver value from our existing portfolio of operations and seek value-enhancing opportunities.

Key risks include a major accident or incident, or an unexpected reduction in demand for our services. We operate a strong governance structure and control environment to mitigate these and other risks as far as possible.

Divisional performance overviewDeregulated busOur deregulated bus division performed well during the year, with strong growth achieved in our existing businesses and also in those acquired by the Group in the previous financial year. Operating profit* was significantly ahead of last year at £33.7m (2010: £27.2m). This was driven by passenger numbers increasing by 4.7% and passenger revenue growth of 7.4% (2.3% and 5.1% respectively on a like-for-like basis, adjusting for acquisitions and the additional week in the prior year). Cost savings achieved through Group purchasing continue to support the businesses. We continue to de-risk fuel costs through a hedging programme which is now rolling forward into 2014. Capital investment continues at above depreciation, ensuring that we retain one of the youngest bus fleets in the sector and maintain our strategically important freehold depot locations.

Go-Ahead North America, our joint venture with Cook Illinois, commenced trading in August 2010 with its first yellow school bus franchise in St Louis, Missouri. We have established ourselves as a reliable and credible operator in the market and while the 2011 tendering round has not secured new work for the joint venture, we will use the experience gained in the 2012 tendering round.

Regulated busOur regulated bus division traded in line with management expectations. Revenue was down by 1.3%, primarily through reduced receipts through Quality Incentive Contracts (QICs) following the abolition of the QIC2 scheme, with profits of £33.4m (2010: £36.5m). Like-for-like mileage operated was slightly down on last year at 72.2 million miles and we continued to perform well in TfL league tables operating 99.6% of scheduled mileage. Following recent contract gains, we expect to see mileage and revenue growth next year. 

Tendering competition and the QIC bonus structure have stabilised although the costs of uninsured claims are increasing. Overall we expect margins to be relatively stable although there will be some impact from the decrease in the Bus Service Operators Grant (BSOG) in April 2012.

RailThe results of our rail division remained resilient with operating profit* of £48.0m, some £10.7m ahead of last year, underpinned by approximately £13m of non-recurring contract management benefits.

All of our three rail franchises deliver core commuter services to high density urban markets. Passenger revenue growth is fundamental to their success as the passenger revenue growth offsets the profile of reducing underlying DfT subsidy, or in Southern's case, increasing premia. Like-for-like passenger revenue growth for the division was 8.5%, with 8.6% in Southern, 8.4% in Southeastern and 8.6% in London Midland. Growth in passenger numbers was strong in the year with overall growth for the division of 4.2% on a like-for-like basis. In Southern, Southeastern and London Midland passenger numbers grew by 2.3%, 5.0% and 7.2% respectively.

The Southern franchise continues to meet its core franchise commitments and is in line with its bid assumptions. Southeastern's high speed service between St Pancras International and Kent is now fully established and is expanding. It has benefited, in particular, from excellent contract management. London Midland continues to improve its operational performance and has made steady progress in addressing key staffing issues.

In summaryWe are pleased with the set of strong results we have reported. While the wider economy still faces challenges, we are making excellent progress in delivering our growth strategy.

We stand ready to benefit from any recovery in the economy and, while we remain cautious in the near term outlook for the UK, we are confident in the underlying strengths of and growth opportunities for our business.

FINANCIAL REVIEWOperating profit* for the year was £115.1m, 14.0% ahead of last year (2010: £101.0m). Adjusted earnings per share* was up 6.5% to 135.2p (2010: 126.9p). Basic earnings per share was 157.1p (2010: 40.1p).

Cash conversion was, once again, excellent with cashflow generated from operations of £137.9m (2010: £160.6m) compared to operating profit before depreciation, amortisation and exceptional items (EBITDA) of £164.3m (2010: £150.9m).

Our balance sheet and financing remain strong. Adjusted net debt to EBITDA was 1.6x at the year end (2010: 1.9x) and remains within our target range of 1.5-2.5x. Our funding is secured in the medium term, through a £275m revolving credit facility, expiring in February 2016, together with our £200m bond which matures in September 2017. At the end of the year we had headroom within the loan facility of £191.0m (2010: £177.0m).

Discontinued operationsFollowing the disposal of the remainder of our aviation services division during the first half of the financial year, the income statements for both the current period and comparative periods have been re-analysed between those operations which remain (continuing) and those which were sold (discontinued), with the net profit or loss from the latter shown as a one line item at the end of the income statement.

Unless otherwise stated, the narrative throughout this report refers to continuing operations.

A full explanation of discontinued items is provided below.

EBITDAEBITDA was £164.3m (2010: £150.9m), consisting of operating profit* of £115.1m (2010: £101.0m) and depreciation of £49.2m (2010: £49.9m).PensionsOperating profit* includes the net cost of the Group's defined benefit pension plans for the period of £37.0m (2010: £36.3m) consisting of bus costs of £5.2m (2010: £5.4m) and rail costs of £31.8m (2010: £30.9m). Company contributions to the schemes totalled £44.1m (2010: £43.2m).

The net deficit after taxation on the non-rail defined benefit schemes was £44.3m (2010: £69.8m), consisting of pre tax liabilities of £59.9m (2010: £96.9m) less a deferred tax asset of £15.6m (2010: £27.1m). The decrease in deficit was primarily due to the future benefit indexation changing from RPI to CPI in the period. The pre tax deficit consisted of estimated liabilities of £529.7m (2010: £516.9m) less assets of £469.8m (2010: £420.0m). The percentage of assets held in higher risk, return seeking assets was 46% (2010: 57%), lower than last year due to a continuing exercise to de-risk the pension scheme in line with industry benchmarks.

Rail pensionsAs reported at the half year, the rail pension schemes follow the Government's change from RPI to CPI, although the nature of these schemes means we only recognise the share of surplus or deficit expected to be realised over the life of each franchise.

The change from RPI to CPI is expected to reduce the income statement charge from the start of the next financial year. The changes in other assumptions in the period have also been favourable, and would reduce the income statement charge in the financial year to June 2013 to give a total benefit of around £5m per annum in the income statement over the remaining lives of the franchises.

At this stage, we have not assumed any corresponding reduction in cash contributions until agreed with trustees as part of the December 2010 triennial valuation discussions. On this basis, we have recorded a liability of £17.0m (2010: £nil), representing the discounted value of the liability attributable to the remaining franchise period of around £5m per annum. If the future cash contributions were to be agreed in line with the income statement charge, this liability would no longer be required and both the income statement charge and the cash contributions would reduce over the remaining lives of the franchises.

Net finance costsNet finance costs for the year increased to £17.5m (2010: £13.3m), comprising finance costs of £19.0m (2010: £14.9m) less finance revenue of £1.5m (2010: £1.6m). The increase in net finance costs was primarily due to the full year impact of the interest rates on the £200m sterling bond which was issued at a coupon rate of 5.375% in March 2010. The average net interest rate was 5.5% (2010: 4.8%) for the year and the proportion of gross debt held under fixed interest rate agreements at 2 July 2011 was 113.1% (2010: 105.6%).

Goodwill and intangible amortisationThe charge for the year of £10.5m (2010: £10.9m) represents the non-cash cost of amortising goodwill, intangibles including assets associated with pension accounting for the rail franchises and computer costs. The decrease against the prior year is due to the amortisation on the New Southern Railway Limited franchise acquisition goodwill coming to an end in December 2009.

Exceptional itemsExceptional income before taxation in the year was £1.5m (2010 expense: £46.8m). Exceptional costs on continuing operations for the period were £2.3m (2010: £11.0m) consisting of accelerated depreciation of £3.0m (2010: £2.6m) in respect of articulated London buses which are being phased out, the release of onerous bus leases of £0.3m (2010 expense: £0.9m) and the release of rail reorganisation liabilities of £0.4m (2010 expense: £6.7m). The discontinued exceptional income of £3.8m (2010 expense: £35.8m) consists of net profit on the sale of residual elements of the ground handling operations and Meteor Parking operations, and adjustments to the provisions in respect of the pre-sale reorganisation costs which related to operations sold in theprior period.

TaxationNet taxation for the year of £9.8m (2010: £14.5m) included underlying tax on ordinary activities of £22.8m (2010: £20.0m), equivalent to an effective rate of 26.2% (2010: 26.0%) slightly below the UK statutory rate for the period of 27.5% (2010: 28.0%) due to the £7.8m benefit of previous tax efficient asset finance arrangements. The lower charge also reflects £4.4m credit in respect of the impact on deferred tax on the change in statutory rate.

Non-controlling interestThe non-controlling interest in the income statement of £12.0m (2010: £6.3m) arises from our 65% holding in Govia Limited which owns 100% of our current rail operations and therefore represents 35% of the profit after taxation of these operations.

Discontinued operationsIn the first half of the financial year the remainder of our aviation services division was sold and, as such, there is no profit or loss from this division shown in continuing operations or exceptional charges in the current or comparative results.

Discontinued operations in the year resulted in a minimal net profit of £0.1m.

Earnings per shareThe earnings per share analysis provides four measures: adjusted earnings per share (profit after tax, before amortisation and exceptional items and excluding discontinued items), continuing earnings per share (after amortisation and exceptional items) and total earnings per share (including discontinued operations). In the year, adjusted earnings per share also excludes the one-off tax benefit of £7.8m relating to the agreement of tax efficient leasing schemes and the £4.4m, in respect of the impact on deferred tax due to the change in statutory rate.

Adjusted earnings (net profit after tax on continuing operations attributable to members before amortisation and exceptional items) were £58.0m (2010: £54.5m) resulting in a 6.5% increasein adjusted earnings per share from 126.9p to 135.2p.

The weighted average number of shares remained at 42.9 million (2010: 42.9 million), as did the closing number of shares in issue, net of treasury shares.

DividendsThe Board is proposing a total dividend for the year of 81.0p per share (2010: 81.0p). This includes a proposed final payment of 55.5p (2010: 30.0p) payable on 18 November 2011 to registered shareholders at the close of business on 4 November 2011. The final dividend paid last year was lower due to a one-off change to the proportion of the full year dividend paid as an interim dividend in advance of the 1 April 2010 change to taxation.

Dividends paid in the period represent the payment of last year's final dividend of 30.0p per share (2010: 55.5p) and the interim dividend in respect of this year of 25.5p per share (2010: 51.0p).

CashflowCash generated from operations before taxation was £137.9m (2010: £160.6m). Tax paid of £24.9m (2010: £18.8m) comprised payments on account in respect of the current year's liability.

Net interest paid of £12.1m (2010: £10.7m) is less than the charge for the period of £17.5m (2010: £13.3m) but in line when adjusted for accrued amounts in respect of the sterling bond. Capital expenditure, net of sale proceeds, marginally exceeded last year at £55.0m (2010: £54.7m).

Following a decision to alter the proportion of last year's total dividend payable as a final dividend, dividends paid to parent company shareholders amounted to £23.8m (2010: £45.7m) consisting of 30.0p per share final dividend for 2010 (2010: final dividend for 2009 was 55.5p) and 25.5p interim dividend for 2011 (2010: 51.0p). Dividends to non-controlling interests were £4.8m (2010: £6.6m) following the agreed deferment of the year end dividend into 2012.

During the period, the Company repurchased 58,632 of its own shares at £0.8m (2010: 26,447 shares at £0.3m) for potential Long Term Incentive Plan (LTIP) awards that may vest in the future (and Directors' bonus plan 2010). No shares were issued (2010: 14,000 shares for proceeds of £0.2m).

Balance sheetIn the first half of the financial year, on 26 July 2010, we entered into a US$10m facility with RBS to provide medium term funding for our North American yellow school bus joint venture, using the US$ denomination to provide a currency hedge against our US$ investment in the joint venture. At 2 July 2011 $6.2m or £3.9m of this facility was utilised.

In the second half of the financial year, on 3 February 2011, we refinanced our £280m revolving credit facility, due to expire in November 2012, with a £275m revolving credit facility expiring in February 2016. This new facility, together with our £200m bond expiring in September 2017, secures significant medium term finance. At the year end there were no other bank loans (2010: £5.6m).

Net debt was £69.8m, a continued improvement on prior years (2010: £88.3m; 2009: £91.0m), consisting of the £200m sterling bond, amounts drawn down against the £275m (2010: £280m) five year revolving credit facility of £84.0m (2010: £103.0m); hire purchase and lease agreements of £5.5m (2010: £10.0m); dollar loan of £3.9m (2010: £nil); medium term loans of £nil (2010: £5.6m) and overdrafts of £5.0m (2010: £5.8m), partly offset by cash and short term deposits of £228.6m (2010: £236.1m) which included restricted cash in rail of £189.7m (2010: £204.0m).

Adjusted net debt, consisting of net debt plus restricted cash, was £259.5m (2010: £292.3m), equivalent to 1.6x EBITDA (2010: 1.9x), well within our target range of between 1.5x - 2.5x through the cycle, and significantly below our primary financing covenant of not more than 3.5x.

Net assets totalled £31.4m at the end of the year compared to a liability of £(41.3)m at 3 July 2010. The increase of £72.7m consists primarily of profit for the period of £79.4m, less dividends of £28.6m and post tax movements in other comprehensive income of £22.3m and other reductions of £0.4m.

We have retained the investment grade ratings from Moody's (Baa3, stable outlook) and Standard and Poor's (BBB-, stable outlook) achieved last year ahead of the issue of our sterling bond.

BUS BUSINESS REVIEWBus services are an essential form of travel in our cities and rural areas. For some people, it is their only means of transport and for others it is a positive choice because it is cost effective, reliable and convenient. Go-Ahead understands what passengers value from our services and that is why delivering quality is at the forefront of everything we do. Getting that right is why we have continued to see growth.

Our core strategyWe are a passenger focused business providing quality services in predominantly urban areas across the UK.

While many of the markets in which we operate have common features, each has its own unique characteristics. That is why we employ locally based management teams who have a thorough understanding of their local markets. All of our companies have local identities and branding which we believe our passengers value. We take an active role in the communities we serve so that our companies are part of their local communities. This enables our businesses to respond quickly and appropriately to changing local needs.

Our aim is to grow our market share of the UK bus industry organically and through value adding bolt-on acquisitions, particularly outside London, where we believe there is considerable growth potential.

While our focus is the UK transport market, we continue to look at opportunities overseas. We are now one year into the operation of our yellow school bus joint venture in North America and we have established ourselves as a reliable and credible operator in the market.

The UK bus marketThe use of public transport is growing, and within that market, the bus is the most frequently used mode of transport in the UK. Around 5.2 billion passenger journeys1 are made each year on UK bus networks.

The UK bus market is comprised of two models: the London market which is regulated by Transport for London (TfL); and the rest of the UK which is deregulated and largely operated on a fully commercial basis.

The bus market has remained resilient and has indeed grown despite the wider economic conditions the UK faces.

The costs of motoring continue to rise, while bus fares on our services continue to offer excellent value. With the "cost gap" between car and bus continuing to grow, an increasing number of former car users are switching to the bus.

The London market (Regulated market)The majority of public transport journeys in London take place on the bus, over two billion a year compared with around one billion on the London Underground2 . The short to medium term prospects in this market are positive. In its latest business plan, TfL stated that mileage in the London bus network would be protected, following the Comprehensive Spending Review in October 2010. With buses being such a vital form of transport, combined with congestion charging and a limited ability to expand the tube network, we expect the London bus market to remain very resilient in the long term.

The rest of the UK (Deregulated market)Bus services outside London are comprised of commercial routes and tendered contracts and are run by private operators. The short to medium term prospects in this market are good as an increasing number of people switch from private car to bus travel. We are introducing smartcard technology across our networks to make travel even easier and more convenient. We believe this, combined with an increased marketing focus, will further enhance prospects over the next 12 months.

Our business modelGo-Ahead operates in the UK bus market through nine business units: Go-Ahead London, Go North East, Go South Coast, Metrobus, Brighton & Hove, Oxford Bus Company, Plymouth Citybus, Konectbus and Thames Travel.

The Group has around 21% of the London bus market, through Go-Ahead London and Metrobus3. Its operations in the rest of the UK give around a 6% share of the deregulated UK bus market.

Our London operationsGo-Ahead has been a major player in the London bus market since the early 1990s. We currently have a market share of around 21%, operating over 100 bus routes and carrying approximately one million passengers a day.

Our success in the London bus market is the result of our strong and experienced management team who are committed to running high quality, frequent bus services in the capital; and our network of well located freehold depots, through which we are able to achieve cost efficiencies.

Transport for LondonAll London bus routes are regulated by TfL which issues tenders for route contracts. These contracts are typically five years long with a potential two year extension based largely on performance. They are awarded to private operators on a cost per mile basis. TfL contracts are price index adjusted, designed to offset inflationary increases in costs. As a result, operators' profits are typically not impacted by inflationary changes.

1. Department for Transport, June 2011

2. Transport for London, September 2010

3. Around 70% of Metrobus' operations are in the regulated, London market

Quality Incentive ContractsIn addition to earning revenue per mile, we also generate revenue through good performance. TfL sets performance targets called Quality Incentive Contracts (QICs) to incentivise high quality service provision. Operators receive cash bonuses when targets are met and are penalised if performance falls short. We consistently rank highly in TfL performance league tables.

In 2010, our QIC bonus revenue totalled £12.3m, comprised of £8.8m earned against QIC1 targets based on punctuality and £3.5m through QIC2 targets based on factors such as bus driver attitude and bus cleanliness.

Quality incentive bonuses earned in the financial year just ended totalled £8.0m. This decrease is due to two, previously reported factors. In March 2010, TfL withdrew QIC2 as a cost saving measure, as such all QIC revenue reported for the financial year just ended was derived from QIC1. In addition, the ability to earn QIC1 bonuses has declined in the period as more challenging performance targets have been introduced.

The rest of the UKWe focus our operations in the rest of the UK on dense, urban operations where we offer high quality, frequent and convenient services that are excellent value. Our locally focused, passenger oriented businesses are able to respond swiftly to the individual needs of the communities they serve. Our companies set their own fares on a commercial basis but work closely with local authorities and other stakeholders to provide services tomeet local demand.

Local authoritiesAll of our companies outside of London operate on a largely commercial basis with less than 10% of our services being tendered routes. As a result of this strategy we have not been significantly exposed to local authority spending cuts.

We have good relationships with local authorities which are key to our success as an operator in this market.

2011 performance overviewThe performance of our bus operations was strong, with operating profit* at record levels.

Revenue increased by 2.0%, or £12.9m, to £642.4m (2010: £629.5m), consisting of £17.6m or 2.8% from acquisitions and a decrease of 1.3% due to this year being one week shorter than the comparative period. Like-for-like growth was a net 0.4%, with growth across the deregulated businesses of 4.1% being offset by an expected and previously reported reduction of 2.4% in our London operations.

Operating profit was £67.1m, increasing in the year by £3.4m or 5.3% (2010: £63.7m), marking a return to the record profit levels achieved in 2009. Of this increase £2.6m was due to acquisitions with like-for-like increases in our deregulated business being largely offset by reductions in our regulated operations.

Operating profit* margin increased to 10.4% (2010: 10.1%) despite a fall in the operating margin in our regulated business. This year's operating profit* has benefited from a like-for-like reduction in costs for the commodity cost of fuel of £6m and increases in the Bus Service Operators Grant (BSOG) receivable from implementation of ITSO Smartcard technology in our deregulated fleet. However, these benefits have been largely offset by additional duty costs and increased accident claim costs of £6.3m. Our regulated operations have seen the highest claims cost increases and we are now undertaking a detailed review of operating procedures and claims cost management. Like-for-like performance, excluding acquisitions, remained strong. Revenue growth was achieved in each of our deregulated businesses. Regulated revenue has reduced by £4.6m, of which £3.5m relates to QIC2 which was withdrawn in this financial year. We have maintained a strong discipline in cost control and this remains a priority with initiatives focusing on both procurement and scheduling efficiency.

We continue to use around 115 million litres of fuel each year and have hedged all of our expected fuel requirements at 41p per litre (ppl) compared with an average price of 47ppl in 2010. The total fuel rebate provided through BSOG was 42 ppl, in addition to which we received an additional 8%, or 2ppl, in our deregulated businesses for the introduction of ITSO Smartcard technology.

Our local management remain responsible for local wage negotiations to ensure that we continue to pay market rates and match reward with ongoing productivity improvements. The 2011 year costs included £5.2m of pension costs (£2010: £5.4m).

Total depreciation for the division was £38.1m (2010: £35.5m) and net capital expenditure was £35.7m (2010: £39.6m). The average age of our deregulated fleet remains one of the youngest in the sector.

AcquisitionsThis year has seen continued benefits from acquisitions made during 2010 in the regulated and deregulated businesses and they are included within acquisitions data until the first anniversary of each entity becoming part of the Group. Subsequent to this point their results are deemed to be like-for-like.

2010/11 acquisitionOn 24 May 2011 we purchased the entire share capital of Thames Travel, a high quality operator based in Oxfordshire. With annual turnover of around £5.5m Thames Travel will be run as a stand-alone operation overseen by management at Oxford Bus Company.

2009/10 acquisitionsEast Thames Buses was acquired from Transport for London by our Go-Ahead London operation in October 2009. In the same month, our Metrobus subsidiary acquired Arriva's Horsham depot which operates a mix of regulated routes and deregulated services.

Plymouth Citybus, a high quality urban business which operates from a centrally based freehold depot was acquired by the Group in December 2009.

In March 2010, we acquired the entire share capital of Konectbus in Norfolk and Go North East acquired the Hexham operations of Arriva at the same time we sold our Ashington depot to Arriva.

Deregulated bus operationsAll of our operating companies reported continued underlying revenue growth, resulting in a revenue increase of 7.4% of which acquisitions represented 4.2%, offset by a 1.9% fall due to the shorter period with like-for-like growth totalling 5.1%. Passenger journeys increased by 4.7%, of which acquisitions represented 4.3%, a 1.9% fall due to the shorter period and like-for-like growth was 2.3%, with the majority of the increase from fare paying passengers.

Revenue growth trends remained positive in the second half of the year with like-for-like growth of 5.0%, marginally below that of the first half where like-for-like growth was 5.2%. Like-for-like passenger numbers also increased in each of our operating companies with a total second half increase of 2.8% comparedto a first half increase of 1.8%.

Operating profit margins in the deregulated bus division have increased from 10% last year to 11.6%.

We believe understanding our customers is a key driver to our business, as is providing a safe and reliable service. During the year our deregulated services saw punctuality at 90% (2010: 90%) with some operating companies achieving higher than 95%, despite the adverse weather conditions in the early part of this calendar year.

Regulated bus operationsOur regulated bus operations in London performed well. Reduced QICs and lower contract margins were largely offset by effective cost control. Revenue declined by 1.3% in the year, acquisitions represented 1.8%, a 0.8% fall due to the shorter period, which leaves a like-for-like reduction of 2.3%. Contracted mileage was marginally behind 2010, declining by 0.8% to 72.2 million miles, of which an increase of 1.6% came from acquisitions, a 1.8% fall due to the shorter period resulting in a like-for-like decrease of 0.6%.

QIC bonuses reduced to £8.0m (2010: £12.3m), of this reduction £3.5m was from QIC2 incentives for driver quality and bus incentives which were withdrawn by TfL during the previous year. Our strong performance means we continue to earn QICs where available and continue to perform well in the TfL quality league tables, operating in excess of 99.6% of our target mileage before traffic congestion losses (2010: 99.5%).

Revenue trends were in line with our expectations with negative growth in the second half of 0.3% compared to a first half reduction of 4.9%.

Our ability to tender effectively is supported by our depot capacity in London: 85% of our depots are freehold, which provide a strong base for contract renewals as this reduces factors such as dead mileage (the distance travelled between the beginning/end of a route and the depot). During 2011, we retained contracts for 270 peak vehicle requirements (PVR), won new work for 137 PVR and lost 47 PVR. 2011/12 has started positively on both contract wins and retentions with no losses to date.

The decommissioning of articulated buses by TfL, that was announced in 2010, has been confirmed and all of these vehicles will be removed from service by September 2011. Certain routes have been retendered and re-awarded to us using double deck vehicles. We have continued the process of accelerating the depreciation on these vehicles to a nil residual value with an exceptional charge for the year of £3.0m (2010: £2.6m). We are seeking opportunities to utilise these vehicles elsewhere inthe Group.

Operating margins have decreased from 10.2% last year to 9.5% largely due to reductions in QIC bonuses.

North American joint ventureIn August 2010 our 50:50 North America joint venture with Cook Illinois began two contracts in St Louis, Missouri to run approximately 120 buses. Our investment in the joint venture is through a combination of debt and equity and totals US$6.2m (£3.9m) provided through a US$10m revolving credit facility held in the UK. Whilst the result for the year was a break even position we believe we have a good foundation for profitabilityon these contracts going forward. While the 2011 tendering round has not secured new work for the joint venture, we will use the experience we have gained in the 2012 tendering round.

OutlookWe anticipate that the performance of our bus divisions will remain strong into the next financial year. In our deregulated business, retaining customers who have switched from private cars will be a priority, together with further growth in passenger numbers. Our regulated operations have started the year well with new contract wins and no losses. We will work to maintain our high rankings in TfL league tables.

In May 2011, the Competition Commission issued its provisional findings and notice of proposed remedies in response to its inquiry into the UK local bus market. No fundamental change to the regulatory structure of the bus industry is currently being proposed.

In April 2012 the 20% reduction in BSOG will be enacted. This will result in a financial impact in the year to 30 June 2012 of around £1.6m, as the reduction in the grant will be partly offset by a smartcard subsidy of 8%. To mitigate these reductions going forward, contract tender bids in London will be adjusted and deregulated operations will introduce efficiency improvements and yield benefits to offset the reduced subsidy.

We anticipate that the strong demand for our services will continue and we continue to seek opportunities to develop our business organically and acquisitively.

*Before amortisation and exceptional items

RAIL BUSINESS REVIEWOur core strategyWe are a passenger focused business providing frequent and reliable services through intensive urban commuter rail franchises in the UK.

Operationally, our aim is to continue improving services to ensure the needs of our passengers are met. We also aim to create greater shareholder value through our rail businesses and support the role of the Rail Development Group in working to shape the future of rail franchising.

The UK rail marketPublic transport is becoming a bigger part of people's daily lives in the UK. Millions of people each year rely on the UK's comprehensive rail network to travel for business and leisure. Latest industry figures show that in 2010 around 1.3 billion train journeys were made on the UK rail network1.

The UK rail industry is regulated by the Department for Transport (DfT) and rail services are operated within franchises run by individual train operating companies (TOCs). There are currently 19 franchises, operated by nine transport providers.

The market is competitive and, with an increasing number of operators entering the market margins remain low. Profit margins below 5% are not untypical in the current market.

The rail industry is driven by GDP and employment and, as such, the testing economic conditions have presented challenges. TOCs have seen volatility of earnings due to the nature of the current franchising model requiring franchise bids to be submitted on the basis of economic forecasts years into the future.

Throughout the economic downturn, it has become evident that short-distance commuter routes, such as those that we operate, have been more resilient than long-distance inter-city routes as only a small proportion of revenue is derived from discretionary spending.

The future of UK railThe findings of Sir Roy McNulty's value-for-money study of the UK rail industry, released in May 2011, demonstrate that changes across the industry could result in a more efficient rail transport system. Go-Ahead acknowledges that improving value for money, through the implementation of the study's recommendations,is necessary for the industry.

We believe there is great strength in the longer term prospects of the rail industry. The recent value-for-money study identified inefficiencies and detailed recommendations for change. We acknowledge the need for change in the industry and are committed to working with the Government and key organisations within the rail industry to bring these changes about.

Our business modelGo-Ahead currently operates in the UK rail market through Govia, a 65% owned joint venture with Keolis. We run three franchises: Southern, Southeastern and London Midland, which typically operate busy commuter services. We currently carry around 30% of rail passengers in the UK and generate 20% of total industry revenue.

Department for TransportAll UK rail services are regulated by the DfT which issues franchise tenders for which private operators bid. Currently, franchises typically last for around eight years and are awarded to operators on a largely financial basis. Operators submit detailed franchise bids which ultimately specify the level of premium the operator will pay to the DfT or the level of subsidy it will require from the DfT for operating the franchise. Franchises are highly specified by the DfT who provide detailed conditions in franchise agreements which the successful bidder must adhere to.

1. Association of Train Operating Companies, July 2011

The current franchise model does not allow sufficient flexibility to respond to changing market conditions and passenger needs. For some time we have been working closely with the DfT to move towards a more flexible model that will result in a more efficient railway that better meets the requirements of passengers and shareholders alike.

Revenue riskThe majority of UK rail franchises have a revenue share and support mechanism under the current structure, asdetailed below:

Revenue share operates from the start of a franchise. If the franchise exceeds revenue expectations set out in the bid a defined proportion of the excess is paid to the DfT. If actual revenue is between 2% and 6% above bid revenue, 50% of the excess is paid to the DfT. If actual revenue is more than 6% above bid revenue, 80% of any excess above 6% is paid to the DfT in addition to 50% of the excess between 2% and 6%. One hundred percent of revenue generated between bid revenue and 2% is retained by the operator.

Revenue support operates from the start of the fifth year of a franchise. It is designed to provide significant mitigation for any revenue shortfall in the later part of the franchise. The mechanism is similar to that for revenue share, but in reverse. If actual revenue is between 2% and 6% below bid revenue, 50% of the shortfall is received from the DfT. If actual revenue is more than 6% below bid revenue, 80% of any shortfall is above 6% is received from the DfT in addition to 50% if the shortfall is between 2% and 6%. One hundred percent of revenue generated between bid revenue and 2% is retained by the operator.

The franchise models of Go-Ahead's three TOCs include these mechanisms. Currently, Southeastern is receiving revenue support at 80%. Four of the six UK rail franchises eligible for revenue support currently receive it.

Tracks & TrainsUnder the current structure TOCs are not responsible for rail infrastructure or rolling stock. Infrastructure is owned and managed by Network Rail and TOCs pay for the right to use it, such as track access fees. Rolling stock is typically leased from leasing companies for the duration of a franchise.

Ticketing & FaresThe DfT regulates peak-time weekday fares (i.e commuter based fares), determining the annual January movement in fares through a standard formula. Until January 2011 this formula was typically Retail Price Index (RPI), from the previous July, plus 1% (RPI + 1%). However, it was announced in October 2010 that with effect from January 2012 the standard formula would change to RPI + 3%, the formula currently used to determine fare levels in our Southeastern franchise. Regulated passenger revenue increases are factored into bid assumptions, effectively these increases form part of the subsidy reduction or premium increase built into the franchise contract with DfT and generally do not benefit the operators directly.

In August 2011, the Government announced that the July 2011 RPI, which will apply to January 2012 fare increases, was 5.0%.

Franchise subsidy/premium profiles are adjusted for inflation and, as a result, the profits of TOCs do not typically benefit from inflationary changes.

2011 performance overviewThe operating profit* from our rail division was in line with our expectations and significantly ahead of last year, benefiting from a continuous shift away from car usage, innovative marketing, rigorous cost control and procurement and contract management benefits.

Total revenue increased by 7.6% or £116.8m, to £1,654.6m (2010: £1,537.8m), with all three franchises showing passenger revenue growth in excess of 8% on a like-for-like basis. In total, passenger revenue increased by £80.4m, or 6.5%, to £1,315.8m (2010: £1,235.4m), on a like-for-like basis this was £103.5m or 8.5%, the difference being the additional week in the prior year. Other revenue increased by £2.4m, or 2.3% to £105.4m (2010: £103.0m) and DfT subsidy increased by £34.0m or 17.1% to £233.4m (2010: £199.4m). The increase in DfT subsidy primarily reflects higher receipts in respect of high speed services in Southeastern amounting to £53.1m. This was offset by additional access charges and running costs for this service and reductions in underlying subsidy in Southeastern and London Midland. In addition, but included in operating costs, are DfT premia payable by Southern of £54.2m (2010: £12.8m).

Operating profit* increased by £10.7m or 28.7%, to £48.0m (2010: £37.3m) reflecting increased passenger revenue from off-peak services, and stringent cost controls in each of the franchises and significant contract management benefits. Operating profit margin increased by 0.5% to 2.9% (2010: 2.4%).

Total depreciation for the rail division was £11.1m (2010: £14.4m). Net capital expenditure was £18.4m (2010 £18.2m), the majority of which represented franchise commitments in Southern and London Midland.

SouthernTotal revenue in Southern consisted of passenger revenue of £569.9m (2010: £534.9), other income of £43.2m (2010: £46.1m) and net subsidy receipts of £0.4m (2010: £4.3m).

Like-for-like passenger revenue growth was 8.6% (2010: 9.8%), with second half growth of 10.1% ahead of the first half at 7.1%, a similar pattern to 2010. Passenger numbers increased by 2.3% on a like-for-like basis when compared to last year (2010: 4.5%). Second half passenger growth was relatively flat, increasing by 0.5% in the second half compared to 4.2% in the first half, partly reflecting the strong growth achieved in the same period last year. Gatwick Express' performance has improved in recent months.

Local management has made excellent progress in delivering bid initiatives and online promotions and marketing continue to add real value with a growing proportion of sales coming through online portals. Operational quality and customer interaction initiatives are key to the success of the franchise. Our public performance measure (PPM) showed that 89.4% (2010: 90.7%) of our trains arrived on time and the spring National Passenger Survey customer satisfaction rating was 82% (2010: 84%). Both were impacted by the adverse weather disruption earlier in the year.

As this franchise was bid for in 2009 in full anticipation of the economic downturn we continue to achieve passenger revenue slightly above the bid submission.

SoutheasternHaving successfully completed a continuation review period in December 2010 we were awarded an extension to the Southeastern franchise that will now see the franchise retained within the Group until at least 31 March 2014.

Total revenue in Southeastern consisted of passenger revenue of £541.7m (2010: £509.3m), other income of £22.3m (2010: £20.0m) and net subsidy receipts of £151.8m (2010: £98.4m).

The like-for-like increase in full year passenger revenue was 8.4% (2010: 7.5%), consisting of a first half increase of 12.0% and a second half increase of 5.5%. Passenger numbers increased by 5.0% (2010: 1.4%) compared to last year, with a second half increase of 4.7% slightly lower than the first half growth of 5.6%. The continued growth of the high speed service is a strong contributor to this growth. The difference between passenger revenue and passenger numbers partly reflects the RPI + 3% fare regime in this franchise, and partly the premium fare charged in respect of Southeastern's high speed services.

Southeastern became entitled to revenue support from 1 April 2010. Revenue support is provided by the DfT based on projections of the relevant revenue amounts for the rail year ended each March compared to bid. As Southeastern is operating at around 90% of bid revenue the DFT provides 50% support between 98% and 94% and 80% support for any shortfall below 94%. Revenue support in the year was £22.6m (2010: £6.6m).

Southeastern particularly benefited from procurement and contract management benefits this year. This and the cost savings through staff reductions last year have ensured that the company is in good shape for the remainder of the franchise.

Our operational performance in Southeastern remained strong, with a PPM of 89.0% (2010: 89.2%) of our trains arriving on time and the spring National Passenger Survey customer satisfaction rating improved to 82% (2010: 81%).

London MidlandTotal revenue in London Midland consisted of passenger revenue of £204.2m (2010: £191.2m), other income of £39.9m (2010: £36.9m) and net subsidy receipts of £81.2m (2010: £96.7m).

Like-for-like passenger revenue growth was 8.6% (2010: 10.0%) with first half growth at 7.1% and second half growth of 9.9%. Passenger numbers increased by 7.2% on a like-for-like basis (2010: 4.6%) for the full year, consisting of a first half year increase of 4.3% followed by 10.1% for the second half. This second half in particular benefited from award winning marketing campaigns.

The operational performance of our London Midland franchise remains resilient and we achieved a PPM of 89.7% (2010: 90.4%) and a customer satisfaction rating of 83% (2010: 86%) for the period, despite industrial action in the second half of the year.

Costs in this franchise remain complicated by legacy issues and will continue above bid assumptions. However, this will continue to be an area of focus as we try to restore margins in the franchise.

OutlookWhile the outlook for rail remains difficult to predict, we are convinced of the strengths of the rail industry and arewell positioned for future franchise bids.

Current developments in marketing campaigns, online sales and customer relationship management have proven invaluable, principally in Southern and London Midland and we will be pursuing these initiatives to maintain growth momentum.

Our Southern franchise continues to deliver strong sales growth and we anticipate that it will perform broadly in line with the financial assumptions in the bid into the next financial years.

In Southeastern, we expect to remain in 80% revenue support until the end of the franchise, which is now confirmed as March 2014 at the earliest. Strong cost control in this franchise is key to remaining profitable in the future.

In London Midland, we will maintain our approach of driving revenue through online sales and our successful marketing campaigns, principally for off-peak fares, as well as focusing on cost control measures. London Midland becomes eligible for revenue support in November 2011 and may require this at the 50% level.

Overall, we are assuming a small reduction in operating profit* margin next year compared to this financial year, largely due to the £13m non-recurring contract management benefits achieved in the year just ended.

On 21 July 2011 we submitted our bid for the Greater Anglia Rail Franchise and keenly await the outcome of DfT considerations, due to be published before November 2011.

The Government review of the future of rail franchising is still underway, and the fundamentals of how rail franchising will operate should become clearer ahead of the rebidding timetable for our incumbent franchises.

*Before amortisation and exceptional items

CONSOLIDATED INCOME STATEMENT

for the year ended 2 July 2011

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 2 July 2011

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 2 July 2011

CONSOLIDATED BALANCE SHEET

as at 2 July 2011

CONSOLIDATED CASHFLOW STATEMENT

for the year ended 2 July 2011

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 2 July 2011

1. Authorisation of financial statements and statement of compliance with IFRSs

The consolidated financial statements of The Go-Ahead Group plc (the 'Group') for the year ended 2 July 2011 were authorised for issue by the Board of Directors on 31 August 2011 and the balance sheet was signed on the Board's behalf by Sir Patrick Brown and Keith Down.The financial information set out above does not constitute the Group's statutory financial statements for the year ended 2 July 2011, or for the year ended 3 July 2010, within the meaning of Section 435 of the Companies Act 2006. The financial information is based on the audited statutory financial statements for the year ended 2 July 2011, upon which the auditors have issued an unqualified audit opinion. The financial statements for the year ended 3 July 2010 have been delivered to the Registrar of Companies. The financial statements for the year ended 2 July 2011 will be sent to shareholders and delivered to the Registrar of Companies in due course. They will also be available at the Registered Office of the Company at 3rd Floor, 41-51 Grey Street, Newcastle Upon Tyne, NE1 6EE.

The Go-Ahead Group plc is a public limited company that is incorporated, domiciled and has its registered office in England and Wales. The Company's ordinary shares are publicly traded on the London Stock Exchange and it is not under the control of any single shareholder.

The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU) as they apply to the consolidated financial statements of the Group for the year ended 2 July 2011, and applied in accordance with the provisions of the Companies Act 2006. The Group is required to comply with international accounting requirements under IAS 1 'Presentation of Financial Statements' except in extremely rare circumstances where management concludes that compliance would be so misleading that it would conflict with the objective to 'present fairly' its financial statements. On that basis, the Group has departed from the requirements of IAS 19 'Employee Benefits' and has accounted for its constructive but not legal obligations for the Railways Pension Scheme (RPS) under the terms of its UK rail franchise agreements. Details of the background and rationale for this departure are provided in note 28.

2. Summary of significant accounting policies

Basis of preparationA summary of the Group's accounting policies applied in preparing the financial statements for the year ended 2 July 2011 are set out below. 

The consolidated financial statements are presented in pounds sterling and all values are rounded to the nearest one hundred thousand (£0.1m) except when otherwise indicated.

As noted above, the Group has taken the decision to depart from the requirements of IAS 19 so as to present fairly its financial performance, position, and cashflows in respect of its obligation for the RPS.

New standardsThe following new standards or interpretations are mandatory for the first time for the financial year ending 2 July 2011:

• IFRS 1 First-time Adoption of International Financial reporting Standards - Additional Exemptions for First-time Adopters (amendments)

• IFRS 1 First-time Adoption of International Financial Reporting Standards - Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters

• IFRS 3 Business Combinations (revised)

• IFRS 2 Group Cash-settled Share-based Payment Arrangements (amendment)

• IAS 27 Consolidated and Separate Financial Statements (amendment)

• IAS 32 Financial Instruments: Presentation - Classification of Rights Issues (amendment)

• IAS 39 Financial Instruments: Recognition and Measurement - Eligible Hedge Items (amendment)

• IFRIC 17 Distribution of Non-cash Assets to Owners

• IFRIC 18 Transfers of Assets from Customers

• IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments

• Improvements to IFRS 2009

• Improvements to IFRS 2010

The adoption of IAS 27 Consolidated and Separate Financial Statements (amendment) has required the reclassification of minority interests as non-controlling interests. Also, any transactions with non-controlling interests that do not result in gaining or losing control will be accounted for as equity transactions.

The Improvements to IFRS 2009 amended IFRS 8 Operating Segmentsto require segment assets and liabilities to be reported only when they are included in measures regularly provided to the chief operating decision maker. This is not the case, and therefore, segment assets and liabilities are no longer reported.

Adoption of IFRS 3 Business Combinations (revised) has required the legal expenses relating to the acquisition of Thames Travel (Wallingford) Limited in the year to be expensed. The legal expenses amounted to £0.1m.

Adoption of the remaining new standards and interpretations did not have a material impact on the financial performance or position of the Group.

In accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, the Group has classified the results of the residual ground handling activities at Heathrow Terminal 1 and Meteor Parking operations as discontinued and accordingly the comparatives in the income statement and related notes have been restated. The above treatment is a result of the cessation or sale during the period of the above operations.

Use of estimatesThe preparation of the financial statements requires the use of estimates and assumptions. Although these estimates are based on management's best knowledge, actual results ultimately may differ from these estimates.

The key sources of estimation uncertainty that have a significant risk of causing material adjustments to the carrying value of assets and liabilities within the next financial year are in relation to:

• the measurement and impairment testing of indefinite life intangible assets requires estimation of future cashflows and the selection of a suitable discount rate and growth rate, as detailedin note 14;

• the measurement of defined benefit pension obligations requires the estimation of future changes in salaries, inflation, the expected return on assets and the selection of a suitable discount rate, as set out in note 28; and

• the measurement of uninsured liabilities is based on an assessment of the expected settlement of known claims and an estimate of the cost of claims not yet reported to the Group.

• the measurement of franchise commitments, comprising dilapidation provisions on vehicles, depots and stations and also income claims from other rail franchise operators, is based on management's assessment of most probable outcomes, supported where appropriate by valuations from professional external advisers.

Basis of consolidationThe consolidated financial statements comprise the financial statements of The Go-Ahead Group plc and its subsidiaries as at 2 July 2011.

Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. The financial statements of subsidiaries for use in the consolidation are prepared for the same reporting year as the parent company and are based on consistent accounting policies. All intra-group balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full.

Non-controlling interests represent the equity interests not held by the Group in Govia Limited, a 65% owned subsidiary, and are presented within equity in the consolidated balance sheet, separately from parent shareholders' equity.

Interest in joint venturesThe Group has a contractual arrangement with another party which represents a joint venture. This takes the form of an agreement to share control over another entity, through an interest in a company (a jointly controlled entity). The Group recognises its interest in the entity's assets and liabilities using the equity method of accounting. Under the equity method, the interest in the joint venture is carried in the balance sheet at cost plus post-acquisition changes in the Group's share of its net assets, less distributions received and less any impairment in value of the investment. The Group income statement reflects the share of the jointly controlled entity's results after tax. Where there has been a change recognised in other comprehensive income of the jointly controlled entity, the Group recognises its share of any such changes in the Consolidated statement of comprehensive income.

Revenue recognitionRevenue is recognised to the extent that it is probable that the income will flow to the Group and the value can be reliably measured. Revenue is measured at the fair value of the consideration received, excluding discounts, rebates, VAT and other sales taxes or duty.

Rendering of servicesThe revenue of the Group comprises income from road passenger transport and rail passenger transport.Bus revenue comprises amounts receivable generated from ticket sales and revenue generated from services provided on behalf of local transport authorities.Rail revenue comprises amounts based principally on agreed models of route usage, by Railway Settlement Plan Limited (which administers the income allocation system within the UK rail industry), in respect of passenger receipts and other related services such as rolling stock maintenance and commission on tickets sold. In addition, franchise subsidy receipts from the DfT and local Passenger Transport Executives (PTEs) are treated as revenue, whereas franchise premium payments to the DfT are recognised in operating costs.

Revenue is recognised by reference to the stage of completion of the customer's journey or for other services based on the proportion of services provided. The attributable share of season ticket or travel card income is deferred within liabilities and released to the income statement over the life of the relevant season ticket or travel card.

Rental incomeRental income is generated from rental of surplus properties and subleasing of rolling stock and railway infrastructure access. It is accounted for on a straight-line basis over the lease term.

Finance revenueInterest on deposits is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

Government grantsGovernment grants are recognised at their fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised in the income statement over the period necessary to match on a systematic basis to the coststhat it is intended to compensate. Where the grant relates to a non-current asset, value is credited to a deferred income account and is released to the income statement over the expected useful life of the relevant asset.

Uninsured liabilitiesThe Group limits its exposure to the cost of motor, employer and public liability claims through insurance policies issued by third parties. These provide individual claim cover, subject to high excess limits and an annual aggregate stop loss for total claims within the excess limits. A liability is recognised for the estimated cost to the Group to settle claims for incidents occurring prior to the balance sheet date, subject to the overall stop loss.

The estimation of this liability is made after taking appropriate professional advice and is based on an assessment of the expected settlement on known claims, together with an estimate of settlements that will be made in respect of incidents occurring prior to the balance sheet date but that have not yet been reported to the Group by the insurer. The Group has accumulated considerable experience in the evaluation and management of such claims and has historically classified this liability as an accrual within the current liabilities. As part of our regular review of reporting practices and policies, we have given full consideration to the classification of this liability in the balance sheet. In light of developing trends relating to the nature of claims and the increasing time involved in their resolution, the Group has determined that there is no longer a sufficient degree of certainty to classify all of this liability as an accrual rather than as a provision. As a result, this liability is now classified within provisions and accompanied by the disclosures relating to their creation, utilisation and re-measurement of these obligations. The Group believes that this change in presentation provides more relevant information and aids comparability with our peers in the industry. Comparatives have been restated and an additional balance sheet presented as at 28 June 2009 to show the effect of these changes. The impact of this reclassification in the balance sheet is set out in notes 20 and 25. There is no effect on amounts reported in the income statement.

Franchise bid costsA key part of the Group's activities is the process of bidding for and securing franchises to operate rail services in the UK. All franchise bid costs incurred prior to achieving preferred bidder status are treated as an expense in the income statement irrespective of the ultimate outcome of the bid. Directly attributable, incremental costs incurred after achieving preferred bidder status are capitalised as an intangible asset and amortised over the life of the franchise.

Profit and revenue sharing/support agreementsThe rail companies have certain revenue and, historically, profit sharing agreements with the DfT. An accrual is made within amounts payable to central Government for the estimated cost to the Group of the relevant amounts accrued at the balance sheet date. Payments are charged to operating costs.Revenue support is provided by the DfT typically in the last two years of a franchise. Receipts are shown in revenue.

Exceptional itemsThe Group presents as exceptional items on the face of the income statement those material items of revenue or expense which, because of the size or the nature and expected infrequency of the events giving rise to them, merit separate presentation to allow better understanding of financial performance.

Property, plant and equipmentProperty, plant and equipment is stated at cost or deemed cost on transition to IFRSs less accumulated depreciation and any impairment in value. Freehold land is not depreciated.

Assets held under finance leases are depreciated over the shorter of their expected useful lives and the lease terms.

Depreciation is charged to the income statement based on costor fair value, less estimated residual value of each asset, evenly overits expected useful life as follows:

Short leasehold land and buildings The life of the lease

Freehold buildings and long leasehold land and buildings Over 10 to 100 years

Bus vehicles Over 8 to 15 years

Plant and equipment Over 3 to 15 years

The carrying values of items of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists the assets are written down to their recoverable amount.

Non-current assets held for saleNon-current assets classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Non-current assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

Business combinations and goodwill(a) Business combinations since 4 July 2010Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. The choice of measurement of non-controlling interest, either at fair value or at the proportionate share of the acquiree's identifiable assets is determined on a transaction by transaction basis. Acquisition costs incurred are expensed and included in administrative expenses.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with IAS 39 either in profit or loss or in other comprehensive income. If the contingent consideration is classified as equity, it should not be remeasured until it is finally within equity.

Goodwill is initially measured at cost being the excess of the aggregate of the acquisition-date fair value of the consideration transferred and the amount recognised for the non-controlling interest (and where the business combination is achieved in stages, the acquisition-date fair value of the acquirer's previously held equity interest in the acquiree) over the net identifiable amounts of the assets acquired and the liabilities assumed in exchange for the business combination. Assets acquired and liabilities assumed in transactions separate to the business combinations, such as the settlement of pre-existing relationships or post-acquisition remuneration arrangements are accounted for separately from the business combination in accordance with their nature and applicable IFRSs. Identifiable intangible assets, meeting either the contractual-legal or separability criterion are recognised separately from goodwill. Contingent liabilities representing a present obligation are recognised if the acquisition-date fair value can be measured reliably.

If the aggregate of the acquisition-date fair value of the consideration transferred and the amount recognised for the non-controlling interest (and where the business combination is achieved in stages, the acquisition-date fair value of the acquirer's previously held equity interest in the acquiree) is lower than the fair value of the assets, liabilities and contingent liabilities and the fair value of any pre-existing interest held in the business acquired, the difference is recognised in profit and loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash-generating units (or groups of cash generating units) that are expected tobenefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Each unit or group of units to which goodwill is allocated shall represent the lowest level within the entity at which the goodwill is monitored for internal management purposes and not be larger than an operating segment before aggregation.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

(b) Business combinations prior to 4 July 2010

Acquisitions of businesses since 3 July 2004 are accounted for under IFRS 3 Business Combinations using the purchase method. Goodwill on acquisition is initially measured at cost being the excess of the costs of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities, meeting the conditions for recognition under IFRS 3 at the acquisition date. It is capitalised and carried as an asset on the balance sheet. If an acquisition gives rise to negative goodwill, this is released immediately to the income statement.

In some instances certain fair value accounting adjustments are required to be made using provisional estimates, based on information available, and amendments are sometimes necessary in the 12 months following the acquisition, with a corresponding adjustment to goodwill.

Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually, or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Any impairment is recognised immediately in the income statement and not subsequently reversed. For the purposes of impairment testing, goodwill is allocated to the related cash-generating units monitored by management.

Impairment of assetsThe Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset's recoverable amount, being the higher of the asset's or cash-generating unit's fair value less costs to sell and its value in use. Value in use is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, andthe estimated future cashflows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered to be impaired and is written down to its recoverable amount. 

Impairment losses of continuing operations are recognised in the income statement in those expense categories consistent with the function of the impaired asset. An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised.

The reinstated amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset's revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

Franchise assetsWhere the conditions relating to the award of a franchise require the Group to assume legal responsibility for any pension liability that exists at that point in time, the Group recognises a liability representing the fair value of the related net pension deficit that the Group expects to fund during the franchise term. When a pension deficit exists at the start of the franchise, a corresponding intangible asset is recognised, reflecting a cost in acquiring the right to operate the franchise. If a pension surplus exists at the start of the franchise, then a corresponding deferred income balance is recognised, representing a government grant. The intangible asset or deferred income balance is amortised through the income statement on a straight-line basis over the period of the franchise. The carrying value of franchise assets is reviewed for impairment at the end of the first financial year following the award of the franchise and in other periods if events or changes in circumstances indicate that the carrying value may not be recoverable.

SoftwareSoftware, that is not integral to the related hardware, is capitalised as an intangible asset and stated at cost less amortisation and any impairment in value. Amortisation is charged to the income statement evenly over its expected useful life of three to five years.

InventoriesStocks of fuel and engineering spares are valued at the lower of cost and net realisable value. Cost comprises direct materials and costs incurred in bringing the items to their present location and condition. Net realisable value represents the estimated selling price less costs of sale.

Cash and cash equivalentsCash and short term deposits in the balance sheet comprise cash at bank and in hand, and short term deposits with an original maturity of three months or less. For the purpose of the consolidated cashflow statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. 

Financial assets and derivativesFinancial assets are accounted for in accordance with IAS 39. Financial assets are initially recognised at fair value, being the transaction price plus directly attributable transaction costs.

The Group uses energy derivatives to hedge its risks associated with fuel price fluctuations and interest derivatives to hedge its risks associated with interest rate fluctuations. Such derivatives are initially recognised at fair value by reference to market values for similar instruments, and subsequently re-measured at fair value at each balance sheet date.

Changes in the fair value of financial instruments that are designated and effective as hedges of future cashflows are recognised in other comprehensive income and the ineffective portion is recognised immediately in the income statement. When the cashflow hedge results in the recognition of a non-financial asset or a liability, then at the time that asset or liability is recognised, the associated gains or losses on the derivative that had previously been recognised in other comprehensive income are included in the initial measurement ofthat non-financial asset or liability. For hedges that do not result in the recognition of an asset or a liability, amounts deferred in equity are recognised in the income statement in the period which the hedged item affects net profit or loss.

For derivatives that do not qualify for hedge accounting, any gains or losses arising from changes in fair value are taken directly to the income statement as they arise.

Hedge accounting is discontinued when the derivative expires or is sold, terminated or exercised without replacement or rollover, or otherwise no longer qualifies for hedge accounting. At that point in time, any cumulative gain or loss on the hedging instrument recognised in other comprehensive income is kept in equity until the forecast transaction occurs, at which point it is taken to the income statement or included in the initial carrying amount of the related non-financial asset as described above. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in other comprehensive income is transferred to the income statement.

Interest-bearing loans and borrowingsDebt is initially stated at the amount of the net proceeds, being the fair value of the consideration received after deduction of issue costs. Following initial recognition the carrying amount is measured at amortised cost using the effective interest method. Amortisation of liabilities and any gains and losses arising on the repurchase, settlement or other de-recognition of debt, are recognised directly in the income statement.

Assets held under finance leases, which are leases where substantially all of the risks and rewards of ownership of the asset have passed to the Group, and hire purchase contracts are capitalised in the balance sheet, with a corresponding liability being recognised, and are depreciated over the shorter of their useful lives and the lease terms.

The capital elements of future obligations under leases and hire purchase contracts are included as liabilities in the balance sheet.

The interest element of the rental obligations is charged to the income statement over the periods of the leases and hire purchase contracts and represents a constant proportion of the balance of capital repayments outstanding.

Leases where a significant proportion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Rentals payable under operating leases, and the amortisation of lease incentives and initial direct costs in securing leases, are charged to the income statement on a straight-line basis over the lease term.

ProvisionsProvisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. If the effect is material, expected future cash flows are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability.

Where the Group expects some or all of a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when recovery is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement. Where discounting is used, the increase in the provision due to unwinding the discount is recognised as a finance cost.

As part of our regular review of reporting practices and policies, we have reclassified franchise commitments relating to dilapidations as a provision, as the Group has determined that there is no longer a sufficient degree of certainty to classify all of this liability as an accrual. Comparatives have been restated and an additional balance sheet presented as at 28 June 2009 to show the effect of these changes. The impact of this reclassification in the balance sheet is set out in notes 20 and 25. There is no effect on amounts reported in the income statement.

Treasury sharesRe-acquired shares in the Group, which remain uncancelled, are deducted from equity. Consideration paid and the associated costs are also recognised in shareholders' funds as a separate reserve for own shares. Any gain or loss on the purchase, sale, issue or cancellation of the Group's shares is transferred from the reserve for own shares to revenue reserves.

Retirement benefitsThe Group operates a number of pension schemes; both defined benefit and defined contribution. The costs of these are recognised in the income statement within operating costs. As discussed below, the Group has invoked the provisions of IAS 1 Presentation of Financial Statements and has departed from the requirements of IAS 19 in respect of the Rail Pension Schemes (RPS).

Non-rail schemes

The cost of providing benefits under the defined benefit plans is determined separately for each plan using the projected unit credit method, which attributes entitlement to benefits to the current period (to determine current service cost) and to the current and prior periods (to determine the present value of defined benefit obligation) and is based on actuarial advice. The interest element of the defined benefit cost represents the change in present value of obligations during the period, and is determined by applying the discount rate to the opening present value of the benefit obligation, taking into account material changes in the obligation during the year. The expected return on plan assets is based on an assessment made at the beginning of the year of long term market returns on scheme assets, adjusted for the effect on the fair value of plan assets of contributions received and benefits paid during the year.

The Group has applied the option under IAS 19 to recognise actuarial gains and losses in the statement of comprehensive income in the period in which they occur.

The difference between the expected return on plan assets and the interest cost, along with the current service cost, is recognised in the income statement within operating costs.

The defined benefit pension asset or liability in the balance sheet comprises the total for each plan of the present value of the defined benefit obligation (using a discount rate based on high quality corporate bonds), less any past service cost not yet recognised and less the fair value of plan assets out of which the obligations are to be settled directly. Fair value is based on market price information and in the case of quoted securities is the published bid price.

Past service costs are recognised in the income statement on a straight-line basis over the vesting period or immediately if the benefits have vested. When a settlement (eliminating all obligations for benefits already accrued) or a curtailment (reducing future obligations as a result of a material reduction in the scheme membership or a reduction in future entitlement) occurs, the obligation and related plan assets are remeasured using current actuarial assumptions and the resultant gain or loss recognised in the income statement during the period in which the settlement or curtailment occurs.

Contributions payable under defined contribution schemes are charged to operating costs in the income statement as they fall due.

Rail schemes

Our train operating companies participate in the RPS, a defined benefit scheme which covers the whole of the UK rail industry. This is partitioned into sections and the Group is responsible for the funding of these schemes whilst it operates the relevant franchise. In contrast to the pension schemes operated by most businesses, the RPS is a shared cost scheme, which means that costs are formally shared 60% employer and 40% employee. A liability or asset is recognised in line with other defined benefit schemes in the Group, although this is offset by a franchise adjustment so that the net liability or asset represents the deficit or surplus that the Group expects to fund or benefit from during the franchise term. This represents a departure from IAS 19 so as to present fairly the Group's financial performance, position and cashflow in respect of its obligations for the RPS.

Share-based payment transactionsThe cost of options granted to employees is measured by reference to the fair value at the date at which they are granted, determined by an external valuation using an appropriate pricing model. In granting equity-settled options conditions are linked to some or all of the following: the price of the shares of The Go-Ahead Group plc ('market conditions'); to conditions not related to performance or service ('non-vesting conditions'); and to earnings per share criteria.

The cost of options is recognised in the income statement over the period from grant to vesting date, being the date on which the relevant employees become fully entitled to the award, with a corresponding increase in equity. The cumulative expense recognised at each reporting date reflects the extent to which the period to vesting has expired and the Directors' best estimate of the number of options that will ultimately vest or, in the case of an instrument subject to a market or non-vesting condition, be treated as vesting as described above. This includes any award where non-vesting conditions within the control of the Group or the employee are not met.

No cost is recognised for awards that do not ultimately vest except for awards where vesting is conditional upon a market or non-vesting condition, which are treated as vesting irrespective of whether or not the market or non-vesting condition is satisfied, provided that all other performance conditions are satisfied. Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any cost not yet recognised for the award is recognised immediately.

TaxationCurrent tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities on an undiscounted basis at the tax rates that are expected to apply when the related asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date.

Deferred tax is provided, using the liability method, on temporary differences at the balance sheet date between the tax base of assets and liabilities for taxation purposes and their carrying amounts in the financial statements. It is provided for on all temporary differences, except:

• on the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• in respect of taxable temporary differences associated with investments in subsidiaries where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are only recognised to the extent that it is probable that the temporary differences will be reversed in the foreseeable future and taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

Tax relating to items recognised outside the income statement is recognised in other comprehensive income or directly in equity in correlation with the underlying transaction. Otherwise, tax is recognised in the income statement.

New standards and interpretations not appliedThe IASB and IFRIC have issued the following standards and interpretations with an effective date after the date of these financial statements:

With the exception of the amendment to IAS 19 Employee Benefits, which will reduce the credit in the income statement for returns on scheme assets, the Directors do not anticipate adoption of these standards and interpretations will have a material impact on the Group's financial statements.

The effective dates stated above are those given in the original IASB/IFRIC standards and interpretations. As the Group prepares its financial statements in accordance with IFRS as adopted by the European Union (EU), the application of new standards and interpretations will be subject to their having been endorsed for use in the EU via the EU endorsement mechanism. In the majority of cases this will result in an effective date consistent with that given in the original standard or interpretation.

3. Segmental analysis

In prior years the Group has been organised into three core divisions, Bus, Rail and Aviation Service, which formed the basis for the Group's reportable segments. Following the sale of residual ground handling activities at Heathrow Terminal I and Meteor Parking this year, management has reviewed the basis for segment reporting and concluded that there should be four reportable segments, Deregulated Bus, Regulated Bus, Rail and Go-Ahead North America. Comparative disclosures have been restated to reflect the new basis of segmentation. Operating segments within those reportable divisions are combined on the basis of their long term characteristics and similar nature of their products and services, as follows;

The Deregulated Bus division comprises bus operations outside of London.

The Regulated Bus division comprises bus operations in London.

The Rail operation, Govia, is 65% owned by Go-Ahead and 35% by Keolis and comprises three rail franchises: Southern, Southeastern and London Midland.

The Go-Ahead North America division comprises a 50% investment in a US school bus operation. The Group's share of the profit of this division is currently £nil, and it is therefore not included within the tables below.

The information reported to the Group Chief Executive in his capacity as Chief Operating Decision Maker does not include an analysis of assets and liabilities and accordingly IFRS 8 does not require this information to be presented. Segment performance is evaluated based on operating profit or loss excluding amortisation of goodwill and intangible assets and exceptional items. Transfer prices between operating segments are on an arm's length basis similar to transactions with third parties.

The following tables present information regarding the Group's reportable segments for the year ended 2 July 2011 and the year ended 3 July 2010. Information relating to prior periods has been restated to reflect those elements of the other services division that are classified as discontinued operations and to report separately our regulated bus operations in London.

Year ended 2 July 2011

Year ended 3 July 2010

At 2 July 2011, there were non-current assets of £4.1m (2010: £0.7m) relating to US operations, being made up entirely of equity accounted investments in Go-Ahead North America, a 50:50 joint venture with Cook Illinois which commenced trading in August 2010. For the year ended 2 July 2011, segment revenue for this venture was £2.3m and segment profit was £nil.

During the year ended 2 July 2011, revenue from external customers outside the United Kingdom was £2.3m, and related entirely to the Go-Ahead North America joint venture.

4. Group revenue

5. Operating costs (excluding amortisation and exceptional items)

* The total lease and sublease payments recognised as an expense (excluding rail access charges) are made up of minimum lease payments of £378.2m net of sublease payments of £20.8m relating to other rail leases.

** The total lease and sublease payments recognised as an expense are made up of minimum lease payments of £762.4m net of sublease payments of £20.8m relating to other rail leases.

Including discontinued operations, the fee relating to the audit of the financial statements can be analysed between audit of the Company's financial statements of £0.1m (2010: £0.1m) and audit of subsidiaries' financial statements of £0.5m (2010: £0.5m).

In addition to audit fees detailed above, £nil (2010: £0.2m) of non-audit fees were capitalised as part of the cost of acquisitions during the year. During the year, £0.2m (2010: £0.3m) was also paid to other 'Big 4' accounting firms for a variety of services.

6. Staff costs

Year ended 2 July 2011

Year ended 3 July 2010

The average monthly number of employees during the year, including Directors, was:

The information required by Schedule 5 of the Large and Medium sized Companies and Groups (Accounts and Reports) Regulations 2008 is provided in the Directors' Remuneration Report.

Sharesave SchemeThe Group previously operated an HM Revenue & Customs ('HMRC') approved savings-related share option scheme, known as The Go-Ahead Group plc Savings-Related Share Option Scheme 2003 (the 'Sharesave Scheme'). The Sharesave Scheme was open to all Group employees (including Executive Directors) who had completed at least six months' service with a Group company at the date they were invited to participate in the scheme. No invitations have been made during the current or prior year and no accounts remain outstanding.

The expense recognised for these schemes during the year to 2 July 2011 was £nil (2010: £0.5m).

The following table illustrates the number (No.) and weighted average exercise prices (WAEP) of share options for the SAYE:

There were no options exercised in the period. The weighted average share price at the date of exercise for the options exercised in 2010 was £13.18.

There were no options outstanding at the end of the year. The exercise price for options outstanding at the end of 2010 was £19.14.

The fair value of equity-settled share options granted is estimated as at the date of grant using a Black-Scholes model, taking into account the terms and conditions upon which the options were granted. The key assumptions input into the model are future share price volatility, future dividend yield, future risk free interest rate, forfeiture rate and option life.

Share incentive plansThe Company operates an HMRC approved share incentive plan, known as The Go-Ahead Group plc Share Incentive Plan (the SIP). The SIP is open to all Group employees (including Executive Directors) who have completed at least six months' service with a Group company at the date they are invited to participate in the plan.

The SIP permits the Company to make four different types of awards to employees (free shares, partnership shares, matching shares and dividend shares), although the Company has, so far, made awards of partnership shares only. Under these awards, the Company invites qualifying employees to apply between £10 and £125 per month in acquiring shares in the Company at the prevailing market price. Under the terms of the scheme, certain tax advantages are available to the Company and employees.

Long term incentive plansThe Executive Directors participate in The Go-Ahead Group Long Term Incentive Plan 2005 (the LTIP). The LTIP provides for Executive Directors and certain other senior employees to be awarded shares in the Company conditional on specified performance conditions being met over a period of three years. Refer to the Directors' Remuneration Report for further details of the LTIP.

The expense recognised for the LTIP during the year to 2 July 2011 was £0.4m (2010: £0.2m). The fair value of LTIP options granted is estimated as at the date of grant using a Monte Carlo model, taking into account the terms and conditions upon which the options were granted. The inputs to the model used for the options granted in the year to 2 July 2011 were:

The weighted average fair value of options granted during the year was £11.83 (2010: £14.01).

The following table illustrates the number of share options for the LTIP:

None of the options were exercisable at the year end and the weighted average exercise price of the options is £nil.

Directors' discretionary deferred share awardsOn 29 October 2009 the Company awarded a total of 6,996 ordinary shares to Directors of the Group. The stock was at no cost to the Directors and restrictions limit the sale or transfer of these shares until they vest, which occurs at the end of a three year period. The shares are held in a trust until they vest. The expense recognised for the Directors' discretionary deferred share awards during the year to 2 July 2011 was £nil (2010: £nil).

The weighted average fair value of options granted during 2010 was £14.29.

There were no options exercised in the year. None of the options were exercisable at the year end. The exercise price of options outstanding at the year end was £14.29 (2010: £nil).

7. Exceptional items

Year ended 2 July 2011Exceptional items on continuing operations for the period were £2.3m (2010: £11.0m), consisting of accelerated depreciation in respect of articulated London buses which are being phased out over the next few months of £3.0m (2010: £2.6m), the release of onerous bus leases of £0.3m (2010 expense: £0.9m), and the release of rail reorganisation accruals of £0.4m (2010 expense: £6.7m).

The discontinued exceptional income of £3.8m (2010 expense: £35.8m) consists of net profit on the sale of residual elements of the ground handling operations and Meteor Parking operations and adjustment to the provisions in respect of the pre-sale reorganisation costs which related to operations sold in the prior period. 

Year ended 3 July 2010Total exceptional items in the year were £46.8m, consisting of sales proceeds of £14.8m, non-cash items of £50.6m, and other cash items of £11.0m.

Exceptional items on continuing operations for the year were £11.0m. Bus and rail related exceptional costs totalled £11.0m, including £6.7m of rail restructuring costs, and £2.6m of accelerated depreciation in respect of the articulated London buses which are being phased out in 2011.

The discontinued exceptional items of £35.8m consist of a net loss on sale of £13.1m, pre-sale reorganisation costs which related to operations subsequently sold of £2.6m, onerous contract provisions of £6.1m, pre-sale impairments of the Meteor Parking business of £16.2m and a pension scheme curtailment gain of £2.2m. The loss on sale represents sales proceeds of £14.8m, less net book value of assets sold of £17.8m and provisions of £10.1m.

8. Discontinued operations

The disposal of our aviation services division was completed during the year ended 2 July 2011 with the sale of our Meteor Parking operations and the agreed sale of the residual ground handling activities at Heathrow Terminal I for a combined consideration of £11.2m. All of our aviation services division has been classified as discontinued.

In the prior year, the majority of the Group's ground handling and cargo operations were sold for £14.8m consideration.

The results of the discontinued operations for the years ended 2 July 2011 and 3 July 2010 are as follows:

The loss per share is attributable to equity holders of the parent and calculated as described on the basis of the number of shares disclosed in note 11.

Revenue

Operating costs

* The entire balance comprises minimum lease payments.

The cashflows attributable to the discontinued operations are as follows:

The net assets disposed of and consideration received on the sales of Meteor Parking operations and the residual ground handling activities at Heathrow Terminal 1 were as follows:

At 2 July 2011, net assets held in disposal groups held for sale were as follows;

9. Finance revenue and costs

10. Taxation

a. Tax recognised in the income statement and in equity

* Includes the one-off impact of releasing a £7.8m deferred tax liability to the income statement. This relates to the agreement of tax efficient financing by HMRC.

Tax relating to items charged or credited outside of profit or loss

b. Reconciliation

A reconciliation of income tax applicable to accounting profit before tax and exceptional items at the statutory tax rate to tax at the Group's effective tax rate for the years ended 2 July 2011 and 3 July 2010 is as follows:

Year ended 2 July 2011

Year ended 3 July 2010