20435_Cover 17/9/07 10:42 Page 1 The Go-Ahead Group plc The Go-Ahead Group The Go-Ahead Group plc Annual Report for the year ended 30 June 2007 Annual Report for the year ended 30 June 2007 Creating value through quality The Go-Ahead Group plc 3rd Floor 41 – 51 Grey Street Newcastle Upon Tyne NE1 6EE Telephone 0191 232 3123 Facsimile 0191 221 0315 www.go-ahead.com 20435_Cover 17/9/07 10:42 Page 2 Page heading headingcontinued What we do and who we are Vision and strategy Go-Ahead is one of the UK’s leading The group seeks to add value for providers of passenger transport shareholders through a transparent services operating in the bus, rail and focused strategy based in the and aviation sectors. Employing UK. In addition to adding value approximately 25,000 staff across the through organic development, the country, over 875 million passenger group actively seeks earnings journeys are undertaken on its services enhancing acquisitions in the three each year. In addition to the travelling sectors in which it operates. Strong public, customers include Transport cash flow provides the basis for a for London (TfL), BAA, major airlines, progressive dividend and share local authorities and the Department buy back policy to provide growing for Transport (DfT). returns to shareholders. Contents 1 Highlights, five year record and financial summary 2 Chairman’s statement 3 Five year history 4 Go-Ahead at a glance 6 Operating and financial review 16 Directors 17 Corporate governance 21 Directors’ remuneration report 27 Directors’ report Consolidated financial statements 31 Independent auditors’ report to the members of the Go-Ahead Group plc 32 Consolidated income statement 33 Consolidated balance sheet 34 Consolidated cash flow statement 35 Consolidated statement of recognised income and expense 36 Notes to the consolidated financial statements Parent company financial statements 63 Independent auditors’ report to the members of The Go-Ahead Group plc 64 Parent company balance sheet 65 Directors’ responsibilities in relation to the parent company financial statements 66 Notes to the parent company financial statements 74 Shareholder information and financial calendar 75 Advisers 76 Helping the environment The photograph on the front cover is owned by Keolis (UK) Limited and is subject to copyright protection. All rights reserved. Used by permission. Designed and produced by Linnett Webb Jenkins 20435_P1_P16 20/9/07 14:29 Page 1 Highlights Five year record Bus division continues Revenue (£m) to grow organically and 2007 1,826.9 by acquisition 2006 1,463.6 Excellent performance in rail companies 2005 1,302.1 Award of West Midlands 2004 1,244.0 rail franchise – to be known 2003 1,102.0 as London Midland – commencing on Adjusted earnings per share (pence) 11 November 2007 2007 140.7 Gatwick Express to be incorporated into Southern 2006 118.4 Railway from May 2008 2005 116.3 Challenging year for 2004 110.3 aviation services division 2003 78.9 Profit before amortisation, exceptional items and tax (£m) 2007 110.1 2006 91.9 2005 95.5 2004 91.3 2003 65.5 Dividend per share (pence) 2007 70 2006 56 2005 48 2004 38 2003 25 Figures for 2005 to 2007 are based upon International Accounting Standards, prior years are based upon UK GAAP, as previously reported. Financial summary % 2007 2006 Increase Revenue (£m) 1,826.9 1,463.6 24.8 Operating profit before amortisation and exceptional items (£m) 118.1 97.8 20.8 Profit before amortisation, exceptional items and tax (£m) 110.1 91.9 19.8 Profit before tax (£m) 94.8 83.6 13.4 Adjusted earnings per share 140.7p 118.4p 18.8 Dividend paid and proposed per share 70.0p* 56.0p* 25.0 * Includes interim dividend paid and final proposed dividend 1 The Go-Ahead Group plc Annual Report for the year ended 30 June 2007 20435_P1_P16 20/9/07 14:29 Page 2 Chairman’s statement This has been a record year for Revenue increased to £1,826.9m will commence on 11 November 2007. the group and the new financial (2006 – £1,463.6m) and operating profit* Our goal in the rail division is to provide year has started in line with the rose to £118.1m (2006 – £97.8m). the highest quality of service combined Profit before tax* increased by 19.8%, with financial discipline. This has board’s expectations. from £91.9m to £110.1m. Adjusted consistently led to strong passenger earnings per share increased to 140.7p growth, well controlled costs, and higher (2006 – 118.4p). operating profits. The board proposes a final dividend The aviation services division has had of 47.0p per share payable on a difficult year. Security disruption at 23 November 2007 to shareholders on all UK airports, particularly Heathrow the register at the close of business on and Gatwick, led to unrecoverable cost 2 November 2007. Together with the increases. This coincided with bad interim dividend of 23.0p, the total weather and the loss of some contracts, dividend of 70.0p represents an increase which led to a significant fall in profit. of 25.0% year on year and results in a Overall, our strategy centres on a high dividend cover* of 2.0 times. Returns to quality of customer service, which shareholders were further supplemented enabled the division to win some valuable during the year by the share buy back contracts towards the end of the year. programme, with 2.4 million shares The new contract with British Airways purchased, at a cost of £55.6m. for the provision of ground handling services at Aberdeen, Edinburgh, The bus division performed strongly, Glasgow and Manchester airports both in the regulated operations in should help the division to recovery. London and in deregulated services elsewhere. In London, we negotiated a The board started the year with number of contract extensions, increased Keith Ludeman, former chief executive services to match the western extension of our rail division, taking over as group of the congestion charging zone, and chief executive. The group is fortunate Sir Patrick Brown won some significant route contracts to have a sucessor to Christopher Moyes Chairman from our competitors. We expanded our of such ability and wide experience 6 September 2007 operations into East London with the of the bus and rail industries. At the end acquisition of Docklands Minibuses of the financial year, Ian Butcher, our in September 2006 and Blue Triangle group finance director, retired after at the end of June 2007. We continue 11 years with the group, and was to provide first class performance, often succeeded by Nicholas Swift, who featuring at the top of the TfL quality joined us on 17 July 2007. I thank Ian tables and earning bonuses under for his outstanding contribution to the the Quality Incentive Regime. group, and all of our employees for Our deregulated bus operations also making the past year such a success. enjoyed a good year, with lower costs The year has also been a sad one and buoyant revenue leading to higher for the group. Martin Ballinger and operating profits across most of our Christopher Moyes, both former businesses. By buying Marchwood Buses chief executives, passed away. From in October 2006, we extended the the beginnings of the buy-out of Go South Coast operations into the the Northern General Transport Southampton area. Our decentralised Company from the National Bus philosophy across these deregulated Company, they built the group into operations, supporting local brands the dynamic company of today. We miss for local communities, allows us to tailor them, and their wisdom and humanity. our services to meet the specific needs “Si monumentum requiris, circumspice.” of our customers. The new financial year has started The group’s rail division did particularly inline with the board’s expectations. well in the year. It benefited from a Our aim is to continue with our strategy full year’s contribution from the which combines organic and acquisitive Southeastern franchise, which started growth with financial discipline and operations on 1 April 2006 and has since improving returns to shareholders, performed strongly. During the year, our including renewal of the authority for Southern business secured its existing the share buy back programme at the franchise to September 2009 and won forthcoming annual general meeting. the contract to operate the Gatwick We are well positioned to make further Express from May 2008 as part of the progress in the new year. DfT Brighton Main Line Route Utilisation Strategy. In June 2007, we won a third franchise, this time to run the new West Midlands rail network. It will be branded London Midland and operations * Before amortisation and exceptional items 2 The Go-Ahead Group plc Annual Report for the year ended 30 June 2007 20435_P1_P16 20/9/07 14:29 Page 3 FivePage heading year heading financialcontinued history IFRS UK GAAP 2007 2006 2005 2004 2003 £m £m £m £m £m Revenue 1,826.9 1,463.6 1,302.1 1,244.0 1,102.0 Operating profit* 118.1 97.8 97.0 95.7 70.2 Operating margin 6.5% 6.7% 7.4% 7.7% 6.4% Goodwill and intangible amortisation (8.4) (5.1) (4.0) (69.4) (23.1) Exceptional items (6.9) (3.2) 2.4 (2.2) (6.9) Share of post tax results of joint venture – – 0.3 – – Net finance costs (8.0) (5.9) (1.8) (4.4) (4.7) Profit before taxation 94.8 83.6 93.9 19.7 35.5 Tax expense (23.6) (19.4) (25.7) (26.7) (16.1) Minority interests (12.6) (10.5) (10.3) (9.3) (6.4) Dividends – – – (19.3) (12.7) Reported profit/(loss) 58.6 53.7 57.9 (35.6) 0.3 Earnings/(loss) per share – basic 124.2p 108.1p 113.8p (32.1)p 25.5p – adjusted 140.7p 118.4p 116.3p 110.3p 78.9p Dividends paid and proposed 70.0p 56.0p 48.0p 38.0p 25.0p Cash flow generated from operations