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The Go-Ahead Group plc plc Group Go-Ahead The Annual Report and Accounts Registered Ofﬁce for the year ended 27 June 2009 3rd Floor 41–51 Grey Street Newcastle Upon Tyne 2009 NE1 6EE Telephone 0191 232 3123 Facsimile 0191 221 0315 2009 June 27 ended year the for Accounts and Report Annual Go-Ahead is one of the UK’s leading providers of bus,

The Go-Ahead Group plc rail and aviation services. Head Ofﬁce 6th Floor Our devolved structure and local focus keep us on track 1 Warwick Row London to deliver efficient and high quality public transport. SW1E 5ER Telephone 0207 821 3939 Facsimile 0207 821 3938 Email [email protected]

www.go-ahead.com Directors’ Report: Group highlights 1 Business Review Today’s key issues 2 This section provides information about the Chairman’s statement 4 Group’s performance, including detailed reviews Group Chief Executive’s review 6 of each of our three divisions. It also contains background market information, the four core Our markets 8 elements of our strategy and our performance Our strategy 12 against Key Performance Indicators. Key performance indicators (KPIs) 13 Finance review and risk management 15 Operating review – bus 21 Operating review – rail 27 Operating review – aviation services 35 Corporate responsibility 38

Directors’ Report: Board of Directors 42 Corporate Governance Senior management 43 This section provides information about the Corporate governance 44 Board of Directors and senior management, in Audit, nomination and remuneration committee reports 51 addition to the governance framework under which the Group operates and the remuneration Directors’ remuneration report 53 arrangements for the Board of Directors. Other statutory information 59

Financial Statements Independent auditors’ report to the members This section contains statutory information of The Go-Ahead Group plc – Group 63 on the Group and parent company accounts. Consolidated income statement 64 Consolidated balance sheet 65 Consolidated cashflow statement 66 Consolidated statement of recognised income and expense 67 Notes to the consolidated financial statements 68 Independent auditors’ report to the members of The Go-Ahead Group plc – parent company 101 Parent company balance sheet 102 Directors’ responsibilities in relation to the parent company financial statements 103 Notes to the parent company financial statements 104

On track For more information or to Shareholder Information Shareholder information and financial calendar 112 view this report online visit: www.go-ahead.com Our companies are significant contributors to the UK’s public transport infrastructure with around 960 million passenger journeys undertaken on our services each year.

Group overview Shareholder information Bus operating Bus (100% owned) Operating Company company Shareholder profile by size of holding as at 27 June 2009 Go-Ahead is one of the UK’s largest bus operators.With a Revenue (£m) 283.3 82.5 70.5 68.2 48.3 31.9 No. of holdings % Shares held % fleet of over 3,500 buses, we carry, on average, around 1.6 Go-Ahead’s million passengers every day.We have a strong presence in Managing Director John Trayner Peter Huntley Alex Carter Alan Eatwell Roger French Philip Kirk rail network 1 – 10,000 3,571 93.2 1,992,499 4.3 London, with around 21% market share, and also operate in Nature of business Regulated Deregulated Deregulated Regulated/deregulated Deregulated Deregulated 10,001 – 100,000 186 4.9 6,771,231 14.4 the north east, Oxford, the south east and southern England. Geographical area Central London Tyne & Wear Dorset South East London Brighton Oxfordshire Aviation 100,001 – 500,000 55 1.4 11,535,330 24.6 Services South London County Durham Wiltshire Kent Hove Routes to: 500,001 – 1,000,000 9 0.2 6,616,193 14.1 East London Northumberland Hampshire Surrey Eastbourne London, 25% Revenue (£m) Teesside Isle of Wight East Sussex Tunbridge Wells Heathrow and Over 1,000,001 10 0.3 19,977,026 42.6 Southampton West Sussex Steyning/Shoreham Gatwick Parking Total 3,831 100.0 46,892,279 100.0 £584.7m Approx passenger 365 million 70 million 40 million 60 million 45 million 20 million 2008: £557.7m 2007: £514.0m journeys# Shareholder profile by category as at 27 June 2009 Average number 4,507 2,043 1,494 1,344 1,056 554 No. of holdings % Shares held % Operating profit* (£m) 52% of employees Treasury shares 1 0.0 3,902,230 8.3 £66.6m Fleet size** 1,444 buses 665 buses 592 buses 412 buses 257 buses 149 buses Directors 7 0.2 47,249 0.1 2008: £66.2m 2007: £55.8m Other individuals 3,250 84.8 5,054,301 10.8 Institutional investors 573 15.0 37,888,499 80.8 Total 3,831 100.0 46,892,279 100.0 Rail (65% owned) Operating Company It should be noted that many private investors hold their shares through nominee companies, therefore the The rail operation, Govia, is 65% owned by Go-Ahead Revenue (£m) 602.4 577.8 371.8 percentage of shares held by private holders is higher than that shown. and 35% by Keolis+. It is the busiest rail operation in the UK, responsible for nearly 30% of UK passenger rail journeys Managing Director Chris Burchell Charles Horton Mike Hodson Financial calendar through its three rail franchises: Southern, Southeastern and Geographical area London London London London Midland. Surrey Kent Milton Keynes Annual General Meeting 2pm, 29 October 2009 East / West Sussex East Sussex Northampton Hampshire Birmingham / West Midlands Final dividend record date 6 November 2009 Revenue (£m) 66.1% Kent Liverpool Final dividend payment date 20 November 2009 Approx passenger 155 million 155 million 50 million £1,552.0m journeys# Half year end 2 January 2010 2008: £1,378.4m 2007: £1,071.3m Average number 4,153 3,824 2,461 Half year results announcement February 2010 of employees 48% Half year dividend April 2010 Operating profit* (£m) Fleet size** 295 trains 338 trains 183 trains £61.5m Next financial year end 3 July 2010 Full year results announcement September 2010 2008: £77.2m 2007: £66.1m

Certain statements included in this Annual Report 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 Aviation Services (100% owned) depend of future circumstances, and relate to events, not all of which are within the Company’s control or can be The Group’s aviation services division is one of the UK’s Operating Company 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 largest independent providers of cargo services (primarily Revenue (£m) 166.5 42.9 results could differ materially from those set out in the forward-looking statements. Nothing in this Annual Report Plane Handling), ground handling (primarily aviance UK) and should be construed as a profit forecast and no part of these results constitutes, or shall be taken to constitute, car parking (Meteor).The division operates from 15 airports Managing Directors PatrickVerwer – aviance UK Stephen Turner an invitation or inducement to invest in The Go-Ahead Group plc or any other entity, and must not be relied Rob Williams – Plane Handling upon in anyway in connection with any investment decision. Except as required by law, the Company undertakes and services major airline operators such asVirgin and bmi. no obligation to update any forward-looking statement. Geographical area Nationwide Nationwide Designed and produced by Black Sun plc Printed by Park Communications 8.9% Approx passengers 40 million 2.5 million Revenue (£m) served# / journeys Average number 4,732 959 £209.4m of employees 2008: £263.0m 2007: £241.6m Physical statistics** 15 airports 48,000 Printed by Park Communications on FSC certified paper. Park is an EMAS certified CarbonNeutral® Company and its Environmental parking spaces Management System is certified to ISO14001:2004. 100% of the electricity used is generated from renewable sources, 100% of the inks Operating (loss) / profit* (£m) used are vegetable oil based, 95% of press chemicals are recycled for further use and on average 99% of any waste associated with this production will be recycled. £(4.5)m This document is printed on Revive 50:50 Silk and Challenger Offset. Revive 50:50 contains 50% virgin fibre and 50% recycled fibre and For more information or to the pulp used is bleached using a Totally Chlorine Free (TCF) process. Challenger Offset contains 100% virgin fibre and the pulp is 2008: £1.5m 2007: £(3.8)m bleached using an Elemental Chlorine Free (ECF) process. Both papers contain fibre from well managed FSC certified forests. view this report online visit: This document is fully recyclable. www.go-ahead.com Division Rest of Group * Before amortisation and exceptional items. ** As at 27 June 2009. # Rounded to the nearest 5 million. + Keolis is a French-based operator of passenger transport services which is majority owned by the French national railway SNCF. Our companies are significant contributors to the UK’s public transport infrastructure with around 960 million passenger journeys undertaken on our services each year.

Certain statements included in this Annual Report 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 Aviation Services (100% owned) depend of future circumstances, and relate to events, not all of which are within the Company’s control or can be The Group’s aviation services division is one of the UK’s Operating Company 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 largest independent providers of cargo services (primarily Revenue (£m) 166.5 42.9 results could differ materially from those set out in the forward-looking statements. Nothing in this Annual Report Plane Handling), ground handling (primarily aviance UK) and should be construed as a profit forecast and no part of these results constitutes, or shall be taken to constitute, car parking (Meteor).The division operates from 15 airports Managing Directors PatrickVerwer – aviance UK Stephen Turner an invitation or inducement to invest in The Go-Ahead Group plc or any other entity, and must not be relied Rob Williams – Plane Handling upon in anyway in connection with any investment decision. Except as required by law, the Company undertakes and services major airline operators such asVirgin and bmi. no obligation to update any forward-looking statement. Geographical area Nationwide Nationwide Designed and produced by Black Sun plc Printed by Park Communications 8.9% Approx passengers 40 million 2.5 million Revenue (£m) served# / journeys Average number 4,732 959 £209.4m of employees 2008: £263.0m 2007: £241.6m Physical statistics** 15 airports 48,000 Printed by Park Communications on FSC certified paper. Park is an EMAS certified CarbonNeutral® Company and its Environmental parking spaces Management System is certified to ISO14001:2004. 100% of the electricity used is generated from renewable sources, 100% of the inks Operating (loss) / profit* (£m) used are vegetable oil based, 95% of press chemicals are recycled for further use and on average 99% of any waste associated with this production will be recycled. £(4.5)m This document is printed on Revive 50:50 Silk and Challenger Offset. Revive 50:50 contains 50% virgin fibre and 50% recycled fibre and For more information or to the pulp used is bleached using a Totally Chlorine Free (TCF) process. Challenger Offset contains 100% virgin fibre and the pulp is 2008: £1.5m 2007: £(3.8)m bleached using an Elemental Chlorine Free (ECF) process. Both papers contain fibre from well managed FSC certified forests. view this report online visit: This document is fully recyclable. www.go-ahead.com Division Rest of Group * Before amortisation and exceptional items. ** As at 27 June 2009. # Rounded to the nearest 5 million. + Keolis is a French-based operator of passenger transport services which is majority owned by the French national railway SNCF. The Go-Ahead Group plc plc Group Go-Ahead The Annual Report and Accounts Registered Office for the year ended 27 June 2009 3rd Floor 41–51 Grey Street Newcastle Upon Tyne 2009 NE1 6EE Telephone 0191 232 3123 Facsimile 0191 221 0315 2009 June 27 ended year the for Accounts and Report Annual Go-Ahead is one of the UK’s leading providers of bus,

On track For more information or to Shareholder Information Shareholder information and financial calendar 112 view this report online visit: www.go-ahead.com Group highlights

Operational and financial highlights • Retention of the Southern rail franchise from September 2009 • High speed preview service successfully introduced • Record results for our bus division • Robust results from our rail franchises • Strong cash management • Proposed full year dividend maintained at 81.0 pence per share

Five year financial history

2009 2008 2007 2006 2005 Revenue (£m) 2,346.1 2,199.1 1,826.9 1,463.6 1,302.1 Operating profit (£m)* 123.6 144.9 118.1 97.8 97.0 Profit before tax (£m)* 112.1 131.1 110.1 91.9 100.3 Profit before tax (£m) 42.0 103.1 94.8 83.6 93.9 Cashflow generated from operations (£m) 233.4 192.5 191.2 116.9 131.7 Business Review Basic earnings per share (p) 14.7 128.8 124.2 108.1 113.8 Adjusted earnings per share (p)* 152.3 174.8 140.7 118.4 116.3 Dividend paid and proposed per share (p)† 81.0 81.0 70.0 56.0 48.0 Directors’ Report:

* Before amortisation of £12.4m and exceptional items of £57.7m. † Includes interim dividend paid and final dividend proposed.

Revenue (£m) Operating proÞt (£m)* Adjusted earnings per share (p)* £2,346.1m £123.6m 152.3p

2009 2,346.1 2009 123.6 2009 152.3

2008 2,199.1 2008 144.9 2008 174.8

2007 1,826.9 2007 118.1 2007 140.7

2006 1,463.6 2006 97.8 2006 118.4

2005 1,302.1 2005 97.0 2005 116.3

† + Dividend paid and proposed per share (p) Average number of employees CO2 emissions per passenger journey

81.0p 27,177 0.96 kgs CO2 ppj

2009 81.0 2009 27,177 2009 0.96

2008 81.0 2008 27,627 2008 0.95

2007 70.0 2007 24,983 2007 0.93

2006 56.0 2006 24,254 2006 0.79

2005 48.0 2005 19,770 2005

* Before amortisation and exceptional items. † Includes interim dividend paid and final proposed dividend. + Excludes data from our aviation services division.The conversion factors used are in accordance with ‘Guidelines to DEFRA’s Greenhouse Gas Conversion Factors for Company Reporting’ June 2008.

The Go-Ahead Group plc Annual Report and Accounts 2009 1 Directors’ Report: Business Review

Today’s key issues In today’s challenging marketplace there are a number of key issues which we continue to focus on to keep the Group on track to meet our targets and deliver value to our shareholders. Our devolved structure gives us the ability to understand our markets and respond quickly to take full advantage of opportunities and issues as they arise. As a Group, we are committed to being a responsible operator and to ensuring a sustainable future for our business and our industry. This year, tackling climate change has been a key area of focus, not only reducing our impact on the environment but also generating substantial cost savings across the Group.

Focusing on local markets

Our UK focus and devolved structure differentiates us from the other major public transport groups. Our operations are located in high density commuter markets, predominantly in the South East of England, where there is strong demand for public transport. We believe that public transport is best provided locally. All of our bus and rail companies are locally branded and form an integral part of the communities they serve. Our customers typically make simple journeys over fairly short distances. Many of those passengers are daily commuters who recognise the local brands they use. We empower our local managers to deliver services to their own markets in the way they best see fit.This local focus and understanding of culture means that we are able to provide high quality services and can respond quickly to passenger needs. We believe that our devolved organisation is the most effective way to run our Group.This flat structure enables us to monitor closely the performance of each operating company while giving local managers the autonomy they As an example of our community focus, need to run their businesses. Brighton & Hove’s buses feature local passengers who are proud to use their services. Brighton & Hove bus patronage has grown by around 5% per year since 1993 contributing to a 3% reduction in city centre traffic in the last three years.

We’re on track: Group leadership The Group adopts a flat decentralised our twelve operating companies once remains fewer than 50 out of a total management structure.The devolved a month to review and discuss their of over 27,100. nature of the Group ensures operating and financial performance. An example of a Group initiative accountability for operating In addition to providing strategic to secure financial benefits of scale is performance lies with each operating direction, financial expertise and the drive to improve the procurement company, while the flat structure governance, the Group shares best process and reduce the number of means that the Executive Directors practice and co-ordinates IT, suppliers.This has resulted in savings stay very close to the Group’s procurement, property, pensions, of around £7 million in 2009 and operating businesses. energy,engineering and communication should continue to show benefits The Group Chief Executive and Group activities.The total number of in subsequent years. Finance Director meet with each of employees at the Group level

2 The Go-Ahead Group plc Annual Report and Accounts 2009 We’re on track In recognition of our commitment achievements in action on climate “We congratulate Go-Ahead to operating responsibly, we change by leading organisations in achieving the CarbonTrust have become the first UK public in industry, commerce and the Standard and challenge other transport company to be officially public sector.It is also the world’s organisations to follow their certified with the Carbon Trust first carbon award scheme example and prove that they Standard after taking action that requires an organisation to too are taking tangible steps on climate change. measure, manage and reduce to fight climate change.” The CarbonTrust Standard its carbon footprint and is the UK’s only independent actually make real reductions Tom Delay, certification recognising year-on-year. CEO, Carbon Trust Tackling climate change

Climate change is one of the greatest challenges facing the world today. Reducing our environmental impact is an integral part of our Group strategy. It helps to ensure we are a responsible operator as well as realising significant cost efficiencies. Business Review We have implemented a number of key energy efficiency projects across the Group this year which we estimate will reduce annual operating costs by approximately £5 million and CO2 emissions by around 30,000 tonnes. Directors’ Report: In addition, our progress will help mitigate the financial implications of the Carbon Reduction Commitment obligations which come into effect in April 2010.* The Government has set legally binding carbon targets, to reduce UK greenhouse gas emissions by 80% by 2050. Transport now contributes a quarter of UK carbon emissions, with cars accounting for more than half of this. In contrast, buses and trains contribute less than 5%. More people on our services mean fewer car journeys on the road, reducing congestion and pollution. We therefore have two key responsibilities: to deliver high quality services that provide attractive alternatives to We operate the UK’s first high speed domestic rail service between Kent and car travel; and at the same time to provide those services London. High speed rail is at the heart in a sustainable and environmentally responsible manner. of the Government’s plans to reduce * The Carbon Reduction Commitment (CRC) is a proposed mandatory cap and trade the UK’s carbon emissions. scheme that will apply to large non-energy intensive UK organisations in the public and private sectors. It will apply to the Group’s site energy consumption.

C02 emissions from UK domestic transport by source Gold Award

Passenger cars 58.3% Railways 1.9% For the third year in a row Go-Ahead HGVs 20.0% Domestic aviation 1.6% achieved a gold rating in Business Vans 11.0% Other 0.8% in the Community’s (BITC) 2009 Domestic shipping 3.7% Mopeds & Motorcycles 0.5% Corporate Responsibility Index – Buses 2.3% the highest rating amongst comparable participating public transport operators.

Source: National Atmospheric Emissions Inventory (IPCC categories) 2007. Chart included in Department for Transport: A Carbon Reduction Strategy for Transport – July 2009. ‘Other’ includes LPG emissions; road vehicle engines; aircraft support vehicles.

The Go-Ahead Group plc Annual Report and Accounts 2009 3 Directors’ Report: Business Review Chairman’s statement

The effects of the economic downturn during the past twelve months have demanded exceptional effort to stay on track.We have achieved that and have delivered a good set of results On track as a consequence. Our long standing strategy is to deliver high quality passenger transport services in dense, urban markets, primarily through bus and rail.This has provided us with a core of strong and sustainable positions in regulated and deregulated bus markets, which have been resilient in the current economic environment.The bus operations are complemented by our significant UK rail presence which consists of a 65% share in three strategically selected, commuter focused rail franchises.These are tightly managed to deliver shareholder value and we are delighted to have retained the Southern franchise for another five years from September 2009.

Business performance highlights Overall, revenue increased by £147.0m, or 6.7%, to £2,346.1m (2008: £2,199.1m) primarily due to a full year of London Midland and Gatwick Express rail revenue. Operating profit* was slightly ahead of our expectations at £123.6m, albeit £21.3m or 14.7% below last year’s particularly strong result (2008: £144.9m).Adjusted earnings per share (before amortisation and exceptional items) were 152.3p (2008: 174.8p) and basic earnings per share were 14.7p (2008: 128.8p). Profit for the year,after tax and exceptional items, was £18.3m (2008: £76.8m).

Dividends Following the Group’s good performance, the Board is proposing a final dividend of 55.5p per share (2008: 55.5p) to maintain “We believe we the total dividend for the year at 81.0p (2008: 81.0p).The final dividend is payable are well placed on 20 November 2009 to shareholders on the register at the close of business for the year on 6 November 2009.

ahead, although The Board of Directors we continue to and Governance Christopher Collins retired from the assume economic Board as a Non-Executive Director on 23 October 2008. As I said last year, conditions in we will miss Christopher’s significant contribution to the Group. Andrew Allner the UK will joined the Board as a Non-Executive remain difficult Director and Chairman of the Audit Committee on 24 October 2008. Rupert over the next Pennant-Rea was appointed as the Senior Independent Director on 23 October 2008. Sir Patrick Brown, Chairman twelve months.”

4 The Go-Ahead Group plc Annual Report and Accounts 2009 Information in this Annual Report Financial highlights The Group has always been committed to open and transparent reporting. Increase/ Increase/ 2009 2008 decrease decrease We recognise the importance of enhancing our disclosure in these Revenue (£m) 2,346.1 2,199.1 147.0 6.7% challenging economic times so that our shareholders are able to better Operating profit* (£m) 123.6 144.9 (21.3) (14.7)% understand our business. In this year’s Annual Report we have provided more Profit before tax* (£m) 112.1 131.1 (19.0) (14.5)% information on the Group’s markets, Adjusted earnings per share* (p) 152.3 174.8 (22.5) (12.9)% strategy, performance against financial and non-financial Key Performance Indicators Dividend paid and proposed† (p) 81.0 81.0 (KPIs) and risks.We have also provided –– more detail about corporate governance and the Group’s devolved nature and of the full year contribution from London growth in underlying passenger revenue local focus. Midland, a predominantly diesel, and with additional revenue from our new high therefore more carbon intensive, speed rail services in Southeastern, revenue Corporate Responsibility franchise. Excluding London Midland, the initiatives in our new Southern franchise As a public transport operator,corporate underlying measure has reduced by 2%. and comprehensive cost control across responsibility is integral to the way we run all three franchises. our business.The safety and security of our Employees In aviation services, we expect our passengers, our people and the general The number of employees in the Group ongoing restructuring programme to Business Review public is an absolute priority for the Group. averaged 27,177 for the financial year, protect against near term deterioration We have included employee, bus and rail below last year’s 27,627 due to the various whilst strengthening our position for the safety KPIs throughout this report.Although restructuring programmes across the medium term. we operate through a devolved structure, Group. I would like to thank all of our employees for their dedication and hard Our strategy remains to provide high quality

we recognise the importance of sharing Directors’ Report: best practice.This year we strengthened the work through these challenging economic public transport services in the UK, targeting Group’s health & safety forums to enhance conditions, ensuring that we remain a organic growth through the economic cycle and from value-adding capital investment and the transfer of knowledge and expertise strong and successful Group. acquisitions.We will maintain our financial across the Group. Outlook discipline and strong balance sheet; our We remain committed to improving the We have not changed our overall view on financing is secure and we remain committed energy efficiency of our operations. Not the outlook since our trading update in June to providing solid returns to shareholders. only does this have important 2009.We believe we are well placed for the We have started the new financial year environmental benefits but it helps to year ahead, although we continue to assume well and trading has been in line with reduce operating costs. Highlighted economic conditions in the UK will remain the Board’s expectations. throughout this report are key Group difficult over the next twelve months. wide energy saving initiatives which we estimate will reduce annual operating Our bus operations have proven to be robust and we expect demand for costs by around £5m and CO2 emissions by 30,000 tonnes. One of our primary these services to remain strong. environmental responsibility measures is Our rail operations should deliver a good CO2 emissions per passenger journey level of profitability in the year ahead, albeit Sir Patrick Brown, (ppj) for bus and rail. Overall, this has below the level achieved to June 2009. Our Chairman increased slightly from last year as a result aim is to supplement the expected modest 2 September 2009

Total shareholder return (rebased to 100) Dividend paid and proposed per share (p)†

350 300 81.0p

250 2009 81.0 200 2008 81.0 150 2007 70.0 100 2006 56.0 50

0 2005 48.0 2004 2005 2006 2007 2008 2009 Go-Ahead TSR Peer Group TSR1 FTSE 250 TSR

1 TSR peer group consists of Arriva plc, FirstGroup plc, National Express Group plc and Stagecoach Group plc. * Before amortisation and exceptional items. † Includes interim dividend paid and final proposed dividend.

The Go-Ahead Group plc Annual Report and Accounts 2009 5 Directors’ Report: Business Review Group Chief Executive’s review

We are pleased with this year’s performance, which has been delivered through our experienced and focused management style and Experienced devolved structure. Overview of operating performance Overall operating performance was slightly ahead of our expectations, with operating profit* of £123.6m underpinned by record results from our bus operations and good results from rail after a particularly strong year to June 2008. Strong cash management resulted in “Our strategy a reduction in net debt to £91.0m (2008: £197.8m).Total capital is straightforward investment was in line with depreciation to maintain our high quality asset base. and we remain We remain highly disciplined in our assessment of potential acquisitions confident in and franchise bids.We were delighted the underlying to retain our Southern rail franchise which we believe we secured on the strengths of basis of current and prudent economic assumptions and deliverable initiatives. the Group.” We did not complete any acquisitions during the year but, as recently announced, we have agreed to acquire East Thames Buses from Transport for London (TfL) for £5m and Arriva’s Horsham bus operations for £5m. Both are due to complete in the second quarter of the new financial year. We remain financially robust, with a strong balance sheet and secure financing and propose to maintain our full year dividend to shareholders at 81.0p per share (2008: 81.0p per share).

Divisional performance overview Bus Our bus division performed slightly ahead of our expectations for the year, reporting record results despite adverse movements in fuel, pension and accident claims costs.We increased revenue in all six of our bus companies; a result which endorses the economic resilience of these operations. Our devolved structure provided high levels of service quality, customer focus and strong local cost control.This was supplemented by Group purchasing power and de-risked through comprehensive fuel hedging. Capital investment above depreciation ensured we continued to benefit from well maintained freehold depot locations and from one of the youngest bus Keith Ludeman, Group Chief Executive fleets in the sector.

6 The Go-Ahead Group plc Annual Report and Accounts 2009 Rail Revenue and operating proﬁt* by division Our rail operations performed well, Increase/(decrease) Increase/(decrease) in line with our expectations. 2009 (£m) 2008 (£m) (£m) (%) Each UK rail franchise is different and Revenue Bus 584.7 557.7 27.0 4.8% we believe our three franchises are relatively robust given their focus on Rail 1,552.0 1,378.4 173.6 12.6% high density, urban commuter markets. Aviation Services 209.4 263.0 (53.6) (20.4)% Revenue continued to grow in all three Total 2,346.1 2,199.1 147.0 6.7% operations, albeit, as expected, at a Operating profit/(loss)* slower rate in the second half and Bus 66.6 66.2 0.4 0.6% overall service quality remained strong. Rail 61.5 77.2 (15.7) (20.3)% Aviation Services (4.5) 1.5 (6.0) n/a We are making good progress with cost control initiatives, particularly Total 123.6 144.9 (21.3) (14.7)% in Southeastern and also in London Midland where we have recently the economic cycle.We expect the In summary appointed a new managing director market conditions for our aviation We are pleased with this year’s to lead the changes in that franchise. services division to remain challenging performance. Our strategy is Looking forward, we are well advanced in the near term. straightforward and we remain with preparations for the new Southern confident in the underlying strengths franchise commencing in September Our strategy of the Group. Going forward, we will

2009 and the UK’s first domestic high Our strategy remains to provide high maintain our financial discipline and Business Review speed rail service in Southeastern from quality passenger transport in the UK. prioritise the delivery of value from December 2009. The underlying elements of this strategy our existing portfolio of operations. are to: Aviation Services Directors’ Report: Aviation services delivered a •Run our companies in a socially and performance in line with our environmentally responsible manner expectations.This was despite difficult •Provide high quality, locally focused trading conditions in ground handling passenger transport services and cargo and the previously reported Keith Ludeman loss of contracts in Meteor parking. •Prioritise high density, urban markets Group Chief Executive We recognised an exceptional non-cash in the UK 2 September 2009 impairment charge of £38.4m in the •Maintain strong financial discipline first half to reduce the carrying value to deliver shareholder value of our ground handling and cargo These elements have a number of operations to approximately £20m. performance indicators, both financial We will continue with the necessary and non financial, which are routinely restructuring in this division to protect measured for improvement trends against near term deterioration in and comparison between operating results and to strengthen operating companies. our medium term position. In the near term, our priority is to Market environment deliver value from our existing Public transport remains crucial to the portfolio of operations. development of the UK and is strongly Key risks to our performance include supported by the main political parties. a major accident or incident, or an We believe that it is likely to generate unexpected reduction in demand for long term growth if supported by our services.We operate a strong operators with strong local stakeholder governance structure and control relationships providing high quality environment to mitigate these and services and innovation. other risks as far as possible. In the short term, we need to deal with the current phase of the economic cycle. Demand for our bus operations has proven to be resilient. In rail, we believe that the underlying passenger revenue growth (before new services and other initiatives) will broadly follow

* Before amortisation and exceptional items.

The Go-Ahead Group plc Annual Report and Accounts 2009 7 Directors’ Report: Business Review Group Chief Executive’s review continued

“A well-functioning public tenders for each bus route and private Our Markets operators enter a competitive bidding transport system is crucial to process for the right to operate them. the UK: it plays a key role in This section focuses on the UK bus The contracts are usually five years in building a strong economy and rail markets, where over 90% of duration with a two year extension if the Group’s revenue is generated. TfL performance targets are met. Route and is an essential means of contracts are awarded on a cost per creating a fair society. Public Long term growth in public transport mile basis.This means that bus We firmly believe in the fundamental operators are not subject to any transport also has a central strengths of UK public transport. All revenue risk. part to play in helping to major political parties support and TfL contracts are price index adjusted, reduce carbon emissions. recognise the importance of public designed to offset inflationary increases transport for the UK’s present and Put simply, by encouraging in costs. Broadly speaking, operators’ future needs. Not only do we anticipate profits are therefore not impacted the travelling public out of a long term increase in the demand by inflation changes. for public transport as the population their cars and onto the grows, we also recognise that growth Having a good network of bus depots lower carbon alternatives of in an efficient public transport system is important for London operators. public transport, congestion is a necessity for the UK Government Go-Ahead has 15 strategically located to meet its ambitious climate London depots, with around 85% of can be reduced and change obligations. our capacity owned as freehold. emissions can be cut.” View a map of our London bus depots Lord Adonis, on page 23 Secretary of State for Transport, June 2009 2009 Climate Change Act: To reduce CO2 emissions Quality Incentive Contracts by 80% by 2050 Companies are awarded bonuses for achieving TfL performance targets in areas such as punctuality, cleanliness UK Bus and customer service.These bonuses are called Quality Incentive Contracts Bus travel is the most frequently used (QICs). Our London bus operations mode of public transport. It accounts rank consistently high in the TfL for two-thirds of all public transport performance league tables, resulting journeys and 95% of local bus journeys in bonus payments from TfL. In 2009 involve a single bus ride. quality incentive bonuses totalled The UK bus market is split into £14.2m (2008: £13.7m). two models: the regulated London market and the deregulated market Bus operator league tables are published outside London. by TfL and can be viewed on its website at: Go-Ahead operates in the UK bus http://www.tfl.gov.uk/businessandpartners/ market through six business units: busoperators/1232.aspx Go-Ahead London, Go North East, Go South Coast, Metrobus, Brighton & Hove and Oxford Bus Company. Fig 1: London Bus market share

Go-Ahead London and most of 5% 2% Metrobus’ operations are regulated 9% 21% by Transport for London (TfL).

London regulated market 13% The London bus market is different from the rest of the UK. Figure 1 shows 20% the London bus market share.With the recent agreement to acquire East 14%

Thames Buses, Go-Ahead will become 16% the largest operator in the capital with a market share of around 21%. Go-Ahead First Group TfL is responsible for the provision of Arriva Transdev East London Bus Group Ned Railways bus services in the capital. Operating ComfortDelGro Others under a regulated system,TfL issues Source:Transit (a specialist transport publication), June 2009 and JPMorgan research, August 2009.

8 The Go-Ahead Group plc Annual Report and Accounts 2009 Our markets

London passenger growth and From the mid 1990s the rate of Bus operating cost base the impact of the current climate decline has slowed significantly and Ongoing cost control is an important Figure 2 shows that after a period volumes have increased in recent part of running a good bus operation. of relatively flat growth, from the mid years as investment by operators As the pie chart on page 22 shows, 1990s bus use in London has increased and the Government has increased labour cost accounts for around 60% significantly. Indeed, the network service quality. of total costs. Fuel accounts for around underwent considerable expansion Within the overall deregulated market 11%.Typically, bus operators have some in the run up to the introduction of it is important to note that there are flexibility within their cost base and in the congestion zone in 2003. considerable local and regional economic downturns may be able to match service levels to demand. Demand for bus travel in the capital variations. Go-Ahead’s strategy is to remains strong and the market is focus our operations in dense urban regarded as being relatively resilient markets which can support a For the cost base of our bus operations to the current economic climate. comprehensive network of bus routes, please go to page 22 Bus use in the UK is at its highest in offering good value and ease of use for London with around 2 billion passenger both commuter and leisure travel. For our bus fuel hedging policy & journeys a year .This is due to many We believe that important factors for prices please go to page 26 localised factors such as: operating successfully include providing high quality and punctual services and • Congestion zone charging for having strong local relationships with UK Rail private car use customers and local authorities. • Limited and expensive car Go-Ahead parking facilities The deregulated market is generally perceived to be resilient to economic Our rail operation, Govia, is owned Business Review • High proportion of bus lanes downturns. Bus can often be the 65% by Go-Ahead and 35% by Keolis, (almost 300km) cheapest way to travel and offers a a French-based operator of passenger • Significant percentage of the low-cost alternative to other modes in transport services which is majority population without car ownership a more difficult economic environment. owned by the French national railway Directors’ Report: • Bus is typically the cheapest method SNCF. Through Govia, Go-Ahead of public transport in the capital operates three rail franchises – For a detailed performance review of Southeastern, Southern and London our deregulated bus operations Midland – making us the UK’s busiest please go to page 24 For a detailed performance review of our rail operator, carrying almost 30% of regulated London bus operations please rail passengers.There are currently go to page 23 Bus Concessionary Fares Scheme 19 rail franchises in the UK. Figure 3 In April 2008, the Bus Concessionary shows UK rail market share by revenue. Deregulated passenger growth and Fares Scheme was extended so that Our strategy is to operate urban the impact of the current climate anyone aged 60 or over, or who is intensive commuter franchises centred Figure 2 shows that local bus volumes registered disabled, is entitled to free around London. Around 45% of all significantly declined in the 1970s as car travel on any off-peak local bus service commuter rail journeys into London ownership widened and investment in in any part of England.The Government are made on our franchises. public transport reduced.The has invested £1.2bn in the scheme, deregulation and privatisation of the resulting in around 11 million people Figure 4 shows that across Britain bus industry took place in 1986. being eligible for free travel. Operators commuting is the most common are reimbursed a percentage of the reason for taking the train. full fare by local authorities for each journey taken. Fig 2: Bus Passenger Journeys (m) For detailed information and Overall, we believe that the scheme is 8,000 performance reviews of our three rail a positive step for the industry as it franchises please go to pages 28 – 34 7,000 increases bus use. However, the implementation of the scheme is 6,000 1986: Deregulation and privatisation Rail franchising system complicated and has given rise to a The franchise model was introduced 5,000 small number of disputes with some with the privatisation of the rail industry local authorities. Concessionary fare 4,000 in 1996. Each franchise agreement passengers have continued to grow tenders specific rail operations on a 3,000 beyond April 2009, the first anniversary contract basis and typically lasts for 2,000 of the scheme, as ‘free’ travel has around eight years.The Department for further increased in attractiveness as 1,000 Transport (DfT) submits an Invitation a result of the economic downturn. to Tender (ITT) to interested bidders 1970 1972 1974 1976 1978 1980 1982 1984 Concessionary passengers now which outlines the detailed 1986/87 1988/89 1990/91 1992/93 1994/95 1996/97 1998/99 2000/01 2002/03 2004/05 2006/07 represent just over 30% of Go-Ahead’s commitments the franchise must deliver, London Great Britain excluding London bus passengers and just over 20% of such as timetabling and capacity.The bus revenue. Source: Department for Transport. Data from 1986/7 to 2006/07 – March year end. 2008/09 data to be published in October 2009.

The Go-Ahead Group plc Annual Report and Accounts 2009 9 Directors’ Report: Business Review Group Chief Executive’s review continued

ITT also outlines the formula to be premium profile takes into account 94% of target, the government provides used for annual regulated (peak time) indexation so TOCs’ profits are not support of 80% of the shortfall below fare increases, which is typically the impacted by inflation changes.The 94%. Revenue support is designed to preceding year’s July RPI +1%. bidding process usually takes around provide significant mitigation for a year and typically costs around revenue shortfalls in the later part of Once the DfT has issued the ITT, train £3-4 million per franchise. the franchise.There is a symmetrical operating companies (TOCs) enter system for revenue share if revenue a competitive bidding process for the TOCs are required to take the revenue exceeds the original target revenue right to operate the franchise.TOCs risk for any franchise contract, subject specified in the contract. assume how much revenue growth to revenue share and support they can generate through passenger mechanisms outlined below. If TOCs Passenger growth & the impact demand and growth.This is driven by forfeit their franchise agreements for of the current climate a combination of economic conditions any reason the Government may seek Figure 6 shows that, since the rail and ‘self help’ measures such as revenue to enforce penalties.This may include a industry was privatised, the market has protection and marketing. Based on cross default provision of other franchises experienced an unprecedented level of these revenue and cost assumptions operated by the parent group. growth. Indeed, for the first time since and required returns, the bidder Over the past four years, Govia has the second world war over 1 billion specifies the premium profile they will achieved the greatest success rate in train journeys were made in the UK in pay to the DfT or the subsidy profile UK rail bidding, winning three franchises 2003-04, rising to 1.27 billion in 2008-09. they require from the DfT to make out of four bids. Most recently, it was running the franchise a viable business. Since 1996 the rail industry has been announced in June 2009 that Govia Broadly speaking, the subsidy and through a period of unprecedented had retained the Southern franchise. investment by TOCs and the UK Government, resulting in an improved quality of service. Punctuality levels have New Southern franchise reached new highs and according to the It is important to note that View a detailed presentation of our the rail industry is not a single new Southern franchise at www.go- National Passenger Survey published in ahead.com/goahead/ir/presentations/ June 2009, 81% of passengers are homogeneous entity as each satisfied with their rail experience. franchise has distinct Levels of growth in passenger numbers characteristics. Significant Revenue share & support mechanism and revenue have slowed recently as a variables include the type A franchise agreement typically includes result of rising unemployment, less a revenue share and support discretionary rail travel and more cost- of franchise (eg. Intercity; mechanism. Figure 5 shows the DfT conscious consumers trading down. At commuter), the age and model which applies to our franchises. the same time this has been mitigated in part by more people choosing to The revenue share mechanism begins length of the franchise and travel by rail, rather than incurring the at the start of the franchise and the costs of private motoring. the revenue bid assumptions revenue support mechanism typically and subsidy/premium profiles. starts at the beginning of the fifth year. If revenue falls to between 94% and 98% of the original target revenue For information on our three franchises specified in the contract, the including subsidy/premium profile and eligibility government provides additional subsidy for revenue support go to pages 29 – 33 equal to 50% of the shortfall between these thresholds. If revenue is below

Fig 3: Rail market share Fig 4: National rail passenger journey purpose Fig 5: Standard DfT revenue share 6% and support model 7% 23% Commuting 37%

11% Business 19%

Visiting friends/relatives 16%

Day-out & holiday 11% 15% 19% 94 98 102100 106 Shopping 6% Target revenue index 19% Leisure & Sport 6% First Group Virgin Rail National Express Arriva 80% support 50% share Govia Other Education 5% 50% support 80% share Stagecoach no support/share

Source: Govia estimates. Source: 2008 National Passenger Survey. Chart included in Journey NB: Revenue share begins at the start of the franchise and Solutions/ATOC:‘Door-to-door by Public Transport,’ June 2009. revenue support typically starts at the beginning of the fifth year.

10 The Go-Ahead Group plc Annual Report and Accounts 2009 Our markets

Rail franchises have a relatively high The focus on reducing carbon shows that there are signs the markets proportion of fixed costs which means emissions, combined with the may now be stabilising. that profits are sensitive to a fall in frustration of driving on congested road Go-Ahead has taken robust revenue. However,TOCs have taken networks, is improving people’s management action to restructure the action to help mitigate the impact of attitudes towards public transport. business.This has helped, in part, to the economic climate by reducing costs, mitigate the impact of the challenging where possible, and implementing economic environment. revenue enhancing initiatives, such as Aviation Services promoting cheaper off-peak fares and Long term growth greater revenue protection. In addition, The aviation services division accounts The UK remains one of the largest the revenue support mechanism may for less than 10% of the Group’s aviation markets in the world. Around help TOCs who are eligible to receive it. revenue. Go-Ahead operates in the aviation services market through 240 million passengers a year travel ground handling (primarily aviance UK) through UK airports and Heathrow is View the operating cost base and and cargo handling (primarily Plane one of the world’s busiest.Whilst there subsidy/premium profile for each of our Handling).We have operations at 15 are challenges for the aviation industry three rail franchises on pages 28 – 33 UK airports, with a particularly strong in the short term, the long term growth presence at Heathrow where we are prospects are positive, driven by a rising Modal shift the largest independent handler population, globalisation and economic growth. In addition, international air While mostly anecdotal, evidence accounting for 28% of all aircraft freight forms a vital component of suggests that passengers are increasingly turnarounds. Our car parking operation, global supply chains as prosperity grows, making the switch from private car to Meteor, also falls within the aviation services division. trade is liberalised and the demand for Business Review public transport. It is believed that high just-in-time delivery increases. fuel prices last year acted as a stimulus for people to use bus and rail services. Aviation Services and the impact of the current climate Many passengers have continued to For a detailed performance review of use public transport as they found it It has been widely reported that the our aviation services operations please Directors’ Report: had improved significantly from airline industry has experienced go to pages 36 – 37 previous experiences. challenging market conditions. Figure 7 shows the impact the economic climate In addition, the population is increasingly has had on passenger volumes and in seeking ‘greener’ and healthier lifestyles. particular cargo. A combination of high Instead of taking the car, people may oil prices in 2007/08 and deteriorating choose to cycle to the train station or economic conditions resulting in fewer walk to the bus stop. An online survey passengers has impacted airline undertaken by our Brighton & Hove profitability.Air cargo volumes have bus company showed that 48% of been significantly hit as final demand has respondents had made the switch from fallen and inventory ‘destocking’ has car to bus for some of their journeys. taken place. However, Figure 7 also

View modal shift push and pull factors View the cost base of our aviation services at www.go-ahead.com/goahead/ operations on page 36 aboutus/our_markets/modal_shift/

Fig 6: UK rail passenger journeys (m) Fig 7: International air passenger and freight tonne kilometres 1300 15 1200 10 1100 5 1000 1996: Privatisation 0 900 -5

800 -10

700 -15

600 -20

500 -25 Jul 05 Jul 06 Jul 07 Jul 08 1950 1960 1970 1980 Jan 06 Jan 07 Jan 08 Jan 09 Apr 06 Apr 07 Apr 08 Apr 09 Oct 05 Oct 06 Oct 07 Oct 08 1989-90 1999-00 2008-09 Passenger RPKs Air freight FTKs

Source: Office of Rail Regulation (ORR) National Rail Trends Source: International Air Transport Association (IATA) – July 2009. Data: March year end. RPK: Revenue passenger kilometre FTK: Freight tonne kilometre

The Go-Ahead Group plc Annual Report and Accounts 2009 11 Directors’ Report: Business Review Group Chief Executive’s review continued

Our strategy

Our long-standing strategy is to deliver high quality passenger transport services in dense, urban markets, primarily through bus and rail.

1. 2. 3. 4. To run our companies in To provide high quality, To prioritise our operations To run our business with a socially & environmentally locally focused passenger in high density urban strong financial discipline

Priorities responsible manner transport services markets in the UK to deliver shareholder value

As a public transport operator, We believe that providing a high We are unique among the other Our aim is to deliver shareholder corporate responsibility is integral quality service encourages passenger major public transport groups as value through a combination to the way we run our business. growth and offers an attractive we operate exclusively in the UK. of earnings growth, strong cash Ensuring the safety and security alternative to the private car. We We focus our operations in high generation and balance sheet of our passengers and employees understand that punctuality, reliability density commuter markets, management, supplemented by value is an absolute priority for us and our and value for money are the most predominantly in the South East adding acquisitions and disposals. performance on such issues is linked important factors for passengers of England, where there is a strong to senior managers’ and the Board’s when choosing to travel by public demand for public transport.We remuneration. We are also transport. We believe our devolved are recognised as having significant committed to reducing the structure and local focus helps to expertise in the UK bus and rail environmental impacts of our generate passenger growth as our market. This is welcomed by our operations and strongly believe local managers are able to respond shareholders and will remain our that a sustainable public transport quickly to community needs. This primary focus. However, we will network is key to the future of the flat structure enables us to closely consider investment in overseas UK. We believe acting responsibly manage the performance of each operations if we believe that it directly contributes to the success operating company while giving local will add value for our shareholders. of our business. In addition, reducing managers the autonomy they need Why it’s important our energy consumption helps to run their local businesses. Our to reduce costs. aim is to combine the value of this local identity culture with the financial benefits of Group scale and transfer of best practice.

Managing progress

In order to measure progress against our strategy the Board uses a number of Key Performance Indicators based around

KPIs operating responsibly and providing a high quality service.These are underpinned by strong financial indicators to ensure we deliver shareholder value. KPIs are outlined on pages 13 and 14.

Managing key risks

The effective delivery of our strategy is dependent on the Group successfully managing our risks and opportunities.

Risks A full assessment of how we internally manage risks and our key risk factors are outlined on pages 19 and 20.

12 The Go-Ahead Group plc Annual Report and Accounts 2009 KPIs

Key performance indicators (KPIs)

Safety and environment KPIs Link to Strategic Priority 1. The following KPIs underpin our strategic objective to be a responsible operator:

RIDDOR accidents per 100 employees RIDDOR accidents per 100 employees The Reporting of Injuries, Diseases and Dangerous Occurrences Regulations (RIDDOR) is a statutory requirement for all companies and relates to a work place incident which results in loss of work for over three 2009 1.76 days or a legally reportable incident to the Health & Safety Executive. Monitoring this KPI helps us to measure 2008 1.98 against our commitment to provide a safe working environment for our employees. Our aim is to reduce the number of accidents each year.We were pleased to report no employee fatalities this financial year. Group 2007 1.88 data is broken down by bus, rail and aviation services on pages 24, 34 and 37 respectively.

Bus accidents* per million miles Bus accidents per million miles The Board monitors the number of bus accidents which result in a notification to a claims handler. Monitoring this KPI helps us to measure against our commitment to provide a safe and positive travel experience for 2009 55.93 our passengers and helps us to manage accident claim costs. Our aim is to reduce the number of accidents 2008 57.08 each year. 2007 62.61

* Bus accidents which result in a notification to a claims handler. Business Review

SPADs per million miles SPADs per million miles Across the rail industry train operating companies are legally required to report Signals Passed at Danger (SPADs).Although every SPAD is treated as a serious incident, most SPADs occur at low speed where 2009 0.89 braking distance has been misjudged and the train is stopped by automatic warning systems and therefore 2008 1.24 Directors’ Report: the likelihood of an accident is very low. Monitoring SPADs helps us to measure against our commitment to provide a safe passenger service. Our aim each year is to reduce the number of SPADs and the risk 2007 1.26 of any incident when a SPAD does occur.

Environmental performance Carbon emissions per passenger journey* We are committed to improving our energy efficiency and to delivering high quality services that provide attractive alternatives to car travel.We monitor the carbon emissions from our core bus and rail operations 2009 0.96 per passenger journey. A breakdown of our bus and rail emissions per passenger journey and the Group’s 0.95 total carbon emissions can be found on pages 23, 28 and 41 respectively. 2008 2007 0.93 * Excludes data from our aviation services division.The conversion factors used are in accordance with ‘Guidelines to DEFRA’s Greenhouse Gas Conversion Factors for Company Reporting’ June 2008.

Punctuality KPIs Link to Strategic Priority 2. The following KPIs underpin our strategic objective to be a high quality operator:

Rail punctuality Southern (%) The punctuality of our rail operations is measured on the basis of the Department forTransport’s Public Performance Measure (PPM) moving annual average.This is the percentage of trains that arrive at their final 2009 90.7 destination within five minutes of their scheduled arrival time having called at all scheduled stations. This time frame is an industry standard definition of what constitutes being ‘on-time’We are committed to providing 2008 90.0 reliable services and our aim is to improve punctuality each year. The PPM industry average is 90.6%**. 2007 89.2

Southeastern (%)

2009 90.8

2008 91.1

2007 89.0

London Midland* (%)

2009 86.7

* London Midland was acquired in November 2007. 2008 88.6 ** Office of Rail Regulation – National Rail Trends – for the year ended March 2009.

The Go-Ahead Group plc Annual Report and Accounts 2009 13 Directors’ Report: Business Review Group Chief Executive’s review continued

Punctuality KPIs continued

London bus punctuality Excess waiting time (minutes) The reliability of our London bus operations is measured on the basis of Transport for London’s (TfL) excess waiting time. This is the time in minutes passengers have to wait for a bus above the average 2009 1.01 scheduled waiting time. Therefore, the lower the excess waiting time the better. We are committed to providing punctual services and our aim is to maintain our low excess waiting time performance. 2008 1.07 The industry average is 1.09 minutes. 2007 1.06 Source:TfL. Data for 1 April 09 – 26 June 09.

Deregulated bus punctuality Punctuality (%) The punctuality of our deregulated bus operations is measured as a percentage of buses that arrive at their stop one minute early to five minutes late. Therefore the higher the percentage the better. This time frame 2009 90.97 is an industry standard definition of what constitutes being ‘on-time’.We are committed to providing reliable services and our aim is to improve punctuality each year. The industry average is 74%*. 2008 88.78 2007 88.13 * Source: Df T Public Transport Statistics 2008. Latest available data.

Financial KPIs Link to Strategic Priority 4. The following KPIs underpin our strategic objective to deliver shareholder value:

Operating profit growth Operating proÞt* (£m) This helps us to measure the underlying performance of our operating companies. It is measured before amortisation and exceptional items to provide more comparable year on year information.We aim 2009 123.6 to increase operating profit* (excluding acquisitions or disposals) and adjusted earnings per share* year on year. 2008 144.9

* Before amortisation and exceptional items. 2007 118.1

Strong cash management Cashßow generated from operations/EBITDA (%) We manage payment and receipts closely to convert operating profit (before amortisation & exceptional items) into operating cash. Our aim is to match cashflow generated from operations to operating profit* 2009 134.7 plus depreciation (EBITDA). 2008 99.2

2007 117.5 * Before amortisation and exceptional items.

Capital investment Net capital investment/depreciation (%) We invest in capital to both maintain and enhance our operations. Our aim is for capital investment to match depreciation through the cycle, except if additional spend will add shareholder value. 2009 113.1

2008 111.4

2007 123.1

Value adding acquisitions Net acquisition spend (£m) We continue to assess acquisition opportunities primarily in the UK, but these will only be pursued if we believe they will add value for our shareholders.We made no acquisitions in the financial year. Our aim is for 2009 0 post tax operating profit* from transactions to exceed our post tax weighted average cost of capital of 8%. 2008 3.3

* Before amortisation and exceptional items. 2007 27.2

Progressive dividend policy Dividend cover (x) We are committed to delivering shareholder value through our progressive dividend policy.We measure our dividend cover (adjusted earnings per share* divided by dividend per share) to assess how much of 2009 1.9 our profits we can pay out as a dividend. Our aim is for dividend cover to average 2x adjusted earnings per share* through the cycle. 2008 2.2

* Before amortisation and exceptional items. 2007 2.0

Strong capital structure Adjusted Net Debt/EBITDA (x) We are committed to preserving a strong capital structure. Our aim is to maintain adjusted net debt/EBITDA at between 1.5x and 2.5x through the cycle. 2009 1.57

2008 1.65

2007 1.46

14 The Go-Ahead Group plc Annual Report and Accounts 2009 Directors’ Report: Business Review Finance review and risk management £ Finance review Disciplined

The past year has seen unprecedented Pensions turmoil in the financial markets, Operating profit* included the net highlighting the importance of financial cost of the Group’s defined benefit discipline and strong cash management. pension plans of £36.1m (2008: £24.9m).The increase of £11.2m Operating profit comprised an additional £8.5m in rail,

Operating profit* for the year was of which £2.6m was due to a full year Business Review £123.6m, 14.7% below last year (2008: of London Midland, and £2.7m was £144.9m) primarily due to a particularly non-rail costs (primarily bus). Company strong prior year in our rail division. cash contributions to the schemes were Adjusted earnings per share* followed £2.8m higher than the net cost in the

a similar trend, down 12.9% to 152.3p income statement, totalling £38.9m Directors’ Report: per share (2008: 174.8p). Basic earnings (2008: £41.7m, inclusive of a £7.5m per share were 14.7p per share (2008: additional contribution). 128.8p per share) as a result of Nick Swift, Group Finance Director The total net pension deficit after tax significant exceptional items. was £60.1m (2008: £42.8m), consisting Cash conversion of a total pre-tax liability of £83.5m (2008: £59.4m) less a deferred tax “We will maintain Cash conversion was excellent, with asset of £23.4m (2008: £16.6m). our strong financial cashflow generated from operations of £233.4m (2008: £192.5m) compared The net deficit before taxation on the discipline to deliver to operating profit before depreciation, non-rail defined benefit schemes was amortisation and exceptional items £76.0m (2008: £59.4m), consisting shareholder value.” (EBITDA) of £173.3m (2008: £194.0m). of estimated liabilities of £428.7m Most of this improvement came from (2008: £436.2m) less assets of favourable working capital movements £352.7m (2008: £376.8m). in our rail division which are expected to reverse next year. The net deficit before taxation on the rail schemes was £7.5m (2008: £nil). Balance sheet The nature of these schemes means that Our balance sheet and financing remains we only recognise the share of deficit strong. Adjusted net debt to EBITDA (or surplus) expected to be funded was 1.57x at June 2009 (June 2008: (or received) over the franchise period. 1.65x) and remains well within our target Goodwill and intangible amortisation range of 1.5x-2.5x through the cycle. Our The charge for the period of £12.4m funding is secured to November 2012 (2008: £11.6m) represents the non- through a five year syndicated loan facility cash cost of amortising goodwill, and at June 2009 we had headroom intangibles including assets associated within this facility of £101.0m. with pension accounting for the rail franchises and computer costs. The Operating profit before increase against the prior period reflects depreciation, amortisation and a full year of ownership of the London exceptional items (EBITDA) Midland franchise. EBITDA was £173.3m (2008: £194.0m), consisting of operating profit* of £123.6m (2008: £144.9m) and depreciation of £49.7m (2008: £49.1m).

* Before amortisation and exceptional items.

The Go-Ahead Group plc Annual Report and Accounts 2009 15 Directors’ Report: Business Review Finance review and risk management continued

Net finance costs £0.8m in respect of accelerated Minority interest The net finance costs for the period depreciation on articulated buses in The minority interest in the income reduced to £11.5m (2008: £13.8m) London with a further exceptional statement of £12.0m (2008: £20.8m) due to a reduction in average levels charge of around £3m expected in arises from our 65% holding in of net debt and lower interest rates relation to this issue over the next Govia Limited (which owns our rail towards the end of the period. The two years, and £1.5m of provision operations) and therefore represents average net interest rate was 5.0% for onerous contracts in our Meteor 35% of the profit after taxation of the (2008: 6.4%) for the period and the parking operations. rail division. proportion of gross debt held under Exceptional cash costs totalled fixed interest agreements at 27 June £10.1m, consisting of restructuring Adjusted earnings per share 2009 was 47.2% (2008: 30.2%). Adjusted profit attributable to and reorganisation costs of £5.4m in members* was £65.4m (2008: aviation services and £4.7m in rail. Exceptional items £76.0m). This consisted of a profit Exceptional items were significant in the attributable to members of £6.3m year, totalling £57.7m before taxation, Taxation (2008: profit £56.0m) adjusted to The net taxation charge in the income of which £49.8m was recognised in the add back members’ share of post tax first half. Most of the items were non- statement of £23.7m (2008: £26.3m) amortisation of £6.9m (2008: £6.4m), cash, with cash items totalling £10.1m. included underlying tax on ordinary and members’ share of exceptional The largest item was a first half, non- activities of £26.6m (2008: £29.1m), items of £52.2m (2008: £13.6m). cash impairment charge of £38.4m equivalent to an effective rate of 26.7% The weighted average number of reflecting the challenging conditions (2008: 24.4%).The increase in effective shares reduced to 42.9 million (2008: in aviation services. This reduced the rate compared to the decrease in UK 43.5 million) due to the repurchase carrying value of the ground handling statutory rate for the period of 28.0% of shares during last year. The closing and cargo operations within the aviation (2008: 29.5%) reflects the reduced number of shares in issue, net of services division to approximately availability of cost effective, tax efficient treasury shares, was 42.9 million £20m at December 2008 and remains asset finance arrangements in the period. (2008: 42.8 million). appropriate at the year end. The charge also included an exceptional, Adjusted earnings per share* decreased Non-cash exceptional items also non-cash tax charge of £8.6m (following by 12.9% or 22.5p per share to 152.3p included £6.9m relating to the fair the UK Government’s abolition per share (2008: 174.8p per share). value of part of the current year bus of industrial buildings allowances fuel hedge (designated as ineffective announced in July 2008) and a tax under IAS 39 ‘Financial Instruments: benefit of £11.5m (2008: £2.8m) Recognition and Measurement’), resulting from the exceptional costs.

Summary income statement

Increase / Increase / 2009 2008 (decrease) (decrease) (£m) (£m) (£m) (%) Operating profit* 123.6 144.9 (21.3) (14.7)% Net finance costs (11.5) (13.8) 2.3 16.7% Profit before tax* 112.1 131.1 (19.0) (14.5)% Amortisation (12.4) (11.6) (0.8) (6.9)% Exceptional items (57.7) (16.4) (41.3) (251.8)% Profit before tax 42.0 103.1 (61.1) (59.3)% Total tax expense (23.7) (26.3) 2.6 9.9% Profit for the year 18.3 76.8 (58.5) (76.2)% Minority interest (12.0) (20.8) 8.8 42.3% Profit attributable to members 6.3 56.0 (49.7) (88.8)% Adjusted profit attributable to members* 65.4 76.0 (10.6) (13.9)% Weighted average number of shares (m) 42.9 43.5 (0.6) (1.4)% Adjusted earnings per share* (p) 152.3 174.8 (22.5) (12.9)%

* Before amortisation and exceptional items.

16 The Go-Ahead Group plc Annual Report and Accounts 2009 £ Finance£ review

Dividends the tax charge of £23.7m, of which The Board is proposing a total dividend £8.6m was a non-cash charge relating “Cash generated for the year of 81.0p per share, to the abolition of industrial buildings from operations unchanged from last year and including a allowances, less a refund of £5.2m proposed final payment of 55.5p payable in respect of prior years. Net interest before taxation on 20 November 2009 to shareholders paid of £11.9m (2008: £14.0m) is in on the register at the close of business line with the charge in the income was £233.4m, an on 6 November 2009. The is equivalent statement for the period of £11.5m to a total payment of £34.7m, based on (2008: £13.8m). Capital expenditure, increase of £40.9m 42.9 million shares. net of sale proceeds, was similar to against the same Dividends paid in the period represents last year at £56.2m (2008: £54.7m), the payment of last year’s final dividend equivalent to 113% of depreciation period last year.” of 55.5p (2008: 55.5p) and the interim (2008: 111%). dividend in respect of this year of 25.5p Dividends paid to parent company per share (2008: 25.5p). shareholders amounted to £34.8m Dividend cover for the year was 1.9x (2008: £31.4m) and dividends to adjusted earnings per share* (2008: 2.2x). minority interests were £12.3m (2008: £16.7m). During the period Cashflow the company has repurchased 13,615 Cash generated from operations before shares at a cost of £0.2m (2008: taxation was £233.4m, an increase of 3,571,000 shares at a cost of £87.3m) £40.9m against the same period last and 50,000 shares were issued (2008: Business Review year (2008: £192.5m). Favourable 523,000 shares) on exercise of share working capital movements of £72.4m, options for proceeds of £0.6m most of which are expected to reverse (2008: £6.4m). next year and which primarily related to the phasing of debtor and creditor Directors’ Report: payments in rail, offset other cash outflows of £12.3m which included exceptional cash costs of £10.1m. Tax paid of £11.4m (2008: £18.1m) was primarily the current portion of

Summary cashflow

Increase / Increase / 2009 2008 (Decrease) (Decrease) (£m) (£m) (£m) (%)

EBITDA+ 173.3 194.0 (20.7) (10.7)% Working capital/other 60.1 (1.5) 61.6 n/a Cashflow generated from operations 233.4 192.5 40.9 21.2% Tax paid (11.4) (18.1) 6.7 37.0% Net interest paid (11.9) (14.0) 2.1 15.0% Net capital investment (56.2) (54.7) (1.5) (2.7)% Free cashflow 153.9 105.7 48.2 45.6% Net acquisitions (incl. acquired debt) less disposals – (3.3) 3.3 n/a Franchise transfer (0.4) (26.7) 26.3 98.5% Dividends paid (47.1) (48.1) 1.0 n/a Share issues less share buybacks 0.4 (80.9) 81.3 n/a Decrease / (increase) in net debt 106.8 (53.3) 160.1 n/a Opening net debt (197.8) (144.5) n/a n/a Closing net debt (91.0) (197.8) n/a n/a

+ Operating profit before interest, tax, depreciation, amortisation and exceptional items.

The Go-Ahead Group plc Annual Report and Accounts 2009 17 Directors’ Report: Business Review Finance review and risk management continued

Capital structure

2009 (£m) 2008 (£m) Five year syndicated facility Dec 2012 340.0 340.0 Amount drawn down at year end 239.0 262.0 Balance available 101.0 78.0 Restricted cash 181.3 122.9 Net debt 91.0 197.8 Adjusted net debt 272.3 320.7 EBITDA+ 173.3 194.0 Adjusted net debt / EBITDA+ 1.57x 1.65x

Balance sheet Distributable reserves in the parent Net debt reduced in the year by company used to pay dividends were £106.8m (2008: increase £53.3m) £443.3m (2008: £446.0m) which is to £91.0m (2008: £197.8m). equivalent to 12.8 times the current full year proposed dividend of £34.7m. Net debt consisted of amounts drawn down against the £340.0m five year Financial outlook syndicated loan facility of £239.0m We expect our financial position over (2008: £262.0m); other bank loans of the next twelve months to remain £36.0m (2008: £52.8m); hire purchase strong. The favourable working capital and lease agreements of £18.1m movements in rail are expected to (2008: £34.3m) and overdrafts of £5.0m reverse in the year, increasing net debt (2008: £5.8m), partly offset by cash and but reducing restricted cash by a similar short term deposits of £207.1m (2008: amount. Capital investment is expected £157.1m) which included restricted cash to increase by around £20m compared in rail of £181.3m (2008: £122.9m). to 2009, reflecting the investment in Most of the increase in restricted cash the new Southern franchise. We have reflects the working capital movements recently secured additional three year in rail which are expected to reverse loan facilities of £30m to refinance next year. Adjusted net debt, consisting payments of medium term debt made of net debt excluding restricted cash, last year which will preserve funding was £272.3m (2008: £320.7m), headroom under our five year equivalent to 1.57x EBITDA (2008: syndicated facility. 1.65x), well within our target range Overall, we will maintain our strong of 1.5x to 2.5x through the cycle. financial discipline to deliver In addition, amounts provided to shareholder value. the DfT for rail bank guaranteed performance bonds were £131.7m (2008: £96.5m) and season ticket bonds of £110.2m (2008: £97.9m). The Group had net liabilities of £9.5m, Nick Swift, primarily due to the low level of capital Group Finance Director employed within the rail operations. 2 September 2009 The reduction of £77.0m compared to net assets of £67.5m at 28 June 2008 consisted of profit for the period of £18.3m plus proceeds of shares issued of £0.6m and share based payment credits of £0.5m, less: losses on financial instruments of £29.9m net of tax; an increase in pension scheme liabilities of £19.4m net of tax and dividends paid of £47.1m.

+ Operating profit before interest, tax, depreciation, amortisation and exceptional items.

18 The Go-Ahead Group plc Annual Report and Accounts 2009 Directors’ Report: Business Review Principal risks and uncertainties £ Finance review

The diagram below illustrates the role in helping the operating companies Risk management key roles and responsibilities for each identify, assess and monitor their of the respective functions within our respective risks and controls. The effective management of risk risk management framework. Ultimate Through monthly meetings with the is essential to the delivery of the accountability for risk management senior management of each operating Group’s objectives, protection lies with the Board, supported by company, the Executive Directors of its reputation and achievement the work of the Audit Committee encourage open communication on of sustainable shareholder value. to which the Board has delegated risk matters within a clearly defined Go-Ahead’s devolved management responsibility for reviewing the infrastructure and reporting process. structure supports our robust risk effectiveness of the Group’s risk Ownership of risk identification management and internal control management and internal control and mitigation lies with the senior framework, as detailed in the systems. With clear leadership from management in operating companies Corporate Governance report the Board and Audit Committee, the where it is an integral part of day-to- on pages 44 to 62. Executive Directors play an integral day local company operations.

Principal risks and uncertainties structure

The Go-Ahead Group plc Board of Directors • leadership of risk management • sets strategic objectives and risk appetite • monitors performance Business Review • accountable for the effectiveness of the Group’s internal control and risk management processes

Audit Committee Directors’ Report: • delegated responsibility from the Board to oversee risk management and internal controls • reviews the effectiveness of the Group’s internal control and risk management processes • monitors the role and effectiveness of the internal auditors and the independence and expertise of the external auditors

Executive Directors Internal Audit • communicate and disseminate risk policies • independently reviews the effectiveness of the Group’s • support and help operating companies assess risk risk management and internal control processes • encourage open communication on risk matters • monitors and validates action taken by management • oversee risk management • provides assurance • monitor performance • reports monthly to the Executive Directors • assess materiality of risks in the context of the • reports quarterly to the Audit Committee whole Group • monitor mitigation and controls • facilitate sharing of risk management information and best practice across the Group

Operating Company Boards • define risk management roles at operational and project level • use risk as an explicit part of decision-making and management of external relationships • continuous identification of risk, assurance and self-assessment

The Go Ahead Group plc Annual Report and Accounts 2009 19 Directors’ Report: Business Review Principal risks and uncertainties continued The below table summarises our assessment of the key risks and uncertainties that could impact the Group’s performance. These risks are monitored on an ongoing basis through the Group’s risk management processes, together with the effectiveness of mitigation through the internal control environment. Material residual risk is assessed by the Board and accepted if appropriate as an integral part of the risk and reward of the business, or deemed unacceptable and therefore either reduced, transferred to third parties or avoided by no longer pursuing the relevant activity. The matters described are not intended to be an exhaustive list of all possible risks and uncertainties.

Risk description Potential impact on KPIs Mitigation

Major accident or Potential for serious injury, service • Rigorous high profile safety programme throughout the Group incident (including disruption and lost earnings • Comprehensive insurance cover terrorism or disease • Appropriate contingency plans such as swine flu)

Inappropriate strategy Reduction in economic and • Comprehensive strategic discussions with main board and advisers or investment shareholder value • Extensive valuation and due diligence, supported by external expertise • Discipline to ‘walk away’ from opportunities • Value adding investments are required to return in excess of the Group’s post tax weighted average cost of capital

Financial market Loss of access to funds, loss of • Formally approved and regularly reviewed treasury policy in place instability investments, interest rate exposure • Three year cashflow and covenant forecasts • Five year financing secured to 2012 • Comprehensive, low risk cash investment policy

Group • Over 50% of net debt held at fixed interest rates

Reduction in earnings A 1% increase in staff costs and salaries • Experienced approach to wage negotiations and fostering due to ‘excessive’ wage across the Group would increase costs of good relationships with employees and unions at operating company level settlements by £8.7m

Political or budgetary Changes to the regulatory environment • Closely monitor relevant proposals for change in the regulatory environment changes or financial support from the government • Actively participate in industry, trade and government forums could impact the Group’s prospects

Increased pension Adverse cashflow impact • Railway pension schemes and obligations cease at end of franchise scheme contributions • Non-rail defined benefit schemes closed to new entrants required • Asset allocations de-risked. See note 28 for more detail

Bus fuel prices increase An increase of ten pence per • Rolling fuel hedging programme litre increases the cost of fuel • Fuel fully hedged for next two years by approximately £11m • See page 26 for more detail

Concessionary fare Concessionary fares accounted for • Two thirds of our schemes have been successfully agreed with local authorities schemes do not provide around 20% of the current year’s for 2008/09 an adequate economic deregulated bus revenue • Discussions are continuing with the remaining schemes return Bus Economic downturn A 1% loss of revenue results in a • Improved revenue forecasting reduces demand for reduction in operating profit of • Management action plans to reduce costs in the event of a downturn bus services approximately £0.5m, assuming all costs are variable

London bus contracts Adverse earnings impact • Well located depots, 85% capacity freehold not renewed • Strong reputation for quality and cost control

Earnings volatility impacts Rail represents half of the Group’s • All rail operations held through Govia, which is 65% owned by Go-Ahead Group’s financial strength current year operating profit* and 35% by Keolis

Economic downturn A 1% loss of revenue results in • Improved revenue forecasting reduces demand for a reduction in operating profit of • Management action plans to reduce costs in the event of a downturn rail services approximately £11m, assuming all • DfT revenue support from 1 April 2010 in Southeastern costs are fixed

New Southeastern Each 1% of revenue growth not achieved • Strong and experienced team assembled to deliver the new timetable Rail timetable (including is approximately £5m of operating profit,* • DfT revenue support from 1 April 2010 in Southeastern high speed) from Dec 09 assuming all costs are fixed does not meet bid assumptions

Profit improvement plans Each 1% of revenue growth not achieved • Strong and experienced team assembled to deliver the new in Southern franchise bid is approximately £5m of operating Southern franchise not delivered profit*, assuming all costs are fixed • Comprehensive tracking of delivery

Cyclical downturn in Reduced earnings due to lower number • Significant restructuring to reduce the cost base of the operations aviation sector of aircraft turnarounds and cargo volume, • Strategic review of options and pressure on prices from airlines

Loss of key aviation A significant amount of revenue is • Maintain high quality of service and competitive cost base services contracts held through contracts which may be

Aviation Services terminated with less than 90 days notice

* Before amortisation and exceptional items.

20 The Go-Ahead Group plc Annual Report and Accounts 2009 On average, around 1.6 million people Bus operating review Performance overview 22 travel on our buses every day Regulated 23 Deregulated 24 Outlook 26

Bus Go-Ahead is one of the UK’s largest bus operators.We have a strong presence in London, with around 21% market share. We also have operations in the north east, Oxford, the south east and Southern England. 2009 Bus highlights • Record operating profit* of £66.6m (2008: £66.2m). • Revenue growth in all six operating companies • Expected to remain robust

* Before amortisation and exceptional items.

The Go-Ahead Group plc Annual Report and Accounts 2009 21 Directors’ Report: Business Review Operating review

2009 Bus highlights Performance overview Our bus brands The performance of our bus operations was slightly ahead of our expectations, delivering a record operating profit* for the year. Revenue increased by 4.8%, or £27.0m, to £584.7m (2008: £557.7m, including Financial highlights £7.2m for Go West Midlands sold 2009 2008 in February 2008), equivalent to an increase of 6.2% excluding Go West Revenue (£m) 584.7 557.7 Midlands. Revenue increased in all six Operating profit* (£m) 66.6 66.2 operating companies. Margin* 11.4% 11.9% Operating profit* was £66.6m, marginally ahead of last year (2008: Revenue growth £66.2m, including a loss of £3.9m for Regulated 6.1% 12.4% Go West Midlands). Operating profit* margin was 11.4%, 0.5 ppts below Deregulated** 6.4% 8.2% last year (2008: 11.9%). As expected, Volume growth this year’s operating profit* included additional costs for fuel, pensions and Regulated – miles operated 1.8% 12.7% accident claims as well as the year on Deregulated – passenger journeys** 2.9% 2.9% year benefit from the sale of the loss making Go West Midlands business * Before amortisation and exceptional items. in February 2008. ** Excludes Go West Midlands (sold in February 2008). Our underlying fuel costs, before Revenue by operating company delivery and duty, were around £10m 2009 (£m) 2008 (£m) higher than the same period last year. Go-Ahead London 283.3 267.0 We consume around 110 million litres of fuel each year and hedged all of Go North East 82.5 76.4 our fuel requirements for the 2009 Go South Coast 70.5 66.8 financial year at 43 pence per litre (ppl) compared with an average Metrobus 68.2 64.8 price of 34ppl in 2008. Brighton & Hove 48.3 45.4 The 2009 financial year also included Oxford Bus 31.9 30.1 an additional £2.6m of pension costs Go West Midlands≠ – 7.2 and an additional £5.3m charged for accident claim costs compared with Total Bus 584.7 557.7 last year, despite a reduction in the ≠ Sold in February 2008. number of incidents compared to 2008. The increases in claim costs primarily 2009 revenue split Operating cost base relate to our London and North East operations and we continue to manage 5.5% 14% these claims closely. 8.3% Ongoing cost control remained a 5% priority across our bus operations. 11.7% Labour accounts for around two 8% 48.6% thirds of our cost base and is 62% closely controlled through local wage 12.0% negotiations and ongoing productivity 11% improvements. In addition, we estimate we have saved around £2.5m 13.9% compared to last year through better Go-Ahead London Metrobus Labour Depreciation procurement, fuel consumption and Go North East Brighton & Hove Fuel Other site energy consumption. Go South Coast Oxford Bus Engineering

* Before amortisation and exceptional items.

22 The Go-Ahead Group plc Annual Report and Accounts 2009 Bus

Total depreciation for the division was Revenue trends were as expected. £31.5m (2008: £30.9m) and capital The second half growth rate of 3.8% expenditure was £44.9m (2008: £36.3m). compared to a first half of 8.5% was Capital expenditure included £34.0m on due to a 2.5% reduction in mileage new buses to upgrade vehicles operating resulting from a net loss of contracts on a number of our key revenue in the second half. Much of this has generating routes and to maintain the been subsequently recovered for the average age of our deregulated fleet new financial year.Around 85% of our as one of the youngest in the sector. depot capacity in London is owned as freehold which provides a strong base for contract renewals. Regulated During 2009,TfL commenced the decommissioning of articulated ‘bendy’ Our regulated bus operations in London buses as contracts are renewed.This continued to perform well. Revenue is expected to reduce residual values increased by 6.1% in the period, and so we will provide for accelerated A convenient way to travel consisting of an increase in contracted depreciation of around £4m over the As urban areas become more congested buses mileage of 1.8%, an average increase in next three years as an exceptional cost, are increasingly seen as a quick and convenient contract prices of approximately 4% and of which £0.8m has been recognised way to travel. Investment in modern and high an increase in quality incentive bonuses in 2009. quality fleets by operating companies, combined to £14.2m (2008: £13.7m).We continue with investment by local authorities in dedicated bus routes, has resulted in cleaner, safer, more

to perform well in theTfL quality league Business Review frequent and punctual services. tables and operated in excess of 99.6% of our target mileage before traffic congestion losses. Directors’ Report:

Go-Ahead’s London bus depots Bus division ßeet with CCTV 90% Hertfordshire Essex 2009 90% EnÞeld

2008 87%

Barnet 2007 81% Harrow Waltham Haringey Forest Redbridge 2006 Data as at year end. Havering The industry average is 52%. Source: DfT 2008 Public Brent Hackney Transport2005 Statistics – Data as at 31 March 2008. Camden Islington Barking and Dagenham Tower Newham Hamlets Hillingdon Ealing London Thurrock

Southwark Greenwich Bus division CO2 emissions Hounslow per passenger journey Bexley Wandsworth Richmond Lambeth Lewisham 0.50 kgs CO2 ppj

Kingston Merton Upon 2009 0.50 Thames Bromley Sutton Croydon 2008 0.52

Kent 2007 0.54 2006 The conversion factors used are in accordance with ‘Guidelines Having a good network of bus depots is important for London operators. Go-Ahead has 15 strategically located to2005 DEFRA’s Greenhouse Gas Conversion Factors for Company London depots with around 85% of our capacity owned as freehold. Reporting’ June 2008.

The Go-Ahead Group plc Annual Report and Accounts 2009 23 Directors’ Report: Business Review Operating review continued

Average number of employees Staff turnover rate RIDDOR accidents per 100 employees 10,998 14% 1.52

2009 10,998 2009 14% 2009 1.52

2008 10,838 2008 16% 2008 1.96

2007 10,661 2007 18% 2007 2.02

2006 2006 2006 Reporting of Injuries, Diseases and Dangerous Occurrences Regulations (RIDDOR). See page 13 for 2005 2005 more2005 information.

Revenue growth trends remain Deregulated robust, with second half growth of 6.2%, broadly similar to first half Revenue growth continued in our growth of 6.6%. Passenger numbers deregulated bus operations through in the second half increased by 2.1% a combination of fare increases and compared to a first half rise of 3.6%. growing passenger numbers. The latter reflects the timing of the national concessionary scheme which Like for like revenue (excluding started on 1 April 2008.The rate Go West Midlands) was up 6.4% and of increase in non concessionary increased in each of our deregulated passenger numbers accelerated from businesses.The number of passenger 0.8% in the first half to 1.6% in the journeys was 2.9% above the same second half. period last year, with around two thirds of the increase due to concessionary passengers. Non concessionary passenger numbers increased by 1.2% for the full year.

Value for money Our devolved structure gives local bus companies the autonomy to tailor products to their local markets. In light of the current economic climate, Go North East has focused heavily on marketing value for money fares.The bus market is relatively resilient to economic downturns as buses can often be the cheapest mode of transport.

24 The Go-Ahead Group plc Annual Report and Accounts 2009 Bus

We’re on track

The ‘RIBAS’ in cab prompt alerts drivers when they are not driving fuel efficiently.

Capital expenditure: £3 million (Avg life of technology up to 10 years)

Aim:To improve fuel efficiency by around 5%

Estimated annual savings: • £2.5 million cost saving

• 14,500 CO2 tonnes.Equivalent Tomas Koroknai, one of Go-Ahead London’s top performing fuel efﬁcient drivers receives his ‘Go-Green’ certiﬁcate from to annual emissions from Keith Ludeman, Group Chief Executive. 2,600 households. We’re doing our part Business Review

to cut emissions Directors’ Report: We have made a significant investment in the latest ‘black box’ technology which monitors engine behaviour and alerts the driver though an in-cab prompt when they are not driving efficiently.

We recognise the environmental and In addition to improving fuel efficiency Our bus drivers are a key element to business benefits of improving our fuel the technology, which promotes making the programme a success. All efficiency. During this financial year we smoother driving, can be used to reduce drivers have been through a ‘Safe & fitted all of our 3,500 buses with ‘black accidents and data collected can also Fuel Efficient Driving’ programme which box’ technology which monitors engine play a key part in helping to mitigate includes both theoretical and practical behaviour.The technology includes an contentious accident claims. Improving training.To help motivate employees, ‘in-cab’ prompt which notifies the driver passenger comfort and meeting the operating companies run competitions when they are not driving in a fuel efficient higher standards of Quality Incentive and schemes to reward drivers who way. Data collected from the black box is Contracts (QICs) for our London drive safely and efficiently. monitored and analysed back in the office. operators are also major benefits Results have been encouraging with fuel of the technology. efficiency improving by around 5%.

Hybrid technology In addition to improving our fuel efficiency, we are committed to trialling new technologies. Go-Ahead London is already an active participant in on-going trials of the latest hybrid buses, working in partnership with Transport for London to keep abreast of developing technology in this area.

The Go-Ahead Group plc Annual Report and Accounts 2009 25 Directors’ Report: Business Review Operating review continued

Overall, we expect performance next Outlook year to be a little below the record level achieved this year.The following We expect the underlying performance year (to June 2011) is expected to of our bus operations to remain robust benefit from a lower cost of fuel and for the next financial year. contribution from two acquisitions, namely EastThames Buses fromTfL Revenue growth in both our regulated for £5m and Arriva’s Horsham bus and deregulated operations is expected operations for £5m, both of which are to continue, albeit at a slower rate than expected to complete in the second the last two years. In deregulated, this is quarter of the new financial year. primarily because we are past the first anniversary of the national concessionary scheme (introduced on 1 April 2008) and are in a lower inflation environment. In London, we continue to assume that forthcoming contract renewals will be more competitive than when originally negotiated in 2002-2004 and that quality incentive targets will become increasingly challenging. Cost control across the division will remain a priority.This includes ongoing wage negotiations and productivity improvements to maintain competitive labour costs (which account for approximately two thirds of our cost base). We have fully hedged our fuel costs for the financial year to June 2010 at 47 ppl and at Making bus travel easier 41 ppl for the following financial year to June In partnership with local authorities, many 2011 and are confident we can recover the of our deregulated bus routes offer ‘real time additional cost of around £4m for the new text service’. Bus stops display a unique seven letter code and when passengers text that financial year. We are targeting further number they receive details of the next few progress with energy savings, fuel real time bus departures back within seconds. consumption and procurement initiatives and are not assuming any significant change In addition, many of our bus companies in pensions or accident claim costs have pages on facebook and twitter where compared to the last financial year. passengers can keep up to date with the latest service information and special promotions.

Hedging Policy & Prices Our bus fuel hedging programme uses fuel swaps to fix the price of our diesel fuel in advance. Our aim is to be fully hedged for the next financial year three months before the start of that year,at which point we aim to have also fixed at least 50% of the following year and at least 25% of the year after that.This hedging profile is then maintained on a quarterly basis. Bus fuel accounts for 11% of the cost base and we consume around 110 million litres of fuel each year. Financial year Underlying cost of fuel* 2007/08 33.7p (50% hedged at 29p) 2008/09 Fully hedged at 43 pence per litre 2009/10 Fully hedged at 47 pence per litre 2010/11 Fully hedged at 41 pence per litre

* Before delivery, duty and duty rebate through the bus services grant.

26 The Go-Ahead Group plc Annual Report and Accounts 2009 On average, around 1 million people Rail operating review Performance overview 28 travel on our trains every day Southern 29 Southeastern 30 London Midland 32 Outlook 33

Rail Our 65% owned rail operation is the busiest in the UK, responsible for nearly 30% of UK passenger rail journeys through its three rail franchises: Southern, Southeastern and London Midland. 2009 Rail highlights • Operating profit* of £61.5m • Continued revenue growth •Three franchises focused on high density, urban commuter markets

* Before amortisation and exceptional items.

The Go-Ahead Group plc Annual Report and Accounts 2009 27 Directors’ Report: Business Review Operating review continued

2009 Rail highlights Performance overview Our rail brands The results from our rail division were in line with our expectations, following a particularly strong performance last year. Revenue trends were in line with our expectations, broadly following macro-economic indicators such as Financial highlights Gross Domestic Product (GDP) and 2009 2008 employment levels. Revenue increased by 12.6% or £173.6m, to £1,552.0m (2008: Revenue (£m) 1,552.0 1,378.4 £1,378.4m), primarily due to the addition Operating profit* (£m) 61.5 77.2 of the London Midland and Gatwick Margin* 4.0% 5.6% Express operations and continued growth in like for like passenger revenue Passenger revenue growth in Southern and Southeastern. Southern** 7.9% 13.2% Operating profit* fell by 20.3% or Southeastern 5.5% 13.0% £15.7m, to £61.5m (2008: £77.2m). The reduction in operating profit* is London Midland 9.1% n/a partly attributable to around £7m of favourable settlements last year (which Passenger volume growth were not repeated this year) and to Southern** 4.4% 6.7% higher costs this year for the Southern Southeastern 1.0% 6.4% franchise bid of £3.5m (2008: £0.3m) and £2m for industrial relations issues London Midland*** 3.6% n/a in London Midland. * Before amortisation and exceptional items. Total depreciation for the rail division ** Growth rates exclude Gatwick Express (became part of Southern on 22 June 2008). *** Growth rates based on comparison with 11 November 2007 to 28 June 2008 was £13.0m (2008: £11.3m) and (London Midland became part of the Group 11 November 2007). £0.7m of the increase related to London Midland. Capital expenditure Revenue by franchise was £12.2m (2008 £9.3m), of which £8.1m (2008 £1.9m) was in London 2009 (£m) 2008 (£m) Midland and included investment in gating Southern 602.4 557.1 and car parks to enhance revenue. Southeastern 577.8 581.6 London Midland* 371.8 239.7 Total Rail 1,552.0 1,378.4 * Part year in 2008. Franchise acquired in November 2007.

2009 Total Revenue 2009 Passenger Revenue Rail division CO2 emissions per passenger journey 15.6% 25.0% 1.72 kgs CO2 ppj 40.3% 42.8% 2009 1.72

2008 1.67

41.6% 2007 1.66 34.7% 2006 The increase in CO2 emissions per passenger journey is mainly2005 a result of the addition of the London Midland Southern London Midland Southern London Midland franchise. Most of London Midland trains run on the diesel Southeastern Southeastern network. Diesel is five times more carbon intensive than electricity.The conversion factors used are in accordance with ‘Guidelines to DEFRA’s Greenhouse Gas Conversion Factors for Company Reporting’ June 2008.

28 The Go-Ahead Group plc Annual Report and Accounts 2009 Rail

Total revenue in Southern consisted of Southern passenger revenue of £487.2m (2008: £393.0m), other income of £32.5m 2009 revenue: £602.4m (2008: £29.8m) and net subsidy receipts of £82.7m (2008: £134.3m). Start of franchise: August 2001 The increase in passenger revenue Franchise renewal: September 2009 consisted of £63.0m from Gatwick Profit share: Currently in 60% profit Express and like for like growth in share with the DfT passenger revenue (excluding Gatwick Express) of 7.9%. Like for like passenger Approx. 50% of passengers numbers increased by 4.4% compared are commuters to last year.As previously reported, growth rates slowed in the second half Regulated (peak-time) fare increases: of the year, with like for like passenger RPI* +1% revenue growth of 6.0% compared * Annual regulated fare increases are made in to 11.1% in the first half. Like for like January based on the Retail Price Index (RPI) passenger numbers increased by as at July of the previous year. 2.2% in the second half compared The Southern franchise provides to 6.7% in the first half. frequent train services connecting As expected, Gatwick Express central London to south London, the experienced a reduction in passenger South Coast and East and West Sussex, numbers as a result of the fall in air including express services to Croydon, Business Review Gatwick and Brighton. traffic at Gatwick airport. Overall, the Gatwick operations are estimated to Making rail travel easier have contributed a small operating Performance Overview We are committed to making it easier for passengers Our Southern franchise performed profit* for the year. to travel on our services. Southern has launched an well, delivering an integrated Gatwick Like for like operating profit* for Southern online booking system where passengers can quickly Directors’ Report: Express service from 22 June 2008, was slightly below last year,with cost and easily buy their tickets and can save a significant significant timetable changes from reduction and profit share offsetting the amount by buying advance tickets online. December 2008, including new services reduction in subsidy and the slowing in the on the Brighton Main Line, and operational rate of revenue growth.Approximately support to the Thameslink programme, £21.1m of the reduction in subsidy whilst maintaining high levels of related to the change in the Network operational and financial performance. Rail access charge regime from 1 April Our operational performance in 2009, with an equal and opposite change Southern remained strong despite in the rail access charges. Other cost adverse weather in February, with a reduction measures included energy record public performance measure savings through regenerative braking and (PPM) showing that 90.7% (2008: the benefits of Group procurement.The 90.0%) of our trains arrived on time. profit share arrangements in the current Initial teething difficulties with rolling franchise provide the DfT with 60% of stock on the Brighton Main Line, which any profit increases or decreases. have now been resolved, resulted in a small reduction in our Spring national passenger survey customer satisfaction rating to 80% (2008: 81%).

Southern cost base (%) Southern revenue split (%)

5% Awarded 5% 14% We were delighted to have been 15% 30% awarded the Southern franchise for a second term.

20%

81% 25%

Operating costs staff Operating costs other Passenger Other Access charges Fuel and electricity Subsidy See page 33 for details of the new franchise. Rolling stock charges

Costs rounded to the nearest 5%.

The Go-Ahead Group plc Annual Report and Accounts 2009 29 Directors’ Report: Business Review Operating review continued

Southeastern revenue split (%) Performance Overview Southeastern Our Southeastern franchise has 3% enjoyed a good year, delivering 15% 2009 revenue: £577.8m significant timetable changes from December 2008 and providing Start of franchise: April 2006 operational support to the Thameslink Franchise renewal: March 2014* programme as well as preparing for Eligible for revenue support: the new timetable in December 2009 1 April 2010 which will include the UK’s first domestic high speed rail service.

82% Approx. 70% of passengers are commuters Our operational performance in Southeastern remained strong despite Passenger Other Regulated (peak-time) fare adverse weather in February. Our Subsidy increases:RPI** +3% to January 2010 punctuality (PPM) was 90.8% (2008: and RPI+1% from January 2011 91.1%) and the franchise achieved a * Assuming two year extension granted. customer satisfaction rating of 76% in ** Annual regulated fare increases are made in the Spring national passenger survey January based on the Retail Price Index (RPI) (2008: 79%). as at July of the previous year. Total revenue in Southeastern consisted The Southeastern franchise provides of passenger revenue of £473.6m frequent train services connecting Central London to south east London, Kent and (2008: £449.1m), other income of parts of East Sussex. In December 2009 it £18.7m (2008: £19.1m) and net subsidy will introduce the full timetable for the receipts of £85.5m (2008: £113.4m). UK’s first high speed domestic service The increase in full year passenger between Kent and London. Preview revenue was 5.5%, consisting of a first services began in June 2009. half increase of 8.9% and a second half increase of 3.8%. Passenger numbers increased by 1.0% compared to last

We’re on track We’re leading the way in high speed travel We are the first company to operate a high speed domestic rail service in the UK.The state of the art Hitachi trains travel at speeds of up to 140mph.

In December 2009 we will launch the At the end of June 2009, we began full timetable for the UK’s first high running limited high speed ‘preview’ speed domestic rail service on High services.We are proud of the fact that Speed 1 (Channel Tunnel Rail Link). the project is ahead of schedule and The Hitachi built trains will run at wanted passengers to be able to try speeds of up to 140 mph and will the service early.The preview service dramatically reduce current journey also allows us to test the service and to times between Kent and London. learn what passengers need and want. Based on detailed modelling, we expect Cutting journey times from Ashford to the service to open up new markets The high speed trains travel at speeds of up to 140mph. London by 45 minutes to 37 minutes, among people currently commuting the preview services have already by car to London and the Docklands. proven to be very popular. Regulated fares for the service are capped by the DfT at 20 – 30% higher than current mainline fares.

30 The Go-Ahead Group plc Annual Report and Accounts 2009 ery£0 oprdt atyear. last to compared saved £10m have nearly to estimated are total in which efficiency savings other and savings an incurred £1.9m, procurement of exceptional which charge positions of 300 reduction to a up including year, the first of the half in started Southeastern which programme savings cost significant through a achieved partly franchise was the bid.This with line in broadly year but last for result strong exceptionally the below was profit* Operating 2009. April 1 regime from charge the access in Rail change Network the to related subsidy in reduction the of £21.2m Approximately RPI+1% to 2011. from reverts then and 2010 continues to which franchise this fare in 3% regime + RPI the reflects numbers passenger and revenue passenger between difference London employment.The central to sensitivity the hence and commuters London of large percentage relatively the reflect franchise this in trends anticipated.The 2% we the reduction than better slightly 1.7% was of which reduction half 4.3% second of a increase and half first a with year, + iktcmae ihtecretmiln fare. mainline current the with compared serviceticket preview speed high season weekly a on Based or2 iue o3 minutes 37 to minutes 24 hour 1 ae n nitrciempplease visit map interactive an and fares timetables, including service, high speed the about information more For sfr nentoa to International Ashford www.southeasternrailway.co.uk odnS Pancras St London . or f your off hours 1.5 4etaaday a extra £4 al commute daily + 3 iefo London: from Time International: UK: lines: tube six London: connections: Excellent International: Pancras St London h usd un oapeimo 1mi 2013/14.Years in £18m April. of 1 premium commencing 2009. a April to 1 turns from subsidy regime The charge before access are the and to nominal changes are shown receives Amounts DfT. Southeastern the subsidy from the shows chart above The otesensbiypol (£m) proÞle subsidy Southeastern 2006 2007 2008 2009 2010 2011 mins mins 18 ls oKnsCosadEso tto oncigLno ihters fteUK the of rest the with London connecting Station Euston and Cross Kings to Close 24 In St Heathrow 2013 te Pancras rn M25 2012 ational LONDON urn aniejunytime journey mainline Current time journey speed high New Cross Cha uotrt il,Busl,PrsadAsedm ls oLno iyAirport. City London to Close Amsterdam. and Paris Brussels, Lille, to Eurostar Cross King M23 ring Gatwick Stratfo ’s ’s Site Ol rd rd ympic 71 erpltn ice amrmt,Nrhr,itra Piccadilly Northern,Victoria, Hammersmith, Circle, Metropolitan, J u b i le e In Ebbsfleet L i te ne rn iyA City London atio M26 nal ir po 107 sfleetEbb rt 18 51 116 119 M20 57 22 Gravesend 136 h oAedGoppcAna eotadAcut 2009 Accounts and Report Annual plc Group Go-Ahead The 143 54 39 Chatham M2 ot one otenaet5%. nearest the to rounded Costs M20 otesencs ae(%) base cost Southeastern prtn ot other costs Operating staff costs Operating charges Access 69 56 Sittingbo 20% KENT Ashf Faversham Air Ashfo London 15% ord po urne 84 37 rt rt rd rd International As hfo M20 rd rd 110 5% 61 Canterbury West Folkesto uladelectricity and Fuel charges stock Rolling 25% Ce Airport International Kent 101 57 ntral ne 116 69 rPrio Dover Margate 35% 111 91 E TUNN CHANNEL 129 80 Rail FRA Ramsgate 31 ry Calais NCE EL

Directors’ Report: Business Review Directors’ Report: Business Review Operating review continued

London Midland subsidy proÞle (£m) Total revenue in London Midland London Midland consisted of passenger revenue of £173.8m (2008: £103.0m), other 2014 155 2009 revenue: £371.8m income of £39.8m (2008: £23.6m) and net subsidy receipts of £158.2m 2013 166 Start of franchise: November 2007 (2008: £113.1m). Comparative figures are from the start of the current 2012 71 170 Franchise renewal: September 2015* franchise on 11 November 2007. 2011 175 Eligible for revenue support: 11 November 2011 Like for like passenger revenue growth 2010 185 for the period from mid November to Approx. 50% of passengers end of June was 9.1% and like for like 2009 107 201 are commuters passenger numbers for the same period Regulated (peak-time) fare increases: increased by 3.6%. 2008 203 RPI** +1% The change in the Network Rail access The above chart shows the subsidy London Midland receives * Assumes 17 month extension is granted. charge regime from 1 April 2009 from the DfT.Amounts shown are nominal and are before ** Annual regulated fare increases are made in changes to the access charge regime from 1 April 2009. reduced subsidy payments by January based on the Retail Price Index (RPI) approximately £21.2m. Years commencing 1 April. as at July of the previous year London Midland operates through the As with Southeastern, we are undertaking a significant amount of restructuring in this London Midland cost base (%) heart of England, connecting London, the West Midlands and the North West. franchise and have recently appointed a 5% Go-Ahead was awarded the London new managing director to lead these 15% Midland franchise in November 2007. changes. Restructuring costs to date have The franchise is formed from parts of resulted in a one off exceptional cash 40% the former Silverlink County and charge of £2.8m. Central Trains businesses. 15% Performance Overview The second half performance of our London Midland franchise was mixed, 25% with good levels of revenue growth offset by a number of operational issues Access charges Rolling stock charges with the new December 2008 timetable Operating costs staff Fuel and electricity and industrial relations disputes which Operating costs other added around £2m of costs in the Costs rounded to the nearest 5%. period. Despite these issues, we achieved a PPM of 86.7% (2008: 88.6%) and a customer satisfaction rating of 78% (2008: 81%) for the period.

London Midland revenue split (%) Sustainable integration We are committed to providing a sustainable and 11% integrated transport network. London Midland offers reduced price parking for low emission vehicles and free parking for electric vehicles.We are looking at extending this across our other franchises.Across the Southern network we have doubled the amount of 47% secure cycle spaces and as part of the new Southern franchise, we will be providing 1,500 extra cycle spaces.

42%

Passenger Other Subsidy New secure cycle storage.

32 The Go-Ahead Group plc Annual Report and Accounts 2009 Rail

Southeastern Outlook In the first half for Southeastern, we New Southern Franchise expect benefits from our restructuring The overall outlook for rail for the programme to offset broadly the We were delighted to have been awarded financial year to June 2010 remains adverse trends in passenger revenue the Southern franchise for a second term. in line with our previously reported growth. Results for the second half will expectations.We believe our three largely depend on the success of the Start of franchise: 20 September 2009 franchises are relatively robust given new timetable and high speed rail Franchise renewal: July 2015* their focus on high density, urban services from 13 December 2009.To commuter markets. However, we date, the public reaction to the preview Eligible for revenue support: continue to assume that underlying of the high speed service has been 21 September 2013 demand (before new services and excellent.The high speed fares will Approx. 50% of passengers initiatives) will slow in line with the average 20-30% above the current are commuters recent half year trends. fares.This increase is generally perceived Regulated (peak-time) fare increases: Changes to regulated fares will be based to be reasonable by passengers given on the July 2009 RPI of – 1.4% compared the significant reduction in journey RPI* +1% to our previous assumption of -3%.This times.Whilst difficult to predict, at this * With a two year extension at the discretion means regulated fares in January 2010 stage we are targeting a mid single digit of the DfT. are expected to reduce by 0.4% in percentage increase in overall passenger ** Annual regulated fare increases are set by the Southern and London Midland and revenue growth for the year as a result DfT at Retail Price Index (RPI) as at July of the increase by 1.6% in Southeastern. of the new timetable and services, with previous year. revenue support from the DfT available In combination, we are not expecting from 1 April 2010 if the revenue View a detailed presentation of Business Review underlying passenger revenue growth growth is below this level. our new Southern franchise on (before new services and other initiatives) www.go-ahead.com/goahead/ir/presentations/ to be significant to June 2010. London Midland In London Midland, our new The new Southern franchise Southern Directors’ Report: management team will aim to offset the premium proÞle (£m) In Southern, our existing franchise impact of lower revenue growth through operates until 20 September 2009. operational improvements, restructuring During this period, we expect to maintain 2015 81* programmes and further investment in earnings at similar levels to the equivalent revenue enhancement projects 2014 166 201 period last year – in part due to the including gating and car parking. profit share regime which allocates 60% 2013 71 156 of any incremental profit or loss to the Overall DfT until the end of the franchise.The 2012 122 Our rail operations should deliver a new franchise aims to improve the good level of profitability in the year 2011 80 underlying revenue trends by 4-5% to ahead, albeit below the level achieved June 2010 through initiatives which were to June 2009. 2010 36 not financially viable under the profit share regime.We are well progressed 2009 1* with mobilisation for the new franchise The above chart shows the premium the new Southern and with preparation for these initiatives, franchise will pay the DfT. Amounts shown are nominal.Years which include improvements to commencing 1 April. timetable, revenue protection and * Part year (franchise runs from 20 September 2009 to train and station investment. July 2015).

Rail carriages with CCTV A safe and secure way to travel We are committed to ensuring the safety of our passengers.We have made excellent progress in reducing the level of crime on our rail networks. 72% Southeastern has seen a 25% drop in reported crime over the past four years and the level of 2009 72% crime across the Southern network is now at half the rate it was in 2003. In addition, as part of the 2008 62% new Southern franchise we have committed to providing live 24 hour CCTV monitoring across all 2007 68% of our stations. London Midland has achieved secure station accreditation at 51 of its stations covering 2006 76% of passengers travelling on the network.

2005

One of our live CCTV monitoring centres.

* Before amortisation and before exceptional items.

The Go-Ahead Group plc Annual Report and Accounts 2009 33 Directors’ Report: Business Review Operating review continued

RIDDOR accidents per 100 employees We’re on track 0.88

2009 0.88

2008 0.92

2007 0.62

Reporting2006 of Injuries, Diseases and Dangerous Occurrences Regulations (RIDDOR). See page 13 for more information. 2005

Average number of employees 10,438

2009 10,438

2008 10,060

2007 7,431

2006

2005

Staff turnover rate Reducing train electricity consumption Over half of the Group’s carbon emissions result from rail traction electricity. It was therefore a significant achievement when in 2008 Southern and Southeastern became 7% the first rail operators to introduce regenerative braking on the third rail system*.This saves energy by capturing electricity through braking and returning it to the rail 2009 7% network. In addition, coasting boards and eco-driver training will help further reduce energy consumption across our rail operations. 2008 9% * The third rail or conductor rail is the electrical system by which some trains draw their power.This system 2007 8% is mainly found in the South of England.

2006

2005 2009 Southern results*: 5% reduction in electricity traction consumption. * Results are for Southern only as Southeastern currently have a small proportion, around 5%, of fleet fitted with regenerative braking. 65% of Southern’s fleet is now fitted with regenerative braking.The number of trains fitted with the braking technology will continue to increase across both franchises next financial year, futher reducing electricity traction consumption.

2009 savings: • £1.3 million cost saving

• 10,740 CO2 tonnes. Equivalent to annual emissions from 2,000 households. For more information you can download our rail factsheets at: www.go-ahead.com/ goahead/irfactsheets_rail

34 Go-Ahead Group plc Annual Report and Accounts 2009 We serve around 40 million passengers Aviation Services operating review Performance Overview 36 each year through our aviation services Outlook 37

Aviation Services We are one the UK’s largest independent cargo handlers, ground handlers and car parking operators.The division operates from 15 airports and services major airline operators such as British Airways,Virgin and bmi. 2009 Aviation Services highlights • Operating loss* of £4.5m • Difficult trading conditions • Ongoing restructuring plans

* Before amortisation and exceptional items.

The Go-Ahead Group plc Annual Report and Accounts 2009 35 Directors’ Report: Business Review Operating review continued

2009 Aviation Services highlights Performance overview Our aviation services brands The results from the aviation services division were in line with our expectations despite the difficult trading conditions. Revenue fell 20.4% or £53.6m to £209.4m (2008: £263.0m) and the Financial highlights operating profit* decreased by £6.0m 2009 2008 to an operating loss of £4.5m (2008: profit £1.5m).The operating margin* Revenue (£m) 209.4 263.0 fell 2.7% from an operating profit Operating (loss)/profit* (£m) (4.5) 1.5 margin of 0.6% to a negative margin of 2.1%. Margin* (2.1)% 0.6% Total depreciation for the division was £5.2m (2008: £6.9m) and capital Revenue growth expenditure was £2.5m (2008: £9.9m). Ground handling (15.1)% 12.7% Ground handling and cargo Cargo (14.9)% 4.2% Our ground handling and cargo Meteor (36.0)% 4.0% operations achieved revenue of £166.5m (2008: £195.9m) and an operating loss* of £5.2m (2008: loss Volume growth £0.7m).The second half loss of £2.7m Ground handling – aircraft turnarounds (14.4)% 13.4% was similar to the loss in the first half of £2.5m and was achieved through cost Cargo – tonnes (19.0)% 4.7% reduction plans to offset accelerating Meteor – parking transactions (11.4)% 9.7% revenue reduction.

* Before amortisation and exceptional items Revenue in ground handling decreased by 15.1% for the full year, consisting Revenue by operating activity of a first half reduction of 12.9% and 2009 (£m) 2008 (£m) a second half reduction of 17.3%, reflecting a similar trend in the number Ground handling 127.4 150.0 of aircraft turnarounds. Around 40% of Cargo 39.1 45.9 the full year reduction was due to the closure of our operations in Gatwick at Meteor 42.9 67.1 the end of August 2008 and, to a lesser Total 209.4 263.0

Through our ground handling operations we are responsible for 28% of all Heathrow’s turnarounds. Revenue split Operating cost base*

20.5% 34%

60.8%

18.7% 66%

Ground handling Meteor Labour Cargo Other

* Excludes Meteor

36 The Go-Ahead Group plc Annual Report and Accounts 2009 Aviation Services

Average number of employees Staff turnover rate RIDDOR accidents per 100 employees 5,691 30% 3.86

2009 5,691 2009 30% 2009 3.86

2008 6,679 2008 33% 2008 3.44

2007 6,232 2007 30% 2007 3.20

2006 2006 *2006 Reporting of Injuries, Diseases and Dangerous Occurrences Regulations (RIDDOR). See page 13 for more information. 2005 2005 2005 extent, the closure of Leeds Bradford Meteor towards the end of the year.The Our Meteor parking and security underlying reduction in aircraft operations reported revenue of turnarounds reflects the broader £42.9m, 36.1% or £24.2m below last economic impact on the aviation sector, year (2008: £67.1m) and an operating leading to reduced flight schedules and profit* of £0.7m (2008: £2.2m).The

additional cancellations which reduces reduction in revenue reflects the expiry Business Review our revenue given we are primarily of our BAA parking contract at Stansted paid on a per turnaround basis. in September 2008. Operating profit* Revenue reduction in our cargo was down by £1.5m to £0.7m, consisting operations was particularly significant of a profit of £0.8m in the first half and Directors’ Report: in the second half, with a decrease of a second half loss of £0.1m.The second 20.5% following a first half reduction half included start up costs of £0.5m of 9.8% to give a full year decrease of incurred from January to May relating 14.9% compared to last year.This was to new parking arrangements at a number of airport hotels. driven by reduced levels of world trade Meteor is one of the UK’s largest independent parking which resulted in a reduction in our We have also recognised an exceptional companies. It has an established presence at many UK cargo volumes of 19.0% for the year. provision of £1.5m for three parking airports and manages car parks across our rail network. Throughout this period, we have contracts which we consider to be managed to maintain high levels onerous in the current economic climate. of service quality whilst achieving significant reductions in our cost base. Around two thirds of our cost base Outlook is labour, and we have continued with our restructuring programme, incurring Whilst there are some signs that activity £5.4m (2008: £8.0m) of exceptional levels in ground handling and cargo costs, which typically pay back through have stabilised, we will continue with reduced operating costs within twelve our restructuring plans to protect months. In addition, in the second half against near term deterioration in of the year we renewed the Virgin operating results and strengthen ground handling and cargo contracts our position for the medium term. for a further five years. International air passenger and freight As previously reported, in Meteor tonne kilometres We also recognised a non-cash parking our BAA contract at Heathrow 15 exceptional impairment charge of expires in September 2009.We have 10 £38.4m in the first half, reflecting the made a number of changes to our cost difficult trading conditions, to reduce base and expect the operating results 5 the carrying value of these operations from Meteor next year to be similar 0 to around £20m. to those achieved to June 2009. -5 -10

-15

-20

-25 Jul 05 Jul 06 Jul 07 Jul 08 Jan 06 Jan 07 Jan 08 Jan 09 Apr 06 Apr 07 Apr 08 Apr 09 Oct 05 Oct 06 Oct 07 Oct 08 Passenger RPKs Air freight FTKs

Source: International Air Transport Association (IATA) RPK: Revenue passenger kilometre FTK: Freight tonne kilometre

The Go-Ahead Group plc Annual Report and Accounts 2009 37 Directors’ Report: Business Review Corporate responsibility

Our responsibilities Through engagement with stakeholders we have identified seven key areas of responsibility: Responsible 1. Safety & Security 2. Improving our environmental performance. 3. Reliability, convenience, punctuality 4. Accessibility for all 5. Affordability 6. Community relationships 7. Role as an employer Our performance against all of these issues can be found in our corporate 2009 Highlights Operating our companies in a socially and environmentally responsible responsibility web report and manner is a key part of the Group’s accompanying summary document. CarbonTrust Standard We are in the process of standardising We became the first UK transport strategy and is deeply embedded across our organisation at all levels. and enhancing our responsibility targets operator to be awarded the Carbon across the Group and look forward to Trust Standard in recognition of our reporting on these next year. work to reduce carbon emissions. Benchmarking our performance We continue to participate in the This section focuses on how we manage Business in the Community (BITC) our safety and environmental performance 16% site energy reduction Corporate Responsibility Index.These and highlights key achievements this year. We achieved a 16% reduction in site voluntary indices help us to compare energy* as a result of the commitment performance against other leading UK Robust management of our employees and new energy businesses, including many FTSE 100 The safety and security of our passengers, efficient lighting systems. companies. For the third year in a our people and the general public is row we were awarded a gold rating an absolute priority for the Group.The Improved efficiency by BITC, the highest rating amongst Board also places a significant emphasis Across our bus operations we have comparable participating public on improving energy efficiency as this made significant investments in engine transport operators. In achieving this has important environmental benefits and monitoring technology and driver training level, Go-Ahead has demonstrated that helps to reduce operating costs.We do not schemes.This has resulted in fuel it improves responsibility throughout have separate Board level committees for efficiency improvements of around 5%. its operations by providing a systematic corporate responsibility and health & safety approach to managing, measuring and as we believe it is fundamental for the Renewable sources reporting on business impacts in society Board as a whole to be involved in these Around 75% of our site electricity and on the environment. areas, which are integral to our business. is generated from renewable sources In December 2008 we became the We believe that effective management including hydro-power, wind-power can only be achieved through robust and biomass fuels. first public transport company to be officially certified with the Carbon Trust measurement. Internal safety and energy Standard.The Carbon Trust Standard is targets for each of our twelve operating Energy saving the UK’s only independent certification companies are set at the beginning of each The introduction of regenerative braking recognising achievements in action on financial year. Performance against safety on the third rail system has resulted in climate change by leading organisations around a 5% reduction in traction electricity in industry, commerce and the public usage on the Southern network. Publishing our responsibility data sector. It is also the world’s first carbon award scheme that requires an Corporate responsibility has always Energy Forums organisation to measure, manage and been at the heart of Go-Ahead.We were Five Group energy forums were held reduce its carbon footprint and actually the first in our sector to publish our this year where operating companies make real reductions year-on-year. environmental data and this year we share best and emerging practice on will be publishing the Group’s corporate reducing carbon emissions. We have been included in the responsibility data in a new upgraded web FTSE4Good index every year since report which gives stakeholders easier Gold Rating its creation. access to more in-depth information. For the third year in a row Go-Ahead Last year we were the first in our sector to achieved a gold rating in Business in the produce an Economic Impact Report which Community’s (BITC) Responsibility Index – measures the significant contribution we the highest rating amongst comparable make to the towns and cities we operate in. participating public transport operators.

* Like for like comparison. Gas consumption data has been normalised by use of degree days to account for variations in temperature.

38 The Go-Ahead Group plc Annual Report and Accounts 2009 Corporate responsibility

targets is linked to both operating company Electricity consumption (kwh) senior managers’ and Group Executive Directors’ remuneration. 1,200 New lights inst alled The Group’s flat structure enables the Board 1,000

to closely monitor the performance of each 800 operating company. For example, safety and energy KPIs are reviewed at monthly operating 600 company board meetings, chaired by the 400 Group Chief Executive and Group Finance Director. See page 44 in the Corporate 200 Governance section for more information 0 about how our devolved management May 08 Jul 08 Nov 08 Jan 09 May 09 structure enables the Group to be managed Sep 08 Mar 09 in a particularly effective way. The above chart shows the effect of the energy saving lights at our Victoria Sidings train depot, near Victoria Station London.

Reducing our site energy In June 2009 we replaced traditional high bay lights at our bus and rail depots and multi storey car parks with new intelligent energy saving lights.The traditional lights accounted for a signiﬁcant proportion of the carbon dioxide emissions caused by our site energy use and were very expensive to

run.The new lights have sensors so that they turn on and Business Review off according to movement and if it is a sunny day they can adjust themselves to be less bright.This means that the system only provides light when it is needed. Initial results have been very encouraging and at some depots electricity usage has reduced by around 50%. Directors’ Report:

Capital expenditure: £2.4 million (average life of technology: up to 10 years)

Aim: to reduce Group site electricity consumption by around 10%

Estimated annual savings: • £1 million cost saving

• 4,300 CO2 tonnes. Equivalent to annual emissions from 780 households.

This year, our economic impacts have been incorporated within our Corporate Responsibility Report. As part of our commitment to provide locally focused services we continue to be the only company in our sector to produce a separate environmental and social report for each of our operating companies.

To view our environmental data publications visit: www.go-ahead.com/publications

The Go-Ahead Group plc Annual Report and Accounts 2009 39 Directors’ Report: Business Review Corporate responsibility continued

Sharing best practice The Board is ultimately responsible for the Group’s corporate responsibility. However, as we operate though a devolved structure, each operating company manages their own safety and energy programmes and performance is reported to the Board through the Executive Directors. Operating companies have safety and energy committees which are each led by a senior manager specifically responsible for the company’s performance (see the chart below for our internal responsibility structure). Companies often run internal competitions and specific safety and environmental days in order to encourage Greenest Bus Fleet staff participation and to ensure these Investing in a modern public transport system issues maintain a high profile. is key to attracting passengers out of private cars.Through sustained investment Go-Ahead is Although the Group is decentralised, recognised as having the youngest and greenest we recognise the importance of sharing bus ﬂeet of the major UK operators*. 2009 safety highlights best practice.The Group regularly holds Southern Vectis, part of Go South Coast, is health & safety and energy forums the main bus operator on the Isle of Wight. 11% reduction where companies share best practice Its modern ﬂeet and frequent services mean it is and help develop Group wide standards integral to the community and a core contributor RIDDOR* accidents per 100 employees to the Island’s vision of obtaining carbon neutrality reduced by 11%. and policies. In addition, each operating company works closely with the Group by 2020. * Reporting of Injuries, Diseases and Dangerous Occurrences Regulations (RIDDOR). Engineering Director and the Group * TAS Partnership – August 2008 (analysis See page 13 for more detail. Environment & Energy Manager. excludes regulated London operations).

28% reduction SPADs* per million miles reduced by 28%. Group safety and energy responsibility structure * Signals Passed at Danger. See page 13 for more detail. The Go-Ahead Group plc New technology Board of Directors Engine monitoring technology fitted and ‘safe and fuel efficient’ driver training completed across bus division.This is designed to reduce the number of Operating Company accidents as well as improve fuel efficiency. Managing Director Secure station status Southern has achieved secure station Group Energy status at 68 of its stations representing Forums Group Health & 93% of passengers across its network. Share best practice Operating Company Safety Forums London Midland and Southeastern have 51 Senior Manager Share best practice and 35 stations accredited respectively. Chaired by Group Engineering responsible for energy/ Chaired by Group CCTV Director & Group health & safety Engineering Environment & 90% of bus fleet and 72% of train Director Energy Manager carriages now fitted with CCTV. Sharing best practice Four health & safety forums held and health & safety section on Group intranet established to help share best practice across operating companies. Operating Company Operating Company Energy Committee H&S Committee

40 The Go-Ahead Group plc Annual Report and Accounts 2009 Corporate responsibility

The Group’s health & safety and energy We are also a member of Green500, & environment policies can be found on one of a number of London the Group’s website www.go-ahead.com. Development Agency initiatives In addition, we have arrangements and to work with organisations with policies at Group and operating company the greatest carbon saving potential. levels to deal with major events, including It aims to set a global standard of terrorism or potential significant disasters. environmental excellence which will Partnerships set members apart as bastions of We work closely with Personnel Health global organisational citizenship. & Safety Consultants Ltd (PHSC) to In addition, we have just become ensure compliance with health & safety a member of the ElectricVehicle legislation. PHSC undertake regular staff Partnership (EVP) created by the interviews and audits and present their London Mayor’s office. EVP is designed findings to the Audit Committee. to encourage the use and development To help improve the Group’s energy of electric vehicles.To date we are the efficiency and to keep abreast of the only passenger transport operator of Smart metering latest technologies we work closely pure electric service support vehicles We believe that effective management can only with the CarbonTrust and are members in England. be achieved through robust measurement.We of a number of working groups. have ﬁtted ‘smart’ electricity and gas meters at our largest consuming sites to ensure We are the only public transport accurate measurement. operator to sit on the Council of the Low CVP (Carbon Vehicle Partnership). Business Review The Low CVP is a government funded undertaking with industry financial support; its mission statement being ‘To accelerate a sustainable shift to low carbon vehicles and fuels and create Directors’ Report: opportunities for UK business.’

Total Group CO2 emissions (tonnes) 2009

Rail electricity 534,631 Bus diesel 297,342 Rail diesel 42,564 Site energy 63,246 2008

Rail electricity 495,414 Bus diesel 302,657 Rail diesel 28,982 Site energy 59,672 2007

Rail electricity 424,225 Bus diesel 287,595 Rail diesel 11,012 Site energy 50,706 2009 Total 973,783 2008 Total 886,725 2007 Total 773,538

The chart above shows absolute CO2 emissions and includes acquisitions of new businesses.The conversion factors used are in accordance with ‘Guidelines to DEFRA’s Greenhouse Gas Conversion Factors for Company Reporting’ June 2008.

The Go-Ahead Group plc Annual Report and Accounts 2009 41 Directors’ Report: Corporate Governance Board of Directors

Sir Patrick Brown Keith Ludeman Nick Swift Non-Executive Chairman Group Chief Executive Group Finance Director Term of office: Sir Patrick Brown joined the Board in Term of office: Keith Ludeman joined the Board Term of office: Nick Swift was appointed to January 1999 as Non-Executive Director, becoming in September 2004 and was appointed as Group the Board as Group Finance Director in July 2007. Non-Executive Chairman in October 2002. Last Chief Executive in July 2006. He was last re-elected He was elected by shareholders, following his re-elected by shareholders at the 2008 AGM, he will by shareholders at the 2007 AGM. appointment, at the 2007 AGM. again stand for re-election at the AGM in October 2009. Committee membership: Member of the Nomination Committee membership: Attends Audit Committee Independent: On appointment. Committee.Attends Audit Committee and by invitation. Committee membership: Chairman of the Remuneration Remuneration Committee by invitation. External appointments: None Committee and Nomination Committee. Regularly External appointments: Non-Executive Director Previous experience: Prior to Go-Ahead, Nick worked attends Audit Committee by invitation. of ATOC Ltd. as Group Finance Manager at Hanson plc where he External appointments: Senior Independent Director Previous experience: Keith became a main Board was responsible for investor relations and had also at Northumbrian Water Group plc (Chairman of the been Head ofTax andTreasury and Group Financial advisor in 1998, after joining Go-Ahead in 1996 when Audit Committee and member of the Nomination and Controller. He joined Hanson plc in 2000 following the Group acquired London General. Prior to this Remuneration Committees); Non-Executive Director its acquisition of Pioneer International where he held he held senior management positions in several bus of Northumbrian Water Ltd and Northumbrian Water a number of senior corporate and operational companies, mainly at Managing Director level, in Share SchemeTrustees Ltd. finance roles including European Finance Director. Greater Manchester, Lancashire and London. He has Previous experience: Sir Patrick spent ten years in He has prior experience of the transport industry industry and management consultancy before joining also worked overseas and as a transport consultant. He having been Group Financial Reporting Manager at the Civil Service, initially involved in privatisation in was appointed Chief Executive of the Group’s London Air New Zealand which he joined fromTouche Ross. the Department ofTransport during the 1980’s. He bus division in 1997 and then moved over to head the He is a Chartered Accountant. then moved to the Department of the Environment, rail division in 1999.A postgraduate transport planner, before returning to the Department ofTransport he is a fellow of the Institute of Logistics andTransport as Permanent Secretary from 1991 to 1997. and a fellow of the Institute of Railway Operators.

Andrew Allner Rupert Pennant-Rea Carolyn Sephton Non-Executive Director Non-Executive Director/ Group Company Secretary Term of office: Andrew Allner joined the Board in Senior Independent Director Term of office: Carolyn Sephton was appointed October 2008. He will be standing for election for Term of office: Rupert Pennant-Rea joined the Board in as Group Company Secretary in July 2006. the first time following his appointment at the AGM October 2002 and was appointed Senior Independent Committee membership: Secretary to the Audit, in October 2009. Director in October 2008. He was last re-elected Remuneration and Nomination Committees. Independent: Yes. by shareholders at the 2006 AGM and will stand External appointments: None. Committee membership: Chairman of the Audit for re-election at the AGM in October 2009. Previous experience: Carolyn joined Go-Ahead Committee. Member of the Remuneration and Independent: Yes. in 2001 and is a Chartered Secretary. Prior to her Nomination Committees. Committee membership: Member of the Audit, appointment as Group Company Secretary she External appointments: Non-Executive Director at Remuneration and Nomination Committees. was Assistant Company Secretary for the Group CSR plc (Chairman of the Audit Committee and External appointments: Non-Executive Chairman with responsibility for non-rail pensions and a wide member of the Nomination and Remuneration of PGI Group Ltd,AcuityVCT plc,AcuityVCT 2 plc range of company secretariat functions including Committees); Non-Executive Director at Marshalls plc and Henderson Group plc, as well as Chairman of share schemes, legislative compliance, corporate (Chairman of the Remuneration Committee and Henderson Group plc Nomination Committee. Non- governance and codes of conduct specific to the member of the Audit and Nomination Committees); Executive Director ofTimes Newspaper Holdings Ltd, Group’s business activities. Prior to working for Non-Executive Director at Northgate plc (Chairman The Economist Newspaper Limited, Defaqto Group Go-Ahead, Carolyn spent twelve years working of the Audit Committee and member of the for Northern Electric, predominantly in the field Nomination and Remuneration Committees). Ltd, Specialist Waste Recycling Ltd, Gold Fields Ltd and of pensions. Previous experience: Andrew is a chartered accountant First Quantum Minerals Ltd. and a former partner at Price Waterhouse. He was Previous experience: Rupert was Deputy Governor of Group Finance Director of RHM plc between 2004 the Bank of England from 1993 to 1995, prior to which and 2007, and Chief Executive of Enodis plc prior to he was Editor ofThe Economist. He has held a variety this. He was also a Non-Executive Director of Moss of Non-Executive Directorships over the last 15 years. Bros Group plc and Chairman of their Audit Committee until 2005.

42 The Go-Ahead Group plc Annual Report and Accounts 2009 Senior Management

Alex Carter Martin Dean Managing Director, Go South Coast Managing Director, Bus Development Alex has been Managing Director since 2003. Martin joined Go-Ahead in 2008. He leads He controls eight businesses within Go South and acts as a focus for all bus development Coast embracing bus, coach and engineering. and acquisition activity in the Group. Previously, Alex joined the bus industry in 1981 in its Martin held senior management roles in rail nationalised form and has held a number and bus with FirstGroup and National Express. of senior roles post-privatisation. He began his career with London Transport.

Alan Eatwell Roger French Managing Director, Metrobus Managing Director, Brighton & Hove Alan has been Managing Director since 2001 Roger has been Managing Director of Brighton and was previously the Group ‘s Engineering & Hove since the company was purchased by Director.Alan has over 40 years experience Go-Ahead in 1993. He joined Brighton & Hove in the bus industry and successfully participated in 1982 and as general manager he was part of in the management buy-out of Brighton & Hove. the Company ‘s management buy-out. Roger received an OBE in 2005 for his services to public transport.

Peter Huntley Philip Kirk Managing Director, Go North East Managing Director, Oxford Bus Company Peter has been Managing Director since 2006. Philip has been Managing Director since 2001, He has brought a wide range of innovations and having joined the company in 1995 shortly after developments to the north east business. Peter it was acquired by Go-Ahead. He has 30 years has over 30 years experience in the bus industry experience of managerial and technical positions including periods working with local and national in bus companies. Government on policy development.

JohnTrayner Mike Hodson Managing Director, Go-Ahead London Managing Director, London Midland John has been Managing Director since 2006. Mike was appointed Managing Director in July He joined the Group in 2002 as Operations 2009. Previously, he was Operations and Safety Director of London Central/ London General Director of Southeastern and was instrumental having previously held senior positions at Arriva to the successful introduction of the High Speed London. He has been in the transport industry preview service. Mike was Managing Director of for 30 years. Thames Trains from 2003 to 2004 and has over 30 years’ experience in rail.

Chris Burchell Tom Smith Managing Director, Southern Managing Director, Rail Development

Chris has been Managing Director of Tom has led the rail division’s business Corporate Governance Southern since April 2006, having previously development and franchise bidding activity since been Operations Director for two years. 2001. Previously Tom was Managing Director of He has also worked at Thames Trains, the the company that financed and built the M6 toll Foreign & Commonwealth Office and Railtrack, motorway. He spent 11 years in the diplomatic accumulating over 10 years of railway experience. service after graduating from Oxford. Directors’ Report:

Charles Horton StephenTurner Managing Director, Southeastern Managing Director, Meteor Charles has been Managing Director since Stephen has been Managing Director since April 2006, after three years in the same role at 1993 when the company was founded and was Southern. He has gained extensive management part of a management buy-out in 1994 along experience in a career spanning 23 years on with three other private shareholders. Previously, National Rail and London Underground. he spent 20 years in the property industry, involved in both commercial property letting and management.

PatrickVerwer RobWilliams Managing Director, aviance UK Managing Director, Plane Handling Patrick joined as Managing Director in December Rob has been Managing Director since 2007. 2007. Previously, he spent more than 10 years Previously, he was director of cargo for aviance with Netherlands Railways in various executive UK, working in the aviation services division of roles. Patrick came to the UK in 2002 to head Go-Ahead for a total of seven years. His career up the Serco/ NedRailways Merseyrail concession to date has spanned 30 years in both the aviation in Liverpool. He started his working career as and shipping industry, holding numerous senior a senior police officer in Rotterdam. positions within these sectors.

The Go-Ahead Group plc Annual Report and Accounts 2009 43 Directors’ Report: Corporate Governance Corporate Governance Governance

The Board is committed to Our devolved structure maintaining the highest standards of Because of our devolved management corporate governance.The Combined structure, local management throughout Code of Corporate Governance the Group are empowered to operate states that good corporate governance our companies as autonomous business should contribute to better company units, whilst working together to share performance by helping a board experience and expertise around the discharge its duties in the best Group.We believe that this structure, interests of the shareholders.This as illustrated on page 45, enables the section of the report describes how Group to be managed in a particularly Go-Ahead achieves this, including effective way. For example, many statements of how the Company aspects of the Group’s day-to-day complies with the Combined Code operations report through operating Sir Patrick Brown, Chairman of Corporate Governance. company senior management directly The composition and effectiveness into the Board through the Group of Go-Ahead’s Board is a key element Chief Executive and the Group “It is our belief that in achieving the Group’s long term Finance Director: corporate performance.We believe • The Executive Directors sit on the good governance will that our Board, which comprises five board of each operating company facilitate efficient, members, enables us to operate and meet formally with local senior effectively, with the appropriate balance management each month. As each effective and of skills and experience.The relatively operating company is a separate legal small size of our Board is appropriate entity,and because of the autonomous entrepreneurial in the context of our devolved nature of the business units, minutes management structure and does not of each meeting are recorded. management that compromise the needs of the business. Importantly, the Board is able to operate • The Executive Directors hold regular can deliver cost effectively for its shareholders. meetings with the Managing Directors of all of the operating companies shareholder value.” While the Board delegates some (the ‘Chief Executive Group’) to of its responsibilities to the Audit, facilitate the sharing of experience Remuneration and Nomination and best practice across operations. Committees, it still retains full Board responsibility for a number of key • The Executive Directors meet on areas such as health and safety,corporate a monthly basis with the senior social responsibility and risk management. managers who are responsible for The Board feels that it is fundamental the key centralised Group functions that the Board as a whole is involved in (the ‘Executive Team Group’) which decision making in these areas and this include company secretarial, finance, ‘hands-on’ approach has served the pensions, properties and services, business well over previous years. procurement and technology. In addition, there are a number of Group forums that are held on a regular basis and which consider finance, engineering, health and safety,and energy matters. These key forums, which report directly

44 The Go-Ahead Group plc Annual Report and Accounts 2009 to the Executive Directors, enable Chairman of the Audit Committee more formal annual performance representatives from all operating In conjunction with the appointment evaluation process we have in place companies to share best and emerging of Andrew Allner as a Non-Executive (see page 49). It is our belief that practice, to seek synergies and cost Director in October 2008, the Board good governance will facilitate savings, to improve quality and to achieve were also pleased to announce efficient, effective and entrepreneurial economies of scale wherever possible. Andrew’s appointment to the position management that can deliver of Chairman of the Audit Committee. shareholder value over the longer Key changes this year This represents a change to the term, and I believe the Go-Ahead The Board of Go-Ahead reviews previous constitution, and historic non- Board is successful in its endeavours the way the Group is managed each compliance with the Combined Code, in this regard. year against best practice corporate where the Chairman of the Company governance. Following such a review was also the Chairman of the Audit during the year, we were pleased to Committee.While the Board still announce two important changes, considers the attendance of the which we believe demonstrate our Company Chairman at Audit Sir Patrick Brown, commitment to good corporate Committee meetings to be important governance and further improves our Chairman in order to ensure that all members of 2 September 2009 compliance with the Combined Code: the Board are equally aware of any Senior Independent Director issues and the detail behind them, such The Board was pleased to announce attendance is now by invitation only. the appointment of Rupert Pennant-Rea While there are still two provisions of (who was appointed as a Non-Executive the Combined Code where we do not Director of the Board in October 2002) comply, in relation to the constitution as Senior Independent Director in of the Audit and Remuneration October 2008.This represents a change Committees, the Board has again to the previous constitution, and historic considered these areas diligently during non-compliance with the Combined the year and is of the view that there Code, where no Senior Independent are sound business reasons for Director was appointed.While the continued non-compliance at the Executive Directors aim to ensure current time (see page 46). effective communication with shareholders and investors, if contact We are pleased to be able to through these channels has failed to demonstrate the Board’s commitment resolve any concerns, or such contact to good practices of corporate is not appropriate, shareholders and governance through constant re- investors can contact the Senior evaluation of the Board, its structure Independent Director. and performance, augmented by the Corporate Governance Board and management structure

The Go-Ahead Group plc Board of Directors Directors’ Report:

Audit Remuneration Nomination Executive Committee Committee Committee Directors

Operating Chief Executive Group Group Group Group Company Executive Team Finance Engineering Health & Energy Boards Group Group Forum Forum Safety Forum Forum

The Go-Ahead Group plc Annual Report and Accounts 2009 45 Directors’ Report: Corporate Governance Corporate Governance continued

C.3.1 –The Audit Committee should be page 42. All the Directors were members Compliance with the made up of at least three independent of the Board throughout the financial year, Non-Executive Directors with the exception of Andrew Allner Combined Code The Audit Committee currently comprises who was appointed with effect from the two Non-Executive Directors. At the The Board confirms that the Company 24 October 2008 to replace Christopher start of the financial year, the Committee has been in full compliance throughout Collins who retired following the Annual comprised the Non-Executive Chairman the financial year with the main principles General Meeting on 23 October 2008. and both Non-Executive Directors, of the Combined Code published in June however, following the appointment The Board holds a minimum of seven 2008 (the ‘Combined Code’).The of Andrew Allner as Chairman of the scheduled meetings a year, with the Company has also complied with all Audit Committee in October 2008, Group Company Secretary in attendance. of the provisions set out in Section 1 the Chairman of the Company now Additional meetings are held as and when of the Combined Code, with the only attends meetings at the invitation required.The Board has delegated specific following exceptions: of the Committee. responsibilities to the Audit, Remuneration and Nomination Committees, each of A.3.3 – One of the independent Non- The Board is of the opinion that the Audit which has terms of reference which detail Executive Directors should be appointed Committee’s composition enables the their authority and duties.The Board has as the Senior Independent Director Board to comply with the applicable main a formal schedule of matters reserved to Following the appointment of Rupert principle of the Combined Code in that it it for decision (see page 47). Pennant-Rea as Senior Independent has formal and transparent arrangements Director in October 2008, Go-Ahead is for considering how the financial reporting The Board also maintains a Board now fully compliant with this provision. and internal control principles are applied Procedures Manual, prepared in response and for maintaining an appropriate to the Combined Code.This includes B.2.1 –The Remuneration Committee should relationship with the Company’s auditors formal procedures for the working of be made up of at least three independent (see Audit Committee report on page 51). the Board and its Committees, delegated Non-Executive Directors and the Company authorities, the timely provision of Chairman should not chair the Committee Summary of compliance appropriate information and the duties The Board has reviewed the terms We have explained above the two and responsibilities of Directors, including of reference of the Remuneration provisions of the Combined Code with standards of conduct and compliance. Committee during the year, including which we do not comply.The Board, having its constitution and chairmanship, and considered these areas diligently during In addition to Board and Committee continues to believe that, due to the the year, is of the view that its composition, meeting attendance, the Non-Executive small size of the Board, it is appropriate and that of its Committees, are appropriate Directors are encouraged to update their for the Committee to comprise of the for the application of good principles of skills, knowledge and familiarity with the Non-Executive Chairman and the two corporate governance within the business Company in order to competently carry Non-Executive Directors.The Board is and relevant for the size and complexity out their responsibility to Go-Ahead’s also of the view that the Chairman of the of the Group.The Board encourages all shareholders. During the year, the Board, who was considered independent on shareholders to put their views to the Chairman of the Board visited each appointment, remains the most appropriate Company and enter into dialogue if they operating company, in addition to person to chair the Remuneration require any further information on the attending most meetings of the Chief Committee. This constitution has been in Company’s position as outlined.This can Executive Group. Andrew Allner’s induction place throughout the financial year, although be done by contacting the Group to the Board also included site visits to Christopher Collins resigned from the Company Secretary at the Company’s each operating company and meetings Committee in October 2008 and was Registered Office. with key advisors (see page 49). Both replaced by Andrew Allner (independent the Chairman and the Non-Executive A copy of the Combined Code published Non-Executive Director). Directors attend the Group’s annual in June 2008 is available on the Financial Senior Management Conference each year, It is the Board’s view that the Reporting Council’s website (www.frc.org. enabling them to review and discuss the Remuneration Committee’s composition uk/corporate/combinedcode/cfm). Group’s strategy with senior managers enables the Board to comply with from across the Group. the applicable main principle of the Combined Code in that it has a formal Board organisation Responsibility for the operation of Group and transparent procedure for developing companies, implementing Group strategy policy on executive remuneration and and structure in accordance with the strategy agreed by for fixing the remuneration packages for the Board and achievement of objectives individual Directors (see the Directors’ The Board and its role is delegated to the Group Chief Executive and Group Finance Director.The Executive Remuneration Report on pages 53 to 58). The Board is made up of the Non- Directors meet regularly with the senior In addition to this, no Director is involved Executive Chairman, two Non-Executive management and staff in the Group’s in deciding his own remuneration, also a Directors (one of whom is the Senior operating companies, both formally via the requirement of the Combined Code. Independent Director) and two Executive monthly board meetings, and less formally Directors (the Group Chief Executive and on a regular basis. the Group Finance Director).The Directors’ biographies can be found on

46 The Go-Ahead Group plc Annual Report and Accounts 2009 meetings held to consider matters arising Schedule of matters reserved 12 Approval of the Board Procedures before the next scheduled Board meeting. for the Board Manual (including the Conflicts of The Chairman and Non-Executive 1 Approval of the Group’s strategy, Interest Policy), the division of Directors periodically meet without objectives, values and overall responsibilities between the the Executive Directors being present. governance framework. Chairman and the Chief Executive and this Schedule of Matters The agenda for each Board meeting is set 2 Approval of the Company’s Annual reserved for the Board. by the Chairman, in consultation with the Report and Accounts, Directors’ Group Chief Executive. Detailed briefing Remuneration Report,Turnbull 13 Responsible for establishing papers in relation to the business to be Statement and HalfYear Reports. Committees of the Board, approving conducted at each meeting are circulated their terms of reference, reviewing to the Board at least one week before each 3 Approval of any interim dividend and their activities and where appropriate, recommendation of the final dividend. meeting and individual Board members have ratifying their decisions. direct access to the Executive Directors and 4 Approval of the Notice of Annual 14 Approval of all minutes of Board the Group Company Secretary should they General Meeting and the resolutions and Committee meetings. wish to receive additional information on to shareholders therein, including any of the items on the agenda. the recommendation for the 15 Responsible for oversight of internal appointment, re-appointment control, risk management, health In accordance with the changes to or removal of the Auditors. and safety matters and corporate the Company’s Articles of Association social responsibility. approved at the 2008 Annual General 5 Approval of all other circulars, listing Meeting, the Board has established robust particulars, and corresponding procedures for ensuring that their powers documentation sent to shareholders. Board meetings to authorise conflicts are operated 6 Approval of any changes to the Directors are expected, wherever possible, effectively and that the procedures Company’s constitutional to attend all Board meetings, relevant are followed. As such, all Board meetings documentation. Committee meetings and the Annual commence with an opportunity for General Meeting.The Board has regular all Directors to declare any potential 7 Approval of the Group’s financial, scheduled meetings throughout the year. conflicts of interest. taxation and treasury management At least one of the meetings each year is Board meetings are structured to allow policies, dividend policy, long term dedicated to reviewing the Group’s strategy. financing, annual budget and open discussion. Key senior managers operating plans. During the year ended 27 June 2009, the and advisors attend relevant parts of Board held seven scheduled meetings.The Board meetings as required to ensure 8 Approval of material capital projects, table below shows Directors’ attendance at that the Board is properly informed investments, acquisitions, franchises scheduled meetings they were eligible to about the current issues facing the and disposals. attend during the financial year.There were business. Minutes of all meetings are 9 Approval of any significant change also a number of additional Board circulated promptly afterwards. in accounting, tax or treasury management policies or practices. Corporate Governance

10 Approval of changes in the capital Meeting attendance structure of the Company or its status as a public limited company listed on Audit Remuneration Nomination Annual Board Committee Committee Committee General Meeting the London Stock Exchange and, in Directors’ Report: Director Act Poss Act Poss Act Poss Act Poss Act Poss particular, the issue or allotment of shares in the Company otherwise Sir Patrick Brown 77 4(1) 4442211 than pursuant to Company-approved Rupert Pennant-Rea 7 7 44 4 4 22 1 1 employee share schemes and share (2) buyback programmes. Andrew Allner 4 4 22 1 1 00 0 0 Christopher Collins (3) 33 22 33 11 11 11 Responsible for the appointment, re-appointment and removal of the Keith Ludeman 77 4(4) 44(4) 42211 Chairman and Directors and the Nick Swift 77 4(4) 4001(4) 111 recommendation to shareholders of their election or re-election Act – Actual Poss – Possible under the Articles of Association; (1) Sir Patrick Brown attended two meetings of the Audit Committee as the Chairman of the Committee prior to October 2008 when he was replaced as Chairman of the Audit Committee by Andrew Allner; since then the appointment and removal of Sir Patrick Brown attended two further meetings of the Audit Committee by invitation. the Company Secretary; ensuring (2) Andrew Allner was appointed to the Board, the Audit Committee, the Remuneration Committee and the that suitable procedures are in Nomination Committee, all with effect from 24 October 2008. place for succession planning and (3) Christopher Collins retired from the Board, the Audit Committee, the Remuneration Committee and the the fees payable to the Non- Nomination Committee, on 23 October 2008, following the 2008 Annual General Meeting. Executive Directors. (4) Keith Ludeman and Nick Swift attended the stated number of meetings by invitation of the relevant Committee. Keith Ludeman’s attendance at Remuneration Committee meetings was on a part meeting basis where discussions were held in respect of his own remuneration.

The Go-Ahead Group plc Annual Report and Accounts 2009 47 Directors’ Report: Corporate Governance Corporate Governance continued

Division of responsibilities Non-Executive Directors It is important that the Board ensures The offices of the Chairman and Group The role of the Non-Executive Directors planned and progressive refreshing of the Chief Executive are held separately.The is to challenge constructively, help develop Board and the balance of experience of Company Chairman is Sir Patrick Brown proposals on strategy, scrutinise the the Non-Executive Directors, in terms of and the Group Chief Executive is Keith performance of management in meeting their length of tenure, is shown in Figure 2. Ludeman.There is a clear division of agreed goals and objectives and monitor responsibility between the Chairman the reporting of performance.The Non- Company Secretary and the Group Chief Executive, with Executive Directors must satisfy themselves The Group Company Secretary is Carolyn the division of key responsibilities, as on the integrity of financial information Sephton, who was appointed in July 2006. agreed by the Board, shown below: and that financial controls and systems of Her biography can be found on page 42. risk management are robust and defensible. She is Secretary to the Board and all of Chairman: They are responsible for ensuring its Committees.The Group Company • leadership of the Board, ensuring its appropriate remuneration and succession Secretary reports to the Company effectiveness in all aspects of its role and planning arrangements are in place in Chairman in her role as Secretary to the setting its agenda, taking into account the relation to the Executive Directors. Board and its Committees. For all other issues relevant to the Group and the company secretariat matters, including concerns of all Board members; Board balance and independence the management of the Group’s non-rail • ensuring a regular evaluation of The Board considers that an appropriate pension arrangements, the Group the performance of the Board balance between the Executive and Non- Company Secretary reports to the and its Committees; Executive Directors is necessary to Group Finance Director. promote shareholders interests and to The Group Company Secretary is • facilitating the effective contribution govern the business effectively. Excluding responsible to the Board for ensuring of Non-Executive Directors; and the Chairman, half of the Board are Non- that Board procedures are complied with, Executive Directors, who bring objectivity • encouraging active engagement by all including ensuring effective communication to the Boardroom as they are not involved members of the Board and constructive flows within the Board and its Committees, in the day to day running of the Company. relations between the Executive and as well as the provision of accurate, timely The Chairman of the Board is also a Non- Non-Executive Directors. and clear information to the Board ahead of Executive role.The balance of Non- Board meetings. She is also responsible for Chief Executive: Executive and Executive Directors is ensuring that the Board is regularly updated • running the day to day business of the shown in Figure 1. Group, within the authorities delegated on matters of corporate governance, by the Board; The Chairman was considered legislative changes and regulatory regimes independent on his appointment and affecting the Group.The appointment and • leading the development of the Group’s the Board considers both of the Non- removal of the Company Secretary is a strategy, including identifying and Executive Directors, Andrew Allner matter for the Board as a whole. assessing opportunities; and Rupert Pennant-Rea, to be robustly All Directors have access to the advice and independent in character and judgement. • ensuring the execution of policies and services of the Group Company Secretary The Board believes that there is sufficient strategy as set by the Board as a whole; and may also take independent professional weight of Non-Executives to be able to advice, at the Group’s expense, if they • ensuring effective communication with effectively counterbalance the executive believe it necessary for the proper shareholders and investors; element.The Board also regularly assesses discharge of their duties as Directors. • day to day leadership of the executive the other commitments of its Non- and senior management team; and Executive Directors and is satisfied that there are no conflicts of duties and that • ensuring that the Chairman is kept the Non-Executives have sufficient time to updated in a timely manner of issues, fulfil their responsibilities to shareholders. events and developments. Senior Independent Director Fig 1: Balance of Non-Executive Fig 2: Non-Executive Directors’ tenure The Senior Independent Director, and Executive Directors Rupert Pennant-Rea, is an important point of contact for shareholders in the 1 event that they have concerns which have 1 not been resolved through the normal 2 1 channels of Group Chief Executive, Group Finance Director or Chairman or for which such contact is inappropriate.The Senior Independent Director also leads a meeting of the Non-Executive Directors at least once a year,without the Chairman present, where 2 the Chairman’s performance is evaluated. 1 Non-Executive Chairman Executive Directors 0-3 years 9+ years Independent Non-Executive Directors 3-6 years

48 The Go-Ahead Group plc Annual Report and Accounts 2009 Re-election of Directors Fig 3: Performance evaluation Board effectiveness At the 2009 Annual General Meeting, in addition to Andrew Allner standing Questionnaire Appointments to the Board for election by the shareholders for the Completed by each Director During the 2007/08 financial year, on the first time following his appointment to Analysed by external consultant announcement of Christopher Collins’ the Board, Sir Patrick Brown and intention to retire following the 2008 Rupert Pennant-Rea will be standing for re-election. Annual General Meeting, the Nomination Interview Committee commenced a selection Sir Patrick Brown joined the Board in process for the appointment of a 1999 as a Non-Executive Director, Each Director met with external consultant replacement Non-Executive Director. becoming Non-Executive Chairman in An external search agency was appointed 2002. He has now served on the Board to assist in the identification of suitable for more than nine years and therefore, Board meeting candidates. After interviewing a number in accordance with the Combined Code, Findings presented and discussed of potential candidates the Committee submits himself for annual re-election. at Board meeting unanimously proposed, and the Board The Board recognise his industry-wide unanimously accepted, the appointment experience and long-standing contribution of Andrew Allner with effect from to the Board. Furthermore, Sir Patrick’s 24 October 2008. performance evaluation reaffirms his Relations with shareholders The Group recognises the importance continued effectiveness in his leadership of Andrew is a Chartered Accountant with of regular communication with all of its the Board, Remuneration and Nomination significant Executive and Non-Executive shareholders.The reporting calendar is Committees and the Board unanimously experience. Following his appointment dominated by the publication of the annual believe that he should be re-elected for a to the Board, he was also appointed as and half year results each year and the further year. Chairman of the Audit Committee, due interim management and trading statements to his extensive recent financial experience. Rupert Pennant-Rea became a Non- where the Board provides shareholders He is also a member of the Nomination Executive Director of the Board in 2002 with a clear and balanced understanding and Remuneration Committees. and was appointed Senior Independent of the Group’s operational performance, A full, formal and tailored induction was Director in 2008. He was last re-elected its financial results and prospects. by the shareholders at the 2006 Annual arranged for Andrew prior to him joining The Executive Directors meet with General Meeting, and therefore, in accordance the Board.This included a full briefing of his the Group’s major shareholders with the Combined Code, submits himself for responsibilities and obligations under law, (both institutional investors and private re-election. Following the Board’s formal regulation and corporate governance shareholders with significant holdings) performance evaluation, as well as assessment guidelines. Andrew visited each operating after the announcement of annual and against independence criteria and potential company, where he met with local senior half year results and at other times as conflicts of interest, the Chairman can confirm management, as well as meeting with the appropriate, including site visits and that Rupert’s performance continues to be Group Chief Executive and key Group management presentations such as that

effective and he demonstrates commitment Corporate Governance personnel. Specialist support was provided which recently took place with regard to to the role. He is well known to investors from the Group Finance Director and the the retention of the Southern franchise. and financial professionals and available to internal and external auditors on particular In addition to the meetings with Executive shareholders in his role as Senior Independent areas in relation to the Audit Committee. Directors, institutional shareholders are Director as required.The Board, therefore, offered the opportunity of meetings with As is the case for all Go-Ahead’s Non- recommends unanimously his re-election Directors’ Report: the Non-Executive Directors.Where Executive Directors,Andrew has not been for a further term. appointed for a specified term. However,in appropriate, for example in the event that accordance with the Combined Code, he Performance evaluation the Board proposes to make significant changes to Directors’ remuneration will stand for election by the shareholders The Board has adopted a procedure for arrangements, there will also be at the 2009 Annual General Meeting and the evaluation of the performance of the consultation with major shareholders. for re-election at intervals of no more than Board, its Committees, individual Directors The institutional shareholders have further three years thereafter.Since joining the and the Group Company Secretary, as opportunities to make their views known Board,Andrew has demonstrated his shown in Figure 3. commitment, making a well qualified and through follow up interviews by the effective contribution.As such, the Board This evaluation, which is led by the Chairman, Company’s brokers which are then recommends unanimously to shareholders is carried out by an external consultant on an documented and circulated to the Board. that they elect Andrew Allner as a Non- annual basis.The Non-Executive Directors, The Executive Directors also provide Executive Director at the 2009 Annual led by the Senior Independent Director,were feedback to the Board following General Meeting. responsible for the performance evaluation presentations to investors. of the Chairman, taking into account the The principal communication with private views of the Executive Directors. No shareholders is through the Annual Report significant issues were raised during this and the Annual General Meeting, which is year’s evaluation. attended by all Directors.All shareholders are invited to the Annual General Meeting

The Go-Ahead Group plc Annual Report and Accounts 2009 49 Directors’ Report: Corporate Governance Corporate Governance continued

which provides an opportunity for the work of the Audit Committee which exists clear ownership of risk identification shareholders to develop their understanding has delegated responsibility from the and mitigation at local level. Because of the of the Company and ask questions on the Board for reviewing the effectiveness of organisational structure, risk management matters put to the meeting (as detailed in the Company’s risk management and information can also be shared across the the Notice of Meeting sent to registered internal control systems. Group as well as reported upwards. shareholders in advance of the meeting). During the year, the Group continued to Reporting There is also the opportunity to meet strengthen its ongoing processes for risk In accordance with the Group’s Policy informally with the Directors before and management across the Group, with a after the meeting.The Board encourages and Procedures Manual, defined and number of improvements to the overall all shareholders to attend the Annual comprehensive reporting obligations risk management strategy, infrastructure General Meeting. placed on operating companies are and process to ensure that the Group’s supported by monthly operating company Ordinary business which is raised for risk management framework is embedded board meetings with the Executive consideration at the Annual General throughout the business and is part of Directors. Key management processes, Meeting each year is: performance reporting. including planning, project appraisal and performance management, ensure that the • to receive the financial statements for In particular, and as part of the annual impact of key risks are addressed. Controls the year, together with the Directors’ Turnbull review, there has been a move and mitigations are regularly monitored. and Auditors’ Reports; away from a prescriptive mechanism based • to approve the final dividend; around each operating company evaluating Risk management process risks against criteria provided in detailed The risk management process is clearly • to elect and re-elect members of questionnaires, to one that focuses on the defined and includes top-down risk the Board; evaluation of key risks to each operating assessment at Group level and bottom-up • to approve the Directors’ company’s own objectives and the risk assessments at operating company Remuneration Report; efficiency of controls in place. Reported level. A bespoke risk categorisation model risks are then further assessed for exists which is used across the Group to • to re-appoint the Company’s Auditor; and materiality in the context of the whole ensure that risks are identified and • to give the Directors the authority to Group and considered by the Audit reported on a consistent basis and a determine the Auditors’ remuneration. Committee and Board, in addition to process is in place to aggregate key risks being used to develop part of the on a Group-wide basis. Ongoing risk Other matters included on the agenda internal audit plan for the year ahead. identification, mitigation and reduction for the Annual General Meeting vary plans will be reported at each main Board The principal risks and uncertainties facing from year to year in accordance with meeting, in addition to quarterly reporting the Group are discussed on pages 19 and 20. the requirements of the Company. to the Audit Committee. The key features of the internal control The Company maintains a comprehensive Group internal audit systems, which have been established to website that provides, among other things, The internal audit function has been safeguard both the shareholders’ investment access to the annual and half year reports, outsourced to PricewaterhouseCoopers. and the assets of the Group, are described copies of the presentations used at road The internal audit function provides as follows: shows and regulatory news items, as assurance over the effectiveness of key well as share price and general Strategy controls as identified as part of the risk shareholder information. The Board has developed an understanding assessment process. of its risk appetite which enables strong The Group’s Company Secretariat, based In addition to meetings with local leadership, strategic objective setting, at the Company’s Registered Office in management, the internal auditors report decision-making and control. Business Newcastle, responds to a wide range on a monthly basis to the Executive planning encompasses a structured risk of enquiries from shareholders that are Directors, and also to the Audit assessment with major acquisitions, received via a variety of media, including Committee on a regular basis. the email communication system available investments, projects and partnerships all on the Company’s website. entered into with a recognition of an The Directors acknowledge their appropriate risk-reward balance. responsibility for establishing and maintaining the Group’s system of internal control and Internal control and risk management Group structure for ensuring its effectiveness.As with any The Group has established an ongoing With clear leadership from the Board and system of internal controls, the policies and process of identifying, evaluating and Audit Committee, the Executive Directors processes in place throughout the Group are managing the significant risks facing the are actively involved in establishing and designed to manage rather than eliminate the Group.This has been in place during the communicating the risk strategy and policy risk of failure to achieve the Group’s strategic financial year ended 27 June 2009 and up of the Group.The Group’s decentralised objectives, and can only provide reasonable, to the date of the approval of this report. organisation structure, with defined limits and not absolute, assurance against material of responsibility and authority, enables the The Board as a whole takes responsibility misstatement or loss. for the disclosures on the effectiveness of Executive Directors to play an active role the Group’s internal control processes and in helping the businesses to assess risk and confirms that it has established the encourages open communication on risk procedures necessary to comply with the matters. Risk management is an integral Turnbull Report.The Board is supported by part of day-to-day operations where there

50 The Go-Ahead Group plc Annual Report and Accounts 2009 While a number of minor control Responsibilities The Committee advises the Board weaknesses were identified during the The responsibilities of the on the appointment of the external year as a result of the Group’s risk Audit Committee are outlined in auditors and, during the year, management processes, these are being summary below: considered their remuneration both addressed and monitored.There have for audit and non-audit work. In order • reviewing the effectiveness of the been no material weaknesses that to ensure auditor objectivity and Group’s financial reporting, internal require specific disclosure in the Group’s independence, the provision of certain control policies and procedures for Annual Report. non-audit services (including accounting the identification, assessment and and tax services if the fees exceed reporting of risk; Disclosure andTransparency Rules a level set by the Audit Committee) Disclosures required under DTR 7.2.6 • monitoring the role and effectiveness are subject to approval by the Audit can be found on pages 59 and 60. of the internal auditors, including Committee.The Audit Committee has approving their appointment; specified that the external audit firm may not provide certain categories • considering and making Committees of of non-audit services to the Group recommendations to the Board as detailed in the Committee’s terms the Board on the appointment of the of reference. external auditors; The Board has established a number of The Audit Committee keeps under • reviewing the relationship with the Committees to deal with specific review the cost effectiveness and the external auditors, including their aspects of the Group’s affairs.The independence and objectivity of the terms of engagement, fees, responsibilities of each Committee are external and internal auditors. During independence, expertise, resources determined by its terms of reference the financial year, the audit fees of the and qualifications; which are available on the Company’s external auditor were £0.7m and their website or upon request from the • monitoring the integrity of the fees for non-audit work were £0.4m. Group Company Secretary. Group’s financial statements; and In comparison, non-audit fees paid to other audit firms during the financial • reviewing significant financial reporting year were £2.6m. issues and judgements. During the year, the Committee Audit Committee The Company’s whistleblowing carried out a tender for the provision procedures, which are reviewed on report of internal audit services to the Group. an annual basis, allow employees to Following a review of a number of “The Committee is raise concerns confidentially and for the potential providers, which included responsible for reviewing independent investigation of such matters. interviews and presentations, the the effectiveness of the The Committee is responsible for Committee proposed and the Board Company’s financial overseeing any necessary follow up action. agreed with the recommendation to reporting.” Under the Combined Code at least appoint PricewaterhouseCoopers as Andrew Allner

one member of the Committee should the Group’s new provider for internal Corporate Governance (Audit Committee Chairman) have recent and relevant financial audit services.This appointment was experience. As a chartered accountant, effective from 28 June 2009.The Members: and previously the Group Finance Committee will monitor and review Andrew Allner – Committee Chairman Director of another listed company their delivery and effectiveness on an

(Non-Executive Director) between 2004 and 2007, Andrew ongoing basis. Directors’ Report: Allner fully satisfies this requirement. Rupert Pennant-Rea During the year the Committee met (Non-Executive Director) Activities four times and, as part of the annual Board evaluation, also undertook a Committee Secretary During the year, the Committee specific evaluation of its effectiveness. Carolyn Sephton provided a forum for reporting by the (Group Company Secretary) Group’s external and internal auditors, At least once a year, the Non-Executive including health and safety auditors.The Directors meet with the external Meetings also regularly attended, Committee also received and reviewed auditors, without the Executive by invitation, by: reports from management relating to Directors being present. Sir Patrick Brown the annual and half year profit figures (Company Chairman) and statements, monitored the controls Keith Ludeman in force and reviewed the key (Group Chief Executive) judgemental areas at the half year and year end to ensure the integrity of the Nick Swift financial information reported to (Group Finance Director) shareholders. Additionally, the Internal Auditors representative(s) Committee considered the risk management processes and controls, External Auditors representative(s) as outlined on page 50.

The Go-Ahead Group plc Annual Report and Accounts 2009 51 Directors’ Report: Corporate Governance Corporate Governance continued

Company and best practice in corporate Responsibilities Nomination governance from time to time. The Remuneration Committee has Committee report As reported in the 2008 Annual responsibility for determining the Report, the Committee, in consultation remuneration, contract terms and other “The Committee with an external search consultancy, benefits of the Executive Directors, proposed to the Board the met to discuss the appointment of including performance-related bonus appointment of Andrew a Non-Executive Director following and share schemes. Allner during the year.” Christopher Collin’s stated intention to Activities Sir Patrick Brown retire from the Board at the conclusion (Nomination Committee Chairman) of the 2008 Annual General Meeting. During the year the Committee met After interviewing a number of four times to consider bonus payments potential candidates against objective and salary reviews for the Executive Directors, as well as performance Members: criteria, the Nomination Committee proposed, and the Board unanimously conditions and awards under the Long Sir Patrick Brown – Committee Chairman Term Incentive Plan.The Committee (Non-Executive Chairman) accepted, that Andrew Allner be appointed as Non-Executive Director received a report from the Chief Rupert Pennant-Rea and Chairman of the Audit Committee Executive on salary and bonus (Non-Executive Director) with effect from 24 October 2008. arrangements for the senior management of each operating Andrew Allner During the year the Committee met company and senior Group personnel. (Non-Executive Director) twice (not including interviews with Keith Ludeman potential candidates) and, as part of the (Group Chief Executive) annual Board evaluation, also undertook a specific evaluation of its effectiveness. Committee Secretary: Carolyn Sephton (Group Company Secretary) Remuneration Responsibilities Committee report The majority of members of the “The Committee meets Nomination Committee are Non- regularly to determine the Executive Directors.The responsibilities remuneration and other of the Committee are outlined in benefits of the Executive summary below: Directors.” • reviewing regularly the structure, size Sir Patrick Brown and composition of the Board and (Remuneration Committee Chairman) making recommendations to the Board regarding any desired changes; Members: • evaluating the balance of skills, Sir Patrick Brown – Committee Chairman knowledge and experience on (Non-Executive Chairman) the Board; Rupert Pennant-Rea • identifying and nominating for the (Non-Executive Director) Board’s approval suitable candidates Andrew Allner to fill vacancies for Board (Non-Executive Director) appointments; Committee Secretary • planning for the orderly succession Carolyn Sephton of new Directors to the Board; and (Group Company Secretary) • recommending to the Board the Meetings also regularly attended, membership and chairmanship of the by invitation, by: Audit and Remuneration Committees. Keith Ludeman (Group Chief Executive) Activities The Nomination Committee meets Full details on the activities and the as needed to deal with necessary responsibilities of the Remuneration assignments and is responsible for Committee can be found in the leading the process of identifying Directors’ Remuneration Report candidates for Board appointment and on pages 53 to 58.The following is a making recommendations to the Board high-level summary of the Committee’s in accordance with the needs of the responsibilities and activities.

52 The Go-Ahead Group plc Annual Report and Accounts 2009 Directors’ Report: Corporate Governance Directors’ Remuneration Report

the Chairman of the Board is the Directors’ proper person to be Chairman of Executive Directors’ remuneration report the Remuneration Committee.The remuneration policy Chairman is not present when his own remuneration is discussed and decided, This report has been prepared in The overall policy adopted by the as is the case for all Directors. accordance with the requirements Remuneration Committee is to ensure of Schedule 8 of the Large and Medium- Prior to his resignation on 23 October that the Group is paying sufficient sized Companies and Groups (Accounts 2008, Christopher Collins was a to attract, retain and motivate high and Reports) Regulations 2008 and has member of the Committee.Andrew quality Executive Directors capable been approved by the Remuneration Allner became a member of the of achieving the Group’s objectives. Committee and the Board. Ernst & Committee following his appointment The Committee considers Executive Young LLP have audited certain parts to the Board on 24 October 2008. Directors’ cash bonuses, which are of this report.Where disclosures have dependent on the achievement been subject to audit, they are indicated Support to the Committee of safety, corporate governance and as such.The auditors’ opinion is included The Committee has appointed financial targets in the relevant financial in their report on page 101. Watson Wyatt Limited, independent year.The Committee is informed of remuneration specialists, to advise the pay, incentives and benefits packages The Board supports the principles on all aspects of Board remuneration. of senior managers in the Group and of good corporate governance relating In addition to advising the Committee, its operating companies. to Directors’ remuneration and, in Watson Wyatt Limited are also preparing this remuneration report, the In considering the Executive Directors’ consulting actuaries toThe Go-Ahead Remuneration Committee has followed remuneration, the Committee follows Group Pension Plan and advise the provisions of the Combined Code. the provisions of the Combined the Company on various pensions Code.The pay practices of its major An ordinary resolution to receive and related issues. commercial competitors are also approve this Directors’ Remuneration The Committee receives taken into account, in addition to other Report will be proposed at the recommendations from the Group factors specific to the Group and to Company’s Annual General Meeting Chief Executive on Executive Directors’ each Director and his role and to the to be held on 29 October 2009. remuneration, other than his own. wider pay market in the FTSE 250. Role of the Committee The Committee recognises that, for Remuneration this Group’s business, shareholder The key responsibilities and activities value is dependent on factors not Committee of the Committee during the all necessarily appearing within the year included: published financial statements, although Meetings • determining the overall remuneration their effect on later financial statements Details of the members, the number policy (including the balance between can be significant. Leading these of meetings and attendees in the year fixed and performance-related corporate governance issues are safety, are shown on page 47. elements of pay); control of risk and other executive Corporate Governance A review of the terms of reference actions of a strategic nature that • determining the remuneration may take several accounting periods and operation of the Remuneration and conditions of employment Committee, including its constitution to show changes in shareholder of the Executive Directors; value. Executives in the Group and chairmanship, was undertaken Directors’ Report: during the year.The terms of reference • determining the fees of the Chairman; are encouraged to take corporate are available from the Company’s governance and strategy extremely • reviewing the operation and seriously and always to consider the website or upon request from the continued appropriateness of Group Company Secretary. long term implications of their decision the Long Term Incentive Plan; making.The Remuneration Committee It is the Board’s view that the • reviewing the terms of reference for has regard to these factors, as well Remuneration Committee’s composition the Remuneration Committee; and as the annual reported financial enables the Board to comply with the statements, in arriving at the Directors’ main principles of the Combined Code • reviewing the remuneration of senior overall remuneration and in considering in respect of remuneration.Although managers within the Group. the mix between fixed and variable pay. the Committee is not made up of at Acceptance by the Board of There are currently three main least three independent Non-Executive Remuneration Committee proposals elements to the Executive Directors’ Directors as required by the Combined remuneration package: basic salary, Code, the Board continues to believe During the relevant period, the annual cash bonus and the Long Term that, due to the small size of the Board, Committee’s recommendations were Incentive Plan (LTIP).A substantial it is appropriate for the Committee to all accepted unanimously by the Board proportion of the Executive Directors’ comprise the Non-Executive Chairman and implemented without amendment. pay is performance related.The chart and the two Non-Executive Directors. on page 54 shows the balance between The Board also continues to believe fixed and performance related pay that, in the circumstances of this Group, at maximum performance levels.

The Go-Ahead Group plc Annual Report and Accounts 2009 53 Directors’ Report: Corporate Governance Directors’ Remuneration Report continued

Fixed and performance related pay at of 63.6% of basic salary to the Group the deferral period for any reason maximum performance levels Chief Executive and the Group Finance other than redundancy, retirement or Director.A maximum bonus of 20% ill-health.The Committee considers was awarded for the achievement it important for a proportion of the

29% of safety and corporate governance discretionary bonus to be taken in targets.A further maximum of 10% was the form of shares as this aligns the 42% earned after achieving 95% of budgeted Executives’ longer term interests with profits. Out of a potential maximum those of the Group’s shareholders. of 70% of bonus payable on the achievement of 115% of budget, LongTerm Incentive Plan (LTIP) 33.6% of bonus was earned after Following its approval by shareholders achieving 104.6% of budget.The bonus in October 2005, the LTIP replaced 29% is non-pensionable and is paid in cash. the Group’s deferred share bonus plan. 27 June 2009 28 June 2008 Since then it has been the Group’s sole Basic salary (excluding Value of LTIP Cash bonus £’000 £’000 long term share incentive plan for pension contributions shares awarded Keith Ludeman 318 338 and beneÞts) senior executives. Performance related Nick Swift 175 186 Under the LTIP,participants are granted cash bonus awards whereby they are entitled to While the fundamental structure acquire a specified number of ordinary of the cash bonus targets remains Maximum performance assumes shares in the Company if, and to the unchanged for the new financial year, extent that, performance conditions achievement of maximum cash the Committee has resolved that an are met over a three year period.The bonus and full vesting of shares additional 15% of basic salary will be rules of the LTIP include, amongst under the LTIP rules. achievable in relation to specific other provisions, limits on the number strategic targets.The Executive Basic salary of shares over which a participant can Directors will therefore be eligible be granted awards in any financial year Each of the Executive Directors is paid to earn an annual discretionary cash (the ‘individual limit’).This limit (which is an annual basic salary which is reviewed bonus of up to 115% of basic annual determined by reference to the average in April each year. Salaries may be salary for the year ending 3 July 2010. closing mid-market price of the shares increased beyond inflation if justified In subsequent years, the maximum cash which are the subject of the awards on by reference to the performance of the bonus potential will revert to 100%. individual and if there is clear evidence each dealing day falling in the four week that the existing salaries are not Additional discretionary bonus period ending with the dealing day competitive. In view of the current Following the year ended 27 June immediately preceding their date of wider economic conditions, the 2009, and in recognition of the grant) is 150% of the participant’s basic Committee decided that no increases significant achievement in retaining the salary.While the rules of the LTIP allow in basic salary should be awarded to Southern franchise, the Remuneration this limit to be increased up to 200% the Executive Directors and senior Committee exercised their discretion of salary in exceptional circumstances, management at the last annual and resolved to award a discretionary such as the recruitment of a senior review in April 2009. bonus to the Group Chief Executive executive, no awards have been 1 April 2009 1 April 2008 and the Group Finance Director.The made in excess of 150%. Basic salary £’000 pa £’000 pa Committee felt that it was necessary Keith Ludeman 500 500 The first awards were made in March to recognise the importance of the 2006. Since then awards have been Nick Swift 275 275 retention of the franchise to the Group made on an annual basis to the Group outside of the normal annual bonus Annual cash bonus Chief Executive and Group Finance structure, with a share element which Director only, and on one occasion Each of the Executive Directors is also will provide long term alignment with a senior director who has now left eligible to earn an annual discretionary shareholders as the financial benefits the Group. cash bonus of up to 100% of basic of the retention of the franchise flow annual salary.The bonus is paid in through to the financial results. Current performance conditions November each year, on the basis Out of a total discretionary award of When the LTIP was originally of achievement of challenging financial £100,000 each payable to the Group introduced, it was a minimum and non-financial targets in the financial Chief Executive and the Group Finance requirement that the Group should year ended in the previous June/July. Director, 50% (£50,000 each) will be achieve an increase in adjusted earnings The targets are notified to the Executive payable in November 2009 as an per share (EPS) over a three year Directors before the start of the additional cash bonus.The remaining period of not less than the increase year in question and are on a basis 50% (£50,000 each) will be awarded in retail prices index (RPI) plus 3% per designed to introduce stretch into after the 2009 Annual General Meeting year (the ‘minimum EPS hurdle’). If the the performance assessment. as deferred shares, subject to a holding hurdle was not met, no part of the For the year ended 27 June 2009, the provision of three years.The deferred awards would vest (and, accordingly, Remuneration Committee proposed, share awards will lapse if the relevant participants would not acquire any and the Board approved, bonus awards individual leaves the Company during shares). If the hurdle was met, the

54 The Go-Ahead Group plc Annual Report and Accounts 2009 number of shares that participants comprised within the two comparator shareholder value and that awards could acquire depended upon a groups i.e. theTransport Sector will vest in full only if exceptional comparison of the Group’s total Comparator Group and the performance has been achieved. shareholder return (TSR) with theTSR constituents of the FTSE 250 Index of companies within two comparator (excluding investment trusts), specifically: Share bonus plan Until 2005, the Executive Directors’ groups.These awards were granted • one half of the award requires a share bonus plan was used to make in relation to financial years up to and comparison of the Group’s TSR with share based awards to Executive including the 2007/08 financial year. the TSR of other companies in the Directors and one senior director Transport sector; this is a highly Following consultation last year, the in the Group.This has now been relevant but small peer group awards granted in relation to the replaced by the LTIP. 2008/09 financial year were changed comprising five companies only, and the performance conditions were including the Group; and The final grant of shares under the share bonus plan was made in relation split, such that, only half of the award • the other half of the award requires to the year ended 2 July 2005.The would still be linked to comparativeTSR a comparison of the Group’s TSR final outstanding award from this grant against the two existing comparator with the TSR of the companies vested on 1 December 2008 when groups with the same conditions as (excluding investment trusts) title for 9,569 shares transferred to previously and, the other half would that make up the FTSE 250 index. be linked to real growth in EPS. the Group Chief Executive. If the Group’s TSR is equal to the TSR There are no further shares held Remuneration Committee review of a company that would fall mid-way under the rules of this plan. A further review was undertaken by between the TSR of the lowest and the Committee this year looking at highest comparator companies in the Savings related share option the appropriateness of the targets for Transport sector, 25% of that portion scheme and share incentive plan of theTSR-related Award will vest.The future awards in the current economic The Group operates a savings related extent to which that portion of the situation. In undertaking their review, share option scheme and a share TSR-related Award vests will increase, the Committee sought advice from incentive plan.The Executive Directors on a straight-line basis, to 100% the Watson Wyatt Limited. are eligible to participate in either closer that the Group’s TSR is to the of these arrangements, under terms The Committee remains of the opinion TSR of a company that would fall identical to any other participating that the decision last year to increase three-quarters of the way between Group employee, if they so choose, the emphasis on EPS was appropriate the TSR of the lowest and the highest and any such participation would at that time and was valid in principle. comparator companies in the However, the Committee has, in not be separately regulated by the Transport sector. considering the performance conditions Remuneration Committee. that should apply to the grant of awards Similarly, if the Group’s TSR is equal to There are no other share option or for the 2009/10 financial year, reached the TSR of the median comparator long term incentive schemes available the view that it is inappropriate to company in the FTSE 250 index, 25% to the Executive Directors. use an EPS target, given the current of that portion of the TSR-related Corporate Governance economic uncertainty, and that the Award will vest.The extent to which Other benefits most appropriate way to set a suitably that portion of the TSR-related Award The Group does not allocate company stretching but motivating target is vests will increase, on a straight-line cars to any employees, including the to align with returns to shareholders, basis, to 100% the closer that the Executive Directors. Instead, employees namely TSR. Group’s TSR is to the TSR of the Directors’ Report: who would have been allocated a company that is ranked at the company car as part of their benefits, Performance conditions for 2009/10 lower end of the upper quartile. or to accomplish their work, are given The Committee intends to continue The calculation of these performance a car replacement allowance. Such to use the LTIP as the sole form conditions, with the exception of the allowances are non-pensionable. of long-term share incentive for the EPS hurdle which no longer applies Executive Directors. to any part of the award, is unchanged Pension funds However, the Committee proposes to from the calculation of the current The Executive Directors are entitled alter the performance conditions that performance conditions. to become members of The Go-Ahead will apply to the grant of awards under Group Pension Plan, a registered It is the Committee’s view that the the LTIP for the 2009/10 financial pension plan. changes to the LTIP will ensure that year and subsequent years in order senior executives continue to be Following his accession to Group Chief to increase the motivational effect rewarded if they achieve substantial Executive in July 2006, Keith Ludeman on participants and to maintain improvements in the Group’s opted out of The Go-Ahead Group the alignment between participants underlying financial performance Pension Plan with effect from 1 and shareholders. and perform well relative to other December 2006, but retains a salary It is proposed that the extent to which companies in the FTSE 250.The link in relation to his accrued benefit awards will vest will be based solely on Committee considers that these which is provided separately through a comparison of the Group’s three-year performance conditions are relevant, an individual non-registered unfunded TSR performance with the companies challenging and designed to enhance pension arrangement. In lieu of future

The Go-Ahead Group plc Annual Report and Accounts 2009 55 Directors’ Report: Corporate Governance Directors’ Remuneration Report continued

benefits, he receives a non-pensionable The Non-Executive Directors and salary supplement.This salary the Chairman do not hold any share supplement is not included with basic options and do not participate in the salary for the purposes of calculating Long Term Incentive Plan or any of the performance related cash bonus or Group’s pension plan arrangements. LTIP awards. The members of the Remuneration Committee have no personal interests The Group Finance Director, Nick Swift, in the matters to be decided by the is a member of The Go-Ahead Group Committee other than as shareholders, Pension Plan. and have no conflicts of interest arising Shareholding guidelines from cross-directorships. As part of the review of remuneration policy in 2008, shareholder guidelines Directors’ contracts were introduced for the Executive Directors.These provide for the It is the Group’s policy to restrict the Executive Directors to build up a notice periods for Executive Directors personal shareholding equal to one to a maximum of twelve months. Both year’s basic salary over a period of five Executive Directors have rolling service years. At the end of the financial year, contracts.There are no provisions the Group Chief Executive and the for special pension benefits, such Group Finance Director respectively as beneficial early retirement terms. held 26,012 and 9,088 shares. Based on Other than the notice periods specified the closing share price on 27 June 2009, below, the Executive Directors are this equates to 64% and 41% of their not due any contractual compensation respective basic salaries held in shares payments in the event of loss of office. of the Company. Each Non-Executive Director has a letter of appointment.There is no Non-Executive fixed term of appointment, however, Directors’ all Directors are subject to rotation remuneration and re-election in accordance with the Company’s Articles of Association and the Combined Code. Apart from salary The remuneration of the Non- and benefits in relation to the notice Executive Directors is a matter for the period for the relevant appointment, Chairman and the Executive members the Non-Executive Directors’ terms of the Board, giving due regard to of appointment contain no entitlement the required time commitment and to compensation for early termination. responsibilities.The Remuneration These letters of appointment Committee considers the remuneration are available for inspection at the of the Chairman in his absence. Company’s Registered Office during The fees paid to the Chairman and normal business hours and will also Non-Executive Directors are reviewed be available for inspection prior to and by the Board annually in April with during the Annual General Meeting. consideration given to surveys of fees paid to Non-Executive Directors of comparable companies. Following the annual review in April 2009 there was no increase in fees. Details of the fees paid to the Chairman and Non- Contract and notice periods Executive Directors are below. 1 April 2009 1 April 2008 Director Date of service contract Notice period Fees £’000 pa £’000 pa Sir Patrick Brown February 1999 6 months Sir Patrick Brown 150 150 Rupert Pennant-Rea October 2002 6 months Rupert Pennant-Rea 44 44 Andrew Allner October 2008 6 months Andrew Allner (1) 44 – Christopher Collins (1) April 2005 6 months Christopher Collins (2) – 44 Keith Ludeman December 2006 1 year (1) Appointment effective on 24 October 2008. Nick Swift July 2007 1 year (2) Resigned on 23 October 2008. (1) Resigned on 23 October 2008

56 The Go-Ahead Group plc Annual Report and Accounts 2009 Performance graph

The following graph shows a comparison of The Go-Ahead Group plc total cumulative shareholder return against that achieved by our peers and the FTSE 250 Index for the last five years to 30 June 2009. In assessing the performance of the Group’s TSR the Board believes the comparator groups it has chosen represent an appropriate and fair benchmark upon which to measure the Group’s performance for this purpose.

Total shareholder return (rebased to 100)

350

300

250

200

150

100

0 2004 2005 2006 2007 2008 2009

Go-Ahead TSR Peer Group TSR(1) FTSE 250 TSR

(1) TSR peer group consists of Arriva plc, FirstGroup plc, National Express Group plc and Stagecoach Group plc.

This graph is included to meet the relevant legislative requirements and is not directly relevant to the performance criteria used for the Company’s LTIP.However, the indices used were selected as the Directors believe that they are the most appropriate and representative indices against which to measure the Company’s performance, both in terms of the size of the Company and the nature of its business. Audited information

Emoluments and compensation

Non- Corporate Governance pensionable Performance Car Total salary related replacement Benefits in (exc. Pension Salary/fees supplement cash bonus allowance kind (3) and LTIP) 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Sir Patrick Brown 150 143 ––––––––150 143 Directors’ Report: Rupert Pennant-Rea 44 42 ––––––––44 42 Andrew Allner (1) 30 –––––––––30 – Christopher Collins (2) 15 42 ––––––––15 42 Keith Ludeman 500 478 75 72 318 338 19 18 4 4 916 910 Nick Swift 275 246 ––175 186 17 16 3 3 470 451 Total 1,014 951 75 72 493 524 36 34 771,625 1,588

(1) Appointment effective on 24 October 2008. (2) Resigned on 23 October 2008. (3) The only benefits in kind received during the financial year was the provision of Private Medical Insurance for the Executive Directors, their spouses and their children under the age of 24.

During the financial year, no sums that were chargeable to UK income tax were payable to any Director of the Company by way of an expense allowance in respect of qualifying services. Directors’ share options No share options are held by or have been granted to the Executive Directors during the financial year.

The Go-Ahead Group plc Annual Report and Accounts 2009 57 Directors’ Report: Corporate Governance Directors’ Remuneration Report continued

LongTerm Incentive Plan

Balance at Awards lapsed Awards granted Share price Awards vested Balance at 28 June 2008 in year in year at date in year Share price at 27 June 2009 End of period when Award date No. No. No. of award No. date of vesting No. conditions must be met Keith Ludeman (1) 9 March 06 17,791 13,806 – £18.22 3,985 £12.40 0 28 June 2008 Keith Ludeman (2) 11 Sep 06 24,514 –––––24,514 27 June 2009 Keith Ludeman (3) 10 Sep 07 17,974 –––––17,974 3 July 2010 Nick Swift (3) 10 Sep 07 9,556 –––––9,556 3 July 2010 Keith Ludeman (4) 24 Oct 08 ––46,908 £14.58 ––46,908 2 July 2011 Nick Swift (4) 24 Oct 08 ––25,799 £14.58 ––25,799 2 July 2011

(1) During the year, the Committee considered the extent to which the awards granted to Keith Ludeman in March 2006 should vest.Taking advice from Watson Wyatt Limited on the extent to whichTSR and EPS tests had been met, the Committee determined that 3,985 of the shares should be allowed to vest in accordance with the rules of the LTIP. (2) The awards granted on 11 September 2006 will vest following a period of three years from the award date and will be dependent upon the satisfaction of the initial performance conditions as set out on page 54, covering the period commencing with the start of the 2006/07 financial period and ending with the end of the 2008/09 financial period. (3) The awards granted on 10 September 2007 will vest following a period of three years from the award date and will be dependent upon the satisfaction of the initial performance conditions as set out on page 54, covering the period commencing with the start of the 2007/08 financial period and ending with the end of the 2009/10 financial period. (4) The awards granted on 24 October 2008 will vest following a period of three years from the award date and will be dependent upon the satisfaction of the current performance conditions as set out on page 55, covering the period commencing with the start of the 2008/09 financial period and ending with the end of the 2010/11 financial period. Directors’ pension funds The following disclosures are included to meet the relevant legislative requirements in relation to the Directors’ final salary pension benefits:

Accrued pensions

Keith Ludeman Nick Swift £ ‘000 p.a. £ ‘000 p.a. Accrued pension at 28 June 2008 272 4 Accrued pension at 27 June 2009 285 8 Increase in the accrued pension during the year 13 4 Increase in the accrued pension during the year in excess of inflation -1 4

Transfer values and notional contributions

Keith Ludeman Nick Swift £’000 £’000 Transfer value of the accrued pension at 28 June 2008 2,776 16 Transfer value of the accrued pension at 27 June 2009 3,703 49 Directors’ notional contributions during the year – 22 Increase in transfer value over the year net of Directors’ notional contributions 927 11 Transfer value of the increase in the accrued pension in excess of inflation and Directors’ notional contributions -12 5

Notes (1) In light of changes to legislation and market conditions and upon taking actuarial advice, the Trustees of The Go-Ahead Group Pension Plan reviewed and amended the basis for the calculation of cash equivalent transfer values with effect from 1 October 2008.The transfer values at the year end have been calculated in accordance with this basis. (2) Keith Ludeman and Nick Swift were members of the Group’s approved final salary pension plan during the financial year. In addition, part of Keith Ludeman’s benefit is provided separately through an individual unapproved unfunded pension arrangement.The figures in the table above relate to Keith Ludeman’s benefits in both the approved and unapproved arrangements. (3) Keith Ludeman opted out of the Group’s approved final salary arrangement from 1 December 2006 but retains a salary link in relation to his accrued benefit. In lieu of future pension benefits, Keith Ludeman receives a non-pensionable salary supplement of 15% of Basic Salary which amounted to £75,000 during the financial year. (4) Nick Swift participated in the pensions salary sacrifice arrangement operated by the Group during the year.The notional contributions shown in the table above are those he would have paid had he not participated in the salary sacrifice arrangement.

For and on behalf of the Board

Sir Patrick Brown, Chairman of Remuneration Committee 2 September 2009

58 The Go-Ahead Group plc Annual Report and Accounts 2009 Directors’ Report: Corporate Governance Other statutory information

Other statutory Directors’ interests 2009 2008 information No. No. Sir Patrick Brown Beneficial 10,149 10,149 The Directors present their report and audited financial statements for the year Rupert Pennant-Rea Beneficial 2,000 2,000 ended 27 June 2009. Andrew Allner n/a – – Keith Ludeman (1) Beneficial 26,012 22,027 Principal activities Nick Swift Beneficial 9,088 – The principal activities of the Group throughout the course of the year have (1) Keith Ludeman’s stated holding in 2008 included 9,569 shares held under the rules of the Executive Directors’ share been the provision of passenger bonus plan as described in the Directors’ Remuneration Report. transport and aviation services. Combined Code, any Director who ordinary shares in issue, of which Results and dividends has held office for three years or more 3,902,230 were held in treasury.This The results for the year are set out in since their last appointment must offer included 49,936 new shares issued the consolidated income statement on themselves up for reappointment at during the course of the year following page 64.The Directors propose that a the Annual General Meeting, and a the exercise of share options granted final dividend of 55.5p be paid, making a Non-Executive Director may serve under the Company’s all-employee total of 81.0p for the year (2008: 81.0p). longer than nine years, subject to share scheme.The Company did not The proposed final dividend, if annual re-election. purchase any of its own shares during approved, will be payable on 20 the year, and no shares were purchased November 2009 to shareholders on The Directors’ interests in the share between the year end and the date of the register at the close of business on capital of the Company at 27 June this report. 6 November 2009. 2009, with comparative figures for the 2008 year end, are shown above.There There are no restrictions on the A review of the business of the Group were no changes in these interests up transfer of ordinary shares in the during the year and its prospects for to 2 September 2009. the future, together with a description Company other than: of the principal risks and uncertainties Details of the Executive Directors’ • certain restrictions which may from facing the Group, can be found in the interests in awards granted to them as time to time be imposed by laws and Directors’ Report: Business Review participants in the Long Term Incentive regulations (for example, insider from pages 1 to 41. Plan can be found in the Directors’ trading laws); and Remuneration Report on page 58. Directors and their interests • restrictions pursuant to the Listing No Director was interested in The names of the persons who at any Rules of the Financial Services any contract or arrangement which time during the financial year were Authority whereby certain employees was significant in relation to the Directors of the company are: Sir of the Company require the approval Group’s business. Corporate Governance Patrick Brown, Rupert Pennant-Rea of the Company to deal in the Andrew Allner, Christopher Collins, Company’s securities. Keith Ludeman, and Nick Swift. Indemnification of Directors In accordance with the Company’s All shareholders have the same voting Christopher Collins retired from the Articles of Association and to the rights for each share, regardless of the Board as a Non-Executive Director extent permitted by law, the Directors total number of shares held. On a show Directors’ Report: following the close of the Annual are granted an indemnity from the of hands at a general meeting of the General Meeting on 23 October 2008. Company in respect of liabilities Company, every holder of shares He was replaced by Andrew Allner incurred as a result of their office. In present in person or by proxy and whose appointment was effective from respect of those matters for which the entitled to vote has one vote and, on 24 October 2008. Directors may not be indemnified, the a poll, every member present in person Directors are appointed by ordinary Company maintained a Directors’ and or by proxy and entitled to vote has resolution at a general meeting of Officers’ liability insurance policy one vote for every ordinary share held. holders of ordinary shares.The throughout the financial year.This policy The Notice of Meeting specifies Directors have the power to appoint a has been renewed for the next financial deadlines for exercising voting rights Director but any person so appointed year. Neither the Company’s indemnity either by proxy notice in person or by will hold office only until the next nor the insurance provides cover in the proxy in relation to resolutions to be Annual General Meeting and will then event that a Director is proven to have passed at the 2009 Annual General be eligible for appointment by ordinary acted dishonestly or fraudulently. Meeting. All proxy votes are counted resolution at that meeting. Under the and the numbers for, against or Company’s Articles of Association, one Shareholder and control structure withheld in relation to each resolution third of the Directors, or the nearest At 27 June 2009, the Company’s issued are announced at the Annual General number to one third of the Directors, share capital comprised a single class of Meeting and published on the must retire from office at each Annual shares referred to as ordinary shares. Company’s website (www.go- General Meeting. Under the 2008 At this date there were 46,892,279 ahead.com) after the meeting.

The Go-Ahead Group plc Annual Report and Accounts 2009 59 Directors’ Report: Corporate Governance Other statutory information continued

The Company is not aware of any the Group Company Secretary at Share schemes agreements between shareholders that the Registered Office. Lloyds TSB Offshore Trust Company may result in restrictions on the transfer Limited, as trustee of The Go-Ahead The 22nd Annual General Meeting of of securities or on voting rights. Group Employee Trust, holds 0.1% of the Company will be held at the Hilton the issued share capital of the Company The authorities for the Company to Newcastle Gateshead, Bottle Bank, in trust for the benefit of the Executive allot relevant securities (up to an Gateshead, NE8 2AR on Thursday 29 Directors of the Group and their aggregate nominal amount of October 2009 at 14:00 hours. Details dependants under the Long Term £1,432,609) and for the disapplication of the business to be considered can Incentive Plan.The voting rights in of pre-emption rights on the allotment be found in the Notice of Meeting relation to these shares are exercised of equity securities (for cash up to an which will be available on the by the trustees and dividends are aggregate nominal amount of Company’s website (www.go- waived while the shares are held by £214,891), as passed by special ahead.com) from 2 October 2009. the trustee. resolutions at the 2008 Annual General This business includes resolutions to Meeting, were not utilised in the re-appoint Ernst &Young LLP as the Under the rules of the Company’s financial year or up to the date of this Company’s auditors and to authorise Share Incentive Plan, employees of the report.These authorities will expire at the Directors to determine the Group are entitled to acquire shares the upcoming Annual General Meeting auditors’ remuneration. in the Company. In order to preserve of the Company and approval for new certain tax benefits these shares are There are no agreements between authorities will be sought. In the last held in a trust by Halifax Corporate the Company and its Directors or three years no shares have been issued Trustees Limited for participating employees providing for compensation on a non-pre-emptive basis, other than employees.Whilst these shares are for loss of office or employment those issued under all-employee share held in trust, the voting rights attached (whether through resignation, schemes which are not included for the to them will not be exercised by the purported redundancy or otherwise) purposes of this authority. trustee or the employees for whom that occurs because of a takeover bid. they are held. As at the date of this The authority for the Company to The Company is party to a number report, 0.5% of the issued share capital make market purchases of its own of banking agreements which are of the Company is held by Halifax ordinary shares, as passed by special terminable upon the provision of Corporate Trustees Limited. In the resolution at the 2008 Annual General 14 days notice upon a change of event of an offer being made to acquire Meeting, was still in effect at the end of control of the Company. these shares the employees are entitled the financial year and will expire at the to direct Halifax Corporate Trustees upcoming Annual General Meeting of Substantial shareholdings Limited to accept an offer in respect the Company, where approval for a As at 2 September 2009, the Company of the shares held on their behalf. new authority will be sought. Under the had been notified, in accordance with existing authority, the maximum the Disclosure andTransparency Rules, During the financial year 49,936 ordinary aggregate number of shares that can be of the interests in its shares representing shares were allotted to employees and purchased is 4,297,829.The authority 3% or more of the voting rights in the former employees of the Company also limits the maximum number of Company as shown below. under the rules of the Company’s shares held in treasury to 10% of the Sharesave scheme (a savings related These holdings include, where issued share capital of the Company share option scheme).These shares held applicable, the aggregate of investment and states minimum and maximum an aggregate nominal value of £4,993.60 management clients’ interests within prices payable for shares purchased and the Company received a total the respective asset management consideration of £609,733 for them. In under the authority. During the financial companies and may have since changed accordance with best practice guidelines, year this authority was not utilised. without triggering a further notification. options granted under this scheme do The business of the Company is managed by the Directors, who may Substantial shareholdings exercise all powers of the Company which are not required to be exercised Direct/indirect No. % by the Company in general meeting, Newton Investment Management Ltd Direct 3,352,486 7.80 subject to the Company’s Articles of D Ballinger Direct 2,525,580 5.81 Association, relevant statutory law and any direction given by the Company in Ameriprise Financial, Inc. and its group Indirect 2,319,693 5.40 general meeting by special resolution. Direct 16,000 0.04 The Company’s Articles of Association Capital Research and Management Co Indirect 2,311,612 5.38 may only be amended by a special Schroders plc Indirect 2,416,616 5.10 resolution at a general meeting of JP Morgan Chase & Co Indirect 2,110,118 4.85 shareholders.The current Articles of Artemis Investment Management Ltd Direct 2,086,486 4.85 Association were adopted at the 2008 Annual General Meeting. Members of J Moyes Direct 2,054,061 4.50 the Company can request a copy of the Legal & General Group plc Direct 1,705,480 3.96 Articles of Association by contacting

60 The Go-Ahead Group plc Annual Report and Accounts 2009 not exceed 10% of the issued ordinary The Group’s savings related share Land and buildings share capital during a rolling ten year option scheme (Sharesave) has one In the opinion of the Directors, there period.Vesting of awards under the Long scheme currently in operation, whereby is no material difference between the Term Incentive Plan for the Executive eligible employees were invited to enter market value of the Group’s interest Directors are satisfied by market into a three year savings contract which in land and buildings and its net purchases of shares, and therefore there will mature in June 2010. book value. is no further dilution of the issued share The Group also operates a Share capital. Incentive Plan (SIP).This is an ongoing Suppliers Each Group operating company agrees Employees scheme whereby eligible employees can purchase Go-Ahead shares on the terms and conditions for its business The Group’s responsibility is to provide open market each month. Deductions transactions with suppliers. Payment is a positive work environment conducive from salary for the purchase of these then made on these terms, subject to to the recruitment and retention of shares are made before tax and the terms and conditions being met by staff and one which meets its business national insurance is calculated and the suppliers, including the timely objectives by motivating and encouraging employees retain the full tax and submission of satisfactory invoices. For its employees to be responsive to the national insurance benefit for all shares the year ended 27 June 2009, the trade needs of its customers, maintaining, and that remain in the SIP for five years or creditor days for the Group as a whole wherever possible, improving more from their purchase. was 37 days (2008: 33), based on the operational performance. ratio of trade creditors at the end of The Group is committed to developing The Group is committed to providing the year to the amounts invoiced a culture of openness across all its equality of opportunity to employees during the year by trade creditors. businesses and ensuring the highest and treats employees fairly regardless standards of probity and accountability. of gender, ethnic origin, age, religion, Post balance sheet events We engage with our employees, who belief, race and, where practicable, On 30 July 2009 the Group entered are encouraged to discuss matters of physical disability.Appropriate training, into an agreement to acquire the interest to them and subjects affecting career development and promotion assets of East Thames Buses from day-to-day operations with operating opportunities are provided for all Transport for London for a total cash company management.The Board also employees.The Group gives full and consideration of £5m. On 1 September actively encourages employees with fair consideration to applications for 2009 the Group entered into an serious concerns regarding the interests employment made by disabled persons. agreement with Arriva to acquire their of others or the Group to come It is the Group’s policy to provide Horsham bus operations, also for £5m. forward.The Group and its operating continuing employment under normal These transactions are expected to be companies have policies in place to terms and conditions, wherever completed in the second quarter of ensure processes exist whereby possible, for existing employees the new financial year. employees can raise serious who become disabled, and to provide concerns constructively without fear training, career development and Going concern or victimisation, subsequent promotion as appropriate to all The Group’s business activities, together discrimination or disadvantage. disabled employees. with the factors likely to affect its future Corporate Governance Further details of our responsibilities development, performance and position Our companies maintain relationships as an employer, including operating in a are set out in the Directors’ Report: with recognised trade unions and have socially and environmentally responsible Business Review on pages 1 to 41.The established a network of local manner, can be found on pages 38 to financial position of the Group, its cash employee representatives who are Directors’ Report: 41 and also in the Group’s Corporate flows, liquidity position and borrowing consulted on key business decisions. Responsibility Report which is facilities are described in the Financial Three of our companies have published separately and can be Review on pages 15 to 20. In addition Stakeholder Boards, which bring found on the Company’s website note 22 to the financial statements together employees, individual passengers (www.go-ahead.com). includes the Group’s objectives, policies and representative bodies to share and processes for managing its capital; views.We produce a range of internal Charitable donations its financial risk management objectives; newsletters, information circulars and Charitable donations, sponsorship and details of its financial instruments and intranet sites that keep employees community support over the year hedging activities; and its exposures abreast of developments at their amounted to £257,000 (2008: £302,000). to credit risk and liquidity risk. specific employing company and across Cash conversion from the Group’s bus the Group as a whole.We have awards Political donations and expenditure to recognise and reward outstanding and rail operations was excellent and It is the Group’s policy not to make contributions by our employees. the balance sheet remains strong, with political donations and accordingly no funding secured to December 2012. Employees are encouraged to such payments were made in the year The Directors believe that the Group participate directly in the success of (2008: £nil). Additionally, the Company is well placed to manage its business the business through the Group’s did not incur any political expenditure risks successfully, despite the current HMRC approved share option and as defined in the Companies Act 2006 uncertain economic outlook. share ownership schemes. (2008: £nil).

The Go-Ahead Group plc Annual Report and Accounts 2009 61 Directors’ Report: Corporate Governance Other statutory information continued

After making enquiries, the Directors them to ensure that the financial have a reasonable expectation that statements comply with the Companies the Company and the Group have Act 2006 and Article 4 of the IAS adequate resources to continue in Regulation.They are also responsible for operational existence for the safeguarding the assets of the Company foreseeable future. Accordingly, they and hence for taking reasonable steps continue to adopt the going concern for the prevention and detection of basis in preparing the Annual Report fraud and other irregularities. and Accounts. Responsibility Statements Directors’ responsibilities in relation We confirm that to the best of to the financial statements our knowledge: The Directors are responsible for • the financial statements, prepared in preparing the Annual Report and accordance with IFRSs as adopted by the Group financial statements in the European Union, give a true and accordance with applicable UK law fair view of the assets, liabilities, and those International Financial financial position and profit of the Reporting Standards as adopted by Company and the undertakings the European Union. included in the consolidation taken Under company law the Directors as a whole; and must not approve the Group financial • the Directors’ Report: Business statements unless they are satisfied that Review includes a fair review of the they present fairly the financial position development and performance of of the Group and the financial the business and the position of the performance and cash flows of the Company and the undertakings Group for that period. In preparing included in the consolidation taken those financial statements, the as a whole, together with a Directors are required to: description of the principal risks • select suitable accounting policies in and uncertainties that they face. accordance with IAS 8 ‘Accounting Policies, Change in Accounting Directors’ statement as to disclosure Estimates and Errors’ and then apply of information to auditors them consistently; The Directors who were members of the Board at the time of approving the • present information, including Directors’ report are listed on page accounting policies, in a manner that 42. Having made enquiries of fellow provides relevant, reliable, comparable Directors and of the Company’s auditors, and understandable information; each of these Directors confirms that: • provide additional disclosures • to the best of each Director’s when compliance with the specific knowledge and belief, there is no requirements in International information (that is, information Financial Reporting Standards (IFRSs) needed by the Company’s auditors is insufficient to enable users to in connection with preparing their understand the impact of particular report) of which the Company’s transactions, other events and auditors are unaware; and conditions on the Group’s financial position and financial performance; • each Director has taken all the steps a Director might reasonably be • state that the Group has complied expected to have taken to be aware with IFRSs, subject to any material of relevant audit information and to departures disclosed and explained establish that the Company’s auditors in the financial statements; and are aware of that information. • make judgements and accounting By order of the Board estimates that are reasonable and prudent. The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Group’s transactions and disclose with Carolyn Sephton reasonable accuracy at any time the Group Company Secretary financial position of the Group, enabling 2 September 2009

62 The Go-Ahead Group plc Annual Report and Accounts 2009 prepared isconsistent with theGroup financial statements. the financial yearforwhich theGroup financial statements are In our opinion the information give Act 2006 Companies Opinion ontheothermatterprescribedby • • In our opinion the Group financial statements: statements onfinancial Opinion overall presentation ofth of significant accounting the and estimates Directors; bythe made reasonableness the disclosed; adequately and applied consistently been have and circumstances totheGroup’s appropriate an assessmentof:whether misstatement, whethercausedbyfr assurance that the financial stat disclosures inthe financ An audit involves obtaining evidence about the amounts and statements ofthefinancial Scope oftheaudit forAuditors. Standards Ethical (APB’s) Board’s Practices us require standards Those Ireland). applicable law and International Standards onAuditing (UKand to audit theGroupfinancial st satisfied that they give atrueand fair view.Our responsibility is the preparation of theGroupfina Statement, setout onpage62, As explained more fullyin theDirector’s Responsibilities andAuditors ofDirectors Respective responsibilities haveformed. this report,orfortheopinionswe bo a membersas Company’s the and Company the otherthan toanyone responsibility assume To thefullest extent permittedbylaw,wedonotaccept or auditor’s an in tothem to state matterswe are required state totheCompany’smembersthose Act 2006.Our auditworkhasbeen in accordancewith Sections body, a as members, Company’s tothe solely made reportis This the EuropeanUnion. International Financial Reporting Standards (IFRSs)asadopted by that has been applied intheir preparation isapplicable law and and therelated notes1to29.Thefinancial reporting framework Consolidated statement ofreco balance sheet,the Consolidated cashflow statement, the income Consolidated the comprise Go-Ahead Group plcfortheyearended27June2009, which We have audited theGroup financial statements ofThe Independent auditors’ report tothemembersofTheGo-Ahead Groupplc Financial Statements •

give atrueand fair viewofthe state oftheGroup’s affairs as at 27June2009 and ofitsprofitfortheyearthen ended; adopted by theEuropean Union; and have beenproperlyprepared the CompaniesAct2006andArticl have beenpreparedinaccordan ial statements sufficient togive reasonable e financialstatements. the accounting policies are 495, 496 and497ofthe Companies atements in accordance with ements arefreefrommaterial the Directors areresponsiblefor in accordancewith IFRSs as report andfornootherpurpose. gnised incomeandexpense dy, forourauditwork, dy, ncial statements and for being forbeing and statements ncial ce with therequirements of n intheDirectors’Reportfor statement,theConsolidated aud orerror.Thisincludes undertaken sothatwemight to comply with the Auditing theAuditing with tocomply e 4oftheIASRegulation. 2 September2009 Newcastle upon Tyne For andonbehalfofErnst&YoungLLP,StatutoryAuditor Debbie O’ Hanlon (SeniorStatutoryAuditor) isdesc Reportthat Remuneration 27 June2009andontheinform statements ofThe Go-AheadGr We havereported separatelyon Other matters • • Under theListing Rules we • • you if,inour opinion: Under theCompaniesAct2006we have nothingWereport to toreportbyexception Matters onwhichwearerequired

June 2008CombinedCodespecified forourreview. the Company’s compliance with the nineprovisions ofthe the partofCorporate Governance statement relating to to going concern; and the Directors’statement, setout require forouraudit. we have not received allthe information and explanations we or made; not are certain disclosures ofDirectors’remuneration specified by law The Go-Ahead Groupplc AnnualReportandAccounts 2009 are requiredtoreview: in respect ofthefollowing: ation inthe Directors’ the parent company financial oup plc for the year ended ended year forthe oup plc ribed as having been audited. audited. been having ribed as on page61and62,inrelation are requiredtoreport

Financial Statements Financial Statements Consolidated income statement for the year ended 27 June 2009

2009 2008 Notes £m £m Group revenue 4 2,346.1 2,199.1 Operating costs (excluding amortisation and exceptional items) 5 (2,222.5) (2,054.2) Group operating profit (before amortisation and exceptional items) 123.6 144.9 Goodwill and intangible asset amortisation 13 (12.4) (11.6) Exceptional items (before taxation) 7 (57.7) (16.4) Group operating profit (after amortisation and exceptional items) 53.5 116.9 Finance revenue 8 6.1 8.8 Finance costs 8 (17.6) (22.6) Profit on ordinary activities before taxation 42.0 103.1 Analysed as: Before amortisation and exceptional items 112.1 131.1 Amortisation and exceptional items (70.1) (28.0)

Tax expense 9 (23.7) (26.3) Analysed as: Tax charges (26.6) (29.1) Exceptional tax – changes in tax laws (8.6) – Tax on exceptional items 11.5 2.8

Profit for the year from continuing operations 18.3 76.8

Attributable to: Equity holders of the parent 6.3 56.0 Minority interest 12.0 20.8 18.3 76.8 Earnings per share from continuing operations – basic 10 14.7p 128.8p – diluted 10 14.7p 127.3p – adjusted 10 152.3p 174.8p Dividends paid (pence per share) 11 81.0p 72.5p Final dividend proposed (pence per share) 11 55.5p 55.5p

64 The Go-Ahead Group plc Annual Report and Accounts 2009 2 ChairmanSir September Patrick 2009 Brown, 2 Nick September Swift, 2009 Group Finance Director Minority interest Share capital Capital &reserves Net (liabilities)/assets Total liabilities Non-current liabilities Interest-bearing Otherfinancial liabilities lo other payables and Trade Current liabilities Liabilities Assets classified asheld for sale Inventories Current assets Non-current assets Assets as at27June2009 Consolidated balancesheet Financial Statements Other reserve Total equity Hedging shares Reserveforown reserve Interest-bearing lo Total assets termdeposits short and Cash Trade and otherreceivables Intangible equipment and Property,plant assets Currenttax liabilities Otherfinancial assets Totalshareholders’ equity Retained Capitalredemptionreserve earnings Deferredtaxassets Otherfinancial assets Trade and otherreceivables Provisions Other Deferredtaxliabilities liabilities Otherfinancial liabilities Retirement benefit obligations

ans and borrowings borrowings and ans ans and borrowings borrowings and ans

The Go-Ahead Groupplc AnnualReportandAccounts 2009

Notes 23 23 17 17 23 25 25 19 15 16 23 25 25 13 28 20 25 24 19 20 18 25 25 12 9 9

(485.7) (989.0) (547.4) (266.5) (441.6) 199.2 409.9 207.1 110.3 979.5 420.0 549.8 (16.4) (10.5) (68.8) (30.4) (14.9) (19.1) (14.0) (68.4) (83.5) 71.9 13.1 23.4 (9.5) (9.5) (5.8) (8.9) (8.5) 2009 9.6 9.7 0.6 1.6 0.7 3.1 3.1 £m

1,018.7 (444.0) (951.2) (488.6) (314.6) (462.6) 238.2 426.6 157.1 136.2 425.9 590.2 (68.8) (38.6) (77.9) (59.4) 67.5 17.5 13.3 67.5 71.3 12.0 18.6 54.2 31.9 17.2 (6.0) (0.9) (9.8) 2008 2.6 1.6 0.7 1.5 8.7 £m – –

Financial Statements Financial Statements Consolidated cashflow statement for the year ended 27 June 2009

2009 2008 Notes £m £m Profit for the year 18.3 76.8 Net finance costs 8 11.5 13.8 Tax expense 9 23.7 26.3 Depreciation of property, plant and equipment 12 49.7 49.1 Exceptional depreciation 7, 12 0.8 – Amortisation of goodwill and intangible assets 13 12.4 11.6 Other non-cash exceptional items 7 46.8 3.8 (Profit)/loss on sale of property, plant and equipment (0.3) 1.7 Share based payments 6 0.7 2.5 Loss on sale of subsidiary – 1.8 Difference between pension contributions paid and amounts (2.8) (16.8) recognised in the income statement Movement in provisions 3.4 (0.4) Purchase of assets held for disposal (7.5) – (Increase)/decrease in inventories (1.1) 1.3 Decrease/(increase) in trade and other receivables 36.1 (45.4) Increase in trade and other payables 41.7 66.4 Cashflow generated from operations 233.4 192.5 Taxation paid (11.4) (18.1) Net cashflows from operating activities 222.0 174.4

Cashflows from investing activities Interest received 6.6 8.5 Proceeds from sale of property, plant and equipment 4.3 6.2 Purchase of property, plant and equipment (57.7) (55.5) Purchase of intangible assets (2.8) (5.4) Purchase of subsidiaries 14 – (5.5) Proceeds from sale of subsidiaries – 2.0 Net receipt on transfer of rail franchises – 4.9 Additional contribution to railways pension scheme – (10.4) Deposit paid on rolling stock (0.4) (21.2) Net cashflows used in investing activities (50.0) (76.4)

Cashflows from financing activities Interest paid (18.5) (22.5) Dividends paid to members of the parent 11 (34.8) (31.4) Dividends paid to minority interests (12.3) (16.7) Proceeds from issue of shares 25 0.6 6.4 Payment to acquire own shares 25 (0.2) (87.3) Repayment of borrowings (39.8) (259.0) Proceeds from borrowings – 351.2 Proceeds from finance lease and hire purchase – 4.5 Payment of finance lease and hire purchase liabilities (16.2) (20.1) Repayment of loan notes – (0.4) Net cash outflows on financing activities (121.2) (75.3) Net increase in cash and cash equivalents 50.8 22.7

Cash and cash equivalents at 28 June 2008 18 151.3 128.6 Cash and cash equivalents at 27 June 2009 18 202.1 151.3

66 The Go-Ahead Group plc Annual Report and Accounts 2009 Minority Equity holders ofthe parent interest Attributable to: Income andexpense recogniseddirectly inequity for theyearended 27 June2009 Consolidated statement ofrecognisedincomeandexpense Financial Statements year forthe Profit Losses/(gains) oncashflow Unrealised (losses)/gains plans pension benefit defined on losses Actuarial Total recognised income andexpensefortheyear Net expenserecogniseddirectlyin equity Tax recognised directly inequity on cashflow hedges hedges cashflow on hedges taken toincome statement –operating costs The Go-Ahead Groupplc AnnualReportandAccounts 2009

Notes 28 23 23 9

(39.6) (31.0) (26.9) (54.2) (31.0) (49.3) 12.6 18.3 19.2 2009 8.6 £m

(44.6) (12.9) 39.5 63.9 24.4 33.3 63.9 76.8 (6.7) 2008 5.1 £m

Financial Statements Financial Statements Notes to the consolidated financial statements for the year ended 27 June 2009

1. Authorisation of financial statements and statement 2. Summary of significant accounting policies of compliance with IFRSs Basis of preparation The consolidated financial statements of The Go-Ahead Group plc A summary of the Group’s accounting policies applied (the ‘Group’) for the year ended 27 June 2009 were authorised in preparing the financial statements for the year ended for issue by the Board of Directors on 2 September 2009 and 27 June 2009 are set out below. the balance sheet was signed on the Board’s behalf by Sir Patrick The consolidated financial statements are presented in pounds Brown and Nick Swift. The Go-Ahead Group plc is a public limited sterling and all values are rounded to the nearest one hundred company that is incorporated, domiciled and has its registered thousand (£0.1m) except when otherwise indicated. office in England and Wales. The Company’s ordinary shares are publicly traded on the London Stock Exchange and it is not As noted above, the Group has taken the decision to depart under the control of any single shareholder. from the requirements of IAS 19 so as to present fairly its financial performance, position, and cashflows in respect of The consolidated financial statements of the Group have been its obligation for the RPS. prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU) as New standards they apply to the consolidated financial statements of the Group The Group has adopted IFRIC 14 IAS 19 ‘The Limit on for the year ended 27 June 2009, and applied in accordance Defined Benefit Assets Minimum Funding Requirements and with the provisions of the Companies Act 2006. The Group is their Interaction’ during the year. Adoption of this revised required to comply with international accounting requirements interpretation did not have any effect on the financial under IAS 1 ‘Presentation of Financial Statements’ except in performance or position of the Group. extremely rare circumstances where management concludes Use of estimates that compliance would be so misleading that it would conflict The preparation of the financial statements requires the use of with the objective to ‘present fairly’ its financial statements. On estimates and assumptions. Although these estimates are based that basis, the Group has departed from the requirements of on management’s best knowledge, actual results ultimately may IAS 19 ‘Employee Benefits’ and has accounted for its constructive differ from these estimates. but not legal obligations for the Railways Pension Scheme (RPS) under the terms of its UK rail franchise agreements. Details of The key sources of estimation uncertainty that have a significant the background and rationale for this departure are provided risk of causing material adjustments to the carrying value of assets in note 28. 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 detailed in note 13; • 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.

68 The Go-Ahead Group plc Annual Report and Accounts 2009 rate applicable. to theprincipal outstanding and at the effective interest byreference basis, time a on accrued depositsis on Interest Finance revenue It isaccounted for onastraight-line basis overthelease term. and subleasing of rolling stock and railway infrastructure access. properties ofsurplus fromrental generated is income Rental Rental income season ticket ortravel card. released totheincomestatemen ticket ortravel card income isdeferred within liabilities and proportion ofservicesprovided. of thecustomer’sjourney orfo Revenue isrecognisedbyreferenc are recognised in operating costs. as revenue, and franchise pr and local PassengerTransportE tickets sold.Inadditi on commission and stock maintenance rolling as such services rail industry),inrespect receiptsandotherrelated ofpassenger UK the systemwithin allocation income the administers (which Limited Plan Settlement byRailway usage, ofroute models Rail revenue comprisesamounts revenue. as earned commission the only recognises it park car a transportation. Where theGroup acts asamanaging agent at parks andassociatedservices, generated through theoperation and management of car and other aviation businesses. Italso includes parking revenue income receivable generated from contracts inplace with airlines local transport authorities. Aviation services revenue represents of behalf on provided fromservices generated revenue and sales Bus revenue comprises amounts receivable generated from ticket passenger transport,ra fromroad income comprises oftheGroup revenue The services of Rendering and othersalestaxesorduty. consideration received,excluding measured. Revenueismeasuredat the fairvalueof the income will flow totheGroupand value can be reliably Revenue isrecognised totheextent thatitisprobable that Revenue recognition from parentshareholders’ equity. within equity inthe consolidat presented are and subsidiary, 65%owned a Limited, Govia in interestsMinority interestsrepresentthe notheldbytheGroup from intra-group transactions, have been eliminated in full. balances and transactions, includ acco on consistent based are and samereport are preparedforthe financial statements ofsubsidiaries foruseintheconsolidation the date on which controlistr is transferredtotheGroupandcease tobeconsolidated from Subsidiaries areconsolidated thedateon from whichcontrol as at27June2009. subsidiaries its and Groupplc Go-Ahead ofThe statements The consolidated financial stat Basis of consolidation on, franchise subsidy receiptsfromtheDfT il passenger transport and aviation services. emium paymentstothe DfT ements comprisethefinancial ed balancesheet, separately which include security and bus ansferred outoftheGroup.The r otherservicesbasedonthe xecutives (PTEs)aretreated ing unrealisedprofits arising The attributable share ofseason t over thelife ofthe relevant discounts,rebates, VAT based principally on agreed agreed on based principally unting policies. All intra-group ing yearastheparent company e to thestageofcompletion e shorter oftheirexpected usefullives andthelease terms. Assets heldunderfinanceleasesare depreciatedover the any impairment in value. Freehold land isnotdepreciated. and depreciation accumulated less to IFRSs transition cost on statedatcostordeemed is equipment and Property, plant equipment and plant Property, better understanding offinancial performance. events givingriseto which, because of thenature andexpectedinfrequency ofthe income statement, thosematerial The Grouppresentsasexception Exceptional items amountsGroup oftherelevant accr the to cost estimated for the government central to payable Anac DfT. the with agreements profitrevenue and sharing rail companiesThe havecertain Profit/revenue s over thelifeoffranchise. bidder statusarecapitalised asan intangible asset and amortised attributable, incremental costsincurred afterachieving preferred irrespective ofthe ultimate status aretreated asanexpense inthe incomestatement preferredbidder toachieving prior costsincurred bid franchise for andsecuringfranchises toop processofbidding the is activities ofthe Group’s part A key Franchise bid costs but thathave notyetbeenreportedtotheGroup. respect ofincidentsoccurringpr se of with anestimate together on anassessment of theexpecte based is and advice professional appropriate taking after made is The estimation of the balancesh classified ascurrent. after thebalancesheetdate,th unconditional right todefersettlementforatleast 12 months overall stoploss.Onthebasisth ba tothe prior occurring incidents liabilities fortheestimated costto within theexcesslimits.Ana excess limits and an annual aggregate stop lossfortotalclaims tohigh subject cover, claim individual These provide parties. third and public liability claims through insurance policies issued by The Grouplimitsitsexposuretothecostofmotor,employer Uninsured liabilities statement overtheexpecteduseful a deferred income account and isreleased tothe income the grant relates to anon-current asset, value iscreditedto basis tothecoststhatitis statement overtheperiodnecessa relates toan expense item, itisrecognised in theincome attaching conditions will be complied with.When the grant is reasonable assurance that the grant will be received and all Government grants arerecognised at their fairvalue wherethere Government grants haring agreements The Go-Ahead Groupplc AnnualReportandAccounts 2009 them,meritseparatepresentation toallow intended tocompensate. Where outcome ofthebid.Directly ccrual ismade within current ese uninsuredliabilities are crual is made withinamounts ismade crual in bemade will that ttlements ior to thebalance sheet date erate railservicesinthe UK.All at the Group does not have an an doesnothave Group at the eet uninsured claimsaccrual d settlement onknown claims, items ofrevenueor expense al itemsontheface ofthe the Grouptosettle claimsfor lance sheetdate, subjecttothe ry tomatchonasystematic ued at the balance sheet date. date. sheet balance the at ued life ofthe relevant asset. 69

Financial Statements Financial Statements Notes to the consolidated financial statements continued

2. Summary of significant accounting policies continued Impairment of assets Depreciation is charged to the income statement based on cost The Group assesses at each reporting date whether there is an or fair value, less estimated residual value of each asset, evenly indication that an asset may be impaired. If any such indication over its expected useful life as follows: exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount, Short leasehold land and buildings The life of the lease being the higher of the asset’s or cash-generating unit’s fair value Freehold buildings and less costs to sell and its value in use. Value in use is determined long leasehold land and buildings Over 10 to 100 years for an individual asset, unless the asset does not generate cash Rolling stock Over 8 to 15 years inflows that are largely independent of those from other assets Plant and equipment Over 3 to 15 years or groups of assets, and the estimated future cashflows are discounted to their present value using a pre-tax discount rate The carrying values of items of property, plant and equipment that reflects current market assessments of the time value of are reviewed for impairment when events or changes in money and the risks specific to the asset. circumstances indicate the carrying value may not be recoverable. Where the carrying amount of an asset exceeds its recoverable If any such indication exists the assets are written down to their amount, the asset is considered to be impaired and is written recoverable amount. down to its recoverable amount. Non-current assets held for sale Impairment losses of continuing operations are recognised in Non-current assets classified as held for sale are measured at the income statement in those expense categories consistent the lower of carrying amount and fair value less costs to sell. with the function of the impaired asset. An assessment is made Non-current assets are classified as held for sale if their carrying at each reporting date as to whether there is any indication that amount will be recovered through a sale transaction rather than previously recognised impairment losses may no longer exist through continuing use. This condition is regarded as met only or may have decreased. If such indication exists, the recoverable when the sale is highly probable and the asset is available for amount is estimated. A previously recognised impairment loss immediate sale in its present condition. Management must be is reversed only if there has been a change in the estimates committed to the sale which should be expected to qualify for used to determine the asset’s recoverable amount since the recognition as a completed sale within one year from the date last impairment loss was recognised. of classification. The reinstated amount cannot exceed the carrying amount Business combinations and goodwill that would have been determined, net of depreciation, had Acquisitions of businesses since 3 July 2004 are accounted for no impairment loss been recognised for the asset in prior years. under IFRS 3 ‘Business Combinations’ using the purchase method. After such a reversal the depreciation charge is adjusted in future Goodwill on acquisition is initially measured at cost being the periods to allocate the asset’s revised carrying amount, less any excess of the costs of the business combination over the Group’s residual value, on a systematic basis over its remaining useful life. interest in the net fair value of the identifiable assets, liabilities and contingent liabilities, meeting the conditions for recognition under Franchise assets IFRS 3 at the acquisition date. It is capitalised and carried as an Where the conditions relating to the award of a franchise require asset on the balance sheet. If an acquisition gives rise to negative the Group to assume legal responsibility for any pension liability goodwill, this is released immediately to the income statement. that exists at that point in time, the Group recognises a liability representing the fair value of the related net pension deficit that In some instances certain fair value accounting adjustments are the Group expects to fund during the franchise term. When a required to be made using provisional estimates, based on pension deficit exists at the start of the franchise, a corresponding information available, and amendments are sometimes necessary intangible asset is recognised, reflecting a cost in acquiring the in the 12 months following the acquisition, with a corresponding right to operate the franchise. If a pension surplus exists at the adjustment to goodwill. start of the franchise, then a corresponding deferred income Following initial recognition, goodwill is measured at cost less balance is recognised, representing a government grant. The any accumulated impairment losses. Goodwill is reviewed for intangible asset or deferred income balance is amortised through impairment, annually, or more frequently if events or changes the income statement on a straight-line basis over the period of in circumstances indicate that the carrying value may be impaired. the franchise. Any impairment is recognised immediately in the income The carrying value of franchise assets is reviewed for impairment statement and not subsequently reversed. For the purposes at the end of the first financial year following the award of the of impairment testing, goodwill is allocated to the related franchise and in other periods if events or changes in circumstances cash-generating units monitored by management. indicate that the carrying value may not be recoverable. Goodwill arising on acquisitions before the date of transition to IFRSs has been retained at the previous amounts, and has been subject to impairment testing as at the transition date and annually thereafter. Goodwill written off to reserves prior to 27 June 1998 has not been reinstated. In the event of subsequent disposal of the business to which it relates, goodwill is included in the carrying amount of the operation when determining the gain or loss on disposal to be charged to the income statement.

70 The Go-Ahead Group plc Annual Report and Accounts 2009 recognised directly in repurchase, settlement orothe Amortisation ofliabilities and anygains and lossesarising on the measured atamortised costusing the effectiveinterest method. is amount carrying the recognition initial Following costs. issue the fairvalueofconsideration received afterdeductionof Debt isinitially stated attheamount ofthenetproceeds, being Interest-bearing loans and borrowings recognised inequity istransf no longer expected tooccur,thenet cumulative gain or loss non-financial asset asdescribed above. Ifahedged transaction is statement orincluded intheinitial carrying amount of therelated transaction occurs, atwhichpoint it is taken totheincome instrument recognised inequity iskept inequity until the forecast hedging the on orloss gain cumulative any time, in point or otherwise nolonger qualifies for hedge accounting. Atthat is sold,terminated orexercised Hedge accounting isdiscontinued the income statement astheyarise. or lossesarising from changes infair value aretaken directly to gains any accounting, forhedge qualify thatdonot For derivatives hedged item affects netprofit orloss. are recognisedin the incomest recognition ofan assetoraliability, amounts deferred inequity financial assetorliability. Forhedges thatdo notresult inthe equity areincludedinthe or lossesonthederivative that had previously been recognised in at thetime that asset orliability results inthe recognition ofanon-financial asset oraliability, then hedge thecashflow When statement. theincome in immediately recognised inequity and theineffective portion isrecognised designated and effectiveas he Changes in thefair value offinancial instruments that are date. balance sheet each re-measured valueat fair subsequently at value byreference to market valu fuel price fluctuations. Such derivatives are initially recognised at fair The Group uses energy derivatives to hedge itsrisks associated with transaction price plus directly attributable transaction costs. Financial assetsare initially recognised atfairvalue, being the Financial assetsare accounted fo Financial assetsand derivatives outstanding bank overdrafts. consist ofcash and cashequivalents asdefined above, netof the consolidated cashflowstatem of purpose Forthe orless. months ofthree maturity original an with short term deposits and hand, in and bank at cash in termdeposits short and Cash Cash andcashequivalents sale. price lesscostsof condition. Net realisable value represents theestimated selling costs incurred in bringing theitem cost and netrealisable value. Co Stocks offuel and engineering spares arevalued atthe lowerof Inventories useful lifeofthree tofiveyears. charged totheincome statemen amortisation and any impairment in value. Amortisation is capitalised asan intangible asset and stated atcostless Software, that isnot integral Software the incomestatement. itial measurement ofthat non- tothe related hardware,is erred totheincomestatement. dges of futurecashflows are r de-recognition of debt, are ofdebt, are r de-recognition atement inthe period which the es for similar instruments, and without replacement or rollover, the balance sheet comprise is recognised,theassociated gains st comprisesdire r inaccordancewith IAS 39. t evenly overitsexpected ent, cashandca s totheirpresentlocation and when the derivative expiresor sh equivalents ct materials and ct materials recognised inthe income stat and theinterest cost, along with The differencebetween theexpected returnonpl occur. they which in period the in Expense and Income actuarial gains and losses intheStatement ofRecognised 19torecognise IAS under option the applied has Group The year. the during paid benefits and received contributions adjusted fortheeffect onthe scheme assets, on returns termmarket oflong year of the assessment made an atthe on beginning based is assets plan on during obligation the in changes value ofthebenefit obligation, taking into accountmaterial disco the byapplying determined change in present value ofobligations during the period, and is The interest element ofthedefi advice. actuarial on based is and obligation) benefit defined current andpriorperiods(tode current period(todeterminecu credit method,which attributes entitlement tobenefits tothe unit projected the using plan foreach separately determined is plans benefit defined the under benefits costofproviding The Non-rail schemes Schemes (RPS). from therequirements ofIAS 19in respectoftheRailPension IAS 1‘Presentation ofFinancial Statements’ and has departed of provisions the invoked has Group the below, As discussed are recognisedin the incomest costsofthese The contribution. defined and benefit defined The Group operates anumber ofpension schemes; both Retirement benefits sharestorevenuethe reserveforown reserves. issue orcancellation oftheGrou shares.reserve forown or Anygain lossonthepurchase,sale, costs arealsorecognised inshareholders’ funds asaseparate are deductedfromequity.Consid Re-acquired shares intheGroup, which remain uncancelled, Treasury shares obligation, and areliable estimate oftheamount can be made. that anoutflow of resourceswillbe required tosettle the or constructive obligation asaresult of past events,itis probable Provisions arerecognised when Provisions basis overthelease term. leases, arecharged totheincome statement onastraight-line amortisation oflease incentives and initial direct costs insecuring operating leases. Rentals payable under operating leases, and the of ownershipare retained by Leases whereasignificant propor the balance ofcapital repayments outstanding. purchase contracts and represents aconstant proportion of the incomestatement overthe pe The interest element oftherent as liabilities inthe balance sheet. obligations under leases and hire useful livesandtheleaseterms. being recognised, and aredeprecia are capitalisedinthe balanceshee asset havepassedtotheGroup, substantially all oftherisks and rewards ofownership of the Assets held under finance le The Go-Ahead Groupplc AnnualReportandAccounts 2009 ases, which are ases, which ement within operating costs. ementoperating within the lessor areclassifiedas fair value ofplan assets of atement within operating costs. theyear.Theexpected return ned benefitcostrepresentsthe thecurrentservice cost, is The capitalelements of future rrent servicecost)and tothe termine thepresentvalueof the Group hasapresent legal al obligations ischarged to p’s sharesistransferred from and hirepurchasecontracts unt ratetotheopening present purchase contractsare included tion of the risks and rewards tion oftherisksandrewards eration paid and the associated t, with acorresponding liability riods oftheleases andhire ted overtheshorter oftheir leases where an assets an assets 71

Financial Statements Financial Statements Notes to the consolidated financial statements continued

2. Summary of significant accounting policies continued a corresponding increase in equity. The cumulative expense The defined benefit pension asset or liability in the balance sheet recognised at each reporting date, reflects the extent to which comprises the total for each plan of the present value of the the period to vesting has expired and the Directors’ best defined benefit obligation (using a discount rate based on high estimate of the number of options that will ultimately vest or, quality corporate bonds), less any past service cost not yet in the case of an instrument subject to a market condition, be recognised and less the fair value of plan assets out of which treated as vesting as described above. the obligations are to be settled directly. Fair value is based No cost is recognised for awards that do not ultimately vest on market price information and in the case of quoted except for awards where vesting is conditional upon a market securities is the published bid price. condition, which are treated as vesting irrespective of whether Past service costs are recognised in the income statement on or not the market condition is satisfied, provided that all other a straight-line basis over the vesting period or immediately if performance conditions are satisfied. Where an equity-settled the benefits have vested. When a settlement (eliminating all award is cancelled, it is treated as if it had vested on the date obligations for benefits already accrued) or a curtailment of cancellation, and any cost not yet recognised for the award (reducing future obligations as a result of a material reduction is recognised immediately. in the scheme membership or a reduction in future entitlement) Taxation occurs, the obligation and related plan assets are remeasured Current tax assets and liabilities are measured at the amount using current actuarial assumptions and the resultant gain or loss expected to be recovered from or paid to the taxation recognised in the income statement during the period in which authorities on an undiscounted basis at the tax rates that are the settlement or curtailment occurs. expected to apply when the related asset is realised or the Contributions payable under defined contribution schemes liability is settled, based on tax rates and tax laws that have been are charged to operating costs in the income statement as enacted or substantively enacted at the balance sheet date. they fall due. Deferred tax is provided, using the liability method, on temporary Rail schemes differences at the balance sheet date between the tax base of Our train operating companies participate in the RPS, a defined assets and liabilities for taxation purposes and their carrying benefit scheme which covers the whole of the UK Rail Industry. amounts in the financial statements. It is provided for on all This is partitioned into sections and the Group is responsible for temporary differences, except: the funding of these schemes whilst it operates the relevant • on the initial recognition of goodwill or of an asset or liability franchise. In contrast to the pension schemes operated by most in a transaction that is not a business combination and, at the businesses, the RPS is a shared cost scheme, which means that time of the transaction, affects neither the accounting profit costs are formally shared 60% employer and 40% employee. A nor taxable profit or loss; and liability or asset is recognised in line with other defined benefit schemes in the Group, although this is offset by a franchise • in respect of taxable temporary differences associated with adjustment so that the net liability or asset represents the deficit investments in subsidiaries where the timing of the reversal of or surplus that the Group expects to fund or benefit from during the temporary differences can be controlled and it is probable the franchise term. This represents a departure from IAS 19 so that the temporary differences will not reverse in the as to present fairly the Group’s financial performance, position foreseeable future. and cashflow in respect of its obligations for the RPS. Deferred tax assets are only recognised to the extent that it is Share-based payment transactions probable that the temporary differences will be reversed in the The cost of options granted to employees is measured by foreseeable future and taxable profit will be available to allow reference to the fair value at the date at which they are granted, all or part of the deferred income tax asset to be utilised. The determined by an external valuation using an appropriate pricing carrying amount of deferred tax assets is reviewed at each model. In valuing equity-settled options conditions are linked to balance sheet date and reduced to the extent that it is no longer the price of the shares of The Go-Ahead Group plc (‘market probable that sufficient taxable profit will be available to allow all conditions’) and to earnings per share criteria. or part of the deferred income tax asset to be utilised. The cost of options is recognised in the income statement over Tax relating to items recognised directly in equity is recognised the period from grant to vesting date, being the date on which in equity and not in the income statement, otherwise, tax is the relevant employees become fully entitled to the award, with recognised in the income statement.

72 The Go-Ahead Group plc Annual Report and Accounts 2009 Interpretation Committee (IFRIC) International (IFRIC) FinancialReportingInterpretationCommittee Amendment toIFRS 2‘Group cashsettledsh Improvement toIFRSs(May2008) Improvements toIFRSs(April2009) Amendment toIFRS 7‘Improvi Amendment toIAS39‘Eligible financial statements’ fordeterm 27‘Amendments IAS 1and toIFRS Amendment Amendment toIAS32and31 ‘Puttabl IAS 1‘Presentation offinancialstatements (revised)’ IAS 27‘Consolidated and separate financ IFRS 3‘Business combinations (revised)’ financial statements. The Directorsdo notanticipate adoption ofthese standards an IFRIC 16‘Hedges of anetinvestment in a foreignoperation’ IFRIC 15‘Agreements forthe construc IFRIC 18‘Transfer ofassetsfromcustomers’ IFRIC 17‘Distribution ofnon-cash assetstoowners’ IFRIC 13‘Customer loyaltyprogrammes’ IFRS 2‘Share-based payments IAS 23‘Borrowingcosts(revised)’ IFRS 8‘Operating segments’ International Accounting Standards (IAS/IFRSs) financial statements: The IASB and IFRIC haveissued the following standards and inte New standards and interpretations not applied –vestingconditions and ng disclosures’ hedged items’ tion ofrealestate’ ial statements (revised)’ e financialinstruments and obligations are-based paymentarra cancellations’ ining the cost of an investment in separate separate in investment costofan the ining d interpretations will have amaterial impact ontheGroup’s rpretations with an effective dateafterthe dateofthese ngements’ arising onliquidations’ The Go-Ahead Groupplc AnnualReportandAccounts 2009 (periods beginningonorafter) 1 October2008 1 October2010 1 January2009 1 January2009 1 January2009 1 January2009 1 January2009 1 January2009 1 January2009 1 January2009 1 January2009 1 January2009 1 July2009 1 July2009 1 July2009 1 July2009 1 July2008 1 July2009 Effective date

Financial Statements Financial Statements Notes to the consolidated financial statements continued

3. Segmental analysis The Group’s primary reporting format is business segments and its secondary format is geographical segments. The operating businesses are organised and managed separately according to the nature of the services provided, with each segment representing a strategic business unit that offers different products and serves different markets, as detailed in the Directors’ Report. Transfer prices between business segments are set on an arm’s length basis in a manner similar to transactions with third parties. The Group has only one reportable geographical segment, being the UK. Business segments The following tables present revenue and profit information and certain asset and liability information regarding the Group’s business segments for the years ended 27 June 2009 and 28 June 2008. Year ended 27 June 2009 Aviation Bus Rail services Unallocated Total £m £m £m £m £m Segment revenue 606.7 1,557.5 213.7 – 2,377.9 Inter-segment revenue (22.0) (5.5) (4.3) – (31.8) Group revenue 584.7 1,552.0 209.4 – 2,346.1 Operating costs (excluding amortisation and exceptional items) (518.1) (1,490.5) (213.9) – (2,222.5) Group operating profit (before amortisation and exceptional items) 66.6 61.5 (4.5) – 123.6

Goodwill and intangible amortisation (1.9) (10.0) (0.5) – (12.4) Exceptional items (7.8) (4.7) (45.2) – (57.7) Segment result 56.9 46.8 (50.2) – 53.5 Net finance costs (11.5) Profit before tax and minority interest 42.0 Tax expense (23.7) Profit for the year 18.3

Assets and liabilities

Segment assets 470.4 394.6 70.6 34.2 969.8 Assets classified as held for sale 9.7 – – – 9.7 Total assets 480.1 394.6 70.6 34.2 979.5

Segment liabilities (135.4) (384.6) (37.5) (431.5) (989.0) Net assets/(liabilities) 344.7 10.0 33.1 (397.3) (9.5)

Aviation Bus Rail services Total £m £m £m £m Other segment information Capital expenditure: Additions 44.9 12.2 2.5 59.6 Acquisitions – – – – Intangible fixed assets 0.9 1.6 0.3 2.8 Depreciation 31.5 13.0 5.2 49.7 Impairment charges – – 38.4 38.4 Provision for onerous contracts – – 1.5 1.5 Fuel hedge 6.9 – – 6.9 Exceptional depreciation 0.8 – – 0.8

74 The Go-Ahead Group plc Annual Report and Accounts 2009 (before amortisation andexceptionalitems) Group operatingprofit Impairment ofintangible and ta theyear for Profit Overdraft Interest-bearing Liabilities Deferredtaxassets Cash Assets Summary of unallocated assetsand liabilities Depreciation 30.9 Intangible fixedassets Acquisitions Additions Capital Other segmentinformation Segment liabilities Total assets Assets classifiedas heldforsale Segment assets Assets andliabilities Tax Profit beforetaxandminorityinterest Net financecosts (excluding amortisation andexceptional items) Operating costs Group revenue revenue Inter-segment Segment revenue Year ended 28June2008 Other Group retirement benefit obligations –The Go-Ahead Group Pension Plan liabilities Deferredtaxliabilities Currenttax liabilities Net assets/(liabilities) Segment result Exceptional Goodwill and intangible amortisati items

expense expenditure: loans and borrowings borrowings and loans ngible fixedassets on (1.9)

415 1312 (261.5) (491.5) (1,301.2) 8. 4. 8. (5.) 67.5 (450.5) 85.0 43.7 389.3 5. 1384 263.0 1,378.4 557.7 7. ,8. 270 –2,226.9 267.0 578.5 1,381.4 8. 368 2. 3. 1,018.7 31.0 1,016.1 31.0 129.3 129.3 376.8 376.8 481.6 479.0 2.) 30 (.) (27.8) – (4.0) (3.0) (20.8) 3.) (44.3)(481.5)(951.2) (333.1) (92.3) 627. 1.5 66.2 77.2 59 79 (6.9) 67.9 55.9 (8.4) – (8.0) – (16.4) . – – 2.6 – – – 2.6 Bus £m (26.3)

63 . 99 55.5 9.9 9.3 36.3 (9.3) The Go-Ahead Groupplc AnnualReportandAccounts 2009 . 34 5.4 – 3.4 2.0 . 46 8.1 – 4.6 3.5 . – 3.8 – – 3.8 Rail Bus £m £m

Aviation services services 11.3 (0.4) Rail £m £m

Unallocated Aviation 291.9 431.5 services services 34.2 23.4 10.8 56.3 68.4 14.9 2009 6.9 £m £m £m – – – – – – – (13.8)

(2,054.2) 2,199.1 144.9 103.1 116.9 347.4 481.5 (11.6) 76.8 31.0 17.2 13.8 44.4 77.9 49.1 Total Total 2008 6.0 5.8 £m £m £m –

Financial Statements Financial Statements Notes to the consolidated financial statements continued

4. Group revenue 2009 2008 £m £m Rendering of services 2,009.1 1,828.6 Rental income 18.0 18.4 Franchise subsidy receipts 319.0 352.1 Group revenue 2,346.1 2,199.1

5. Operating costs (excluding amortisation and exceptional items) 2009 2008 £m £m Staff costs (note 6) 865.3 813.7 Other operating income (33.5) (20.3)

Depreciation of property, plant and equipment – owned assets 31.2 27.7 – leased assets 18.5 21.4 Total depreciation expense 49.7 49.1

Auditors’ remuneration – audit of the financial statements 0.7 0.6 – taxation services 0.2 0.2 – other services 0.2 0.1 1.1 0.9

Trade receivables not recovered 2.3 1.7

Operating lease payments – minimum lease payments 834.5 666.9 – sublease payments (6.0) (9.2) Total lease and sublease payments recognised as an expense 828.5 657.7

Government grants (4.5) (3.6)

Gain on disposal of property, plant and equipment (0.3) (0.4)

Costs expensed relating to franchise bidding activities 3.5 0.3

Other operating costs 510.4 555.1 Total operating costs 2,222.5 2,054.2

Exceptional items (note 7) 57.7 16.4 Goodwill and intangible amortisation 12.4 11.6

The fee relating to the audit of the financial statements can be analysed between audit of the Company’s financial statements of £0.2m (2008: £0.1m) and audit of subsidiaries’ financial statements of £0.5m (2008: £0.5m). During the year, £2.6m (2008: £1.2m) was also paid to other ‘Big 4’ accounting firms for a variety of services.

76 The Go-Ahead Group plc Annual Report and Accounts 2009 participate inthe scheme.Qualifying employ (including Executive Directors)who havecompleted atleastsixmonths’ servicewith aGroup company at the date they areinvit These options are exercisablebetween£14.62 There aresavings-relatedoptions at 27 June2009asfollows: ofinvitation. time the price at market to 80%oftheir equal price minimum a at Company the in shares acquiring in of end the At years. ofthree period schemes)fora all across Group plc Savings-Related Share Option Scheme 2003 (the ‘Sharesave 2003(the Scheme Option Share Savings-Related plc Group The GroupoperatesanHMRevenue&Customs(‘HMRC’)approved Sharesave Scheme and details regarding compensation of keymanagement person The options outstanding attheend ofthe The weightedaverage sharepriceatthedateofexercise fo year the during Forfeited theyear during Granted Outstanding atthe beginning ofthe year The following table illustrates the number (No.)andweighted average exerciseprices(WAEP)of The expenserecognised forthese No. ofoptionsexercisable at27June2009 No. ofoptionsexercised duringthe year No. ofoptionsunexercisedat27June2009 Option price(£) Scheme maturity Medium and 8ofthe Large bySchedule required information The Operations Maintenance and engineering Administration andsupervision The average monthly number ofemployeesdu charge payments based Share Other pension costs Social securitycosts Wages andsalaries 6. Outstanding attheendofyear Exercised duringthe year Staff costs schemes duringtheyearto27Ju year haveaweightedaverage remainingco ees are invited to save between £5 and £75 permonth(uptoamaximumof£250m ees areinvitedtosavebetween £5and£75 ring theyear,includingDirectors,was: and £19.14(2008:between £12.10and £19.14). r theoptions exercisedintheperiodwas£17.61(2008:£15.34). that period, employees canapply theamounts saved, together wit nel ofthe Group isprovided intheDirectors’ Report. sized Companies and Groups (Accounts and Reports) Regulations 20 Reports)Regulations and (Accounts Groups and Companies sized ne 2009was£0.7m(2008:£2.3m). savings-related share option scheme, known as The Go-Ahead Scheme’).TheSharesaveScheme

1,150,741 16.38 (239,210) 16.35 ntracted lifeof0.4years(2008:1.3years) 861,595 16.63 (49,936) 12.21 The Go-Ahead Groupplc AnnualReportandAccounts 2009 No. – shareoptions fortheSAYE: ue21 uy20 1June2008 1July2009 1 June2010 8,1 4793 – 477,983 383,612 ,2 4662 – 476,672 3,927 19.14 14.6212.10 WAEP 2009 is opentoallGroup employee 9 ,3 47,910 1,937 89 £

1,847,855 15.15 1,150,741 16.38 (173,936) 16.14 (523,178) 12.11 27,177 22,186 2,288 2,703 865.3 756.6 41.4 66.6 2009 2009 0.7 No. No. £m – . h abonus, ed to 27,627 22,763 2,188 2,676 813.7 717.3 WAEP 30.5 63.4 2008 2008 2008 2.5 onth No. £m 08 08 s £ 77

Financial Statements Financial Statements Notes to the consolidated financial statements continued

6. Staff costs continued 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 plans The 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 plans The 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 27 June 2009 was £nil (2008: £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 27 June 2009 were: 2009 2008 % per annum % per annum The Go-Ahead Group Future share price volatility 31.0 22.0 Transport Sector comparator Future share price volatility 29.0 – 37.0 21.0 – 27.0 Correlation between companies 60.0 40.0 FTSE Mid-250 index comparator Future share price volatility 35.0 25.0 Correlation between companies 20.0 20.0

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

2009 2008 No. No. Outstanding at the beginning of the year 69,835 87,577 Granted during the year 72,707 27,530 Forfeited during the year (13,806) (29,884) Vested during the year (3,985) (15,388) Outstanding at the end of the year 124,751 69,835

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

78 The Go-Ahead Group plc Annual Report and Accounts 2009 This reduced the carrying value ofthe ground handling and cargo The largest item wasafirsthalf, non-cash impairment chargeof Most oftheitems werenon-cash, Finance costs contracts purchase hire and leases finance under payable Interest Other interestpayable overdrafts and loans bank on payable Interest Finance revenue Other interestreceivable deposits bank on receivable interest Bank 8. ineffective under IAS39),£0.8minrespect Non-cash exceptionalitems at December2008andremainsap The exceptional items weresignificant inthe year,totalling £57. 2009 Total exceptional items fromlosson Cashflows Redundancy and reorganisation costs Cash basedexceptionalitems Provision foronerous contracts charge depreciation Accelerated Fuel hedge charges Impairment Non-cash exceptionalitems 7. Exceptional cashcosts totalled£10.1m,cons expected overthenexttwo of around£3.0m services division. The redundancy and reorganisation costsrelatedtotheclosurean 2008. 29February on Limited) Company Coach Birmingham The and GoWestMidlands as

The impairment charges and losson saleof 2008 These costshavebeenincluded duetoth and £4.7m inthe rail division. Finance revenue andcosts Finance revenue Exceptionalitems disposal ofbusiness also included £6.9m relating toth with cashitemstotalling£10.1m. propriate attheyearend. eir relative sizeand management’s anticipation of theirnon-recurring nature. of accelerated depreciation on articulated buses in London with a further exception further a with London buses in articulated on depreciation of accelerated business relatedtothesale ofTheBirmin isting ofrestructuring and reorganisation costs of£5.4m intheaviation services years, and£1.5mofprovision foronerous e fairvalueofpartthecurre 7m beforetaxation, ofwhich£ £38.4m reflecting thechallenging conditions inthe aviation s operations within the aviation services division to approximat to division services aviation the within operations d restructuring ofa number ofouroperations within our aviat gham Omnibus Company Ltd (formerly known contracts inourMete The Go-Ahead Groupplc AnnualReportandAccounts 2009 nt yearbusfuelhedge(designate 49.8m wasrecognisedinthefir

or parkingoperations (17.6) (14.2) (57.7) (10.1) (47.6) (38.4) (10.1) (1.5) (1.9) (1.5) (0.8) (6.9) 2009 2009 6.1 0.9 5.2 £m £m –

ervices division. division division

st half. d as d as ely £20.0m al charge ion ion . (22.6) (18.3) (16.4) (12.6) (2.6) (1.7) (8.0) (3.8) (3.8) (4.6) 2008 2008 8.8 0.8 8.0 £m £m – – –

Financial Statements Financial Statements Notes to the consolidated financial statements continued

9. Taxation a. Tax recognised in the income statement and in equity 2009 2008 £m £m Current tax charge 24.2 16.8 Adjustments in respect of current tax of previous years 0.1 (3.1) 24.3 13.7 Deferred tax relating to origination and reversal of temporary differences (8.7) 9.6 Previously unrecognised deferred tax of a prior period (0.5) 3.0 Tax reported in consolidated income statement (before exceptional tax – changes in tax laws) 15.1 26.3 Previously unrecognised deferred tax of a prior period (exceptional tax – changes in tax laws) 8.6 – Tax reported in consolidated income statement (after exceptional tax – changes in tax laws) 23.7 26.3

The effect of changes in tax laws relate to the abolition of industrial buildings allowances. Tax relating to items charged or credited to equity

2009 2008 £m £m Corporation tax on share based payments (0.1) (0.7) Deferred tax on share based payments – 2.3 Tax on actuarial losses on defined benefit pension plans (7.6) (12.5) Tax on IAS 39 (liability)/asset (11.6) 7.4 Tax reported in equity (19.3) (3.5) 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 27 June 2009 and 28 June 2008 is as follows: 2009 2008 £m £m Profit on ordinary activities before taxation and exceptional items 99.7 119.5 Exceptional items (57.7) (16.4) Profit on ordinary activities before taxation 42.0 103.1

At United Kingdom tax rate of 28% (2008: 29.5%) 11.8 30.4 Adjustments in respect of current tax of previous years 0.1 (3.1) Previously unrecognised deferred tax of a prior period (0.5) 3.0 Previously unrecognised deferred tax of a prior period (exceptional tax – changes in tax laws) 8.6 – Expenditure not allowable for tax purposes 1.8 2.5 Goodwill amortisation and impairment charges 5.2 1.4 Differences relating to tax efficient financing (3.3) (7.4) Rate change due to timing differences 29.5% to 28% – (0.5) Tax reported in consolidated income statement at effective tax rate of 56.4% (2008: 25.5%) 23.7 26.3 Exceptional tax – changes in tax laws (8.6) – Tax on exceptional items 11.5 2.8 Effective tax charges 26.6 29.1 Effective tax rate 26.7% 24.4%

80 The Go-Ahead Group plc Annual Report and Accounts 2009 Deferred incometaxexpense Adjustments inrespect ofprioryears( Adjustments inrespect ofprioryears Other temporary differences Retirement benefit obligations Tax losses payments based Share Accelerated capital allowances The deferredtaxincludedintheGrou payments based Share Retirement benefit obligations taxasset Deferred Revaluation ofland and buildings Other temporary differences assets Intangible Accelerated capital allowances Deferred taxliability The deferredtaxincludedinth c. Losses carried forward Losses carriedforward

Deferred tax Deferred e balance sheet isasfollows: p income statement isasfollows: exceptional tax–changesin laws) The Go-Ahead Groupplc AnnualReportandAccounts 2009

(68.4) (24.3) (28.4) 23.4 23.4 (0.6) (0.5) (2.9) (0.4) (6.0) (9.8) (5.9) 2009 2009 8.6 0.1 0.5 £m £m – –

(20.6) (77.9) (24.3) (25.9) 12.6 16.6 17.2 (0.2) (7.1) 2008 2008 3.0 0.8 3.6 5.4 0.5 0.1 £m £m – – 81

Financial Statements Financial Statements Notes to the consolidated financial statements continued

10. Earnings per share Basic earnings per share 2009 2008 Net profit attributable to equity holders of the parent (£m) 6.3 56.0 Weighted average number of shares in issue (000) 42,934 43,481 Basic earnings per share (pence per share) 14.7 128.8

The weighted average number of shares in issue excludes treasury shares held by the Company, and shares held in trust for the Directors’ LTIP. Diluted earnings per share 2009 2008 Net profit attributable to equity holders of the parent (£m) 6.3 56.0 Weighted average number of shares in issue (000) 42,934 43,481 Effect of dilution: Dilutive potential ordinary shares under share option schemes (000) – 505 Adjusted weighted average number of shares (000) 42,934 43,986 Diluted earnings per share (pence per share) 14.7 127.3

The dilution calculation assumes conversion of all potentially dilutive ordinary shares. Adjusted earnings per share Adjusted earnings per share is also presented to eliminate the impact of goodwill and intangible amortisation and exceptional costs and revenues in order to show a ‘normalised’ earnings per share. This is analysed as follows: Profit Exceptional 2009 for the year items Amortisation Total £m £m £m £m Profit before taxation 42.0 57.7 12.4 112.1 Less: Taxation (23.7) (2.9) (2.8) (29.4) Less: Minority Interest (12.0) (2.6) (2.7) (17.3) Adjusted profit attributable to equity holders of the parent 6.3 52.2 6.9 65.4 Adjusted earnings per share (pence per share) 152.3

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

11. Dividends paid and proposed 2009 2008 £m £m Declared and paid during the year Equity dividends on ordinary shares: Final dividend for 2008: 55.5p per share (2007: 47p) 23.8 20.5 Interim dividend for 2009: 25.5p per share (2008: 25.5p) 11.0 10.9 34.8 31.4

2009 2008 £m £m Proposed for approval at AGM (not recognised as a liability as at 27 June 2009) Equity dividends on ordinary shares: Final dividend for 2009: 55.5p per share (2008: 55.5p) 23.9 23.2

82 The Go-Ahead Group plc Annual Report and Accounts 2009 leases and hirepurchase contracts. Additions during the yearincluded £nil (2008:£1.8m) ofrollin equipment and Plant Rolling stock The netbook value ofleased assetsand assetsacquired under hirepurchase contracts is: At 30June2007 At 28June2008 At 27June2009 Net bookvalue At 27June2009 Transfer ofassetsheldforresale Disposals – Impairment Exceptional Charge fortheyear charges At 28June2008 Transfer ofassetsheldforresale depreciation Disposals Charge fortheyear At 30June2007 Depreciation andimpairment: At 27June2009 Transfer ofassetsheldforresale Transfer Disposals – Additions At 28June2008 categories Transfer ofassetsheldforresale Disposals Acquisitions Additions At 30June2007 Cost: 12.

Property, plant and equipment g stockand £nil(2008:£nil) ofplantandequipment held under

Freehold land and buildings 4. 1. 191 54 409.9 55.4 199.1 14.4 141.0 735.6 205.8 363.7 19.6 146.5 4. 1. 148 32 424.7 426.6 73.2 75.8 194.8 196.8 14.1 14.2 142.6 139.8 700.9 189.0 349.0 680.1 18.3 180.0 144.6 335.8 17.2 147.1 27 – – (2.7) – – – (2.7) 01 – – (0.1) – – – (0.1) (1.6) (0.3) (21.4) (16.8)(40.1) (0.3) (1.6) . 52 6. 104 325.7 150.4 164.6 5.2 5.5 . – 18 – (1.0) – (1.8) – 0.8 . 11 73 07 49.7 274.3 20.7 49.1 113.2 27.3 255.4 152.2 21.2 1.1 106.8 4.1 26.5 141.0 0.6 4.8 1.0 3.1 0.4 4.5 1.1 1.3 34.0 23.2 59.6 1.3 1.1 2.0 4.58.1 – 1.6 32.6 21.3 55.5 1.4 0.2 £m . – 12 – (1.1) – (1.2) – 0.1 – (0.1) 0.1 – – (15.3)(14.8)(30.1) – – – –22.2 – – – 0.8 – 0.8

properties Leasehold The Go-Ahead Groupplc AnnualReportandAccounts 2009 £m – – (14.5) (17.4) Rolling stock £m

equipment Plant and 120.2 118.3 (5.7) (6.5) 2009 1.9 £m £m finance 160.0 156.9 (20.2) (23.9) Total 2008 3.1 £m £m 83

Financial Statements Financial Statements Notes to the consolidated financial statements continued

13. Intangible assets Franchise Rail franchise Customer Goodwill Software costs bid costs asset contracts Total £m £m £m £m £m £m Cost At 30 June 2007 108.5 6.2 4.8 34.4 3.9 157.8 Additions – 3.0 2.4 – – 5.4 Reclassification (0.4) – – – 0.4 – Disposals (3.8) (0.4) – – – (4.2) Acquisitions 0.8 – – 15.2 1.2 17.2 At 28 June 2008 105.1 8.8 7.2 49.6 5.5 176.2 Additions – 2.6 0.2 – – 2.8 At 27 June 2009 105.1 11.4 7.4 49.6 5.5 179.0

Amortisation and impairment At 30 June 2007 16.3 3.3 2.0 6.6 0.2 28.4 Charge for the year 2.4 1.2 0.8 5.8 1.4 11.6 At 28 June 2008 18.7 4.5 2.8 12.4 1.6 40.0 Charge for the year 2.4 1.4 0.9 6.2 1.5 12.4 Impairment 16.1 0.1 – – 0.1 16.3 At 27 June 2009 37.2 6.0 3.7 18.6 3.2 68.7

Net book value At 27 June 2009 67.9 5.4 3.7 31.0 2.3 110.3 At 28 June 2008 86.4 4.3 4.4 37.2 3.9 136.2 At 30 June 2007 92.2 2.9 2.8 27.8 3.7 129.4 Rail franchise asset This reflects the cost of the right to operate a rail franchise. The brought forward element of the franchise intangible is made up of £25.2m relating to the opening deficit in the RPS and £12.0m relating to the cost of the intangible asset acquired on the handover of the franchise assets relating to the Southeastern rail franchise. The intangible asset is being amortised on a straight-line basis over the life of the franchises (being between six and eight years). Software costs Software costs capitalised exclude software that is integral to the related hardware. Customer contracts This relates to the value attributed to customer contracts and relationships purchased as part of the Group’s acquisitions. The value is calculated based on the unexpired term of the contracts at the date of acquisition and is amortised over that period. Impairment During the year ended 27 June 2009 an impairment review of the aviation services division resulted in the goodwill of aviance and Plane Handling of £16.1m being written down to £nil. Software costs of £0.1m and customer contracts of £0.1m associated with the aviation services division were also impaired.

84 The Go-Ahead Group plc Annual Report and Accounts 2009 movement on assumptions which would lead to impairment. toimpairment. lead would which assumptions on movement wh Handling Plane and fromaviance apart that, staff costsandgeneral overheads. Th the Group’sweighted averagecostofcapita The pre-taxcashflowsfora rates ineach business. of end fromthe forward extrapolated Management believes that the goodwill repr goodwill the that believes Management Intangible assetsacquired repres intangible asset. in light ofeconomic and industry measures and forecasts.Weh The Directorsconsider theassumptions usedto the growth rateusedtoextrapo The calculation of value in use foreach ca by approved forecasts and budgets financial on based projections not permitted.A property valuation hasbeencompleted. contractual relationships, custom The acquisition balance sheetshave been ad The total cashconsideration forthe above acquisitions was£5.5m. They havebeen accounted for asacquisitions inaccordance with IFRS3. Orpington. in operations bus regulated Sunderland busoperator.On8De 28 January2008GoNorthEast Limited acquiredthecommercialbusoperations andassociat Limited acquired the commercial bus operations and associated asse associated assetsofNorthumbriaCoaches, On 10September 2007,GoNorthEastLimited, Year ended 28June2008 There have been no business combinations Year ended 27June2009 14. The recoverable amountofgoodwi Go WestMidlands &Hove Brighton Go SouthCoast Metrobus Railway Southern New Meteor Parking aviance and Plane Handling The goodwill charge of£2.4m(2008:£2.4m) As from 3July2004, goodwill isno longer am Goodwill Go North East London Bus the Group’s business operations. The carryingvalue of goodwill by cash-generating unit isasfollows: Goodwill acquired through acquisitions hasbeen allocated toindi the goodwill tobe impaired annually.

Business combinations Business combinations ll cash-generating unitshavebeen ent customercontracts of£1.2m. late cashflows beyond the budget period. The oper The period. budget beyond the cashflows late er loyalty, and anassembled workforce, forwhich therecognition ofadiscrete intangible ass cember 2007MetrobusLimited,a wholly owned subs ll has been determined based on determinedbased been has ll ese assumptions are influenced byse theforecasts,using a growth rate of3.0%wh sh-generating unit ismost sensitive tothe forecast operatingcashflows, thediscou asmallindependentNorthumb duringtheyearended27June2009. esents future growthopportunities andcrea l, plusanappropriaterisk justed toreflectprovisional fairvalues and the goodwill arising has been capitali ortised and isannually tested forimpairment. is in respect ofrailbusinessesis inrespect which, due ere we have recorded an impairment ofou impairment recordedan ere wehave be consistent with the historical perfor a whollyownedsubsidiaryoftheGroup,ac discounted usingapre-tax discou ave conducted sensitivity analyses on ourcalculations and have c vidual cash-generating units forimpairment testing onthe bas senior management covering a three-year period. Growthhas been avalue inusecalculation foreach cash-generating unit, using ts of Stanley Taxis, asmall independent Durham bus operator. premiumforeachcash-gener veral internal andexternalfactors. erland busoperator.On15October 2007,GoNorthEast ich reflectstheDirectors’ viewoflong term ating cashflows arebased to thefinite nature of thefranchises, mance of each unit and toberealistical and unit ofeach mance ted valuetotheGroup inrespectofnon- idiary oftheGroup, acquiredFirstGroup’s r assetsthisyear, thereisnoreasonabl y possible The Go-Ahead Groupplc AnnualReportandAccounts 2009 quired thecommercial ed assetsof inde Redby Buses,asmall nt rateof11.0%(2008:12.1%), ating unitof0.0-2.0%(2008:

on assumptionsofrev busoperationsand 28.6 18.4 67.9 10.5 2009 2.1 6.5 1.0 0.8 £m – – sed asan nt rateand require et is is of ly achievable based on on based growth 0.0-2.0%). onfirmed cashflow On pendent pendent enue, 28.6 18.4 86.4 10.5 16.1 2008 2.1 6.5 3.4 0.8 £m

– 85

Financial Statements Financial Statements Notes to the consolidated financial statements continued

14. Business combinations continued A summary of the transactions is detailed below: Net assets at date of acquisition: Book Fair value value to Group 2008 2008 £m £m Intangible assets – 1.2 Tangible fixed assets 4.0 3.5 4.0 4.7 Goodwill capitalised 0.8 5.5 Cash 5.5 5.5

From the date of acquisition, in the year ended 28 June 2008, the acquisitions contributed an operating profit of £0.8m to the Group and revenue of £5.3m. The Group is unable to determine, from available information, the profit and cashflow that would have been contributed if the combinations had taken place at the beginning of the year.

15. Assets classified as held for sale Assets held for sale, with a carrying amount of £9.7m (2008: £2.6m), represent property, plant and equipment which are currently not used in the business and are now available for sale. These assets classified as held for sale had no associated liabilities at the year end (2008: £nil).

16. Inventories 2009 2008 £m £m Raw materials and consumables 13.1 12.0

The provision for slow moving and obsolete inventory is immaterial.

17. Trade and other receivables 2009 2008 £m £m Current Trade receivables 94.0 111.7 Less: Provision for impairment of receivables (4.4) (3.0) Trade receivables – net 89.6 108.7 Other receivables 27.3 26.7 Prepayments and accrued income 59.1 64.4 Receivable from central government 23.2 38.4 199.2 238.2

2009 2008 £m £m Non-current Other receivables 3.1 1.5

Included within other receivables is £21.6m (2008: £21.2m) deposit paid on rolling stock.

86 The Go-Ahead Group plc Annual Report and Accounts 2009 Bank overdrafts (note20) Short termdeposits Cash atbank and inhand Cash atbank and inhand earns Short termdeposits Cash atbank and inhand 18. 2008 2009 As at27June2009, theageing analysis At 27June2009 Unused amountsreversed Utilised Charge fortheyear At 28June2008 Unused amountsreversed Utilised Charge fortheyear At 30June2007 impairment ofreceivables wereasfollows: Trade receivables at nomina deposit rates. The fair value ofca value fair The rates. deposit dependin months three day one and of between For thepurposesofconsolidated amounting to£181.3m (2008:£122.9m)wererestricted. normally up tothe value ofrevenue reservesorbased onaworking capital formula agreed withthe DfT. Asat27June 2009, bal agreemento the with only bedistributed can termdeposit, short on and atbank cash in included companies byrail held Amounts

Cash and short termdeposits Cashandshort l value of £4.4m (2008: £3.0m) wereimpairedandfu l valueof£4.4m(2008:£3.0m) interest at floating rates based on daily bank de bank daily on based rates floating at interest sh and cashequivalents isnotmate

cashflow statement,cashflow cash oftrade receivables isasfollows: 108.7 – 74.7 5.2 2.61.3 24.9 89.6 60.8 4.0 4.8 0.23.2 16.6 Total £m g on the immediatecash requirementsofth Neither past impaired due nor and cash equivalents co £m rially differenttobookvalue. < 30days £m posit rates. Shortterm lly providedfor.Movementsinthe provision for 30 –60days mprise thefollowing: The Go-Ahead Groupplc AnnualReportandAccounts 2009 £m e Group, and earn inte earn and e Group,

60 –90days Individually deposits are made forv made are deposits impaired 07 – (0.7) – (0.1) (0.7) – (0.1) (0.8) (0.1)(0.9) (0.3) – (0.3) 3.9 0.54.4 2.5 0.53.0 2.9 0.13.0 1.7 – 1.7 1.6 0.11.7 £m £m

90 –120days Collectively rest atthe respect impaired 202.1 174.9 207.1 174.9 32.2 32.2 (5.0) 2009 2009 £m £m £m £m arying periods not impaired Past duebut ances > 120days f theDfT, 151.3 136.0 157.1 136.0 21.1 21.1 (5.8) ive Total 2008 2008 £m £m £m £m 87

Financial Statements Financial Statements Notes to the consolidated financial statements continued

19. Trade and other payables 2009 2008 £m £m Current Trade payables 179.3 169.4 Other taxes and social security costs 22.2 18.6 Other payables 30.1 39.2 Deferred season ticket income 88.8 84.9 Accruals and deferred income 81.3 67.8 Uninsured claims accrual 40.2 34.8 Payable to central government 39.5 27.2 Government grants 4.3 2.1 485.7 444.0

2009 2008 £m £m Non-current Government grants 3.7 7.0 Other liabilities 5.2 2.8 8.9 9.8

Terms and conditions of the above financial liabilities are as follows: • Trade payables are non-interest-bearing and are normally settled on 30 day terms; • Other payables are non-interest-bearing and have varying terms of up to 12 months; • For terms and conditions relating to related parties, refer to note 29.

20. Interest-bearing loans and borrowings Net Debt Our net debt position comprises cash, short term deposits, interest-bearing loans and borrowings, and can be summarised as: 2009 2008 £m £m Syndicated loans (see below) 239.0 262.0 Medium term loans (see below) 36.0 52.8 Finance lease and HP commitments (note 21) 18.1 34.3 Overdrafts (note 18) 5.0 5.8 298.1 354.9

Cash and short term deposits (note 18) (207.1) (157.1) Net debt 91.0 197.8

88 The Go-Ahead Group plc Annual Report and Accounts 2009 There isonefloating rateloan which isuns on 6March2010. su £5.3mis year. each 22September £7.2mon of £6.5m,£5.8mand unsecured. are of which all termloans, ofmedium a number has Group The Medium term loans There aretwofixed ratetermloanswhich ar Floating rateterm loans Fixed ratetermloan As at27June2009, £239.0m(2008:£262. charged atLIBOR +Margin, where On 23November 2007theGroup entered intoa Syndicated loan facility Bank loansarestatednetofdebt Bank loans After morethanfiveyears After oneyear butnotmorethan five years year one Within follows: as is loans ofbank maturity The debt schedule As pernet Debt issuecosts Total interest-bearing Non-current obligations under finance leasesand Non-current 1to12 5.19 Current instalmentsdueon Current obligations under finance leases and hirepurchase contracts (note 21) Bank overdrafts Current Interest-bearing loans and borrowings fixed chargestointerestpayable repayable. immediately becoming with asinglerepaymenton25 Au On 26August2009 twoadditional floatingrateloans were year. each 22August £5.6m on Non-current instalments due Details ofthe Group’s treasurypolicies areincluded in note22. The Group issubject toanumber of covenants in relation toits borrowing facilities which, ifcontravened, would result init Bank covenants of £1.5m,£10.0m willbe £3.5m and made inyearone, yeartwoand year threerespectively. loans and borrowings borrowings and loans bankloans on bankloans plus fixed chargesratio. Atth issue costsof£1.2m(2008:£1.7m). gust 2012.Thesecond isalsofor£15.0mand is These covenants specify a maximum adjusted net debt to EBITDA of 3.5x, and EBITDA plus plus EBITDA of3.5x,and netdebttoEBITDA adjusted maximum a specify covenants These the marginisdependent upon the gearingofth 0m) ofthefacility ecured. It is subject to interest at LIBOR + 0.3%, and is repayable in annual insta annual in repayable is +0.3%,and LIBOR at tointerest issubject ecured. It e both unsecured, £19.5missubjecttointe ieprhs otat nt 1 51 1to5 5.19 hire purchasecontracts (note21) £340.0m Thedebtisunsecuredandinterest five-yearsyndicated loanfacility. is arranged. The firstbeing a£15.0m loansubject to interestat LIBOR wasdrawn down. e year endtheGroupwas not in bject tofixedinterest of5.94% subject tointerestat e Group andtheintended useofthe borrowings.

Effective rest of 5.71% and is repayable in annual in repayable is rest of5.71%and interest ae% Maturity rate % .6 2to9 4.16 .0 On 1.50 .5 1to4 1.35 The Go-Ahead Groupplc AnnualReportandAccounts 2009

breach ofanybankcovenants. and is repayable in one final final one in repayable is and demand demand months months Effective interest LIBOR +2.25%. Repayment years years rate % 1.02 11.2 5.76 24.8

257.6 298.1 296.9 273.8 257.6 266.5 16.2 16.2 30.4 36.0 2009 2009 2009 5.0 1.2 9.2 8.9 £m £m £m – lments of

s loans

instalments + 3.0% instalment instalment

s 354.9 353.2 313.1 280.9 296.3 314.6 15.4 16.8 16.0 18.3 16.8 38.6 52.8 27.3 25.5 2008 2008 2008 5.8 1.7 £m £m £m

Financial Statements Financial Statements Notes to the consolidated financial statements continued

21. Finance lease and hire purchase commitments The Group has finance leases and hire purchase contracts for rolling stock and various items of plant and machinery. These contracts have no terms of renewal or purchase option escalation clauses. Future minimum lease payments under finance leases and hire purchase contracts, together with the present value of the net minimum lease payments, are as follows: 2009 2008 Minimum Present value of Minimum Present value of payments payments payments payments £m £m £m £m Within one year 10.0 9.2 17.3 16.0 After one year but not more than five years 9.5 8.9 19.1 18.1 After more than five years – – 0.2 0.2 Total minimum lease payments 19.5 36.6 Less amounts representing finance charges (1.4) (2.3) Present value of minimum lease payments 18.1 18.1 34.3 34.3

22. Financial risk management objectives and policies Financial risk factors and management The Group’s principal financial instruments comprise bank loans, hire purchase and finance lease contracts, and cash and short term deposits. The main purpose of these financial instruments is to provide an appropriate level of net debt to fund the Group’s activities, namely working capital, fixed asset expenditure, acquisitions, dividends and share buybacks. The Group has various other financial instruments such as trade receivables and trade payables, which arise directly from its operations. The Group also enters into derivative transactions, primarily interest rate swaps and fuel swaps. The purpose is to manage the interest rate and fuel price risks arising from the Group’s operations and its sources of finance. It is, and has been throughout 2009 and 2008, the Group’s policy that no trading in derivatives shall be undertaken and derivatives are only purchased for internal benefit. The main financial risks arising from the Group’s activities are interest rate risk, liquidity risk and credit risk. Risks arising from fuel derivatives are explained in note 23. Interest rate risk The Group borrows and deposits funds and is exposed to changes in interest rates. The Board’s policy toward cash deposits is to deposit cash short term on UK money markets. Interest payable on senior bank borrowings is based on re-fixing the rate of interest over short periods of time of up to 36 months. During the year the Group has partially managed interest rate risk by hedging. Excluding fixed rate debt, the Group has net borrowings and hence the present adverse risk is an increase in interest rates. The maturity and interest rate profile of the financial assets and liabilities of the Group as at 27 June 2009 is as follows: Average Within More than rate 1 year 1-2 years 2-3 years 3-4 years 4-5 years 5 years Total % £m £m £m £m £m £m £m Year ended 27 June 2009 Floating rate liabilities/(assets) Bank overdrafts 1.50 5.0 – – – – – 5.0 Variable rate loans 1.11 5.6 5.6 – 239.0 – – 250.2 Obligations under finance lease and HP contracts 1.42 0.8 0.8 – – – – 1.6 Interest rate swaps 2.20 – – (49.5) (50.0) – – (99.5) Gross floating rate liabilities/(assets) 11.4 6.4 (49.5) 189.0 – – 157.3 Cash assets 0.78 (207.1) – – – – – (207.1) Net floating rate (assets)/liabilities (195.7) 6.4 (49.5) 189.0 – – (49.8) Fixed rate liabilities Medium term fixed rate loan 5.76 11.8 5.8 7.2 – – – 24.8 Obligations under finance lease and hire purchase contracts 5.55 8.4 5.0 2.5 0.4 0.2 – 16.5 Interest rate swaps 2.20 – – 49.5 50.0 – – 99.5 20.2 10.8 59.2 50.4 0.2 – 140.8 Total floating and fixed profile (175.5) 17.2 9.7 239.4 0.2 – 91.0

90 The Go-Ahead Group plc Annual Report and Accounts 2009 was designatedas he was acashflow During theyearended2008,Gr realised lossof£1.8m. syndicated loan at 6.4%.Theinterest rateswapcovered the During thecurrentyear,Group risk atyearend is a decr These swapsresultinanet floa these two interest swaps have resulted inarealised loss of£0.2m. £50.0m wasfixedat2.01%plusmargin until December 2011and£50.0m At 27June2009, the Grouphadtwointerest in theabovetables arenon-intere (Losses)/gains expected tobere (Losses)/gains arising in theyear Unrealised gains on hedges at startofyear rate is floating as classified instruments financial on Interest Total floating and fixed profile hire Obligations under finance lease and Medium termfixed rateloan purchase Fixed rateliabilities contracts Variable rateloans Bank Cash Floating rateliabilities/(assets) overdrafts Year ended28June 2008 assets Unrealised (losses)/gainson hedg classified asfixedrate isfixeduntilth Realised losses/(gains) inthe year ease ininterest rates. ting rateassetof£50.3m andanetfixed rate dge oftheintereston theloan, and aloss of£0 cognised within one year es at theend oftheyear st-bearing andaretherefore not entered intoaninterestrate oup tookout avariableinterest e maturityoftheinstrument

Average rate swapstotalling£100.0m, .1 . 58 . 72 – 25.5 – – 7.2 5.7 5.8 6.8 5.71 5.59 (157.1) – (157.1) 6.00 5.8 – – 5.8 5.64 16.0 9.26.81.70.40.2 34.3 .9 06 11 . – 6. – 289.3 – 262.0 – 5.6 11.1 10.6 5.29 rate rate %

(140.7) 11.1 5.6 – 262.0 – 138.0 (117.9) 26.1 18.1 8.9 262.4 0.2 197.8 Within 1 re-priced at intervals of less than oneyear.Interest onfina re-pricedatintervalsofless 22.8 15.0 12.5 8.90.40.2 59.8 year £m six month period fromOctober2008 . The other financial instruments oftheGroup that aren swap totalling £150.0m,fixing the interest onpartofthevar subject tointerestrate risk. rate swapona£100.0m drawdo 1-2 years £m was fixed at 2.39% plus margin untilDecember2012. Todat wasfixedat2.39% plusmargin fixing the interest onpart liabilityof£141.3mat

.2m was recognised in the income statement. statement. income the in recognised .2m was 2-3 years £m The Go-Ahead Groupplc AnnualReportandAccounts 2009

3-4 years £m 27June 2009. Hencethe to March2009andresulted ina ofthevariableratesynd wn ofthesyndicated loan.This 4-5 years

£m rate hedge Interest More than ncial instruments instruments ncial (1.5) 2009 0.1 0.5 2.0 5 years £m – ot included £m iable rate rate iable adverse icated loan.

(0.2) 2008 Total

0.2 £m £m – – – e 91

Financial Statements Financial Statements Notes to the consolidated financial statements continued

22. Financial risk management objectives and policies continued Interest rate risk table The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group’s profit before tax (through the impact on floating rate borrowings). Effect on Increase/ profit decrease in before tax basis points £m 2009 GBP 50 (0.7) GBP (50) 0.7

2008 GBP 50 (0.7) GBP (50) 0.7 Liquidity risk The Group has in place a £340.0m syndicated loan facility which allows the Group to maintain liquidity within the desired gearing range. The level of drawdown and prevailing interest rates are detailed in note 20. The Group’s road passenger vehicles are also financed by hire purchase or finance lease arrangements, or term loans at fixed rates of interest over two to five year primary borrowing periods. This provides a regular inflow of funding to cover expenditure as it arises. Foreign currency risk The Group rarely enters into transactions in foreign currency and no transaction to date has been material. Should larger foreign currency transactions be undertaken, consideration would be given to hedging the foreign currency exchange risk. Credit risk The Group’s credit risk is primarily attributable to its trade receivables and cash deposits (see note 17). The maximum credit risk exposure of the Group comprises the amounts presented in the balance sheet, which are stated net of provisions for doubtful debt. A provision is made where there is an identified loss event which, based on previous experience, is evidence of a reduction in the recoverability of future cashflows. The majority of the Group’s receivables are with public (or quasi-public) bodies (such as the DfT). The Group does not consider these counterparties to be a significant credit risk. Outside of this, the Group does not consider it has significant concentrations of credit risk. Risk of exposure to non-return of cash on deposit is managed through a treasury policy of holding deposits with banks rated A+ or Aa3 or above with at least one of the agencies. Our treasury policy outlines the maximum level of deposit that can be placed with any one given financial institution. Contractual payments The table below summarises the maturity profile of the Group’s financial liabilities at 27 June 2009 based on contractual undiscounted payments. Year ended 27 June 2009 Less than 3 On demand months 3 to 12 months 1 to 5 years > 5 years Total £m £m £m £m £m £m Interest-bearing loans and borrowings 5.0 16.5 18.6 291.2 – 331.3 Other financial liabilities – 4.1 12.3 8.5 – 24.9 Trade and other payables 48.1 263.6 37.5 4.6 – 353.8 53.1 284.2 68.4 304.3 – 710.0 Year ended 28 June 2008 Less than 3 3 to 12 On demand months months 1 to 5 years > 5 years Total £m £m £m £m £m £m Interest-bearing loans and borrowings 5.7 19.5 35.7 381.6 0.2 442.7 Trade and other payables 43.7 216.1 62.8 2.5 0.5 325.6 49.4 235.6 98.5 384.1 0.7 768.3 Managing capital The Group manages its capital structure such that net debt (adjusted to exclude restricted cash), to EBITDA (before exceptionals) is within a range which retains an investment grade debt rating. Adjusted net debt at the year end was £272.3m (2008: £320.7m), equivalent to 1.57x (2008: 1.65x) EBITDA in line with the Group’s aim to move to an adjusted net debt to EBITDA ratio of 1.5x to 2.5x through the cycle.

92 The Go-Ahead Group plc Annual Report and Accounts 2009 As at27June2009 theGrouphadderivatives for the2011,2012, 2013and2014 financial yearsof100, 25,3and1million litresrespectively. approximately 98.0%oftheanticipated fuel As at27June 2009 theGrouphad derivatives against bus fuelof si generated been The valuehas sheet. balance val The fair respectively. fuel of million litres and1 6 125, 113,38, over placed were Obligations under finance lease and hire purchase contracts debt rate Fixed anticipated fuelusage inLondon At the year end, the Group had various fuel price swaps in swaps price fuel various had Group the year end, At the to hedgeitsexposure toincreasesinfuel offuel result a as risk price exposedtocommodity is Group The Fuel derivatives b. (Losses)/gains expected tobe Unrealised (losses)/gainson he Realised losses/(gains) inthe year (Losses)/gains arising in theyear Unrealised gains on hedges at startofyear below. shown is theperiod in movement The recognised. The gains and lossesoninstruments used forhedging fuelprice hedged percentage Actual policy tohedge perGroup Percentage The fairvalueoffixedratebo derivatives were valuedexternallyby the The fairvalue ofall other assetsand liabilities in notes 17, ratederivatives Interest Fuel pricederivatives th in carried financial instruments valuesoftheGroup’s The fair a. instruments 23. Derivatives and financial The majority ofassets intherail division ases forbus le operating andpu coach uses The Group Operating leases respective operating companies and arenotthesubject ofparent company guarantees. and itscompliance with that policy at theyear ended 27June2009 isas follows: ofanticipate percentage target forthe policy hedging Group’s The and 2013financial yearsof13,13and3millions litres ofrailfuelrespectively. otherwise have been charged to otherwise havebeencharged end of the at ownership of risk mitigate the

Hedging activities Fair values rrowings hasbeencalculatedby recognised within one year dges at theend oftheyear interest. The Group holds operating leases for its bus fleet with an asset capital valueof£9.5 capital with anasset bus fleet for its leases operating holds The Group interest. Midland andSouthern. Asat27June2009 theGr arefinanced by operating leases, inpart prices,when itdeemsappropriate. respective banks by comparison with the the with bycomparison banks respective the contract. This results in £0.4m (2008: £0.4m) of cost within operating charges withinoperating cost of £0.4m) (2008: £0.4m in results This contract. the usageinour busdivision. As at27June nce the date of the acquisition of the in the of theacquisition of date nce the against railfuelof16milli rchases acrossGroup the 19and 20isnot significantly different totheir carrying amou place. For the 2010, 2011, 2012, 2013 and 2014 financial years cashf years financial and2014 2013 2012, 2011, 2010, For the place. e financial statements have been reviewed as at 27 June2009 been reviewedstatements at as have e financial discounting theexpectedfuture ca risk are not recogniseduntiltheexposurethat isbeinghedged isitself 109million litres forthe year usage. TheGroupcloselymonitors d bus fuel usage usage hedged forthe d bus fuel on litresfortheyearen primarily wherethevehicl

icular rolling stock. Leases are entered i ue of the asset or liability has been r been has orliability asset the of ue oup also hadfurther de 2009the Groupalso had derivatives agains market fuelpriceatthe relevantdate. struments due to the movement in market market duetomovement in the struments Carrying value rate hedge Interest (62.5) (63.2) (16.5) (24.8) (25.5) (21.7) (1.5) 2009 2009 The Go-Ahead Groupplc AnnualReportandAccounts 2009 0.5 2.0 0.5 0.1 £m £m – ending 3July2010,representi

ding 3July 2010, representi shflows atprevailingrates. shflows next year and subsequent two fuelpricesanduses de 100.0% 50.0% Fair value 98.0% 89.0% es service specific cont (0.2) 2008 2010 20112012 0.2 rivatives forthe2011, £m £m – – – Carrying value Fuel swaps ecognised on the the on ecognised nt. The fuel price (14.8) (15.9) (52.7) (32.5) (30.9) (34.3) (25.5) (23.9) 10.6 27.3 27.3 nto by the 2008 2009 £m £m and are follows: as m (2008: £6.4m). which would which – ng the the ng low hedges ng ng racts to to racts fuel prices. prices. fuel t busfuel rivatives 2012 years, Fair value 25.0% 22.0% 27.3 18.6 33.3 (6.7) 2008 0.7 £m £m 93

Financial Statements Financial Statements Notes to the consolidated financial statements continued

24. Provisions Onerous Depots contracts Total £m £m £m At 28 June 2008 0.9 – 0.9 Provided 3.4 1.5 4.9 At 27 June 2009 4.3 1.5 5.8

At 27 June 2009 provisions have been increased to cover potential disputed costs in one of the train operating companies and onerous contract provisions in the aviation services division. All provisions are expected to be incurred within five years.

25. Issued capital and reserves Authorised 2009 2008 £m £m 62.5 million 10p ordinary shares 6.3 6.3

Allotted, called up and fully paid 2009 2008 Millions £m Millions £m As at 28 June 2008 46.8 4.7 50.9 5.1 Issued on exercise of share options 0.1 – 0.5 0.1 Cancelled during the year – – (4.6) (0.5) As at 27 June 2009 46.9 4.7 46.8 4.7

The Company has one class of ordinary shares which carry no right to fixed income. Statement of changes in equity Capital Share Reserve for Hedging Other redemption Retained Total Minority capital own shares reserve reserve reserve earnings equity interest Total £m £m £m £m £m £m £m £m £m At 30 June 2007 65.4 (80.6) 0.5 1.6 0.2 138.7 125.8 5.8 131.6 Total recognised income and expense – – 17.0 – – 22.5 39.5 24.4 63.9 Share based payment charge – – – – – 1.2 1.2 (0.2) 1.0 Dividends – – – – – (31.4) (31.4) (16.7) (48.1) Acquisition of own shares – (87.3) – – – – (87.3) – (87.3) Arising on shares issued for share options 6.4 – – – – – 6.4 – 6.4 Share cancellation (0.5) 101.1 – – 0.5 (101.1) – – – Reserve transfer – (2.0) – – – 2.0 – – – At 28 June 2008 71.3 (68.8) 17.5 1.6 0.7 31.9 54.2 13.3 67.5 Total recognised income and expense – – (28.0) – – (11.6) (39.6) 8.6 (31.0) Share based payment charge – – – – – 0.7 0.7 – 0.7 Dividends – – – – – (34.8) (34.8) (12.3) (47.1) Acquisition of own shares – (0.2) – – – – (0.2) – (0.2) Arising on shares issued for share options 0.6 – – – – – 0.6 – 0.6 Reserve transfer – 0.2 – – – (0.2) – – – At 27 June 2009 71.9 (68.8) (10.5) 1.6 0.7 (14.0) (19.1) 9.6 (9.5) Share capital Share capital represents proceeds on issue of the Company’s equity, both nominal value and share premium. Reserve for own shares The reserve for own shares is in respect of 3,954,897 ordinary shares (8.4% of share capital), of which 52,667 are held for Directors’ bonus plans. The remaining shares were purchased in order to enhance shareholders’ returns and are being held as treasury shares for future issue in appropriate circumstances. During the year ended 27 June 2009 the Company has repurchased 13,615 shares (2008: 3,571,000 shares). The Company has not cancelled any shares during the year (2008: 4,571,000 shares). A consideration of £0.2m (2008: £87.3m) including expenses was made for the shares purchased during the year.

94 The Go-Ahead Group plc Annual Report and Accounts 2009

More than five years In the second tofifth yearsinclusive year one Within Future minimumrentals for accesstotherailway infrastructu In addition, aspart oftherailfranchises, theGroup holds agr After oneyear butnotmorethan five years year one Within restricted cashreserves new on DfTfunding toassist commitment Group’s ofthe part As Contracted forbutnotprovided Capital commitments 27. 27 June2009 Cashflow 28 June2008 Disposals Acquisitions Cashflow 30 June2007 Analysis of Group netdebt 26. Notestothe cashflowstatement The redemptionreservereflectsthenominal valueofcancelledshares. reserve redemption Capital value The hedgingreserverecordsthemovementin of fuelpricederivative reserve Hedging This treatment isinlinewith The otherreserve representsthepr reserve Other Over five years The Group hasentered intocommercial leases oncertain properties Operating lease commitmen periods. subsequent Future minimum rentals payable under non-cancellable operating leases asat27 no restrictions placed upon thele

Commitments and contingencies Commitments and contingencies on Electrostar unitsthatmaythen payable under theseoperatingleases ts –Groupaslessee Section 612 oftheCompanies Act 2006.

ssee byenteringinto theseleases. re (track,stationsanddepots). emium on shares that have been issued to fund or part fund acquisitions made by the Group. Group. bythe made acquisitions orpartfund tofund issued been have that shares on emium Cash andcash equivalents 0. (239.0) 202.1 2. – 170 (56 (01 (.) (144.5) (0.4) (50.1) (65.6) (157.0) – 128.6 5. (262.0) 151.3 17.8 0.4 (58.4) (262.0) 157.0 12.815.6 082. –1. 62 – 106.8 –16.816.2 50.8 23.0 . – 4.9 4.9 – £m – 0.2 – – 0.2 Syndicated loan bethesubject ofrefinancingth facility eements under which itleases rolling stock, and agreements wit asat27 June 2009areasfollows: £m rolling stock,theGroup iscommittedtopayafurther£30.0m fr andotheritems.Renewalsareatthe option ofthe lessee. T Bi-lateral loans s, offset by any movements recognised directly in equ in directly recognised movements s, offsetbyany £m (28 (43 – (197.8) – (34.3) (52.8) – (60 (81 – (91.0) – (18.1) (36.0) –

June 2009 areasfollows: Term loans Term loans Land and buildings 143.0 56.4 rough operating lease arrangements 81.1 0.3 47.3 39.3 14.6 16.8 The Go-Ahead Groupplc AnnualReportandAccounts 2009 £m £m

Hire purchase/ finance leases equipment Plant and 2009 £m £m

Loan notes 1,168.3 1,867.9 Land and buildings 504.6 195.0 148.4 42.6 42.4 88.4 3.8 46.9 27.7 13.1 11.1 2009 2009 £m £m £m £m h Network Railh Network in ity. here are equipment 1,811.9 2,805.6 om Plant and 747.8 245.9 31.4 Total 2008 2008 2008 £m £m £m £m 95

Financial Statements Financial Statements Notes to the consolidated financial statements continued

27. Commitments and contingencies continued Operating lease commitments – Group as lessor The Group’s train operating companies hold agreements under which they sub-lease rolling stock, and agreements with Network Rail for access to the railway infrastructure (track, stations and depots). Future minimum rentals payable under non-cancellable operating leases as at 27 June 2009 are as follows: 2009 2008 Land and Other rail Land and Other rail buildings agreements buildings agreements £m £m £m £m Within one year 2.5 2.5 4.5 5.8 After one year but not more than five years 1.7 – 6.8 1.0 More than five years – – 0.2 – 4.2 2.5 11.5 6.8 Performance bonds The Group has provided bank guaranteed performance bonds of £131.7m (2008: £96.5m), and season ticket bonds of £110.2m (2008: £97.9m) to the DfT in support of the Group’s rail franchise operations. To support subsidiary companies in their normal course of business, the Group has indemnified certain banks and insurance companies who have issued certain performance bonds and letters of credit. The letter of credit at 27 June 2009 is £35.0m (2008: £35.0m).

28. Pensions Retirement benefit obligations consist of the following: 2009 2008 £m £m Non-rail pension scheme liabilities (76.0) (59.4) Rail pension scheme liabilities (7.5) – Pre-tax pension liabilities (83.5) (59.4) Deferred tax asset 23.4 16.6 Post tax pension scheme liabilities (60.1) (42.8) Non-rail schemes The Go-Ahead Group Pension Plan For the majority of non-rail employees, the Group operates one main pension scheme, The Go-Ahead Group Pension Plan (the ‘Go-Ahead Plan’), which consists of a funded defined benefit scheme and a defined contribution section as follows: The defined contribution section of The Go-Ahead Plan is not contracted-out of the State Second Pension Scheme and is open to new entrants. The expense recognised for the defined contribution section of The Go-Ahead Plan is £4.9m (2008: £4.5m) being the contributions paid and payable. The defined benefit section of The Go-Ahead Plan is contracted-out of the State Second Pension Scheme and provides benefits based on a member’s final salary. The assets of the scheme are held in a separate trustee-administered fund. Contributions to this section are assessed in accordance with the advice of an independent qualified actuary. The section is effectively closed to new entrants. As a result, it can be expected that the service cost will increase in future as a percentage of payroll. However, this percentage is likely to be applied to a reducing total pensionable payroll. The Go-Ahead Plan is a Group plan for related companies where risks are shared. The overall costs of the Go-Ahead Plan have been recognised in the Group’s financial statements according to IAS 19. Each of the participating companies accounts on the basis of contributions paid by that company. The Group accounts for the difference between the aggregate IAS 19 cost of the scheme and the aggregate contributions paid. Wilts & Dorset Pension Scheme and Southern Vectis Group Pension Plan Some employees of our Go South Coast operations participate in the Wilts & Dorset Pension Scheme or the Southern Vectis Group Pension Plan. These are defined benefit schemes which are externally funded and contracted-out of the State Second Pension Scheme. Contributions to the schemes are assessed in accordance with the advice of an independent qualified actuary. The schemes are closed to new entrants, however eligible employees can join the defined contribution section of the The Go-Ahead Group Pension Plan. Other pension arrangements A small number of employees in aviance have access to separate defined contribution pension arrangements as part of legacy agreements. The expense recognised for this is £0.3m (2008: £0.4m), being the contributions paid. The Railways Pension Scheme (the RPS) The majority of employees in our train operating companies are members of sections of the RPS, a funded defined benefit scheme. The RPS is a shared costs scheme, with assets and liabilities split 60%/40% between the franchise holder/employee respectively. The RPS sections are all open to new entrants and the assets and liabilities of each company’s section are separately identifiable and segregated for funding purposes.

96 The Go-Ahead Group plc Annual Report and Accounts 2009

Cash Cash Property Property used in the accounting assessments based on the life expectancy of a male member of each pension scheme at age 65. age scheme at pension each memberof ofa male expectancy life the on based assessments theaccounting in used Bonds Bonds Bonds However, inspite of ourpastexperiencean the obligations recognisedonth It isourexperience thatall pension obligations tothe RPS ceas Equities Non-rail Equities Rail Categoryat theyear of end assets Increase inlife expectancy ofpensioners ornon-pensioners by 1year of0.1% –increase payment in ofpensions ofincrease Rate of0.1% –increase salaries in ofincrease Rate Price Inflation –increaseof0.1% Discount Factor– increaseof0.1% change in the key assumptions. Inisolation the following adju In making the valuation, the above assumptions have been used. Sensitivity analysis looking views ofthe financial markets (s foreachassetclassrefl (i.e. equitiesandbonds).Theexpectedreturn The expectedreturnon assets ha Non-Pensioner Pensioner The most significant non-financial assumption isthe assumed ra AA rated of return anticipated the on based is rate discount The inexcessofanyGuaranteed MinimumPension(GMP)element. * deferredpension* and payment in ofpensions ofincrease Rate salaries in ofincrease Rate Discount rate Price inflation In addition tothe defined benefitcost,BR restricted. Onenteringinto a fr rules isobliged tomeet theschedule ofcontributions agreedwith theschemetrustees Summary of year endassumptions is setoutinthe franchise contract. anchise, forthetermof theoperator contractand underbecomes thedesignatedemployer t e balance sheetunder IAS19areonly those that s been derivedasthe weighted averageoftheexp uggested by theyields available), and theviews of investment organisations. ASS matching AVCcompanycontributions of£0 d thatof other trainoperating companiesprovingotherwise, ourlegalobligations a stments wouldadjustthepensio e onexpiryofthefranchises wi te oflongevity.Thetablebelo corporate bonds with a term matc term bondswitha corporate The following isan approximate sensitivity analysis of the impa ects acombination of historical performance analysis,

Rail Non-rail are expected tobefundedduringthefranchise ected returnsfromeach and actuaries,in respect ofwhich nofunding cap 352.7 100.0 705.8 100.0 110.1 15.6 162.9 46.2 166.5 47.2 447.5 63.4 76.9 10.9 17.6 5.0 71.3 10.1 Years Years .9m (2008:£0.7m)werepaidinthe year. 2009 The Go-Ahead Groupplc AnnualReportandAccounts 2009 5.7 1.6 £m £m 22 20 w shows the life expectancyassum n deficit and cost as shown. shown. costas and deficit n thout cashor othersettlement

hing the maturity of the schem the maturityof hing the Years Years 2009 2009 2008 22 20 % %

of themain asset clas Pension deficit 376.8 100.0 869.7 100.0 130.5 15.0 170.7 45.3 177.8 47.2 553.1 63.6 98.3 11.3 21.9 5.8 87.8 10.1 13.4 1.2 Years Years (7.6) (0.2) 2009 2009 3.4 4.4 6.3 3.4 6.4 1.7 4.3 0.3 1.6 0.2 6.8 0.7 20 19 £m £m £m % the forward

, andtherefore e liabilities. e liabilities. ct ofthe re not ptions ptions Pension cost he RPS term. ses Non-rail

Years Years 2008 2008 2008 2008 2010 3.8 5.3 6.2 3.8 19 18 £m % % % 97

Financial Statements Financial Statements Notes to the consolidated financial statements continued

28. Pensions continued The weighted average expected long term rates of return were:

Rail Non-rail 2009 2008 2007 2009 2008 2007 % p.a. % p.a. % p.a. % p.a. % p.a. % p.a. Weighted average rate of return 8.1 8.0 7.7 7.8 7.9 7.7 Funding position of the Group’s pension arrangements Rail Non-rail 2009 2008 2007 2009 2008 2007 £m £m £m £m £m £m Employer’s share of pension scheme: Liabilities at the end of the year (937.1) (1,026.5) (652.0) (428.7) (436.2) (404.5) Assets at fair value 705.8 869.7 651.8 352.7 376.8 380.0 Gross deficit (231.3) (156.8) (0.2) (76.0) (59.4) (24.5) Franchise adjustment 223.8 156.8 (2.1) – – – Pension scheme liability (7.5) – (2.3) (76.0) (59.4) (24.5) Pension cost for the financial year Rail Non-rail 2009 2008 2007 2009 2008 2007 £m £m £m £m £m £m Service cost 41.6 31.5 24.4 6.1 6.7 7.5 Interest cost on liabilities 42.8 30.4 20.5 26.8 23.8 22.5 Expected return on assets (42.0) (37.8) (24.8) (29.4) (29.7) (24.5) Interest on franchise adjustments (9.8) – (1.3) – – – Pension cost 32.6 24.1 18.8 3.5 0.8 5.5 Experience recognised in the Statement of Recognised Income and Expense (SORIE) Rail Non-rail 2009 2008 2007 2006 2005 2009 2008 2007 2006 2005 £m £m £m £m £m £m £m £m £m £m Gain/(loss) on pension scheme liabilities 89.6 (65.3) 4.8 1.0 (25.3) 28.8 (10.5) 35.0 (14.0) (54.9) Experience (losses)/gains on assets (152.9) (81.5) 36.4 5.7 10.2 (49.7) (39.6) 25.6 29.9 12.4 Franchise adjustment movement 57.3 152.3 (26.8) (5.7) 18.1 – – – – – Total (loss)/gain recognised in SORIE during the year (6.0) 5.5 14.4 1.0 3.0 (20.9) (50.1) 60.6 15.9 (42.5)

The Directors were unable to determine how much of the pension scheme deficit recognised on transition to IFRSs and then taken directly to equity is attributable to actuarial gains and losses since the inception of the pension schemes. Consequently the Directors are unable to determine the amounts of actuarial gains and losses that would have been recognised in the Group SORIE before 3 July 2004. Analysis of the change in the pension scheme liabilities over the financial year Rail Non-rail 2009 2008 2009 2008 £m £m £m £m Employer’s share of pension scheme liabilities – at start of year 1,026.5 652.0 436.2 404.5 Franchise adjustment (156.8) 2.1 – – 869.7 654.1 436.2 404.5 Liability movement for members share of assets (54.5) (12.3) – – Service cost 41.6 31.5 12.3 13.3 Interest cost 42.8 30.4 26.8 23.8 Interest on franchise adjustment (9.8) – – – Actuarial (gain)/loss (89.6) 65.3 (28.8) 10.5 Benefits paid (29.6) (26.4) (17.8) (15.9) Addition of Gatwick Express – 26.1 – – Addition of London Midland – 253.3 – – Franchise adjustment movement (57.3) (152.3) – – 713.3 869.7 428.7 436.2 Franchise adjustment 223.8 156.8 – – Employer’s share of pension scheme liabilities – at end of year 937.1 1,026.5 428.7 436.2

98 The Go-Ahead Group plc Annual Report and Accounts 2009 All ofthe above plans have been accounted IAS 19disclosures Deferred taxcharge Intangible assetamortisation Operating costs– franchise adjustment Income statement Tax onactuarial losses Actuarial losses Statement ofrecognisedincomeandexpense asset Intangible Deferred taxasset Defined benefit pension plan Balance sheet RPS toensurethatthefinancial statemen the terms ofeach franchise agreement. Following industry practi IAS 19would requiretheGroupto accountforitslegalobligation Estimated totalcontributions Estimated employeecontributions Estimated companycontributions Estimated contribu rebates) related age (including contributions Employee Company contributions Actuarial lossonassets Expected return onassets Fair value ofassets –atstartofyear pension the in change the of Analysis If the Group had accounted for the rail sche rail forthe accounted had Group the If to existatthe endofthefranchisewhich Grou The total surplus or deficit recorded isadjusted by wayofa‘franchise adjustment’, which is thatportion ofthe deficit ors and prevent gains arising ontransf ordertoachiev 19in ofIAS requirements fromthe departed and ofparagraph provisions the applied has Group so,the doing In schemes. benefit defined fornon-rail adopted treatment the and its constructive but notitslegal RPS defined benefit obligations Addition of Gatwick Express Express ofGatwick Addition paid Benefits been madetothe financial statements: Addition of London Midland Midland ofLondon Addition Fair value ofplan assets –atend ofyear ofassets ofmovement Members share tions for future future for tions in financialyear2010 er oftheexistingRPSdeficitsto in financial year 2010 in financial year 2010 scheme assetsover thefinancial year ts present fairly the Group’s financial position, financial performance and cashflows, and performance financial position, financial Group’s the fairly ts present mes inaccordance with the fullprovisions ofIAS 19the following adjustments would have for under IAS19 covering employee benefits. p will not be required to fund or benefit from. orbenefit tofund berequired not p will . InallotherrespectstheGr ce, the Group has concluded that the appropriate accounting pol accounting the appropriate concluded that has Group ce, the e afairpresentation of theGr anew franchiseowner atexit. under theformalterms oftheRPSanditsconstructive oblig Rail Non-rail (152.9) 869.7 705.8 (29.6) (54.5) 31.1 42.0 oup’s accounting policy iscons 2009 The Go-Ahead Groupplc AnnualReportandAccounts 2009 £m – – – oup’s obligations regarding its r 651.8 248.5 869.7 (81.5) (26.4) (12.3) 25.7 37.8 26.1 2008 £m – Rail

(145.9) (223.8) 376.8 352.7 (16.0) (49.7) (17.8) 41.3 57.3 21.2 56.7 29.4 53 6.5 15.3 15.3 22.8 81 21.8 38.1 (4.1) (9.8) 2009 2009 1.6 4.1 7.8 6.2 £m £m £m urplus projected projected urplus istent with IAS 19 – – –

is to recognise to is ail schemes ation under 17 ofIAS1 icy forthe (156.8) Non-rail Non-rail 109.7 152.3 380.0 376.8 (42.6) (94.6) (39.6) (15.9) 25.4 36.8 16.0 29.7 (1.1) 2008 2008 3.7 2.6 6.6 £m £m £m – – – –

Financial Statements Financial Statements Notes to the consolidated financial statements continued

29. Related party disclosures and principal subsidiary undertakings The consolidated financial statements include the financial statements of The Go-Ahead Group plc and the following material subsidiaries: % equity interest Name Country of incorporation 2009 2008 Brighton & Hove Bus and Coach Company Limited United Kingdom 100 100 City of Oxford Motor Services Limited United Kingdom 100 100 Go North East Limited United Kingdom 100 100 London Central Bus Company Limited United Kingdom 100 100 London General Transport Services Limited United Kingdom 100 100 Docklands Minibuses Limited United Kingdom 100 100 Blue Triangle Buses Limited United Kingdom 100 100 Go Northern Limited United Kingdom 100 100 Go Wear Buses Limited United Kingdom 100 100 Metrobus Limited United Kingdom 100 100 New Southern Railway Limited United Kingdom 65 65 London and South Eastern Railway Limited United Kingdom 65 65 Govia Limited United Kingdom 65 65 Abingdon Bus Company Limited United Kingdom 100 100 aviance UK Limited United Kingdom 100 100 Reed Aviation Limited United Kingdom 100 100 Meteor Parking Limited United Kingdom 100 100 PAS Direct Limited United Kingdom 100 100 Nikaro Limited United Kingdom 100 100 Chauffeured Parking Services Limited United Kingdom 100 100 Plane Handling Limited United Kingdom 100 100 Go South Coast Limited United Kingdom 100 100 Wilts & Dorset Bus Company Limited United Kingdom 100 100 Solent Blue Line Limited United Kingdom 100 100 The Southern Vectis Omnibus Company Limited United Kingdom 100 100 Marchwood Motorways (Services) Limited United Kingdom 100 100 Marchwood Motorways (Southampton) Limited United Kingdom 100 100 Hants and Dorset Motor Services Limited United Kingdom 100 100 Tourist Coaches Limited United Kingdom 100 100 Hants & Dorset Trim Limited United Kingdom 100 100 Go-Ahead Leasing Limited United Kingdom 100 100 London and Birmingham Railway Limited United Kingdom 65 65 Go-Ahead Holding Limited United Kingdom* 100 100 * Held by The Go-Ahead Group plc. All other companies are held through subsidiary undertakings. Transactions with other related parties The Group meets certain costs of administering the Group’s retirement benefit plans, including the provision of meeting space and office support functions to the trustees. Costs borne on behalf of the retirement benefit plans amounted to £0.3m (2008: £0.3m). Compensation of key management personnel of the Group The key management are considered to be the Directors of the Group. 2009 2008 £m £m Salaries 1.0 1.0 Bonus 0.6 0.5 Pension contributions 0.1 0.1 Share based payments – 0.2 1.7 1.8

100 The Go-Ahead Group plc Annual Report and Accounts 2009 • In our opinion: Act 2006 Opinion onothermattersprescribedbytheCompanies • In our opinion the parent company financial statements: statements onfinancial Opinion presentation ofthe financialstatements. theoverall and Directors; bythe made estimates accounting applied and adequately disclosed; the reasonableness of significant the parentcompany’s assessment of:whethertheaccounti misstatement, whethercausedbyfr assurance that the financial stat disclosures inthe financ An audit involves obtaining evidence about the amounts and statements ofthefinancial Scope oftheaudit for Auditors. Standards Ethical (APB’s) Board’s Practices the Auditing with tocomply us require standards Those Ireland). (UKand Auditing in accordance with applicable law and International Standards on responsibility isto auditthepa and forbeing satisfied thatthey give atrueand fair view. Our for thepreparation companyfinancial oftheparent statements Statement, setout onpage103, As explained more fullyin theDirector’s Responsibilities andAuditors ofDirectors Respective responsibilities opinions we have formed. report, orforthe body a membersas Company’s the and Company the otherthan toanyone responsibility assume To thefullest extent permittedbylaw,wedonotaccept or auditor’s an in tothem to state matterswe are required state totheCompany’smembersthose Act 2006.Our auditworkhasbeen in accordancewith Sections body, a as members, Company’s tothe solely made reportis This Accounting Practice). Accounting Standards (United Kingdom Generally Accepted applied intheir preparation isapplicable law and United Kingdom notes 1to14.The financial reporting framework that hasbeen sheetandrelated companybalance parent the comprise which The Go-Ahead Group plcfortheyearended27June 2009, We have audited theparent company financial statements of Independent auditors’ report tothemembersofTheGo-Ahead Groupplc Financial Statements • • •

Act 2006;and has beenproperly preparedin the partofDirector’s Rem as at27June2009; give atrueand fair viewofthe state oftheCompany’s affairs consistent with the parent company financial statements. year forwhich the financial statements areprepared is Dire the in given information the Kingdom Generally Accepted have beenproperlyprepared of theCompanies Act2006. have beenpreparedinaccord circumstances and have been consistently ial statements sufficient togive reasonable 495, 496 and497ofthe Companies rent company financial statements ements arefreefrommaterial AccountingPractice;and in accordancewithUnited report andfornootherpurpose. ance with therequirements uneration Report to be audited Reporttobeaudited uneration accordance withtheCompanies the Directorsareresponsible ctor’s Report for the financial ctor’s Reportforthe , forourauditwork,this , aud orerror.Thisincludesan undertaken sothatwemight ng policies areappropriate to 2 September2009 Newcastle upon Tyne For andonbehalfofErnst&YoungLLP,StatutoryAuditor Debbie O’ Hanlon (SeniorStatutoryAuditor) of TheGo-Ahead Groupplcfortheyearended27June2009. We havereported separatelyon Other matters • • • • in ouropinion: where the CompaniesAct2006requires ustoreportyouif, We have nothing to reportinrespectofthefollowing matters toreportbyexception Matters onwhichwearerequired

we requireforouraudit. we we have not received allthe information and explanations law arenotmade; or certain disclosures ofDirector’s agreement withthe accounting notin are Reporttobeaudited Remuneration Director’s the parentcompanyfinancial st or byus; notvisited frombranches received company, orreturns adequate forouraudit have not been adequate accounting records have not been kept by theparent The Go-Ahead Groupplc AnnualReportandAccounts 2009 recordsandreturns;or atements andthepartof the Groupfinancial statements remuneration specified by

101

Financial Statements Financial Statements Parent company balance sheet as at 27 June 2009

2009 2008 Notes £m £m Fixed assets Tangible assets 2 81.7 74.8 Investments 3 151.9 151.9 Financial assets 3.1 8.7 236.7 235.4

Current assets Debtors: amounts falling due within one year 4 367.1 312.9 Cash on deposit 10.8 13.8 Financial assets 0.6 13.9 378.5 340.6

Creditors: amounts falling due within one year 5 (140.5) (104.3)

Net current assets 238.0 236.3

Total assets less current liabilities 474.7 471.7

Creditors: amounts falling due after more than one year 5 (8.5) (3.4)

Net assets 466.2 468.3

Capital and reserves Share capital 8, 9 4.7 4.7 Share premium 9 67.2 66.6 Revaluation reserve 9 10.3 10.3 Other reserve 9 8.8 8.8 Capital redemption reserve 9 0.7 0.7 Reserve for own shares 9 (68.8) (68.8) Profit and loss account 9 443.3 446.0 Equity shareholders’ funds 466.2 468.3

Nick Swift, Group Finance Director 2 September 2009

102 The Go-Ahead Group plc Annual Report and Accounts 2009 • • statements, theDirectorsarerequiredto: loss oftheCompany forthat period. Inpreparing these financial view ofthestateaffairs statements unless theyaresatisfied that they give atrue and fair Under companylawtheDirectors law). applicable and Standards Accounting Kingdom (United Generally Kingdom United with have electedtopreparethefinancial statements in accordance statements foreachfinancial ye Company lawrequirestheDirectors topreparefinancial and regulations. and thefinancial statements inaccordance with applicable law The Directorsare responsiblefo Directors’ responsibilities inrelation to theparent companyfinancialstatements Financial Statements • • differ fromlegislationin the preparation and dissemination offinancial statements may Company’s website. Legislation in the United Kingdom governing of thecorporate and financial information included on the The Directorsare responsiblefo irregularities. other and offraud detection and prevention of theCompany and hencefortaking reasonable steps forthe Act 2006.Theyare alsoresponsibl ensure that the financialstatem the financial position oftheCompany andtoenablethem to transactions and disclose with reasonable accuracy at anytime records thataresufficient to The Directorsare responsiblefo

select suitable accounting policies and then apply them consistently; consistently; them apply then and policies accounting suitable select and prudent; prudent; and make judgements and accounting estimates that arereasonable explained inthe financialstatements; and and disclosed departures material toany subject followed, state whether applicable UK Accounting Standards have been continue inbusiness. unless itisinappropriate topresume thatthe Company will prepare thefinancial statements otherjurisdictions. show and explainthe Company’s the Company andoftheprofitor ents comply with the Companies the Companies with ents comply ar. Underthat law theDirectors Accepted AccountingPractice r preparing theAnnual Report r themaintenance and integrity r keepingproperaccounting onthegoing concern basis e forsafeguardingthe assets must notapprove thefinancial The Go-Ahead Groupplc AnnualReportandAccounts 2009 103

Financial Statements Financial Statements Notes to the parent company financial statements

1. Parent company accounting policies Pension benefits The Company is a member of The Go-Ahead Group Pension Basis of preparation Plan operated by The Go-Ahead Group plc for the majority of The separate financial statements of the Company are presented its employees. This defined benefit scheme is a multi-employer as required by the Companies Act 2006 and were approved scheme for which individual employer shares of the underlying for issue on 2 September 2009. They have been prepared in assets and liabilities cannot be identified and accordingly the accordance with applicable United Kingdom Generally Accepted Company accounts for them as defined contribution schemes. Accounting Practice. For the defined contribution schemes, the amount charged to No profit and loss account is presented by the Company as the profit and loss account in respect of pension costs and other permitted by Section 408 of the Companies Act 2006 and the post-retirement benefits is the contributions payable in the year. Company has taken the exemptions under FRS 1 to not present Differences between contributions payable in the year and a cashflow statement. contributions actually paid are shown as either accruals or The Company has taken advantage of the exemption available to prepayments in the balance sheet. parent companies under FRS 29 ‘Financial Instruments: Disclosures’ Share based payments so as not to provide the information otherwise required by the The Company has taken advantage of the transitional provision standard, as the Group’s consolidated financial statements, in which of FRS 20 and has applied FRS20 only to those options granted the Company is included, provide equivalent disclosures for the after 7 November 2002. The cost of options granted to Group under IFRS 7 ‘Financial Instruments: Disclosures’. employees is measured by reference to the fair value at the date Tangible fixed assets at which they are granted, determined by an external valuation Property, plant and equipment is stated at cost or deemed using an appropriate pricing model. In valuing equity-settled cost less accumulated depreciation and any impairment in options, no account is taken of any performance conditions, value. Freehold land is not depreciated. other than conditions linked to the price of the shares of The Go-Ahead Group plc (‘market conditions’), and to earnings per Assets held under finance leases are depreciated over the shorter share criteria. of their expected useful lives and the lease terms. The cost of options is recognised in the profit and loss account Depreciation is charged to the profit and loss account based over the period from grant to vesting date, being the date on on cost or valuation, less estimated residual value of each asset which the relevant employees become fully entitled to the award, evenly over its expected useful life as follows: with a corresponding increase in equity. The cumulative expense Short leasehold land and buildings The life of the lease recognised, at each reporting date, reflects the extent to which Freehold buildings and the period to vesting has expired and the Directors’ best long leasehold land and buildings Over 10 to 100 years estimate of the number of options that will ultimately vest or, in the case of an instrument subject to a market condition, be Plant and equipment Over 3 to 15 years treated as vesting as described above. The carrying values of items of property, plant and equipment No cost is recognised for awards that do not ultimately vest are reviewed for impairment when events or changes in except for awards where vesting is conditional upon a market circumstances indicate the carrying value may not be recoverable. condition, which are treated as vesting irrespective of whether If any such indication exists the assets are written down to their or not the market condition is satisfied, provided that all other recoverable amount. performance conditions are satisfied. Where an equity-settled Investments award is cancelled, it is treated as if it had vested on the date of Fixed asset investments in subsidiaries and associates are shown cancellation, and any cost not yet recognised for the award is at cost less provision for impairment. recognised immediately.

104 The Go-Ahead Group plc Annual Report and Accounts 2009 • no timingdifferences arerecognised inrespectof: standards, Except whereotherwiserequiredbyaccounting have originated but notreversed at thebalancesheet date. which differences timing all on provided is Deferred taxation and accounting purposes. differences between thetreatment ofcertainitems fortaxation and takes intoaccount taxation The charge fortaxation isbase tax Deferred • • the reserve for own sharestoprofitandloss. the reserveforown issue orcancellation oftheComp shares.reserve forown Anygain costs arealsorecognised inshareholders’ funds asaseparate are deductedfromequity.Consid uncancelled, remain which Company, the in shares Re-acquired Treasury shares but thathave notyetbeenreportedtotheCompany. respect ofincidentsoccurringpr se of with anestimate together on anassessment of theexpecte based is and advice professional appropriate taking after made The estimation of the balancesh are classified ascurrent. months after the balance sheetda have an unconditional right todefersettlementforat least twelve the overall stoploss.Ontheba to date,subject sheet tothe balance prior occurring for incidents liabilities fortheestimated cost current within made is accrual An excesslimits. the within excess limits and an annual aggregate stop lossfortotalclaims tohigh subject cover, claim individual These provide parties. third and public liability claims through insurance policies issued by The Companylimits itsexposureto thecostofmotor,employer Uninsured liabilities is notdiscounted to netpresentvalue. provision deferredtax The bepayable. thetax will estimated Deferred taxiscalculated attheenacted ratesatwhich itis

to sellthe asset; property revaluationsurpluseswhere thereisnocommitment into replacement assets; gains onsale ofassets where th than not that they willbe recovered. deferred taxassetsexcepttothe d on the profit for the year year forthe profit d onthe ttlements that will be made in deferred because of timing oftiming deferredbecause sis thattheCompanydoesnot to the Companytosettle claims ior to thebalance sheet date eet uninsured claims accrual is d settlement onknown claims, ose gainshavebeenrolled over or lossonthepurchase,sale, any’s sharesistransferred from eration paid and the associated te, theseuninsured liabilities extent that it is more likely morelikely itis that extent recognised directly intheprofit and lossaccount. repurchase, settlement orotherderecognitionofdebtare Amortisation ofliabilities and anygains and lossesarising on the measured atamortised costusing the effectiveinterest method. is amount carrying the recognition initial Following costs. issue the fairvalueofconsiderat Debt isinitially stated attheamount ofthenetproceeds, being Debt line basis overthe leaseterm. leases, arecharged totheprofit and lossaccounton astraight- amortisation oflease incentives and initial direct costs insecuring leases. Rentals payable under operating leases, and the ownership areretained bythele Leases where asignificant portion of alltherisks and rewards of Leasing commitments recognised inequity istransferred totheprofit and loss account. no longer expected tooccur,thenet cumulative gain or loss non-financial asset asdescribed above. Ifahedged transaction is account orincluded intheinitial carrying amount oftherelated transaction occurs, atwhich point it is taken to theprofit and loss instrument recognised inequity iskept inequity until the forecast point in time,any cumulative gain orlossonthehedging or otherwise nolonger qualifies for hedge accounting. Atthat is sold,terminated orexercised Hedge accounting isdiscontinued the profitand lossaccount astheyarise. or lossesarising from changes infair value aretaken directly to gains any accounting, forhedge qualify thatdonot For derivatives in the period which thehedged item affectsnetprofit orloss. deferred inequity arerecognised result in therecognition ofan asset or aliability, amounts of that non-financial assetorliability. Forhedges thatdo not been recognisedinequityare associated gains or lossesonthederivative that had previously liability, then at the time that asset orliability isrecognised, the hedge results inthe recognition ofanon-financial asset ora lo and theprofit in immediately recognised inequity and theineffective portion isrecognised designated and effectiveas he Changes in thefair value offinancial instruments that are balance sheetdate. instruments, and subsequently remeasured atfair value ateach recognised atfair value by refere associated with fuel price fluctuations. Such derivatives areinitially The Companyuses energyderi transaction price plus directly attributable transaction costs. Financial assetsare initially recognised atfairvalue, being the Financial assetsare accounted fo Financial assets The Go-Ahead Groupplc AnnualReportandAccounts 2009 dges of futurecashflows are ion received afterdeduction of vatives tohedgeitsrisks ss account.When cluded intheinitial measurement without replacement or rollover, r inaccordancewith FRS 26. ssor areclassified asoperating nce tomarket values for similar in the profit and loss account loss account and profit in the when the derivative expiresor the cashflow cashflow the 105

Financial Statements Financial statements Notes to the parent company financial statements continued

2. Tangible fixed assets Freehold land Leasehold Plant and and buildings properties equipment Total £m £m £m £m Cost or valuation: At 28 June 2008 74.4 5.2 3.9 83.5 Additions 1.0 0.8 6.9 8.7 Disposals (0.2) – – (0.2) At 27 June 2009 75.2 6.0 10.8 92.0

Depreciation: At 28 June 2008 6.5 0.8 1.4 8.7 Charge for the year 0.5 0.2 0.9 1.6 At 27 June 2009 7.0 1.0 2.3 10.3

Net book value: At 27 June 2009 68.2 5.0 8.5 81.7 At 28 June 2008 67.9 4.4 2.5 74.8

Freehold land and buildings include non-depreciable land amounting to £27.9m (2008: £27.9m). The net book value of leasehold properties comprises: 2009 2008 £m £m Leases with 50 or more years unexpired 1.3 1.4

3. Fixed asset investments Shares in Group companies £m Cost or valuation: At 28 June 2008 & 27 June 2009 151.9

Provisions: At 28 June 2008 & 27 June 2009 –

Net carrying amount: At 28 June 2008 & 27 June 2009 151.9

For details of the principal operating subsidiary undertakings as at 27 June 2009, refer to note 29 of The Group financial statements. As permitted under Section 410 (1) and (2) of the Companies Act 2006, the information is given only for the undertakings whose results or financial position, in the opinion of the Directors, principally affect the figures shown in the financial statements.

106 The Go-Ahead Group plc Annual Report and Accounts 2009 Other timing differences Capital allowances inadvance ofdepreciation Deferred taxation providedattheenacted rateisasfollows: At 27June2009 toequity directly Provided year the during Provided At 28June2008 6. The Companyhas nosecurity years two more than not but year one morethan In repayable: loans Bank Amounts falling due after more than one year deferredincome and Accruals Other creditors Amounts owed to Group undertakings overdrafts and loans Bank year one duewithin falling Amounts 5. debtors Other Corporation tax Amounts owedby Groupcompanies year one duewithin falling Amounts 4.

In more than two years but not more than five years years five more than not but two years morethan In Other financial liabilities Deferred taxation(note6) Uninsured claimaccrual

Other financial liabilities Deferred taxation Deferred taxation Creditors Debtors over its liabilities. liabilities. its over The Go-Ahead Groupplc AnnualReportandAccounts 2009

103.7 367.1 351.3 140.5 11.9 16.4 (0.5) (0.4) 2009 2009 2009 2009 0.1 8.6 4.2 3.9 0.4 7.2 8.5 8.5 £m £m £m £m – – – Deferred tax

312.9 309.4 104.3 79.3 (0.4) (1.0) (5.7) (6.1) (5.7) 2008 2008 2008 2008 0.4 4.2 5.8 1.3 2.2 6.3 3.4 5.7 7.1 2.2 3.4 £m £m £m £m £m – – – 107

Financial Statements Financial statements Notes to the parent company financial statements continued

7. Pension commitments Defined contribution: The Company participates in the defined contribution scheme of The Go-Ahead Group Pension Plan. This scheme is not contracted-out of the State Second Pension Scheme and is open to new entrants. The expense recognised in these accounts for the year is £0.1m (2008: £0.1m) being the contributions paid and payable. Defined benefit: The Company participates in a scheme which is part of The Go-Ahead Group Pension Plan. The assets of the scheme are held separately from those of the Company in an independently administered fund. The most recent actuarial valuation of the scheme was at 5 April 2006 and was updated by Watson Wyatt LLP to take account of the requirements of FRS 17 in order to assess the liabilities of the scheme at 27 June 2009 and 28 June 2008. The contributions paid to the scheme are paid in line with the schedule of contributions, being 13.3% and 11.2% of pensionable salaries paid to upper and lower tier sections respectively. The defined benefit scheme is effectively closed to new entrants. As a result it can be expected that the service cost will increase in future, as a percentage of payroll. However, this percentage is likely to be applied to a reducing total pensionable payroll. The scheme is a multi-employer scheme and in accordance with FRS 17, the Company has accounted for its contributions to the scheme as if it were a defined contribution scheme because it is not possible to identify the Company’s share of the net assets and liabilities in the scheme on a consistent and reasonable basis due to the high volume of members/pensioners and the historic interaction between Group companies. The following disclosures provide details of the entire defined benefit scheme. The main assumptions are: 2009 2008 % % Rate of increase in salaries 4.4 5.3 Rate of increase in deferred pensions 3.4 3.8 Discount rate 6.3 6.2 Inflation assumption 3.4 3.8

The fair value of the scheme assets and the expected rate of return, the present value of the scheme liabilities and the resulting deficit are:

Long term rate Long term rate of 2009 of return 2008 return expected Value expected Value % £m % £m Equities 8.5 138.8 8.4 148.2 Bonds 6.2 150.4 6.7 155.7 Properties 6.7 17.6 6.8 22.0 Cash 4.4 5.3 5.3 6.0 Total market value of assets 312.1 331.9 Present value of scheme liabilities (368.4) (376.3) Pension liability before deferred tax (56.3) (44.4) Related deferred tax asset 15.8 12.4 Net pension liability (40.5) (32.0)

Analysis of movements in deficit during the year: 2009 2008 £m £m At start of year (44.4) (14.5) Current service cost (5.3) (5.7) Net other finance income 2.7 5.7 Actuarial gains and losses (15.5) (44.2) Contributions 6.2 14.3 At end of year (56.3) (44.4)

108 The Go-Ahead Group plc Annual Report and Accounts 2009 income. tofixed right carry no which shares ofordinary class has one Company The Cancelled shares Issued onexercise As at28June2008 62.5 million 10p ordinary shares 8. (£m) –amount pension scheme assets Difference between expectedreturn and actual return on A historyofexperience below: gainsandlossesisshown Actuarial gains and losses liabilities ofscheme value thepresent underlying assumptions in effectofchanges STRGL: STRGL: experience lossesarising from scheme liabilities STRGL: difference betweenexpected Net otherfinance income Other finance cost: interestcost Other financeincome:expectedretu Total operating charge Current servicecost An analysisofthe defined be Experience gains/(losses) –%ofschemeassets arising on scheme liabilities As at27June2009 total recognised gains and losses Total actuarial –%ofthepresent gains/(losses) value ofscheme recognised liabilities inthestatement of (£m) –amount –%ofthepresent value ofscheme liabilities (£m) –amount Called up share capital Called upshare of shareoptions nefit costfortheyearended27June2009 isasfollows: rn onassets and actual return onassets in the scheme scheme the in

(42.2) (13.5) (15.5) (4.2) 2009 1.4 5.0

Authorised (33.3) 23.9 27.211.2 (10.0) 7.2 9.44.6 1.)1. 3.9 (16.2) (11.7) 16.1 14.1 (39.2) (44.2) 55.7 (1.6) 7.2 (0.9) 0.3 0.9 (3.1) (5.8) 25.0 2008 200720062005 Millions 46.8 4.7 46.9 4.7 The Go-Ahead Groupplc AnnualReportandAccounts 2009 0.1 –

–

2009 £m

Allotted, calledup and fully paid (42.2) (15.5) (23.2) 21.7 25.9 (5.3) (5.3) 2009 2009 2009 5.0 2.7 £m £m Millions £m 50.9 5.1 46.8 4.7 (4.6) (0.5) 2009 6.3 0.5 0.1 £m

(33.3) (44.2) (20.4) 26.1 (5.7) (5.7) (5.8) (5.1) 2008 2008 2008 2008 2008 5.7 6.3 £m £m £m £m £m 109

Financial Statements Financial statements Notes to the parent company financial statements continued

9. Share capital and reserves Capital Reserve Profit Total Share Revaluation Other redemption for own and loss capital & capital Share premium reserve reserve reserve shares reserve reserves £m £m £m £m £m £m £m £m At 30 June 2007 5.1 60.3 10.3 8.8 0.2 (80.6) 239.1 243.2 Retained profit for the year – – – – – – 321.1 321.1 Dividends – – – – – – (31.4) (31.4) Other recognised gains – – – – – – 16.3 16.3 Acquisition of own shares – – – – – (87.3) – (87.3) Share cancellation (0.5) – – – 0.5 101.1 (101.1) – Reserve transfer – – – – – (2.0) 2.0 – Arising on shares issued for share 0.1 6.3 – – – – – 6.4 options At 28 June 2008 4.7 66.6 10.3 8.8 0.7 (68.8) 446.0 468.3 Retained profit for the year – – – – – – 58.9 58.9 Dividends – – – – – – (34.8) (34.8) Other recognised losses – – – – – – (26.6) (26.6) Acquisition of own shares – – – – – (0.2) – (0.2) Reserve transfer – – – – – 0.2 (0.2) – Arising on shares issued for – 0.6 – – – – – 0.6 share options At 27 June 2009 4.7 67.2 10.3 8.8 0.7 (68.8) 443.3 466.2

The cumulative amount of goodwill written off to the profit and loss reserve of the Company at 27 June 2009 is £0.2m (2008: £0.2m). The reserve for own shares is in respect of 3,954,897 ordinary shares (8.4% of total share capital), of which 52,667 are held for Directors’ bonus plans. The remaining shares were purchased in order to enhance shareholders’ returns and are being held as treasury shares for re-issue in appropriate circumstances. The information required by Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 is provided in the Directors’ Report. The audit fee payable in respect of the Company was £0.2m (2008: £0.1m).

10. Operating lease commitments The Company’s annual commitments under non-cancellable operating leases are as follows: Property 2009 2008 £m £m Within one year – 0.6 In second to fifth years 2.1 1.2 Over five years – – 2.1 1.8

110 The Go-Ahead Group plc Annual Report and Accounts 2009 Amounts owedto relatedparty Management charges Amounts owedfrom related party Repayment of loan from related party party fromrelated ofloan Repayment Loans torelated party insurers, tocove Group’s ofthe ofone favour in The Companyhas issuedguarantees franchise commencedon11November 2007. costs wereincurred bySouthern,(2008: £8.7m)of Southeastern an During the yearSouthern, Southeastern and London Midland have Interest paidtorelatedparty party byrelated paid Dividends Limited. Govia in shares ordinary 65%ofthe owns Company The disclosed. notbeen have Go-Aheadplc of The Group The Companyhas taken advantage of theexemption underFRS8,‘Relatedpartydisclosure 14. Full disclosures oftheGroup’ssharesave Sharesave Scheme 13. At 27June2009lettersofcreditamounting to guaranteed schemes were£54.7m Vectis Group Pension Plan, and Wilts &DorsetPension Scheme in The Companyprovidesguarantees 12. (2008: £nil). At 27June2009 £3.2m wascontractedbutnot 11. owned by Govia Limited and hence the Company owns a 65% interest. 65%interest. a owns Company hence the and Limited byGovia owned London andSoutheastern Railway

Related partytransactions payments Share based Contingent liabilities Capital commitments Limited (‘Southeastern’) andLondon RailwayLimited andBirmingham (‘London Midland’)are100% as at27June2009 (2008: £42.7m). in respect of bank and equipment finance borrowings of the subsidiaries of The Go-Ahead Group p Group Go-Ahead ofThe subsidiaries ofthe borrowings finance equipment and respectofbank in dated30March2006toparticipat scheme, SIP and LTIP aregiven innote 6tothe Group financial statements. LSER GOVIA London £35.0m (2007:£35.0m)wereprovidedby (41.0) 56.5 67.0 22.9 provided inthefinancialst r liabilities ofthe Company and it’ssubsidiaries. 2009 1.4 – – 47.7 40.5 30.8 (6.0) 2008 0.2 2.3 – Thameslink Rail Limited, New Southern Railway Limited (‘Southern’ 46.1 traded with wholly owned subsidiaries of the Company; £5.6m Company; of the subsidiaries owned wholly traded with respect ofscheme liabilities arising. Total liabilities in res 2009 d LondonMidland on anarm’sle 0.7 – – – – – ing subsidiariesofTheGo-Ahe atements forthedevelopment 23.7 2008 0.2 – – – – – 2009 0.8 0.7 – – – – – a Companybanker,guaranteed bytheCompa The Go-Ahead Groupplc AnnualReportandAccounts 2009 s’, andtransactions with 100%subsidiar Midland Thameslink Southern 2008 0.4 – – – – – – ngth basis. TheLondon Midland ad Group Pension Plan,Souther 2009 of aGo-Ahead Londonprop 4.5 – – – – – – 2008 4.6 – – – – – – pect ofthese 27.7 2009 0.6 – – – – – ies 27.1 ), 2008 0.2 n erty lc. – – – – – ny, 111

Financial Statements Shareholder information

If you have not done so already, and Managing your now wish to register to receive future Corporate shares shareholder communications information electronically, please sign up via Shareview (details under ‘Managing The Company’s registrar,Equiniti, is www.go-ahead.com your shares’ above).The default option responsible for maintaining the Company’s [email protected] during this online registration is that register of members. Shareholders with your preferred method of delivery of queries relating to their shareholding Secretary and Registered Office Company communications is electronic. should contact Equiniti directly using the Carolyn Sephton details on this page. The Go-Ahead Group plc 3rd Floor, 41-51 Grey Street Shareholders can sign up for a Dividend payments Newcastle upon Tyne, NE1 6EE Shareview portfolio which enables Tel: 0191 232 3123 you to view information regarding Dividends are paid in April and your holding, change your address November each year.We recommend Head Office and bank details online, and even sell that all shareholders have their dividends The Go-Ahead Group plc or purchase shares in the Company. paid directly into their bank or building 6th Floor, 1 Warwick Row Go to www.shareview.co.uk and click society account.This is more secure than London, SW1E 5ER on ‘Register’ in the top left corner. receiving your dividend by cheque which Tel: 020 7821 3939 When completing your details you could be slow to arrive or get lost in the will need your shareholder reference post.The dividend is paid into your Registrar number which is the eleven digit account on the payment date which Equiniti Ltd number found on your latest tax means you do not have to wait for a Aspect House, Spencer Road voucher or share certificate. (Please cheque to clear before the funds are Lancing note that your share certificate may available.We will send you a tax voucher West Sussex, BN99 6DA state an eight digit shareholder following each dividend payment.To Tel: 0871 384 2193* reference number which is now invalid). select this method of dividend payment, please contact Equiniti. Auditors Corporate website: Ernst &Young LLP Duplicate Citygate www.go-ahead.com St James’ Boulevard documents Newcastle upon Tyne, NE1 4JD Earlier this year we launched our new corporate website which provides a Many of our shareholders have more Joint Corporate Broker wealth of information on the Company than one account on the share register, Investec Bank plc and its activities. Information available which means they receive duplicate 2 Gresham Street on the site includes half year results and documentation and split dividend London, EC2V 7QP interim management statements, which payments.To request that your accounts are not sent to shareholders, as well as be combined, please contact Equiniti. Joint Corporate Broker share price data, dividend information RBS Hoare Govett Ltd and the financial calendar.You can 250 Bishopsgate register to receive email alerts when Shareholder security London, EC2M 4AA new items are added to the website. Shareholders are advised to be Corporate Solicitors extremely cautious of any unsolicited Dickinson Dees LLP Electronic advice, offers to buy shares at a St Ann’s Wharf communications discount, or offers of free reports about 112 Quayside the Company.The Company does not Newcastle upon Tyne, NE99 1SB As far as possible, Go-Ahead provides endorse any specific share dealing Principal Banker shareholder documents via the facilities and will not pass on The Royal Bank of Scotland plc Company’s website www.go-ahead.com. shareholder information to any third 135 Bishopsgate Receiving the Company’s communications party, however, the Company’s register London, EC2M 3UR electronically offers advantages in terms is, by law, open to public inspection. of speed and convenience; it is a secure Any requests for access to the register Financial PR Advisors method of delivering shareholder are subject to ‘proper purpose’ Citigate Dewe Rogerson documentation and allows the Company requirements to ensure that the 3 London Wall Buildings to communicate with its shareholders information is not used unlawfully. London Wall in a more environmentally and cost London, EC2M 5SY effective way.

* Calls to this number are charged at 8p per minute from a BT landline; other telephony provider costs may vary.

112 The Go-Ahead Group plc Annual Report and Accounts 2009 Our companies are significant contributors to the UK’s public transport infrastructure with around 960 million passenger journeys undertaken on our services each year.

Certain statements included in this Annual Report 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 Aviation Services (100% owned) depend of future circumstances, and relate to events, not all of which are within the Company’s control or can be The Group’s aviation services division is one of the UK’s Operating Company 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 largest independent providers of cargo services (primarily Revenue (£m) 166.5 42.9 results could differ materially from those set out in the forward-looking statements. Nothing in this Annual Report Plane Handling), ground handling (primarily aviance UK) and should be construed as a profit forecast and no part of these results constitutes, or shall be taken to constitute, car parking (Meteor).The division operates from 15 airports Managing Directors PatrickVerwer – aviance UK Stephen Turner an invitation or inducement to invest in The Go-Ahead Group plc or any other entity, and must not be relied Rob Williams – Plane Handling upon in anyway in connection with any investment decision. Except as required by law, the Company undertakes and services major airline operators such asVirgin and bmi. no obligation to update any forward-looking statement. Geographical area Nationwide Nationwide Designed and produced by Black Sun plc Printed by Park Communications 8.9% Approx passengers 40 million 2.5 million Revenue (£m) served# / journeys Average number 4,732 959 £209.4m of employees 2008: £263.0m 2007: £241.6m Physical statistics** 15 airports 48,000 Printed by Park Communications on FSC certified paper. Park is an EMAS certified CarbonNeutral® Company and its Environmental parking spaces Management System is certified to ISO14001:2004. 100% of the electricity used is generated from renewable sources, 100% of the inks Operating (loss) / profit* (£m) used are vegetable oil based, 95% of press chemicals are recycled for further use and on average 99% of any waste associated with this production will be recycled. £(4.5)m This document is printed on Revive 50:50 Silk and Challenger Offset. Revive 50:50 contains 50% virgin fibre and 50% recycled fibre and For more information or to the pulp used is bleached using a Totally Chlorine Free (TCF) process. Challenger Offset contains 100% virgin fibre and the pulp is 2008: £1.5m 2007: £(3.8)m bleached using an Elemental Chlorine Free (ECF) process. Both papers contain fibre from well managed FSC certified forests. view this report online visit: This document is fully recyclable. www.go-ahead.com Division Rest of Group * Before amortisation and exceptional items. ** As at 27 June 2009. # Rounded to the nearest 5 million. + Keolis is a French-based operator of passenger transport services which is majority owned by the French national railway SNCF. The Go-Ahead Group plc plc Group Go-Ahead The Annual Report and Accounts Registered Office for the year ended 27 June 2009 3rd Floor 41–51 Grey Street Newcastle Upon Tyne 2009 NE1 6EE Telephone 0191 232 3123 Facsimile 0191 221 0315 2009 June 27 ended year the for Accounts and Report Annual Go-Ahead is one of the UK’s leading providers of bus,

On track For more information or to Shareholder Information Shareholder information and financial calendar 112 view this report online visit: www.go-ahead.com