The Go-Ahead Group plc Interim Report for the six months ended 29 December 2007 Creating value through quality WorldReginfo - c31a7b98-3dc2-4644-9782-93552c35f2e6 What we do and who we are The Go-Ahead Group plc is one of the UK’s leading providers of passenger transport services operating in the bus, rail and aviation sectors. Employing approximately 27,500 staff across the country, we provide services to over 900 million passengers each year. In addition to the travelling public, customers include Transport for London (TfL), BAA, major airlines, local authorities and the Department for Transport (DfT). Vision and strategy The group’s declared strategy is focused mainly on the UK. It strives to achieve organic growth and actively seeks earnings enhancing additions. Strong cash flow provides the basis for a progressive dividend and share buy back policy to provide growing returns to shareholders. Contents 1 Highlights and financial summary 2 Chairman’s statement 7 Responsibility and cautionary statements Interim consolidated financial statements 8 Interim consolidated income statement 9 Interim consolidated balance sheet 10 Interim consolidated cash flow statement 11 Interim consolidated statement of recognised income and expense 12 Notes to the interim report 22 Directors and advisors 23 Independent review report to The Go-Ahead Group plc 24 Information for shareholders WorldReginfo - c31a7b98-3dc2-4644-9782-93552c35f2e6 Highlights • Strong revenue growth across the group • London Midland rail franchise commenced on 11 November • Acquisition of three bus operations • Exceptional charge for Go West Midlands • Progress in aviation services Financial summary Six months to Six months to Increase/ 29 Dec 07 30 Dec 06 (decrease) Revenue (£m) 1,027.9 915.2 12.3% Operating profit before amortisation and exceptional items (£m) 64.5 55.2 16.8% Profit before tax, amortisation and exceptional items (£m) 58.3 50.9 14.5% Profit before tax (£m) 45.2 46.9 (3.6)% Adjusted earnings per share* 78.4p 66.9p 17.2% Dividend proposed 25.5p 23.0p 10.9% * before amortisation and exceptional items 1 The Go-Ahead Group plc Interim Report for the six months ended 29 December 2007 WorldReginfo - c31a7b98-3dc2-4644-9782-93552c35f2e6 Chairman’s statement A good six months Sir Patrick Brown Chairman Summary This has been a good six months for the group. of additional revenue and £2.4m of operating profit* compared to the first half of last year. Revenue increased by 12.3% to £1,027.9m (2006 – £915.2m) and operating profit* rose by 16.8% to We have recognised an exceptional charge of £64.5m (2006 – £55.2m). Profit before tax, £8.2m against the carrying value of our Go West exceptional items and amortisation increased by Midlands bus operations whilst we review options 14.5% to £58.3m (2006 – £50.9m). Profit before for the business. tax decreased by 3.6% to £45.2m (2006 – £46.9m). The board proposes an interim dividend of 25.5p Adjusted earnings per share* increased by 17.2% per share, an increase of 10.9% compared to last to 78.4p (2006 – 66.9p). year’s dividend of 23p. The dividend is payable on Demand for our services remained strong in the 11 April 2008 to shareholders on the register at half year, and revenue increased in each of our bus, the close of business on 25 March 2008. 2.5 million rail and aviation services divisions. Our bus division shares were purchased in the period at a cost performed well with both our regulated London of £65.1m. and deregulated operations contributing to an increase in operating profit* of £4.5m, or 15.4%. Outlook Strong revenue growth continued in our rail division To date demand trends remain favourable. supported by increases in passenger numbers. Rail We intend to make further progress in our bus operating profit* increased by £5.8m, or 22.7%, division, although this is likely to be adversely despite a reduction in subsidy income and an affected by increased fuel costs. In rail, whilst increased profit share which had a combined impact passenger growth continues, reduced subsidies and of approximately £20m in the period. Our aviation increased profit share are expected to result in a services division made further progress. Although full year operating profit below last year. In aviation the operating loss for the period of £0.6m was services, our aim is to continue the progress made below the profit of £0.4m in the first half of last in the first half to restore the businesses to profit. year, it was better than the £4.2m loss incurred in the difficult second half of last year. Overall, We will continue to look for value adding operating profit margin* for the group increased acquisition opportunities and maintain our share from 6.0% to 6.3%, led by improvements in our buy back programme and progressive dividend bus and rail operations. policy to return value to shareholders. Acquisitions and the start of our London Midland Overall, we expect to deliver another good set franchise on 11 November 2007 contributed £68.6m of results for the second half of this year. * before amortisation and exceptional items 2 The Go-Ahead Group plc Interim Report for the six months ended 29 December 2007 WorldReginfo - c31a7b98-3dc2-4644-9782-93552c35f2e6 Operating result Six months to 29 Dec 2007 Six months to 30 Dec 2006 Year to 30 June 2007 Operating Operating Operating Revenue Profit* Margin Revenue Profit* Margin Revenue Profit* Margin £m £m % £m £m % £m £m % Bus 277.0 33.7 12.2 253.0 29.2 11.5 514.0 55.8 10.9 Rail 616.5 31.4 5.1 539.8 25.6 4.7 1,071.3 66.1 6.2 Aviation services 134.4 (0.6) (0.4) 122.4 0.4 0.3 241.6 (3.8) (1.6) 1,027.9 64.5 6.3 915.2 55.2 6.0 1,826.9 118.1 6.5 Divisional review Bus Quality incentive bonuses were similar to last year, Our bus operations performed well in the first half reflecting our excellent operating performance in of this year. External revenue grew by £24.0m, or the face of increasingly difficult targets and extensive 9.5%, to £277.0m and operating profit* increased road works in London. An additional quality regime by £4.5m, or 15.4%, to £33.7m. Margins* improved will be introduced in June 2008 to include measures by 0.7 percentage points to 12.2%. Current and such as bus cleanliness and driving standards. We prior year acquisitions contributed £17.5m to the aim to maintain our overall level of bonus from increase in revenue and £1.0m to operating profit*. the two schemes. Costs included an increase of approximately £1.5m due to higher fuel prices, broadly offset Cost control remains strong and we achieved a by a reduction in pension costs of a similar amount. small increase in our overall operating margin*. Operating profits* improved in both our regulated and deregulated bus services. Deregulated bus operations External revenue increased by 8.7% and passenger Regulated bus operations journeys grew by 2.5% against last year’s strong first Regulated external revenue increased by 11.9%, half. The increase in passenger journeys was supported benefiting from a 10.8% increase in the number of by free concessionary travel, which now accounts miles travelled. Approximately half of this growth for almost 30% of our passenger numbers and was through acquisitions with the remainder from around 20% of our revenue. We continue to work the net addition of new contracts. In December with local authorities to secure compensation which 2007 Metrobus acquired the 35 bus operations of provides a proper return on capital. The number of FirstGroup, based at Orpington. Later in that month concessionary passengers is likely to grow further we learned that Metrobus had lost a net 27 peak from 1 April 2008 when the scheme is extended vehicles from the TfL tendering programme, which to allow beneficiaries to use concessionary travel takes effect in our 2008/09 financial year. throughout the UK. 3 The Go-Ahead Group plc Interim Report for the six months ended 29 December 2007 WorldReginfo - c31a7b98-3dc2-4644-9782-93552c35f2e6 Chairman’s statement continued Bus (continued) year of 9.1% and 7.0% respectively. The pricing The number of fare paying passengers grew by regime of the franchises is set by the DfT and around 1% on a like for like basis in the period, regulated fares are increased annually by RPI + 1% following a particularly strong increase of 11.4% for our Southern and London Midland franchises in the first half of last year. In general, demand for and by RPI + 3% for Southeastern. These increases our services continues to grow, although passenger reflect the significant investment in new trains and numbers did fall in Brighton and Oxford in December. facilities, including the high speed services which we Recovery in January suggests that this was will introduce in Southeastern at the end of 2009. temporary and may have been linked to extended The increase in operating profit* was achieved holidays and weaker retail conditions. despite a reduction in subsidy for Southern and Southeastern and an increased profit share due to Our Go West Midlands bus operations reported a the DfT in Southern, which had a combined impact loss for the period and we are reviewing options for of approximately £20m in the period. this business. Pending the outcome of this review, we have assessed the carrying value of the assets Aviation services and have recognised any onerous lease obligations.