TIDMGOG
RNS Number : 6846N
Go-Ahead Group PLC
22 May 2020
The Go-Ahead Group plc 4 Matthew Parker Street,
London, SW1H 9NP
Telephone 020 7799 8999
PRESS RELEASE
22 May 2020
THE GO-AHEAD GROUP PLC
("GO-AHEAD" OR "THE GROUP")
TRADING UPDATE FOR THE YEARING 27 JUNE 2020
The Go-Ahead Group today provides a trading update for the year
ending 27 June 2020, ahead of the Group's full year results
scheduled to be announced on 10 September 2020.
-- During the COVID-19 crisis, we have three priorities: to
safeguard the health and wellbeing of our colleagues and customers;
to play our role in society in challenging times; and to protect
our business.
-- Go-Ahead has a resilient business model, with limited
exposure to changes in passenger demand, and government support in
all divisions.
-- We are providing vital regional bus services in England
supported by an essential Government funding package, which the
Department for Transport has indicated will continue beyond June
2020.
-- London & International bus performance is robust through
contracts in London, Singapore and Ireland.
-- Resilient financial performance in UK rail franchises offset
by weaker than expected German rail operation.
-- The Group has strong fundamentals. It is cash generative and
is expected to have around GBP200m* available in unutilised
facilities and cash at the year end. The Bank of England has
confirmed our eligibility for up to GBP300m additional financing
through its COVID Corporate Financing Facility. Adjusted net debt
to EBITDA is expected to remain within target range at the year
end.
-- With the impact of COVID-19 and support measures, overall
Group operating profit for the year ending 27 June 2020 is now
expected to be in the range of GBP63m to GBP75m (GBP54m to GBP66m
on a pre-IFRS 16 basis).
* Underlying liquidity has improved since the half year ended 28
December 2019. However, the total cash available has reduced as a
result of around GBP80m of UK rail cash currently being classified
as restricted due to the terms of the EMA.
Go-Ahead Group Chief Executive, David Brown, said:
"The last nine weeks have been unlike any other, and I am
extremely proud of how my colleagues across the business have
responded, keeping vital services running for other key workers and
increasing service levels to provide safe travel as people return
to work. I thank them all for the part they are playing.
"Go-Ahead is an extended family of 30,000 people and our
priority is safeguarding their health and wellbeing. Our thoughts
are with our colleagues who are currently unwell as a result of
COVID-19, and the families and friends of our people who have
tragically lost their lives.
"Our businesses are key parts of the communities they serve and
they have been fundamental in supporting these communities through
this crisis. This support has come in many forms; we have amended
timetables to align with hospital workers' shift patterns, run
shuttle services to hospitals and supported victims of domestic
abuse to reach safe places. We have also supported efforts in
tackling the crisis by bottling and distributing hand sanitiser for
key workers, delivering food packages to those in need, and
transporting medical equipment.
"We are pleased that governments have recognised the importance
of essential public transport networks. By providing financial
support they are enabling the delivery of vital transport links for
key workers and supporting the recovery of our communities.
"While none of us know what the coming months will bring, I have
no doubt that public transport will continue to play a critical
role in society, supporting our economies and tackling climate
change long in to the future. Go-Ahead has a strong track record of
delivery, and with a high proportion of secured revenues we are
well positioned to protect our business for the long term."
Our markets
Regional bus
In recent weeks we have been operating between 40% and 50% of
normal scheduled mileage, carrying around 10% of usual passenger
numbers, creating a misalignment between revenue and our cost base.
While we have taken measures to reduce costs wherever possible,
financial support is crucial to cover the costs of providing
essential services.
On 3 April 2020, the Department for Transport (DfT) announced a
12-week funding package of GBP167m providing support to bus
operators delivering vital services in England from 17 March until
8 June 2020. On 20 May 2020, the DfT confirmed that funding will
continue beyond June to support the increased levels of bus
services that will be needed as part of the Government's COVID-19
recovery strategy. Details of the arrangements are not yet
known.
Approximately 65% of the regional bus cost base relates to
employee costs. We have utilised the Government's Coronavirus Job
Retention Scheme to furlough around 50% of colleagues in this part
of the business. We welcome the announcement of the extension of
this scheme until October 2020 and will continue to utilise it for
our colleagues as needed.
In our regional bus business around 30% of revenue is derived
from contracts and concessionary income. In the vast majority of
cases, local authorities across the country have continued paying
for these services at pre-crisis levels. The Bus Services Operators
Grant, relating to fuel duty, is also being paid at the same levels
as before the COVID-19 outbreak in the UK.
For the full year ending 27 June 2020, we expect operating
profit for the regional bus division to be in the range of GBP17m
to GBP21m (on both a pre and post-IFRS 16 basis). This is based on
the assumption of continued Government funding during the rest of
June. We also expect further one-off non-cash restructuring costs
in the second half as we address underperforming areas of this
division.
London & International bus
As COVID-19 restrictions affected passenger volumes, transport
authorities in London, Singapore and Ireland responded by adjusting
service levels as appropriate.
In London, where we are currently operating around 75% of normal
service levels, revenue remains at pre-COVID-19 levels with
variable cost savings being returned to Transport for London (TfL).
We continue to earn Quality Incentive Contract (QICs) income for
the services we are operating.
In Singapore and Ireland, services have been reduced to around
80% and 90% of contracted levels respectively. However, we do not
anticipate this to have a material impact on the financial
performance of the division in the full year.
We continue to work closely with our transport authority clients
to prepare for service levels being increased in line with
government guidance.
For the full year ending 27 June 2020, we expect operating
profit for the London & International bus division to be in the
range of GBP46m to GBP50m (GBP45m to GBP49m on a pre-IFRS 16
basis).
Rail
Both GTR and Southeastern franchises are currently operating
around 75% of typical service levels, as specified by the DfT.
GTR
Following the DfT's announcement on 23 March 2020, regarding the
introduction of an Emergency Measures Agreement (EMA) to support
rail operators until September 2020, GTR has been operating under
these terms. The EMA has a maximum management fee of 2% of the
pre-pandemic cost base, back dated to 1 March 2020, comprising a
management fee of around 1.5% and a 0.5% performance-related
payment. For the period it covers, initially until September 2020,
the EMA contract restricts cash payments from the train operator to
the owning group. While GTR was already a management contract, the
new terms remove exposure to changes in the cost base and ancillary
revenue such as car parking and retail commission.
Southeastern
As previously reported, Southeastern began operating an 18-month
(plus six-month extension option) direct award contract (DAC) on 1
April 2020 running to 16 October 2021. The terms of this new
management contract mirror those of the EMA introduced across the
rail industry, but for the duration of the DAC. As with GTR, cash
restrictions are also in place under the terms of Southeastern's
contract.
Germany
We are currently operating around 70% of contracted services in
our German rail business, having operated around 55% throughout
April. We expect to resume a full-service during June.
As reported in our half year results, the early stages of our
rail contracts in Baden-Württemberg have been challenging. Issues
around availability and reliability of rolling stock, and driver
shortages have impacted operational performance and service
reliability, resulting in penalties and unplanned costs being
incurred.
While the reduced service levels in response to COVID-19 have
enabled us to deliver strong operational performance during this
time, the underlying challenges in this business remain,
particularly driver numbers which remain below the levels required
to operate a full service, and the pandemic has inevitably delayed
our driver training programmes.
While we are now operating with expected levels of rolling
stock, progress in recovering losses associated with the late
delivery of trains from the rolling stock provider has been slower
than anticipated. As a result, we now expect a more material loss
from the German business for the full year.
In light of ongoing challenges, a comprehensive review of our
German rail business is underway including an assessment of
longer-term financial expectations.
Norway
As specified by our transport authority client, we are currently
operating around 80% of contracted services in our Norwegian rail
business. This has increased from around 50% in April, as
restrictions begin to be lifted in Norway. While this is a revenue
risk contract, the Norwegian government has supported the rail
industry with a 12-week funding package back dated to 11 March,
expected to cover the lost revenue for this period. Discussions are
underway regarding ongoing funding to support increasing service
levels while demand remains supressed.
Rail division financial expectations for 2019/20
For the full year ending 27 June 2020, we expect operating
profit for the overall rail division to be in the range of GBPnil
to GBP4m (-GBP8m to -GBP4m on a pre-IFRS 16 basis), with the loss
in German rail offsetting profit from the UK rail business.
Cost reductions
Wherever possible we have sought to minimise costs and cash
outflows. Actions taken include suspension of the interim dividend,
a 20% reduction in Board members' salaries and fees, utilisation of
government job retention schemes, a freeze on all discretionary
expenditure and restrictions on capital spend (see below).
While it has been necessary to reduce supplier services in line
with our own service reductions, we have adopted a structured and
fair process, in line with our Sustainable Supply Chain Charter. We
have taken active steps to protect our essential supply chain,
including continuing to pay suppliers in line with the Prompt
Payment Code.
Capital expenditure
Where possible, we have frozen capital expenditure and, we have
chosen to lease rather than buy necessary vehicles to reduce cash
outflows where appropriate. We had previously guided to full year
capital expenditure of GBP140m but now expect this to be closer to
GBP90m. Looking to next year, we have greater flexibility around
capital expenditure, principally in the regional bus business.
Fuel hedging
In line with our policy, we were fully hedged for FY20 before
the COVID-19 outbreak. Based on expected volumes, which are
regularly reviewed in light of changing demand and mileage, no
further hedging is expected to be required for FY21. We will
continue to review our monthly hedging programme in light of
current low oil prices and expected requirements.
Liquidity and bank covenant
The Group has no debt maturities ahead of 2024. We have a strong
balance sheet and good liquidity with adjusted net debt expected to
be in the region of GBP980m (around GBP350m on a pre-IFRS 16 basis)
and unutilised facilities and cash of around GBP200m at the year
end. Underlying liquidity has improved since the half year ended 28
December 2019. However, the total cash available has reduced as a
result of UK rail cash of around GBP80m currently being classified
as restricted due to the terms of the EMA.
We maintain a positive dialogue with our finance providers and
keep our current facilities under review. The Bank of England has
also confirmed our eligibility for up to GBP300m additional
financing through its COVID Corporate Financing Facility.
Through a combination of available headroom on our committed
facilities, management action, and revenue protection through
contractual arrangements and government support, the Group is well
placed to withstand the challenges this crisis presents.
Following recent reviews, Moody's and S&P have reaffirmed
their credit ratings at Baa3 and BBB-, respectively. Both consider
the outlook to be stable.
Our bank covenant, in respect of our revolving credit facility,
is 3.5 times adjusted net debt to EBITDA (on a pre-IFRS 16 basis).
While this ratio is expected to increase from the 1.53 times we
reported for the half year ended 28 December 2019, we anticipate
remaining within our target range of 1.5 to 2.5 times at the year
end.
Dividend
On 23 March 2020, the interim dividend of 30.17p was suspended
in light of the uncertainty resulting from COVID-19. The Board
acknowledges the importance of dividends to our shareholders, which
include charities, educational institutions and pension funds, and
understands the part dividends play in supporting society and
national economies. The Board will continue to assess the Group's
ability to recommence returns to shareholders, and a further update
will be provided with the announcement of the full year results in
September 2020.
IFRS 16
The half year results reported on 12 March 2020 were the first
set of Go-Ahead results reported on an IFRS 16 basis. At the point
of reporting, Southeastern leases fell outside of the scope of the
standard as there were fewer than 12 months remaining on the
contract term. However, following the award of a new contract for a
minimum of 18 months, Southeastern's lease obligations now fall
within scope. This increased right-of-use assets by around GBP250m
as at 1 April 2020.
Our people
Our priority is safeguarding the health and wellbeing of our
colleagues around the world. We are following guidelines from local
and national governments, the World Health Organisation and
relevant advisory bodies, such as Public Health England, as well as
engaging with our colleagues and union representatives to ensure
appropriate measures are taken.
Colleagues have been provided with additional protective
equipment in line with government guidelines and measures have been
taken to minimise or remove cash handling. We have implemented
enhanced cleaning of vehicles and other workplaces, and have
introduced social distancing measures, including the provision of
information to help our colleagues and customers adhere to
government guidelines.
Outlook
In all of our geographies material uncertainties remain around
the easing of restrictions and the implications this will have on
public transport usage. The quantum and duration of government
support measures, particularly in our regional bus business, also
remains uncertain. Accordingly, we are not in a position to provide
guidance in relation to the 2020/21 financial year or beyond at
this stage.
A conference call for analysts and investors will be held at
8.00am. Please contact investorrelations@go-ahead.com for dial in
details.
ENDS
For further information, please contact:
Holly Gillis, Head of Investor Relations 07766 305 594
Press office 07896 968 971
GO-AHEAD
Go-Ahead is one of the leading UK public transport operator
companies. Our purpose is to be the local partner taking care of
journeys that enhance the lives and wellbeing of our communities
across the world. Employing around 30,000 people across our
businesses, over 1.2 billion passenger journeys are undertaken on
our rail and bus services every year. In addition to the travelling
public, our customers include governments and local authorities. We
are committed to contributing to tackling climate change, improving
air quality and reducing social isolation, and aim to run a zero
emission bus fleet by 2035.
BUS
Go-Ahead is one of the UK's largest bus operators. With a fleet
of nearly 6,000 buses, we carry over two million passengers every
day. We have a strong presence in London, with around 23 per cent
market share, where we provide regulated services for Transport for
London. Outside London, we principally serve high-density commuter
markets, including the North East, Greater Manchester, East
Yorkshire, East Anglia, South East and South West England.
Internationally, we operate a bus contract in Singapore and two bus
contracts in Ireland.
RAIL
The rail division operates two franchises in the UK and two
contracts in Germany. In the UK, Southeastern and GTR (Govia
Thameslink Railway) operate through our 65% owned subsidiary,
Govia, which is 35% owned by Keolis. It is the largest rail
operation in the UK, responsible for around 30 per cent of all UK
passenger rail journeys through its rail franchises. In Germany,
our contracts are run exclusively by Go-Ahead.
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END
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