Risks and Uncertainties
In our assessment, the key risks and uncertainties facing the Group at present are as follows: Last updated: September 2009
| Risk description | Potential impact on KPIs | Mitigation |
Group |
||
| Major accident or incident (including terrorism or disease such as swine flu) | Potential for serious injury, service disruption and lost
earnings |
|
| Inappropriate strategy or investment | Reduction in economic and shareholder value |
|
| Financial market instability | Loss of access to funds, loss of investments, interest rate exposure |
|
| Reduction in earnings due to ‘excessive’ wage settlements | A 1% increase in staff costs and salaries across the Group would increase costs by £8.7m |
|
| Political or budgetary changes | Changes to the regulatory environment or financial support from the government could impact the Group’s prospects |
|
| Increased pension scheme contributions | Adverse cashflow impact |
|
Bus | ||
| Bus fuel prices increase | An increase of ten pence per litre increases the cost of fuel by approximately £11m |
|
| Concessionary fare schemes do not provide an adequate economic return | Concessionary fares accounted for around 20% of the current year’s deregulated bus revenue |
|
| Economic downturn reduces demand for bus services | A 1% loss of revenue results in a reduction in operating profit of approximately £0.5m, assuming all costs are variable |
|
| London bus contracts not renewed | Adverse earnings impact |
|
Rail | ||
| Earnings volatility impacts Group’s financial strength | Rail represents half of the Group’s current year operating profit* |
|
| Economic downturn reduces demand for rail services | A 1% loss of revenue results in a reduction in operating profit of approximately £11m, assuming all costs are fixed |
|
| New Southeastern timetable (including high speed) from Dec 09 does not meet bid assumptions | Each 1% of revenue growth not achieved is approximately £5m of operating profit,* assuming all costs are fixed |
|
| Profit improvement plans in Southern franchise bid not delivered | Each 1% of revenue growth not achieved is approximately £5m of operating profit*, assuming all costs are fixed |
|
Aviation Services | ||
| Cyclical downturn in aviation sector | Reduced earnings due to lower number of aircraft turnarounds and cargo volume, and pressure on prices from airlines |
|
| Loss of key aviation services contracts | A significant amount of revenue is held through contracts which may be terminated with less than 90 days notice |
|
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