Reporting of adjusted profit and earnings per share measures

The Go-Ahead Group plc has since 2013 disclosed in its Annual Report and Accounts the impact that IAS 19 (Revised) has had on earnings per share, dividend cover and debt leverage metrics.

The Board believes that these adjusted key performance indicators give a clearer and more consistent measure of the Group’s underlying performance. Going forward, for consistency and to improve understanding, the Group will also report adjusted operating profit and profit before tax excluding the impact of the revised methodology of IAS 19, alongside its statutory reported numbers.

IAS 19 (Revised) was introduced in 2011. It amended the methodology for recognition of the interest and service costs associated with the present value of assets and liabilities for pension schemes. This includes rail pension schemes where liabilities represent future commitments which are well beyond the period covered by the Group’s rail franchises. The standard requires that the cost of providing pension benefits in the future is discounted to a present value using corporate bond yield rates. As corporate bond yields vary over time, this creates inherent volatility in the Group Income Statement and Group Balance Sheet. These two factors make the Group’s current non-cash IAS 19 charge disproportionately higher and more volatile than the cash contributions the Group is required to make in order to fund the future liabilities for which it is responsible. The Group believes a more relevant and consistent measure of the cost of providing post-employment benefits is the underlying contribution excluding the volatile element of IAS 19.

The impact of IAS19 in the year to 2 July 2016 is forecast to be approximately £37.8m (FY15: £20.0m), comprising £30.2m for Rail and £7.6m for Bus. This represents an increased cost in FY16 of £14.2m for Rail and £3.6m for Bus compared with FY15 , with the full year FY16 impact on reported earnings per share being approximately 55p per share.  For bus the Group views these non-cash accounting charges as disproportionate to the Group’s pension deficit on its balance sheet liability, which for the Group’s bus schemes was £59.5m at 27 June 2015. For rail the long term responsibility for the pension schemes rests with the DfT, the Group only recognises the share of surplus or deficit expected to be realised over the life of each franchise. At 27 June 2015, the Group recorded a pre-tax liability of £nil (2014: £nil) for the rail pension schemes.

The Group already exclude the non-cash impact of IAS19 (Revised) from its calculation of dividend cover and free cashflow , where the difference between the cash contribution and the pension charge is added back. The new adjusted profit and adjusted earnings per share measures are consistent with this approach and, for the reasons outlined above, will provide more consistent measures of the Group’s underlying performance going forward.

The following table shows the impact of IAS19 on operating profit in both the bus and rail divisions, together with earnings per share over the last four years:

Impact of IAS19
Operating profit

FY’15
£'m

FY’14
£'m

FY’13
£'m

FY’12
£'m

BUS

 

 

 

 

Operating profit - As reported

89.0

83.5

74.4

767.4

Operating profit impact

4.0

3.3

3.8

2.8

Adjusted bus operating profit

93.0

86.8

78.2

70.2

RAIL

 

 

 

 

Operating profit - As reported

25.7

19.7

11.5

29.2

Operating profit impact

16.0

12.3

12.8

11.8

Adjusted rail operating profit

41.7

32.0

24.3

40.0

TOTAL

 

 

 

 

Operating profit - As reported

114.7

103.2

85.9

95.6

Operating profit impact

20.0

15.6

16.6

14.6

Adjusted total operating profit

134.7

118.8

102.5

110.2

Earnings per share

2015
p

2014
p

2013
p

2012
p

As reported

150.8

148.6

117.9

123.5

IAS 19 impact

30.8

24.0

21.7

18.4

Adjusted eps

181.6

172.6

139.6

141.9

Ends

For further information contact

The Go-Ahead Group
Peter Russell, Interim Head of Investor Relations/Paul Edwards, Interim FD
07966 941 890

Citigate Dewe Rogerson
Michael Berkeley/Chris Barrie/Angharad Couch/Eleni Menikou
020 7638 9571

Go-Ahead

Go-Ahead is a leading UK public transport operator, providing high quality services in the bus and rail sectors. Employing around 26,000 people across the country, over one billion passenger journeys are undertaken on our services each year. We are committed to operating our companies in a safe, socially and environmentally responsible way and are proud to have been accredited with triple Carbon Trust Standard for reductions in carbon, water and waste. In addition to the travelling public, our customers include the Department for Transport, Transport for London (TfL) and local authorities.

Bus

Go-Ahead is one of the UK’s largest bus operators. With a fleet of around 4,800 buses, we carry around two million passengers every day. Our operations are focused on high density commuter markets. We have a strong presence in London, with around 24 per cent market share, where we provide regulated services for TfL. We operate deregulated services in Oxford, East Anglia, the South East, Southern and North East England.

Rail

The rail operation, Govia, is 65 per cent owned by Go-Ahead and 35 per cent by Keolis. It is the largest rail operation in the UK, responsible for around 35 per cent of all UK passenger rail journeys through its rail franchises: GTR (Govia Thameslink Railway), Southeastern and London Midland.

Disclaimer

Certain statements included in this press release 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 depend of future circumstances, and relate to events, not all of which are within the Group’s control or can be produced by the Group. Although the Group 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. Nothing in this press release should be construed as a profit forecast and no part of these results constitutes, or shall be taken to constitute, an invitation or inducement to invest in The Go-Ahead Group plc or any other entity, and must not be relied upon in any way in connection with any investment decision. Except as required by law, the Group undertakes no obligation to update any forward-looking statement.