Go-Ahead Group take swift action to mitigate the impact of Covid-19

The Go-Ahead Group (LON:GOG) today provided an update in light of the COVID-19 situation, following its half year results announced on 12 March 2020.

• During this 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.
• The Department for Transport today is announcing temporary changes to rail franchise agreements across the UK, including GTR, to support rail operators through management contracts over the next six months. We are also in discussions regarding a potential Direct Award Contract for Southeastern and expect a decision to be made by the end of the month.
• In regional bus, significantly reduced services have been introduced in response to declines in passenger numbers, with reductions in the cost base being made where possible. Discussions with Government and local authority continue regarding financial and contractual support.
• The Group retains a strong balance sheet with good liquidity under its existing facilities and maintains a positive dialogue with its lenders.
• The Board has decided to suspend the proposed interim dividend of 30.17 pence per share, reflecting the current priority of prudent cash management.

Key external developments since the Group’s half year results announced on 12 March 2020

The COVID-19 situation is rapidly evolving, particularly in the UK where the majority of our business activities take place, with developments directly impacting travel demand. In particular, on 16 March the UK Government issued advice for people to avoid non-essential travel, recommending working from home where possible, and on 18 March it announced school closures effective from Monday 23 March.

Our markets

Go-Ahead operates bus and rail services in a number of different markets. Much of our revenue is secured through contractual protections, and we have taken swift action to mitigate the impact of declining passenger revenue in our non-contracted markets, as set out below.

Approximately 75% of Group revenues are derived from contracted markets where there is no direct revenue risk from changes in underlying travel demand. Contracting authorities have begun to introduce reduced schedules and in these cases, our clients have committed to revised arrangements which mean we expect the financial impact on these parts of our business to be limited. The parts of our business that fall within this category are London & International bus, GTR and German rail.

The Group’s financial exposure is therefore predominantly linked to the proportion of its revenues derived from demand-driven commercial services which account for around 25% of Group revenue. The parts of our business that fall within this category are regional bus, Norwegian rail and Southeastern (due to expire on 31 March 2020).

Regional bus (as at half year accounted for 12% of Group revenue)

• Around two thirds of the Group’s regional bus revenue is generated through fare paying passengers on commercially run services, where we have seen a significant decline in passenger journeys.
• The remaining third is derived from concessionary fare reimbursement from local authorities and contracts and we are in discussions with national government and local authorities regarding the continued payment of concessionary income and other contract revenue.
• Enhanced weekend schedules have been introduced across our network, ensuring key workers are able to travel. We are reducing and removing costs where possible. Capital expenditure has been limited and all discretionary expenditure has been suspended.
• We are in discussion with the Government in relation to additional support for maintaining key services throughout the crisis, and continue to assess the impact of the Government’s pledge to support 80% of employee wages of those who are furloughed.

London & International bus (as at half year accounted for 15% of Group revenue)

• Transport for London (TfL) has taken the decision to reduce services to Saturday service levels from Monday 23 March. This represents around a 10% reduction in mileage operated.
• We have reached agreement with TfL that revenue will continue to be paid as contracted with variable cost savings being returned to TfL (i.e. operating on a “no net loss, no net gain” basis”). We remain eligible to receive Quality Incentive Contract income.
• TfL is supporting operators with costs of enhanced sick pay and cleaning.
• In Singapore and Ireland, we expect to continue receiving the same levels of contracted revenue, with variable cost savings being returned to our transport authority clients, similar to TfL.

Rail (as at half year accounted for 73% of Group revenue)

Southeastern (as at half year accounted for 28% of Group revenue)

• In response to rapidly declining passenger volumes, the DfT has taken the decision to reduce service levels to weekend schedules across the network.
• We are also in discussions regarding a potential Direct Award Contract for Southeastern and expect a decision to be made by the end of the month.

GTR (as at half year accounted for 45% of Group revenue)

• In response to rapidly declining passenger volumes, the DfT has taken the decision to reduce service levels to weekend schedules across the network.
• The DfT today is announcing temporary changes to rail franchise agreements across the UK, including GTR, to support rail operators through management contracts over the next six months.
• New terms remove GTR’s exposure to ancillary revenue (such as car parking), retail commission etc.

International rail (as at half year accounted for 1% of Group revenue)

• In advanced discussions with transport authority clients in Germany and Norway regarding changes to service patterns and government support.
• Our German business operates gross cost contracts while our operation in Norway generates revenue through passenger fares.

Liquidity

The Group has no debt maturities ahead of 2024. We have a strong balance sheet and good liquidity with adjusted net debt of £306.4m (on a pre-IFRS 16 basis) as at 28 December 2019, comprising £110.6m of unrestricted cash, and £134.3m of unutilised facilities. We maintain a positive dialogue with our finance providers and are reviewing our current facilities. The UK Government’s announcement of secured loan guarantees is expected to provide further assistance if required.

Through a combination of available headroom through our committed facilities, management action, and 75% of our revenue being protected through contractual arrangements, the Group is well placed to withstand the challenges this crisis presents.

Dividend

While the Group maintains a strong balance sheet with significant covenant headroom and liquidity, in the current circumstances our priority is to reduce operational costs, limit capital expenditure, where possible, and focus closely on cash management. In light of the rapidly evolving situation, the Board has taken the prudent decision to suspend the proposed interim dividend of 30.17 pence per share (amounting to a saving of £13m), announced on 12 March 2020, to be reviewed at such a time as there is greater clarity on the impact of COVID-19. The interim dividend, for which the ex-dividend date would have been 26 March 2020, will therefore not be paid on 17 April 2020, as previously scheduled.

We understand the importance of the dividend to our shareholders and will keep our dividend policy under review in the coming months.

Guidance

Given the evolving nature of the COVID-19 pandemic, it is too early to provide earnings guidance in relation to the remainder of the current financial year.

David Brown, Go-Ahead Group CEO, commented:

“Go-Ahead provides vital services, moving and connecting people to their communities across our networks. These services have become increasingly important to those working in essential roles such as NHS workers, emergency services and those in the food supply chain.

“Our priority is to ensure the safety and wellbeing of our colleagues and our customers, and we are taking all measures necessary to safeguard people, including additional cleaning. I would like to thank our colleagues who have been working tirelessly to ensure our services continue in these challenging times.

“Once this crisis is over, strong bus and rail connections will be needed to rebuild our economy and support our communities; providing links to education, employment, retail and leisure facilities, and between friends and families. In our regional bus businesses, this means we need support from national government in the short term to maintain these vital lifelines for the long term.

“In the meantime, we aim to support the UK’s efforts in tackling the crisis by providing unutilised buses to transport NHS workers, supporting supermarkets with food deliveries and delivering essential goods to cut off and self-isolating communities.”