January 24, 2022

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Edited Transcript of GOG.L earnings conference call or presentation 12-Mar-20 9:00am GMT

London Apr 7, 2020 (Thomson StreetEvents) — Edited Transcript of Go-Ahead Group PLC earnings conference call or presentation Thursday, March 12, 2020 at 9:00:00am GMT

Good morning. I’m impressed by the turnout. Thank you very much for being here. No hand shaking. That’s okay. I think there might be some dominant news of today, anyway, that people will talk about. I’ve just come off from media calls. There’s only one thing that people are talking about, and you can imagine what that is at the moment.

So this is — well, welcome to The Go-Ahead’s half year results ending 28th of December 2019. With normal practice, I’ll just take you through some highlights in a second. I’ll pass over to Elodie, who will take you through the detail of the financials. I’ll come back and give you a bit more color, and then we’ll go through the Q&A.

So group operating profit for the half year of GBP 60 million, slightly reduced. That’s reflecting our full year expectations slightly reduced, reflecting cost pressures and adverse weather in regional bus. We’ve, obviously, put in here about coronavirus situation. It is evolving. Travel plans, we do think, will change. As we come along, we know that the government are going to make more announcements today, we’ll find out what that means to us. I’m sure you’ve got lots of questions to ask about that, and we will take that through on the Q&A.

Bus operating profit down 3.4%, very good, strong performance in London & International division, which partly offset the weaker regional bus results.

Rail operating profit in line with our expectations. Good rail results again that we’ve had, but they have an impact on — or offset some of the weaker results coming from Germany.

We’ve maintained our interim dividend.

One of the things I would say in our operational performance, operational performance is pretty good across the patch. Got record punctuality levels and customer satisfaction in both GTR and Southeastern, and record leading — sector-leading in terms of customer satisfaction in — on our buses.

We’re in the final stages of discussions with the Department of Transport over a direct award contract for Southeastern, and we’ve had our first rail contract start in Norway, and more contract starts in Germany and buses in Ireland.

With that quick business overview, I will pass on to Elodie, who will take us through more detail.

Well done. Well done. Thank you, David. Good morning, everyone. So before I get started, it’s just worth reminding you that this is our first set of results on an IFRS 16 basis. So we’ve tried to make it as clear as possible for you. And before getting into the detail, I’ll just briefly run through the impact of IFRS 16 on our numbers.

So as you can see on the first line of this table, the introduction of right-of-use assets on to our balance sheet Increases EBITDA in the half year by GBP 176 million as operating these charges are no longer recognized in the income statement. However, depreciation also increases in the same order of magnitude, which means the impact on group operating profit is relatively small at GBP 5.2 million. Net finance costs increased by GBP 7.3 million. And as a result, PBT sees a small impact of GBP 2.1 million. Although the standard does not impact our net cash flow, higher levels of EBITDA results in free cash flow [reducing] by GBP 168.3 million. There’s also a material impact on adjusted net debt of just over GBP 625 million.

Just to note that our bank covenants will remain on the pre-IFRS 16 basis. So we will continue to present adjusted net debt-to-EBITDA ratio on this basis, alongside the IFRS 16 reporting going forward. But for this half year, we do not have the relevant data yet to calculate EBITDA on a rolling 12-month basis due to the timing of the standard being introduced. So the chart that we’ve added on this slide just illustrates what I’ve just explained, which is depreciation offsetting operating costs and a limited impact on PBT.

So briefly, on a divisional basis, you’ll see that the standard has a material impact on our numbers in some parts of our business, but little impact in others. Within regional bus, it is negligible as we buy rather than lease our buses in that area. There’s also very little impact in Singapore and Ireland, where the buses are provided to us by the local authority. In London, however, there’s a more material impact as around half of our fleet is on operating leases.

In rail, story of two halves really. GTR is materially impacted, but Southeastern, on the other hand, is out of scope as its rolling stock leases have less than a year remaining. Should we enter into a direct award contract lasting more than 12 months, Southeastern leases would then become eligible under IFRS 16, just to make it simple. Our German and Norwegian rail contracts are not impacted by the standard, and that’s due to its features within the contractual arrangements causing the leases to fall out of scope.

So having got IFRS 16 out of the way, what we thought we’d focus on is the pre-IFRS 16 basis for the sake of analyzing the year-on-year variances and focusing on actual business variances. So the year-on-year change column that you can see here is on a like-for-like basis.

So overall, you can see the bus division profitability has seen a dip of GBP 2.3 million, and this reflects strong performance in our London & International division, partially offsetting a weaker performance in regional bus.

In rail, the first half profit fell by GBP 7.4 million. A reduction in profitability was expected in Southeastern as we move to new contractual terms in June 2019, and we were also forecasting initial losses in Germany in the first year of operation.

So I’ll take the divisions in turn. So looking at regional bus. In the first half, we’ve seen a decline in year-on-year profits of GBP 4 million. There are a number of moving parts impacting this performance, which I’ll discuss, in turn, and hopefully, you’ll be able to follow on the chart.

So when we spoke to you in September, we talked about switching our focus to yield improvements following a period of strong passenger growth. I’m pleased with the progress we’ve seen here. Yield growth, which is the difference between passenger growth and revenue growth, is up to 2.1% from 0.7% at the full year, and we’ve seen a good improvement in revenue per mile. And what’s important to note is that passenger numbers are still up slightly by 0.4%, which indicates that we’ve retained the new passengers that we attracted in the prior year following our strategic drive to get more people onto our buses.

However, net increases in costs have exceeded passenger yields, and these include things like higher bank charges arising from channel shift away from cash payments; marketing activities, which have contributed to our healthy revenue growth; and the cost of maintaining a greener bus fleet.

I’ve spoken before about this ongoing investment in new cleaner buses, which also results in higher depreciation charges, which is the second red bar on the chart. And we continue to see this increase as we replace older vehicles with Euro 6 hybrid and electric buses.

The operational costs relate mostly to driver efficiency, which has been impacted by operating on increasingly congested roads leading to high levels of overtime. Other factors such as holiday pay have increased our baseline costs year-on-year.

As previously flagged, our Go North West operations will take longer to turn around than initially expected, following the acquisition of FirstGroup’s Queens Road depot in June last year, and we continued to integrate our East Yorkshire business, bringing it up to Go-Ahead standards. This impacted year-on-year performance by GBP 1 million. So while revenue performance is good, our margin has been impacted by operational cost increases, and our lower-margin acquisitions, which we’re gradually turning around.

The final bar to flag here is the one-off restructuring costs of GBP 500,000, is the final red bar on the chart. They relate mainly to the withdrawal of the X90 coach service from Oxford to London and more work is underway to tackle underperforming areas across our regional bus. So we expect to see further one-off costs in the second half of the year.

So turning our mind to the full year outlook for regional bus. We have implemented a profit improvement plan to mitigate the cost increases, which caused the decline in profit in the first half. And we’re driving process and behavioral change to deliver sustainable efficiencies in our operations. We’re confident that the majority of the first half shortfall can be mitigated by these plans. However, it’s fair to say that in the last few weeks, revenue has been impacted by adverse weather across the regions. And while it’s unclear how the situation will evolve, we also believe it’s reasonable to assume that travel patterns will be impacted by the coronavirus outbreak in the second half. So our expectations for the full year have reduced, reflecting our performance in the first half and emerging revenue headwinds in the second half.

Moving on to London & International bus. Our business in London delivered strong results, supported by new contracts beginning in the period and continuing robust QICs performance. High levels of punctuality resulted in an increase in QICs income of GBP 1.3 million even on a strong comparative performance last year, and this provides scope for contract extensions.

Our International bus operations also performed well in the first half. Combined, Singapore and Ireland contributed another GBP 500,000 to the year-on-year profit improvement, and both are trading profitably.

There’s no change to our outlook for the year. We continue to expect profit to be flat year-on-year. That’s despite increased international bid activity in the second half and the nonrecurrence of the GBP 2 million additional contract work that we benefited from in the second half of last year.

Turning to our rail division. As mentioned earlier, we always expected a year-on-year reduction in profits as the Southeastern franchise began operating on less favorable terms in June 2019. And we also anticipated our new German rail operations to be loss-making in the initial stages of the contract as revenue built up more gradually than costs.

Despite Southeastern’s profits falling year-on-year, the franchise actually achieved a better-than-expected performance, driven by our strong operational delivery. GTR’s operational performance has also been very good. The franchise achieved — contributed 10 — just over GBP 10 million year-on-year increase in profitability.

On to Germany. As I mentioned, we did forecast losses in the early stages of the contract. However, they have been more material than expected. We have experienced issues with availability and reliability of rolling stock and driver shortages, both of which have resulted in service disruption. As a result of the disruption, we have incurred performance penalties under our contractual terms. We have also incurred additional costs as we have hired temporary rolling stock and drivers to keep services running. We have submitted claims to the rolling stock provider, and have entered into commercial discussions with both them and the local transport ministry.

Whilst plans are in place to improve performance and stabilize the cost base, the nature of these issues means the full benefits will not be realized within short timescales. We expect the contracts to gradually become profitable as operational performance improves and associated penalties reduce. Whilst we do not expect them to contribute in the current or following financial year, we anticipate that they will be value-adding over their 13-year lives.

And finally, we benefited in the period from the closeout of old franchises. This one-off benefit has mitigated the impact of losses in Germany, which, combined with strong performance in our U.K. operations, results in our expectations for the full year remaining unchanged at this stage. Due to the nature of the issues in Germany, we will continue to assess the financial outlook as we progress through service improvement plans and contractual discussions.

Moving on to the cash flow. You can see the material impact of IFRS 16, which I touched on earlier. On a pre-IFRS 16 basis, free cash flow generation fell in the period and that reflects increased capital investments of GBP 25.5 million, which I’ll come on to on the next slide, and an increase in tax paid, which is largely due to changes in HMRC rules for payment on accounts. So as a result of that, our adjusted net debt increased.

So capital investments in a bit more detail. There’s a year-on-year step-up in tangible investments and that reflects mostly, if you look at the bus fleet line, the additional contract wins that I’ve mentioned in London and the normal cycle of investment in our regional business. You may remember that some of these investments were delayed from last year and we’re seeing them coming through now.

Net capital investment is also impacted as sales of assets — by sales of assets, both buses and property in the prior year, and higher mobilization costs for Ireland and the Nordics this year.

I’ve already explained the increase in our net debt position. As I’ve mentioned, the bank covenants will remain on a pre-IFRS 16 basis. And our net debt-to-EBITDA ratio has increased to 1.53, which is right at the bottom of our target range.

Just to note that as we transitioned to reporting solely on an IFRS 16 basis, net debt is likely to fluctuate materially due to the value and nature of the rail division rolling stock leases. There were no particular changes to our facilities to point out, and there’s limited movement in amounts drawn down compared to where we were at the full year.

So I’ll wrap up with the financial outlook for the full year. So in regional bus, as described, we expect management action to mitigate the majority of the year-on-year dip in profits that we’ve seen so far. However, revenue headwinds, linked to adverse weather and the coronavirus situation, are expected to impact second half profitability.

In London & International bus, our outlook is unchanged and we expect a consistent performance with the first half of the year.

In rail, while there are a number of moving parts, our overall outlook is unchanged for this year, as we expect the strong performance of U.K. franchises, along with the benefit of closing our old franchises, to offset the larger-than-expected losses in Germany.

We’re in the final stages of discussion with the DfT regarding a potential direct award contract for Southeastern. Just to point out that I don’t expect the outcome of these discussions to materially impact our financial expectations for this year as any profits in the final quarter would mostly offset what we’re currently expecting to see unwinding at the end of the franchise.

On CapEx, we anticipate roughly GBP 140 million worth of spend, split around GBP 120 million for bus and GBP 20 million for rail. The increased guidance relates to the contract wins that I’ve mentioned in London, but also a recently awarded contract in Cornwall, which David will mention.

And with that, I’ll hand you back over to David.

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David Allen Brown, The Go-Ahead Group plc – Group Chief Executive & Director [3]

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Thanks, Elodie. So I’ll just start off with our strategy on a page just to remind you of it. It gives us both clarity within the business and accost our stakeholders of what we’re doing, why we’re doing it and how we’re doing it. And our purpose is to be a local partner taking care of journeys that enhance the lives and well-being of their communities across the world.

And our first pillar is protect and grow the core, and I’ll start off with regional bus. So while there are current challenges in regional bus, for the first time in a few years, the context for buses is changing. The recent government focus and announcements of a GBP 220 million and a GBP 5 billion of funding is recognition of the role buses play in delivering cost-effective solutions for access to employment, education, socialization and air quality. The funding will take time to filter through to our bus companies, but measures to improve bus priority, suppress car usage, support weekend services and help fund the transition to electric buses will lead to improved bus speeds, thereby reducing costs and encouraging passenger growth.

We are especially pleased that our lobbying for a national bus strategy has been heard and we’re expecting the government to deliver later this year, which will set the funding and bus priority measures on a longer-term footing, so it’s really good news.

Until then, congestion continues to be the biggest issue within our regional bus businesses. This has, for instance, directly impacted our Oxford-to-London coach service, which we had to withdraw in December due to increasing journey times through to London. And for example again, 5 routes in Go North East now cost GBP 100,000 extra to operate compared with 5 years ago because of congestion.

Passenger growth this period, and Elodie has gone through that, was 0.2% against an overall decline of 0.1% outside of London. And while we saw last year passengers numbers grow, while yield declined, we have now managed in this period to improve yield whilst retaining customer numbers. For example, in Go North East, the commercial passenger revenue has increased for a number of different fares initiatives and projects over there.

We’re looking at reducing costs where possible through lean engineering, reducing unprofitable routes and scheduling efficiencies. This is the aggregation of marginal benefits. I’ve talked about it before, you carry on doing it and we’re doing it again.

But we’ve got some more innovative examples. So for example, Go Check app, which will — which is going around our businesses, speeds up and standardizes vehicle inspections, makes sure the maintenance processes are clearer and crisper and these efficiencies will lead to savings.

Our customers continued to show their satisfaction with our services, and we’re leading the sector at 92 — leading the industry at 92%.

And we’ve got some other initiatives. So the rollout of contactless Pay As You Go, which is capped first in Brighton and Crawley has been a big success. That 30% of our journey is now being paid this way and especially popular amongst infrequent travelers. We make it easy, therefore, they’re likely to travel with us. And this is being rolled out across our business.

We continued to invest in a cleaner, greener fleet with the introduction of 87 buses, including 30 long-range electric hybrid buses in Brighton geo-fenced. We still operate the largest fleet of electric buses in the U.K. and have committed to having a zero-emission fleet by 2035.

Buses are vitally important for the communities they serve. We have a number of initiatives across the whole of the U.K. where we serve our communities. And for example, in Plymouth, they’ve rolled out defibrillators onto our buses and training the drivers to use them.

The acquisitions we’ve made over the last few years, Swindon, East Yorkshire, Manchester, all have been doing well. And they haven’t yet reached the margins we expect from our businesses across the patch, but they are — we’re very pleased with their transformation in terms of culture, local authority relationships, employee relationships and performance.

In Manchester, for example, we’ve seen customer growth across some key corridors, up 6.2%, which is a result of increasing the number of miles we operate, doing it more punctually and with improved schedules. And so we believe Manchester is a really good market for buses.

Turning now to London. London’s Ultra Low Emission Zone is due to expand in October ’21. It will reach the north and south circulars, and we hope that will lead to modal shift. Mayor has asked the TfL to speed up the introduction of zero-emission buses. So by 2025, they will have 2,000 electric buses on the street and be carbon-neutral by 2030.

Bus passengers for London, as a whole, are down 1.2% year-on-year. But the TfL service reductions, which have been following some of that, have now stabilized.

Our QICs performance has increased through improving operational performance and some of our liaison with TfL. So that’s very good news. And as Elodie said, that’s on the back of previously really good QICs performance from last year.

We’ve won more contracts during the period, and that’s led to an increase in mileage of 4%. We have over 100 electric buses now and leading to 200 by June 2020. And we were awarded the “Nobel Prize” for sustainability, the Energy Globe Award (sic) [International Energy Globe Awards] for our work at Waterloo depot.

Driver recruitment remains one of our biggest challenges to this business as we prepare for additional work. However, we’ve introduced an apprenticeship program and that’s proven to be very successful. Not only we are putting 40 bus driver apprentices through that every month, our retention of those people at the end is far better than any other previous training programs that we’ve undertaken.

We are trying to achieve the ambition of Vision Zero for London, which is the mayor’s aspiration. So we’re rolling our intelligent speed adaptation and automated braking systems to improve safety.

We continue to look at innovative cost-saving measures. So in London, we’ve got auto allocation for drivers and remote sign-on. And it is important to remember, and I think I do say this quite regularly, that London buses still carry 200 million more passenger journeys each year than all of the other TfL services combined.

The mayor’s strategy is to have 80% of all journeys by 2041 operating in a sustainable mode, so that will be cycling on public transport. And the population growth in London still continues at 3.7% over the next 5 years. Generally, that it will be in the suburbs, which is where 2/3 of all our buses operate.

Turning to International bus. In Singapore, our operations continued to perform really well. We delivered an improved financial performance compared to the prior year. And our on-time performance, for instance, was 94% for July to December. We’ve got rising customer satisfaction score, over 99%, which is pretty good. We’re driving standards up across the whole of the bus network in liaison with the Land Transport Authority.

In Ireland, we’re now approaching 30 routes with 182 buses. We’ve just introduced the commuter — Dublin Commuter services in December and in January. Our customer satisfaction is on an upward trend. We’re meeting our contractual targets and delivering improvements and really showing some really good performance in Ireland.

Moving to U.K. rail on a national basis on this particular instance. So the U.K. rail has been — had some challenges during the period. Northern and South Western have had some publicized financial difficulties, ultimately leading to Northern being taken over by the government’s operator of last resort.

There is a general acceptance for the need for reform in the franchising system and its interdependencies between government, private operators and network rail. We look forward to the publication of Williams Review this year, which we hope will set out a renewed balance of risk and reward, actually make it really clear about the ownership of the customer and introduce fares reform.

Against this background, we’ve been through some of our own challenges in the past years, but we’re now running really high-performing, stable services and passenger numbers are up across our services and across the Southeast.

We believe private operators have their role to play in delivering major change programs and providing better services, get more people to work, education, leisure than ever before and we anticipate that this will continue post-Williams.

Turning to the individual businesses on railways. On Southeastern, continues to be a very strong franchise. It delivered its highest ever autumn performance, with on-time punctuality over 69%. This has helped with a really good partnership that we have with Network Rail, and that’s probably one of the best in the industry. And we started running this franchise 13 years ago, and in that time, passenger numbers have grown by 40%. We’ve invested GBP 218 million. We’ve run and introduced the U.K.’s first high-speed service, which celebrated its 10th anniversary last September. It’s now carrying 100 million journeys, and contributing GBP 3.8 billion of economic benefits to Kent.

Our customer satisfaction is at 81% in the most National Rail Passenger Survey. It’s the best Autumn score since 2013. And we’ve got increased — significant increases under that satisfaction for punctuality and staff helpfulness.

We continued to drive for employee diversity, so 20% of our people at Southeastern are now female. And last week, we showcased an all-female operated train service for International Women’s Day.

We’ve introduced Delay Repay, Delay Repay 15 minutes, and making it easier for people to claim when things do go wrong. And the franchise’s operation under a contract extension to the 31st of March of this year and we’re in the final stages of our discussion with DfT regarding a direct award contract.

On GTR, it’s still the largest franchise in the U.K., running 3,600 services a day. It’s also U.K.’s most punctual large train operator. And we had a 4.6% for improvement on, on-time performance, up to 71%. Southern, one of its brands, has had the best customer satisfaction performance since franchising began. And our NRPS scores are up 8% on the previous autumn of 82%. And also, in the autumn, GTR successfully completed a GBP 2 billion program of train modernization with the introduction of 2,300 new and nearly new carriages.

Smart ticketing progress continues. 40% rise in season tickets activated on the smartcard contactless. Pay As You Gos have been extended outside of London to 13 stations from as wide as Luton to Welwyn Garden City.

We’ve got the award-winning Princess Trust. We’ve been working with them for a long time now, and we’ve got 150 young people from disadvantaged backgrounds entering the business. We’re particularly proud of that.

Turning to international rail. We started running our first rail services in Germany in June. The new contract and additional services began again in December. Elodie has mentioned it in some detail, and we’ve got 3 areas that are impacting our performance: rolling stock issues, driver shortages and contractual penalties.

Train defects from a new fleet have led to cancellations and delays. And when we increased the services in December, we had to lease alternative trains due to delays in delivery of the rolling stock from Stadler.

Across Germany, there is a national train driver shortage and this is an acutely tight labor market in Baden-Wurttemberg in Southern Germany. And this has impacted our ability to find and train enough drivers. We expected much more drivers to transfer from DB when we took on this franchise, that was one of our expectations. And because it takes 12 months to fully train a driver, this has led to cancellation of services. And both of those issues, the rolling stock and train drivers, has led to contractual penalties and then labor at a level that we weren’t expecting, and so we’re in discussions with the local authority. And as we provide customers better service, then these penalties will reduce.

These issues are not uncommon in new contracts. We’ve dealt with similar problems in other parts of our business. We’ve been brought in to do major change programs. The major change is taking place. It is a difficulty that we’ll work our way through.

We’ve got other contracts in Germany in different regions, on different contractual terms and mobilization has begun for them.

And in Norway, we’re operating the very first private rail contract in Norway, 170 weekday services between Oslo and Stavanger. This is a very different contract to Germany. The drivers and trains came with the contract, and we take the revenue risk from the Norwegian authority. And performance and customer satisfaction is going really well. It is very early days. So we have 92% punctuality of 99% of all our services operating, and we’re getting a clap on the back from the Director of Railways in Norway and believes that we’ve actually introduced that in a fully satisfactory manner.

And now the subject that everyone was talking about, coronavirus. So we’re following the advice from Public Health England. That’s what we’re doing. We’re following what the government is saying, what the public health authorities are doing. So we’re obviously doing things that everyone would expect. We’re putting notices up. We’re reminding our colleagues about good hygiene in terms of washing hands. We’ve got extensive practices already in places on our buses and trains, in our depots and our driver facilities. We’re talking always with our clients. We have a lot of discussions with Transport for London about new regimes, about how we do that with different products. And at a granular level, there’s a lot of discussion taking place.

The government’s advice is that public transport is as safe as any public space and it’s as safe for anybody to be on as anywhere else.

We are asking the government for various things through our trade bodies. So we, for instance, on regional bus, we’ll be saying we need more agility to actually change some of the service patterns if there’s a change in travel demand. So at the moment, we would have to wait 70 days for a service change. We want to do that quicker, we want to be more agile, we want to respond to change in demand as much quicker.

And the change in demands could happen in a number of different ways. There may be more on bus than train. It may be more off-peak than peak. We don’t actually know. We — it may accelerate in a much different way than I’ve just explained. We’re in the unknowns at the moment.

What I can tell you is that 75% of our revenue is contractual and therefore not impacted directly by those changes in demand. And we’re working with — as to what we would do for the other 25%. I’m sure we’ll have lots of more detailed questions, but that’s just a quick overview of where we are on the coronavirus.

Moving to our second pillar of win new bus and rail contracts. That is our strategy on a page for international. It’s important because this strategy drives our decision-making. Rather than hitting targets at the expense of a disciplined approach to bidding, we follow out our strategy.

And what’s really good about our international strategy is it’s actually going to the mindsets of the people who are already in our business and the people we recruit because they see us as an international place to work and with different markets and different contract models. And we constantly evaluate our strategy to ensure it remains valid for the foreseeable future.

And so far, we’ve won 10 contracts in 5 geographies, with the combined annualized turnover of GBP 400 million. We won a U.K. bus contract in Cornwall. It’s normal, we talk about abroad for some of these things, but actually there are contracts in the U.K. that we bid for as well. It’s pretty significant, 155 buses, 73 routes. It’s about half of all the services operating. Cornwall begins very shortly in April. 250 new drivers and colleagues have joined us and we’re working in a very strong partnership with Cornwall County Council to launch transport for Cornwall, providing a range of digital products, including app and contactless payments, and we’ve taken that on in a partnership way with the Cornwall Council.

Our recent focus is, therefore, away from the Cornwall issues itself, but our recent focus has always been about mobilization and consolidation in our existing geographies, utilizing expert resources that we have from across our group. And our local big teams are in place. We’ve got a really strong pipeline of opportunities in Singapore, Australasia and the Nordics, which we are working on.

Our third pillar is developed for the future of transport. And we’ve gained valuable experience in demand-responsive transport through PickMeUp in Oxford and the GoSutton pilot with TfL in, believe it or not, Sutton.

We have a contract going live later this year, which will deepen our understanding how DRT works in rural communities. Our Billion Journey Project, which is our incubator program, which is the biggest transport project around for these sorts of things. It’s delivered innovative pilots, such as measuring air quality at street level, trialing flexible season ticketing for people working part-time. And all of these start-ups we introduced into our business change the way we think and help us to prepare better for the future. And we’re rolling out also our air filtering buses in 6 new cities across the U.K. to help improve the air quality in our towns and communities.

And we found that our transport — future transport initiatives, actually once they’ve developed, they become normal. They end up transferring to box 2, our pillar 2 for submitting bids abroad and is part of our bid submissions or they’re going to box 1 and they become normal, which is just the normal way in which we do our business, and that’s how it should work.

Yes. You missed that on the next slide.

And I’ve put in here some — we always regard ourselves as a responsible business. And we place a huge emphasis in environment, society and our people and we put them at the center of our business. And I hope that has come through in today’s presentation and all the presentations we’ve ever done. So this is not difficult for us to talk about being a responsible business because that’s what we do, and that’s what we’ve always done.

So I’m going to highlight some particular areas, but I won’t go through them in quick detail. I’ll expect you to read very quickly. So on environmental, public transport is a force for environmental good. By taking cars off the road, we reduce carbon emissions and improve air quality. But also we’ve become an enabler for others. We make it easy for others to play their role and make transport and environment more sustainable.

On our social side, I believe private businesses are a force for good in terms of what we do for our colleagues. We recognize the importance they play and provide them with a working environment that supports their health and well-being. We have a number of initiatives that we’ve highlighted there from apprenticeships to Women in Bus and Rail initiatives that we’ve launched and investment in health and well-being programs.

On our governance, we’ve always been early adopters of good corporate governance. And we run our business in the interest of all our stakeholders, customers, employees, investors, government and the society.

And so my summary and outlook. Regional bus under protect and grow the core. It has some near-term cost synergies. But for the first time, there is a national focus. The national bus strategy will be coming with long-term funding being made available and that gives us a lot of confidence for the future of regional bus.

We’ve got very strong London & International bus performance, and we’ve got very good U.K. rail performance, which as I’ve outlined. We’re in the final discussions with the DfT regarding the Southeastern direct award. We do have difficulties with our German contract and we are dealing with those, and we’re dealing with them with a lot of experience.

On win new bus and rail contracts, our focus is on mobilization, introduction of new contracts and we have a very strong bidding pipeline in our target markets.

And develop for the future of transport, we’ll continue piloting innovative solutions to prepare for the future.

And our focus on shareholder returns. So the interim dividend is maintained.

Climate change emergency, health of our cities, government investment shows that the role of public transport is more than ever — more important than ever, and we are at the heart of that.

So thank you very much, and we will ask for any questions.

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Questions and Answers

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Sathish Babu Sivakumar, Citigroup Inc, Research Division – VP & Analyst [1]

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All right. Sathish from Citigroup. Firstly, on the virus break. There is an extended lockdown in regional market. So how does it impact your operations? For example, for a day of lockdown, what will be the likely impact on EBIT, firstly?

And secondly, on your German contract. Do you get compensated by the rolling stock provider because of the delays in them providing you the rolling stock?

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David Allen Brown, The Go-Ahead Group plc – Group Chief Executive & Director [2]

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Okay. In terms of the coronavirus, I mean, we don’t know what’s going to happen yet. We really don’t know. And as I said, we — 75% of our revenue is contractual. So it’s only the 25%, and what we’d be looking at is how do we minimize our cost base in terms of dealing with that, and some of that is talking to the government about reducing the amount of time that we have to give notice for changes in the schedules and that’s what we’ll go through and do. We haven’t got the granularity to give you about some of those — some of that question on EBIT, for instance. We’re working through some of that. We’re working through what could be a worst-case scenario. We don’t know at this moment in time.

And in terms of Germany, the delay in the rolling stock is very clearly in our contract, and very clearly, is something that we expect the manufacturer to compensate us for.

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Elodie Brian, The Go-Ahead Group plc – CFO & Director [3]

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So as we’ve said in the statements, so we’re in discussion with the rolling stock manufacturer. We — for 2 main reasons: one, is the late delivery of the fleet leads — triggers some contractual rights that we have within the rolling stock leases; and the other thing is the additional cost that we’ve had to incur to rent short-term rolling stock and drivers. So those are 2 areas of commercial claims that we’re currently in discussions with, with the manufacturer.

And as we also said in the statement, we’ve not recognized any of those claims so far in the first half because there isn’t enough certainty of recovery. But we’re definitely pursuing that and in discussions as we speak.

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Sathish Babu Sivakumar, Citigroup Inc, Research Division – VP & Analyst [4]

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If I could follow up on the first one. What is the flexibility on the extra cost base in your regional bus operations?

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David Allen Brown, The Go-Ahead Group plc – Group Chief Executive & Director [5]

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I mean I suppose I can try to explain. We can start — we need government approval to start changing the way in which we deregister services, if that’s what we need to do. We can do some things very quickly in terms of thinning out headways, if we needed to do that. But in terms of — if we needed to deregister services, we would, at the moment, need a 70-day notice period.

And what we’re saying to the government is you need to change that because if you’re going to put place different restrictions, then you need to give us the flexibility to be agile and respond to change in travel demand.

And it may be we even out the peak so that we have more off-peak services. It may be different range of outcomes that we don’t yet know about, but we will be looking to see how flexible we can be about our cost base, obviously.

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Elodie Brian, The Go-Ahead Group plc – CFO & Director [6]

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Yes. Main areas of variable cost would be fuel and then staff costs in terms of overtime and rest day.

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Unidentified Analyst, [7]

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Just a couple from me. Firstly, on the international bid pipeline. Can you maybe give a bit more color as to what you’re seeing opportunities further afield? I know the [R&S] talked about stuff in Australasia. So maybe if you could touch on that?

Secondly, on Plymouth bus, obviously, quite a material contract win for you guys. I assumed you took that from FirstGroup. And if that’s correct, what other opportunities are you seeing across the U.K. to sort of take more market share from them as they sort of exit U.K. bus?

And then, I guess, on GTR, obviously, we’re 18 months away from that contract rolling off. Are you starting to have discussions with the DfT as to potential extensions on that? What kind of additional color can you provide on that as well?

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David Allen Brown, The Go-Ahead Group plc – Group Chief Executive & Director [8]

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Okay. International bid pipeline, we went to the places deliberately because there is a pipeline of work coming through. So we have a business in Sydney already working in liaison with the Network Rail over the introduction of some technology on the railways.

So Sydney, there’s a number of bus contracts coming out in Sydney shortly. They’re called regions 7, 8 and 9, very imaginative. And we are interested in those sorts of bids because they meet our criteria of bidding.

In Singapore, there are contracts out at the moment that are huge. There is a signs about Loyang depots, so they’re very big contracts and we are looking at those and we’re in that process now of bidding for work in Singapore, which we’re very excited about. And there’s a number of opportunities across the Nordics, which we’re pursuing or have already put bids in. So at the moment, what we still see is a strong pipeline in all those places that are continuing on. But we’re particularly pleased that Singapore is coming back into opportunities of bidding and we’ve been working on that for a long, long time because we’re very excited by that, for example.

Cornwall is a good opportunity. It’s really great that Plymouth manages to break out from its — the confines of Plymouth. And I mean it is quite innovative in the way in which Cornwall Council — County Council are actually doing this. It’s not exclusively taking work off first. It’s an amalgamation of a number of different routes. There is a large part of it operated previously by First, but other operators included.

And what they’re trying to do is get a one-brand name to have one standard of the product and deal with it as if Transport for Cornwall in the same way of Transport for London or Transport for Wales. So it’s a good way, and we’re working really good partnership with Cornwall.

In terms of other opportunities across the U.K., there’s — that size of contract is unusual. If it comes up somewhere else, then we will be certainly and definitely interested. We monitor what’s happening across the U.K. on a regular basis. I mean Manchester gave us an opportunity to go in. We’re having initial issues of turning that around, but I still believe Manchester is a really good bus territory to be in. So there are opportunities. They come on a regular basis, to be honest, sometimes when you’re not even expecting them.

And GTR, you’re absolutely right. Well done for asking that. It’s coming along. We need to be prepared for talking to the government about potential extension for GTR franchise.

On the moment, if it’s based on performance, there is absolutely no reason why we shouldn’t be getting an extension of GTR because our performance is exceptionally good at the moment. And I may be laboring this, but some of you have been around long enough to remember when I wasn’t always saying this, so I’m sure — definitely saying our performance is good. We have a very stable operation with a good management team and I would hope the government will be talking to us about an extension.

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Elodie Brian, The Go-Ahead Group plc – CFO & Director [9]

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I mean the other thing we can say about GTR is if they were going to refranchise in time for the current end of the franchise, they should have already gone to public consultation so that’s a strong indication that actually there might be an opportunity for us to get an extension there. And there is a 2-year of extension allowed for within the contract anyway without needing to enter into a new contract.

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Damian Brewer, RBC Capital Markets, Research Division – Analyst [10]

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Damian Brewer. Can I ask 2 questions, please? First of all, looking longer term, coming back to sort of increased government funding and focus on the bus industry. Could you maybe expand on what that means in terms of sort of wider thoughts? Does that give you opportunity to take more risks? Speed up investment? What does it mean in practice on the ground? Is it more things like Cornwall? Or is it lots of little micro measures? And does that mean, essentially, you can grow your business a little bit faster?

And then, secondly, and I guess U.K. focus as well on rail. Going beyond GTR, you look at rail, Arriva has obviously struggled in the north. There’s problems for Abellio with ScotRail. FirstGroup has got its own issues with SWR and TPE. National Express has exited. Stagecoach has effectively exited the U.K.

You’re effectively the only rail operator left that hasn’t made a mess of. So if you think of that longer term, where do you think that leaves you positioned if we’re moving into a sort of rail-operator environment where the focus is on quality and delivery rather than just financials?

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David Allen Brown, The Go-Ahead Group plc – Group Chief Executive & Director [11]

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Okay. A lot in there. So the government funding. We started off in the summer with one Chancellor offering GBP 220 million and there was a range of things that we’re going to spend that on, and I got very excited by that and was quoted in a number of different places talking about what we could do with that money. And then we’ve got GBP 5 billion and I know that a lot of that GBP 5 billion, which has been seen as — from the government as being GBP 1 billion a year has been driven by the Prime Minister. And so that’s good news. So he’s got his hands on top of that in terms of wanting to see some progress in terms of both buses and cycling.

We have had a lot of detailed discussions with some of the architects of that, so the transport adviser within number 10, we’ve been personally involved in some of that and have been personally involved in identifying how you should spend it. And one of the things I’m really pleased about is it’s not being spent on grandiose schemes. It’s being spent in a very practical and actually some of it in a micro-level way.

So in broad outline, there’s — there are 3 areas in which it’s being done — being spent. One is on a super bus concept, which basically means increased frequencies to the granularity of bus priority, everything down to changing the curb weight and putting in better bus stops and changing the priority lights for buses, except all the stuff that I keep talking to the local authorities about make such a huge difference if you can give traffic light priority to buses, for example, and just give them some bus priority, traffic lights or inter-junctions, that’s what you need. It’s very micro level.

At another level, they’ve also introduced in — wanting to put in some innovative demand-responsive transport in rural areas, which is why I specifically said that we’ve won contract in a rural area to do just that. So that will give us some earlier earning. I genuinely believe we are the ones who know the most about demand-responsive transport in the U.K. because we’ve been operating the biggest scheme. And therefore, if you want to actually know what to do, you should be coming to us. I know that sounds quite arrogant, but frankly, that is the truth. We know what we’re doing on demand and we know what you can do and what you can’t do. So you need to come and talk to us on that.

And then the third area is in electric bus cities. So that’s an area where they want to do things very quickly and introduce an electric bus city. So that comes back to the more risk and upfront investment point that you made, Damian, which is what we need to look at there is the only way you can get to electric buses, so electric buses are twice the cost of a normal Euro 6 bus, is to actually have some external capital investment in this and CapEx investment. And the government are prepared to dive in. So if they can help us make that transition from diesel into electric through CapEx funding and we can find a business case for doing that as well, then that’s a good scenario to be in because we think that our operating costs will be less into the future for dealing with electric buses. And what we’re really clean about doing is actually making sure that it comes with another package of measures as well. Because electric buses in and of themselves meet the air quality issues for towns and cities, but what they don’t do is attract more people onto the bus. So you actually have to combine it with a whole range of bus priority issues at the same time, otherwise, you’re wasting your time. You’re just moving people to an electric bus.

So we see all of that as really quite good. We think we’re at the forefront of dealing with that. One of the things I’ve been trying to say to people is give this money to the winners. Give this — the money who — to people who will make a difference quickly. Government’s in a hurry. They spend the money with people who know how to spend it and spend it quickly and actually raise the best passenger numbers in the quickest, most agile way than try and split it equitably and evenly. I’m basically talking about giving it to me and other people who can actually do something with this and who’ve got good relationships with local authorities. So I see this as really good news for the bus industry.

And the other issue, I mean, a lot of the stuff are really good in there. What I really, really want, I want people to be talking about our bus. The bus to actually be a focus for local authority in terms of the their whole policy initiatives and their spending and what they do because you can do so much for them. Just make it at the heart of some of their decision-making. And that’s, I think, if the government are talking about it, it would change the perceptions of bus at local authority level as well.

U.K. rail, yes, there are well-known issues across the patch that people have experienced. Yes, at the moment, we are producing really good performance and it’s financially good and operationally good. We don’t know what the future will look like in there. I have regular discussions with Keith Williams, who’s the architecture of the Williams report. There is no indication at all that there isn’t a role for the private sector. I would expect it to be different roles in different places, and I expect us then to take a view as to how much we participate in there and where we participate in there into the future.

I also expect it to take quite a little while to flow through. So would expect, in answer to the first question, the better thing for the government to do is to do some extensions where they can do them, wait for the front — Williams review to flow through and see what it looks like. There’s a lot of moving parts that have to happen. A lot of new functions, a lot of changes to structures to make this happen. I think from a passenger point of view, they don’t care about that. They want to see better performance and we’re ready for doing that actually.

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Alexander Paterson, Peel Hunt LLP, Research Division – Analyst [12]

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It’s Alex Paterson from Peel Hunt. Can I ask 4 things, please? Firstly, can you just say what impact, if any, you’ve had from coronavirus so far?

Secondly, on Southeastern, obviously, you put in and you’re having discussions with the DfT about taking on if perhaps, and that’s at the moment, you have revenue risk on that. If passenger volumes fall in the next few months for whatever reason, is there any way you can sort of insulate yourself against that?

Thirdly, just in Manchester, have you any indication of their sort of plans for franchising?

And then, lastly, could you just say, in Germany, what the sort of quantum is of the penalty cost that you’re incurring and how you expect them to drop out as the service levels improves?

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David Allen Brown, The Go-Ahead Group plc – Group Chief Executive & Director [13]

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Okay. I’ll take 1 and 3. You can take 2 and 4 so you have time to think about it.

So the impact — we haven’t experienced the — really any impact at the moment of coronavirus in a financial sense that is significant. But it’s — that’s historical. We don’t know what’s going to happen into the future. I mean I can give you some specific examples where it has. It’s just pretty — it’s so granular that it doesn’t really have any significance at all. So where we run some tourist services — so we run some tourist services into Stonehenge, guess what, there are less tourists and the numbers have gone down, but it’s not going to — if that was the only problem we ever faced, frankly, that’s fine. It’s all about what may happen and we haven’t got that yet. So we haven’t experienced anything negative up to this point in time that’s worth talking about. It’s all some bit of supposition, a bit of thoughts. We don’t know with some change in pattern, could it be happening, but it could all happen tomorrow. That’s the problem with that.

In terms of Manchester and franchising, the — we’ve just gone through a consultation on franchising, and we’re waiting for the mayor to opine on 8,000 people who took the time and energy to actually put in some serious responses to that consultation, including ourselves.

The disappointing aspect of franchising and that there’s been actually suggested by Manchester and what I’ve said publicly in the past is, that’s fine, but it doesn’t absolutely do anything to put more people on to buses. It does nothing to talk about — nothing in the Manchester franchising proposals talks about congestion or how you will get more people onto the buses. Not at all. So what is the point? It’s all about changing governance, which achieves nothing for the passenger, a little bit I mentioned about Williams. In the end, the passengers want — customers want better services. There’s nothing in there for better services. So it’s very disappointing from that point of view.

I would be happy to get behind something that actually was going to raise passenger numbers and actually do something good from that point of view. I’m not going to get behind something that doesn’t do that.

But now it’s actually been changed quite dramatically because Stagecoach have now put in what can be described as an enhanced partnership proposal for South Manchester.

So all of that discussion is now null and void because if they have [got] franchising process in Manchester, they don’t have to go back over to consultation because they will look entirely different if they want to do Stagecoach’s proposals in South Manchester, something which they have known about for a long time. So you do wonder why we were forced into a consultation process for something they already knew about was likely to change.

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Elodie Brian, The Go-Ahead Group plc – CFO & Director [14]

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Southeastern. So in terms of impact on revenue, yes, you are right, we are on full revenue risk for Southeastern. And the likelihood is that this model will continue into a direct award extension.

I guess the one important thing to say is Southeastern’s revenue is largely commuter driven. So at the moment, the impact will be limited. Obviously, if guidelines changed in terms of people having to stay at home or school shutting down, we would be in different territory. And I think the only thing we can say there is we would — there are discussions already taking part through the industry body with the DfT about how existing franchises can be protected from the impact of the current situation. We would just take part in those discussions. Every franchise would be impacted in a slightly different way, but that’s what we would do really with that. It’s a large element of fixed cost base, as you know, in rail.

With regards to Germany, so as David mentioned, there are 3 main issues that have affected the numbers: the rolling stock, the drivers and the contractual penalties. I mean the contractual penalties are a consequence of the other 2 factors, obviously, because they’re driven by — primarily by cancellations, and to a lesser extent, by delays to the services. So pretty much the full impact of what we’re seeing to date is performance penalties. That’s the element that we hadn’t anticipated to that extent because we hadn’t anticipated the other 2 issues to that extent.

So the plans that we’ve got in place are all about operational stability. All it takes really is having drivers in place and its good operational management day-to-day. We have got a full team there sent from the U.K. actually working on those issues, including some people who sourced through the GTR issue. So we’re confident we’ve got the right people in place to do that. The challenge there is they are not things that can be fixed overnight. It takes 12 months to train a driver, let alone to recruit them. And then the labor market is tight.

So that’s why we’re guiding to gradual improvements and saying we won’t be making money this year or next year, but we will — these are operational issues that we can fix, we’re just working our way through it.

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Gerald Nicholas Khoo, Liberum Capital Limited, Research Division – Transport Analyst [15]

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Gerald Khoo from Liberum. Maybe starting again with Germany. Given the extent of the problems, can you elaborate on what sort of contractual situation with regard to default of — in regard to underperformance of contractual targets?

And linked to that, is there any cap on your financial exposure as it would be under U.K.-style franchise?

And a few questions on regional bus. You talked about the yield improvement, which obviously was quite impressive. Do you have any sort of insights in terms of the balance between price and mix in terms of the yield improvements?

And on — you talked about the headwinds on contactless bank charge costs. I was just wondering whether you can give us sort of an indication as to the relative costs versus cash-handling costs. I mean what percentage of the fare is being paid away to the bank versus being paid away for cash handling, just give an indication as to what the quantum is of the 2 different channels?

And finally, can you remind us of what the current percentage of your fleet is in the U.K., which is zero emission please?

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Elodie Brian, The Go-Ahead Group plc – CFO & Director [16]

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Yes. Should I carry on with Germany?

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David Allen Brown, The Go-Ahead Group plc – Group Chief Executive & Director [17]

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You carry on with Germany, I’ll think about the last one.

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Elodie Brian, The Go-Ahead Group plc – CFO & Director [18]

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Yes. So in terms of Germany, we’re not in breach of our contract. Obviously, all rail contracts would have provisions around breach and default, we’re not there. This would take quite a period of sustained poor performance for us to get into that territory.

So the — then in terms of your question on cap, I mean, we obviously have bonding arrangement in place that we have with all these contracts. However — and there are also some caps in place contractually on the amount of total penalties that we can get. However, there are — they are very complex contracts. And what we’re seeing is this is new to us, but it is also new to the local authority there who are privatizing the network for the first time.

So contractual penalties work on an annual basis. We’re going through wash-up exercise at the moment for last year’s calendar year, which is only a part year of operation. And this will really, to a large extent, inform where we stand. We will be grinding away at it, negotiating every bit of penalty. So at the moment, there’s a level that we’re recognizing in the accounts, but that’s all subject to a wash-up into contractual discussions with the local authority.

I think it’s fair to say as well, I mean, that they have a strong vested interest in making that work. It’s the first time they’ve privatized it. The people in charge have put their names out there in terms of supporting privatization, and it’s in their interest to make it work.

And the other thing to say is we’re not alone in experiencing those issues. Other operators who have recently taken up new parts of the network are seeing similar issues. So there is a joint interest in working through those issues together over the next few months. But these are — nothing is quick in rail in terms of resolving it, and those contracts are quite complex.

If I start in terms of regional bus. What we’ve never done, and I haven’t done this time either, is mandate some sort of fair increase across the piece. So every regional business have made their own decisions based on market elasticities, but — it’s not the yield improvement hasn’t been as blunt an instrument that’s just putting fares up everywhere. Where we’ve seen the biggest, and David alluded to it, the biggest impact in terms of yield improvement has been in Go North East and that’s been achieved through a complete review of zonal fares, complete review of routes. So it’s far more sophisticated than just putting the fares up.

In terms of the cost of contactless and cash handling, I think I’d love to be able to say, moving from one to the other is going to cost x to the business. The reality is, in the first phase of this migration, we’ve now got contactless enabled in all our buses. We’ve got Tap On, Tap Off in Brighton. In the initial phase, it’s actually costing us more because the bank charges come in immediately, whereas with cash handling, you need — it goes in stages. Ultimately, if 1 day we remove cash completely from our buses, like what’s happened in London, then you can remove all cash handling. But in the meantime, expect changes when you’re able to review the number of cash collections that you do every month and things like this. So you do see that in steps going down. But at the moment, we haven’t quite got the critical math in terms of shift to really realize those savings and we’re incurring the additional cost. So it’s a bit of a transitional phase.

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David Allen Brown, The Go-Ahead Group plc – Group Chief Executive & Director [19]

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One of the issues we have on — and it’s absolutely right, well, one of the issues we have on that is you don’t want to deter customers so you’re making all the channels available for them. So all the things that you can do, whether they’d be smart cars, whether they’d be apps, whether they’d be contentless, whether they’d be cash, you don’t want to dissuade people from traveling because you don’t happen to have the channel open for them that they — the retail channel open for them that they want to use. In London, we were actually able to say in a more dogmatic fashion, there we’re going to — we’re going cashless. It’s much, much simpler because it’s a different market. It’s not under the same commercial pressures and I was there when we did all this, and you knew that you could transfer immediately from day 1 away from cash handling straight into noncash handling and that was about 1% of your costs, as it happened.

But we have to keep all the door open, and we just have to look at it at a real granular basis and one less cash count in trip a week. Securicor will come one less, whatever that is, and that’s all we can do at this moment in time because we want to keep everybody — all the options open for people.

And in terms of the — and just the other aspect, again, and it is right. We don’t mandate how you deal with that, but there are markets within markets. So they have to look within Go North East and we’re looking at the market for their longer distances, for their town services, and each one of them is actually a unique market, which they need to understand and use big data to actually understand how that works and what you can actually do to improve yield on each individual part of that market.

In terms of potential of the fleet, in terms of — I haven’t got the exact figure in my head, but it’s about 1/3. So 1/3 of our fleet is Euro 6 and electric buses. So electric buses will be making up just 200 of that, and we have a fleet of about 5,300. So — and 1/3 of the total is about Euro 6. That’s about the best figure I can give you at the moment. Damian.

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Damian Brewer, RBC Capital Markets, Research Division – Analyst [20]

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Damian Brewer, again. Can I just ask 2 more? First of all, just on fuel as no one’s asked it, are you tempted to do anything in terms of layering in some more hedges or forward purchasing at this kind of level?

And then, secondly, going to the regional bus business, I hate to leave the COVID issue. But how much of your revenue base at the moment is based on concessionary fares? And off that concessionary fair base, you get paid on a volume-usage basis or you want just a sort of contractual lump sum paid by each local authority, given it seems to vary in a very patchwork manner across the country? If you could elaborate on that, that would be great.

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David Allen Brown, The Go-Ahead Group plc – Group Chief Executive & Director [21]

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I’ll do second, you do first.

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Elodie Brian, The Go-Ahead Group plc – CFO & Director [22]

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Okay. Yes. So we have a very sort of precise policy in terms of how we hedge for fuel. So at the end of any financial year, our policy is to have hedged 100% of the following year then 50% and 25% of the next — the following two. And the way we do this is very disciplined, unimaginative buy a little bit every month. So that’s our policy.

We have, though, in previous circumstances, deviated from our policy, which requires board approval, obviously, and taking advantage of favorable market conditions, obviously consider what’s going on at the moment. That’s something that we are looking into. It’s a sizable part of our cost base and considering all the other headwinds that we suffer from, if we can recoup a little bit that way. But we’re not into fancy sort of hedging, but taking some reasonable advantage of the current situation is something we’re looking into.

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David Allen Brown, The Go-Ahead Group plc – Group Chief Executive & Director [23]

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And on the second one you — you almost answered your own question, which is that everything is different. So some — and we have Go South Coast deal with at least 4 local authorities and they each have a different way in which to do it. So some of them are based on, this is the amount of money we’ve got. We’ll split it up between you. No negotiations. That’s all we’ve got and you’ll have your bit, and that will carry on for many years. Others will base it entirely on the movement after a whole year and reassess it for the following year based on the movements in the previous year. And others are a mix and match of the 2. And just taking Go South Coast as an example, that will be dealing with 5 different authorities with 5 different ways of dealing with it. It is a big area of our negotiations and discussions with local authorities.

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Damian Brewer, RBC Capital Markets, Research Division – Analyst [24]

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Is it about 1/4 or 1/3 of the revenue base of regional bus?

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David Allen Brown, The Go-Ahead Group plc – Group Chief Executive & Director [25]

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It’s less than 30%, something about 20%.

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Elodie Brian, The Go-Ahead Group plc – CFO & Director [26]

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About 1/4.

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David Allen Brown, The Go-Ahead Group plc – Group Chief Executive & Director [27]

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Yes. 20% to 25%.

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Elodie Brian, The Go-Ahead Group plc – CFO & Director [28]

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And so yes, on that part, you’re less likely to see an immediate cash impact. That fell off because of exactly what we’ve just described.

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David Allen Brown, The Go-Ahead Group plc – Group Chief Executive & Director [29]

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Anything else? As always, really good questions. Thank you very much. That allowed us to give some more richness to the story line. Take care out there, and I look forward to seeing you again soon. Thank you very much, indeed.

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Elodie Brian, The Go-Ahead Group plc – CFO & Director [30]

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Thank you.

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