Go-Ahead results to be delayed after stripping of Southeastern franchise

(Sharecast News) - Go-Ahead updated the market on discussions with the Department for Transport (DfT) over its previous Southeastern franchise on Thursday, after it was stripped of the franchise on 17 October.
The DfT's stripping of the franchise followed discussions over the calculation of profit share payable by Southeastern under franchise agreements, and the treatment of certain overpayments made by the DfT to Southeastern over the franchise agreements.

Go-Ahead said it had been focused on "open, collaborative and constructive" engagement with the DfT in order to reach a "full and satisfactory" settlement.

An independent committee comprising the chairs of Southeastern's shareholders, being Go-Ahead and Keolis UK, commissioned an independent review into Southeastern's performance of its contractual obligations under the franchise agreements.

The findings of that review had now been shared with the DfT.

"Notwithstanding the complexity of the franchise agreements relating to Southeastern, the review has found that serious errors were made by Southeastern with respect to its engagement with the DfT over several years," the Go-Ahead board said on Thursday.

"In particular, the group accepts that, by failing to notify the DfT of certain overpayments or monies due to the DfT, Southeastern breached contractual obligations of good faith contained in the franchise agreements.

"Accordingly, the group has apologised to the DfT."

As it had previously said, the DfT confirmed that it was considering its options for enforcement action in relation to the matter, including a financial penalty under the Railways Act 1993.

In the absence of specific precedent or relevant guidance, Go-Ahead said it was difficult to estimate the likely amount of any penalty, but it was considering the inclusion of a provision in its 2021 financial statements.

"The behaviours identified by the independent committee which contributed to the management of Southeastern's contract with the DfT do not reflect the values and standards of conduct that the group expects of its colleagues.

"Whilst the board is of the view that the group has good corporate governance arrangements in place, it will take this opportunity to further enhance certain aspects to better safeguard and assure the compliance obligations of complex long term rail contracts."

Looking at its full-year results, meanwhile, Southeastern said the independent committee's report was also shared with Deloitte, and as a result of the "complex, detailed nature" of it, they had agreed that additional time was needed to consider the report's findings.

As such, it would not be possible to complete the audit before 3 January - the latest date permitted for publication of the results under the FCA's Disclosure Guidance and Transparency Rules.

"After consultation with the FCA, the group anticipates that trading in its shares will be temporarily suspended with effect from 0700 GMT on 4 January until publication of the 2021 results," the board said.

"Application will be made to the FCA requesting suspension of trading in the group's shares in due course.

"The group is working closely with Deloitte to ensure that the 2021 results are published as soon as possible - this is now expected to be before the end of January 2022."

While the audit was ongoing, the board said its current expectations were that adjusted operating profit for the rail division would now be ahead of previous expectations, in part reflecting the treatment of certain non-recurring items in rail.

Expectations for the regional bus and London and international bus divisions were unchanged.

At 0943 GMT, shares in the Go-Ahead Group were down 23.56% at 538.88p.