Go-Ahead shares fall 22% as UK seizes Southeastern

Shares of Newcastle-headquartered bus and rail giant Go-Ahead Group fell about 22% on Tuesday after the UK’s Department for Transport (DfT) announced that the UK Government’s Operator of Last Resort will take over the running of Go-Ahead’s London & South Eastern Railway (LSER) services from October 17.

The DfT said the decision “follows an investigation which identifies over £25 million of taxpayer money was not declared by LSER, amounting to a significant breach of the franchise agreement, undermining trust.”

Go-Ahead admitted errors, apologised, repaid £25 million to the government and said its chief financial officer Elodie Brian will leave the company immediately.

Southeastern (LSER) has been running the train service between London and Kent and parts of East Sussex since 2006.

Southeastern has been operated by Govia, a joint venture between Go-Ahead (65%) and France-based partner Keolis (35%). The two firms continue to run their other rail contract Thameslink.

Go-Ahead employs around 30,000 people and is one of the UK’s largest bus operators, with a strong presence in London.

Outside London, it serves the North East, Greater Manchester, East Yorkshire, East Anglia, South East and South West England.

Go-Ahead’s rail division operates in the UK, Germany and Norway.

The DfT said an investigation conducted by the DfT identified evidence that since October 2014 LSER has not declared over £25 million of historic taxpayer funding which should have been returned.

“To date £25 million has been recovered and further investigations are being conducted by the owning group into all related historic contract issues with LSER,” said the DfT.

“Following these investigations, the government will consider further options for enforcement action, including statutory financial penalties under the Railways Act 1993.

“On the basis of the available evidence, we consider this to be a significant breach of the good faith obligation within the franchise agreement and will not be extending a further contract to LSER.

“The government believes it is essential that there is public trust in operators, who should prioritise the very best for passengers.

“Given the government’s commitment to protecting taxpayers’ interests, this decision makes clear we will hold private sector operators to the highest standards, and take swift, effective and meaningful action against those who fall short.”

In a stock exchange statement, Go-Ahead said: “The board of Go-Ahead regrets to announce that the Department for Transport (DfT) has chosen to appoint the Operator of Last Resort (OLR) to take over delivery of passenger services on the Southeastern franchise from 18 October 2021, when our existing agreement expires.

“While the group is naturally disappointed by this, the decision relates only to Southeastern. Our other rail business, GTR, is not affected.

This decision is a consequence of ongoing discussions with the DfT regarding the historical calculation by London and Southeastern Railway Limited (LSER) of the profit share over a number of years and related additional matters, as disclosed in our announcement on 27 August 2021.

LSER’s shareholders (Go-Ahead and Keolis UK) commissioned an independent review into this matter on 11 August led by their respective chairs.

“Although the independent review is ongoing and the contracts concerned are highly complex, the group acknowledges that errors have been made in relation to the franchise.

“The group has repaid the £25 million referred to in the DfT’s statement of this morning and will provide a detailed update on further liabilities in its full-year results.”

Go-Ahead chairman Clare Hollingsworth said: “It has always been this group’s intention to provide the best possible public transport, and to work in partnership with the Government and related agencies.

“We recognise that mistakes have been made and we sincerely apologise to the DfT.

“We are working constructively with the DfT towards a settlement of this matter.”

Go-Ahead said that as a consequence of the ongoing discussions with the DfT regarding the LSER profit share, the announcement of the groups results for the year ended July 3, 2021, currently scheduled for September 30, 2021, has been postponed. 

A revised announcement date will be confirmed in due course.

Go-Ahead also said that after a period of 13 years with the group, Elodie Brian has decided to resign as group chief financial officer and will be standing down from the board with immediate effect. 

“A process to appoint a successor is underway and, in the meantime, Gordon Boyd has agreed to join the board as interim CFO with immediate effect,” said Go-Ahead.

“Gordon is a highly experienced interim CFO and has previously held senior financial roles within Drax, Infinis PLC and Capita PLC …

The groups financial results for the year ended 3 July 2021 (including the expected provisions related to the matters under discussion with the DfT but excluding any potential financial penalty) remain in line with the boards expectations.”

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Mark McSherry
Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.