Southeastern to be taken over by OLR

[Nicholas Lewis]

Go-Ahead has admitted to "serious errors" and its share price has fallen by ~25% as a result, close to a 20-year low. It will delay publication of its annual accounts until the new year because of the financial punishment to be imposed by DfT. This will lead to a suspension of its shares because of stock exchange listing rules.
The latest "serious errors" is coded language for "worse than mistakes made" which was the previous admission, back in September this year.
The starting point for the money owed to DfT was £8 million, revised to £25 million in September, but now? Presumably significantly more than £25 million. However its profits before provisions estimated for the last financial year are £87 million on its bus and train operations, so it's about how much of a bite will be taken, not whether or not the money exists. But Go-Ahead also warns of £36 million in provisions on top of £58 million on losses on its German train operations. So it's not exactly floating in spare cash.
Reported today in The Times (https://www.thetimes.co.uk/article/go-ahead-group-shares-slump-after-admission-of-failure-83lrcf3g9?):


This report implies to me that the affair is a little worse than "just an ongoing accounting error" which was the tenor of some of the reports at the end of September.

EDIT By 2:15pm share price has "recovered" to 583p, -122p on the day, -17.3%, but above the earlier low of 537.5p

Press release from Go-ahead group: (https://otp.tools.investis.com/clients/uk/go-ahead1/rns/regulatory-story.aspx?cid=64&newsid=1534891) which confirms that shares are expected to be suspended from 7am on 4 January 2022 until the full-year 2021 results can be published (for full financial year year ending 3 July 2021).

The issue of equal gravity is how limp DofTs oversight is of franchises that it fails to spot such a gargantuan error. Transport Committee should launch an investigation into this and how they are managing the show in the world of EMA, ERMA and NRCs to ensure money isn't being squandered away.

 

[jfollows]

Go-Ahead share trading suspended temporarily, ending the year at 667p before being suspended on Tuesday 4th. January.

Go-Ahead suspends shares amid Southeastern rail scandal

Train and bus operator failed to file results because of issues linked to breach of franchise

www.theguardian.com

Southeastern rail scandal

Train and bus operator failed to file results because of issues linked to breach of franchise

The government has taken back control of the Southeastern franchise. Photograph: Gareth Fuller/PA

Mark Sweney

@marksweney

Tue 4 Jan 2022 10.52 GMT

Go-Ahead has halted the trading of its shares on the London Stock Exchange after the train and bus operator failed to file its financial results because of issues surrounding a £25m breach of Southeastern’s railway franchise agreement.

The transport group, which was stripped of the contract to operate the commuter network in September, said it was continuing to work closely with its auditor Deloitte to attempt to publish its results for the year to 3 July by the end of the month.

In December the company, which apologised for “serious” failings in its railway business after it was found not to have declared more than £25m in taxpayer funding that should have been returned, said the scandal meant it would miss the six-month deadline for filing its annual results and have to suspend its shares under UK regulatory rules.

The announcement of the impending trading suspension prompted a 25% fall in the company’s share price, which ended the year at 667p, giving Go-Ahead a market value of £288m at the close of the last day the company’s shares traded on New Year’s Eve. Go-Ahead’s shares were officially suspended on Tuesday morning.

“The company intends to request a restoration of the listing of its ordinary shares and its bond on publication of the full year 2021 results,” said Go-Ahead in a filing to the London Stock Exchange on Tuesday. “The group continues to work closely with Deloitte to ensure that the full-year 2021 results are published as soon as possible. This is expected to be before the end of January.”

The scandal, which cost Go-Ahead’s group chief financial officer, Elodie Brian, her job, will result in a fine from the Department for Transport. In December, Grant Shapps, the transport secretary, said that although the money had been recovered further investigations were being conducted into historical contact issues related to the franchise.

The government has taken back control of the Southeastern franchise, which Go-Ahead operated through Govia, a joint venture with France’s Keolis. Go-Ahead still runs some of the busiest lines in the UK through Govia Thameslink Railways, another joint venture with Keolis.

1 year share price graph: the big drop in September dates back to the first post in this thread. There's then another significant fall on 9 December per reports above.

 

[Nicholas Lewis]

Go-Ahead share trading suspended temporarily, ending the year at 667p before being suspended on Tuesday 4th. January.

Go-Ahead suspends shares amid Southeastern rail scandal

Train and bus operator failed to file results because of issues linked to breach of franchise

www.theguardian.com

1 year share price graph: the big drop in September dates back to the first post in this thread. There's then another significant fall on 9 December per reports above.
View attachment 108273

This is just stock exchange trading rules coming into play because results haven't been published. Unless the amount they have previously forecast is worse I wouldn't expect a material change in the GoAhead share price once the results are published and shares can be traded again.

 

[brad465]

Go-ahead are reporting that being stripped of the franchise will cost them £81.3m:

Southeastern: Losing rail franchise to cost firm £81.3m

Go-Ahead Group was stripped of the franchise in 2021 after failing to declare £25m in taxpayer cash.

www.bbc.co.uk

Go-Ahead Group said it expected being stripped of the Southeastern rail franchise to cost the company £81.3m.
The franchise was removed last year when the Department for Transport (DfT) said it had failed to declare more than £25m of taxpayer funding.
The company said it had put aside £30m for a potential fine.
So far it said it had paid £49.2m to the government, and it expected to eventually hand over £51.3m.
Go-Ahead's new chief executive has apologised for the problems, as the firm identified "serious errors" in the way the franchise was run and over the way it dealt with the DfT.

'Very challenging year'​

Christian Schreyer, who joined last November not long after the franchise was lost, said he was "optimistic" the issues could be resolved soon.
He said: "It's been a very challenging year for Go-Ahead and our shareholders, for which I apologise, on behalf of the board."
The company has already apologised to the government for the failings, which had led to the firm's shares being suspended from the London Stock Exchange as accountants needed more time to work out what impact the problems meant for the company.
The network which was run by the firm is one of the busiest in Britain, stretching across south-east England, including London, Kent, East Sussex and the High Speed 1 line.

 

[pdeaves]

Go-ahead are reporting that being stripped of the franchise will cost them £81.3m:

Southeastern: Losing rail franchise to cost firm £81.3m

Go-Ahead Group was stripped of the franchise in 2021 after failing to declare £25m in taxpayer cash.

www.bbc.co.uk

The quoted article says £30m was set aside, but Go-Ahead may need to pay £51.3m. Why has BBC added the two figures to make the headline? Is there something I, as a non-accountant/economist, don't understand, or is it more 'headline grabbing' with a bigger number and the reporter doesn't understand the figures?

 

[jon0844]

The quoted article says £30m was set aside, but Go-Ahead may need to pay £51.3m. Why has BBC added the two figures to make the headline? Is there something I, as a non-accountant/economist, don't understand, or is it more 'headline grabbing' with a bigger number and the reporter doesn't understand the figures?

Maybe they want to report it like people report HS2 costs. So by the end of the day, it will be around £2bn.

 

[SLC001]

Best part of £51.3m already paid, the £51.3m being known liability. However, the company is anticipating a further (additional) payment for which they have made a £30m provision so that the total cost could be nearer £81.3m. Discussions with DfT are still ongoing hence the provision.

 

[Grumpy Git]

The quoted article says £30m was set aside, but Go-Ahead may need to pay £51.3m. Why has BBC added the two figures to make the headline? Is there something I, as a non-accountant/economist, don't understand, or is it more 'headline grabbing' with a bigger number and the reporter doesn't understand the figures?

Why are there people always ready to bash the BBC at every opportunity. Yes, they can be guilty of lazy journalism sometimes, but it is by FAR AND AWAY the most reliable source of independent news worldwide.

The government like to tell us how to "Make Britain Great Again" (or some such tosh), yet they seek to marginalise the one asset that is coveted worldwide for being fair and reliable.

Just spend a few weeks/months working abroad without any BBC World TV coverage if you want to witness garbage news, (not so relevant nowadays thanks to the BBC website).

Rant over, sorry for going off-topic.

 

[Taunton]

Is there something I, as a non-accountant/economist, don't understand, or is it more 'headline grabbing' with a bigger number and the reporter doesn't understand the figures?

Well I am supposed to be a bit knowledgeable about such subjects, and I, too, quite fail to understand :

"The franchise was removed last year when the Department for Transport (DfT) said it had failed to declare more than £25m of taxpayer funding."

because this seems to imply the government (DfT) had paid over £25m, which was not declared to the government (DfT again).

If the left hand of the DfT does not know what the right hand is doing, that's their problem. One would expect that a public franchise would have the anticipated financial figures for the year, in quite some detail, budgeted in advance, so when the actuals come in from the operator there are no real surprises. If the "brilliant minds" wer are regularly told government departments need to have, which is why they have to pay Oxford top graduate salaries, can't even do such basics, then the DfT needs to look in the mirror for the source of the problem.

Not the only recent case where a government department meant to check significant things (which is why they are there) don't do so and then try to blame it all on others.

 

[pdeaves]

Best part of £51.3m already paid, the £51.3m being known liability. However, the company is anticipating a further (additional) payment for which they have made a £30m provision so that the total cost could be nearer £81.3m. Discussions with DfT are still ongoing hence the provision.

Oh, I see what's going on now, thanks.

Why are there people always ready to bash the BBC at every opportunity. Yes, they can be guilty of lazy journalism sometimes, but it is by FAR AND AWAY the most reliable source of independent news worldwide.

Sorry, in what way was I BBC-bashing? I didn't understand where the figures came from, so if anything I was me-bashing! Anyway, SLC001 has clarified now the reasons why the figures were added together.

 

[Watershed]

Well I am supposed to be a bit knowledgeable about such subjects, and I, too, quite fail to understand :

because this seems to imply the government (DfT) had paid over £25m, which was not declared to the government (DfT again).

If the left hand of the DfT does not know what the right hand is doing, that's their problem. One would expect that a public franchise would have the anticipated financial figures for the year, in quite some detail, budgeted in advance, so when the actuals come in from the operator there are no real surprises. If the "brilliant minds" wer are regularly told government departments need to have, which is why they have to pay Oxford top graduate salaries, can't even do such basics, then the DfT needs to look in the mirror for the source of the problem.

Not the only recent case where a government department meant to check significant things (which is why they are there) don't do so and then try to blame it all on others.

I don't think there is any suggestion that the calculations were wrong at the time they were originally made, and submitted to the DfT.

I understand the 'discrepancies' arise from Govia having received certain rebates on track access charges after the calculations were made, and which they then failed to declare.

The articles are a little unclear but the latest update is essentially that Govia is now making a provision of £80m for this scandal, including £30m for an anticipated penalty from the DfT.

 

[Grumpy Git]

Sorry, in what way was I BBC-bashing? I didn't understand where the figures came from, so if anything I was me-bashing! Anyway, SLC001 has clarified now the reasons why the figures were added together.

You did question whether it was "headline grabbing", however, no offence intended.

 

[MotCO]

Best part of £51.3m already paid, the £51.3m being known liability. However, the company is anticipating a further (additional) payment for which they have made a £30m provision so that the total cost could be nearer £81.3m. Discussions with DfT are still ongoing hence the provision.

I have a different take on it. Based on the BBC report, a total of £51.3m is being returned to the Government, and in addition, it could be fined £30m for the misrepresentation.

 

[Taunton]

I understand the 'discrepancies' arise from Govia having received certain rebates on track access charges after the calculations were made, and which they then failed to declare.

Thank you for that but it's still not at all apparent why a subsequent government rebate of substantial value, if missed out of a later calculation, was not immediately apparent to the government department from day one.

 

[alistairlees]

The BBC report is a second hand source. The original is here: https://newsroom.go-ahead.com/news/full-year-results-for-the-year-ended-3-july-2021

 

[Watershed]

Thank you for that but it's still not at all apparent why a subsequent government rebate of substantial value, if missed out of a later calculation, was not immediately apparent to the government department from day one.

Because the amount of the rebate probably had not been determined yet at that point. They relate to such matters as engineering work diversions/bustitution and revenue loss compensation, as well as variable track access charges.

They cannot always be easily predicted in advance and are dealt with by Network Rail and HS1, both of which are operationally arms-length bodies from the government.

I'm not excusing the DfT by any means - clearly there has been an insufficient level of auditing. But it is certainly understandable how a situation like this could arise.

 

[Nicholas Lewis]

I'm not excusing the DfT by any means - clearly there has been an insufficient level of auditing. But it is certainly understandable how a situation like this could arise.

DofT employ plenty of consultants to support them on these sort of checks so they ought to be sending the bills back but they won't as consultants are their mates who stick a few bob into the Tory coffers

 

[PG]

DofT employ plenty of consultants to support them on these sort of checks so they ought to be sending the bills back but they won't as consultants are their mates who stick a few bob into the Tory coffers

DfT would still be staffed by the same civil servants regardless of the colour of the government so I wouldn't read too much into this. If there is any truth in your allegations it might be the case that DfT haven't exercised sufficient oversight of the auditors who they have appointed?

 

[LNW-GW Joint]

LSER (Govia) has been fined £23.5m by the DfT to settle the breach of contract on the SE franchise.
That's on top of £64m repayment of taxpayer support already agreed.
It looks like the penalty was roughly in line with Govia's expectations and provisions.

You'd think this clears the decks for what happens next at GTR, but there is no mention of that in the various announcements.

LSER issued with £23.5 million penalty over breach of contract

Penalty notice sends signal to rail operators that breaches of public trust will not be tolerated.

www.gov.uk

MSN

The Department for Transport (DfT) found that “between October 2014 and March 2020, LSER had deliberately concealed over £25m of historic taxpayer funding” that should have been handed back.
The cash related to the High Speed 1 rail link, on which Southeastern runs fast Javelin trains between London St Pancras and towns in northern and eastern Kent.
The transport secretary, Grant Shapps, said: “I took decisive action and did not renew the contract with Southeastern following this appalling breach of trust.
“Our rapid and firm action protected taxpayers and passengers – ensuring much-needed services continued to run.

 

[Nicholas Lewis]

LSER (Govia) has been fined £23.5m by the DfT to settle the breach of contract on the SE franchise.
That's on top of £64m repayment of taxpayer support already agreed.
It looks like the penalty was roughly in line with Govia's expectations and provisions.

You'd think this clears the decks for what happens next at GTR, but there is no mention of that in the various announcements.

LSER issued with £23.5 million penalty over breach of contract

Penalty notice sends signal to rail operators that breaches of public trust will not be tolerated.

www.gov.uk

MSN

Well its good to see using its powers for once although with the comment

The review also identified evidence of similar behaviour by LSER during its previous franchise agreement that ran from April 2006 to October 2014.

DofT needs to examine its own oversight arrangements that it failed to detect the issue for so long.

 

[Djgr]

Well its good to see using its powers for once although with the comment


DofT needs to examine its own oversight arrangements that it failed to detect the issue for so long.

Sounds like blaming the victim

 

[Nicholas Lewis]

Sounds like blaming the victim

I agree that DofT is the the victim but Accounting Officers within government departs have fiduciary duties when public money is being used to make sure its expended correctly which go above and beyond what you and I might do. DofT in this case do that largely through consultants so they should be asking whoever was responsible for oversight of the LSER account why a sum of this size when unnoticed. Whilst its clearly good that the sums lost have been recovered and a penalty levied on the parent group this wasn't a trivial amount. So if nothing else the DofT accounting officers should seek to learn from what's happened as post covid they have had to expend considerable sums of taxpayers money to support operators so ought to be making sure those have been appropriately expended.

 

[Djgr]

I agree that DofT is the the victim but Accounting Officers within government departs have fiduciary duties when public money is being used to make sure its expended correctly which go above and beyond what you and I might do. DofT in this case do that largely through consultants so they should be asking whoever was responsible for oversight of the LSER account why a sum of this size when unnoticed. Whilst its clearly good that the sums lost have been recovered and a penalty levied on the parent group this wasn't a trivial amount. So if nothing else the DofT accounting officers should seek to learn from what's happened as post covid they have had to expend considerable sums of taxpayers money to support operators so ought to be making sure those have been appropriately expended.

So presumably have to assume that plc companies and the people who work in them are fraudsters?

 

[Watershed]

Sounds like blaming the victim

Not really. It's like if someone clicks on a link in a suspicious email, enters their card details and gets scammed. It's not their fault that they got scammed - but equally it's common sense to exercise caution when opening emails, and it's not wrong to suggest that someone is more careful in future.

In this case, the DfT clearly aren't the reason that this issue arose - that was down to LSER's initial mistake and then their deliberate decision to keep quiet about it. Quite rightly, they lost the 'franchise' and have had a significant penalty imposed.

But something like this could happen at any TOC at any time. Therefore the DfT should exercise a sufficient degree of oversight to ensure things like this can't go undetected for years. They have a responsibility to administer taxpayers' money prudently - but in this case they failed, badly. How many more of these skeletons are lying in the closet, waiting to be discovered?

 

[MotCO]

Do we know how the 'error' was discovered? Was it the DfT, company auditors, DfT auditors or a whistle-blower? Or did GoVia come clean?

 

[JaJaWa]

Do we know how the 'error' was discovered? Was it the DfT, company auditors, DfT auditors or a whistle-blower? Or did GoVia come clean?

To run the service, Southeastern had to pay for track access charges and the HS1 train depot. These were in fact paid by the DfT and the costs passed to Southeastern. Errors in calculating the amounts resulted in the DfT paying £20.5 million more than it should for the track access charges, and £6.5 million for the rail depot.

The franchise operator seems to have known about the mistakes as early as late 2014, and should have reported the correct figures and repaid the money. According to the DfT, they didn’t do this, and in fact, took actions to hide the extra money the company was earning by reallocating it to other areas of the business so that it could report lower profits to share with the DfT.

The whole thing came to light when an error was detected in the accounts by the DfT in July 2020, although at the time they thought it was a minor error that would be recovered anyway due to the way the earlier contracts were structured. However, subsequent investigations by both sides, and an independent committee found far more serious breaches of the franchise agreements, and a later report uncovered even more breaches.

Former Southeastern franchise fined for hiding HS1 funding

The government has fined the owner of the former Southeastern franchise a total of £23.5 million after it found that the company had hidden £25 million of income from its HS1 rail service.

www.ianvisits.co.uk

And a lot more detail here:

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1061458/lser-penalty-notice.pdf

 

[Djgr]

Not really. It's like if someone clicks on a link in a suspicious email, enters their card details and gets scammed. It's not their fault that they got scammed - but equally it's common sense to exercise caution when opening emails, and it's not wrong to suggest that someone is more careful in future.

In this case, the DfT clearly aren't the reason that this issue arose - that was down to LSER's initial mistake and then their deliberate decision to keep quiet about it. Quite rightly, they lost the 'franchise' and have had a significant penalty imposed.

But something like this could happen at any TOC at any time. Therefore the DfT should exercise a sufficient degree of oversight to ensure things like this can't go undetected for years. They have a responsibility to administer taxpayers' money prudently - but in this case they failed, badly. How many more of these skeletons are lying in the closet, waiting to be discovered?

I don't really agree with you. Sounds like gaslighting.

 

[Watershed]

I don't really agree with you. Sounds like gaslighting.

Should we just trust TOCs to always do things honestly?

It's no different to if HMRC didn't have enough tax inspectors. Most people are trustworthy but some are not, and without a degree of checking more people would be tempted to try it on.

 

[PG]

LSER issued with £23.5 million penalty over breach of contract

The review also identified evidence of similar behaviour by LSER during its previous franchise agreement that ran from April 2006 to October 2014.

LSER - Notice of intention to impose a penalty

The Secretary of State for Transport is proposing to impose a penalty of £23.5 million on London & South Eastern Railway Limited (LSER), pursuant to section 57A of the Railways Act 1993 as amended, for contraventions of franchise agreements dated 10 September 2014 and 27 March 2020.

I may be reading things incorrectly but I believe that means that LSER have effectively 'got away with it' in respect of the previous franchise agreement that ran from April 2006 to October 2014 as there does not appear to be mention of any penalty covering that franchise period.

 

[krus_aragon]

LSER issued with £23.5 million penalty over breach of contract

LSER - Notice of intention to impose a penalty


I may be reading things incorrectly but I believe that means that LSER have effectively 'got away with it' in respect of the previous franchise agreement that ran from April 2006 to October 2014 as there does not appear to be mention of any penalty covering that franchise period.

I guess that depends whether you read that sentence as saying the franchise ran from 2006 to 2014, or the dodgy behaviour ran from 2006 to 2014.