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Southeastern rail franchise failure causes accounting delays
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Go-Ahead shares suspended due to audit delays

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Shares in the troubled Go-Ahead rail consortium were suspended from the London Stock Exchange at the company’s request on Tuesday morning.

4th Jan 2022
Editor at large AccountingWEB
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The former Southeastern rail franchise operator’s request for a temporary suspension was needed to give the company and its auditor, Deloitte, time to finalise the audited accounts for the year to 3 July 2021.

Under the current rules, listed companies are allowed six months to prepare their accounts, but for the past four months Go-Ahead managers have been negotiating with the auditors about how to treat and provide for £25m in unreported taxpayer funding.

Lost franchise

The Go-Ahead saga has been unspooling in slow motion since late August, when the company admitted discussions were underway with the Department for Transport (DfT) around the historic calculation of the Southeastern railway’s profit share figures. These required additional time to resolve in a way that would allow Deloitte to finalise the annual results.

Just over a month later, another trading statement disclosed that the DfT had taken the Southeastern rail franchise away from Go-Ahead for failing to notify the department of overpayments.

The Department for Transport (DfT) stripped the company of the route in October, after it failed to declare more than £25m of taxpayer funding.

The Southeastern franchise was owned by Govia, a joint venture between majority shareholder Go-Ahead Group and Keolis. The two shareholders commissioned an external review that found “serious errors” in Southeastern’s relations with the transport ministry, particularly around notifications of payments due back to the DfT. That behaviour breached the good faith obligations in the original franchise contract.

Corporate governance

Go-Ahead maintained it had an adequate corporate governance structure in place, but promised to improve it and would work with Deloitte to agree a suitable provision for the contract loss and any subsequent penalty in the 2021 financial statements.

That task has proved to be harder than anticipated. Instead of the intended date of 3 January, the company’s shares will remain suspended until the final results are published, hopefully before the end of January 2022.

The group also has a number of debt covenants in place requiring its accounts audited results to be published by specific dates. Waivers were agreed in relation to the group’s revolving credit facility in October and Go-Ahead expects to agree a similar arrangement to cover the continuing delay.

In spite of the dramas around Go-Ahead’s annual results, a December statement on the Southeastern situation anticipated that the results of its rail division would come out ahead of market expectations.

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