TIDMSGC
RNS Number : 1372R
Stagecoach Group PLC
07 December 2016
7 December 2016
Stagecoach Group plc - Interim results for the half-year ended
29 October 2016
Earnings per share in line with expectations, investing for
growth
-- Adjusted earnings per share* 14.4 pence (H1 2016: 17.0 pence)
-- Interim dividend per share up 8.6% to 3.8 pence (H1 2016: 3.5 pence)
-- Profit before tax GBP89.5m (H1 2016: GBP90.8m)
-- Further investment in new vehicles and technology
o net capital expenditure* GBP125.5m (H1 2016: GBP83.9m)
-- Bid for new South Western rail franchise submitted, current
franchise extended to August 2017
-- Our expectation of 2016/17 adjusted earnings per share broadly unchanged
Financial summary
Results excluding Statutory results
intangible
asset expenses
and exceptional
items(*)
H1 2017 H1 2016 H1 2017 H1 2016
--------------------------- --------- --------- --------- ---------
Revenue (GBPm) 2,002.1 1,970.4 2,002.1 1,970.4
--------------------------- --------- --------- --------- ---------
Total operating profit
(GBPm) 117.0 144.6 108.9 137.2
Non-operating exceptional - - (2.8) -
items (GBPm)
Net finance charges
(GBPm) (16.6) (23.1) (16.6) (46.4)
--------------------------- --------- --------- --------- ---------
Profit before taxation
(GBPm) 100.4 121.5 89.5 90.8
Earnings per share
(pence) 14.4p 17.0p 12.7p 12.8p
Interim dividend per
share (pence) 3.8p 3.5p 3.8p 3.5p
--------------------------- --------- --------- --------- ---------
* see definitions in note 23 to the condensed
financial statements
Chief Executive, Martin Griffiths, said:
"We are pleased with the performance of the business in the face
of a challenging and uncertain political and economic environment.
We have met our expectations of earnings per share for the first
half of the year.
"We see positive long-term prospects for public transport and
have increased the interim dividend by 8.6%. We have a growth
strategy built on continued investment, value-for-money travel and
high customer satisfaction and we have made further significant
investments to improve our bus and rail services for customers now
and in the future. There is a large market opportunity for modal
shift from cars to public transport against a backdrop of
population growth, urbanisation, technological advancements, and
increasing pressure to tackle road congestion and improve air
quality.
"We remain confident that we can continue to deliver long-term
value to our customers and shareholders. The prospects for growth
in public transport in the UK and North America remain good and we
are continuing to invest to ensure that our businesses are a
central part of that growth."
Copies of this announcement are available on the Stagecoach
Group website at
http://www.stagecoach.com/investors/financial-analysis/reports/2016.aspx
For further information, please contact:
Stagecoach Group plc www.stagecoachgroup.com
Investors and analysts
Ross Paterson, Finance Director 01738 442111
Bruce Dingwall, Group Financial Controller 01738 442111
Media
Steven Stewart, Director of Corporate Communications 07764 774680
Notes to Editors
Stagecoach Group
-- Stagecoach is an international public transport group, with
operations in the UK, mainland Europe, the United States and
Canada. The Group employs around 40,000 people, and operates around
13,000 buses, coaches, trains and trams.
-- Stagecoach is one of the UK's biggest bus and coach operators
with around 8,500 buses and coaches on a network stretching from
south-west England to the Highlands and Islands of Scotland.
Low-cost coach service, megabus.com, operates a network of
inter-city services across the UK. We also operate some contracted
coach services in mainland Europe.
-- Stagecoach is a major UK rail operator, running the South
West Trains, Island Line and East Midlands Trains networks. It also
has a 49% shareholding in Virgin Rail Group, which operates the
West Coast rail franchise, and a 90% shareholding in Virgin Trains
East Coast, which operates the East Coast rail franchise.
-- Stagecoach operates the Supertram light rail network in Sheffield.
-- In North America, Stagecoach operates around 2,300 buses and
coaches in the United States and Canada. megabus.com operates a
network of inter-city coach services in North America. Stagecoach
is also involved in operating commuter, transit, contracted,
charter, airport shuttle and sightseeing services.
Interim management report
As announced in our 2016 Annual Report, the Group will report
its annual results from 2016/17 onwards based on a financial year
ending on the Saturday nearest to 30 April. The half-year results
for each year will be for the first twenty six weeks of the
relevant financial year. The Directors of Stagecoach Group plc are
pleased to present their report on the Group for the twenty six
weeks ended 29 October 2016. Comparatives are presented for the six
months to 31 October 2015.
Description of the business
Stagecoach Group plc is a public limited company that is
incorporated, domiciled and has its registered office in Scotland.
Its ordinary shares are publicly traded and it is not under the
control of any single shareholder. The Company has its primary
listing on the London Stock Exchange. Throughout this document,
Stagecoach Group plc is referred to as "the Company" and the group
headed by it is referred to as "Stagecoach" or "the Group".
The Group is a leading international public transport group,
with operations in the UK, mainland Europe, the United States and
Canada. A description of each of the Group's operating divisions is
given on pages 3 to 6 of its 2016 Annual Report.
Overview
We have achieved our expectation of earnings per share for the
twenty six weeks ended 29 October 2016. Revenue for the period was
up 1.6% at GBP2,002.1m (H1 2016: GBP1,970.4m). Total operating
profit (before intangible asset expenses and exceptional items) was
GBP117.0m (H1 2016: GBP144.6m). Earnings per share before
intangible asset expenses and exceptional items ("adjusted earnings
per share") were 14.4p (H1 2016: 17.0p), with the year-on-year
decrease principally due to the anticipated fall in operating
profit from our UK Rail Division.
We have declared an interim dividend up 8.6% to 3.8p per share
(H1 2016: 3.5p). This is consistent with our policy of generally
setting the interim dividend per share at approximately one-third
of the rate for the previous full financial year. The dividend is
payable to shareholders on the register at 10 February 2017 and
will be paid on 8 March 2017. Shareholders who wish to participate
in the dividend re-investment plan for this dividend should elect
to do so by 15 February 2017. Election requests should be made to
the Company's registrars in good time before that date.
Across all of our divisions, we have continued to see subdued
revenue trends relative to the stronger growth we have delivered
over the last ten years or so. We continue to take steps to boost
revenue with the long-term success of the Group in mind. Our
approach to pricing and investment is intended to ensure that we do
not adversely affect the Group's long-term prospects in how we
respond to weaker revenue trends in the short-term.
In the UK and North America, we have seen revenue growth in both
the bus and rail sectors affected by sustained low fuel prices that
have resulted in heightened competition from cars and airlines. We
have taken proactive steps to respond by matching service provision
with consumer demand, whilst also identifying and progressing
initiatives to generate passenger revenue growth.
Across the Group, our focus remains on driving growth by
investing in our services and anticipating the evolving
requirements of our customers to deliver safe, high quality and
value-for-money travel. Local transport is central to the growth
aspirations in our communities and regional economies. In UK Rail,
we are able to draw on our 20 years' experience of the franchised
rail market to deliver customer improvements, taxpayer value and
profitable businesses in varying conditions.
A key element of our growth plan is significant investment in
our digital offerings to customers, making it easier to choose
greener and smarter public transport. Our bus and rail businesses
are investing in better information and mobile ticketing, as well
as other measures to deliver a better travel experience for our
customers. We are also investing in the training and development of
our teams across the Group to equip them to deliver continued
excellent service to our customers. Our employees are fundamental
to our success and the Board extends its thanks to them for their
hard work and professionalism.
In recent months, we have strengthened the Board with new
appointments. Ray O'Toole, who joined as a non-executive director
in September 2016, has a wealth of strategic and senior management
experience and an in-depth understanding of public transport
markets. Similarly, Julie Southern, who joined as a non-executive
director in October 2016, brings further considerable experience to
the Board in senior finance and management roles, including in the
transport sector.
Our expectation of the level of adjusted earnings per share for
the full year to 29 April 2017 is broadly unchanged. We have
updated our view of the mix of profits for the year, taking a more
cautious view on the short-term outlook for revenue trends in our
UK Bus (regional operations) Division, broadly offset by improved
forecasts for UK Rail as well as finance and tax costs. There are
several medium to long-term positive drivers for our businesses,
including urbanisation, population growth, action to tackle road
congestion, demand for improved mobility and environmental
pressures. These drivers of public transport growth in general are
supported by Stagecoach-specific fundamental long-term growth
drivers including our long-term perspective on pricing, our
continued investment through the business cycle, our significant
digital and technology investment, an experienced management team
and our capital discipline. We continue to benefit from a
collaborative approach with our public sector partners and other
stakeholders. This results in better transport networks and
maximises the effectiveness of our collective resources. We remain
confident that we can continue to deliver long-term value to our
customers and shareholders.
Summary of financial results
Revenue by division is summarised below:
REVENUE H1 2017 H1 2016 H1 2017 H1 2016 Growth
-----------
GBPm GBPm Functional Functional %
currency currency (m)
-------- -------- ----------- ----------------------- -------
Segment revenue
UK Bus (regional
operations) 513.9 522.4 GBP 513.9 522.4 (1.6)%
megabus Europe 14.9 8.4 GBP 14.9 8.4 77.4%
UK Bus (London) 131.5 133.1 GBP 131.5 133.1 (1.2)%
North America 252.0 225.7 US$ 338.4 349.2 (3.1)%
UK Rail 1,092.3 1,083.2 GBP 1,092.3 1,083.2 0.8%
Intra-Group revenue (2.5) (2.4) GBP (2.5) (2.4)
-------- -------- ----------- ----------- ---------- -------
Group revenue 2,002.1 1,970.4
-------- --------
Operating profit by division is summarised below:
H1
OPERATING PROFIT H1 2017 H1 2016 H1 2017 2016
-----------
GBPm % margin GBPm % margin Functional
Functional currency
currency (m)
------ --------- ------ --------- ----------- ----------------
Segment operating
profit
UK Bus (regional
operations) 66.6 13.0% 71.9 13.8% GBP 66.6 71.9
megabus Europe (4.6) (30.9)% (9.2) (109.5)% GBP (4.6) (9.2)
UK Bus (London) 9.1 6.9% 10.0 7.5% GBP 9.1 10.0
North America 17.5 6.9% 18.5 8.2% US$ 23.5 28.6
UK Rail 20.5 1.9% 43.8 4.0% GBP 20.5 43.8
Group overheads (6.3) (6.9)
Restructuring costs (0.8) (1.2)
------ --------- ------
102.0 126.9
Joint ventures
- share of profit
after tax
Virgin Rail Group 13.9 13.5
Citylink 1.1 1.1
Twin America - 3.1
------ --------- ------
Total operating
profit before intangible
asset expenses 117.0 144.6
Intangible asset
expenses (8.1) (7.4)
Total operating
profit: Group operating
profit and share
of joint ventures'
profit after taxation 108.9 137.2
------ --------- ------
UK Bus (regional operations)
Financial performance
The financial performance of the UK Bus (regional operations)
Division for the half-year ended 29 October 2016 is summarised
below:
H1 H1 Change
2017 2016
GBPm GBPm
--------------- ------ ------ -------
Revenue 513.9 522.4 (1.6)%
Like-for-like
revenue 510.4 521.5 (2.1)%
Operating
profit* 66.6 71.9 (7.4)%
--------------- ------ ------ -------
Operating
margin* 13.0% 13.8% (80)bp
--------------- ------ ------ -------
The figures above exclude the results of the megabus.com
inter-city coach business involving mainland Europe, which has been
reported as a separate operating segment. The prior year figures
for the UK Bus (regional operations) Division have been re-stated
to exclude megabus Europe.
Like-for-like revenue was built up as follows:
H1 H1 Change
2017 2016 %
GBPm GBPm
------------------ ------- ------- ---------
Commercial
on and off
bus revenue
- megabus.com 12.2 12.7 (3.9)%
- other 300.9 306.0 (1.7)%
Concessionary
revenue 126.9 127.7 (0.6)%
------------------ ------- ------- ---------
Commercial
& concessionary
revenue 440.0 446.4 (1.4)%
Tendered
and school
revenue 49.4 54.5 (9.4)%
Contract
revenue 19.2 18.8 2.1%
Hires and
excursions 1.8 1.8 -
------------------ ------- ------- ---------
Like-for-like
revenue 510.4 521.5 (2.1)%
------------------ ------- ------- ---------
The age at which older people are entitled to free bus travel in
England has been increasing in line with changes to the state
pension entitlement age. Therefore, the number of older people
eligible for free bus travel in England has reduced year-on-year.
While that has some adverse effect on the number of concessionary
passenger journeys on our bus services, it should have a positive
effect on the number of commercial (i.e. where the passenger pays
for his or her own travel) journeys. To understand the year-on-year
revenue trends, therefore, we consider commercial and concessionary
revenue together.
Like-for-like combined commercial and concessionary revenue was
1.4% lower than in the previous year. We have seen pressure on both
passenger journey numbers and the yield per journey during the
period.
Total like-for-like passenger journeys fell by 1.5%. Growth
rates remain variable across the country. Trends in passenger
journey numbers continue to be weaker than we have seen in the UK
Bus (regional operations) Division in recent years. This is partly
attributable to weak underlying local economic conditions in some
parts of the UK, sustained lower fuel prices, worsening road
congestion and increased competition from other transport
providers.
In light of the pressure we have seen on our passenger journey
numbers, there were no price rises on many of our tickets this
year, with any increases kept to a minimum. We have continued to
promote our loyalty tickets, which offer particularly good value to
customers. While these decisions are reflected in the revenue
trends, we consider them to be the right decisions for the
long-term success of the Division.
Revenue from tendered and school services provided under
contract has continued to decline, as a result of local authorities
reducing spending due to budget constraints. Contract revenue, on
the other hand, has grown reflecting new commercial contract work
that we secured.
We continue to review and adjust our bus networks in response to
changing demand. We work with transport authorities to maximise the
value from their funding for socially necessary services to provide
as wide a set of bus networks as possible for local
communities.
Road works and worsening road congestion in many towns and
cities are increasingly having a negative impact on customer use of
bus services, damaging reliability and adding to operating costs.
Along with other bus operators, we are increasing pressure on local
authorities to take practical steps to address road congestion and
invest in bus priority measures which can help improve mobility and
air quality for everyone.
We remain positive on the longer term opportunities for the
Division. Urbanisation, population growth, technological
advancements, environmental concerns and the economic imperative to
address road congestion all point to growth in the use of public
transport in general, and bus services in particular.
The movement in operating margin was built up as follows:
Operating margin
- H1 2016 13.8%
Change in:
Staff costs (2.1)%
Fuel costs 1.8%
Other (0.5)%
Operating margin
- H1 2017 13.0%
------------------- -------
The main changes in the operating margin shown above are:
-- Staff costs have continued to rise by more than inflation,
against a backdrop of subdued revenue.
-- Fuel costs have reduced, reflecting market fuel prices and our fuel hedging programme.
-- Other costs have increased, including higher depreciation as
a result of our continued fleet investment.
Enhanced customer experience
We are continuing to invest in the quality of our services, and
initiatives to further increase customer satisfaction. We have now
launched our new Stagecoach bus app which will save passengers time
by providing mobile ticketing, better journey planning information
and live bus tracking. We have also started the roll-out of a
GBP12m initiative to deliver contactless payment for bus travel on
all of our regional bus services across the UK by the end of 2018.
The technology, which is already live on our Oxfordshire bus
services, allows passengers to pay for their travel with
contactless credit or debit card, Apple Pay and Android Pay.
Stagecoach customers across the country are already benefitting
from smartcard ticketing and we are continuing to work with other
bus operators to offer multi-operator products. We are pleased to
have been part of the launch of Scotland's first smartcard
multi-operator initiative covering Aberdeen City and Aberdeenshire,
as well as the introduction of a similar initiative in Dundee.
Further multi-operator schemes are set to follow in Glasgow and
Edinburgh in the next few months. These projects will provide a
platform to deliver multi-modal travel in partnership with
transport authorities.
As well as our continuing investment in technology and digital
initiatives, we continue to explore other ideas to grow passenger
journeys numbers on our services. In Ashford in Kent, for example,
we will shortly introduce Mercedes Benz Sprinter minibuses to
replace larger vehicles on some routes. The frequency of the
services will be increased with the use of smaller vehicles. Our
aim is that more frequent services will be of greater appeal to
customers and result in strong growth in the number of journeys
made on those services.
Extending partnership
One of our strengths is the breadth of partnership working with
local authorities who understand the joint responsibility we share
for improving bus services for passengers. We are pleased to have
signed a new partnership agreement that will deliver significant
investment in improved bus services in Merseyside over the next
five years. The Liverpool City Region Bus Alliance, a partnership
with Merseytravel and Arriva, will deliver more than GBP25m worth
of investment in bus services in the first year to boost services
for existing passengers and attract more people to bus travel.
Around 80% of public transport journeys in the Liverpool City
Region are made by bus, with overall customer satisfaction at 89%.
The partnership will provide more modern bus fleet, improved
smartcard ticketing, Wi-Fi and USB charging on all new buses, joint
marketing campaigns, improved bus links, and clearly defined
targets around punctuality and passenger satisfaction. This builds
on existing strong partnerships in several other city regions and
local authority areas around the country.
Bus Services Bill
We are continuing to engage constructively with a range of
stakeholders, including the UK Department for Transport and
transport authorities, on the refinement of the principles and
measures in the Bus Services Bill. Enhanced partnership working is
central to the Bill, although we are cognisant of regulatory
provisions around franchising and other measures related to
accessibility and open data which affect the sector. We are
continuing to focus on ensuring that the final legislation promotes
partnership working, contains proper protections for passengers and
taxpayers, and that these objectives are underpinned by associated
Department for Transport guidance and secondary legislation. Most
areas served by the Division have shown little appetite for bus
franchising and, indeed, no franchising proposal outside London has
ever passed the necessary test of providing a demonstrably better
service while offering taxpayers value for money. Private sector
capital is vital to delivering the improvements passengers demand,
at a time of rapid technological change and shrinking public sector
budgets.
Outlook
We continue to expect subdued revenue trends from our local bus
services in the short-term and have updated the Division's
forecasts for the current financial year to reflect that. We are
reviewing our pricing strategy at a number of our UK Bus businesses
in light of the revenue trends and the increasing proportion of
sales being made "off bus". Our costs continue to be well
controlled, and we have benefitted from a reduction in fuel costs
this year. We continue to monitor demand and the competitive
position in each of our local markets, and evaluate the financial
performance of each of our depots, networks and individual routes.
Based on that, changes are made to our services that we consider
will support the long-term success of the business.
Notwithstanding short-term challenges, the Division continues to
earn good profit margins and returns on capital. With our continued
fleet and digital investment, greater urbanisation, opportunities
to address rising road congestion and continued environmental
concerns, we remain positive on the longer term prospects of the
Division.
megabus Europe
Financial performance
The financial performance of the megabus Europe Division for the
half-year ended 29 October 2016 is summarised below:
H1 H1 Change
2017 2016
GBPm GBPm
-------------------- -------- --------- --------
Revenue
and like-for-like
revenue 14.9 8.4 77.4%
Operating
loss (4.6) (9.2) 50.0%
-------------------- -------- --------- --------
Operating
margin (30.9)% (109.5)% 7,860bp
-------------------- -------- --------- --------
The Group completed the sale of the retailing part of the
megabus Europe business to FlixBus on 1 July 2016. The
consideration was satisfied by the issue of a loan note and the
Group expects that loan note to be fully settled by the end of
2017. The Group has also agreed that it will transfer a number of
vehicles to FlixBus, or a nominee of FlixBus. After taking account
of costs and losses related to the sale, we have reported a pre-tax
exceptional loss on the disposal of the business of GBP2.8m. We had
anticipated a gain on disposal but costs have exceeded our initial
forecasts.
The operating loss of GBP4.6m shown above represents the loss
incurred prior to 1 July 2016, partly offset by a small profit from
the continued operation since 1 July of an international network of
coach services between the UK and mainland Europe. These ongoing
services are operated by us under contract to FlixBus, the revenue
from passengers flows to FlixBus and FlixBus pays us for the
operation of the coach services.
FlixBus does not wish us to continue operating the other coach
services we operated in mainland Europe prior to 1 July 2016. We
are still operating services for FlixBus on the megabus.com French
network but are no longer operating the other megabus.com services.
Losses on all of these services since 1 July 2016 and costs
associated with terminating services, where applicable, have been
accounted for as part of the exceptional loss on the sale of the
retail business.
UK Bus (London)
Financial performance
The financial performance of the UK Bus (London) Division for
the half-year ended 29 October 2016 is summarised below:
H1 H1 Change
2017 2016
GBPm GBPm
-------------------- ------ ------ -------
Revenue
and like-for-like
revenue 131.5 133.1 (1.2)%
Operating
profit 9.1 10.0 (9.0)%
-------------------- ------ ------ -------
Operating
margin 6.9% 7.5% (60)bp
-------------------- ------ ------ -------
As expected, revenue was 1.2% below the equivalent prior year
period. That reflected a net reduction in vehicle miles operated
resulting from contract tenders concluded in the prior year.
Revenue per vehicle mile increased 2.1%.
The results of contract tenders in the current financial
year-to-date have not significantly changed our forecast vehicle
miles. We have increased the number of contracts by three through
tenders for new contracts.
The decrease in operating margin was expected and was built up
as follows:
Operating margin
- H1 2016 7.5%
Change in:
Staff costs (0.8)%
Fuel costs 0.8%
Other operating leases (0.4)%
Other (0.2)%
Operating margin
- H1 2017 6.9%
------------------------- -------
Although the Division's fuel costs have reduced year-on-year,
there is an offsetting effect from the impact of lower fuel costs
on the indexation of contract revenue. Staff and other costs have
continued to rise as a proportion of revenue.
Outlook
The overall outlook for the Division is positive with the London
Bus operations well placed to capitalise on opportunities arising
from the planned procurement of new or extended contracts by
Transport for London in the next few years.
North America
Financial performance
The financial performance of the North America Division for the
half-year ended 29 October 2016 is summarised below:
H1 H1 Change
2017 2016
US$m US$m
--------------- ------ ------ --------
Revenue 338.4 349.2 (3.1)%
Like-for-like
revenue 338.9 349.2 (2.9)%
Operating
profit 23.5 28.6 (17.8)%
--------------- ------ ------ --------
Operating
margin 6.9% 8.2% (130)bp
--------------- ------ ------ --------
Like-for-like revenue was built up as follows:
H1 H1 Change
2017 2016
US$m US$m
----------------- ------ ------ --------
Megabus.com 103.5 112.2 (7.8)%
Scheduled
service
- Commercial
revenue 82.6 83.6 (1.2)%
- Support
from local
authorities 6.9 6.6 4.5%
Charter 67.8 70.1 (3.3)%
Contract
services 59.5 55.8 6.6%
Sightseeing
and tour 18.6 20.9 (11.0)%
----------------- ------ ------ --------
Like-for-like
revenue 338.9 349.2 (2.9)%
----------------- ------ ------ --------
Trading at our megabus.com inter-city coach business in North
America reflects the positive action we have taken to match our
services with changes in demand from customers. Sustained lower
fuel prices have heightened car and air competition and had an
impact on operators generally across the inter-city coach market.
Like-for-like revenue at megabus.com North America in the first
half of the year is 7.8% below the equivalent period last year but
revenue per vehicle mile was up 2.4%.
As well as having taken proactive steps to reduce the mileage
operated by megabus.com in North America, we are making targeted
use of smaller vehicles, to respond to market conditions and
customer demand. In addition, we are moving the core operating
bases of our Midwest operation from Chicago to Wisconsin and Ohio
to deliver a more efficient service. Marketing activity is
continuing to capitalise on the 10th anniversary of the megabus.com
brand in North America, with a particular focus on digital channels
to generate new customers. We remain well positioned to quickly
respond to a recovery in demand by adding back mileage.
Overall like-for-like revenue at the other businesses in North
America declined by 0.7% and trading remains in line with our
expectations. While revenue from the more leisure-dependent
activities (charter, sightseeing and tour) reduced during the
half-year ended 29 October 2016, we saw better trends in our
scheduled service and contract revenues. Contract revenue growth of
6.6% was a particular highlight, largely reflecting the year over
year impact of new contract wins.
In October 2016, we began operating a new, park and ride,
commuter bus service between Hillsborough, New Jersey, and New York
City. The service operates Monday to Friday. We have an agreement
with a retailer for commuters to use the retailer's available car
park capacity to park their cars and catch the bus. The car park is
then fully available for the retailer's own customers to use at the
weekends. We continue to look for similar opportunities to develop
more park and ride services.
As in the UK, the North America Division is expanding its
digital initiatives. Mobile ticket sales have continued to
increase, particularly on our airport express services. We will
also shortly launch a refresh of our websites.
We are currently in discussions regarding several further
opportunities to secure new contract business. Our experience of
operating more complex contracts for mining companies may prove
valuable in this regard.
The movement in the operating margin of the North America
Division was built up as follows:
Operating margin
- H1 2016 8.2%
Change in:
Staff costs (1.4)%
Fuel costs 2.3%
Insurance and claims
costs (2.1)%
Other (0.1)%
----------------------- -------
Operating margin
- H1 2017 6.9%
----------------------- -------
The main changes in the operating margin shown above are:
-- Staff costs have continued to rise as a proportion of our lower revenue base.
-- The change in insurance and claims costs reflects our latest
assessment of the required provision for claims on major
incidents.
-- Fuel costs have reduced reflecting market fuel prices and our fuel hedging programme.
Outlook
As oil prices have stabilised, the trend in our megabus.com
revenue per vehicle mile has improved. If these revenue trends
continue to recover, we have the fleet capacity and operational
plans to return the business to growth.
We also see growth opportunities for the Division in new
contract wins but will remain disciplined in ensuring that our
contract bids are designed to deliver a satisfactory rate of return
on capital.
UK Rail
Financial performance
The financial performance of the UK Rail Division for the
half-year ended 29 October 2016 is summarised below:
H1 H1 Change
2017 2016
GBPm GBPm
---------------- -------- -------- --------
Revenue and
like-for-like
revenue 1,092.3 1,083.2 0.8%
Operating
profit 20.5 43.8 (53.2)%
---------------- -------- -------- --------
Operating
margin 1.9% 4.0% (210)bp
---------------- -------- -------- --------
Our UK Rail Division has exceeded its year-to-date profit
target. Poor Network Rail operational performance has contributed
to lower than forecast passenger revenue from our rail businesses
but income received from Network Rail in respect of that
operational performance has helped offset that. Cost savings have
also helped offset the lower than forecast revenue. However, as
expected, profit declined year-on-year, with South West Trains and
Virgin Trains East Coast both seeing notably reduced profitability,
reflecting passenger revenue growth being insufficient to cover the
combination of increased premia payments to Government and
movements in operating costs.
Revenue growth across the UK rail industry has slowed over the
last year. Revenue growth in our own UK Rail Division was 0.8% in
the first half of the financial year. We estimate that underlying
revenue growth was around 2% after normalising for differences in
the timing of events between years and for one-off revenue effects.
We further estimate that normalised passenger revenue growth for
the UK Rail sector was also around 2%. As previously highlighted,
we believe the reduced rate of growth reflects a number of factors
including the following:
-- As explained above, we have experienced poor Network Rail
operating performance in our UK Rail businesses, although
performance has varied across the rail network, with Virgin Rail
Group's West Coast franchise, for example, seeing notable
improvements in Network Rail performance.
-- We have seen increased car competition, with a significant
increase in fuel purchases for cars since fuel prices became
permanently lower in the eyes of consumers. The impact of lower
fuel prices on demand for rail travel was not immediate but we have
now seen an effect.
-- Competition from airlines has also increased in light of lower fuel prices.
-- UK GDP growth has slowed. There is evidence of weakening
consumer and business confidence, and we see continuing uncertainty
among consumers and businesses in the context of the UK's decision
to leave the European Union.
-- Price increases in January 2016 were lower than for some
years, reflecting low inflation and a Government policy decision to
cap increases on regulated fares at inflation (with reference to
the Retail Prices Index).
-- Other factors such as increased terrorism concerns and poor
weather have had some impact on revenue but to a lesser extent than
the factors summarised above.
We are, however, able to draw on our 20 years' experience of the
UK franchised rail market in delivering customer improvements,
taxpayer value and profitable businesses. We are taking steps to
mitigate the effects of lower revenue growth, focusing on cost
control, as well as additional initiatives to grow revenue. We also
continue to work constructively with the Department for Transport
and other industry partners to meet our obligations, manage
contract changes and ensure the continued stability and growth of
our rail businesses.
East Midlands Trains
In September 2015, the Group agreed a new East Midlands Trains
franchise with the Department for Transport, which commenced on 18
October 2015 and is scheduled to run until 4 March 2018. The
Department for Transport has the option to extend the contract by
up to one year on commercial terms that have been agreed and has
already indicated its intention to extend the franchise to July
2018. East Midlands Trains remains Britain's most punctual
long-distance train operator and has once again been rated the best
train operator for customer satisfaction in the most recent
Institute of Customer Service UK index. Passengers are benefitting
from previously announced investment of around GBP13m under the
current franchise. In addition, Network Rail is progressing with a
GBP48m investment in East Nottinghamshire's railway with modern
digital signalling upgrades nearing completion. This piece of work
will support improved reliability for our trains running through
Nottinghamshire. Looking ahead, East Midlands Trains recently
published a report using input from local stakeholders to outline
the need for new trains, extra carriages and other measures to
continue driving faster economic growth for the region. The
Government recently issued a prospectus for the next East Midlands
franchise which is due to start in 2018.
South West Trains
The UK Government has now formally extended our South West
Trains franchise until August 2017.
Work is nearing completion on the delivery of a GBP50m package
of investment to provide a more personal customer service and
easier end-to-end journeys. We have now opened the South West
Trains video contact centre, which provides real time help and
advice to passengers across the network. The centre is connected to
a network of new state-of-the-art video ticket machines. In
December 2016, South West Trains is launching new links to London
for many communities across the West of England following the
approval of the plans by the rail regulator in August 2015.
Customer and stakeholder communications have started to publicise
the major upgrade works being undertaken at London Waterloo,
Britain's busiest station, in August 2017. It is part of a wider
GBP800m Waterloo upgrade programme which will deliver a 30%
increase in the station's peak-time capacity by 2019. These
projects will provide the capacity to further grow revenue under
the next South Western franchise.
We note that the Mayor of London, has presented the Secretary of
State for Transport with a business case for the devolution of
London's suburban rail services to Transport for London, including
inner suburban rail services operating out of London Waterloo that
currently form part of the South West Trains business. Although
this transfer will not happen during our current franchise term, we
will continue to monitor developments and press the case for any
decisions to balance long-term capacity improvements for customers,
continued value for money for taxpayers, and the retention of the
benefits of an integrated rail network.
Virgin Trains East Coast
As previously highlighted, revenue at Virgin Trains East Coast
is below our original plans for the franchise, although we are yet
to deliver some of the major elements of our GBP140m programme of
investment to transform customer journeys and increase revenue. We
are nearing completion of a GBP40m programme of investment to
improve the current train fleet, including leather seats and mood
lighting in First Class and new red cloth seats in Standard, as
well as new carpets and other fittings. Virgin Trains continues to
innovate and has extended its booking horizon from the industry
standard of three months to six months in advance for weekday
tickets. A cross-Virgin Trains brand advertising campaign has been
launched, under the "Be Bound For Glory" banner as part of our
efforts to grow revenue. This includes focusing closely on those
who currently take domestic flights between Scotland and London. We
recently re-launched our Plane Relief promotion in which we offered
up to 20,000 customers the chance to travel between Edinburgh and
London for GBP15 each way on presentation of a used flight ticket.
Looking ahead, a new fleet of Azuma trains is set to revolutionise
travel on the East Coast franchise from 2018, providing extra
capacity and cutting journey times.
We recently updated our forecast for the business. We continue
to expect that the business will be profitable for the remaining
franchise period to 2023 and will fully repay loans from its
shareholders. That recent forecast is based upon the Group's
appropriate assumptions including on future macroeconomic trends,
the availability of railway infrastructure and our strong
contractual positions.
We expect revenue growth to accelerate at Virgin Trains East
Coast in the second half of this financial year, reflecting:
-- More stable/increasing year-on-year fuel prices supportive of modal shift back to rail;
-- Targeted price changes intended to increase the average revenue per passenger mile;
-- Improving returns on marketing investment as we see a
cumulative effect of successive market campaigns building on the
success of the prior campaigns;
-- Increasing demand for the additional train services to
Edinburgh that commenced in May 2016;
-- Additional services to Edinburgh and Leeds at weekends from December 2016;
-- Initiatives to enhance customers' experience, such as the
"Beam" on-board entertainment system launched earlier in 2016.
Very recent revenue growth and forward bookings show some signs
of an improving trend.
Franchising update
The Group has submitted its bid for the new South Western rail
franchise, which is now expected to start in August 2017. It is one
of two bidders to have been shortlisted by the Department for
Transport. We are proud to have operated the network under the
South West Trains brand for the past 20 years and we believe our
detailed knowledge of the business and good relationships with our
stakeholders and railway partners places us in a good position. We
expect the operator for the franchise to be selected in early
2017.
We will continue to consider other rail bidding opportunities
where we believe we can deliver benefits to passengers and add
value for our investors.
Outlook
The slower UK Rail industry revenue growth experienced in the
past year increases the uncertainty in outlook for the industry,
particularly given its sensitivity to economic conditions. The
exposure of our current rail franchises to variations in passenger
revenue is partly offset by movements in amounts payable and
receivable to/from the Department for Transport under contractual
sharing mechanisms: revenue support at South West Trains, GDP
support at Virgin Trains East Coast and GDP support and profit
share at East Midlands Trains.
However, we are beginning to see signs of improving revenue
growth in UK Rail. We continue with our emphasis on growing
revenue, controlling costs, managing contracts and bidding
selectively for franchise opportunities for the long-term success
of the Division.
Group overheads
Group overheads were broadly in line with last year at GBP6.3m
in the half-year ended 29 October 2016 compared to GBP6.9m in the
equivalent prior year period.
Virgin Rail Group
Financial performance
The financial performance of the Group's Virgin Rail joint
venture for the half-year ended 29 October 2016 is summarised
below:
49% share: H1 H1
2017 2016
GBPm GBPm
------------------ ------ ------
Revenue and
like-for-like
revenue 280.1 270.0
------------------ ------ ------
Operating profit 17.1 16.6
Net finance
income 0.3 0.3
Taxation (3.5) (3.4)
------------------ ------ ------
Profit after
tax 13.9 13.5
------------------ ------ ------
Operating margin 6.1% 6.1%
------------------ ------ ------
Virgin Rail Group's West Coast rail franchise continues to
perform well and that is benefitting taxpayers through profit share
payments by the business to the UK Department for Transport. The
franchise is continuing to perform ahead of our expectations at the
time the contract was agreed. The current franchise is contracted
to run until March 2018.
As well as the good financial performance, we have seen
significantly improved punctuality on the West Coast services,
reflecting positive work by Network Rail and Virgin Rail Group.
Virgin Rail Group continues to lead the rail industry in
innovating for customers, such as being the first train company to
automatically compensate customers who book advance tickets through
virgintrains.com or its app if their train service is delayed. West
Coast has been voted the Best UK Domestic Train Service at the
Business Traveller Awards 2016. A joint advertising campaign was
recently undertaken to promote the Virgin Trains brand across both
the West Coast and East Coast franchises.
Revenue at West Coast Trains in the second half of last
financial year was adversely affected by the severe weather in the
Cumbria area and the temporary closure of Lamington viaduct in
southern Scotland, which carries the West Coast mainline railway.
We have also seen improving punctuality on West Coast rail services
and fuel prices (which affect demand for inter-city rail travel)
are now higher than last year. Given these various factors, we
therefore expect the rate of revenue growth to increase in the
second half of this financial year relative to the 3.7% rate
reported for the first half.
In November 2016, the UK Government announced that it plans to
invite bids for a new rail franchise that will combine the current
West Coast Trains services with the development and introduction of
High Speed 2 ("HS2") services. The franchise, the West Coast
Partnership, will include responsibility for services on both the
West Coast Main Line from March 2019, and designing and running the
initial high speed services. The franchise will encompass the first
three to five years of operation of HS2.
The Government has also confirmed that its plans will require a
short-term franchise of approximately twelve months to cover the
period from the end of the current West Coast franchise in March
2018 until the planned start of the West Coast Partnership
franchise in March 2019. Virgin Rail Group is already in
discussions with the Department for Transport with a view to
agreeing commercial terms for Virgin Rail Group to continue
operating the West Coast Trains business through to at least March
2019.
Our partnership with Virgin on West Coast has delivered two
decades of investment, innovation and a step-change in customers'
experience of rail travel, with substantial growth in passenger
demand and satisfaction. We look forward to evaluating the
Department for Transport's detailed specification for the new West
Coast Partnership franchise in due course.
Twin America
Financial performance
Our Twin America joint venture has not made any material profit
for the half-year ended 29 October 2016. In the year ended 30 April
2016, we determined that the carrying value of the Group's
investment in Twin America was impaired and an impairment loss was
recorded to reduce the carrying value to nil as at 30 April
2016.
A combination of difficult economic conditions and continued
strong competition in the New York sightseeing market continues to
make trading challenging at Twin America. The business continues to
pursue a number of initiatives to boost revenue and save costs.
Litigation
In December 2012, the United States Department of Justice and
the Attorney General of the State of New York initiated legal
proceedings against Twin America and others alleging that the
formation of Twin in 2009 was anticompetitive. Several private
actions were also filed in relation to this matter. A settlement
was reached with the private plaintiffs in 2014. A settlement was
agreed with the US Department of Justice and the New York Attorney
General's office in 2015 and has received court approval. Related
to the Twin America litigation involving the Group's North America
Division, the Department of Justice has investigated the conduct of
company personnel in responding to discovery obligations in the
investigation and litigation. The Group has co-operated with the
investigation and the Department of Justice has now indicated that
it does not anticipate taking any further action against the Group
in respect of these matters.
Pre-exceptional EBITDA, depreciation and intangible asset
expenses
Earnings before interest, taxation, depreciation, intangible
asset expenses and exceptional items (pre-exceptional EBITDA)
amounted to GBP191.0m (H1 2016: GBP211.8m). Pre-exceptional EBITDA
can be reconciled to the financial statements as follows:
Year
H1 H1 to
2017 2016 29
GBPm GBPm Oct
2016
GBPm
------------------ -------- -------- --------
Total operating
profit before
intangible
asset expenses
and exceptional
items 117.0 144.6 201.2
Depreciation 70.5 63.6 139.1
Add back joint
venture finance
income & tax 3.5 3.6 8.9
------------------ -------- -------- --------
Pre-exceptional
EBITDA 191.0 211.8 349.2
------------------ -------- -------- --------
The income statement charge for intangible assets, increased
from GBP7.4m to GBP8.1m. The increase is principally due to higher
software amortisation associated with sustained investment in
technology throughout the Group.
Depreciation increased from the previous year reflecting
continued capital investment and the effect of foreign exchange
movements on the sterling amount of depreciation for the North
America Division.
Exceptional items
A pre-tax exceptional loss of GBP2.8m was recognised in the
half-year ended 29 October 2016, which related to the sale of the
retailing part of the megabus Europe business, as explained earlier
in this report in the section headed "megabus Europe".
Net finance costs
Net finance costs, excluding exceptional items, for the
half-year ended 29 October 2016 were GBP16.6m (H1 2016: GBP23.1m)
and are further analysed below. The reduction in costs is
principally due to the re-financing of bonds in 2015 with new bonds
issued at a lower interest rate.
H1 H1
2017 2016
GBPm GBPm
------------------------ ------ ------
Finance costs,
excluding exceptional
items
Interest payable
and facility
costs on bank
loans, overdrafts
and trade finance 2.2 2.9
Hire purchase
and finance
lease interest
payable 1.0 1.1
Interest payable
and other finance
costs on bonds 10.9 14.9
Unwinding of
discount on
provisions 1.8 2.0
Interest charge
on defined benefit
pension schemes 1.9 3.2
------------------------ ------ ------
17.8 24.1
------------------------ ------ ------
Finance income
Interest receivable
on cash (0.7) (0.8)
Unwinding of
discount on
receivable (0.5) -
Effect of interest
rate swaps - (0.2)
------------------------ ------ ------
(1.2) (1.0)
------------------------ ------ ------
Net finance
costs, excluding
exceptional
items 16.6 23.1
Exceptional
items - 23.3
------------------------ ------ ------
Net finance
costs 16.6 46.4
------------------------ ------ ------
Taxation
The effective tax rate for the half-year ended 29 October 2016,
excluding exceptional items, was 21.3% (H1 2016: 21.3%). This is
around 1.4% higher than our expected rate for the full year ending
29 April 2017 due to the seasonality of taxable profits in
different tax territories.
The tax charge can be analysed as follows:
Pre-tax
Half-year profit Tax Rate
to 29 October GBPm GBPm %
2016
------------------- -------- ------- -------
Excluding
intangible
asset expenses
and exceptional
items 104.2 (21.7) 20.8%
Intangible
asset expenses (8.1) 1.2 14.8%
------------------- -------- ------- -------
96.1 (20.5) 21.3%
Exceptional (2.8) - -
items
------------------- -------- ------- -------
93.3 (20.5) 22.0%
Reclassify
joint venture
taxation for
reporting
purposes (3.8) 3.8
------------------- -------- ------- -------
Reported in
income statement 89.5 (16.7) 18.7%
------------------- -------- ------- -------
Fuel costs
The Group's operations as at 29 October 2016 consume
approximately 420m litres of diesel fuel per annum. As a result,
the Group's profit is exposed to movements in the underlying price
of fuel. The Group's fuel costs include the costs of delivery and
duty as well as the costs of the underlying product. Accordingly,
not all of the cost varies with movements in oil prices.
The proportion of the Group's projected fuel usage that is now
hedged using fuel swaps is as follows:
Year ending 2017 2018 2019 2020
April
------------- ----- ----- ----- -----
Total Group 92% 78% 55% 23%
------------- ----- ----- ----- -----
The Group has no fuel hedges in place for periods beyond April
2020.
Cash flows and net debt
Consolidated net debt has, as expected, increased from 30 April
2016, reflecting additional investment in our bus fleet, the timing
of interest payments associated with our 4.00% bonds, partly offset
by continued cash generation from operations.
Net cash from operating activities before tax for the half-year
ended 29 October 2016 was GBP142.9m (H1 2016: GBP79.1m) and can be
further analysed as follows:
H1 H1
2017 2016
GBPm GBPm
---------------------- -------- --------
EBITDA of Group
companies before
exceptional items 172.5 190.5
Loss on disposal
of property,
plant and equipment 0.4 0.2
Equity-settled
share based payment
expense 1.0 1.1
Working capital
movements (20.7) (92.2)
Net interest
paid (21.1) (25.4)
Dividends from
joint ventures 10.8 4.9
Net cash flows
from operating
activities before
taxation 142.9 79.1
---------------------- -------- --------
Net debt (as analysed in note 18 to the condensed financial
statements) increased from GBP399.3m at 30 April 2016 to GBP484.4m
at 29 October 2016. The movement in net debt, showing train
operating companies separately, was:
Half-year Train
to 29 October operating
2016 companies Other Total
GBPm GBPm GBPm
------------------------ ----------- -------- --------
EBITDA of
Group companies
before exceptional
items 30.2 142.3 172.5
Loss on disposal
of property,
plant and
equipment - 0.4 0.4
Equity-settled
share based
payment expense 0.3 0.7 1.0
Working capital
movements 2.4 (23.1) (20.7)
Net interest
paid (0.8) (20.3) (21.1)
Dividends
from joint
ventures - 10.8 10.8
Net cash
flows from
operating
activities
before taxation 32.1 110.8 142.9
Inter-company
movements (27.6) 27.6 -
Tax paid (7.4) 2.8 (4.6)
Investing
activities (12.8) (123.9) (136.7)
Financing
activities - (48.1) (48.1)
Foreign exchange/other - (38.6) (38.6)
------------------------ ----------- -------- --------
Movement
in net debt (15.7) (69.4) (85.1)
Opening net
debt 283.1 (682.4) (399.3)
------------------------ ----------- -------- --------
Closing net
debt 267.4 (751.8) (484.4)
------------------------ ----------- -------- --------
The cash held by the train operating companies at any point in
time is affected by the timing of rail industry cash flows, which
can be individually substantial.
The working capital movements in the half-year are principally
due to seasonal variations in working capital in our bus divisions.
These include insurance premia payments made at the start of the
financial year for the year as a whole and a reduction in North
America deferred revenue ahead of the seasonally quieter winter
period.
The impact of purchases of property, plant and equipment for the
half-year on net debt was GBP138.6m (H1 2016: GBP103.5m). This
primarily related to expenditure on passenger service vehicles, and
comprised cash outflows of GBP108.9m (H1 2016: GBP82.3m) and new
hire purchase and finance lease debt of GBP29.7m (H1 2016:
GBP21.2m). In addition, GBP13.1m (H1 2016: GBP19.6m) of cash was
received from disposals of property, plant and equipment. Around
GBP11.0m (H1 2016: GBP16.4m) of this cash received related to the
UK Rail Division, where assets constructed or purchased by the
Division were then sold to Network Rail.
The net impact on net debt of purchases and disposals of
property, plant and equipment, split by division, was:
H1 H1
2017 2016
GBPm GBPm
------------------ ------ ------
UK Bus (regional
operations) 83.0 33.2
megabus Europe - 7.0
UK Bus (London) 0.8 1.2
North America 30.9 37.9
UK Rail 10.8 4.6
125.5 83.9
------------------ ------ ------
Financial position and liquidity
The Group maintains a good financial position with investment
grade credit ratings and appropriate headroom under its debt
facilities.
During the half-year ended 29 October 2016, we extended the
duration of GBP480m of our committed, bi-lateral core bank
facilities by a further year to October 2021.
The Group continues to have an appropriate mix of long-term debt
enabling it to plan and invest with some certainty.
The Group's financial position remains strong and is evidenced
by:
-- The ratio of net debt at 29 October 2016 to pre-exceptional
EBITDA for the year ended 29 October 2016 was 1.4 times (H1 2016:
1.2 times).
-- Pre-exceptional EBITDA for the half-year ended 29 October
2016 was 11.7 times (H1 2016: 9.2 times) pre-exceptional net
finance charges (including joint venture net finance income).
-- Undrawn, committed bank facilities of GBP252.5m at 29 October
2016 (30 April 2016: GBP281.2m) were available to be drawn as bank
loans with further amounts available only for non-cash utilisation.
In addition, the Group has available asset finance lines.
-- The three main credit rating agencies continue to assign
investment grade credit ratings to the Group.
Capital structure
We remain positive on the opportunities to develop further the
Group's business. Investment in these opportunities is underpinned
by the Group's financial position and continued capital discipline.
It remains the Group's objective to maintain an investment grade
credit rating and that underpins the Group's financial
strategy.
In particular, there are a number of UK rail franchise
competitions underway or expected to be undertaken within the next
two years. Those will include tenders for new South West, East
Midlands and West Coast rail franchises, to succeed existing
franchises in which the Group is currently involved. Significant
value can be secured from winning a rail franchise, although a new
franchise can have a negative short-term effect on the measures of
credit worthiness used by the major credit rating agencies.
Maintaining an investment grade credit rating should enable the
Group to bid with confidence for franchises.
The Board is continuing with its dividend policy of seeking to
grow the rate of dividend per share over time. The Group will
continue to regularly review its financial strategy and capital
structure.
Net assets
Net assets at 29 October 2016 were GBP155.6m (30 April 2016:
GBP177.8m). The movement in the net assets reflects the good
financial results for the half-year ended 29 October 2016 and fair
value gains on cash flow hedges being more than offset by the
actuarial losses on defined benefit pension schemes explained below
and dividends paid.
Retirement benefit obligations
The reported net assets of GBP155.6m (30 April 2016: GBP177.8m),
that are shown on the consolidated balance sheet are after taking
account of net pre-tax retirement benefit liabilities of GBP237.6m
(30 April 2016: GBP96.7m), and associated deferred tax assets of
GBP45.5m (30 April 2016: GBP21.0m).
The Group recognised pre-tax actuarial losses of GBP137.1m in
the half-year ended 29 October 2016 (H1 2016: pre-tax actuarial
gains of GBP80.0m) on Group defined benefit schemes.
The discount rate used to determine pension scheme liabilities
is determined with reference to AA-rated bond yields. As AA-rated
bond yields have generally decreased in the half-year ended 29
October 2016, the forecast future cash flows to settle pension
scheme liabilities are now discounted at a lower rate. This is the
principal reason for the pre-tax actuarial losses and the increase
in the pre-tax retirement benefit liabilities in the half-year.
Related parties
Details of significant transactions with related parties are
given in note 21 to the condensed financial statements.
Principal risks and uncertainties
Like most businesses, there is a range of risks and
uncertainties facing the Group. A brief summary is given below of
those specific risks and uncertainties that the Directors believe
could have the most significant impact on the Group's financial
position and/or future financial performance. Pages 8 to 12 of the
Group's 2016 Annual Report set out specific risks and uncertainties
in more detail.
The matters summarised below are not intended to represent an
exhaustive list of all possible risks and uncertainties. The focus
below is on those specific risks and uncertainties that the
Directors believe could have the most significant impact on the
Group's performance. In assessing the Group's likely financial
performance for the second half of the current financial year,
these risks and uncertainties should be considered in addition to
the matters referred to regarding seasonality in note 3 to the
condensed financial statements, and the comments made later under
the heading "Current trading and outlook".
-- Catastrophic events - there is a risk that the Group is
involved (directly or indirectly) in a major operational
incident.
-- Terrorism - there is a risk that the demand for the Group's
services could be adversely affected by a significant terrorist
incident.
-- Economy - the economic environment in the geographic areas in
which the Group operates affects the demand for the Group's bus and
rail services. The referendum in favour of the UK leaving the
European Union may lead to economic, consumer and political
uncertainty. That may in turn affect asset values and foreign
exchange rates, which have a bearing on the amounts of our
pensions, financial instruments and other balances.
-- Rail cost base - a substantial element of the cost base of
the UK Rail Division is essentially fixed as under its UK rail
franchise agreements, the Group is obliged to provide a minimum
level of train services and is less able to flex supply in response
to changes in demand.
-- Sustainability of rail profit - there is a risk that the
Group's revenue and profit could be significantly affected (either
positively or negatively) as a result of the Group winning UK rail
franchises or failing to retain its existing franchises.
-- Breach of franchise - if the Group fails to comply with
certain conditions as part of its rail franchise agreements it may
be liable to penalties including potential termination of one or
more of the rail franchise agreements.
-- Pension scheme funding - the Group participates in a number
of defined benefit pension schemes, and there is a risk that the
cash contributions required increase or decrease due to changes in
factors such as investment performance, discount rates and life
expectancies.
-- Insurance and claims environment - there is a risk that the
cost to the Group of settling claims against it is significantly
higher or lower than expected.
-- Regulatory changes and availability of public funding - there
is a risk that changes to the regulatory environment or changes to
the availability of public funding could affect the Group's
prospects. The current UK Government's plans for greater devolution
of powers within the UK could see the introduction of franchised
bus networks in some areas, which could affect our bus
operations.
-- Management and Board succession - there is a risk that the
Group does not recruit and retain sufficient directors and managers
with the skills important to the operation of the business.
-- Disease - there is a risk that demand for the Group's
services could be adversely affected by a significant outbreak of
disease.
-- Information security - there is a risk that potential
malicious attacks on our systems lead to a loss of data or
disruption to operations.
-- Information technology - there is a risk that the Group's
capability to make sales digitally either fails or cannot meet
levels of demand.
-- Litigation - there is a risk of commercial and consumer
litigation arising from the legal environment in some markets,
particularly North America.
-- Competition - in certain of the markets we operate in, there
is a risk of increased competitive pressures from existing
competitors and new entrants.
-- Treasury risks - the Group is affected by changes in fuel
prices, interest rates and exchange rates.
Use of non-GAAP measures
Our reported interim financial information is prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union and applied in accordance with the
provisions of the Companies Act 2006. In measuring our performance,
the financial measures that we use include those which have been
derived from our reported results in order to eliminate factors
which distort period-on-period comparisons. These are considered
non-GAAP financial measures, and include measures such as
like-for-like revenue, pre-exceptional EBITDA and net debt. We
believe this information, along with comparable GAAP measurements,
is useful to shareholders and analysts in providing a basis for
measuring our financial performance. Note 23 to the condensed
financial statements provides further information on these non-GAAP
financial measures.
Going concern
On the basis of current financial projections and the facilities
available, the Directors are satisfied that the Group has adequate
resources to continue for the foreseeable future and, accordingly,
consider it appropriate to adopt the going concern basis in
preparing the condensed financial statements for the half-year
ended 29 October 2016.
Current trading and outlook
As explained in the "overview" section earlier, our expectation
of adjusted earnings per share for the year ending 29 April 2017 is
broadly unchanged, although there have been some movements in the
expected composition of earnings.
We see positive long-term prospects for public transport. There
is a large market opportunity for modal shift from cars to public
transport against a backdrop of technological advancements, rising
road congestion and increasing environmental awareness. We have an
organic growth strategy built on continued investment,
value-for-money travel and high customer satisfaction.
Martin Griffiths
Chief Executive
7 December 2016
Responsibility Statement
We confirm that to the best of our knowledge:
(a) the condensed consolidated interim financial information
contained in this document has been prepared in accordance with
International Accounting Standard 34, "Interim Financial Reporting"
as adopted by the European Union;
(b) the interim management report contained in this document
includes a fair review of the information required by the Financial
Conduct Authority's Disclosure and Transparency Rules ("DTR")
4.2.7R (indication of important events during the first six months
and description of principal risks and uncertainties for the
remaining six months of the year); and
(c) this document includes a fair review of the information
required by DTR 4.2.8R (disclosure of related party transactions
and changes therein).
By order of and on behalf of the Board
Martin Griffiths Ross Paterson
Chief Executive Finance Director
7 December 2016 7 December 2016
Cautionary statement
The preceding interim management report has been prepared for
the shareholders of the Company, as a body, and no other persons.
Its purpose is to assist shareholders of the Company to assess the
strategies adopted by the Company and the potential for those
strategies to succeed and for no other purpose. The interim
management report contains forward-looking statements that are
subject to risk factors associated with, amongst other things, the
economic, regulatory and business circumstances occurring from time
to time in the countries, sectors and markets in which the Group
operates. It is believed that the expectations reflected in these
statements are reasonable but they may be affected by a wide range
of variables that could cause actual results to differ materially
from those currently anticipated. No assurances can be given that
the forward-looking statements will be realised. The
forward-looking statements reflect the knowledge and information
available at the date of preparation. Nothing in the interim
management report should be considered or construed as a profit
forecast for the Group. Except as required by law, the Group has no
obligation to update forward-looking statements or to correct any
inaccuracies therein.
CONDENSED FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT
Unaudited Unaudited
---------------------------------------- ----------------------------------------
Half-year to Half-year to
29 October 2016 31 October 2015
Performance Intangibles Performance Intangibles
pre and pre and
intangibles exceptional Results intangibles exceptional Results
and items for and items for
exceptional (note the exceptional (note the
items 5) period items 5) period
Notes GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ------ ------------- ------------- ---------- ------------- ------------- ----------
Revenue 4(a) 2,002.1 - 2,002.1 1,970.4 - 1,970.4
Operating costs
and other operating
income (1,900.1) (8.1) (1,908.2) (1,843.5) (7.4) (1,850.9)
Operating profit
of Group companies 4(b) 102.0 (8.1) 93.9 126.9 (7.4) 119.5
Share of profit
of joint ventures
after net finance
income and taxation 4(c) 15.0 - 15.0 17.7 - 17.7
-------------------------- ------ ------------- ------------- ---------- ------------- ------------- ----------
Total operating
profit: Group operating
profit and share
of joint ventures'
profit after taxation 4(b) 117.0 (8.1) 108.9 144.6 (7.4) 137.2
Non-operating exceptional
items 5 - (2.8) (2.8) - - -
-------------------------- ------ ------------- ------------- ---------- ------------- ------------- ----------
Profit before interest
and taxation 117.0 (10.9) 106.1 144.6 (7.4) 137.2
Finance costs (17.8) - (17.8) (24.1) (23.3) (47.4)
Finance income 1.2 - 1.2 1.0 - 1.0
-------------------------- ------ ------------- ------------- ---------- ------------- ------------- ----------
Profit before taxation 100.4 (10.9) 89.5 121.5 (30.7) 90.8
Taxation (17.9) 1.2 (16.7) (22.3) 5.7 (16.6)
-------------------------- ------ ------------- ------------- ---------- ------------- ------------- ----------
Profit from continuing
operations and profit
after taxation for
the period 82.5 (9.7) 72.8 99.2 (25.0) 74.2
-------------------------- ------ ------------- ------------- ---------- ------------- ------------- ----------
Attributable to:
Equity holders of
the parent 82.4 (9.3) 73.1 97.8 (24.6) 73.2
Non-controlling
interests 0.1 (0.4) (0.3) 1.4 (0.4) 1.0
82.5 (9.7) 72.8 99.2 (25.0) 74.2
Earnings per share
from continuing
and total operations
- Adjusted basic/Basic 7 14.4p 12.7p 17.0p 12.8p
- Adjusted
diluted/Diluted 7 14.3p 12.7p 17.0p 12.7p
-------------------------- ------ ------------- ------------- ---------- ------------- ------------- ----------
The accompanying notes form an integral part of this
consolidated income statement.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited
============ ============
Half-year Half-year
to to
29 October 31 October
2016 2015
GBPm GBPm
-------------------------------------------------------------- ------------ ------------
Profit for the period 72.8 74.2
-------------------------------------------------------------- ------------ ------------
Items that may be reclassified
to profit or loss
Cash flow hedges:
* Net fair value gains/(losses) on cash flow hedges 35.4 (58.1)
* Reclassified and reported in profit for the period 16.4 33.1
* Share of other comprehensive income/(expense) on
joint ventures' cash flow hedges 2.7 (0.6)
* Tax effect of cash flow hedges (9.8) 3.8
* Tax effect of other comprehensive (income)/expense on
joint ventures' cash flow hedges (0.5) 0.1
Foreign exchange differences on
translation of foreign operations
(net of hedging) 20.1 (3.3)
Total items that may be reclassified
to profit or loss 64.3 (25.0)
-------------------------------------------------------------- ------------ ------------
Items that will not be reclassified
to profit or loss
Actuarial (losses)/gains on Group
defined benefit pension schemes (137.1) 80.0
Tax effect of actuarial losses/(gains)
on Group defined benefit pension
schemes 24.2 (18.4)
Share of actuarial gains/(losses)
on joint ventures' defined benefit
schemes 0.8 (1.4)
Tax effect of actuarial (gains)/losses
on joint ventures' defined benefit
pension schemes (0.2) 0.3
Total items that will not be reclassified
to profit or loss (112.3) 60.5
-------------------------------------------------------------- ------------ ------------
Other comprehensive (expense)/income
for the period (48.0) 35.5
-------------------------------------------------------------- ------------ ------------
Total comprehensive income for
the period 24.8 109.7
-------------------------------------------------------------- ------------ ------------
Attributable to:
Equity holders of the parent 25.5 109.4
Non-controlling interests (0.7) 0.3
24.8 109.7
-------------------------------------------------------------- ------------ ------------
CONSOLIDATED BALANCE SHEET (STATEMENT OF FINANCIAL POSITION)
Unaudited Audited
------------ ----------
As at As at
29 October 30 April
Notes 2016 2016
GBPm GBPm
-------------------------------- -------- ------------ ----------
ASSETS
Non-current assets
Goodwill 8 154.4 136.9
Other intangible assets 9 89.2 88.7
Property, plant and equipment 10 1,239.6 1,165.2
Interests in joint ventures 11 29.4 22.4
Derivative instruments
at fair value 24.1 5.6
Retirement benefit assets 14 56.9 24.8
Other receivables 29.2 5.6
-------------------------------- -------- ------------ ----------
1,622.8 1,449.2
-------------------------------- -------- ------------ ----------
Current assets
Inventories 25.8 27.5
Trade and other receivables 408.6 382.2
Derivative instruments
at fair value 3.1 1.0
Cash and cash equivalents 341.4 382.3
Assets classified as held
for sale 12 11.8 -
-------------------------------- -------- ------------ ----------
790.7 793.0
-------------------------------- -------- ------------ ----------
Total assets 4(d) 2,413.5 2,242.2
-------------------------------- -------- ------------ ----------
LIABILITIES
Current liabilities
Trade and other payables 818.1 825.2
Current tax liabilities 46.2 33.2
Borrowings 51.0 53.6
Derivative instruments
at fair value 12.5 41.3
Provisions 19 74.1 54.9
-------------------------------- -------- ------------ ----------
1,001.9 1,008.2
-------------------------------- -------- ------------ ----------
Non-current liabilities
Other payables 45.3 45.5
Borrowings 777.8 738.2
Derivative instruments
at fair value 12.2 19.5
Deferred tax liabilities 10.3 25.6
Provisions 19 115.9 105.9
Retirement benefit obligations 14 294.5 121.5
-------------------------------- -------- ------------ ----------
1,256.0 1,056.2
-------------------------------- -------- ------------ ----------
Total liabilities 4(d) 2,257.9 2,064.4
-------------------------------- -------- ------------ ----------
Net assets 4(d) 155.6 177.8
-------------------------------- -------- ------------ ----------
EQUITY
Ordinary share capital 15 3.2 3.2
Share premium account 8.4 8.4
Retained earnings (266.2) (185.1)
Capital redemption reserve 422.8 422.8
Own shares (37.0) (34.3)
Translation reserve 21.4 1.3
Cash flow hedging reserve 1.9 (40.3)
-------------------------------- -------- ------------ ----------
Total equity attributable
to the parent 154.5 176.0
Non-controlling interests 1.1 1.8
-------------------------------- -------- ------------ ----------
Total equity 155.6 177.8
-------------------------------- -------- ------------ ----------
The accompanying notes form an integral part of this
consolidated balance sheet.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Capital Cash Total Non-controlling
Notes Ordinary premium Retained redemption Translation flow equity interest Total
share account earnings reserve Own reserve hedging attributable GBPm equity
capital GBPm GBPm GBPm shares GBPm reserve to the GBPm
GBPm GBPm GBPm parent
GBPm
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Balance at 30
April
2016 and 1 May
2016 3.2 8.4 (185.1) 422.8 (34.3) 1.3 (40.3) 176.0 1.8 177.8
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Profit for the
period - - 73.1 - - - - 73.1 (0.3) 72.8
Other
comprehensive
(expense)/income
net
of tax - - (109.9) - - 20.1 42.2 (47.6) (0.4) (48.0)
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Total
comprehensive
(expense)/income - - (36.8) - - 20.1 42.2 25.5 (0.7) 24.8
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Own ordinary
shares
purchased - - - - (2.7) - - (2.7) - (2.7)
Credit in
relation to
equity-settled
share
based payments - - 1.0 - - - - 1.0 - 1.0
Dividends paid on
ordinary
shares 6 - - (45.3) - - - - (45.3) - (45.3)
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Balance at 29
October
2016 3.2 8.4 (266.2) 422.8 (37.0) 21.4 1.9 154.5 1.1 155.6
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Balance at 30
April
2015 and 1 May
2015 3.2 8.4 (279.6) 422.8 (32.1) (1.8) (26.8) 94.1 0.9 95.0
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Profit for the
period - - 73.2 - - - - 73.2 1.0 74.2
Other
comprehensive
income/(expense)
net
of tax - - 60.4 - - (3.3) (20.9) 36.2 (0.7) 35.5
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Total
comprehensive
income/(expense) - - 133.6 - - (3.3) (20.9) 109.4 0.3 109.7
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Own ordinary
shares
purchased - - - - (2.2) - - (2.2) - (2.2)
Credit in
relation to
equity-settled
share
based payments - - 1.1 - - - - 1.1 - 1.1
Dividends paid on
ordinary
shares 6 - - (41.9) - - - - (41.9) - (41.9)
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Balance at 31
October
2015 3.2 8.4 (186.8) 422.8 (34.3) (5.1) (47.7) 160.5 1.2 161.7
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
The accompanying notes form an integral part of this
consolidated statement of changes in equity.
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited
------------ ------------
Half-year Half-year
to to
29 October 31 October
2016 2015
Notes GBPm GBPm
-------------------------------------- ------ ------------ ------------
Cash flows from operating activities
Cash generated by operations 16 153.2 99.6
Interest paid (21.8) (26.4)
Interest received 0.7 1.0
Dividends received from joint
ventures 10.8 4.9
-------------------------------------- ------ ------------ ------------
Net cash flows from operating
activities 142.9 79.1
Tax paid (4.6) (5.3)
-------------------------------------- ------ ------------ ------------
Net cash from operating activities
after tax 138.3 73.8
-------------------------------------- ------ ------------ ------------
Cash flows from investing activities
Disposals of businesses, net
of cash disposed of 12 (2.7) -
Purchase of property, plant
and equipment (108.9) (82.3)
Disposal of property, plant
and equipment 13.1 19.6
Purchase of intangible assets (8.5) (5.9)
Movement in loans with joint
ventures - 5.9
Net cash outflow from investing
activities (107.0) (62.7)
-------------------------------------- ------ ------------ ------------
Cash flows from financing activities
Purchase of treasury shares (2.7) (2.2)
Repayments of hire purchase
and lease finance (30.4) (17.8)
Drawdown of other borrowings 102.9 170.0
Repayment of other borrowings (100.4) (160.1)
Redemption of 5.75% sterling
bond - principal - (400.0)
Redemption of 5.75% sterling
bond - exceptional items - (23.3)
Issue of 4.00% sterling bond - 393.5
Dividends paid on ordinary
shares 6 (45.3) (41.9)
Sale of tokens 0.1 0.2
Redemption of tokens (0.2) (0.4)
-------------------------------------- ------ ------------ ------------
Net cash used in financing
activities (76.0) (82.0)
-------------------------------------- ------ ------------ ------------
Net decrease in cash and cash
equivalents (44.7) (70.9)
Cash and cash equivalents at
beginning of period 382.3 395.6
Exchange rate effects 3.8 (0.3)
-------------------------------------- ------ ------------ ------------
Cash and cash equivalents at
end of period 341.4 324.4
-------------------------------------- ------ ------------ ------------
Cash and cash equivalents for the purposes of the consolidated
cash flow statement comprise cash at bank and in hand, overdrafts
and other short-term highly liquid investments with maturities at
the balance sheet date of twelve months or less.
The accompanying notes form an integral part of this
consolidated statement of cash flows.
NOTES
1 BASIS OF PREPARATION
The condensed consolidated interim financial information for the
half-year ended 29 October 2016 has been prepared in accordance
with the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority and International Accounting Standard
34, "Interim Financial Reporting", as adopted by the European
Union. The condensed consolidated interim financial information
should be read in conjunction with the annual financial statements
for the year ended 30 April 2016, which have been prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union. The accounting policies and methods
of computation applied in the consolidated interim financial
information are the same as those of the annual financial
statements for the year ended 30 April 2016, as described on pages
71 to 78 of the Group's 2016 Annual Report which can be found on
the Stagecoach Group website at
http://www.stagecoach.com/investors/financial-analysis/reports/.
The figures for this half-year include the results for all
divisions for the 26 weeks to 29 October 2016. The comparative
figures for the half-year ended 31 October 2015 include the results
for all divisions for the six months ended 31 October 2015.
This condensed consolidated interim financial information for
the half-year ended 29 October 2016 has not been audited, nor has
the comparative financial information for the half-year ended 31
October 2015 but they have both been reviewed by the auditors. The
comparative financial information presented in this announcement
for the year ended 30 April 2016 does not constitute statutory
accounts as defined in section 434 of the Companies Act 2006 and
does not reflect all of the information contained in the Company's
annual financial statements. The annual financial statements for
the year ended 30 April 2016, were approved by the Board of
Directors on 8 July 2016, were reported on by the then auditors
under sections 495 and 496 of the Companies Act 2016, received an
unqualified audit report, did not contain an emphasis of matter
paragraph, did not contain a statement under section 498(2) or (3)
of the Companies Act 2006 and have been filed with the Registrar of
Companies.
The Board of Directors approved this announcement, including the
condensed consolidated interim financial information, on 7 December
2016. This announcement will be available on the Group's website at
http://www.stagecoach.com/investors/financial-analysis/reports/.
New standards, amendments to standards and interpretations that
are mandatory for the first time for the financial year beginning 1
May 2016, do not have any significant effect on the consolidated
financial statements of the Group.
2 FOREIGN CURRENCIES
The principal rates of exchange used to translate the results of
foreign operations are as follows:
Half-year Half-year Year to
to to 30 April
29 October 31 October 2016
2016 2015
------------------ ------------ ------------ ----------
US Dollar:
Period end rate 1.2149 1.5444 1.4649
Average rate 1.3426 1.5471 1.5031
Canadian Dollar:
Period end rate 1.6243 2.0206 1.8349
Average rate 1.7487 1.9824 1.9756
Euro:
Period end rate 1.1116 1.3981 1.2790
Average rate 1.2004 1.3863 1.3565
3 SEASONALITY
The Group's North American bus operations typically earn higher
operating profit for the first half of the financial year (i.e. the
half-year to the end of October) than for the second half. This is
because leisure customers generate an element of the revenue with
demand being at its strongest in the summer months.
4 SEGMENTAL ANALYSIS
The Group is managed, and reports internally, on a basis
consistent with its five operating segments, being UK Bus (regional
operations), megabus Europe, UK Bus (London), North America and UK
Rail. The Group's IFRS accounting policies are applied
consistently, where appropriate, to each segment.
The segmental information provided in this note is on the basis
of five operating segments as follows:
Segment name Service operated Countries of operation
UK Bus (regional Coach and bus operations United Kingdom
operations)
megabus Europe Coach operations United Kingdom
and mainland Europe
UK Bus (London) Bus operations United Kingdom
North America Coach and bus operations USA and Canada
UK Rail Rail operations United Kingdom
The basis of segmentation and the basis on which segment profit
is measured are consistent with the Group's last annual financial
statements for the year ended 30 April 2016. In those annual
financial statements, megabus Europe was reported as a separate
segment, having previously been reported within UK Bus (regional
operations). Comparative information for the half-year to 31
October 2015 has been restated accordingly.
The Group has interests in three joint ventures: Virgin Rail
Group that operates in UK Rail, Citylink that operates in UK Bus
(regional operations) and Twin America that operates in North
America. The results of these joint ventures are shown separately
in note 4(c) where material.
(a) Revenue
Due to the nature of the Group's business, the origin and
destination of revenue (i.e. United Kingdom, mainland Europe or
North America) is the same in all cases except in respect of an
immaterial amount of revenue for services operated by megabus
Europe between the UK and mainland Europe. As the Group sells bus
and rail services to individuals, it has few customers that are
individually "major". Its major customers are typically public
bodies that subsidise or procure transport services - such
customers include local authorities, transport authorities and the
UK Department for Transport.
Revenue split by segment was as follows:
Unaudited Unaudited
------------ ------------
Half-year Half-year
to to
29 October 31 October
2016 2015
GBPm GBPm
---------------------------------------- ------------ ------------
UK Bus (regional operations) 513.9 522.4
megabus Europe 14.9 8.4
UK Bus (London) 131.5 133.1
North America 252.0 225.7
---------------------------------------- ------------ ------------
Total bus operations 912.3 889.6
UK Rail 1,092.3 1,083.2
---------------------------------------- ------------ ------------
Total Group revenue 2,004.6 1,972.8
Intra-Group revenue - UK Bus (regional
operations) (2.5) (2.4)
---------------------------------------- ------------ ------------
Reported Group revenue 2,002.1 1,970.4
---------------------------------------- ------------ ------------
4 SEGMENTAL ANALYSIS (CONTINUED)
(b) Operating profit
Operating profit split by segment was as follows:
Unaudited Unaudited
-------------------------------------- --------------------------------------
Half-year to 29 Half-year to 31
October 2016 October 2015
Performance Intangibles Performance Intangibles
pre and pre and
intangibles exceptional Results intangibles exceptional Results
and items for and items for
exceptional (note the exceptional (note the
items 5) period items 5) period
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ------------- ------------- -------- ------------- ------------- --------
UK Bus (regional
operations) 66.6 - 66.6 71.9 - 71.9
megabus Europe (4.6) - (4.6) (9.2) - (9.2)
UK Bus (London) 9.1 - 9.1 10.0 - 10.0
North America 17.5 - 17.5 18.5 - 18.5
-------------------------- ------------- ------------- -------- ------------- ------------- --------
Total bus operations 88.6 - 88.6 91.2 - 91.2
UK Rail 20.5 - 20.5 43.8 - 43.8
-------------------------- ------------- ------------- -------- ------------- ------------- --------
109.1 - 109.1 135.0 - 135.0
Group overheads (6.3) - (6.3) (6.9) - (6.9)
Intangible asset
expenses - (8.1) (8.1) - (7.4) (7.4)
Restructuring costs (0.8) - (0.8) (1.2) - (1.2)
-------------------------- ------------- ------------- -------- ------------- ------------- --------
Total operating
profit of Group
companies 102.0 (8.1) 93.9 126.9 (7.4) 119.5
Share of joint ventures'
profit after net
finance income and
taxation 15.0 - 15.0 17.7 - 17.7
-------------------------- ------------- ------------- -------- ------------- ------------- --------
Total operating
profit: Group operating
profit and share
of joint ventures'
profit after taxation 117.0 (8.1) 108.9 144.6 (7.4) 137.2
-------------------------- ------------- ------------- -------- ------------- ------------- --------
(c) Joint ventures
The share of profit from joint ventures was further split as
follows:
Unaudited Unaudited
------------ ------------
Half-year Half-year
to to
29 October 31 October
2016 2015
GBPm GBPm
------------------------------ ------------ ------------
Virgin Rail Group (UK Rail)
Operating profit 17.1 16.6
Finance income (net) 0.3 0.3
Taxation (3.5) (3.4)
13.9 13.5
Citylink (UK Bus, regional
operations)
Operating profit 1.4 1.4
Taxation (0.3) (0.3)
------------------------------- ------------ ------------
1.1 1.1
------------------------------ ------------ ------------
Twin America (North America)
Operating profit - 3.3
Finance costs (net) - (0.1)
Taxation - (0.1)
------------------------------- ------------ ------------
- 3.1
------------------------------ ------------ ------------
Share of profit of joint
ventures after net finance
income and taxation 15.0 17.7
------------------------------- ------------ ------------
4 SEGMENTAL ANALYSIS (CONTINUED)
(d) Gross assets and liabilities
Assets and liabilities split by segment were as follows:
Unaudited Audited
--------------------------------------------- ----------------------------------------------
As at 29 October 2016 As at 30 April 2016
Net Net
Gross assets/ Gross assets/
Gross assets liabilities (liabilities) Gross assets liabilities (liabilities)
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- ------------- -------------- -------------- ------------- -------------- ---------------
UK Bus (regional
operations) 953.4 (368.8) 584.6 909.2 (283.2) 626.0
megabus Europe 28.2 (18.2) 10.0 24.2 (5.6) 18.6
UK Bus (London) 71.8 (170.1) (98.3) 74.3 (103.6) (29.3)
North America 489.6 (148.8) 340.8 391.8 (132.4) 259.4
UK Rail 431.3 (626.7) (195.4) 413.0 (635.8) (222.8)
----------------------- ------------- -------------- -------------- ------------- -------------- ---------------
1,974.3 (1,332.6) 641.7 1,812.5 (1,160.6) 651.9
Central functions 68.4 (40.0) 28.4 25.0 (53.2) (28.2)
Joint ventures 29.4 - 29.4 22.4 - 22.4
Borrowings and cash 341.4 (828.8) (487.4) 382.3 (791.8) (409.5)
Taxation - (56.5) (56.5) - (58.8) (58.8)
----------------------- ------------- -------------- -------------- ------------- -------------- ---------------
Total 2,413.5 (2,257.9) 155.6 2,242.2 (2,064.4) 177.8
----------------------- ------------- -------------- -------------- ------------- -------------- ---------------
Central assets and liabilities include the token provision,
interest payable and receivable and other net assets of the holding
company and other head office companies. Segment assets and
liabilities are determined by identifying the assets and
liabilities that relate to the business of each segment but
excluding intra-Group balances, cash, borrowings, taxation,
interest payable, interest receivable and the token provision.
5 EXCEPTIONAL ITEMS AND INTANGIBLE ASSET EXPENSES
The Group separately highlights intangible asset expenses and
exceptional items. Exceptional items are defined in note 23.
The items shown in the column headed "Intangibles and
exceptional items" on the face of the consolidated income statement
for the half-year ended 29 October 2016 and the half-year ended 31
October 2015 can be further analysed as follows:
Unaudited Unaudited
----------------------------------------------- ---------------------------------------------------
Half-year to 29 October 2016 Half-year to 31 October 2015
Intangibles Intangibles
and and
Exceptional Intangible exceptional Exceptional Intangible exceptional
items asset expenses items items asset expenses items
GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------------ ---------------- --------------- ---------------- ---------------- ---------------
Operating costs
Intangible
asset expenses - (8.1) (8.1) - (7.4) (7.4)
---------------- ------------ ---------------- --------------- ---------------- ---------------- ---------------
Non-operating
exceptional
items
megabus Europe
disposal (2.8) - (2.8) - - -
Finance costs
Premium on
early
redemption of
bonds - - - (21.3) - (21.3)
Cancellation of
ineffective
interest rate
swaps - - - (2.0) - (2.0)
---------------- ------------ ---------------- --------------- ---------------- ---------------- ---------------
Finance costs - - - (23.3) - (23.3)
Intangible
asset expenses
and
exceptional
items (2.8) (8.1) (10.9) (23.3) (7.4) (30.7)
Tax effect - 1.2 1.2 4.7 1.0 5.7
---------------- ------------ ---------------- --------------- ---------------- ---------------- ---------------
Intangible
asset expenses
and
exceptional
items after
taxation (2.8) (6.9) (9.7) (18.6) (6.4) (25.0)
---------------- ------------ ---------------- --------------- ---------------- ---------------- ---------------
6 DIVIDS
Dividends on ordinary shares are shown below.
Unaudited Unaudited Audited Unaudited Unaudited Audited
--------------- --------------- --------------- --------------- --------------- ---------------
Half-year to Half-year to Half-year to Half-year to
29 October 31 October Year to 29 October 31 October Year to
2016 2015 30 April 2016 2016 2015 30 April 2016
pence per pence per pence per
share share share GBPm GBPm GBPm
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Amounts
recognised as
distributions
Dividends on
ordinary
shares:
Final dividend
in respect of
the previous
year 7.9 7.3 7.3 45.3 41.9 41.9
Interim
dividend in
respect of the
current year - - 3.5 - - 20.1
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Amounts
recognised as
distributions
to equity
holders 7.9 7.3 10.8 45.3 41.9 62.0
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Dividends
declared or
proposed but
neither paid
nor included as
liabilities in
the financial
statements
Dividends on
ordinary
shares:
Final dividend
in respect of
the current
year - - 7.9 - - 45.3
Interim
dividend in
respect of the
current year 3.8 3.5 - 21.8 20.1 -
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
3.8 3.5 7.9 21.8 20.1 45.3
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
The interim ordinary dividend of 3.8p per ordinary share was
declared by the Board of Directors on 7 December 2016 and has not
been included as a liability as at 29 October 2016. It is payable
on 8 March 2017 to shareholders on the register at close of
business on 10 February 2017.
7 EARNINGS PER SHARE
Basic earnings per share ("EPS") have been calculated by
dividing the profit attributable to equity shareholders by the
weighted average number of ordinary shares in issue during the
period, excluding any ordinary shares held in treasury or by
employee share ownership trusts.
The diluted earnings per share was calculated by adjusting the
weighted average number of ordinary shares outstanding to assume
conversion of all dilutive potential ordinary shares in relation to
share based payment arrangements and long-term incentive plans.
Unaudited Unaudited
-------------- --------------
Half-year Half-year
to to
29 October 31 October
2016 2015
No. of shares No. of shares
million million
------------------------------- -------------- --------------
Basic weighted average number
of ordinary shares 573.6 573.8
Dilutive ordinary shares
- Long Term Incentive Plan - 0.2
- Executive Participation
Plan 2.2 2.1
-------------------------------- -------------- --------------
Diluted weighted average
number of ordinary shares 575.8 576.1
-------------------------------- -------------- --------------
Unaudited Unaudited
------------ ------------
Half-year Half-year
to to
29 October 31 October
2016 2015
Notes GBPm GBPm
--------------------------------- ------ ------------ ------------
Net profit attributable to
equity holders of the parent
(for basic EPS calculation) 73.1 73.2
Intangible asset expenses 5 8.1 7.4
Non-controlling interest
in intangible asset expenses (0.4) (0.4)
Exceptional items before
tax 5 2.8 23.3
Tax effect of intangible
asset expenses and exceptional
items 5 (1.2) (5.7)
Net profit attributable to
equity holders of the parent
for adjusted EPS calculation 82.4 97.8
--------------------------------- ------ ------------ ------------
Adjusted earnings per share is calculated by adding back
intangible asset expenses and exceptional items (after taking
account of taxation and the non-controlling interest) as shown on
the consolidated income statement. We believe this information,
along with comparable GAAP measurement, is useful to shareholders
and analysts in providing a basis for measuring our financial
performance.
8 GOODWILL
The movements in goodwill were as follows:
Unaudited Unaudited Audited
------------ ------------ ----------
Half-year Half-year Year
to to to
29 October 31 October 30 April
2016 2015 2016
GBPm GBPm GBPm
--------------------------------- ------------ ------------ ----------
Net book value at beginning
of period 136.9 132.9 132.9
Foreign exchange movements 17.5 (0.4) 4.0
--------------------------------- ------------ ------------ ----------
Net book value at end of period 154.4 132.5 136.9
--------------------------------- ------------ ------------ ----------
9 OTHER INTANGIBLE ASSETS
The movements in other intangible assets were as follows:
Unaudited Unaudited Audited
------------ ------------ ----------
Half-year Half-year Year
to to to
29 October 31 October 30 April
2016 2015 2016
GBPm GBPm GBPm
--------------------------------- ------------ ------------ ----------
Cost at beginning of period 142.9 133.4 133.4
Additions 8.5 5.9 19.6
Disposals (0.1) - (11.4)
Foreign exchange movements 4.6 (0.1) 1.3
--------------------------------- ------------ ------------ ----------
Cost at end of period 155.9 139.2 142.9
--------------------------------- ------------ ------------ ----------
Accumulated amortisation at
beginning of period (54.2) (48.7) (48.7)
Amortisation charged to income
statement (8.1) (7.4) (15.8)
Disposals - - 11.4
Foreign exchange movements (4.4) 0.1 (1.1)
--------------------------------- ------------ ------------ ----------
Accumulated amortisation at
end of period (66.7) (56.0) (54.2)
--------------------------------- ------------ ------------ ----------
Net book value at beginning
of period 88.7 84.7 84.7
--------------------------------- ------------ ------------ ----------
Net book value at end of period 89.2 83.2 88.7
--------------------------------- ------------ ------------ ----------
10 PROPERTY, PLANT AND EQUIPMENT
The movements in property, plant and equipment were as
follows:
Unaudited Unaudited Audited
------------ ------------ ----------
Half-year Half-year Year
to to to
29 October 31 October 30 April
2016 2015 2016
GBPm GBPm GBPm
--------------------------------- ------------ ------------ ----------
Cost at beginning of period 2,049.4 1,913.1 1,913.1
Additions 117.9 110.9 219.6
Disposals (38.7) (52.3) (104.9)
Foreign exchange movements 102.8 (6.0) 21.6
Transferred to assets held (18.1) - -
for sale
Cost at end of period 2,213.3 1,965.7 2,049.4
--------------------------------- ------------ ------------ ----------
Depreciation at beginning of
period (884.2) (815.2) (815.2)
Depreciation charged to income
statement (70.5) (63.6) (132.2)
Impairment charged to income (3.0) - -
statement
Disposals 25.1 29.1 73.1
Foreign exchange movements (47.4) 2.6 (9.9)
Transferred to assets held 6.3 - -
for sale
Depreciation at end of period (973.7) (847.1) (884.2)
--------------------------------- ------------ ------------ ----------
Net book value at beginning
of period 1,165.2 1,097.9 1,097.9
--------------------------------- ------------ ------------ ----------
Net book value at end of period 1,239.6 1,118.6 1,165.2
--------------------------------- ------------ ------------ ----------
11 INTERESTS IN JOINT VENTURES
The movements in the carrying values of interests in joint
ventures were as follows:
Unaudited Unaudited Audited
------------ ------------ ----------
Half-year Half-year Year
to to to
29 October 31 October 30 April
2016 2015 2016
GBPm GBPm GBPm
----------------------------------- ------------ ------------ ----------
Net book value at beginning
of period 22.4 57.8 57.8
Share of recognised profit/(loss) 15.0 17.7 (11.1)
Share of actuarial gains/(losses)
on defined benefit pension
schemes, net of tax 0.6 (1.1) 4.0
Share of other comprehensive
income/(expense) on cash flow
hedges, net of tax 2.2 (0.5) (0.3)
Dividends received in cash (10.8) (4.9) (28.8)
Foreign exchange movements - (0.2) 0.8
----------------------------------- ------------ ------------ ----------
Net book value at end of period 29.4 68.8 22.4
----------------------------------- ------------ ------------ ----------
A loan payable to Scottish Citylink Coaches Limited of GBP1.7m
(30 April 2016: GBP1.7m) is included within current liabilities
under the caption "Trade and other payables".
12 BUSINESS COMBINATIONS, DISPOSALS AND HELD-FOR-SALE
ASSETS
On 1 July 2016, the Group completed the sale of the retailing
part of the megabus Europe business to FlixBus. The consideration
was satisfied by the issue of a loan note and the Group expects
that loan note to be fully settled by the end of 2017.
As part of the sale of the retailing part of megabus Europe, the
Group has also agreed that it will transfer a number of vehicles to
FlixBus, or a nominee of FlixBus. These assets have been presented
as held for sale in the interim financial information and have been
re-measured to the lower of carrying amount at the date of
held-for-sale classification and fair value less costs to sell. At
29 October 2016, these assets amounted to GBP11.8m (30 April 2016:
GBPNil).
After taking account of costs incurred as a result of the sale,
we have reported an exceptional loss on the disposal of the
business of GBP2.8m. The Group has also reported a cash outflow in
the half-year ended 29 October 2016 of GBP2.7m in relation to the
disposal - this relates to costs related to the disposal, with the
amounts due from the purchaser yet to be settled in cash.
Details of acquisitions and disposals completed in earlier
periods are given in the Group's annual reports for the relevant
periods.
13 FINANCIAL INSTRUMENTS AND FINANCIAL RISK
MANAGEMENT
The Group is exposed to a variety of financial risks: market
risk (including currency risk, interest rate risk and price risk),
credit risk and liquidity risk.
These condensed financial statements do not include all
financial risk management information and disclosures required in
the annual financial statements. They should be read in conjunction
with the Group's consolidated financial statements for the year
ended 30 April 2016. There have been no material changes in any of
the Group's significant financial risk management policies since 30
April 2016.
Liquidity risk
During the half-year ended 29 October 2016, the following
significant change to the contractual maturities of debt
occurred:
-- GBP485m of unsecured bank facilities that were due to mature
in October 2020 were reduced to GBP480m and extended to October
2021. As at 29 October 2016, bank loans of GBP203.4m (30 April
2016: GBP189.6m) were drawn on these facilities.
There have been no other material changes since 30 April 2016 in
the contractual undiscounted cash outflows for financial
liabilities.
13 FINANCIAL INSTRUMENTS AND FINANCIAL RISK
MANAGEMENT (CONTINUED)
Fair value estimation
Financial instruments that are measured in the balance sheet at
fair value are disclosed by level of the following fair value
measurement hierarchy.
Level 1 Quoted price (unadjusted) in active markets for identical assets or liabilities
Level 2 Inputs other than quoted prices included within Level 1
that are observable for the asset or liability either directly
(that is, as prices) or indirectly (that is, derived from
prices)
Level 3 Inputs for the assets or liability that are not based on
observable market data (that is, unobservable inputs)
For recurring fair value measurements using significant
unobservable inputs (Level 3), there was no impact of the
measurements on profit or loss or other comprehensive income for
the half-year ended 29 October 2016.
The following table presents the Group's financial assets and
liabilities that are measured at fair value within the hierarchy at
29 October 2016.
Unaudited
-----------
Level
2 & Total
GBPm
------------------------------ -----------
Assets
Derivatives used for hedging 27.2
Liabilities
Derivatives used for hedging (24.7)
------------------------------ -----------
The following table presents the Group's financial assets and
liabilities that are measured at fair value within the hierarchy at
30 April 2016.
Audited
-----------
Level
2 & Total
GBPm
------------------------------ -----------
Assets
Derivatives used for hedging 6.6
Liabilities
Derivatives used for hedging (60.8)
------------------------------ -----------
There were no transfers between levels during the half-year
ended 29 October 2016.
13 FINANCIAL INSTRUMENTS AND FINANCIAL RISK
MANAGEMENT (CONTINUED)
The table below provides a comparison of carrying amounts and
fair values of the Group's financial instruments.
Unaudited Audited
------------------------ -----------------------
Carrying Fair Value Carrying Fair value
value value
----------- ----------- ---------- -----------
29 October 29 October 30 April 30 April
2016 2016 2016 2016
GBPm GBPm GBPm GBPm
------------------------------------------------------------------- ----------- ----------- ---------- -----------
Loans and receivables
* Non-current assets - Other receivables 23.2 23.2 0.2 0.2
* Current assets - Accrued income 54.4 54.4 38.5 38.5
- Trade receivables,
net of impairment 224.8 224.8 234.6 234.6
- Other receivables 35.4 35.4 30.8 30.8
- Cash and cash equivalents 341.4 341.4 382.3 382.3
Total financial assets 679.2 679.2 686.4 686.4
----------- ----------- ---------- -----------
Financial liabilities
measured at amortised
cost
* Non-current liabilities - Accruals (5.6) (5.6) (6.0) (6.0)
- Borrowings (777.8) (819.4) (738.2) (755.6)
* Current liabilities - Trade payables (195.1) (195.1) (270.3) (270.3)
- Accruals (428.6) (428.6) (381.8) (381.8)
- Loans from joint
ventures (1.7) (1.7) (1.7) (1.7)
- Other payables (5.7) (5.7) (5.3) (5.3)
- Borrowings (51.0) (51.0) (53.6) (53.6)
----------- ----------- ---------- -----------
Total financial liabilities (1,465.5) (1,507.1) (1,456.9) (1,474.3)
----------- ----------- ---------- -----------
Net financial liabilities (786.3) (827.9) (770.5) (787.9)
----------- ----------- ---------- -----------
Derivatives that are designated as effective hedging instruments
are not shown in the above table.
The fair values of financial assets and financial liabilities
shown in the table are determined as follows:
-- The carrying value of cash and cash equivalents, accrued
income, trade receivables, and other receivables is considered to
be a reasonable approximation of fair value. The effect of credit
losses not already reflected in the carrying value as impairment
losses is assumed to be immaterial. Given the short average time to
maturity, no specific assumptions on discount rates have been made
except in respect of a loan note receivable for the disposal of a
business. The loan note includes a six-month interest free period
and the gross receivable has been discounted for that period at a
rate equivalent to 10% per annum.
-- The carrying value of trade payables, other payables,
accruals and loans from joint ventures is considered to be a
reasonable approximation of fair value. Given the relatively short
average time to maturity, no specific assumptions on discount rates
have been made.
-- The fair value of fixed-rate notes (included in borrowings)
that are quoted on a recognised stock exchange is determined with
reference to the "bid" price at the balance sheet date.
-- The carrying value of fixed-rate notes that are not quoted on
a recognised stock exchange and fixed-rate hire purchase and
finance lease liabilities (included in borrowings) is considered to
be a reasonable approximation of fair value taking account of the
amounts involved in the context of total financial liabilities and
the fixed interest rates relative to market interest rates at the
balance sheet date.
-- The fair value of other borrowings on which interest is
payable at floating rates is not considered to be materially
different from the carrying value.
14 RETIREMENT BENEFITS
The Group contributes to a number of pension schemes. The
principal defined benefit schemes are as follows:
-- Stagecoach Pension Schemes ("SPS") comprising
the Stagecoach Group Pension Scheme ("SGPS")
and the East London and Selkent Pension Scheme,
the latter of which was merged into SGPS during
the year ended 30 April 2016 and is now a separate
section of SGPS;
-- The South West Trains section of the Railways
Pension Scheme ("RPS");
-- The Island Line section of the Railways Pension
Scheme ("RPS");
-- The East Midlands Trains section of the Railways
Pension Scheme ("RPS");
-- The East Coast Main Line section of the Railways
Pension Scheme ("RPS");and
-- A number of UK Local Government Pension Schemes
("LGPS");
The Directors believe that separate consideration should be
given to RPS as the Group has no rights or obligations in respect
of sections of the scheme following expiry of the related rail
franchises. In addition, under the terms of RPS, any fund deficit
or surplus is shared by the employer (60%) and the employees (40%)
in accordance with the shared cost nature of RPS. The employees'
share of the deficit (or surplus) is reflected as an adjustment to
the RPS liabilities (or assets). Therefore the liability (or asset)
recognised for the relevant sections of RPS reflects that part of
the net deficit (or surplus) of each section that the employer is
obliged to fund (or expected to recover) over the life of the
franchise to which the section relates. The "franchise adjustment"
is the portion of the deficit (or surplus) that is expected to
exist at the end of the franchise and for which the Group will not
be obliged to fund (or entitled to recover).
In addition, the Group contributes to a number of defined
contribution schemes covering UK and non-UK employees.
The movements for the half-year ended 29 October 2016 in the net
pre-tax liabilities recognised in the balance sheet were as
follows:
SPS RPS LGPS Other Unfunded plans Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------------ ------ ------- ------ ------ --------------- -------
Liability/(asset) at beginning of period 110.2 (24.4) 4.3 2.8 3.8 96.7
Current service cost 9.1 24.4 0.4 0.7 - 34.6
Administration costs 0.4 0.3 - - - 0.7
Net Interest cost 2.1 3.1 0.1 0.1 - 5.4
Unwinding of franchise adjustment - (3.5) - - - (3.5)
Employers' contributions (8.4) (20.4) (4.0) (0.5) (0.1) (33.4)
Actuarial losses/(gains) 171.6 (34.1) (0.8) 0.4 - 137.1
Liability/(asset) at end of period 285.0 (54.6) - 3.5 3.7 237.6
------------------------------------------ ------ ------- ------ ------ --------------- -------
The net liability at 29 October 2016 shown above is presented in
the consolidated balance sheet as:
Total
GBPm
---------------------------------- --------
Retirement benefit assets 56.9
Retirement benefit obligations (294.5)
---------------------------------- --------
Net retirement benefit liability (237.6)
---------------------------------- --------
15 ORDINARY SHARE CAPITAL
At 29 October 2016, there were 576,099,960 ordinary shares in
issue (30 April 2016: 576,099,960). This figure includes 2,467,204
(30 April 2016: 1,885,887) ordinary shares held in treasury, which
are treated as a deduction from equity in the Group's financial
statements. The shares held in treasury do not qualify for
dividends.
The Group operates two Employee Share Ownership Trusts: the
Stagecoach Group Qualifying Employee Share Ownership Trust
("QUEST") and the Stagecoach Group Employee Benefit Trust ("EBT").
Shares held by these trusts are treated as a deduction from equity
in the Group's financial statements. Other assets and liabilities
of the trusts are consolidated in the Group's financial statements
as if they were assets and liabilities of the Group. As at 29
October 2016, the QUEST held 300,634 (30 April 2016: 300,634)
ordinary shares in the Company and the EBT held no (30 April 2016:
Nil) ordinary shares in the Company. The trusts have waived
dividends on the shares they hold and therefore received no
dividends during the half-year ended 29 October 2016 (half-year
ended 31 October 2015: GBPNil). The trust deed for the EBT obliges
the trustee to waive the right to any dividend on the shares unless
and until they are vested in an individual. The trustee is
confirmed not to be liable for any lost income as a result of that
waiver. The QUEST deed requires the trustee to waive any dividends
payable on the shares and the QUEST confirms that waiver within the
deed. This can be reversed by a direction from the Company to the
trustee but is otherwise ongoing.
16 RECONCILIATION OF OPERATING PROFIT TO CASH
GENERATED BY OPERATIONS
The operating profit of Group companies reconciles to cash
generated by operations as follows:
Unaudited Unaudited
------------ ------------
Half-year Half-year
to to
29 October 31 October
2016 2015
GBPm GBPm
-------------------------------------------- ------------ ------------
Operating profit of Group companies 93.9 119.5
Depreciation 70.5 63.6
Intangible asset expenses 8.1 7.4
-------------------------------------------- ------------ ------------
EBITDA of Group companies before
exceptional items 172.5 190.5
Loss on disposal of property, plant
and equipment 0.4 0.2
Equity-settled share based payment
expense 1.0 1.1
-------------------------------------------- ------------ ------------
Operating cashflows before working
capital movements 173.9 191.8
Decrease in inventories 2.4 0.7
Increase in receivables (18.6) (17.9)
Decrease in payables (22.7) (72.5)
Increase/(decrease) in provisions 16.3 (5.6)
Differences between employer contributions
and pension expense in operating
profit 1.9 3.1
-------------------------------------------- ------------ ------------
Cash generated by operations 153.2 99.6
-------------------------------------------- ------------ ------------
During the period, the Group entered into hire purchase and
finance lease arrangements in respect of assets with a total
capital value at inception of the contracts of GBP33.1m (H1 2016:
GBP21.2m). After taking account of deposits paid up-front, new hire
purchase and finance lease liabilities of GBP29.7m (H1 2016:
GBP21.2m) were recognised.
17 RECONCILIATION OF NET CASH FLOW TO MOVEMENT
IN NET DEBT
The movement in cash reconciles to the movement in net debt as
follows:
Unaudited Unaudited
------------- -------------
Half-year to Half-year to
29 October 31 October
2016 2015
Notes GBPm GBPm
--------------------------------------- ------ ------------- -------------
Decrease in cash (44.7) (70.9)
Cash flow from movement in borrowings 27.9 37.7
--------------------------------------- ------ ------------- -------------
(16.8) (33.2)
New hire purchase and finance leases (29.7) (21.2)
Foreign exchange movements (38.3) 0.8
Other movements (0.3) (23.1)
--------------------------------------- ------ ------------- -------------
Increase in net debt (85.1) (76.7)
Net debt at beginning of period 18 (399.3) (381.3)
--------------------------------------- ------ ------------- -------------
Net debt at end of period 18 (484.4) (458.0)
--------------------------------------- ------ ------------- -------------
18 ANALYSIS OF NET DEBT
IFRS does not explicitly define "net debt". The analysis
provided below therefore shows the analysis of net debt as defined
in note 23. The analysis below further shows the other items
classified as net borrowings in the consolidated balance sheet.
Charged to income
New hire purchase Foreign exchange statement/
Opening Cashflows and finance leases movements other Closing
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- -------- ---------- -------------------- -------------------- -------------------- --------
Cash and cash
equivalents 363.7 (44.7) - 3.7 - 322.7
Cash collateral 18.6 - - 0.1 - 18.7
Hire purchase and
finance lease
obligations (76.8) 30.4 (29.7) (9.8) - (85.9)
Bank loans and loan
notes (208.9) (2.5) - (11.2) - (222.6)
Bonds and Notes (495.9) - - (21.1) (0.3) (517.3)
Net debt (399.3) (16.8) (29.7) (38.3) (0.3) (484.4)
Accrued interest on
bonds (9.5) 18.4 - (0.1) (10.4) (1.6)
Effect of fair
value hedges (0.7) - - - (0.7) (1.4)
Net borrowings
(IFRS) (409.5) 1.6 (29.7) (38.4) (11.4) (487.4)
-------------------- -------- ---------- -------------------- -------------------- -------------------- --------
The cash collateral balance as at 29 October 2016 of GBP18.7m
(30 April 2016: GBP18.6m) comprises balances held in respect of
loan notes of GBP18.2m (30 April 2016: GBP18.2m) and North America
restricted cash balances of GBP0.5m (30 April 2016: GBP0.4m). In
addition, cash includes train operating company cash of GBP267.4m
(30 April 2016: GBP283.1m). Under the terms of the franchise
agreements, other than with the UK Department for Transport's
consent, train operating companies can only distribute cash out of
retained earnings and only to the extent they do not breach the
financial covenants specified in applicable contracts.
19 PROVISIONS
The Group's provisions principally relate to insurance reserves
on incurred accidents where claims have not been settled, and
onerous contracts where the costs of fulfilling the contract
outweigh the economic benefits to be received. The total provision
for uninsured claims of GBP164.4m (30 April 2016: GBP148.6m) has
increased during the year, reflecting both our latest assessment of
the required provision for claims on major incidents and foreign
exchange movements. The Group engages with third party actuarial
professionals to assist in the calculation of these provisions.
20 COMMITMENTS AND CONTINGENCIES
(i) Capital commitments
Capital commitments contracted but not provided
for at 29 October 2016 were GBP56.9m (30 April
2016: GBP141.7m).
(ii) Performance and season ticket bonds
At 29 October 2016, the Group has provided performance
bonds backed by bank facilities or insurance
arrangements of GBP75.2m (30 April 2016: GBP75.2m)
and season ticket bonds backed by bank facilities
or insurance arrangements of GBP68.3m (30 April
2016: GBP71.7m) to the Department for Transport
in relation to the Group's rail franchise operations.
GBP82.5m (30 April 2016: GBP82.5m) of an inter-company
loan facility provided to a subsidiary train
operating company is backed by a guarantee issued
under a bank facility.
(iii) Legal actions
The US Department of Justice and the New York
Attorney General (together, "the Government
plaintiffs") initiated litigation against Twin
America and its joint venture partners ("the
Defendants", which include two Stagecoach US
subsidiaries) in 2012. The litigation alleged
that the formation of the Twin America joint
venture in 2009 was anti-competitive. A settlement
was agreed with the Government plaintiffs in
2015, and has received court approval.
Related to the Twin America litigation involving
the Group's North America Division, the Department
of Justice investigated the conduct of company
personnel in responding to discovery obligations
in the investigation and litigation. The Group
has co-operated with the investigation and the
Department of Justice has now indicated that
it does not anticipate taking any further action
against the Group in respect of these matters.
The Group and the Company are from time to time
party to other legal actions arising in the
ordinary course of business. Liabilities have
been recognised in the financial statements
for the best estimate of the expenditure required
to settle obligations arising under such legal
actions. As at 29 October 2016 and 30 April
2016, the aggregate amount of such liabilities
was not material. In addition, certain of the
claims intended to be covered by insurance provisions
are subject to or might become subject to litigation
against the Group.
21 RELATED PARTY TRANSACTIONS
Details of major related party transactions during the half-year
ended 29 October 2016 are provided below, except for those relating
to the remuneration of the Directors and management.
(i) Virgin Rail Group Holdings Limited - Non-Executive
Directors
Two of the Group's directors are non-executive
directors of the Group's joint venture, Virgin
Rail Group Holdings Limited. During the half-year
ended 29 October 2016, the Group earned fees
of approximately GBP30,000 (half-year ended
31 October 2015: GBP30,000) from Virgin Rail
Group Holdings Limited in this regard. As at
29 October 2016, the Group had GBP30,000 (30
April 2016: GBP60,000) receivable from Virgin
Rail Group Holdings Limited in respect of this.
In addition, the Group net purchased GBP0.1m
(half-year ended 31 October 2015: GBP0.2m)
from the group headed by Virgin Rail Group
Holdings Limited in respect of work undertaken
on rail franchise bids and had no outstanding
payable as at 29 October 2016 or 30 April 2016
in this respect.
(ii) West Coast Trains Limited
West Coast Trains Limited is a subsidiary of
Virgin Rail Group Holdings Limited (see above).
In the half-year ended 29 October 2016, East
Midlands Trains Limited (a subsidiary of the
Group) had purchases totalling GBP0.1m (half-year
ended 31 October 2015: GBP0.1m) from West Coast
Trains Limited, and sales to West Coast Trains
Limited were immaterial (half-year ended 31
October 2015: immaterial). The outstanding
amounts payable as at 29 October 2016 and 30
April 2016 were immaterial.
As at 29 October 2016, East Coast Main Line
Company Limited (a subsidiary of the Group)
also has a receivable from West Coast Trains
Limited of GBP0.7m (30 April 2016: GBPNil)
in respect of rail contractual settlements.
During the half-year ended 29 October 2016,
South West Trains Limited (a subsidiary of
the Group) sold services of GBP0.2m (half-year
ended 31 October 2015: GBPNil) to West Coast
Trains Limited and as at 29 October 2016, had
GBP0.2m receivable in respect of this (30 April
2016: GBPNil).
(iii) Alexander Dennis Limited
Sir Brian Souter (Chairman) and Ann Gloag (Non-Executive
Director) collectively hold, via companies
that they control, 55.1% (30 April 2016: 55.1%)
of the shares and voting rights in Alexander
Dennis Limited. Noble Grossart Investments
Limited (of which, Sir Ewan Brown (Non-Executive
Director) is a director of its holding company)
controls a further 33.2% (30 April 2016: 33.2%)
of the shares and voting rights of Alexander
Dennis Limited. None of Sir Brian Souter, Ann
Gloag or Sir Ewan Brown is a director of Alexander
Dennis Limited nor do they have any involvement
in the management of Alexander Dennis Limited.
Furthermore, they do not participate in deciding
on and negotiating the terms and conditions
of transactions between the Group and Alexander
Dennis Limited.
For the half-year ended 29 October 2016, the
Group purchased GBP52.6m (half-year ended 31
October 2015: GBP30.9m) of vehicles from Alexander
Dennis Limited and GBP4.9m (half-year ended
31 October 2015: GBP3.9m) of spare parts and
other services. As at 29 October 2016, the
Group had GBP0.3m (30 April 2016: GBP1.0m)
payable to Alexander Dennis Limited, along
with outstanding orders of GBP36.4m (30 April
2016: GBP96.0m).
(iv) Pension Schemes
Details of contributions made to pension schemes
are contained in note 14.
(v) Scottish Citylink Coaches Limited
A non interest bearing loan of GBP1.7m (30
April 2016: GBP1.7m) was due to the Group's
joint venture, Scottish Citylink Coaches Limited,
as at 29 October 2016. The Group earned GBP9.9m
in the half-year ended 29 October 2016 in respect
of the operation of services subcontracted
by Scottish Citylink Coaches Limited (half-year
ended 31 October 2015: GBP9.2m). The Group
also collected revenue of GBP9.5m on behalf
of Scottish Citylink Coaches Limited in the
half-year ended 29 October 2016 (half-year
ended 31 October 2015: GBP10.3m). As at 29
October 2016, the Group had a net GBP0.2m payable
(30 April 2016: GBP0.5m receivable) to Scottish
Citylink Coaches Limited, excluding the loan
referred to above.
(vi) Twin America LLC
In the half-year ended 29 October 2016, the
Group's joint venture, Twin America LLC, sold
travel of GBP1.4m (half-year ended 31 October
2015: GBP1.4m) for tour services operated by
the Group. The commission received by Twin
America from the Group was not material. As
at 29 October 2016, the Group had GBP0.8m (30
April 2016: GBP0.2m) receivable from Twin America
LLC in this regard.
21 RELATED PARTY TRANSACTIONS (CONTINUED)
(vii) East Coast Main Line Company Limited
The Group owns 90% and Virgin Holdings Limited
owns 10% of the ordinary shares in Inter City
Railways Limited. East Coast Main Line Company
Limited is 100% owned by Inter City Railways
Limited and enters into various arm's length
transactions with other Group companies. In
the half-year ended 29 October 2016, other Group
companies earned GBP8.8m from East Coast Main
Line Company Limited in respect of the provision
of certain services including train maintenance
and rail replacement bus services (half-year
ended 31 October 2015: GBP7.7m). Other Group
companies had a net payable balance of GBP13.2m
as at 29 October 2016 (30 April 2016: GBP0.8m),
which principally relates to VAT payments.
The ultimate parent company of the Group, Stagecoach
Group plc, had an outstanding receivable of
GBP56.5m as at 29 October 2016 in respect of
a loan to East Coast Main Line Company Limited
(30 April 2016: GBP52.5m). The interest receivable
on the loan for the half-year ended 29 October
2016 was GBP0.7m (half-year ended 31 October
2015: GBP0.1m). Related to that, the Group had
an outstanding payable for GBP5.7m as at 29
October 2016 in respect of a loan from Virgin
Holdings Limited (30 April 2016: GBP5.3m).
In addition, in the half-year ended 29 October
2016, East Coast Main Line Company Limited purchased
services amounting to GBPNil from Virgin Holdings
Limited (half-year ended 31 October 2015: GBP1.5m).
The Group had a payable balance of GBPNil to
Virgin Holdings Limited at 29 October 2016 in
this respect (30 April 2016: GBPNil).
22 POST BALANCE SHEET EVENTS
Details of the interim dividend declared are given in note
6.
23 DEFINITIONS
(a) Alternative performance measures
The Group uses a number of alternative performance measures in
this document to help explain the financial performance and
financial position of the Group. More information on the definition
of these alternative performance measures and how they are
calculated is provided below. All of the alternative performance
measures explained below have been calculated consistently for the
half-year ended 29 October 2016 and for comparative amounts shown
in this document for prior periods.
Adjusted earnings per share
Adjusted earnings per share is calculated by dividing profit
attributable to equity holders of the parent, excluding intangible
asset expenses and exceptional items, by the basic weighted average
number of shares in issue in the period.
For the half-year ended 29 October 2016 and the comparative
prior year period, the numerators for the calculations (i.e. the
adjusted profit) are shown clearly on the face of the consolidated
income statement in the columns headed "performance pre intangibles
and exceptional items". The denominators for the calculations (i.e.
the weighted average number of shares in issue) and further details
of the calculations are shown in note 7 to the condensed financial
statements.
Like-for-like amounts
Like-for-like amounts are derived, on a constant currency basis,
by comparing the relevant year-to-date amount with the equivalent
prior year period for those businesses and individual operating
units that have been part of the Group throughout both periods.
Like-for-like revenue growth for the half-year ended 29 October
2016 is calculated by comparing the revenue for the current and
comparative periods, each adjusted as described above. The revenue
of each segment is shown in note 4(a) to the condensed financial
statements. The reconciliation to the adjusted revenue figures for
the purposes of calculating like-for-like revenue growth is shown
below:
Unaudited
------------------------------------------------------------------
Half-year to 29 October 2016
Exclude effect of Exclude effect of Like-for-like
Reported revenue businesses acquired foreign exchange revenue
UK Bus (regional
operations) GBPm 513.9 (3.5) - 510.4
megabus Europe GBPm 14.9 - - 14.9
UK Bus (London) GBPm 131.5 - - 131.5
North America US$m 338.4 - 0.5 338.9
UK Rail GBPm 1,092.3 - - 1,092.3
----------------------- ------ ----------------- -------------------- --------------------- ---------------------
23 DEFINITIONS (CONTINUED)
Unaudited
-----------------------------------------------------------
Half-year to 31 October 2015
Exclude effect of businesses
Reported revenue acquired Like-for-like revenue
UK Bus (regional operations) GBPm 522.4 (0.9) 521.5
megabus Europe GBPm 8.4 - 8.4
UK Bus (London) GBPm 133.1 - 133.1
North America US$m 349.2 - 349.2
UK Rail GBPm 1,083.2 - 1,083.2
------------------------------ ------ ----------------- ----------------------------------- ----------------------
Operating profit
Operating profit for a particular business unit or division
within the Group refers to profit before net finance
income/charges, taxation, intangible asset expenses, exceptional
items and restructuring costs. The operating profit for each
segment is directly identifiable from the financial statements -
see note 4(b) to the condensed financial statements.
Operating margin
Operating margin for a particular business unit or division
within the Group means operating profit as a percentage of revenue.
The revenue and operating profit for each segment is directly
identifiable from the financial statements - see notes 4(a) and
4(b) to the condensed financial statements. The revenue, operating
profit and operating margin (being operating profit as a percentage
of revenue) for each segment are also shown on page 4 of this
document.
Pre-exceptional EBITDA
Pre-exceptional EBITDA is earnings before interest, taxation,
depreciation, intangible asset expenses and exceptional items.
A reconciliation of pre-exceptional EBITDA for the half-year
ended 29 October 2016, and the comparative prior year period, to
the financial statements is shown on page 10 of this document.
EBITDA from Group companies before exceptional items
EBITDA from Group companies before exceptional items is earnings
before interest, taxation, depreciation, intangible asset expenses
and exceptional items from Group companies (i.e. the parent company
and all of its subsidiaries consolidated but excluding share of
profit from joint ventures).
EBITDA from Group companies before exceptional items is directly
identifiable from the financial statements - see note 16 to the
condensed financial statements.
Pre-exceptional net finance charges
Pre-exceptional net finance charges are finance costs (excluding
exceptional items) less finance income, each as shown on the face
of the consolidated income statement.
Gross debt
Gross debt is borrowings as reported on the consolidated balance
sheet, adjusted to exclude accrued interest and the effect of fair
value hedges on the carrying value of borrowings.
The components of gross debt are shown in note 18 to the
condensed financial statements, which also reconciles net debt to
the net borrowings (cash less borrowings) shown on the face of the
consolidated financial statements.
Net debt
Net debt (or net funds) is the net of cash/cash equivalents and
gross debt (see above).
The components of net debt are shown in note 18 to the condensed
financial statements, which also reconciles net debt to the net
borrowings (cash less borrowings) shown on the face of the
consolidated financial statements.
Net capital expenditure
Net capital expenditure is the impact of purchases and sales of
property, plant and equipment. Its reconciliation to the
consolidated financial statements is explained on page 12 of this
document.
(b) Other definition
The following other definition is also used in this
document:
Exceptional items
Exceptional items means items which individually or, if of a
similar type, in aggregate need to be disclosed by virtue of their
nature, size or incidence in order to allow a proper understanding
of the underlying financial performance of the Group.
Independent review report to Stagecoach Group plc
Introduction
We have been engaged by the Company to review the condensed
consolidated interim financial statements in the half-yearly
financial report for the half-year ended 29 October 2016 which
comprises:
-- The Consolidated Income Statement for the half-year ended 29 October 2016;
-- The Consolidated Statement of Comprehensive Income for the half-year ended 29 October 2016;
-- The Consolidated Balance Sheet as at 29 October 2016;
-- The Consolidated Statement of Changes in Equity for the half-year ended 29 October 2016;
-- The Consolidated Statement of Cash Flows for the half-year ended 29 October 2016;
-- The related explanatory notes.
We have read the other information contained in the half-yearly
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed consolidated interim financial statements.
This report is made solely to the Company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
Company, for our work, for this report, or for the conclusions we
have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union. The
condensed consolidated interim financial statements included in
this half-yearly financial report have been prepared in accordance
with International Accounting Standard 34, "Interim Financial
Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed consolidated interim financial statements in the
half-yearly financial report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed consolidated interim
financial statements in the half-yearly financial report for the
half-year ended 29 October 2016 is not prepared, in all material
respects, in accordance with International Accounting Standard 34
as adopted by the European Union and the Disclosure and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
Ernst & Young LLP
Glasgow
7 December 2016
Notes:
(a) The maintenance and integrity of the Stagecoach Group plc
website is the responsibility of the Directors; the work carried
out by the auditors does not involve consideration of these matters
and, accordingly, the auditors accept no responsibility for any
changes that may have occurred to the interim financial statements
since they were initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR KMMGZLVZGVZM
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