TIDMNEX
RNS Number : 9053F
National Express Group PLC
26 February 2015
National Express Group PLC
26 February 2015
Full Year Results for the year ended 31 December 2014
National Express Group PLC ("National Express" or "the Group")
is a leading international public transport operator, with bus,
coach and rail services in the UK, Continental Europe, North
Africa, North America and the Middle East.
Overview
National Express delivered a strong performance in 2014. Both
statutory and normalised profit before tax were higher than last
year, with a strong second half performance more than off-setting
the one-off headwinds and currency translation effects that
particularly impacted in the first half of the year. The Group has
again delivered a very strong cash performance and reduced net debt
by over GBP80 million during the course of the year. We have also
renewed key concessions and made significant progress in new
markets.
Highlights include:
Strong financial performance, especially free cash flow
-- Group revenue increased 2% to GBP1.87 billion on a constant
currency basis; down 1% on a reported basis (2013: GBP1.89bn)
-- Group normalised profit before tax rose 7% to GBP145.4
million on a constant currency basis; up 1% on a reported basis
(2013: GBP143.7m)
-- Statutory Group profit before tax grew by 3% to GBP66.5
million (2013: GBP64.4m); up 10% on a constant currency basis
-- Group ROCE increased to 12.4% (2013: 11.7%)
-- Year-on-year EPS growth of 6% to 22.7 pence (2013: 21.5 pence)
-- Free cash flow of GBP190 million is GBP40 million ahead of
target and higher than last year (2013: GBP182.8m). Since 2009,
National Express has generated GBP1billion of free cash
-- Net debt reduced by over GBP80 million to GBP664.3 million (2013: GBP746.1m)
-- Full year proposed dividend of 10.3 pence, up 3% year-on-year (2013: 10.0 pence).
Growth in revenue and passenger numbers in every division
-- Continuing strong performance in UK Coach with passenger
revenue up 4% and an operating margin over 10%
-- Profit grew in North America on a constant currency basis,
with a strong second half of the year off-setting the significant
weather impact in the first half. In the last five years the North
American School Bus business has more than doubled its
profitability
-- UK Bus continued to reap the benefits of its strong local
partnerships with a 0.6% increase in commercial passengers and 2.8%
increase in revenue
-- As well as successfully launching the new c2c franchise, UK
Rail grew both revenue (6%) and passenger numbers (2%)
-- ALSA's revenue management has continued to deliver an
improved performance against the on-going rail competition - we
have delivered passenger growth of 4% with revenue only 2% lower on
the routes where we have introduced revenue management. Morocco
continued its strong performance with a 22% increase in revenue
with all three operations growing.
New contractswon, new markets opened and key concessions
retained
-- We have won our third and fourth German rail contracts, with
our success in the Nuremberg S-Bahn
-- Our success in retaining the Essex Thameside (c2c) rail
franchise secures our presence in UK rail through to 2029
-- Through our successes in Germany and c2c we have now secured
more than GBP6 billion of future revenue in rail
-- We have recently successfully started the first phase of our
10-year contract for bus services in Bahrain, our first entry into
the growing Middle Eastern market
-- We have successfully retained and grown major contracts
across the Group during 2014, including our largest US transit
contract and largest Spanish concession to come up for renewal to
date
-- We have a new business pipeline of opportunities worth over
GBP8 billion in annualised revenue.
Comment
Dean Finch, National Express Group Chief Executive, said:
"National Express has made significant progress over the past
year. Every division is carrying more passengers and has grown
revenue. We have successfully retained key existing contracts,
recently won another two rail contracts in Germany and this month
started operating our Bahrain bus contract. I am particularly
pleased with our very strong cash performance, which has again
exceeded our target.
"This strong performance means we are in an excellent position
to continue to exploit new opportunities. Our North American
business has more than doubled profitability in the last five years
and provides us with a strong platform for further growth in the
coming years. Coupled with the opportunity for further growth in
German Rail and the Middle East, I am optimistic about the future
prospects of the business."
Outlook
During 2015 we expect our UK rail, bus and coach businesses to
build on their good progress during 2014 and to continue to perform
well with strong cash generation. In Spain the main contract
renewal process starts this year but any impact from new terms for
our larger concessions is unlikely to be felt until 2017. Whilst we
expect some margin pressure on renewal as is normal, we believe
ALSA can mitigate this risk through a combination of significant
revenue and cost management actions, as well as securing new growth
opportunities. We are determined to retain a significant market
share in Spain and as market leaders have demonstrated our ability
to compete effectively. We also expect the Group to continue to
successfully exploit a number of important opportunities in the
Middle East, North Africa and in Germany. We are currently working
on an active pipeline worth GBP8 billion of annualised
revenues.
The benefits from these new opportunities as well as our
existing businesses will continue to be reflected in the strong
cash generation, with a target of GBP100 million this year. We will
continue to focus on margin and ROCE improvement and we are not
anticipating there to be any exceptional costs from reorganisation
or restructuring in 2015. As previously stated, we are changing the
accounting treatment of bid costs to be included in normal
operating costs.
The recent focus of our cash flow has been on debt reduction and
growing our dividend. We increased investment in new business
opportunities during 2014 and believe we are now in a strong
position to exploit other new growth opportunities with a focus in
North America, where we have more than doubled profitability in the
past five years. While we will remain within our published target,
we believe we have the opportunity to use our continued strong cash
generation to invest in new growth opportunities that meet our
strict financial and strategic criteria. There are excellent
opportunities in the North American market given its highly
fragmented nature and the continuing trend in conversions. The
success of last year's bolt-on acquisition in Philadelphia and the
largest ever conversion contract in Memphis demonstrates the
opportunity here and we will continue to apply our proven model of
excellence to deliver the services our customers value as well as
generating good returns for our shareholders.
Financial summary
2014 2013
Year ended 31 December GBPm GBPm
------------------------------------------ --------------- ------- --------
Revenue Non-rail 1,715.8 1,748.3
Rail 151.6 143.0
---------------------------------------------------------- ------- --------
Group 1,867.4 1,891.3
Normalised operating profit Core non-rail 185.1 185.5
German coach (1.7) (2.4)
Rail 9.7 9.8
---------------------------------------------------------- ------- --------
Group 193.1 192.9
Share of results from associates 0.3 0.6
Net finance costs (48.0) (49.8)
----------------------------------------------------------- ------- --------
Normalised profit before taxation 145.4 143.7
----------------------------------------------------------- ------- --------
IFRS profit before tax for the year 66.5 64.4
Operating margin 10.3% 10.2%
Normalised basic EPS (pence) Non-rail 21.2 20.1
Rail 1.5 1.4
---------------------------------------------------------- ------- --------
Group 22.7 21.5
Net debt 664.3 746.1
Total proposed dividend per share (pence) 10.3 10.0
----------------------------------------------------------- ------- --------
Enquiries
National Express Group PLC
Matt Ashley, Group Finance Director 0121 460 8655
Anthony Vigor, Director of Policy and
External Affairs 07767 425822
Louise Richardson, Investor Relations
Manager 07827 807766
Maitland
Nathalie Falco 020 7379 5151
Definitions
Unless otherwise stated, all operating profit, operating margin
and EPS data refer to normalised results, which can be found on the
face of the Group Income Statement in the first column. The
definition of normalised profit is as follows: IFRS result found in
the third column, excluding intangible asset amortisation, loss on
disposal of businesses, exceptional items and tax relief thereon.
The Board believes that the normalised result gives a better
indication of the underlying performance of the Group.
Underlying revenue compares the current year with prior year on
a consistent basis, after adjusting for the impact of currency,
acquisitions, disposals and rail franchises no longer operated.
Like-for-like revenue measures underlying revenue after
adjusting for increases or decreases in miles operated, typically
used as a metric in urban bus operations.
Constant currency basis compares the current year's results with
the prior year's results translated at the current year's exchange
rate.
'Core non-rail' businesses are UK Bus, UK Coach, Spain
(including Morocco) and North America (including Transit). It
excludes German Coach.
Operating margin is the ratio of normalised operating profit to
revenue.
'Return on capital employed' ('ROCE') is normalised operating
profit divided by tangible and intangible assets for the core
non-rail businesses.
'Return on assets' ('ROA') is normalised operating profit
divided by tangible assets.
Operating cash flow is the cash flow equivalent of normalised
operating profit. Free cash flow is the cash flow equivalent of
normalised profit after tax. A reconciliation is set out in the
table within the Finance Director's review.
Net debt is defined as cash and cash equivalents (cash overnight
deposits and other short-term deposits), and other debt
receivables, offset by borrowings (loan notes, bank loans and
finance lease obligations) and other debt payable (excluding
accrued interest).
EPS generated by the Rail business is the normalised operating
profit of the Rail division, taxed at the UK tax rate, divided by
the basic number of shares in issue.
Non-rail EPS is Group normalised EPS minus the EPS generated by
the rail business.
The annual punctuality measure for c2c is the moving annual
average (MAA) public performance measure (PPM) to 4 January
2015.
Safety Incidents measure those for which the Group is
responsible and is based on the Fatalities and Weighted Injuries
Index used in the UK Rail industry.
EPS generated by the Rail business is the normalised operating
profit of the Rail division, taxed at the UK tax rate, divided by
the basic number of shares in issue.
Group Chief Executive's Review
Overview of 2014
National Express has delivered a good performance in 2014 with
Group revenue up 2.3% on a constant currency basis and both
statutory and normalised profit before tax also up on a constant
currency basis by 10% and nearly 7% respectively. Our free cash
generation remains very strong, again beating our target for the
year and during the course of the year we have reduced net debt by
over GBP80 million. We renewed a number of key concessions in the
year and also successfully expanded our business into new
markets.
This performance demonstrates both the resilience and strength
of our businesses. We have had to overcome significant challenges
from the first half of the year, especially poor weather in the US,
strike action in Spain and significant currency headwinds. Together
these challenging events reduced profits by GBP5m at the half year.
To have recovered from this position and delivered such a strong
second half of the year is a particularly pleasing result.
To achieve these results, we have again made good progress
against our three strategic goals:
First, our operational excellence programme continues to be
embedded across the business. We place customers at the heart of
our strategy, causing us to focus on delivering continuously
improving services whilst maintaining a relentless attention to
efficiency to enable us to offer good value fares. This has helped
every division deliver an increase in revenue and passenger numbers
this year. The UK businesses have seen particularly good increases
in revenues and passengers resulting in strong profit growth in UK
Bus and UK Coach. UK Coach profits increased significantly to
GBP28.0 million (2013: GBP24.5m), and have now grown 36% in two
years. UK Bus has also performed very strongly, with profits
increasing to GBP34.0 million (2013: GBP31.2m) and its pioneering
partnership with Centro - Transforming Bus Travel - winning two
industry best practice awards in the year.
Pleasingly, the benefits of our focus on operational excellence
have also been seen in our customer satisfaction scores, with most
of our operations leaders in their markets. North American School
Bus, for example, has retained 97% of its contracts, significantly
ahead of its peers. Over 93% of customers would also recommend us
to other school boards, with quality of service, safety and value
being the key considerations.
We are determined to maintain this progress. Building on c2c's
success in achieving a five star rating in the European Foundation
for Quality Management assessment, UK Coach was awarded a four star
rating in its first assessment. UK Coach is determined to emulate
c2c and secure a five star rating at its next assessment. The other
divisions will soon be undertaking similar exercises as part of our
programme to drive operational excellence across the Group.
Second, as well as these notable successes, our focus on
operational excellence is also underpinning our success in our
strategic goal of generating superior cash and returns, with
another year of excellent cash flow. We have again exceeded our
free cash flow target for the year by GBP40 million, with GBP190
million delivered in the period. This has enabled us to further
reduce net debt by over GBP80 million to GBP664.3 million,
representing a gearing ratio of 2.25 times EBITDA. Group ROCE has
also increased to 12.4% (2013: 11.7%) reflecting our continuous
focus on delivering strong returns on our capital. This has
underpinned improving returns to shareholders, with a proposed full
year dividend up 3% to 10.3 pence per share. Even before this
dividend nearly GBP200 million has been returned to shareholders
since 2011 and in the past two years net debt has been reduced by
GBP164 million.
We have incurred over GBP40 million in rationalisation and
restructuring costs this year. Our strategic rationalisation
programme in the US saw us make significant progress on exiting
commercially unattractive contracts, with all such contracts now
provided for. Coupled with rising prices in North America, we are
confident this programme will deliver rising returns in the future.
Following the success of this 'up or out' strategy we conducted a
similar review in Spain. We also restructured across the Group, to
remove costs and enhance future earnings. Together, these
rationalisation and restructuring programmes have made us more
efficient and better able to meet the challenges and opportunities
ahead and will help deliver improved returns in the coming
years.
Third, we have generated growth in new markets. During the year
we won a 10-year contract to operate buses in Bahrain. We believe
this positions us well locally in Bahrain where there is scope for
further growth, and also within the growing Middle Eastern market.
We withdrew from the German coach market during the year due to its
unrealistic pricing structure making it impossible to sustain a
profitable, quality service. We were also disappointed to have come
second in both the Crossrail and ScotRail competitions, with the
ScotRail result particularly disappointing as we were within 0.24%
of the winning bid.
More recently we have, however, secured our third and fourth
contract wins in German rail, with our success in the Nuremberg
S-Bahn contract. These 12 year contracts, generating EUR1.4 billion
of revenue, will begin operation in December 2018 and represent
further expansion for us in Europe's largest liberalising rail
market. Deutsche Bahn has again chosen to challenge the award, as
they did unsuccessfully with our previous two contracts in North
Rhine Westphalia. We therefore remain confident of the award being
confirmed in due course.
This new market growth has also complemented the significant
progress we have made in retaining existing contracts, including
our largest US transit contract and our largest Spanish concession
to have come up for renewal to date. Our success in winning the
Essex Thameside franchise competition means that our
industry-leading c2c services will continue, securing around GBP4
billion of revenue and our presence in UK rail until 2029. Coupled
with our 15 and 12 year contracts in Germany - themselves worth
around EUR3 billion in revenue - we enter 2015 with both strong
credentials and a uniquely long-term future in the rail
industry.
Highlights
Highlights of 2014 included:
-- In constant currency terms the Group delivered a 2% increase
in revenue and 7% increase in normalised profit before tax. This is
a significant achievement, overcoming the headwinds in the first
half of the year. Earnings per share increased to 22.7 pence (2013:
21.5p). Group ROCE increased to 12.4% and free cash flow of GBP190
million again exceeded our target. An increase in the proposed full
year dividend to 10.3 pence per share is funded within our robust
policy of two times non-rail earnings cover.
-- UK Coach has grown revenue by 4%. UK Coach's profits have
grown by 36% in two years, with operating margin increasing over
the same period by over 25% to reach 10.2%. We believe there are
good opportunities for further growth as a focus on journey time
improvements is combined with a continued emphasis on the customer,
including the increasing use of targeted marketing. These
initiatives continue to make our offer ever more attractive to
customers and drive improved returns.
-- UK Bus has had another strong year, with revenue growth of
2.8% and West Midlands commercial patronage increasing 0.8%. Our
industry-leading Transforming Bus Travel partnership won two awards
during 2014 and provides a stability that allows us to deliver
significant investment in improving services. 2014's Passenger
Focus results saw our services secure the fastest growth in
customer satisfaction of any urban operator. This progress is
something we are looking to build on in 2015 with initiatives such
as the extension of our smart-ticketing system to trams and Pay As
You Go. This will be underpinned by record investment in new
vehicles and continued close working with local authorities to
improve journey times and reliability.
-- In Rail, we successfully retained the c2c franchise during
2014, guaranteeing our future in UK rail until 2029. c2c has
maintained its industry-leading performance for a third consecutive
year and delivered 6% revenue growth and 2% passenger growth in
year. A slight decline in 2014's profit and margin is explained by
the more onerous contract terms during the franchise extension in
place to September last year. We are encouraged by the passenger
response so far to the new franchise's focus on customer service.
Investment in WiFi and new advance purchase off-peak tickets are
already proving popular. With new flexible ticketing and pioneering
automatic delay-repay compensation being introduced in due course,
we are confident this enhanced customer service offer will continue
to be popular.
-- North America delivered a strong second half performance to
overcome the $6.1 million impact of the extreme weather in the
first half and ended the year with both revenue and profit growth
in constant currency. In the last five years North America School
Bus has more than doubled its profitability to GBP59.5 million
(2009: GBP25.3m). We made good progress on improving the quality of
the portfolio by exiting poorly performing contracts and targeting
those with better returns. This was complemented by a significant
bolt-on acquisition in Philadelphia and our largest ever conversion
contract in Memphis. US Transit also secured its largest contract
(MBTA) for a further eight years. Our return on assets increased
again to 23.8%. Better pricing discipline in the market, combined
with our on-going focus on efficient capital deployment means we
are optimistic about our prospects in North America. As set out
below, we believe we have significant opportunity for further
growth in North America.
-- Spain delivered an increase in revenue in local currency but
a decline in operating profit to EUR94.1 million (2013: EUR96.0m)
because of the impact of on-going rail competition and a
significant strike in April. The implementation of revenue
management and an improved service offer on the affected rail
competed routes led to an improved performance in the second half
with passenger growth at 4% and revenue only 2% lower on the
affected routes. Strong growth in Morocco continued, including the
benefit of a full year of the Tangier operation. ALSA also
successfully retained its Bizkaia contract, the largest to come up
for renewal so far. As the number of concession renewals increases
in the coming years, we believe the benefits of our focus on cost
efficiency and revenue management mean we are well placed to
achieve our aim of maintaining market share.
Strategy
These results demonstrate how our consistent strategy has been
improving returns for shareholders and positions us well for future
growth opportunities.
Delivering operational excellence
Our success in recent years has been rooted in operational
excellence. It is also increasingly clear that our future success
depends on it. It is what our customers demand. As our most recent
successes in German rail and Bahrain demonstrate, a reputation for
operational excellence has been crucial in winning contracts in new
markets.
For National Express, excellence means delivering continuously
improving services whilst ensuring a relentless focus on
efficiency. Our aim is for National Express to be known for both
excellence in the quality of our operations and price
leadership.
For quality, safety is fundamental and remains our first
priority. We have made important progress since launching Driving
Out Harm in 2010. And I am pleased that our independent assessors,
Arthur D Little, have reported a year on year improvement in our
Fatality Weighted Index measure of safety of 17% and a reduction in
total responsible harm of 54% in four years. However, safety
requires a relentless focus, and our ambition remains to eradicate
all harm from our business and achieve world class standards of
safety.
Another crucial aspect of quality is the delivery of punctual,
high performing services. At any one time in peak hours, we have
over 23,000 vehicles on the road or rail. We are proud that c2c has
now been the UK's most punctual operator for three years running as
well as holding the annual and 4-week records. Our UK Coach
business has recently signed a ground-breaking agreement with the
Highways Agency to help improve our punctuality and
reliability.
We remain focused on operating as efficiently as possible, to
help maintain our prices as competitive as we can. The GBP31
million of cost savings delivered during 2014 is higher than 2013.
Across the Group many of the businesses have delivered year on year
improvements in value for money scores in their customer surveys
and all carried more passengers in 2014 compared to 2013. A
particular highlight is our UK Coach business being named the
country's 'most trusted ground transportation company' by the
Institute of Customer Service.
An important part of our strategy is delivering price leadership
and value for money for our customers. We are particularly pleased
that all of our divisions have grown patronage as it demonstrates
that our excellent prices and deals are effective. Within the UK,
for example, this year we are investing over GBP23 million in great
value fares such as our coach FunFares, rewards for frequent bus
users and new advanced off-peak fares in rail.
Getting the combination of price and quality right means we go
some way to delivering on our vision of earning customers' lifetime
loyalty. Passengers are more likely to continue to use our services
above other choices because they are receiving a good service at a
good price. Equally, contracting authorities or businesses are less
likely to retender services or are more likely to award us new
contracts if we consistently deliver excellence.
This is why I am particularly pleased with our retention of
major contracts in 2014: the 15 year c2c rail franchise; 10 year
Bizkaia contract in Bilbao; and, the 5 year MBTA para-transit
contract in Boston.
Results such as our North American School Bus business retaining
over 97% of its contracts and UK Bus demonstrating the fastest
growth in passenger satisfaction of any urban operator in the 2014
Passenger Focus survey are further evidence of our continued
progress.
Superior cash and returns
Cash generation has been a particular focus of National Express.
We have made this a priority because free cash flow pays dividends
for shareholders, funds future growth and reduces debt.
In 2014 we have again made significant progress in delivering on
our targets. We have delivered GBP190 million of free cash, GBP40
million ahead of target. National Express has now delivered GBP1
billion of free cash since 2009.
Over the year, net debt has been reduced by over GBP80 million
to GBP664.3 million, a gearing ratio of 2.25 times EBITDA.
We increased the Group's ROCE in 2014 to 12.4%, a 6% increase
year on year. We invested GBP51 million of net capital during 2014
and have continued to deploy capital where it will deliver the best
returns. We have further improved our Group operating margin in
2014, to 10.3%. And we continue to target both margin and ROCE
improvement in the coming years.
We set out our plan to reduce our gearing ratio by the end of
2014 to help mitigate the key risks the business faced: the loss of
the c2c franchise and Spanish concession renewals. These risks have
either not materialised (with the c2c franchise success) or been
delayed (Spanish concessions). We also identified new opportunities
for increased investment during 2014, to generate shareholder value
in the coming years. We believe there are further opportunities in
the coming years and are therefore pausing our deleveraging (while
staying within our published target) to use our continued strong
cash generation to invest in specific new growth opportunities that
meet our strict financial and strategic criteria.
Creating new business opportunities
We believe the principal opportunity for increased investment to
deliver strong growth over the medium term is in our North American
business. We have already demonstrated our ability to grow this
business significantly in recent years: over the last five years
North American School Bus has more than doubled its profits.
Additionally, over the same period, through a disciplined approach
to capital allocation and contract selection, we have nearly
doubled margins in North America to 9.6% from 5.7% and have
improved our Return on Assets by 118% to 23.8%.
There are excellent opportunities for growth given this market's
highly fragmented nature and the continuing trend for conversions.
There are over 4,000 private school bus businesses in the United
States. Indeed, in the last year we successfully bolted-on a new
school bus business in Philadelphia that operates 318 routes.
Through improved operational standards, Group purchasing power and
management synergies from integration with our existing nearby
locations, we will have paid for the acquisition within three
years. We also won our largest ever conversion contract, in Shelby
County, Tennessee. This delivered 440 new buses to the 285 we
already operated, as we integrated the operations previously run by
the local School Board. Our success in integrating our major
Petermann acquisition three years ago is further evidence of our
strong credentials here.
With greater consolidation and increased outsourcing in the
market, our reputation for excellence, strong capital discipline
and cash generation and industry-leading team provides the Group
with a strong opportunity for further growth in North American
School Bus.
US Transit also continues to provide opportunities for further
growth. 2014 was the second consecutive year where we have retained
100 per cent of our contracted revenue up for renewal, including
the largest contract - MBTA. We also secured a fixed-route transit
services contract in Yuma, Arizona, the first contract in this
heavily contracted state and a strategic target of the division.
Building on this we are currently working on a pipeline of over
$300m of annualised revenues and believe this remains an attractive
market.
In addition, our unique portfolio of diversified bus, coach and
rail businesses means National Express is well placed to grow in
selected other markets, to complement this opportunity for
expansion in North America. We believe Morocco, for example,
provides good opportunities for further growth, building on our
significant progress there in recent years.
We have also made significant progress during 2014 in growing in
other markets. Our success in securing a 10-year contract in
Bahrain opens both that country and the wider Middle East to
further growth. Our recent award of the Nuremberg S-Bahn network is
a clear demonstration of the opportunity for further growth in the
exciting German rail market. We will begin operating services on
our North Rhine Westphalia contracts in December this year and have
an active bidding pipeline. We are currently shortlisted for three
German contracts and there are up to 30 new tenders coming up in
the next two years. We are also monitoring rail liberalisation in
Spain.
As the operator of the UK's best performing franchise, we will
continue to monitor opportunities in the UK rail market. We will
maintain our selective and disciplined approach and only bid where
we feel our expertise will significantly improve the service for
passengers and deliver acceptable returns to shareholders. However,
through our successes in Germany and c2c we have now secured more
than GBP6 billion of future revenue in rail.
Board changes
Firstly, I am delighted to welcome Matthew Ashley as Group
Finance Director, whose appointment was announced on January 29th
2015. Matt was previously acting Group Finance Director, a role he
assumed in October 2014. He joined National Express in early 2010
as Group Financial Controller and I am grateful to him for all his
help and support.
On the Board, Sir Andrew Foster has already indicated that he
intends to step down as a non-executive director after more than
ten years with the Group and will not seek re-election at the
forthcoming Annual General Meeting in May. Jackie Hunt is also
stepping down as a non-executive director after three years with
the Group and will also not seek re-election at the AGM. I am very
pleased that Lee Sander has agreed to become Senior Independent
Director, to replace Jackie. Andrew's successor will be announced
in due course. On behalf of the Board I would like to thank both
Andrew and Jackie for all their insight and hard work and I look
forward to continuing to work with Lee.
Outlook
During 2015 we expect our UK rail, bus and coach businesses to
build on their good progress during 2014 and to continue to perform
well with strong cash generation. In Spain the main contract
renewal process starts this year but any impact from new terms for
our larger concessions is unlikely to be felt until 2017. Whilst we
expect some margin pressure on renewal as is normal, we believe
ALSA can mitigate this risk through a combination of significant
revenue and cost management actions, as well as securing new growth
opportunities. We are determined to retain a significant market
share in Spain and as market leaders have demonstrated our ability
to compete effectively. We also expect the Group to continue to
successfully exploit a number of important opportunities in the
Middle East, North Africa and in Germany. We are currently working
on an active pipeline worth GBP8 billion of annualised
revenues.
The benefits from these new opportunities as well as our
existing businesses will continue to be reflected in the strong
cash generation, with a target of GBP100 million this year. We will
continue to focus on margin and ROCE improvement and we are not
anticipating there to be any exceptional costs from reorganisation
or restructuring in 2015. As previously stated, we are changing the
accounting treatment of bid costs to be included in normal
operating costs.
The recent focus of our cash flow has been on debt reduction and
growing our dividend. We increased investment in new business
opportunities during 2014 and believe we are now in a strong
position to exploit other new growth opportunities with a focus in
the North American school bus market, where we have more than
doubled profitability in the past five years. While we will remain
within our published target, we believe we have the opportunity to
use our continued strong cash generation to invest in new growth
opportunities that meet our strict financial and strategic
criteria. There are excellent opportunities in the North American
market given its highly fragmented nature and the continuing trend
in conversions. The success of last year's bolt-on acquisition in
Philadelphia and the largest ever conversion contract in Memphis
demonstrates the opportunity here and we will continue to apply our
proven model of excellence to deliver the services our customers
value as well as generating good returns for our shareholders.
Dean Finch
Group Chief Executive
26 February 2015
Group Finance Director's Review
Presentation of results
We present our financial results on two bases. Normalised
results show the performance of the business before exceptional
items, loss on disposal of a business in 2013 and intangible
amortisation, since the Board believes this gives the reader a
clearer understanding of existing business performance. IFRS
results include these items to give the statutory results.
Revenue
Group revenue for the year grew 2.3% to GBP1,867.4 million on a
constant currency basis; down 1.3% on a reported basis (2013
GBP1,891.3m), reflecting the strengthening of Sterling against the
Euro and US dollar.
Revenue bridge GBPm Change
---------------------------------- ----- ------
2013 full year revenue 1,891
Impact of one-off events (6) (0.3)%
Organic growth 39 2.1%
Acquisitions 10 0.5%
---------------------------------- ----- ------
2014 revenue at constant currency 1,934 2.3%
Currency translation (67) (3.6)%
---------------------------------- ----- ------
2014 full year revenue 1,867 (1.3)%
---------------------------------- ----- ------
We have delivered revenue growth in local currency in all five
of our divisions, through pricing, volume growth and new business.
The strengthening of Sterling across the year led to a small
decrease in group revenue on a reported basis.
Normalised profit
Group normalised operating profit increased by 4% to GBP193.1
million on a constant currency basis; up GBP0.2 million on a
reported basis (2013: GBP192.9m). Group operating profit margins
improved by 20 basis points on a constant currency basis to 10.3%
(10 basis points on a reported basis). Normalised operating profit
performance continues to be robust in our core non-rail business
increasing by 4.1% on a constant currency basis to GBP185.1
million, a decrease of GBP0.4 million on a reported basis (2013:
GBP185.5m).
Profit bridge GBPm Change
--------------------------------------------- ---- ------
2013 normalised operating profit 193
Impact of one-off events (5)
Organic revenue growth 17
Acquisitions 3
General cost inflation (35)
Cost efficiencies 31
Fuel price change -
Other (3)
--------------------------------------------- ---- ------
2014 normalised operating profit at constant
currency 201 4.0%
Currency translation (8) (4.0)%
2014 normalised operating profit 193
--------------------------------------------- ---- ------
The strikes in Spain and the particularly bad weather
experienced in North America in the first half of the year reduced
profits by GBP5.0 million. Despite these headwinds, organic profit
growth was 8.8% (GBP17m) and bolt-on acquisitions contributed GBP3
million. Cost inflation of GBP35.0 million was largely offset by
cost savings of GBP31.0 million giving an overall growth in profit
of 4% in constant currencies.
Our UK Coach and UK Bus businesses were the strongest
performers, with UK Coach operating profit increasing by 14% to
GBP28.0 million and operating profit margin improving by 90 basis
points. UK Bus delivered operating profit growth of 9% with
operating margin improving by 70 basis points. Profit in Spain
fell, with local currency profit EUR1.9 million lower, reflecting
the industrial action in the first half of the year combined with
the impact of increased competition in the intercity market.
However Spain returned to operating profit growth in the second
half helped by the successful rollout of our revenue management
programme. In North America profit improved by US$1.0 million on a
constant currency basis, with a significant recovery in the second
half, together with further progress in winning higher margin
contracts. Central function costs were lower as a result of
reductions in headcount. Start-up losses in the German coach
operation were GBP1.7 million and, as previously announced, the
German coach operation was closed in the third quarter. Rail profit
from the Group's c2c franchise was down GBP0.1 million reflecting
slightly less favourable contract terms in the franchise
extensions.
Operating Profit
----------------------------------------- -------------------- -------
2014 2013
GBPm GBPm
----------------------------------------- ----------- ------- -------
Spain 75.8 81.5
North America 59.5 62.6
UK Bus 34.0 31.2
UK Coach 28.0 24.5
Central functions (12.2) (14.3)
------------------------------------------------ --------- --------
Core non-rail profit 185.1 185.5
German Coach (1.7) (2.4)
Rail 9.7 9.8
------------------------------------------------ --------- --------
Group 193.1 192.9
------------------------------------------------ --------- --------
Net finance costs decreased to GBP48.0 million (2013: GBP49.8m),
benefitting from the strong cash generation of the Group driving
lower debt, together with a lower cost of financing as a result of
the Group's bank refinancing in July 2013. With associate income of
GBP0.3 million (2013: GBP0.6m), normalised profit before tax was
GBP145.4 million (2013: GBP143.7m).
Summary income statement
--------------------------------- ---------- ---------
2014 2013
GBPm GBPm
--------------------------------- --------- ---------
Revenue 1,867.4 1,891.3
Operating costs (1,674.3) (1,698.4)
---------------------------------- --------- ---------
Normalised operating profit 193.1 192.9
Share of results from associates 0.3 0.6
Net finance costs (48.0) (49.8)
---------------------------------- --------- ---------
Normalised profit before tax 145.4 143.7
Tax (27.7) (32.5)
---------------------------------- --------- ---------
Normalised profit after tax 117.7 111.2
---------------------------------- --------- ---------
The normalised tax charge was GBP27.7 million (2013: GBP32.5m),
an effective normalised tax rate of 19.1% (2013: 22.6%), just below
the expected medium term rate due to reductions in the statutory
tax rates in UK and Spain which results in favourable changes to
deferred tax balances. Consequently, the medium term expected tax
rate range has reduced by 2% to a range of 20%-23%, subject to
future legislative changes.
Normalised profit for the year was GBP117.7 million (2013:
GBP111.2m), giving a basic EPS of 22.7 pence (2013: 21.5p), of
which non-rail EPS was 21.2 pence (2013: 20.1p). An increase of 3%
in the final dividend has been declared, based on maintaining
around two times non-rail earnings cover on a full year basis. Our
proposed policy with regard to future rail profits is to return
value to shareholders separately, reflecting the franchise nature
of the rail industry.
Exceptional items
From normalised profit before tax of GBP145.4 million the Group
has invested GBP50.3 million in exceptional items in the period
(2013: GBP25.7m). This significant investment is focused on
delivering two key objectives:
-- Developing new business opportunities in rail and
international markets to add value to the strongly performing
existing operations;
-- Restructuring of the existing non-rail operations to
consolidate their market leading positions and to respond to both
opportunities and challenges.
Exceptional items
---------------------------------- ----------- ------
2014 2013
GBPm GBPm
---------------------------------- ------- ------
Rail bidding (19.8) (9.3)
International bidding (5.7) (6.4)
Restructuring (25.8) (5.4)
Strategic rationalisation (18.3) -
Exceptional fuel credits 19.3 -
Acquisition and integration costs - (4.6)
-------------------------------------- ------- ------
Exceptional items (50.3) (25.7)
-------------------------------------- ------- ------
Business development
Over the past year investment in new business opportunities has
focused on securing future profits from a combination of: new UK
rail franchise competitions; leveraging Group rail expertise to
capitalise on opportunities outside the UK; and establishing and
developing a presence in new international public transport
markets.
During 2014, the Group invested GBP19.8 million bidding for 3 UK
rail franchises and 4 regional rail opportunities in Germany. As
previously announced, the Group won the Essex Thameside (c2c)
franchise, securing our presence in the UK rail market through to
2029, with the franchise expected to generate up to GBP200 million
of operating profit over the 15 year term of the contract. More
recently we have also secured our third and fourth contract wins in
German rail, with our success in the Nuremberg S-Bahn contract.
These 12 year contracts are expected to contribute EUR1.4bn of
revenue and will begin operation in December 2018.
The Group has also invested GBP5.7 million in order to develop
new international markets, where either the liberalisation of
state-run public transport markets is presenting attractive
opportunities or where there is the establishment of first-time
public transport operations. As a result of this activity in 2014,
National Express successfully bid for a new urban bus contract in
Bahrain, with operations having commenced in February 2015. This
will form the foundation for further expansion opportunities in
Bahrain and in the wider Middle East region.
As previously outlined, our policy has been to charge
development costs for new businesses to exceptional items until a
revenue stream has been established. In 2014, UK rail bidding costs
were charged to exceptional costs on the basis of materiality,
given their relative scale in relation to the profit generated by
the Group's remaining UK rail franchise. Having now secured the c2c
franchise through to 2029 together with business in German Rail and
International markets, the Board will not treat any bid costs as
exceptional going forwards.
Strategic Rationalisation
As previously disclosed at the half year, North America launched
a strategic rationalisation programme to improve return on capital
and to exit from commercially unattractive contracts. The Group
recognised a charge of GBP11.2 million, primarily providing for the
future losses from onerous contracts in the business, together with
the associated costs of closing facilities and restructuring of
related overhead costs. This charge is expected to deliver an
annual benefit of GBP3.1million.
Following the success of this one-off 'up or out' programme in
North America, a detailed review of all of ALSA's contracts were
performed identifying six contracts that were loss making that
required turnaround or exit. We are in the process of renegotiating
the improved terms or exit of these six contracts. The associated
costs of rationalising the business and improving or exiting these
contracts are GBP7.1 million with estimated annual savings of
GBP2.4 million. This one-off programme has now been completed.
Restructuring
The business has undergone a multi-divisional comprehensive
restructuring programme to reduce ongoing structural costs and
enhance future earnings. As a result of this programme, average
managerial and administrative headcount has reduced across the
Group by 72 year on year and total headcount by 335.
In the UK, there were three strands to the restructuring:
1 An employee buy-out from part of the principal defined benefit
pension scheme combating the increased costs caused by changes in
legislation.
2 A one-off reduction in headcount across all 3 businesses and the centre reducing managerial and administrative headcount by 20.
3 A write-down and disposal of assets that were deemed surplus
to the ongoing needs of the business.
The restructuring costs of GBP14.6 million will result in annual
savings of GBP5.0 million.
As previously announced, due to the fierce competition and
unsustainably low pricing, a decision was made to close the
loss-making German Coach operation in the second half of this year,
resulting in an associated exceptional charge of GBP1.7
million.
In Spain: Our "ALSA Futura" restructuring programme is designed
to address the significant competitive pressures in the domestic
market. We have achieved a reduction in headcount and central
overheads through combining the domestic urban and city operations.
Total costs were GBP4.8 million, generating annual savings of
GBP3.4 million
In North America: Our North American business has implemented a
one-off restructuring programme to reduce central overheads in our
main corporate centre in the US. Together with the integration of
our Transit operations from Cincinnati to Warrenville, this cost is
GBP4.7 million and is expected to deliver an annual cost saving of
GBP3.0 million.
Exceptional fuel credits
Following a decision by the European court rejecting a fuel duty
levied in Spain between 2005 and 2012, ALSA has submitted claims to
the Spanish court for recovery of the duty paid. On the basis of
current approval of claims submitted GBP21.8 million has been
recognised. To date, GBP9.5 million has been received in cash, with
the remainder expected to be received during 2015.
This is partly offset by ineffectiveness of GBP2.5 million on
the Group's fuel hedges following the exceptional volatility in
market prices towards the end of the year.
IFRS results
Intangible amortisation decreased to GBP28.6 million (2013:
GBP49.3m), with the completion of amortisation on Spanish
concessions acquired with the ALSA business. Statutory profit for
the period was therefore GBP60.6 million (2013: GBP58.3m). Basic
EPS was 11.6 pence (2013: 11.1p).
IFRS profit
--------------------------------------- ------- ------
2014 2013
GBPm GBPm
--------------------------------------- ------ ------
Normalised profit before tax 145.4 143.7
Exceptional items and loss on disposal
of business (50.3) (30.0)
Intangible amortisation (28.6) (49.3)
---------------------------------------- ------ ------
Profit before tax 66.5 64.4
Tax charge (5.9) (6.1)
---------------------------------------- ------ ------
Profit for the year 60.6 58.3
---------------------------------------- ------ ------
Cash management
Cash generation is core to our strategy, representing a key
driver of shareholder value. The Group's core bus and coach
operations are strong cash generators, complemented by rail's
capital-light model. In 2013 and 2014, the Group has successfully
delivered increased cash flow generation, driven by a programme of
capital rationalisation to produce higher returns.
In 2014, the Group delivered operating cash flow of GBP248.1
million (2013: GBP248.0m) representing a conversion rate of 128% of
operating profit. This reflects a lower level of maintenance
capital expenditure, net of disposals, of GBP43.2 million, which is
43% of the depreciation charge. This includes investment in fleet
replacement and ongoing capital discipline across the Group.
We would expect maintenance capital expenditure to return to the
more typical historical level of 1.1 to 1.2 times depreciation in
the current year, driven by the completion of the North American
Bus utilisation and cascade programme.
Working capital reduced by GBP4.8 million (2013: GBP30.5m)
reflecting continued discipline on cash management.
GBP190.3 million of free cash flow was generated over the year
(2013: GBP182.8m), reflecting more efficient use of capital and we
would expect the level of free cash flow to return to a more
typical level in the current year as we increase the level of
maintenance capital expenditure as detailed above.
Free cash flow
------------------------------------------- ------- ------
2014 2013
GBPm GBPm
------------------------------------------- ------ ------
Normalised operating profit 193.1 192.9
Depreciation and other non-cash items 102.1 108.2
-------------------------------------------- ------ ------
EBITDA 295.2 301.1
Net maintenance capital expenditure (43.2) (74.9)
Working capital reduction 4.8 30.5
Pension contributions above normal charge (8.7) (8.7)
-------------------------------------------- ------ ------
Operating cash flow 248.1 248.0
Receipts from/(payments to) associates
and minorities 1.3 (0.5)
Net interest paid (46.1) (48.4)
Tax paid (13.0) (16.3)
-------------------------------------------- ------ ------
Free cash flow 190.3 182.8
UK rail franchise exit outflow (1.6) (3.6)
Exceptional cash expenditure (44.7) (22.9)
-------------------------------------------- ------ ------
Cash flow available for growth & dividends 144.0 156.3
-------------------------------------------- ------ ------
Free cash flow has funded GBP44.7 million of exceptional item
expenditure, leaving GBP144.0 million (2013: GBP156.3m) available
to invest in growth capital projects and bolt-on acquisitions. We
will continue to focus on capital-light investment opportunities
which will drive a higher return on capital employed. The Group's
return on capital increased by 70 basis points to 12.4%.
With dividend payments of GBP51.6 million (2013: GBP50.3m), the
net inflow of funds in the year after foreign exchange movements
was GBP81.8 million (2013: GBP82.1m) reducing net debt to GBP664.3
million as at 31 December 2014 (2013: GBP746.1m).
Net funds flow
------------------------------------------- --------------- ------
2014 2013
GBPm GBPm
------------------------------------------- -------------- ------
Cash flow available for growth & dividends 144.0 156.3
Net growth capital expenditure (7.3) (7.7)
Acquisitions and disposals (5.9) (9.5)
Dividends (51.6) (50.3)
Other, including foreign exchange 2.6 (6.7)
-------------------------------------------- -------------- ------
Net funds flow 81.8 82.1
-------------------------------------------- -------------- ------
The recent focus of our cash flow has been on debt reduction and
growing our dividend. We are now in a strong position to exploit
new growth opportunities with a focus in the North American market,
where we have more than doubled profitability in the past five
years. We believe that there are excellent opportunities in this
market given its highly fragmented nature and the continuing trend
in conversions. The success of last year's bolt-on acquisition in
Philadelphia and the largest ever conversion contract in Memphis
demonstrate the opportunity here and we will continue to apply our
proven model of excellence to deliver the services our customers
value as well as generating good returns for our shareholders.
Treasury management
The Group maintains a prudent approach to its financing and is
committed to an investment grade credit rating. It is the Board's
policy to target a level of debt that enables disciplined
investment and ample headroom on its covenants, with Group net debt
to EBITDA maintained at a ratio of 2.0x to 2.5x over the medium
term.
The Group's key accounting debt ratios as at 31 December 2014
were as follows;
-- Gearing ratio: 2.25 times EBITDA (31 December 2013: 2.5x; bank covenant not to exceed 3.5x)
-- Interest cover ratio: EBITDA 6.3 times interest (31 December
2013: 6.1x; bank covenant not less than 3.5x).
The Group has a strong funding platform that underpins the
delivery of its strategy. Core funding is provided from non-bank
sources, to provide improved certainty and maturity of funding. At
the end of 2014, this represented GBP742.8 million of funding,
primarily from two Sterling denominated bonds comprised of a GBP350
million bond maturing in 2017 and a GBP225 million bond maturing in
2020, together with a private placement of EUR78 million maturing
in 2021 and GBP110 million of finance leases.
Additional committed bank funding of GBP416 million, to meet
seasonal working capital needs and to provide sufficient funding
headroom, is provided under the Group's unsecured Revolving Credit
Facility ('RCF') - which was successfully renewed and extended to
November 2019, at a reduced margin of 0.6% over Libor. At 31
December 2014 the Group had GBP499.7 million in cash and undrawn
facilities available.
The Group hedges its exposure to interest rate movements to
maintain a balance between fixed and floating interest rates on
borrowings. To achieve the desired fixed to floating ratio the
Group has entered into a series of interest rate swaps that have
the effect of converting fixed rates into floating rate debt. The
net effect of these transactions was that, at 31 December 2014, the
proportion of Group net debt at floating rates was 28% (2013:
33%).
The Group's exposure to foreign exchange is limited to
translation of its earnings and assets, as its overseas activities
are naturally hedged by earning revenue and incurring costs in
local currencies. In order to hedge its exposure to currency
fluctuations with regards to its financial ratios, the Group held,
at 31 December 2014, Euro debt of EUR240 million and US dollar debt
of $267 million. These correspond to 1.8 times Euro-generated
EBITDA and 1.8 times US dollar-generated EBITDA in 2014.
Pensions
The Group's principal defined benefit pension schemes are all in
the UK. At 31 December 2014 these schemes had a combined deficit
under IAS19 of GBP11.9 million, an improvement from the deficit
position of GBP30.1 million at 31 December 2013, primarily due to
improved asset returns during the year. The National Express Group
Staff Pension Plan ('UK Coach plan') is now closed to all future
accrual. A funding plan aimed at bringing the plan to
self-sufficiency was agreed with the trustees in 2010; National
Express contributes GBP4.2 million per annum to this scheme. In
2011 UK Bus agreed a GBP5.5 million annual deficit repayment plan
with the trustees of the West Midlands Passenger Transport
Authority Pension Fund ('WM plan'). The WM plan remains open to
accrual for existing active members only. This scheme was further
de-risked during 2012 by securing future payments for existing
pensioners in a GBP272 million insurance buy-in to the scheme. The
Group expects to contribute around GBP10 million per annum in total
deficit contributions to its defined benefit schemes until
2017.
The IAS19 valuations at 31 December 2014 were as follows:
-- UK Bus (under the WM plan and the Tayside Transport
Superannuation Fund): GBP50.6 million deficit (2013: GBP40.8m
deficit)
-- UK Coach plan: GBP30.6 million surplus (2013: GBP12.6 million surplus)
-- UK Rail/other: GBP8.1 million surplus (2013: GBP1.9m
deficit). The Group's rail business participates in the Railways
Pension Scheme. This exposure transfers to an incoming operator in
the event of a franchise termination.
Fuel Costs
The Group consumes approximately 245 million litres of diesel
and gasoline each year for which it is at risk (i.e. there is no
direct fuel escalator in the contract or concession price). This
relates to the non-rail divisions and represented a total cost
(including delivery and taxes) to the Group in 2014 of GBP167
million (10% of related revenue), at an average fuel component cost
of 49 pence per litre. The Group has adopted a forward fuel buying
policy in order to secure a degree of certainty in its planning.
This policy is to hedge fully a minimum of 15 months addressable
consumption against movements in price of the underlying commodity,
together with at least 50% of the next nine months' consumption in
the contract businesses. Currently, the Group is 100% fixed for
2015 at an average price of 47 pence/litre (excluding delivery and
tax), 96% fixed for 2016 at an average price of 43p and 81% fixed
for 2017 at 43p. The drop in the price of crude oil in Q4 of 2014
resulted in an adverse movement in the value of these hedges to a
liability of GBP71 million, which will be offset by the lower price
paid for fuel in 2015-2017. From an accounting perspective, we have
recognised GBP2.5 million of ineffectiveness as an exceptional
cost, representing 3.5% of the GBP71 million fair value
movement.
Where businesses have freedom to price services, this hedge
provides sufficient protection to recover fuel price increases
through the fare basket. In contract businesses, where price
escalation may be restricted by a formula independent of fuel
costs, extended cover, up to the life of the contract, may be
taken, subject to availability and liquidity in the hedging market.
The latter is rarely available beyond three years from the trade
date.
Principal risks and uncertainties
The Group's other principal risks and uncertainties remain in
line with those that will be detailed in the 2014 Annual Report and
Accounts and are summarised here:
-- Concession and contract renewal: 2015 is likely to see some
significant bidding activity by the Group to retain and renew its
existing portfolio of contracts and concessions, for example in
Spain and North America, which may be underbid by competitors
-- Economic conditions: parts of the business may be adversely
affected by economic conditions, for example in Spain and the UK,
as revenues in many of the businesses are historically correlated
to GDP and employment
-- Political and regulatory changes: changes in political and
regulatory environments can impact a regulated transport business,
through the operation of concessions, safety procedures, equipment
specifications, employment requirements, environmental procedures
and other operating issues
-- Contract management: an inherent risk of bidding for
contracts is that bid assumptions prove to be incorrect
-- Fuel cost: changes in economic and political climate can drive changes in cost for the Group
-- Insurance and claims: there is a risk that a successful
insurance, employment or other claim may result in material charges
to profit and cash flow
-- Financial risks: the Group faces risks from deteriorating
customer credit and to movements in currencies.
In addition, the Group has seen an increase in competitive
pressure, particularly in Spain, where high speed rail competition
has impacted intercity coach revenues.
Matthew Ashley
Group Finance Director
26 February 2015
Spain
2014 2013
Year ended 31 December m m
---------------------------- -------- --------
Revenue GBP538.1 GBP564.6
Normalised operating profit GBP75.8 GBP81.5
Revenue EUR667.7 EUR665.0
Normalised operating profit EUR94.1 EUR96.0
Operating margin 14.1% 14.4%
---------------------------- -------- --------
Overview of 2014
ALSA saw a decline in normalised operating profit of 2% over the
year on a local currency basis. This performance reflects the
ongoing impact of challenging economic conditions and rail
competition on intercity coach patronage, together with the effect
of industrial action in Spain in the first half the year. Despite
these challenges, overall revenue grew on a local currency basis,
with growth in the second half of the year more than offsetting the
headwinds and one-off events in the first half. This growth has
been driven by contract wins in Spain including the successful
retention of our largest concession to come up for renewal to date,
together with strong growth in Morocco, where revenues increased by
22%. Our Moroccan performance has been driven by additional
services on our existing operations in Marrakech and Agadir,
coupled with the first time contribution from our operations in
Tangier, with the official launch of our new fleet of 120 new buses
in September.
Total revenue for the year in local currency grew by 0.4% to
EUR667.7 million (2013: EUR665.0m), although reported revenue
declined by 5% to GBP538.1 million (2013: GBP564.6m), reflecting
the appreciation of Sterling over the year. Our Intercity coach
business has experienced growing competition on eight key
corridors, with five corridors competing against high speed rail,
while the other three are competing with aggressively priced
regional rail. Together these eight corridors account for 24% of
ALSA's total revenue. As we reported at the half year, RENFE has
been particularly aggressive on pricing with fare reductions of
around 25% while simultaneously increasing the quota of discounted
tickets available. While this activity has continued throughout the
second half of the year, we have taken action to respond rapidly
and effectively to changes in the market, implementing revenue
management which has helped to drive an improved revenue
performance in the second half of the year.
Underlying revenue for ALSA (including Morocco) increased by 1%
when adjusting for the one-off impact of the industrial action.
Revenue in Spain fell 1.3% on a like-for-like basis and revenue in
Morocco increased by 22%, primarily due to growth in Tangier.
Normalised operating profit on a local currency basis was
EUR94.1 million (2013: EUR96.0m) and GBP75.8 million in Sterling
terms (2013: GBP81.5m), with a return to operating profit growth on
a local currency basis in the second half of the year. The
operating margin of 14.1% (2013: 14.4%) remains the best in class
for a Spanish bus and coach operator.
Operational excellence
ALSA is recognised as an excellent operator in public transport
and in 2014 we received the Merit Award in Land Transport from the
Ministry of Public Works.
The economic environment remains challenging in Spain, which is
impacting demand for travel, particularly long-distance travel. At
the same time we are experiencing increased competition from rail
on eight corridors, with more aggressive regional pricing. In
response to this, we have developed a strategic action plan to
improve our competitive position and the customer travel
experience.
This plan includes some additional services on certain routes,
journey time improvements, on-board entertainment and the
introduction of revenue management on 90 intercity routes. This
prompt response in mid-2014 drew on the experience and expertise
from within the Group, especially UK Coach. With a determination to
ensure we retained price leadership on these routes, we changed our
organisational structure and strengthened our pricing capability to
enable a quicker response on pricing decisions and the use of
dynamic fares. This has been combined with higher profile and more
focused marketing emphasising our low cost services and we have
also introduced new lower cost distribution channels.
Significantly, following these initiatives we have seen passenger
volumes grow 4% in the second half, with revenue only 2% lower, on
routes where we have introduced revenue management.
We remain focused on delivering further cost efficiencies in
order to mitigate the impact of lower fares and cost inflation. In
2014 we consolidated our intercity and urban transport operations
into a single transport division and began centralising other
business functions including purchasing. We have also achieved
further efficiencies in our sales network with a greater number of
activities now being undertaken by our agents. Over the past year
we have also increased our efficiency on fuel consumption,
resulting in a 2% reduction in fuel consumption, driven by a
programme of consumption improvement measures, including fuel
efficient driver training.
These actions are already delivering efficiencies and we are
working on other opportunities for further savings: in fuel;
removing unprofitable mileage; and, consolidating corporate teams
and functions. Drawing on the success of the North American 'up or
out' strategy, we have taken a similar targeted approach with
uncommercial Spanish contracts. These actions will continue to
deliver cost savings in 2015.
EURm
----------------------------------------------------- -----
2013 normalised operating profit 96.0
Net impact of changes in fares & services (increased
competition) (7.4)
Revenue management 4.0
Other cost inflation (2.2)
Cost efficiencies 5.7
Strike (2.0)
2014 normalised operating profit 94.1
----------------------------------------------------- -----
Cash and returns
In 2014, ALSA delivered another strong performance, generating
operating cash of EUR122 million with operating cash conversion of
130%, reflecting improvement in working capital of EUR11 million,
mostly driven by action taken to reduce receivables.
We have maintained our disciplined approach to capital
investment. In 2014 we invested EUR26 million, mainly in fleet
including new buses for our contract renewal in Bizkaia.
Creating new opportunities
We believe there are further opportunities to be gained from the
programmes we started in 2014. We will extend the revenue
management system and are determined to ensure we maintain our
price leadership. Our 'up or out' strategy has further to run and
our on-going cost efficiency programme will continue to deliver
savings.
Our focus is to ensure we are well placed for the upcoming
concession renewal process. The main contract renewal process
starts this year with any impact from new terms for our larger
concessions unlikely to be felt until 2017. We are determined to
maintain our significant market share. Our bidding team is
industry-leading and has already demonstrated its effectiveness in
retaining and growing our significant Bizkaia contract. In
addition, we have negotiated a 5 year extension until 2024 to the
Madrid Consortium contracts, securing EUR350 million of additional
revenues. We expect some pressure on margins from the concession
renewals, which is why we already have cost efficiency and revenue
management programmes in place. We will also look to again leverage
the Group expertise and experience in customised e-marketing;
building on UK Coach's leadership similar programmes will be rolled
out across the businesses.
While the Spanish market is clearly changing, it is moving
towards models we aready operate under and have a significant level
of expertise in.
We will also analyse bolt-on acquisitions in Spain as far as
they meet our financial criteria. We continue to monitor future
prospects for private sector development in the domestic rail
market while the liberalisation of the bus market in Portugal could
also present attractive opportunities.
Building on the success of our operations in a third Moroccan
city - Tangier - we believe there continue to be good opportunities
for further growth. This is both through organic growth and in
other cities across Morocco, where our services' excellent
reputation is opening up new opportinties.
North America
2014 2013
Year ended 31 December m m
----------------------- ---------- ----------
Revenue GBP620.2 GBP645.0
Operating profit GBP59.5 GBP62.6
Revenue US$1,021.8 US$1,009.4
Operating profit US$98.0 US$97.9
Operating margin 9.6% 9.7%
----------------------- ---------- ----------
Overview of 2014
Our North American business has more than doubled profits over
the last five years (2009: GBP25.3 million) and has delivered
another year of growth in revenue and operating profit, offsetting
significant headwinds seen during the first half of the year. On a
constant currency basis* revenue grew by 2% with operating profit
increasing to $98.0 million (2013: $97.0m). A strong performance in
the second half more than offset the one-off impact of $6.1m in
lost profit in the first half from the extreme cold weather and
snow.
We continued to focus on increasing profitable growth and
improving the quality of our portfolio, exiting those contracts
that fall below our minimum return criteria and winning new
business which generates more attractive returns. In the last bid
season we achieved price increases on these contracts of nearly 5%
and this trend of increasing prices has continued into the current
bid season.
This growth has been boosted by the first time contribution from
our bolt-on acquisition in Philadelphia where we were able to
deliver synergy benefits through the seamless integration of the
acquired business into our existing operations, together with the
largest conversion we have made to date. We were able to leverage
our previously existing 275 bus contract in Memphis, significantly
growing the contract with an additional 440 buses. We have also
seen overall positive price movements on contract renewals of over
4%, with over 200 contracts renewed throughout the year.
We have maintained our relentless focus on costs and the
streamlining of operations. Within School Bus we have reorganised
some support staff and head office functions and we have also
consolidated our Transit business into our Warrenville
headquarters. With the upturn in the US economy and the associated
fall in unemployment, there are early signs of some upward pressure
on drivers' wages.
$m
-------------------------------------------------------- ------
2013 normalised operating profit 97.9
Exchange movement (CAD to USD) (0.9)
-------------------------------------------------------- ------
2013 normalised operating profit at constant currency** 97.0
Net impact of revenue growth 2.5
Acquisitions 4.7
Fuel cost (0.8)
Other cost inflation (15.0)
Cost savings including synergies 17.5
Weather (6.1)
Other (1.8)
-------------------------------------------------------- ------
2014 normalised operating profit* 98.0
-------------------------------------------------------- ------
* Revenue and operating profit at constant currency, adjusting
for Canadian Dollar to US Dollar fx rate movement in the year
Operational excellence
Our North America operation already delivers best in class
margin, following the successful completion of our margin
improvement programme between 2010 and 2012. Traditionally, the
school bus industry is a capital-intensive, low cash generation
business. Over the past two years, our focus has been to increase
the return on capital across our portfolio of 500 contracts and
generate a strong cash flow. By focusing on contracts which
generate adequate capital returns, we have more defensible,
relationship-based contracts where our service quality is valued by
the customer. Where we are not able to obtain financial returns
above our minimum criteria, we have exited the contract - in the
2014/15 school year bid season we relinquished 11 contracts,
leading to a reduction, net of bid wins, of more than 550 buses
operated. We have continued to cascade buses where they meet the
appropriate age criteria, thereby increasing fleet utilisation.
We continue to deliver superior service standards, with over 93%
of our customers willing to recommend us on the basis of quality of
service, safety and value. This is also reflected in our industry
leading contract retention rate which remains very high, achieving
over 97% again for the last bidding season, excluding those
contracts which we have not contested as they do not meet our
minimum returns criteria. We have invested further in improving our
maintenance standards in the past year, with enhanced training and
skills testing programmes resulting in an increased number of
quality assured ASE certified technicians. In addition, we are
utilising our GPS tracking technology across all our locations,
enabling on-time performance measurement for our businesses, and
are currently piloting a "Where's My Bus" app which provides
parents with real-time tracking information. And we are pleased
that our employee survey has again demonstrated year-on-year
improvements, with over 90% saying they enjoy working for the
company. Our North American foundation has also given its first
grants within our business.
Cash and returns
Operating cash flow represented a conversion of 119% of
operating profit with $117 million of operating cash delivered in
the year, with the normal pattern of strong working capital
collection at the school and calendar year-ends continuing.
As we commented last year, our ongoing programme to improve
contract capital returns has resulted in lower capital investment
requirements, as we look to increase asset utilisation, actively
managing spare capacity within our fleet together with cascading
fleet from exited contracts. This drive for more efficient capital
deployment has delivered a significant improvement in return on
assets over the past two years rising from 17.2% in 2012 to 23.8%
in 2014. We are targeting year-on-year improvements in our
operating margin as our more disciplined contract management and
bidding and asset management programmes continue to deliver
benefits. We expect to return to a constant fleet replacement level
in 2015 in line with depreciation.
Creating new opportunities
Our Transit business provides a good business development
opportunity in a growing market. In most bids, vehicles are funded
either by the Federal government or the customer, resulting in a
low capital investment requirement and high returns on capital.
Using our operational expertise and superior track record of
service delivery, we will continue to seek further bid
opportunities in this attractive market.
We see attractive growth opportunities in the North American
school bus market as it remains highly fragmented and the trend
towards conversion continues. With over 4,000 private school bus
businesses in the US, we see significant opportunity for
consolidation. Better pricing discipline in the market, combined
with our on-going focus on efficient capital deployment means we
are optimistic about our prospects in North America.
Building on our recent successes we will continue to focus on
further selective bolt-on acquisitions where we can leverage our
existing operations and deliver synergy benefits. We have
demonstrated a strong track record of success here, from the
acquisition of Petermann through to our more recent purchase of a
school bus business in Philadelphia. We have a successful track
record of acquiring and seamlessly integrating new businesses with
all of our acquisitions exceeding original expectations and as we
enter 2015 and beyond, we expect to increase our level of
investment in these attractive growth markets. We will also
continue to seek further conversion opportunities, building on our
recent success in Memphis.
UK Bus
2014 2013
Year ended 31 December GBPm GBPm
----------------------- ----- -----
Revenue 281.0 273.4
Operating profit 34.0 31.2
Operating margin 12.1% 11.4%
----------------------- ----- -----
Overview of 2014
UK Bus delivered a strong performance with revenue growth driven
by a combination of increased passenger volume and price inflation.
Passenger growth has reflected our continued investment in fleet,
service and technology.
Total revenue grew by 3% to GBP281.0 million (2013: GBP273.4m)
with like-for-like commercial revenue growth of 3%. In the West
Midlands commercial passenger journeys rose by nearly 1% in the
year, whilst concession and other income increased by 3%.
Growth
%
--------------------------------- ------
Like-for-like commercial revenue 3
Mileage -
--------------------------------- ------
Underlying commercial revenue 3
Concession and other revenue 3
--------------------------------- ------
Total revenue 3
--------------------------------- ------
Normalised operating profit was strong, with growth of 9% to
GBP34.0 million (2013: GBP31.2m), reflecting both revenue growth
and cost efficiencies. The operating margin has now risen to 12.1%
(2013: 11.4%), and we believe this level of margin is sustainable
supported by our strong partnership relationships.
GBPm
--------------------------------- ------
2013 normalised operating profit 31.2
Net impact from revenue growth 5.3
Fuel cost (0.6)
Other cost inflation (5.6)
Cost efficiencies 4.2
Other (0.5)
2014 normalised operating profit 34.0
--------------------------------- ------
Operational excellence
We believe our partnership approach is a key driver for
delivering a combination of superior service standards and customer
offering together with profitable growth. In 2014, our
"Transforming Bus Travel" partnership with Centro won two industry
awards including the National Transport Award for the Top Transport
Team/Partnership of the Year, recognising our industry leading
relationship with Centro (the West Midlands Passenger Transport
Executive). We are making excellent progress towards meeting all of
our commitments, particularly with regard to safety and
security.
Operational delivery is crucial for achieving profitable growth.
In 2014, our service delivery has continued to improve, with
increased punctuality and a reduction in customer complaints. This
has been reflected in customer satisfaction of 86% in the 2014
Passenger Focus survey, an 8% increase on the 2013 score. After a
strong performance last year, we have seen punctuality improve by
2%, despite unprecedented levels of roadworks in the second half of
the year.
Ongoing network improvements have driven further growth in
passengers. Our network reviews enable us to drive further growth
in passengers as we meet new customer demand, for example, working
closely with Jaguar Land Rover at their factories, on the new i54
business park near Wolverhampton and in Birmingham and Solihull.
The i54 development is an excellent example of how we have worked
closely with employers, local councils and Centro by adapting our
commercial services to support economic growth, while delivering
excellent value to both customers and the taxpayer.
New route-branded buses have been introduced on key corridors,
supported by marketing campaigns, driving higher levels of
passenger volume growth on those routes. We continue to drive
improvements in operational performance through the use of
technology. In 2014, we rolled out our Automatic Vehicle Location
tracking system to iPads used by every roadside inspector, allowing
more responsive management of our services, and improved customer
information. In addition, over 250,000 mobile users downloaded our
West Midlands bus app and we have launched a new app for customers
in Coventry.
Our increasing number of ticket options and focus on value is
driving growth in passenger volumes. We have seen further growth in
travelcards and day tickets, both of which reduce cost to the
passenger and increase loyalty to National Express services. In
2013, we helped introduce industry leading multi-operator
smartcards, in partnership with Centro, and we have seen a huge
increase over the past year, with over 1 million smartcard
passenger journeys taken and rapid expansion continuing, driving
revenue growth. In 2015 we will reinforce our leadership
credentials with the launch of a Pay As You Go smart ticket
option.
We have also made significant improvements in safety, both for
customers and employees, resulting in a lower number of injuries
and assaults and reduced cost of claims.
Cash and returns
The UK Bus business generates an excellent return on capital,
delivering good asset utilisation and profitable returns on
investment. In 2014, we delivered a strong performance generating
operating cash of GBP45 million.
We continue to maintain our disciplined approach to investment,
targeting areas which will deliver the greatest returns. Capital
expenditure will rise in 2015, predominantly due to the investment
in new buses as described below, which in turn will drive growth in
passenger volumes.
Creating new opportunities
UK Bus is a stable, strong return on capital business, with
opportunity for organic revenue growth and margin improvement
within its existing footprint. Through investment in fleet,
technology and structural cost reduction, we are seeking to improve
passenger volume growth and profitability.
Via our ground-breaking 'Transforming Bus Travel' partnership
with Centro, we are jointly committed to a range of initiatives and
investments to enhance bus services in the West Midlands. In 2015,
we will make a record level of investment of GBP37 million, of
which GBP34 million is in 171 new, high-quality vehicles.
Importantly, this investment has unlocked local authority
commitment to make significant highways investment in bus priority
schemes on key routes in Birmingham and Solihull. These schemes
will enable our new Platinum buses to deliver faster journey times
as well as superior passenger comfort, helping to drive further
growth in passengers. We believe there is real opportunity to
continue growing passenger numbers through this approach where our
increased investment in improved services is complemented by local
authority investment in improved road conditions and
punctuality.
In 2015 we will complete delivery of the 83 Transforming Bus
Travel partnership commitments, and plan to sign the fourth
generation of the partnership, building upon our award-winning
achievements.
We will also make further enhancements to our industry-leading
multi-operator smartcards, which will be extended to our tram
operation, and we will launch and roll out a Pay As You Go option,
both of which will promote greater customer loyalty and growth in
passenger journeys.
Our tram service will be extended through the centre of
Birmingham in 2015, with new longer trams now in service adding
nearly 50% additional capacity.
Finally in 2014 we won a number of private tender contracts
including business with John Lewis, Amazon and DHL, and we will
look to build on this success in 2015.
UK Coach
2014 2013
Year ended 31 December GBPm GBPm
----------------------- ----- -----
Revenue 275.2 263.5
Operating profit 28.0 24.5
Operating margin 10.2% 9.3%
----------------------- ----- -----
Overview of 2014
UK Coach has delivered another year of excellent performance,
with profit growth of 36% since 2012 (GBP20.6 million). The
business has continued to build a strong financial and operational
foundation which has enabled further revenue growth and margin
improvement and continues to generate momentum for the future.
Total revenue increased by 4% to GBP275.2 million (2013:
GBP263.5m). Core network revenue increased by 4% with new
partnership agreements and dynamic pricing achieving passenger
volume growth. This was supported by a strong performance at The
Kings Ferry where revenue increased by over 20% as they
successfully grew their contract hire business.
Growth
%
------------------------------- --------------
Passenger yield (-)
Passenger volume 4
------------------------------- --------------
Change in Core Express revenue 4
Other revenues 6
------------------------------- --------------
Total revenue 4
------------------------------- --------------
Normalised operating profit increased by 14% to GBP28.0 million
(2013: GBP24.5m) and operating margin showed a further increase
following on from the strong gains in 2013, rising to 10.2% (2013:
9.3%). We provide passengers with easy access to lower fares
(thereby growing volumes and improving load factors), together with
more frequent and punctual services, investment in new coaches and
greater cost efficiency all contributed to this strong
performance.
GBPm
------------------------------------ -----
2013 normalised operating profit 24.5
Net impact of growth and new routes 4.4
Cost inflation (4.3)
Cost efficiencies 3.4
2014 normalised operating profit 28.0
------------------------------------ -----
Operational excellence
Our customer service strategy has continued to focus on
providing frequent coach services at low prices. Lower prices were
sustained throughout the year and passenger volume growth has been
achieved by flexing prices in response to market conditions This
has been supported by increasing our sales distribution through the
development of existing partnership arrangements with Ryanair, the
Post Office and Wizz Air and creating new partnership arrangements
with companies such as Easybus.
During 2014 we enhanced the sophistication of our customer
offers and marketing activities. We have analysed our database of
14 million customers to create segments that then receive
customised offers. Of the emails we send to our database, 69% are
now targeted compared to 18% in 2013.
Following the success of Christmas Day services, launched in
2013, both routes and services were further expanded in 2014,
enhancing our customer offer and delivering additional revenue
growth.
We have also focused on building on our contract capabilities,
retaining airport work at Stansted and Gatwick and carrying a
record number of passengers to the Glastonbury Festival. The Kings
Ferry also expanded its contract work, which included the provision
of transportation at the NATO summit in Gwent.
Investment has been made in customer facing systems with
enhancements to the web and mobile sales channels and improvements
in CRM capabilities, allowing better targeting of marketing
communications.
Punctuality of services improved during the year and National
Express was rated number 1 in the UK Customer Service Index within
the ground transportation sector. Safety also improved with lower
levels of vehicle incidents and employee injuries during 2014. The
business has been awarded a 5 Star rating by the British Safety
Council and also gained certification to BS OHSA18001 for safety
management standards.
In 2014, UK Coach was awarded a 4-star rating by the European
Foundation for Quality Management in recognition of our high
operational and service delivery standards, demonstrating our
commitment to constantly drive operational excellence throughout
our network. UK Coach is determined to emulate the achievement of
our UK Rail operator, c2c, and secure a 5-star rating at our next
assessment.
Cash and returns
The UK Coach business model has a particularly strong return on
capital and cash generation, outsourcing the majority of fleet
provision and services to its partner operators in a capital-light
model. In 2014, we delivered another strong performance, generating
operating cash of GBP37 million with operating cash conversion of
133% of profit. Capital expenditure remains primarily focused on
technology and retail systems aimed at delivering improved CRM
capabilities together with enhanced mobile and online booking
options for customers.
Creating new opportunities
Attractive pricing, coupled with improved yield management, will
allow the division to continue to grow volume, improve load factors
and drive profitability. We are investing further in customer
relationship management and targeting and believe there are good
opportunities for growth. The data we gather from this more
sophisticated approach not only allows us to continually improve
our targeting but also provides valuable inputs in to our reviews
of network efficiency. We are better able to match our stops and
service patterns to geographical concentrations of particular
customer segments.
By leveraging the strength of our brand, we will continue to
grow the number of distribution channels to customers, together
with an ongoing focus on operational efficiency. We remain
committed to maintaining our competitive position against rail, our
key competitor.
Contract services will also continue to provide growth with
further opportunities to expand airport services including the
provision of transportation services for British Airways at
Heathrow from mid-2015, which was recently awarded in a competitive
tender process.
The unique UK Coach model with its low price, modern, frequent
services is well placed to continue to grow both revenue and
margin.
Rail
2014 2013
Year ended 31 December GBPm GBPm
----------------------- ----- -----
Revenue 151.6 143.0
Operating profit 9.7 9.8
Operating margin 6.4% 6.9%
----------------------- ----- -----
Overview of 2014
National Express' rail division has had a successful year. We
successfully retained the long-term contract for the operation of
the Essex Thameside franchise (through to 2029) and recently
secured our third and fourth contracts in Germany, winning the
Nuremberg S-Bahn contract which will start in December 2018. Over
the coming year we will continue to leverage our UK rail expertise
to bid for further selective franchise opportunities in both the UK
and Germany.
Total revenue in 2014 increased by 6% to GBP151.6 million (2013:
GBP143.0m) supported by passenger growth of 2%. Normalised
operating profit was GBP9.7 million (2013: GBP9.8m), reflecting an
increase in franchise premiums coupled with a rise in train
maintenance costs under the terms of the interim franchise
extension, resulting in a planned decrease in the operating margin
to 6.4% (2013: 6.9%).
Operational excellence
Our rail division is at the forefront of the Group's drive for
operational excellence. In 2014 c2c retained its position as the
top rated performer of all UK rail franchises with an annual
average punctuality of 96.6%. Significantly, c2c has also improved
its Right Time punctuality performance and is now rated the second
best performing UK rail franchise on this measure.
During the year we have demonstrated our ambition and capability
to be at the forefront of international standards for customer
service. We have introduced a number of industry-leading
initiatives, including the ground-breaking Personal Performance
Promise which lies within the Passenger Charter. Our industry
leading consumer friendly compensation framework will significantly
enhance the offer to all customers, including season ticket
holders.
We continue to expand our offering to customers and are at the
leading edge of new flexible ticketing systems, having been
previously selected by the DfT to trial and then subsequently
launch and roll-out the use of smartcards across the route,
together with the introduction of contactless payment systems. The
launch of new discounted advanced fares enhances the offer to
customers whilst at the same time enabling us to increase the
utilisation of our off-peak capacity, driving further growth in
passenger volumes through modal shift and the creation of new
demand.
We are also delivering a technological revolution for our
customers with the introduction of Wi-Fi in all of our stations,
together with a new mobile 'c2c Live' app which will allow
customers to access live, personalised information, coupled with
online purchase of tickets and car parking.
As we move into 2015, we will continue to strive for operational
excellence with the introduction of a new timetable later in the
year, which will improve capacity throughout the network and
increase connectivity options in London. We will refurbish all 26
stations across the network, whilst the installation of smart
meters will drive a reduction in energy consumption, in line with
our commitment to improving environmental performance.
December 2015 will see the commencement of our first two German
rail contracts in Nord Rhine Westphalia. We are making excellent
progress with our mobilisation plans, including the public launch
of new trains in November 2014, establishing a new operational team
and the recruitment and training of train drivers.
Cash and returns
Rail offers a capital-light model with lower margins but high
returns on capital. In 2014 c2c converted 141% of normalised
operating profit into operating cash.
Creating new opportunities
c2c is the best performing rail franchise in the UK and this
strength in operational performance is helping to drive growth in
new rail markets. Our strategy in rail is to secure smaller, lower
risk German rail franchises where the risk is acceptable and meets
our capital-light investment criteria. We will also continue to
monitor the UK market and consider competitions as they arise and
will bid for new franchises where they meet our strict financial
criteria. In addition, we will regularly monitor the regulatory
environment across Europe and may look to enter other markets as
they liberalise.
In 2014 c2c successfully retained the Essex Thameside franchise
which is expected to generate GBP4 billion of future revenue over
the next 15 years. We are encouraged by the passenger response so
far to the new franchise's focus on customer service. Investment in
WiFi and new advance purchase off-peak tickets are already proving
popular. With new flexible ticketing and pioneering automatic
delay-repay compensation being introduced in due course, we are
confident this enhanced customer service offer will continue to be
popular.
In addition, we now have a total of four long-term contracts in
Germany, having recently been awarded preferred bidder status for
two contracts for the Nuremberg S-Bahn, covering five rail lines in
Bavaria. This significant contract is expected to generate EUR1.4
billion of future revenues over 12 years, starting in December
2018, whilst our operations in Nord Rhine Westphalia will commence
in December 2015 and are expected to generate future revenues of
EUR1.6 billion over 15 years. In a relatively short period of time,
we have built a business which will generate revenues of EUR3
billion and we expect to see further growth having successfully
pre-qualified for three other franchises. With up to 30 contracts
coming to market in the next two years in German rail, we see a
strong pipeline of opportunities and we will continue to be
selective in our bidding approach in order to drive the best
returns.
Group Income Statement
For the year ended 31 December 2014
Total before Total before
intangible Intangible intangible
amortisation and amortisation and amortisation and Intangible
exceptional exceptional exceptional amortisation and
items items Total items exceptional items Total
2014 2014 2014 2013 2013 2013
Note GBPm GBPm GBPm GBPm GBPm GBPm
================= ==== ================ ================ ========= ================ ================= =========
Continuing
operations
Revenue 3 1,867.4 - 1,867.4 1,891.3 - 1,891.3
================ ================ ========= ================ ================= =========
Operating costs
before
intangible
amortisation and
exceptional
items (1,674.3) - (1,674.3) (1,698.4) - (1,698.4)
Intangible
amortisation - (28.6) (28.6) - (49.3) (49.3)
Exceptional items 3 - (50.3) (50.3) - (25.7) (25.7)
================ ================ ========= ================ ================= =========
Total operating
costs (1,674.3) (78.9) (1,753.2) (1,698.4) (75.0) (1,773.4)
================= ==== ================ ================ ========= ================ ================= =========
Group operating
profit 3 193.1 (78.9) 114.2 192.9 (75.0) 117.9
Loss on disposal
of business - - - - (4.3) (4.3)
Share of results
of associates 0.3 - 0.3 0.6 - 0.6
Finance income 4 6.5 - 6.5 6.8 - 6.8
Finance costs 4 (54.5) - (54.5) (56.6) - (56.6)
================= ==== ================ ================ ========= ================ ================= =========
Profit before tax 145.4 (78.9) 66.5 143.7 (79.3) 64.4
Tax charge 5 (27.7) 21.8 (5.9) (32.5) 26.4 (6.1)
================= ==== ================ ================ ========= ================ ================= =========
Profit for the
year 117.7 (57.1) 60.6 111.2 (52.9) 58.3
Profit
attributable to
equity
shareholders 116.2 (57.1) 59.1 109.7 (52.9) 56.8
Profit
attributable to
non-controlling
interests 1.5 - 1.5 1.5 - 1.5
================ ================ ========= ================ ================= =========
117.7 (57.1) 60.6 111.2 (52.9) 58.3
================= ==== ================ ================ ========= ================ ================= =========
Earnings per
share:
- basic earnings
per share 7 11.6p 11.1p
- diluted
earnings per
share 7 11.5p 11.1p
Normalised
earnings per
share:
- basic earnings
per share 7 22.7p 21.5p
- diluted
earnings per
share 7 22.7p 21.4p
================= ==== ================ ================ ========= ================ ================= =========
Group Statement of Comprehensive Income
For the year ended 31 December 2014
2014 2013
GBPm GBPm
============================================================ ====== ======
Profit for the year 60.6 58.3
Items that will not be reclassified subsequently to profit
or loss:
Actuarial gains/(losses) on defined benefit pension plans 10.1 (19.0)
Deferred tax on actuarial gains/(losses) (2.3) 3.7
============================================================ ====== ======
7.8 (15.3)
============================================================ ====== ======
Items that may be reclassified subsequently to profit
or loss:
Exchange differences on retranslation of foreign operations
(net of hedging) (25.0) 1.0
Exchange differences on retranslation of non-controlling
interests (0.8) 0.2
(Loss)/gain on cash flow hedges (80.3) 2.5
Less: reclassification adjustments for gains or losses
included in profit 12.3 (3.5)
Tax on exchange differences 0.1 2.0
Deferred tax on cash flow hedges 13.6 0.3
============================================================ ====== ======
(80.1) 2.5
============================================================ ====== ======
Total comprehensive (expenditure)/income for the year (11.7) 45.5
============================================================ ====== ======
Total comprehensive (expenditure)/income attributable
to:
====== ======
Equity shareholders (12.4) 43.8
Non-controlling interests 0.7 1.7
====== ======
(11.7) 45.5
============================================================ ====== ======
Group Balance Sheet
At 31 December 2014
2014 2013
GBPm GBPm
================================================== ========= =========
Non-current assets
Intangible assets 1,177.4 1,223.5
Property, plant and equipment 729.9 751.4
Available for sale investments 6.8 7.4
Derivative financial instruments 26.5 18.5
Deferred tax assets 29.9 16.7
Investments accounted for using the equity method 5.4 5.1
Trade and other receivables 1.8 4.6
Defined benefit pension asset 40.6 12.6
================================================== ========= =========
2,018.3 2,039.8
================================================== ========= =========
Current assets
Inventories 21.8 21.2
Trade and other receivables 199.6 169.9
Derivative financial instruments 1.5 3.1
Current tax assets 1.3 1.6
Cash and cash equivalents 83.7 40.9
================================================== ========= =========
307.9 236.7
================================================== ========= =========
Total assets 2,326.2 2,276.5
================================================== ========= =========
Non-current liabilities
Borrowings (741.8) (750.7)
Derivative financial instruments (36.1) (1.6)
Deferred tax liability (66.0) (75.1)
Other non-current liabilities (4.1) (6.5)
Defined benefit pension liability (52.5) (42.7)
Provisions (23.5) (21.4)
================================================== ========= =========
(924.0) (898.0)
================================================== ========= =========
Current liabilities
Trade and other payables (415.7) (351.6)
Borrowings (55.9) (76.8)
Derivative financial instruments (35.8) (1.9)
Current tax liabilities (23.3) (22.9)
Provisions (35.3) (28.0)
================================================== ========= =========
(566.0) (481.2)
================================================== ========= =========
Total liabilities (1,490.0) (1,379.2)
================================================== ========= =========
Net assets 836.2 897.3
================================================== ========= =========
Shareholders' equity
Called-up share capital 25.6 25.6
Share premium account 532.7 532.7
Capital redemption reserve 0.2 0.2
Own shares (1.5) (0.8)
Other reserves (32.8) 46.5
Retained earnings 299.3 282.4
================================================== ========= =========
Total shareholders' equity 823.5 886.6
Non-controlling interests in equity 12.7 10.7
================================================== ========= =========
Total equity 836.2 897.3
================================================== ========= =========
Group Statement of Changes in Equity
For the year ended 31 December 2014
Share Capital
Share premium redemption Own Other Retained Non-controlling Total
capital account reserve shares reserves earnings Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================ ======== ========== ========== ======= =========== ========== ====== =============== =======
At 1 January
2014 25.6 532.7 0.2 (0.8) 46.5 282.4 886.6 10.7 897.3
Shares purchased - - - (3.2) - - (3.2) - (3.2)
Own shares
released to
satisfy
employee share
schemes - - - 2.5 - (2.5) - - -
Total
comprehensive
income and
expenditure - - - - (79.3) 66.9 (12.4) 0.7 (11.7)
Share-based
payments - - - - - 3.1 3.1 - 3.1
Tax on
share-based
payments - - - - - 1.0 1.0 - 1.0
Dividends - - - - - (51.6) (51.6) - (51.6)
Dividends paid
to
non-controlling
interests - - - - - - - (0.2) (0.2)
Contribution
from
non-controlling
interest - - - - - - - 1.5 1.5
================ ======== ========== ========== ======= =========== ========== ====== =============== =======
At 31 December
2014 25.6 532.7 0.2 (1.5) (32.8) 299.3 823.5 12.7 836.2
================ ======== ========== ========== ======= =========== ========== ====== =============== =======
Share Capital
Share premium redemption Own Other Retained Non-controlling Total
capital account reserve shares reserves earnings Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================ ======== ========== ========== ======= =========== ========== ====== =============== =======
At 1 January
2013 25.6 532.7 0.2 (0.5) 44.2 290.7 892.9 9.5 902.4
Shares purchased - - - (2.8) - - (2.8) - (2.8)
Own shares
released to
satisfy
employee share
schemes - - - 2.5 - (2.5) - - -
Total
comprehensive
income and
expenditure - - - - 2.3 41.5 43.8 1.7 45.5
Share-based
payments - - - - - 3.1 3.1 - 3.1
Tax on
share-based
payments - - - - - (0.1) (0.1) - (0.1)
Dividends - - - - - (50.3) (50.3) - (50.3)
Dividends paid
to
non-controlling
interests - - - - - - - (0.5) (0.5)
================ ======== ========== ========== ======= =========== ========== ====== =============== =======
At 31 December
2013 25.6 532.7 0.2 (0.8) 46.5 282.4 886.6 10.7 897.3
================ ======== ========== ========== ======= =========== ========== ====== =============== =======
Group Statement of Cash Flows
For the year ended 31 December 2014
2014 2013
Note GBPm GBPm
===================================================== ==== ======= =======
Cash generated from operations 10 245.2 296.4
Tax paid (13.0) (16.3)
===================================================== ==== ======= =======
Net cash from operating activities 232.2 280.1
===================================================== ==== ======= =======
Cash flows from investing activities
Payments to acquire businesses, net of cash acquired (5.2) (7.2)
Deferred consideration for businesses acquired
and disposed (0.5) (3.7)
Proceeds from the disposal of business - 1.4
Purchase of property, plant and equipment (55.7) (90.7)
Proceeds from disposal of property, plant and
equipment 13.9 12.1
Payments to acquire intangible assets (7.5) (3.2)
Payments to acquire associates (0.2) -
Interest received 5.9 5.2
===================================================== ==== ======= =======
Net cash used in investing activities (49.3) (86.1)
===================================================== ==== ======= =======
Cash flows from financing activities
Purchase of own shares (3.2) (2.8)
Interest paid (49.7) (51.0)
Finance lease principal payments (28.8) (21.3)
Net loans repaid (9.7) (99.4)
Receipts/(payments) for the maturity of foreign
currency contracts 2.4 (1.1)
Dividends paid to non-controlling interests (0.2) (0.5)
Contribution from non-controlling interest 1.5 -
Dividends paid to shareholders of the Company (51.6) (50.3)
===================================================== ==== ======= =======
Net cash used in financing activities (139.3) (226.4)
===================================================== ==== ======= =======
Increase/(decrease) in cash and cash equivalents 43.6 (32.4)
===================================================== ==== ======= =======
Opening cash and cash equivalents 40.9 72.8
Increase/(decrease) in cash and cash equivalents 43.6 (32.4)
Foreign exchange (0.8) 0.5
===================================================== ==== ======= =======
Closing cash and cash equivalents 83.7 40.9
===================================================== ==== ======= =======
Notes to the Consolidated Accounts
For the year ended 31 December 2014
1 Basis of preparation
The results are based on the Group financial statements, which
have been prepared in accordance with International Financial
Reporting Standards ("IFRS") and the International Financial
Reporting Interpretations Committee's interpretations as adopted by
the European Union, and with those parts of the Companies Act 2006
applicable to companies reporting under IFRS.
These results have been prepared on the going concern basis
under the historical cost convention, except for the recognition of
derivative financial instruments and available for sale
investments, and using the accounting policies set out in the
Group's 2014 statutory financial statements.
Normalised results are defined as the statutory results before
intangible asset amortisation, loss on disposal of businesses,
exceptional items and tax relief thereon.
2 Exchange rates
The most significant exchange rates to UK Sterling for the Group
are as follows:
2014 2014 2013 2013
Closing Average Closing Average
rate rate rate rate
================ ======== ======== ======== ========
US dollar 1.56 1.65 1.66 1.56
Canadian dollar 1.81 1.82 1.76 1.61
Euro 1.29 1.24 1.20 1.18
================ ======== ======== ======== ========
If the results for the year to 31 December 2013 had been
retranslated at the average exchange rates for the year to 31
December 2014, North American Bus would have achieved normalised
operating profit of GBP58.9m on revenue of GBP607m, compared to
normalised operating profit of GBP62.6m on revenue of GBP645m as
reported, and Spanish Coach and Bus would have achieved a
normalised operating profit of GBP77.4m on revenue of GBP536m,
compared to normalised operating profit of GBP81.5m on revenue of
GBP565m as reported.
3 Segmental analysis
The operating businesses are organised and managed separately
according to the nature of the public transport services they
provide and the geographical market they operate in.
Revenue is analysed by reportable segment and geographical
location as follows:
Inter- Inter-
External segment External segment Segment
revenue sales Segment revenue revenue sales revenue
2014 2014 2014 2013 2013 2013
GBPm GBPm GBPm GBPm GBPm GBPm
================================ ======== ======== =============== ======== ======== ========
UK Bus 280.8 0.2 281.0 273.3 0.1 273.4
UK Coach 274.6 0.6 275.2 263.3 0.2 263.5
North American Bus 620.2 - 620.2 645.0 - 645.0
Spanish Coach and Bus 538.1 - 538.1 564.6 - 564.6
================================ ======== ======== =============== ======== ======== ========
Core non-rail businesses 1,713.7 0.8 1,714.5 1,746.2 0.3 1,746.5
German Coach 2.1 - 2.1 2.1 - 2.1
================================ ======== ======== =============== ======== ======== ========
Non-rail businesses 1,715.8 0.8 1,716.6 1,748.3 0.3 1,748.6
Rail 151.6 - 151.6 143.0 - 143.0
Inter-segment sales elimination - (0.8) (0.8) - (0.3) (0.3)
================================ ======== ======== =============== ======== ======== ========
Total revenue 1,867.4 - 1,867.4 1,891.3 - 1,891.3
================================ ======== ======== =============== ======== ======== ========
German Coach is not considered to be an operating or a
reportable segment.
All revenue in the Rail segment is generated in the UK.
Inter-segment sales in UK Bus represent internal commission on
ticket sales. Inter-segment sales in UK Coach represent rail
replacement services provided to Rail. Inter-segment trading is
undertaken on standard arm's length commercial terms. Due to the
nature of the Group's businesses, the origin and destination of
revenue is the same. No single external customer amounts to 10% or
more of the total revenue.
Operating profit is analysed by reportable segment as
follows:
Intangible Intangible
amortisation amortisation
Normalised and Normalised and
operating exceptional Segment operating exceptional Segment
profit items result profit items result
2014 2014 2014 2013 2013 2013
GBPm GBPm GBPm GBPm GBPm GBPm
================================= ========== ============= ======= ========== ============= =======
UK Bus 34.0 (7.0) 27.0 31.2 (1.4) 29.8
UK Coach 28.0 (3.5) 24.5 24.5 (1.9) 22.6
North American Bus 59.5 (27.5) 32.0 62.6 (18.1) 44.5
Spanish Coach and Bus 75.8 (7.2) 68.6 81.5 (37.2) 44.3
Central functions (12.2) (11.2) (23.4) (14.3) (6.4) (20.7)
================================= ========== ============= ======= ========== ============= =======
Core non-rail businesses 185.1 (56.4) 128.7 185.5 (65.0) 120.5
German Coach (1.7) (2.1) (3.8) (2.4) (0.7) (3.1)
================================= ========== ============= ======= ========== ============= =======
Non-rail businesses 183.4 (58.5) 124.9 183.1 (65.7) 117.4
Rail 9.7 (20.4) (10.7) 9.8 (9.3) 0.5
================================= ========== ============= ======= ========== ============= =======
Operating profit from continuing
operations 193.1 (78.9) 114.2 192.9 (75.0) 117.9
Loss on disposal of business - (4.3)
Share of results of associates 0.3 0.6
Net finance costs (48.0) (49.8)
================================= ========== ============= ======= ========== ============= =======
Profit before tax 66.5 64.4
Tax charge (5.9) (6.1)
================================= ========== ============= ======= ========== ============= =======
Profit for the year 60.6 58.3
================================= ========== ============= ======= ========== ============= =======
Intangible asset amortisation is analysed by reportable segment
as follows:
2014 2013
GBPm GBPm
====================== ===== =====
UK Coach 0.5 0.3
North American Bus 11.3 13.5
Spanish Coach and Bus 16.3 35.4
German Coach 0.4 -
Central functions 0.1 0.1
====================== ===== =====
Total 28.6 49.3
====================== ===== =====
Exceptional costs/(income) are analysed by reportable segment as
follows:
2014 2013
GBPm GBPm
====================== ===== =====
UK Bus 7.0 1.4
UK Coach 3.0 1.6
Rail 20.4 9.3
North American Bus 16.2 4.6
Spanish Coach and Bus (9.1) 1.8
German Coach 1.7 0.7
Central functions 11.1 6.3
Total 50.3 25.7
====================== ===== =====
Exceptional costs/(income) are further analysed by type as
follows:
2014 2013
GBPm GBPm
========================================== ====== =====
UK rail bids 17.0 7.4
Other rail bids 2.8 1.9
Other business development 5.7 6.4
========================================== ====== =====
25.5 15.7
Restructuring 25.8 5.4
Strategic rationalisation 18.3 -
Exceptional fuel credits (19.3) -
North America acquisition and integration - 4.6
========================================== ====== =====
50.3 25.7
========================================== ====== =====
In the year to 31 December 2014, exceptional costs of GBP17.0m
(2013: GBP7.4m) were incurred in relation to UK rail bids. This
includes the costs of bidding for the Essex Thameside, Crossrail
and ScotRail rail franchises. In addition, GBP2.8m (2013: GBP1.9m)
was incurred in bidding for regional rail opportunities in Germany.
During the year, the Group secured the 15 year Essex Thameside UK
rail franchise, and was recently announced as preferred bidder for
two contracts to operate the Nuremberg S-Bahn commuter rail
service.
GBP5.7m (2013: GBP6.4m) of business development costs have been
incurred across the Group as part of a major investment to create
other new contract and passenger business pipelines in new markets.
This included costs incurred to win a 10 year contract to operate
bus services in the Kingdom of Bahrain.
Exceptional restructuring costs of GBP25.8m (2013: GBP5.4m) have
been incurred across the Group, including costs to rationalise
structural overheads in UK Bus, Spain, North America and Central
Functions, and onerous contract costs incurred on exit of the
German Coach operation.
To improve returns on capital and exit poor performing
contracts, the Spanish and North American operations undertook a
major exercise in the year to rationalise onerous contracts and to
provide against future losses. The cost of this strategic
rationalisation exercise was GBP18.3m (2013: GBPnil).
Exceptional fuel credits predominantly relate to Spanish fuel
duty credits; partly offset by ineffectiveness of GBP2.5m on the
Group's fuel hedges following the exceptional volatility in market
prices during the year. In 2014 The Court of Justice of the EU
ruled that Spain's tax on the retail sales of hydrocarbons ('fuel
duty tax') was contrary to the EU's legal framework regarding
taxation and that, accordingly, all fuel duty tax collected from
the inception of the tax in 2005 to the cessation of the tax in
January 2013 should be repaid. As at year end, the Group's Spanish
business had received GBP6.3m of fuel duty refunds. A further
GBP15.5m has been assessed as virtually certain and therefore
recognised as a receivable at year end, bringing the total amount
recognised in the year to GBP21.8m.
Exceptional costs of GBPnil (2013: GBP4.6m) were incurred in
relation to the acquisition and integration of school bus and
transit businesses in North America.
4 Net finance costs
2014 2013
GBPm GBPm
========================================================= ====== ======
Bond and bank interest payable (47.5) (50.2)
Finance lease interest payable (4.2) (4.4)
Other interest payable (0.5) (0.2)
Unwind of provision discounting (1.2) (1.3)
Net interest cost on defined benefit pension obligations (1.1) (0.5)
========================================================= ====== ======
Finance costs (54.5) (56.6)
Other financial income 6.5 6.8
========================================================= ====== ======
Net finance costs (48.0) (49.8)
========================================================= ====== ======
Of which, from financial instruments:
Cash and cash equivalents (2.3) (2.7)
Financial liabilities measured at amortised cost (46.7) (48.7)
Derivatives used for hedging 5.8 5.9
Loan fee amortisation (2.1) (2.4)
========================================================= ====== ======
5 Taxation
Analysis of taxation charge in the year
2014 2013
GBPm GBPm
========================================================================== ====== ======
Current taxation:
UK corporation tax (0.6) 3.9
Overseas taxation 14.3 14.4
========================================================================== ====== ======
Current income tax charge 13.7 18.3
Adjustments with respect to prior years - UK and overseas 0.9 -
========================================================================== ====== ======
Total current income tax charge 14.6 18.3
Deferred taxation:
Origination and reversal of temporary differences - continuing
operations (11.3) (11.8)
Adjustments with respect to prior years - UK and overseas 2.6 (0.4)
========================================================================== ====== ======
Deferred tax credit (8.7) (12.2)
========================================================================== ====== ======
Total tax charge 5.9 6.1
========================================================================== ====== ======
The tax charge is disclosed as follows:
Tax charge on profit before intangible asset amortisation and exceptional
items 27.7 32.5
Tax credit on intangible asset amortisation and exceptional items (21.8) (26.4)
========================================================================== ====== ======
5.9 6.1
========================================================================== ====== ======
Tax credit on intangible asset amortisation and exceptional items
is analysed as follows:
Tax credit on intangible asset amortisation (10.9) (17.4)
Tax credit on exceptional items (10.9) (6.8)
Tax credit on loss on disposal of business - (2.2)
========================================================================== ====== ======
(21.8) (26.4)
========================================================================== ====== ======
6 Dividends paid and proposed
2014 2013
GBPm GBPm
===================================================================== ===== =====
Declared and paid during the year
Ordinary final dividend for 2013 paid of 6.75p per share (2012:
6.60p) 34.5 33.7
Ordinary interim dividend for 2014 of 3.35p per share (2013: 3.25p) 17.1 16.6
===================================================================== ===== =====
51.6 50.3
===================================================================== ===== =====
Proposed for approval (not recognised as a liability at 31 December)
Ordinary final dividend for 2014 of 6.95p per share (2013: 6.75p
per share) 35.5 34.5
===================================================================== ===== =====
7 Earnings per share
2014 2013
====================================== ===== =====
Basic earnings per share 11.6p 11.1p
====================================== ===== =====
Normalised basic earnings per share 22.7p 21.5p
====================================== ===== =====
Diluted earnings per share 11.5p 11.1p
====================================== ===== =====
Normalised diluted earnings per share 22.7p 21.4p
====================================== ===== =====
Basic earnings per share is calculated by dividing the earnings
attributable to equity shareholders of GBP59.1m (2013: GBP56.8m) by
the weighted average number of ordinary shares in issue during the
year, excluding those held by employee share ownership trusts and
those held as treasury shares which are both treated as
cancelled.
For diluted earnings per share, the weighted average number of
ordinary shares in issue during the year is adjusted to include the
weighted average number of ordinary shares that would be issued on
the conversion of all the dilutive potential ordinary shares into
ordinary shares.
The reconciliation of basic and diluted weighted average number
of ordinary shares is as follows:
2014 2013
================================================== =========== ===========
Basic weighted average shares 511,125,312 511,114,989
Adjustment for dilutive potential ordinary shares 970,374 1,425,106
================================================== =========== ===========
Diluted weighted average shares 512,095,686 512,540,095
================================================== =========== ===========
The normalised basic and normalised diluted earnings per share
have been calculated in addition to the basic and diluted earnings
per share required by IAS 33 since, in the opinion of the
Directors, they reflect the underlying performance of the business'
operations more appropriately.
The reconciliation of the earnings and earnings per share to
their normalised equivalent is as follows:
2014 2013
====== ========= ======= ====== ========= =======
Diluted Diluted
Basic EPS EPS Basic EPS EPS
GBPm p p GBPm p p
============================= ====== ========= ======= ====== ========= =======
Profit attributable to
equity shareholders 59.1 11.6 11.5 56.8 11.1 11.1
Intangible amortisation 28.6 5.6 5.6 49.3 9.7 9.6
Exceptional items 50.3 9.8 9.8 25.7 5.0 5.0
Loss on disposal of business - - - 4.3 0.8 0.8
Tax relief on the above
items (21.8) (4.3) (4.2) (26.4) (5.1) (5.1)
============================= ====== ========= ======= ====== ========= =======
Normalised profit from
continuing operations
and attributable to equity
shareholders 116.2 22.7 22.7 109.7 21.5 21.4
============================= ====== ========= ======= ====== ========= =======
8 Pensions and other post-employment benefits
Summary of pension benefits and assumptions
The UK Bus and UK Coach divisions operate both funded defined
benefit schemes and a defined contribution scheme. The majority of
employees of the Rail companies are members of the appropriate
shared-cost section of the Railways Pension Scheme (RPS), a funded
defined benefit scheme. The assets of all schemes are held
separately from those of the Group. Contributions to the schemes
are determined by independent professionally qualified
actuaries.
Subsidiaries in North America contribute to a number of defined
contribution plans. The Group also provides certain additional
unfunded post-employment benefits to employees in North America and
Spain.
The defined benefit pension schemes typically expose the Group
to actuarial risks such as investment risk, interest rate risk,
longevity risk and salary risk.
The UK Coach plan is now closed to all future accrual. A funding
plan aimed at bringing the plan to self-sufficiency over a six-year
period was agreed in 2010; National Express contributes GBP4.2m
annually to this scheme. In 2011 UK Bus agreed a GBP5.5m annual
deficit repayment plan with the trustees of the West Midlands
Passenger Transport Authority Pension Fund to fund a GBP71m scheme
funding deficit over 12 years. The plan remains open to accrual for
existing members only.
The total pension cost charged to operating profit in the year
was GBP9.9m (2013: GBP9.9m), of which GBP3.7m (2013: GBP3.2m)
relates to the defined contribution schemes.
The defined benefit pension (liability)/asset included in the
Balance Sheet is as follows:
2014 2013
GBPm GBPm
========= ====== ======
UK Bus (50.6) (40.8)
UK Coach 30.6 12.6
Rail 10.0 (0.4)
Other (1.9) (1.5)
========= ====== ======
Total (11.9) (30.1)
========= ====== ======
9 Net debt
At At
1 January Exchange 31 December
2014 Cash flow differences Other movements 2014
GBPm GBPm GBPm GBPm GBPm
======================================= ========== ========= ============ =============== ============
Cash 37.7 (0.6) (0.8) - 36.3
Overnight deposits - 6.9 - - 6.9
Other short term deposits 3.2 37.3 - - 40.5
======================================= ========== ========= ============ =============== ============
Cash and cash equivalents 40.9 43.6 (0.8) - 83.7
======================================= ========== ========= ============ =============== ============
Other debt receivables 1.0 (0.2) - - 0.8
======================================= ========== ========= ============ =============== ============
Borrowings:
Bank and other loans (19.3) 9.6 5.2 (0.7) (5.2)
Bonds (579.5) - - (5.8) (585.3)
Fair value of hedging derivatives 9.2 - - 9.4 18.6
Finance lease obligations (132.9) 28.8 (5.2) (1.2) (110.5)
Other debt payable (65.5) 0.1 4.2 (5.2) (66.4)
======================================= ========== ========= ============ =============== ============
Total borrowings (788.0) 38.5 4.2 (3.5) (748.8)
======================================= ========== ========= ============ =============== ============
Net debt* (746.1) 81.9 3.4 (3.5) (664.3)
======================================= ========== ========= ============ =============== ============
* Excludes accrued interest on long term borrowings.
Short term deposits included within liquid resources relate to
term deposits repayable within three months.
Borrowings include non-current interest-bearing borrowings of
GBP741.8m (2013: GBP750.7m).
Other non-cash movements in net debt represent finance lease
additions of GBP1.2m (2013: GBP0.8m) and a GBP2.3m reduction in
loan and bond arrangement fees (2013: GBP2.6m). The GBP9.4m
increase to the fair value of the hedging derivative is offset by
equal and opposite movements in the fair value of the
related hedged borrowings. This comprises a GBP4.2m fair value
movement in bonds and a GBP5.2m fair value movement in other debt
payable.
At At
1 January Exchange 31 December
2013 Cash flow differences Other movements 2013
GBPm GBPm GBPm GBPm GBPm
======================================= ========== ========= ============ =============== ============
Cash 41.7 (4.5) 0.5 - 37.7
Overnight deposits 28.6 (28.6) - - -
Other short term deposits 2.5 0.7 - - 3.2
======================================= ========== ========= ============ =============== ============
Cash and cash equivalents 72.8 (32.4) 0.5 - 40.9
======================================= ========== ========= ============ =============== ============
Other debt receivables 1.0 - - - 1.0
======================================= ========== ========= ============ =============== ============
Borrowings:
Bank and other loans (114.6) 99.6 (3.2) (1.1) (19.3)
Bonds (590.0) - - 10.5 (579.5)
Fair value of hedging derivatives 23.4 - - (14.2) 9.2
Finance lease obligations (154.7) 21.3 1.3 (0.8) (132.9)
Other debt payable (66.1) (0.2) (1.4) 2.2 (65.5)
======================================= ========== ========= ============ =============== ============
Total borrowings (902.0) 120.7 (3.3) (3.4) (788.0)
======================================= ========== ========= ============ =============== ============
Net debt* (828.2) 88.3 (2.8) (3.4) (746.1)
======================================= ========== ========= ============ =============== ============
* Excludes accrued interest on long term borrowings
10 Cash flow statement
Reconciliation of Group profit before tax to cash generated from
operations:
2014 2013
Total operations GBPm GBPm
==================================================== ====== ======
Profit before tax 66.5 64.4
Net finance costs 48.0 49.8
Share of post-tax results under the equity method (0.3) (0.6)
Depreciation of property, plant and equipment 104.9 107.3
Intangible asset amortisation 28.6 49.3
Amortisation of fixed asset grants (0.8) (1.1)
Profit on disposal of property, plant and equipment (1.7) (1.1)
Loss on disposal of business - 4.3
Share-based payments 3.1 3.1
Increase in inventories (0.6) (2.2)
(Increase)/decrease in receivables (26.9) 21.9
Increase in payables 26.8 13.9
Decrease in provisions (2.4) (12.6)
==================================================== ====== ======
Cash generated from operations 245.2 296.4
==================================================== ====== ======
11 Financial information
The financial information set out above does not constitute the
Group's statutory financial statements for the years ended 31
December 2014 or 2013, but is derived from those financial
statements. Statutory financial statements for 2013 have been
delivered to the Registrar of Companies and those for 2014 will be
delivered following the company's annual general meeting. The
auditors have reported on those financial statements; their reports
were unqualified, did not draw attention to any matters by way of
emphasis without qualifying their report and did not contain
statements under s498(2) or (3) Companies Act 2006.
The Annual Report will be posted to shareholders on 27 March
2015 and will also be available from the Company Secretary at
National Express House, Birmingham Coach Station, Mill Lane,
Digbeth, Birmingham, B5 6DD. Copies are also available via
www.nationalexpressgroup.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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