TIDMNEX
RNS Number : 3654U
National Express Group PLC
29 July 2015
29 July 2015
National Express Group PLC
Half Year Results for the six months ended 30 June 2015
National Express Group PLC ("National Express" or the "Group"),
a leading international public transport group, operates bus and
coach services in the UK, continental Europe, North Africa, North
America and the Middle East, together with rail services in the
UK.
Overview
The Group has made strong progress in the first half of the year
with results in line with expectations and both revenue and profit
up year-on-year. We have achieved further significant new contract
wins and we remain on target to generate GBP100 million of free
cash for the full year. Our strong operational and financial
position means we are both able to invest in growth and increase
our interim dividend payment by 10%.
Financial highlights include:
-- Revenue growth in every division in constant currency; Group
revenue up 2.2% year-on-year to GBP960.2 million (2014:
GBP939.5m).
-- A 6% increase in like-for-like Group operating profit, after
excluding rail and Middle East bid costs and at constant currency;
Group normalised operating profit rose by 19%; statutory profit
after tax increased by 117%.
-- Return on capital employed increased to 11.9% (31 Dec 2014:
10.7%); excluding rail and Middle East bid costs return on capital
employed has improved to 12.8% (31 Dec 2014: 12.4%).
-- On target to generate GBP100m of free cash for the year.
-- A proposed interim dividend of 3.685 pence, up 10% year-on-year (2014: 3.35 pence).
Consistent delivery against our strategy of operational
excellence, driving strong returns and developing new business
opportunities:
-- Excellent start to the new c2c franchise with revenue growth of 10%, ahead of bid plan.
-- Successful bid season in North America School Bus with an
average price increase of 2.8% across the entire portfolio of
contracts. Two small acquisitions were made at the end of the
period and a new transit contract won.
-- Further success in German rail with the awarding of two
contracts for Rhine Ruhr Express services; contracted revenues
secured now worth EUR2.6 billion.
-- Successful mobilisation of our bus service operations in
Bahrain, our first entry into the Middle East and opening further
opportunities in the region including a joint bid already submitted
to run bus operations in Makkah, Saudi Arabia.
-- Continued progress in Spain of our revenue management
programme on intercity routes competing with rail, with passengers
up 7% and revenue increasing 4% on these flows. We have also won a
fourth Moroccan bus contract.
-- Shortlisted for the East Anglia rail franchise, which is due
to be awarded in mid-2016, and commence in autumn 2016.
-- We welcome the West Midlands ITA's decision to establish a
new 'Bus Alliance' to build on our award-winning partnership.
Financial summary
H1 2014
H1 2015 GBPm
GBPm Restated*
--------------------------------------------- ------- -----------
Revenue 960.2 939.5
Normalised operating profit (before rail and
Middle East bid costs) 93.5 89.5
Rail and Middle East bid costs 3.9 14.2
Normalised operating profit 89.6 75.3
Normalised profit before tax 66.7 51.3
Statutory profit after tax for the period 44.8 20.6
Normalised basic EPS 10.2p 7.8p
Dividend 3.685p 3.35p
Net debt 714.3 729.0
*Normalised results restated to adjust for impact of rail and
Middle East bid costs previously treated as exceptional costs
Dean Finch, National Express Group Chief Executive, said:
"We have made a strong start to 2015 and are on track to deliver
the Board's expectations for the year. We are focused on driving
best value for our customers, employees and shareholders and are
passionately committed to the communities we serve. We have been
particularly delighted with the continued strong performance of c2c
in its new franchise. The success in winning additional German rail
contracts and the launch of bus services in Bahrain demonstrates
further progress in opening new growth markets.
"These results demonstrate the benefit of our recent focus on
both improving our services to customers and securing sustainable
cash flows from our businesses. This enables us now to invest
further in growth and at the same time, increase our dividend. We
will continue to strive constantly to improve the value of the
services we provide to our customers and deliver growth across the
whole business. This, coupled with our contract wins, will continue
to drive shareholder value."
Enquiries
National Express Group PLC
Matthew 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
Rebecca Mitchell 07951 057351
There will be a presentation and webcast for investors and
analysts at 0900 on 29 July 2015. Details are available from
Rebecca Mitchell at Maitland.
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 (nil in 2015) 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 and disposals.
In UK Bus, commercial revenue is that from fare-paying
passengers and excludes concessions and contracted services. In UK
Coach, core express revenue is that from the scheduled National
Express network.
Constant currency basis compares the current year's results with
the prior year's results translated at the current year's exchange
rates.
Operating margin is the ratio of normalised operating profit to
revenue.
Like-for-like operating profit growth reflects the Group's
normalised operating profit at constant currency, after adjusting
for the impact of year-on-year movements in bid costs. Further
details are provided in the Financial Review.
'Return on capital employed' (ROCE) is normalised operating
profit divided by tangible and intangible 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 Financial Review.
EBITDA is 'Earnings Before Interest, Tax, Depreciation and
Amortisation'. It is calculated by taking normalised operating
profit and adding depreciation, fixed asset grant amortisation,
normalised profit on disposal of non-current assets and share-based
payments.
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).
Gearing ratio is the ratio of net debt to EBITDA over the last
twelve months.
The annual punctuality measure for c2c is the moving annual
average (MAA) public performance measure.
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.
Earnings per share (EPS) is the profit for the year attributable
to shareholders, divided by the weighted average number of shares
in issue, excluding those held by the Employee Benefit Trust which
are treated as cancelled.
BUSINESS REVIEW
Overview
National Express has made strong progress in the first half of
2015 with Group revenue up 2.2%. Underlying revenue (on a constant
currency basis) increased by 2.5%. We have delivered revenue growth
across all our businesses on a constant currency basis, with
particularly strong growth in Rail, UK Bus and Morocco. Group
operating profit increased by 6% on a like-for-like basis after
excluding rail and Middle East bid costs and at constant currency.
Normalised profit before tax rose by 30% to GBP66.7 million even
after absorbing GBP11.8 million additional premium charges in our
new c2c franchise. We have also made significant progress in new
markets, with our first operations in Bahrain successfully launched
earlier in the year and we secured a further two rail contracts in
Germany.
Free cash flow remains strong, with the business on-target to
deliver GBP100 million at the year end, even after the planned
GBP50 million increase in maintenance capital expenditure in the
first six months. The strength of our cash flow and the continued
growth of secure, long-term revenue from our expanding UK and
German rail operations, led us to say in our previous management
statement that we would review our policy of excluding rail
earnings from our dividend cover. Since then we have won another
two German rail contracts, with our success in the Rhine Ruhr
Express (RRX) competition, securing earnings until 2033. Our new
policy is to include rail profits, so that our dividend is covered
by two times Group earnings. This new policy enables us to propose
a 10% increase in the interim dividend to 3.685 pence.
We have been clear for a number of years that the ability to
deliver such strong cash flows and shareholder returns is based
upon a focus on operational excellence. This continues to be the
case, and we are pleased to remain the leader in many of the
markets we serve, with strong customer satisfaction and contract
retention. ALSA is the latest division to go through the European
Foundation for Quality Management (EFQM) process and we are pleased
with its four star initial assessment. We have extended our revenue
management programme in Spain to 200 flows on the nine main
rail-competed corridors, and continue to see a positive response
with passenger numbers up 7% and revenue increasing by 4%
year-on-year. In Morocco, passenger volumes have grown by nearly
12%, and we have also won a fourth Moroccan bus contract, which
while small was a fixed price award made purely on an assessment of
the quality of operations, demonstrating the strength of our
reputation.
UK Bus continues to benefit from its multi-award winning
partnership and record investment, including, for example, the
recently introduced state of the art buses on routes where the
local authorities have improved bus priority to help deliver better
and faster services for passengers. This has helped drive
commercial revenue up 3% in the first six months. We have also
recently introduced a Pay As You Go smartcard in Coventry, the
first in an Integrated Transport Authority (ITA) area. We welcome
the West Midlands ITA's decision to establish a new 'Bus Alliance'
to build on our award-winning partnership and look forward to
supporting the delivery of the West Midlands bus policy through
developing and implementing this new initiative over the coming
months. UK Coach is seeing further benefits from its innovative
marketing and additional retailing partnerships and has again
broken its record for the number of festival-goers it took to
Glastonbury.
In North America our contract retention in the current bid
season, excluding those contracts that we have chosen to exit, is
again industry-leading at 99%. We have seen an average price
increase across the entire portfolio of 2.8%. Where the customer
has run a competition on a contract we operate and we have retained
it, the average price has gone up by over 5%. We have also made two
small acquisitions at the end of the period and won a new transit
contract. Overall revenue growth on a constant currency basis is up
over 1%. The rate increases and performance of new contracts -
including Philadelphia and Memphis - have more than offset the
impact of lost contracts (both regretted and through our 'up or
out' strategy) and fewer operating days in the first half of 2015.
The largest loss of revenue has come through the contracts exited
under our 'up or out' strategy and this has helped the margin
improve to 10.8% (2014: 10.5%).
We have also been delighted with the performance of c2c since
the launch of the new franchise. It has maintained its
industry-leading punctuality performance,[1] but also used
cutting-edge, targeted marketing techniques similar to those
pioneered in UK Coach, and new off-peak tickets, to deliver
significant increases in passenger numbers and revenue. During the
first six months of 2015, off-peak leisure growth has been nearly
12%, double the London and South East average of 6.2%. A new
timetable and industry-leading package of customer service
improvements - including automatic delay compensation - will be
implemented from later this year, with the aims of consolidating
c2c's reputation for excellence and delivering further growth. We
were pleased with the Secretary of State's announcement in March
that he was looking to extend c2c's pioneering automatic delay
compensation across the rail network.
Alongside operational excellence and strong cash and returns,
the third leg of our strategy has been creating new business
opportunities. We have seen significant progress in this area
during 2015. We successfully began our first operations in Bahrain
in February. A second phase launches in August taking the operation
up to 140 buses and including the introduction of an 'Oyster-style'
smartcard. We believe there is scope for further growth in Bahrain.
Additionally, the Bahrain contract provides the opportunity for
further expansion in the Middle East, and we have submitted a joint
bid for a 400 bus contract in Makkah, Saudi Arabia, for
example.
In addition to our success in winning the two RRX services
mentioned above, our two Rhine-Munsterland Express (RME) contracts
begin operating in December. Our naming as the preferred bidder for
a further two contracts to operate the Nuremberg S-Bahn is
currently the subject of an appeal, which we anticipate concluding
later this summer. We remain very positive about the opportunities
the German rail market provides. We have secured EUR2.6 billion of
long-term revenue in this market, providing a new earnings stream
and an opportunity for further growth in the coming years.
Given this performance and new business success the Group
remains on track to deliver its earnings expectations for the
year.
Performance highlights
Group revenue in the first half was GBP960.2 million (2014:
GBP939.5m), with growth of 2.5% on a constant currency basis. All
UK divisions have generated good growth with UK Rail delivering a
particularly strong performance with revenue increasing 10% and
passenger volumes up 6%. Specifically, off-peak revenue increased
12%, peak sales grew 11% and season ticket receipts were up 5%. In
Spain, we have extended our revenue management to 200 flows on the
nine main rail-competed corridors, and continue to see a positive
response with passenger numbers up 7% and revenue increasing by 4%
year-on-year. ALSA's revenue overall was up over 3%, with Morocco
again delivering strong growth of 13% in the first half, driven by
a successful start to our Tangier contract. North America has
increased its margin by 30 basis points (bps) to 10.8%. This is as
a result of the 'up or out' strategy and a successful school bus
bid season.
Revenue by division was as follows:
First Half
Revenue in constant currency 2015 2014
----------------------------- ------- -------
Spain and Morocco (EURm) 330.2 319.3
North America (US$m) 553.2 547.7
Revenue in GBPm
----------------------------- ------- -------
Spain and Morocco 241.8 262.3
North America 363.0 333.4
UK Bus 141.4 137.7
UK Coach 132.2 130.5
German Coach - 1.7
Rail 82.0 74.5
Intercompany (0.2) (0.6)
Group 960.2 939.5
----------------------------- ------- -------
Group like-for-like operating profit has increased by 6% to
GBP89.6 million, after allowing for rail and Middle East bid costs
of GBP3.9 million and a GBP0.9 million adverse foreign exchange
variance (further details of this analysis are provided in the
Financial Review). Group normalised operating profit rose by 19% to
GBP89.6 million (2014: GBP75.3m).
First Half Full Year
Normalised operating profit 2015 *2014 *2014
in constant currency
----------------------------- ------ ------ ---------
Spain and Morocco (EURm) 40.5 38.4 93.1
North America (US$m) 59.8 57.5 96.7
Normalised operating profit
GBPm
----------------------------- ------ ------ ---------
Spain and Morocco 29.7 31.5 75.0
North America 39.2 35.2 59.5
UK Bus 17.1 15.3 34.0
UK Coach 10.0 9.3 28.0
Rail 0.6 (6.5) (10.1)
German Coach - (1.4) (1.7)
Corporate (7.0) (8.1) (17.1)
----------------------------- ------ ------ ---------
Normalised operating profit 89.6 75.3 167.6
Interest and associates (22.9) (24.0) (47.7)
----------------------------- ------ ------ ---------
Normalised profit before tax 66.7 51.3 119.9
----------------------------- ------ ------ ---------
*Results restated to adjust for impact of rail and Middle East
bid costs previously treated as exceptional costs
We have made good progress on key strategic issues in the
period:
-- The introduction of significantly enhanced marketing
techniques in c2c have helped drive revenue and passenger growth,
so that the franchise is out-performing the bid plan
o Overall revenue is up 10%, with off-peak growth of nearly 12%
(around twice the London and South East average) and weekend growth
of 27%.
-- North American School Bus has had another successful bidding
season with average price increases across the entire portfolio of
2.8%. Where the customer has run a competition on a contract we
operate and we have retained it, the average price has gone up by
over 5%. Our contract retention rate, excluding those contracts
that we have chosen to exit, is again industry-leading at 99%
o Two small acquisitions were also made at the end of the
period, including a transit business that includes employee shuttle
operations, strengthening our credentials in this market.
-- Further success in German rail, with two new contracts for
RRX services won. We begin our RME services later this year and are
awaiting the outcome of an appeal - due later in the summer -
relating to the Nuremberg S-Bahn
o We have now secured EUR2.6 billion of long-term German rail
revenues, until 2033.
-- We successfully launched services in Bahrain earlier this
year with the second phase due to start in August. This will take
the operation up to 140 buses and will include an 'Oyster-style'
smartcard
o We believe there is further opportunity for growth in Bahrain
and other countries in the Middle East and have submitted a joint
bid for a 400 bus contract in Makkah, Saudi Arabia.
Other highlights include:
-- UK Coach has seen further benefits from its innovative
digital marketing programme and extension of retail partnerships. A
10% increase in revenue during the important Easter and spring
campaigns and a record Glastonbury performance have helped drive up
revenue and profit.
-- Our record investment programme in UK Bus and strong
partnership with the local transport authority is delivering real
customer benefits including new state of the art buses and the
first Pay As You Go smartcard in an ITA area. Such innovation has
helped drive the revenue and profit increases in UK Bus, with
commercial revenue up 3%.
Dividend
The Board has proposed an increase in the interim dividend of
10% to 3.685 pence per share (2014: 3.35p), reflecting its
confidence in the performance and future prospects of the business.
The strength of our cash flow and the continued growth of secure,
long-term revenue from our expanding UK and German rail operations,
led us to say in our previous management statement that we would
review our policy of excluding rail earnings from our dividend
cover. Since then we have won another two German rail contracts,
with our success in the Rhine Ruhr Express competition, securing
earnings until 2033. Our new policy is to include rail profits, so
that our dividend is covered by two times Group earnings. This new
policy enables us to propose a 10% increase in the interim dividend
to 3.685 pence.
First half year normalised basic earnings per share were 10.2
pence (2014: 7.8p). The dividend will be payable on 25 September
2015 to shareholders on the register at close of business on 3
September 2015.
Delivering our strategy
Our portfolio of businesses comprises well established
operations in stable markets with good management teams and access
to growth opportunities. Our three-part strategy aims to build
shareholder value by delivering consistent progress in our core
divisions, generating superior cash and returns, and creating
profits from new, generally capital-light markets.
1. Delivering operational excellence
Our vision is to provide safe, punctual and frequent public
transport services at excellent prices. Operational excellence
focuses on delivering consistent service performance, leading to
revenue growth, and continuous cost efficiency improvement,
generating better margins and returns. As a key programme to embed
excellence, the roll out of the EFQM framework across the Group is
continuing to progress and we are delighted that ALSA has been
awarded a four-star rating for the EFQM on its first assessment,
the first transport company in Spain to achieve this rating.
UK
All our UK businesses have performed well over the first half of
the year, reflecting the on-going focus on delivering quality
services combined with compelling value offers for our
customers.
UK Bus has grown commercial revenue by 3%, with concessionary
revenues bringing the overall growth figure down to 2.6%. We have
combined this commercial revenue performance with tight cost
control and efficiencies with operating margin improving by 100
bps.
We continue to introduce new initiatives designed to enhance bus
services in the West Midlands and we have successfully launched all
83 of our pioneering 'Transforming Bus Travel 3' (TBT) partnership
commitments. As part of those commitments, we have made a record
level of investment of GBP34 million in new fleet. During the
period we have introduced our new Crimson and state of the art
Platinum buses, featuring a number of passenger benefits together
with reduced emissions and more efficient fuel consumption. The
Platinum buses have been introduced alongside local authority
investment in bus priority lanes, delivering faster journey times
and helping to drive growth in passengers. We are already seeing 8%
passenger growth on the first Platinum route. We welcome the West
Midlands ITA's decision to establish a new 'Bus Alliance' to build
on our award-winning partnership and look forward to supporting the
delivery of the West Midlands bus policy through developing and
implementing this new initiative over the coming months.
In close partnership with Centro, we have also rolled out our
smartcards to the Midland Metro tram system, building on our
industry-leading multi-operator smartcards on our buses. Again in
partnership, we have recently launched our new Pay As You Go
smartcard, starting in Coventry, which is the first such product in
an ITA. We have also extended our partnership approach to the
Midland Metro tram, where recently-launched 'Transforming Tram
Travel' contains 50 deliverables to capitalise on our new fleet and
soon-to-be-extended line.
Concessionary revenues are flat year-on-year and are expected to
decline in the second half of the year. This reflects new
concession agreements as a result of local government austerity
meaning cuts in Centro funding. As a result, we anticipate a
reduction of GBP3 million in income from concessions on an
annualised basis, with a GBP1 million impact in the current
year.
UK Coach grew by 1% as core revenue growth of 2.4% helped offset
the impact of lower contract revenues in the first half of the
year. Contract revenues will, however, grow in the second half of
the year as the benefit of recent wins is realised. We continue to
leverage our enhanced CRM capabilities, with strong price
initiatives and targeted marketing campaigns, launched through our
digital and retail sales channels, helping to drive incremental
revenue growth, higher coach occupancy (up 3.7%) and higher
returns. Operating profit rose 8% and operating margin increased by
50 bps.
We also had another record year at Glastonbury, with over 33,000
festival-goers making return journeys on our coaches. Our highly
successful Easter and spring marketing campaigns also saw revenue
growth of 10% year-on-year, helping to offset strong rail
disruption last year. Building on this success we will look to
launch further targeted campaigns over the course of the
summer.
Our strategy of extending our reach through partnerships and new
retail channels continues. We have: signed a new four year
partnership deal with Royal Bank of Scotland, which launched in
July with the RBS Young Person's Coachcard; enhanced our retail
presence overseas by securing new airport outlets; and, have
expanded our online presence through strategic partnerships such as
thetrainline app.
UK Coach also continues to win new contracts which will deliver
incremental revenue in the second half. For example, we have:
secured our position at Stansted Airport following a five year
contract award; won a new three year contract with British Airways
to provide Heathrow staff bussing and inter-airport transfer
services for both passengers and crew; and, recently commenced a 10
year contract to provide inter-campus bus services for the
University of West London.
In Rail we have seen revenue increase by 10%, supported by
strong passenger volume growth of 6% on c2c. The c2c franchise is
out-performing the bid plan. Drawing on many of the insights of our
sophisticated coach digital marketing, c2c have combined new
off-peak fares promotions with a significantly improved marketing
programme. This much more sophisticated approach, that provides
more tailored communications to both existing and potential new
customers, has generated a significant increase in journeys and a
year-on-year reduction in marketing spend. Examples of the fares
promotions are discounted advanced purchase tickets and a 'go
anywhere' Rover ticket for senior citizens. Together, these new
products and enhanced marketing have helped drive an increase in
off-peak revenue of 11.9% (itself nearly twice the London and South
East average of 6.2%) and weekend growth of 27%.
We are also seeing significant take-up of smartcards for season
ticket holders. A programme to encourage take-up has led to nearly
17% of season ticket holders moving on to a smart card, the highest
figure of any train company. We are confident this figure will
continue to grow in the coming months, ahead of the introduction of
our ground-breaking automatic compensation for delays over two
minutes and other customer service improvements. We will also
introduce a new timetable later this year to improve capacity and
connections on the line.
As previously stated, we have seen a significant increase in the
premium charges associated with our new c2c franchise. We have also
changed our policy to account for rail bidding costs within the
business itself. After adjusting to include bidding costs in the
prior period, operating profit for Rail has improved GBP7.1million
year-on-year.
We have been short-listed to bid for the East Anglia franchise
and we look forward to responding to the Invitation to Tender (ITT)
in due course. We will draw on our knowledge of the region and
expertise at pioneering new approaches to customer services to
produce a bid that delivers the improvements passengers rightly
expect alongside returns to taxpayers and shareholders.
German Rail
In June, we were awarded two further contracts in Germany. These
two contracts for RRX services in the Nord Rhine Westphalia region
will generate revenues of EUR1 billion over their lifetimes, with
the first contract commencing in December 2018 and the second one
starting in December 2020. Both will run until 2033. Meanwhile, we
remain on plan with the mobilisation of our other two contracts,
for RME, which commence operations in December this year. Between
these four contracts we have secured EUR2.6 billion of revenue,
until 2033. In addition, we await the outcome of an appeal on the
procurement process for the Nuremberg S-Bahn which we were named
the preferred bidder for in February. Overall, we remain very
positive about the contribution the existing contracts will make to
Group earnings and the opportunity for further success in Germany.
We have pre-qualified for a further two franchises and are
currently targeting contracts with revenue of around
EUR4billion.
North America
During the period we have significantly improved the quality of
earnings in North America. While overall revenue growth on a
constant currency basis is up over 1%, our operating profit has
increased by 4% and operating margin has risen to 10.8% (2014:
10.5%) as we continue to benefit from our 'up or out' strategy and
new business wins.
Rate increases and the performance of new contracts - including
Philadelphia and Memphis - have more than offset the impact of lost
contracts (both regretted and through our 'up or out' strategy) and
fewer operating days in the first half of 2015. The largest loss of
revenue has come through the contracts exited under our 'up or out'
strategy, where returns have not met our required criteria; this
has led to a reduction of 880 buses from contracts we have chosen
to exit. We continue to focus on winning new business on attractive
margins and have added 450 buses over the period through
conversions and share shift. Overall, the net decline in school
buses operated stands at 160, but we expect this figure to be lower
by school start-up as additional routes are added; our entire fleet
remains 21,500.
We have seen a successful bidding season, with average price
increases across the entire portfolio of 2.8%. Where the customer
has run a competition on a contract we operate and we have retained
it, the average price has gone up by over 5%. Our current retention
rate, excluding those contracts that we have chosen to exit,
remains very high at 99% and reflects the excellent levels of
customer service delivered by our North American School Bus
operations.
Towards the end of the first half we made two small
acquisitions, in line with our strategy to increase investment in
attractive new growth opportunities in North America. Given the
timing of the acquisitions, they made a minimal contribution to the
first half results. The larger of the two acquisitions is a transit
business which includes employee shuttle operations, helping
strengthen our credentials in this market. We continue to view the
large and fragmented North American School Bus market as providing
an attractive opportunity for growth, including through further
targeted acquisitions, especially given the improving pricing
environment and more rational competitor behaviour. We will
continue to evaluate opportunities that meet our strict financial
and strategic criteria as they arise.
Change in school bus numbers - 2015 Number
bid season of buses
------------------------------------- ---------
Regretted losses (120)
Exited per 'up or out' strategy (880)
Acquisition 160
Conversions and share shift 450
Organic growth 230
Change in buses operated for 2015/16
school year (160)
------------------------------------- ---------
In our Transit business we have continued our 100% contract
retention rate since its inception in 2012. The benefit of our
focus on operational excellence is further demonstrated by our
customer satisfaction result of 100% and the Annual Customer Survey
resulted in a 100% referral rate from our clients. In the first six
months of the year we have won a contract for the operation and
maintenance of fixed route and paratransit services in Merced
County, California. We also expanded our paratransit contract in
Westmoreland County, Pennsylvania. As already mentioned above, the
two small acquisitions highlighted above includes a transit
business which runs employee shuttle operations, strengthening our
credentials in this market.
Spain and Morocco
ALSA's revenue grew more than 3%. In Spain revenues rose nearly
3%, whilst in Morocco we continued to see strong revenue growth, up
13%, supported by the scaling-up of operations in Tangier and
further growth in Agadir and Marrakech. Operating profit increased
by 5%, reflecting this growth in revenue and lower fuel costs
together with the one-off impact of the industrial action in Spain
in 2014 and additional income from fuel duty rebates. These
benefits were partially offset by redundancy costs, industrial
action and adverse weather.
In Spain we have seen further encouraging signs from the
continued implementation of revenue management on our intercity
routes where we continue to see competition from rail. Drawing on
expertise within the Group, we have enhanced the sophistication of
the system and extended the programme to around 200 flows. In the
first half of the year we have seen revenue growth of 4% and
passenger growth of 7% on those routes where revenue management is
in place. We expect to see further progress as we roll out the
revenue management processes across the whole of our Spanish
business to include both the commuter and regional routes.
The Spanish long distance coach concession renewal process
continues to be delayed by legal issues, and with a general
election due in November we do not anticipate any major progress in
the short-term. As we previously outlined, we do not see a major
impact on revenues before 2017. As a high quality, innovative and
efficient operator, we believe ALSA is well positioned to retain
and secure concessions as and when contracts do come up for
renewal.
In Morocco, we have recently secured a fourth urban bus
contract, in Khouribga. This is a fixed price 10 year contract,
starting in September this year. While a relatively small contract
- it is only for 40 buses - it was awarded purely against quality
criteria and demonstrates the strength of our reputation in
Morocco, where we believe there continues to be future growth
opportunities. We continue to monitor prospects for private sector
involvement in the Spanish domestic rail market. We were
disappointed to come second in the bidding process for the Lisbon
Bus and Metro systems, but will continue to evaluate further
opportunities in the Portuguese market as they arise.
Middle East
We have successfully commenced the first phase of our 10 year
Bahrain bus contract with around 70 buses currently operating and
with a further 70 to be added as we scale-up our operations in
August to serve a total of 35 routes. These services have already
transported 1.7 million passengers with encouraging month-on-month
growth. Phase two will also see the introduction of an
'Oyster-style' smartcard. We are working closely with the transport
authority as they seek to develop public transport further across
Bahrain. And we believe our services in Bahrain will provide a
strong credential for further opportunities in the Middle East. We
have submitted a joint bid for a bus contract in Makkah, Saudi
Arabia, for example and continue to monitor the opportunities
arising across the region, with an active pipeline of nearly GBP800
million in revenue.
Cost efficiency
Alongside revenue growth, we have an on-going programme to drive
cost efficiency across the Group. In 2014 we invested a total of
GBP25.8 million in a restructuring programme to reduce structural
costs across the business, with a target to deliver annual savings
of over GBP11 million. With the benefits of, for example, head
office consolidations such as: Eurolines moving in to UK Coach's
Birmingham office; US Transit moving in to North American School
Bus's Warrenville office; and, Spanish intercity and urban
businesses combining central functions, we are on-target to deliver
the projected GBP11 million of annual savings.
Additionally, as part of our on-going drive for cost
efficiencies, we have delivered GBP2 million of further savings
through: reduced mileage from network optimisation in UK Coach and
ALSA; procurement savings in North America; and, an efficient
driving style programme in UK Bus.
Safety
The Group continues to focus on improving safety performance.
Adopting the UK rail industry standard methodology, which uses a
severity weighted index to monitor performance across all
businesses, customer and employee injuries are being reduced, along
with vehicle collisions. External consultants Arthur D Little have
completed an audit of each division, reporting an overall
improvement in safety of 54% since the 'Driving Out Harm' programme
started in 2010, with a 16% improvement between 2013 and 2014. To
maintain our progress we have placed a renewed focus on driver
training in 2015. All drivers will receive practical defensive
driver training and assessment as we seek to achieve
industry-leading standards across the Group.
2. Superior cash and returns
National Express is focused on cash generation and improving
return on capital. In recent years our focus for free cash flow has
been to pay dividends to shareholders, fund future growth and
reduce debt, with a specific target to reduce our gearing ratio to
a level to mitigate certain key risks, principally the possible
loss of the c2c franchise and Spanish concession renewals. As we
stated in the Full Year Results, these risks have either not
materialised (in the case of c2c where we won the new franchise
securing revenue and cash flow for 15 years), or have been delayed
(Spanish concessions). We have also identified further growth
opportunities and have therefore paused our deleveraging, while
staying within our published target, to use our continued strong
cash flow to invest in specific new growth opportunities that meet
our strict financial and strategic criteria.
During the first half of the year, we generated GBP27.1 million
of free cash flow (2014: GBP66.1m) after significantly increasing
our investment in capital expenditure, as previously announced.
The Group remains on target to deliver GBP100 million of free
cash flow in the full year 2015, adding to the GBP370 million
delivered in the last two years. While our increased investment has
led to a GBP50 million increase in net debt since December 2014 to
2.4 times EBITDA, we believe our current level of free cash flow is
sustainable and our policy of gearing staying within 2.5 times
EBITDA remains. We have continued to deliver improving returns,
with Group return on capital employed increasing to 11.9% (31 Dec
2014: 10.7%); excluding rail and Middle East bid costs, Group
return on capital employed has improved to 12.8% (31 Dec 2014:
12.4%). Our EPS increased to 10.2p (2014: 7.8p).
The strength of our cash flow and the continued growth of
secure, long-term revenue from our expanding UK and German rail
operations, led us to say in our previous management statement that
we would review our policy of excluding rail earnings from our
dividend cover. Since then we have won another two German rail
contracts, with our success in the Rhine Ruhr Express competition,
securing earnings until 2033. Our new policy is to include rail
profits, so that our dividend is covered by two times Group
earnings. This new policy enables us to propose a 10% increase in
the interim dividend to 3.685 pence.
3. Creating new business opportunities
Our unique portfolio of international bus, coach and rail
businesses enables us to grow in selected new markets and add
significant value to the Group. Over the last two years we have
significantly broadened the scope of our business, growing existing
businesses with further contract wins and partnership deals,
together with entering new geographical markets, namely Germany and
the Middle East. In the last six months we have made good progress
in these markets and believe they provide the opportunity for
capital-light growth in the coming years. In the first half of this
year, we have secured a further EUR1 billion of revenues in German
Rail, and now have a total of EUR2.6 billion of secure long-term
revenues through these contracts. We are currently pre-qualified
for a further two contracts and believe the German rail market
provides an interesting opportunity for further growth.
The majority of our target markets are capital-light in nature
and we will continue to deploy capital in a way that enables us to
secure high returns on investment.
Our key business development opportunities include:
-- German Rail: We are currently pre-qualified for a further two
bids, worth around EUR1.5 billion in annualised revenue. We have
secured EUR2.6 billion of revenue through our success in winning
the RME and RRX services. We hope to secure an additional two
contracts once the appeal against the procurement process for the
EUR1.4 billion Nuremberg S-Bahn - where we were named preferred
bidder in February - concludes during the summer. And we have an
active pipeline of further bids of around EUR4 billion.
-- International opportunities: Building on our success in
launching new services in Bahrain, we have submitted a joint
venture bid to operate bus services in Makkah, Saudi Arabia. This
is an 8.5 year contract to operate 400 buses. We continue to
monitor other emerging opportunities in the region and believe the
medium-term prospects for growth are positive. We currently have an
active pipeline of GBP800 million in revenue.
-- North America: We will invest further in acquisitions which
meet our strict financial and strategic objectives. We have made
two small acquisitions at the end of the period, including a
transit business which includes employee shuttle operations,
strengthening our credentials in this market. We continue to view
the large and fragmented North American School Bus market as
providing an attractive opportunity for growth, including through
further targeted acquisitions, especially given the improving
pricing environment and more rational competitor behaviour. We are
currently evaluating a number of opportunities and will provide an
update on our progress later in the year.
-- UK Rail: In June we were shortlisted for the East Anglia
franchise. The franchise is expected to commence operations in
autumn 2016. The DfT is due to release the ITT over the summer and
we will draw on our knowledge of the region and expertise at
pioneering new approaches to customer service, to produce a bid
that delivers the improvements passengers rightly expect alongside
returns to taxpayers and shareholders. With a strong pipeline of
franchises likely to be re-let in the next few years, we will look
to remain active participants in the UK rail market. We will
continue to look for opportunities where the ability to deliver
significant improvements in services is matched by the appropriate
risk and returns for shareholders.
Outlook
We remain on course to deliver our profit expectations for 2015.
We will continue to focus on cash generation, alongside a greater
emphasis on investing for the future growth of the business. This
will include targeting capital-light opportunities in Germany and
the Middle East and investing further in North America. We are well
advanced in our plans to mobilise our first German Rail contract
which starts operations in December and see the successful
mobilisation of our bus operations in Bahrain as the stepping stone
for further growth in the Middle East. We continue to develop our
pipeline of UK and international bid opportunities and remain
excited by the opportunities in both our existing and new markets,
which we believe can generate significant future shareholder
value.
Dean Finch
Group Chief Executive
29 July 2015
FINANCIAL REVIEW
Revenue
Group revenue for the period was GBP960.2 million (2014:
GBP939.5m), an overall increase of 2.2%. Underlying revenue (on a
constant currency basis) increased by 2.5%. Rail was the strongest
performer, up 10%, ahead of the bid plan. This has included
significant off-peak growth of nearly 12%, driven by new fares
promotions and an improved marketing programme. Commercial revenue
in UK Bus grew by 3% as we continue to benefit from our multi-award
winning partnership and record investment in new buses this year.
UK Coach grew by 1% as core revenue growth of 2.4% helped offset
the impact of lower contract revenues which will recover in the
second half of the year as the benefit of recent wins is
realised.
Revenue in Spain grew by nearly 3%, which continued to see a
positive response to the revenue management system put in place on
the main rail-competed corridors. Morocco also saw 13% growth,
driven by the scaling up of operations in Tangier. Together these
drove ALSA's revenue up over 3%. Underlying revenue in North
America was up around 1% on a constant currency basis but was down
slightly in US Dollars as the depreciation of the Canadian Dollar
to the US Dollar affected the translation of our Canadian revenues.
The 1% constant currency growth reflects the rate increases and
performance of new contracts - including Philadelphia and Memphis -
more than offsetting the impact of lost contracts (both regretted
and through our 'up or out' strategy) and fewer operating days in
the first half of 2015.
Revenue bridge GBPm
----------------------------------------- -----
2014 first half year revenue 939.5
Currency translation (2.7) % Change
----------------------------------------- ----- --------
2014 first half year revenue at constant
currency 936.8
Organic growth 25.7
Fewer operating days (3.0)
Weather 0.7
----------------------------------------- ----- --------
2015 first half year revenue 960.2 2.5%
----------------------------------------- ----- --------
Normalised profit
Group normalised operating profit increased by 19% to GBP89.6
million (2014: GBP75.3m); Group like-for-like operating profit has
increased by 6% to GBP89.6m, after allowing for rail and Middle
East bid costs of GBP3.9 million (H1 2014: GBP14.2m) and a GBP0.9
million adverse foreign exchange variance as set out below. This
reflected our focus on driving organic revenue growth and cost
efficiency to protect and grow margin.
Profit bridge GBPm
------------------------------------------ ------
2014 first half year normalised operating
profit (as reported) 89.5
Currency (0.9)
Rail and Middle East bid costs in 2014 (14.2)
------------------------------------------ ------
Restated operating profit at constant
currency 74.4
Incrementally lower rail and Middle East 10.3 % Change
bid costs in 2015
------------------------------------------ ------ --------
Like-for-like operating profit 84.7
Growth 12.3
Fewer operating days (0.9)
Cost inflation (6.2)
Cost efficiency 8.3
Net rail charges (premium and access
charges) (11.8)
Fuel price benefit 2.7
Weather 0.5
------------------------------------------ ------ --------
2015 first half normalised operating
profit 89.6 6%
------------------------------------------ ------ --------
UK Bus grew profit by GBP1.8 million while UK Coach grew profit
by GBP0.7 million. Profit in Rail was GBP0.6 million versus a loss
of GBP6.5m in the first half of 2014, reflecting the impact of
lower incremental rail bid costs which combined with strong revenue
growth more than offset the significantly increased premium
charges. Profit in ALSA was up 5% on a constant currency basis,
reflecting revenue growth in Morocco together with lower fuel costs
and cost efficiencies. The reported result for ALSA has been
adversely affected by the strengthening of Sterling versus the Euro
over the last 12 months, with the result that operating profit is
down 6% on currency translation. North America divisional operating
profit increased by $2.3 million on a constant currency basis, with
the benefit of price increases and gains from improvement in
contract quality being partially offset by cost pressures,
including driver wages. The strengthening of the US Dollar versus
Canadian Dollar has adversely impacted the net operating profit for
North America by $1.3 million in the first half. Central costs have
decreased, predominantly reflecting lower Middle East bid and
overhead costs.
Net finance costs decreased to GBP23.1 million (2014: GBP24.2m),
benefitting from lower interest rates secured on our recently
renewed Revolving Credit Facility. With associate income of GBP0.2
million (2014: GBP0.2m), normalised profit before tax was GBP66.7
million (2014: GBP51.3m).
The Group's effective tax rate for 2015 is forecast to be around
20% (2014: 19%), in line with the expected medium-term rate,
subject to future legislative changes. Normalised basic earnings
per share were 10.2 pence (2014: 7.8p).
Exceptional items
There are no exceptional items in the period; in line with our
previously stated policy, business development costs associated
with developing our rail and Middle East markets are now no longer
treated as exceptional items and are charged to the relevant
business division. In the first half of 2014, GBP13.5 million was
invested in the restructuring of existing non-rail operations in
order to maintain their market leading positions and to respond to
both opportunities and challenges.
Exceptional items Full
First Half Year
-------------------------- ------------------ ------
2015 *2014 *2014
GBPm GBPm GBPm
-------------------------- -------- -------- ------
Restructuring - (7.5) (25.8)
Strategic rationalisation - (6.0) (18.3)
Exceptional fuel credits - - 19.3
-------------------------- -------- -------- ------
Exceptional items - (13.5) (24.8)
-------------------------- -------- -------- ------
*Results restated to adjust for impact of rail and Middle East
bid costs previously treated as exceptional costs
IFRS results
Intangible amortisation decreased to GBP12.4 million (2014:
GBP14.4m), due to intangible assets on some Spanish concessions
becoming fully amortised. Profit for the period was GBP44.8 million
(2014: GBP20.6m). Basic EPS were 8.5 pence (2014: 3.9p), with the
rise of 118% reflecting the non-recurrence of rationalisation and
restructuring costs in 2015, together with underlying growth and
lower bid costs.
IFRS profit First Half Full Year
-------------------------------- ------------------------- ----------
2014 2014
2015 GBPm GBPm
GBPm *Restated *Restated
-------------------------------- --------- -------------- ----------
Normalised profit before tax 66.7 51.3 119.9
Exceptional items - (13.5) (24.8)
Intangible amortisation (12.4) (14.4) (28.6)
-------------------------------- --------- -------------- ----------
Profit before tax 54.3 23.4 66.5
Tax charge (9.5) (2.8) (5.9)
-------------------------------- --------- -------------- ----------
Statutory profit for the period 44.8 20.6 60.6
-------------------------------- --------- -------------- ----------
* Results restated to adjust for impact of rail and Middle East
bid costs previously treated as exceptional costs
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. Previously the Group targeted increased cash
flow generation that was driven by a programme of capital
rationalisation to drive better returns. As outlined in February
this year, from 2015 onwards, our focus is to place greater
emphasis on investing for the future growth of the business, and as
previously indicated, capital investment is anticipated to return
to more typical levels (around 1.1 to 1.2 times depreciation).
In the first half of the year, operating cash flow was GBP62.2
million (2014: GBP104.1m), after a significantly increased level of
maintenance capital expenditure, net of disposals, of GBP75.0
million, over half our target for the full year of around GBP120
million. The majority of the maintenance capital investment has
been in fleet replacement in the UK, Spain and North America.
There was an inflow in working capital of GBP0.2 million (2014
inflow: GBP7.5m).
GBP27.1 million of free cash flow was generated in the period
(2014: GBP66.1m) reflecting the higher level of maintenance capital
expenditure, which was around GBP50 million higher than in the
comparative period last year. This free cash flow was after the
annual interest coupon payments on the Group's corporate bonds. We
are targeting delivery of GBP100 million in free cash flow in the
full year and as previously indicated, we see this level of cash
generation as being sustainable going forward.
Free cash flow Full
First Half Year
-------------------------------------- ----------------------------- ------
2015 *2014 *2014
GBPm GBPm GBPm
-------------------------------------- -------------- ------------- ------
Normalised operating profit 89.6 75.3 167.6
Depreciation and other non-cash
items 52.3 50.4 102.1
-------------------------------------- -------------- ------------- ------
EBITDA 141.9 125.7 269.7
Net maintenance capital expenditure (75.0) (25.3) (43.2)
Working capital movement 0.2 7.5 4.8
Pension contributions above normal
charge (4.9) (3.8) (8.7)
-------------------------------------- -------------- ------------- ------
Operating cash flow 62.2 104.1 222.6
-------------------------------------- -------------- ------------- ------
Payments to associates and minorities - (0.5) 1.3
Net interest paid (33.8) (34.7) (46.1)
Tax paid (1.3) (2.8) (13.0)
-------------------------------------- -------------- ------------- ------
Free cash flow 27.1 66.1 164.8
UK rail franchise exit outflow - (0.9) (1.6)
Exceptional cash (5.8) (9.2) (19.2)
-------------------------------------- -------------- ------------- ------
Cash flow available for growth
& dividends 21.3 56.0 144.0
-------------------------------------- -------------- ------------- ------
* Results restated to adjust for impact of rail and Middle East
bid costs previously treated as exceptional costs
From free cash flow, there was an outflow of GBP5.8 million from
the run-off of exceptional items, with a further GBP21.3 million
(2014: GBP56.0m) available to invest in growth capital projects,
bolt-on acquisitions and capital return to shareholders. The
majority of the growth capital investment has been for growing our
fleet on new services such as in Tangier in Morocco, investment
relating to our new c2c franchise and investment in technology
which will help to drive revenue growth, including our revenue
management systems in Spain and the UK. Having significantly
reduced net debt over the last few years, we are now in a strong
position to exploit new growth opportunities with a focus on North
America where we see excellent opportunities in a large and
fragmented market, with a continuing trend in conversions. During
the period we acquired two businesses, one in School Bus and one in
Transit, for a combined cash consideration of GBP22 million.
Return on capital employed is a key measure of incremental
investment decisions and we are pleased with the progress we have
made. Group return on capital employed increased to 11.9% (31 Dec
2014: 10.7%); excluding rail and Middle East bid costs Group return
on capital employed has improved to 12.8% (31 Dec 2014: 12.4%).
With a final dividend payment of GBP35.5 million (2014: GBP34.5m),
the net outflow of funds in the period after foreign exchange
movements was GBP50.0 million (2014: GBP17.1m inflow). Net debt
increased to GBP714.3 million (31 Dec 2014: GBP664.3m) after
investing GBP22.2 million on acquisitions and GBP20.7 million in
growth capital expenditure during the period; net debt is GBP15
million lower over the 12 month period.
Net funds flow Full
First Half Year
---------------------------------- ------------------------------ ---------------
2015 2014 2014
GBPm GBPm GBPm
---------------------------------- -------------- -------------- ---------------
Cash flow available for growth
& dividends 21.3 56.0 144.0
Net growth capital expenditure (20.7) (7.3) (7.3)
Acquisitions and disposals (22.2) (6.0) (5.9)
Dividends (35.5) (34.5) (51.6)
Other, including foreign exchange 7.1 8.9 2.6
---------------------------------- -------------- -------------- ---------------
Net funds flow (50.0) 17.1 81.8
---------------------------------- -------------- -------------- ---------------
Dividend
The strength of our cash flow and the continued growth of
secure, long-term revenue from our expanding UK and German rail
operations, led us to say in our previous management statement that
we would review our policy of excluding rail earnings from our
dividend cover. Since then we have won another two German rail
contracts, with our success in the Rhine Ruhr Express competition,
securing earnings until 2033. Our new policy is to include rail
profits, so that our dividend is covered by two times Group
earnings. This new policy enables us to propose a 10% increase in
the interim dividend to 3.685 pence.
Treasury management
The Group maintains a prudent approach to its financing and is
committed to an investment grade credit rating. The Board's policy
targets a level of debt that allows for disciplined investment and
ample headroom on its covenants, with net debt to EBITDA at a ratio
of 2.0x to 2.5x in the medium-term. Both Moody's and Fitch credit
rating agencies have reaffirmed their investment grade credit
rating in the second quarter of this year.
The Group's key accounting debt ratios at 30 June 2015 were as
follows:
-- Gearing ratio: 2.4 times EBITDA (31 Dec 2014: 2.25x; bank covenant not to exceed 3.5x);
-- Interest cover ratio: EBITDA 6.5 times interest (31 Dec 2014:
6.3x; bank covenant not to be less than 3.5x).
The Group has a strong funding platform that underpins delivery
of its strategy. Core funding is provided from non-bank sources, to
provide improved certainty and maturity of funding. At 30 June
2015, this represented GBP737 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, a
private placement of EUR78 million maturing in 2021 and GBP109
million of finance leases. The residual debt balance is funded from
the Group's GBP416 million revolving credit facility (RCF), with a
margin of 0.6% over LIBOR and maturing in 2019. At 30 June 2015,
the Group had GBP459 million in cash and undrawn committed
facilities available. The Group has begun discussions regarding the
refinancing of its GBP350m bond expiring in 2017.
At 30 June 2015, the Group had foreign currency debt and swaps
held as net investment hedges. These help mitigate volatility in
foreign currency profit translation with corresponding movements in
the Sterling value of debt. These corresponded to 1.9 times EBITDA
earned in the US, held in US Dollars, and 1.9 times EBITDA earned
in Spain and Germany, held in Euros. The Group hedges its exposure
to interest rate movements to maintain a balance between fixed and
floating interest rates on borrowings. It has therefore entered
into a series of swaps that have the effect of converting fixed
rate debt to floating rate debt. The net effect of these
transactions was that, at 30 June 2015, the proportion of Group
debt at floating rates was 34%.
Pensions
The Group's principal defined benefit pension schemes are all in
the UK. The combined deficit under IAS19 at 30 June 2015 decreased
to GBP11.7 million (31 Dec 2014: GBP11.9m). The Group has
previously reached agreement with the trustees of its key schemes
which have fixed the deficit payments, under most eventualities, to
just under GBP10 million per annum until 2017, calculated on a
scheme funding basis. The two principal plans are the UK Group
scheme, which closed to new accrual in 2011, and the West Midlands
Bus plan, which remains open to accrual for existing active members
only.
Fuel costs
Fuel cost represents approximately 9% of revenue. The Group is
fully hedged for 2015 and 2016 at an average price of 44p and 42p
per litre respectively, 88% hedged for 2017 at an average price of
41p and 22% hedged for 2018 at an average price of 34p.
Principal risks and uncertainties
The Group's other principal risks and uncertainties remain in
line with those detailed in the Annual Report and Accounts 2014 on
pages 26 and 27 and are summarised here:
-- Concession and contract renewal: although there is little
bidding activity remaining in 2015 there will be significant
activity recommencing in the first half of 2016 to retain and renew
our 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 the economy, political decisions
(including the upcoming risk to a reduction in BSOG) and conflict
in fuel producing nations 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
29 July 2015
Cautionary statement
This Review is intended to focus on matters which are relevant
to the interests of shareholders in the Company. The purpose of the
Review is to assist shareholders in assessing the strategies
adopted and performance delivered by the Company and the potential
for those strategies to succeed. It should not be relied upon by
any other party or for any other purpose.
Forward looking statements are made in good faith, based on a
number of assumptions concerning future events and information
available to Directors at the time of their approval of this
report. These forward looking statements should be treated with
caution due to the inherent uncertainties underlying any such
forward looking information. The user of these accounts should not
rely unduly on these forward looking statements, which are not a
guarantee of performance and which are subject to a number of
uncertainties and other events, many of which are outside of the
Company's control and could cause actual events to differ
materially from those in these statements. No guarantee can be
given of future results, levels of activity, performance or
achievements.
Responsibility statement
We confirm that, to the best of our knowledge, this half-yearly
financial report:
-- Has been prepared in accordance with IAS 34 "Interim
Financial Reporting" as adopted by the European Union;
-- Includes a fair review of the information required by the
Disclosure and Transparency Rules ("DTR") 4.2.7R (indication of
important events during the first six months and description of
principal risks and uncertainties for the remaining six months of
the year);
-- Includes a fair review of the information required by DTR
4.2.8R (disclosure of related party transactions and changes
therein).
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the United Kingdom governing the
preparation and dissemination of financial information differs from
legislation in other jurisdictions.
29 July 2015
NATIONAL EXPRESS GROUP PLC
CONDENSED GROUP INCOME STATEMENT
For the six months ended 30 June 2015
Unaudited six months to 30
June
--------------------------------------------------------------------------- -------
Total
before Audited
intangible Intangible Year
Total amortisation amortisation to 31
before & exceptional & exceptional December
intangible Intangible items items Total
amortisation amortisation Total (restated)* (restated)* Total (restated)*
2015 2015 2015 2014 2014 2014 2014
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Continuing
operations
Revenue 4 960.2 - 960.2 939.5 - 939.5 1,867.4
------------- ------------- ------- -------------- -------------- ------- ------------
Operating costs
before
intangible
amortisation
& exceptional
items (870.6) - (870.6) (864.2) - (864.2) (1,699.8)
Intangible
amortisation 5 - (12.4) (12.4) - (14.4) (14.4) (28.6)
Exceptional
items 6 - - - - (13.5) (13.5) (24.8)
------------- ------------- ------- -------------- -------------- ------- ------------
Total operating
costs (870.6) (12.4) (883.0) (864.2) (27.9) (892.1) (1,753.2)
---------------- ---- ------------- ------------- ------- -------------- -------------- ------- ------------
Group operating
profit 4 89.6 (12.4) 77.2 75.3 (27.9) 47.4 114.2
Share of results
of associates 0.2 - 0.2 0.2 - 0.2 0.3
Finance income 7 2.8 - 2.8 2.7 - 2.7 6.5
Finance costs 7 (25.9) - (25.9) (26.9) - (26.9) (54.5)
---------------- ---- ------------- ------------- ------- -------------- -------------- ------- ------------
Profit before
tax 66.7 (12.4) 54.3 51.3 (27.9) 23.4 66.5
Tax
(charge)/credit 6,8 (13.3) 3.8 (9.5) (10.7) 7.9 (2.8) (5.9)
---------------- ---- ------------- ------------- ------- -------------- -------------- ------- ------------
Profit for the
period 53.4 (8.6) 44.8 40.6 (20.0) 20.6 60.6
------------- ------------- ------- -------------- -------------- ------- ------------
Profit
attributable
to equity
shareholders 52.1 (8.6) 43.5 40.0 (20.0) 20.0 59.1
Profit
attributable
to
non-controlling
interests 1.3 - 1.3 0.6 - 0.6 1.5
------------- ------------- ------- -------------- -------------- ------- ------------
53.4 (8.6) 44.8 40.6 (20.0) 20.6 60.6
---------------- ---- ------------- ------------- ------- -------------- -------------- ------- ------------
Earnings per
share:
- basic earnings
per share 10 8.5p 3.9p 11.6p
- diluted
earnings
per share 10 8.5p 3.9p 11.5p
Normalised
earnings
per share
(restated)*:
- basic earnings
per share 10 10.2p 7.8p 18.9p
- diluted
earnings
per share 10 10.2p 7.8p 18.9p
---------------- ---- ------------- ------------- ------- -------------- -------------- ------- ------------
*restated for the reclassification of business development costs
from exceptional items as disclosed in note 1.
NATIONAL EXPRESS GROUP PLC
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 June 2015
Unaudited Unaudited Audited
six six year
months months to
to to 31 December
30 June 30 June 2014
2015 2014 GBPm
GBPm GBPm
----------------------------------------- --------- --------- ------------
Profit for the period 44.8 20.6 60.6
Items that will not be reclassified
subsequently to profit or loss:
Actuarial (losses)/gains on defined
benefit pension plans (4.0) 4.4 10.1
Deferred tax on actuarial (losses)/gains 0.8 (1.2) (2.3)
----------------------------------------- --------- --------- ------------
(3.2) 3.2 7.8
----------------------------------------- --------- --------- ------------
Items that may be reclassified
subsequently to profit or loss:
Exchange differences on retranslation
of net assets of foreign operations
(net of hedging) (79.3) (45.3) (25.0)
Exchange differences on retranslation
of non-controlling interests (1.1) (0.3) (0.8)
Gains/(losses) on cash flow hedges 8.1 (0.1) (80.3)
Less: reclassification adjustments
for gains or losses included in
profit 15.5 1.6 12.3
Tax on exchange differences (2.7) 1.8 0.1
Deferred tax on cash flow hedges (4.7) (0.3) 13.6
----------------------------------------- --------- --------- ------------
(64.2) (42.6) (80.1)
----------------------------------------- --------- --------- ------------
Total comprehensive expenditure
for the period (22.6) (18.8) (11.7)
----------------------------------------- --------- --------- ------------
Total comprehensive expenditure
attributable to:
--------- --------- ------------
Equity shareholders (22.8) (19.1) (12.4)
Non-controlling interests 0.2 0.3 0.7
--------- --------- ------------
(22.6) (18.8) (11.7)
----------------------------------------- --------- --------- ------------
NATIONAL EXPRESS GROUP PLC
CONDENSED GROUP BALANCE SHEET
At 30 June 2015
Unaudited Audited
Unaudited 30 31
30 June June December
2015 2014 2014
Note GBPm GBPm GBPm
--------------------------------- ---- --------- --------- ---------
Non-current assets
Intangible assets 1,121.8 1,177.0 1,177.4
Property, plant and equipment 736.5 698.4 729.9
Available for sale investments 6.3 7.1 6.8
Derivative financial instruments 11 15.9 16.5 26.5
Deferred tax assets 25.7 19.5 29.9
Investments accounted for
using the equity method 5.1 5.4 5.4
Trade and other receivables 1.8 2.6 1.8
Defined benefit pension
assets 12 41.4 20.7 40.6
--------------------------------- ---- --------- --------- ---------
1,954.5 1,947.2 2,018.3
--------------------------------- ---- --------- --------- ---------
Current assets
Inventories 20.9 20.7 21.8
Trade and other receivables 189.8 179.4 199.6
Derivative financial instruments 11 0.3 2.2 1.5
Current tax assets - 1.0 1.3
Cash and cash equivalents 43.3 43.3 83.7
--------------------------------- ---- --------- --------- ---------
254.3 246.6 307.9
--------------------------------- ---- --------- --------- ---------
Total assets 2,208.8 2,193.8 2,326.2
--------------------------------- ---- --------- --------- ---------
Non-current liabilities
Borrowings (734.1) (741.2) (741.8)
Derivative financial instruments 11 (22.4) (1.0) (36.1)
Deferred tax liability (57.4) (72.8) (66.0)
Other non-current liabilities (10.7) (4.8) (4.1)
Defined benefit pension
liabilities 12 (53.1) (42.7) (52.5)
Provisions (23.4) (19.2) (23.5)
--------------------------------- ---- --------- --------- ---------
(901.1) (881.7) (924.0)
--------------------------------- ---- --------- --------- ---------
Current liabilities
Trade and other payables (400.3) (355.0) (415.7)
Borrowings (50.5) (55.8) (55.9)
Derivative financial instruments 11 (22.9) (3.7) (35.8)
Current tax liabilities (30.8) (23.5) (23.3)
Provisions (26.9) (32.1) (35.3)
--------------------------------- ---- --------- --------- ---------
(531.4) (470.1) (566.0)
--------------------------------- ---- --------- --------- ---------
Total liabilities (1,432.5) (1,351.8) (1,490.0)
--------------------------------- ---- --------- --------- ---------
Net assets 776.3 842.0 836.2
--------------------------------- ---- --------- --------- ---------
Shareholders' equity
Called up share capital 25.6 25.6 25.6
Share premium account 532.7 532.7 532.7
Capital redemption reserve 0.2 0.2 0.2
Own shares (1.5) (1.7) (1.5)
Other reserves (95.9) 4.1 (32.8)
Retained earnings 302.4 270.6 299.3
--------------------------------- ---- --------- --------- ---------
Total shareholders' equity 763.5 831.5 823.5
Non-controlling interest
in equity 12.8 10.5 12.7
--------------------------------- ---- --------- --------- ---------
Total equity 776.3 842.0 836.2
--------------------------------- ---- --------- --------- ---------
NATIONAL EXPRESS GROUP PLC
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2015
Capital
Share Share Redemption Own Other Retained Non-controlling
capital premium reserve shares reserves earnings Total interests Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------- -------- -------- ----------- ------- --------- --------- ------ --------------- ------
At 1 January
2015 25.6 532.7 0.2 (1.5) (32.8) 299.3 823.5 12.7 836.2
Own shares
released
to satisfy
employee
share schemes - - - 2.3 - (2.3) --- - -
Shares purchased - - - (2.3) - - (2.3) - (2.3)
Total comprehensive
income - - - - (63.1) 40.3 (22.8) 0.2 (22.6)
Share-based
payments - - - - - 0.7 0.7 - 0.7
Tax on share-based
payments - - - - - (0.1) (0.1) - (0.1)
Dividends - - - - - (35.5) (35.5) - (35.5)
Dividends
paid to
non-controlling
interests - - - - - - - (0.1) (0.1)
------------------- -------- -------- ----------- ------- --------- --------- ------ --------------- ------
At 30 June
2015 (unaudited) 25.6 532.7 0.2 (1.5) (95.9) 302.4 763.5 12.8 776.3
------------------- -------- -------- ----------- ------- --------- --------- ------ --------------- ------
Capital
Share Share Redemption Own Other Retained Non-controlling
capital premium reserve shares reserves earnings Total interests Total
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
Own shares
released
to satisfy
employee
share schemes - - - 1.8 - (1.8) - - -
Shares purchased - - - (2.7) - - (2.7) - (2.7)
Total comprehensive
income - - - - (42.4) 23.3 (19.1) 0.3 (18.8)
Share-based
payments - - - - - 1.4 1.4 - 1.4
Tax on share-based
payments - - - - - (0.2) (0.2) - (0.2)
Dividends - - - - - (34.5) (34.5) - (34.5)
Dividends
paid to
non-controlling
interests - - - - - - - (0.5) (0.5)
At 30 June
2014 25.6 532.7 0.2 (1.7) 4.1 270.6 831.5 10.5 842.0
(unaudited)
------------------- -------- -------- ----------- ------- --------- --------- ------ --------------- --------
NATIONAL EXPRESS GROUP PLC
CONDENSED GROUP STATEMENT OF CASH FLOWS
For the six months ended 30 June 2015
Unaudited Unaudited
six months six months Audited
to 30 to 30 year to
June June 31 December
2015 2014 2014
Note GBPm GBPm GBPm
------------------------------------- ---- ----------- ----------- ------------
Cash generated from operations 15 132.4 119.3 245.2
Tax paid (2.3) (2.8) (13.0)
------------------------------------- ---- ----------- ----------- ------------
Net cash from operating activities 130.1 116.5 232.2
------------------------------------- ---- ----------- ----------- ------------
Cash flows from investing activities
Payments to acquire businesses,
net of cash acquired 13 (22.0) (5.2) (5.2)
Deferred consideration for
businesses acquired and disposed (0.1) (0.5) (0.5)
Purchase of property, plant
and equipment (83.1) (37.6) (55.7)
Proceeds from disposal of property,
plant and equipment 4.4 7.7 13.9
Payments to acquire intangible
assets (3.3) (2.7) (7.5)
Payments to acquire associates (0.1) (0.3) (0.2)
Interest received 9.3 9.4 5.9
------------------------------------- ---- ----------- ----------- ------------
Net cash used in investing
activities (94.9) (29.2) (49.3)
------------------------------------- ---- ----------- ----------- ------------
Cash flows from financing activities
Purchase of own shares (2.3) (2.7) (3.2)
Interest paid (41.9) (42.8) (49.7)
Finance lease principal payments (13.9) (11.7) (28.8)
Net loans drawn down/(repaid) 20.6 2.3 (9.7)
(Payment)/receipt on the maturity
of foreign currency swaps (0.3) 6.0 2.4
Dividends paid to non-controlling
interests - (0.5) (0.2)
Contribution from non-controlling
interests - - 1.5
Dividends paid to shareholders
of the Company (35.5) (34.5) (51.6)
------------------------------------- ---- ----------- ----------- ------------
Net cash used in financing
activities (73.3) (83.9) (139.3)
------------------------------------- ---- ----------- ----------- ------------
(Decrease)/increase in cash
and cash equivalents (38.1) 3.4 43.6
------------------------------------- ---- ----------- ----------- ------------
Opening cash and cash equivalents 83.7 40.9 40.9
(Decrease)/increase in cash
and cash equivalents (38.1) 3.4 43.6
Foreign exchange (2.3) (1.0) (0.8)
------------------------------------- ---- ----------- ----------- ------------
Closing cash and cash equivalents 43.3 43.3 83.7
------------------------------------- ---- ----------- ----------- ------------
NATIONAL EXPRESS GROUP PLC
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS
For the six months ended 30 June 2015
1. General information
These interim condensed consolidated financial statements for
the six months ended 30 June 2015 have been prepared using the
accounting policies set out on pages 98 to 106 of the Group's
Annual Report and Accounts 2014 except as described below and in
accordance with the Disclosure and Transparency Rules (DTR) and
International Accounting Standard (IAS) 34 "Interim Financial
Reporting". Taxes on income in the interim periods are accrued
using the tax rate that is expected to apply to total annual
earnings.
The interim results are unaudited but have been reviewed by the
Group's auditors. The financial information presented herein does
not amount to full statutory accounts within the meaning of Section
434 of the Companies Act 2006. The figures for the year ended 31
December 2014 have been extracted from the Group's Annual Report
and Accounts 2014 which has been filed with the Registrar of
Companies. The audit report on the Group's Annual Report and
Accounts 2014 was unqualified and did not contain a statement under
Section 498 (2) or (3) of the Companies Act 2006. The Group's
Annual Report and Accounts 2014 are prepared in accordance with
IFRS as adopted by the European Union.
Going concern
The Group has a stable financing platform and its key debt
ratios are within the Board's target range and well within the
Group's banking covenant. The directors are satisfied that the
Group has sufficient resources to continue in operation for the
foreseeable future, a period of not less than 12 months from the
date of this report. Accordingly, they continue to adopt the going
concern basis in preparing the condensed financial statements.
Changes in accounting policies and restatements
There have been no significant new standards made effective from
1 January 2015, therefore the same accounting policies and methods
of computation are followed in these condensed set of financial
statements as applied in the Group's latest annual audited
financial statements.
Following recent successful bidding in both Rail franchise
contracts and public vehicle contracts in the Middle East, the
Directors have decided to classify business development costs as
part of the recurring operations of the business and hence part of
the normalised performance in 2015. For comparability, the similar
costs in 2014 (which were treated as exceptional items) have been
reclassified to be consistent with the current year presentation,
along with the imputed tax credits. The reclassification has no
effect on the IFRS reported results.
A reconciliation of prior period operating profit is as
follows:
Six months Year
to to
Operating profit before intangible 30 June 31 December
amortisation and exceptional 2014 2014
items GBPm GBPm
----------------------------------- ---------- ------------
As previously reported 89.5 193.1
Business development costs
in Rail (11.9) (19.8)
Business development costs
in Spain and Morocco (0.2) (0.8)
Business development costs
in Central Functions (2.1) (4.9)
As restated 75.3 167.6
------------------------------------ ---------- ------------
1. General information (continued)
Changes in accounting policies and restatements (continued)
A reconciliation of prior period taxation is as follows:
Six months Year
to to
Tax credits on intangible asset 30 June 31 December
amortisation and exceptional 2014 2014
items GBPm GBPm
--------------------------------- ---------- ------------
As previously reported 11.7 21.8
Tax credits relating to business
development costs (3.8) (5.9)
As restated 7.9 15.9
---------------------------------- ---------- ------------
Seasonality
The Group operates a diversified portfolio of bus, coach and
rail businesses operating in international markets. The North
American bus business typically earns higher operating profits for
the first half of the year (ie the 6 months to 30 June) than for
the second half. This is because of the timing of school terms and
the summer holiday period. The UK and Spanish coach businesses
typically earn lower operating profits for the first half of the
year than the second half. This is because of the higher demand
created by leisure travellers during the summer months. On a Group
basis, the results are not materially seasonal in nature.
2. Exchange rates
The most significant exchange rates to UK Sterling for the Group
are as follows:
Six months Six months Year to 31
to 30 June to 30 June December 2014
2015 2014
Closing Average Closing Average Closing Average
rate rate rate rate rate rate
---------------- ------- ------- ------- ------- ------- -------
US dollar 1.57 1.52 1.71 1.67 1.56 1.65
Canadian dollar 1.96 1.88 1.83 1.83 1.81 1.82
Euro 1.41 1.37 1.25 1.22 1.29 1.24
---------------- ------- ------- ------- ------- ------- -------
If the results for the 6 months to 30 June 2014 had been
retranslated at the average exchange rates for the year to 30 June
2015, North America would have achieved normalised operating profit
of GBP37.8m on revenue of GBP359.4m, compared to normalised
operating profit of GBP35.2m on revenue of GBP333.4m as reported,
and Spain and Morocco would have achieved a normalised operating
profit of GBP28.1m on revenue of GBP233.9m, compared to normalised
operating profit of GBP31.5m on revenue of GBP262.3m as
reported.
3. Risks and uncertainties
The principal risks and uncertainties are described in the
Financial Review. Additional information on risks and uncertainties
is contained on pages 24-27 in the Group's Annual Report and
Accounts 2014.
4. 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. Commentary on
the segments is included in the Business and Financial Reviews.
Six months to Year to 31 December
30 June
---------------------------
Operating Operating
Operating result result
Analysis by class Revenue result Revenue (restated)* Revenue (restated)*
and geography 2015 2015 2014 2014 2014 2014
of business GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ------- --------- ------- ------------ ------- ------------
UK Bus 141.4 17.1 137.7 15.3 281.0 34.0
UK Coach 132.2 10.0 130.5 9.3 275.2 28.0
Rail 82.0 0.6 74.5 (6.5) 151.6 (10.1)
North America 363.0 39.2 333.4 35.2 620.2 59.5
Spain and Morocco 241.8 29.7 262.3 31.5 538.1 75.0
German Coach - - 1.7 (1.4) 2.1 (1.7)
Central functions - (7.0) - (8.1) - (17.1)
Intercompany elimination (0.2) - (0.6) - (0.8) -
------------------------- ------- --------- ------- ------------ ------- ------------
Result from continuing
operations 960.2 89.6 939.5 75.3 1,867.4 167.6
Intangible asset
amortisation (12.4) (14.4) (28.6)
Exceptional items - (13.5) (24.8)
------------------------- ------- --------- ------- ------------ ------- ------------
Group operating
profit 77.2 47.4 114.2
Share of results
of associates 0.2 0.2 0.3
Net finance costs (23.1) (24.2) (48.0)
------------------------- ------- --------- ------- ------------ ------- ------------
Profit before
tax 54.3 23.4 66.5
Tax charge (9.5) (2.8) (5.9)
------------------------- ------- --------- ------- ------------ ------- ------------
Profit for the
period 44.8 20.6 60.6
------------------------- ------- --------- ------- ------------ ------- ------------
*restated for the reclassification of business development costs
from exceptional items as reconciled below.
Intercompany sales are made by UK Coach to Rail. Inter-segment
trading is undertaken on standard arm's length commercial
terms.
In the six months to 30 June 2015 the Group incurred business
development costs of GBP3.9m (2014 interim: GBP14.2m; 2014 full
year: GBP25.5m).
A reconciliation of segmental results to amounts previously
reported is as follows:
Spain Group
and Central operating
Six months to 30 June Rail Morocco Functions profit
2014 GBPm GBPm GBPm GBPm
----------------------- ------ -------- ---------- ----------
As previously reported 5.4 31.7 (6.0) 89.5
Business development
costs (11.9) (0.2) (2.1) (14.2)
------
As restated (6.5) 31.5 (8.1) 75.3
------------------------ ------ -------- ---------- ----------
Spain Group
and Central operating
Year to 31 December Rail Morocco Functions profit
2014 GBPm GBPm GBPm GBPm
----------------------- ------ -------- ---------- ----------
As previously reported 9.7 75.8 (12.2) 193.1
Business development
costs (19.8) (0.8) (4.9) (25.5)
------
As restated (10.1) 75.0 (17.1) 167.6
------------------------ ------ -------- ---------- ----------
5. Intangible asset amortisation
Intangible asset amortisation is analysed by reportable segment
as follows:
Six months Six months Year
to to to
30 June 30 June 31 December
2015 2014 2014
GBPm GBPm GBPm
------------------ ---------- ---------- ------------
UK Coach 0.2 0.2 0.5
North America 7.0 6.5 11.3
Spain and Morocco 5.1 7.5 16.3
German Coach - 0.1 0.4
Central functions 0.1 0.1 0.1
------------------ ---------- ---------- ------------
12.4 14.4 28.6
------------------ ---------- ---------- ------------
6. Exceptional items
Exceptional items are material items of income or expenditure
which, in the opinion of the Directors, due to their nature and
infrequency require separate identification on the face of the
Income Statement to allow a better understanding of the financial
performance in the period, in comparison to prior periods.
Exceptional items are analysed by reportable segment as
follows:
Six months Year
to to
Six months 30 June 31 December
to 2014 2014
30 June
2015 (restated)* (restated)*
GBPm GBPm GBPm
------------------ ---------- ------------ -------------
UK Bus - 3.4 7.0
UK Coach - 0.1 3.0
Rail - - 0.6
North America - 7.6 16.2
Spain and Morocco - 1.6 (9.9)
Central functions - 0.8 6.2
German Coach - - 1.7
------------------ ---------- ------------ -------------
- 13.5 24.8
------------------ ---------- ------------ -------------
*restated for the reclassification of business development costs
from exceptionals as disclosed in note 1.
Exceptional items are further analysed by type as follows:
Six months Year
to to
Six months 30 June 31 December
to 2014 2014
30 June
2015 (restated)* (restated)*
GBPm GBPm GBPm
-------------------------- ---------- ------------ -------------
Restructuring - 7.5 25.8
Strategic rationalisation - 6.0 18.3
Exceptional fuel credits - - (19.3)
-------------------------- ---------- ------------ -------------
- 13.5 24.8
-------------------------- ---------- ------------ -------------
*restated for the reclassification of business development costs
from exceptional items as disclosed in note 1.
The tax credit on intangible asset amortisation and exceptional
items is analysed as follows:
Six months Year
to to
Six months 30 June 31 December
to 2014 2014
30 June
2015 (restated)* (restated)*
GBPm GBPm GBPm
-------------------------------- ---------- ------------ -------------
Tax credit on intangible asset
amortisation 3.8 4.4 10.9
Tax credit on exceptional items - 3.5 5.0
3.8 7.9 15.9
-------------------------------- ---------- ------------ -------------
*restated for the reclassification of business development costs
from exceptional items as disclosed in note 1.
7. Net finance costs
Six months Six months Year
to to to
30 June 30 June 31 Dec
2015 2014 2014
GBPm GBPm GBPm
--------------------------------- ---------- ---------- -------
Bank and bond interest payable (22.5) (23.8) (47.5)
Finance lease interest payable (1.6) (1.8) (4.2)
Other interest payable (0.9) (0.3) (0.5)
Unwind of provision discounting (0.8) (0.5) (1.2)
Interest cost on defined benefit
pension obligations (0.1) (0.5) (1.1)
--------------------------------- ---------- ---------- -------
Finance costs (25.9) (26.9) (54.5)
Other financial income 2.8 2.7 6.5
--------------------------------- ---------- ---------- -------
Net finance costs (23.1) (24.2) (48.0)
--------------------------------- ---------- ---------- -------
8. Taxation
Tax on profit on ordinary activities for the six months to 30
June 2015 has been calculated on the basis of the estimated annual
effective rate for the year ending 31 December 2015. The normalised
tax charge of GBP13.3m (2014 interim restated: GBP10.7m; 2014 full
year restated: GBP21.8m) represents an effective tax rate on
normalised profit before tax, for continuing operations, of 20%
(2014 interim restated: 21%; 2014 full year restated: 18%). The
total tax charge of GBP9.5m (2014 interim: GBP2.8m; 2014 full year:
GBP5.9m) includes a deferred taxation credit of GBP3.9m (2014
interim: GBP4.0m; 2014 full year: GBP8.7m).
In the July 2015 Budget Statement, it was announced that the
main rate of UK corporation tax would reduce from 20% to 19% on 1
April 2017 and 18% on 1 April 2020. As the legislation is not
enacted by the period end the impact is not included in these
results.
9. Dividends paid and proposed
Six months Six months
to to Year to
30 June 30 June 31 December
2015 2014 2014
GBPm GBPm GBPm
------------------------------ ---------- ---------- ------------
Declared and paid during
the period:
Ordinary final dividend for
2013 paid of 6.75p per share - 34.5 34.5
Ordinary interim dividend
for 2014 of 3.35p per share - - 17.1
Ordinary final dividend for
2014 paid of 6.95p per share 35.5 - -
------------------------------ ---------- ---------- ------------
Six months Six months
to to Year to
30 June 30 June 31 December
2015 2014 2014
GBPm GBPm GBPm
------------------------------ ---------- ---------- ------------
Proposed for approval and
not recognised at period
end:
Ordinary interim dividend
for 2014 of 3.35p per share - 17.1 -
Ordinary final dividend for
2014 paid of 6.95p per share - - 35.5
Ordinary interim dividend
for 2015 of 3.685p per share 18.8 - -
------------------------------ ---------- ---------- ------------
10. Earnings per share
Six months Six months
to to Year to
30 June 30 June 31 December
2015 2014 2014
---------------------------- ---------- ---------- ------------
Basic earnings per share 8.5p 3.9p 11.6p
---------------------------- ---------- ---------- ------------
Normalised basic earnings
per share (restated)* 10.2p 7.8p 18.9p
---------------------------- ---------- ---------- ------------
Diluted earnings per share 8.5p 3.9p 11.5p
---------------------------- ---------- ---------- ------------
Normalised diluted earnings
per share (restated)* 10.2p 7.8p 18.9p
---------------------------- ---------- ---------- ------------
*restated for the reclassification of business development costs
from exceptional items as disclosed in note 1.
Basic earnings per share is calculated by dividing the profit
attributable to equity shareholders of GBP43.5m (2014 interim:
GBP20.0m; 2014 full year: GBP59.1m) by the weighted average number
of ordinary shares in issue during the period, excluding those held
by employees' share ownership trusts and held as own shares which
are both treated as cancelled.
For diluted earnings per share, the weighted average number of
ordinary shares in issue 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 the weighted average number of ordinary
shares is as follows:
Six months Six months Year to
to to 31 December
30 June 30 June 2014
2015 2014
------------------------------ ----------- ----------- ------------
Basic weighted average shares 511,174,909 511,089,240 511,125,312
Adjustment for dilutive
potential ordinary shares 275,107 1,012,998 970,374
------------------------------ ----------- ----------- ------------
Diluted weighted average
shares 511,450,016 512,102,238 512,095,686
------------------------------ ----------- ----------- ------------
The normalised basic and normalised diluted earnings per share
have been calculated in addition to the basic and diluted earnings
per share since, in the opinion of the Directors, they reflect the
underlying performance of the business' operations more
appropriately.
The reconciliation of statutory profit to normalised profit for
the financial period is as follows:
Six months Year to
to
Six months 30 June 31 December
to 2014 2014
30 June (restated)*
2015 (restated)*
GBPm GBPm GBPm
------------------------------- ---------- ------------ -------------
Profit attributable to equity
shareholders 43.5 20.0 59.1
------------------------------- ---------- ------------ -------------
Intangible asset amortisation 12.4 14.4 28.6
Exceptional operating items - 13.5 24.8
Tax relief on amortisation
and exceptional items (3.8) (7.9) (15.9)
------------------------------- ---------- ------------ -------------
Normalised profit attributable
to equity shareholders 52.1 40.0 96.6
------------------------------- ---------- ------------ -------------
*restated for the reclassification of business development costs
from exceptional items as disclosed in note 1.
11. Derivative financial assets and liabilities
The Group's multi-national transport operations and debt
financing expose it to a variety of financial risks, including the
effects of changes in fuel prices, foreign currency exchange rates
and interest rates. The Group has in place a risk management
programme that seeks to limit the adverse effects of these
financial risks on the financial performance of the Group by means
of derivative financial instruments.
As at 30 June 2015 the Group's portfolio of hedging instruments
included fuel price derivatives, foreign exchange derivatives and
interest rate derivatives. The fuel price derivatives are in place
to hedge the changes in price of the different types of fuel used
in each division. The foreign exchange derivatives are in place to
hedge the foreign exchange risk on translation of net assets and
earnings denominated in foreign currency. In addition, the Group
holds four GBP50.0 million denominated interest rate derivatives to
swap fixed interest on GBP200m of the Group's Sterling bonds to a
floating rate and two EUR39.25m denominated interest rate
derivatives equal in value to the Euro Private Placement.
These derivative financial instruments are held in the balance
sheet at fair value, as determined by the third party financial
institutions with which the Group holds the instruments and
internal valuations using market data (level 2). The Group has no
financial instruments with fair values that are determined by
reference to significant unobservable inputs i.e. those that would
be classified as level 3 in the fair value hierarchy, nor have
there been any transfers of assets or liabilities between levels of
the fair value hierarchy. There are no non-recurring fair value
measurements.
The Group applies relevant hedge accounting to all derivatives
outstanding as at 30 June 2015. All hedge relationships were
effective under the rules of IAS 39.
Derivative financial assets and liabilities on the balance sheet
are as follows:
At At At
30 June 30 June 31 December
2015 2014 2014
GBPm GBPm GBPm
--------------------------------- -------- -------- ------------
Non-current
Fuel derivatives - 3.0 -
Interest rate derivatives 15.9 13.5 26.5
--------------------------------- -------- -------- ------------
Derivative financial assets 15.9 16.5 26.5
--------------------------------- -------- -------- ------------
Current
Fuel derivatives - 1.4 -
Foreign exchange derivatives 0.3 0.8 1.5
Derivative financial assets 0.3 2.2 1.5
--------------------------------- -------- -------- ------------
Non-current
Fuel derivatives 22.4 1.0 36.1
Interest rate derivatives - - -
Derivative financial liabilities 22.4 1.0 36.1
--------------------------------- -------- -------- ------------
Current
Fuel derivatives 22.4 2.8 35.2
Foreign exchange derivatives 0.5 0.9 0.6
Derivative financial liabilities 22.9 3.7 35.8
--------------------------------- -------- -------- ------------
12. Pensions and other post-employment benefits
The UK Bus and UK Coach divisions operate funded defined benefit
pension schemes and there is a single defined contribution scheme
for the two divisions. The majority of employees of the Rail
companies are members of the appropriate shared-cost section of the
Railways Pension Scheme, 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 and Spain contribute to a number
of defined contribution plans. The Group also provides certain
additional post-employment benefits to employees in North America,
which are categorised as 'Other' below.
The total pension cost for the six months to 30 June 2015 was
GBP5.4m (2014 interim: GBP5.0m; 2014 full year: GBP9.9m), of which
GBP3.5m (2014 interim: GBP3.1m; 2014 full year: GBP6.2m) relates to
the defined benefit schemes and GBP1.9m (2014 interim: GBP1.9m;
2014 full year: GBP3.7m) relates to the defined contribution
schemes.
The defined benefit pension asset/(liability) included in the
balance sheet is as follows:
At At At
30 June 30 June 31 December
2015 2014 2014
GBPm GBPm GBPm
UK Bus (51.1) (41.1) (50.6)
UK Coach 30.5 15.7 30.6
Rail 10.9 5.0 10.0
Other (2.0) (1.6) (1.9)
--------- -------- -------- ------------
Total (11.7) (22.0) (11.9)
--------- -------- -------- ------------
The Rail defined benefit pension asset is net of a franchise
adjustment of GBP33.0m (2014 interim: GBP22.8m; 2014 full year:
GBP30.8m). An explanation of the franchise adjustment is included
in note 33 to the Group's Annual Report and Accounts 2014.
The net defined benefit pension asset/(liability) was calculated
based on the following assumptions:
Six months ended Year ended 31 December
30 June 2015 2014
--------------------- ---------------------- --------------------------
UK Bus UK Coach Rail UK Bus UK Coach Rail
--------------------- ------ -------- ---- -------- ---------- ----
Rate of increase
in salaries 2.5% 2.5% 2.7% 2.5% 2.5% 2.4%
Rate of increase
in pensions 2.2% 3.2% 2.2% 1.9% 2.9% 1.9%
Discount rate 3.8% 3.8% 3.8% 3.6% 3.6% 3.6%
Inflation rate (RPI) 3.2% 3.2% 3.2% 2.9% 2.9% 2.9%
Inflation rate (CPI) 2.2% 2.2% 2.2% 1.9% 1.9% 1.9%
--------------------- ------ -------- ---- -------- ---------- ----
13. Business Combinations
On 19 June 2015, in the United States, the Group acquired the
entire share capital of Trans Express Inc., On Top Tours NYC Inc.
and Rainbow Management Service Inc. These businesses operate
scheduled transportation services, shuttle transportation services
and charter bus services in New York. The provisional fair value of
net assets acquired was GBP22.0m. The provisional fair value of the
consideration was GBP29.4m, resulting in goodwill of GBP7.4m. There
was GBP1.6m of cash acquired in the business and GBP9.2m of
deferred consideration, therefore the net cash outflow was
GBP18.6m.
On 17 April 2015, in the United States, the Group acquired the
entire share capital of Folmsbee's Transportation Inc. which
operates school bus transportation services and charter bus
services in upstate New York. The fair value of net assets acquired
was GBP2.6m. Consideration was GBP3.8m, resulting in goodwill of
GBP1.2m. There was GBP0.2m of cash acquired in the business and
GBP0.2m of deferred consideration, therefore the net cash outflow
was GBP3.4m.
There were no other acquisitions or disposals in the period.
14. Net debt
At 1 Cash Foreign Other At 30
January flow Acquisitions Exchange movements June
2015 GBPm GBPm GBPm GBPm 2015
GBPm GBPm
---------------------- -------- ------ ------------- --------- ---------- -------
Cash and cash
equivalents 83.7 (39.9) 1.8 (2.3) - 43.3
---------------------- -------- ------ ------------- --------- ---------- -------
Other debt receivable 0.8 (0.1) - - - 0.7
---------------------- -------- ------ ------------- --------- ---------- -------
Borrowings:
Bank loans (5.2) (20.6) - 5.0 (0.4) (21.2)
Bonds (585.3) - - - 2.0 (583.3)
Fair value of
hedging derivatives 18.6 - - - (4.1) 14.5
Finance lease
obligations (110.5) 13.9 - 1.5 (13.6) (108.7)
Other debt payable (66.4) 0.1 - 5.3 1.4 (59.6)
---------------------- -------- ------ ------------- --------- ---------- -------
Total borrowings (748.8) (6.6) - 11.8 (14.7) (758.3)
---------------------- -------- ------ ------------- --------- ---------- -------
Net debt* (664.3) (46.6) 1.8 9.5 (14.7) (714.3)
---------------------- -------- ------ ------------- --------- ---------- -------
* excludes accrued interest on bonds
At 1 Cash Foreign Other At 30
January flow Exchange movements June
2014 GBPm GBPm GBPm 2014
GBPm GBPm
--------------------------- -------- ----- --------- ---------- -------
Cash and cash equivalents 40.9 3.4 (1.0) - 43.3
--------------------------- -------- ----- --------- ---------- -------
Other debt receivable 1.0 (0.1) - - 0.9
--------------------------- -------- ----- --------- ---------- -------
Borrowings:
Bank loans (19.8) (2.3) 0.7 (0.5) (21.9)
Bonds (579.5) - - (0.2) (579.7)
Fair value of hedging
derivatives 9.2 - - 2.8 12.0
Finance lease obligations (132.9) 11.7 3.6 - (117.6)
Other debt payable (65.0) 0.1 2.3 (3.4) (66.0)
--------------------------- -------- ----- --------- ---------- -------
Total borrowings (788.0) 9.5 6.6 (1.3) (773.2)
--------------------------- -------- ----- --------- ---------- -------
Net debt* (746.1) 12.8 5.6 (1.3) (729.0)
--------------------------- -------- ----- --------- ---------- -------
* excludes accrued interest on bonds
Borrowings include non-current interest bearing loans and
borrowings of GBP734.1m (2014 interim: GBP741.2m; 2014 full year:
GBP741.8m).
Other non-cash movements represent finance lease additions of
GBP13.6m (2014 interim: GBPnil) and a GBP1.1m increase to net debt
(2014 interim: GBP1.3m) relating to loan and bond arrangement
fees.
15. Cash flow statement
The reconciliation of Group profit before tax to cash generated
from operations is as follows:
Six months Six months Year
to to to
30 June 30 June 31 December
2015 2014 2014
GBPm GBPm GBPm
----------------------------------- ---------- ---------- ------------
Net cash inflow from operating
activities
Profit before tax 54.3 23.4 66.5
Net finance costs 23.1 24.2 48.0
Share of post-tax results under
the equity method (0.2) (0.2) (0.3)
Depreciation of property, plant
and equipment 52.1 50.4 104.9
Intangible asset amortisation 12.4 14.4 28.6
Amortisation of fixed asset
grants (0.3) (0.4) (0.8)
Profit on disposal property,
plant and equipment (0.1) (0.9) (1.7)
Share-based payments 0.7 1.4 3.1
Increase in inventories - - (0.6)
Decrease/(increase) in receivables 2.1 (11.1) (26.9)
Increase in payables 7.2 21.3 26.8
Decrease in provisions (18.9) (3.2) (2.4)
----------------------------------- ---------- ---------- ------------
Cash generated from operations 132.4 119.3 245.2
----------------------------------- ---------- ---------- ------------
16. Commitments and contingencies
Capital commitments
Capital commitments contracted but not provided at 30 June 2015
were GBP34.1m (2014 full year: GBP77.0m).
Contingent liabilities
Guarantees
The Group has guaranteed credit facilities totalling GBP30.8m
(2014 full year: GBP2.9m) relating to certain joint ventures.
Bonds and letters of credit
In the ordinary course of business, the Group is required to
issue counter-indemnities in support of its operations. As at 30
June 2015, the Group has issued Rail performance bonds of GBP61.0m
(2014 full year: GBP61.3m) and Rail season ticket bonds of GBP16.3m
(2014 full year: GBP21.6m). The Group has other performance bonds
which include performance bonds in respect of businesses in the US
of GBP112.3m (2014 full year: GBP114.5m) and the rest of Europe of
GBP27.2m (2014 full year: GBP32.1m). Letters of credit have been
issued to support insurance retentions of GBP65.6m (2014 full year:
GBP65.7m).
17. Related party transactions
There have been no material changes to the related party
balances disclosed in the Group's Annual Report and Accounts 2014
and there have been no transactions which have materially affected
the financial position or performance of the Group in the six
months to 30 June 2015.
18. Post balance sheet events
There have been no significant post balance sheet events.
Independent Review Report to National Express Group PLC
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2015 which comprises the Group Income
Statement, the Group Statement of Comprehensive Income, the Group
Balance Sheet, the Group Statement of Changes in Equity, Group
Statement of Cash Flows and the related notes 1 to 18. We have read
the other information contained in the half yearly financial report
and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Auditing Practices
Board. Our work has been undertaken so that we might state to the
company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the company, for our work, for this report, or
for the conclusions we have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34, "Interim
Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2015 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Deloitte LLP
Chartered Accountants and Statutory Auditor
Birmingham, UK
29 July 2015
[1] c2c continues to hold the annual and rail period records for
punctuality. Its current, industry-leading, MAA is 97.1%, compared
to the national average of 89.6%.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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