TIDMNEX
RNS Number : 4609F
National Express Group PLC
28 July 2016
Press release
28 July 2016
National Express Group PLC
Half Year results for the period ended 30 June 2016
Delivering strong growth across our diverse portfolio of
businesses
The Group has made strong progress in the first half of the year
with results in line with our
expectations. Both revenue and profit are up year-on-year on a
constant currency basis. The start of our German rail operations
and our recent North American and Spanish acquisitions contributed
to the 10.4% increase in revenue in constant currency. Our
diversified portfolio of cash generative businesses provides a
stable source of revenue and profits, with two thirds of earnings
generated outside the UK and with no one contract contributing more
than 4% of Group operating profit. Our strong operational and
financial position enables us both to invest in growth and deliver
attractive returns to our shareholders, with a 5% increase in the
interim dividend. The Group remains on track to deliver its profit,
cash flow and gearing targets for the year.
Financial highlights
Change
at constant
HY 2016 HY 2015 Change currency
------------------------ --------- --------- ------------ ----------------
Group revenue GBP1.10bn GBP0.96bn +14.4% +10.4%
------------------------ --------- --------- ------------ ----------------
Group operating profit* GBP96.2m GBP89.6m +7.4% +3.0%
------------------------ --------- --------- ------------ ----------------
Group PBT* GBP73.2m GBP66.7m +9.7% +3.8%
------------------------ --------- --------- ------------ ----------------
Group statutory PBT GBP56.9m GBP54.3m +4.8%
------------------------ --------- --------- ------------
Group statutory PAT GBP48.0m GBP44.8m +7.1%
------------------------ --------- --------- ------------
EPS* 11.3p 10.2p +10.8%
------------------------ --------- --------- ------------
Free cash flow GBP66.1m GBP27.1m GBP39.0m
------------------------ --------- --------- ------------
Net debt GBP802.7m GBP714.3m GBP88.4m
------------------------ --------- --------- ------------
Interim dividend 3.87p 3.685p +5.0%
------------------------ --------- --------- ------------
*Unless otherwise stated, all operating profit, operating
margin, operating cash flow, asset return and EPS data is
stated
before the amortisation of intangible assets as defined in note
18 of the interim financial statements.
Our focus on operational excellence continues to deliver
results
-- North America delivered revenue growth of 15% on a constant
currency basis reflecting a successful bid season which produced an
average price increase of nearly 4% across the entire portfolio and
a 7% price increase on those contracts up for bid and renewal. This
strong bid season was augmented by the bolt-on acquisitions made
over the last year.
-- Record passenger numbers in both Spain and Morocco of over
153 million journeys in the first half, supporting revenue growth
of 4% on a constant currency basis.
-- Strong growth in Rail with passenger growth of 8% at c2c,
benefitting from the introduction of a new timetable in December
2015, together with the first six months of our German rail
operations.
-- Growth in revenue, profit and margins in both UK Bus and UK Coach.
-- Our Bahrain bus operation is now carrying over one million
passengers per month in only its second year of operations.
Generating superior cash and returns
-- On target to generate GBP100m of free cash flow for the year.
-- Declared an interim dividend of 3.87 pence (2015: 3.685p): an increase of 5%.
-- Our North American acquisitions are generating above average
margins and return on invested capital, with the two acquisitions
purchased in the first half of last year delivering a ROIC of
23%.
Creating new business opportunities
-- Completed three acquisitions in North America during the
period, adding 420 school buses and 80 transit vehicles. This
included the strategic acquisition of a planning and scheduling
software provider in the paratransit market, strengthening our
service credentials.
-- Submitted a bid for the Manchester Metrolink, an up to ten
year contract starting in July 2017.
-- Completed a small acquisition of a regional bus business in
Ibiza, providing our first entry onto the island.
-- Further growth opportunities in Morocco, including a recently
won sight-seeing contract in Marrakech and new bid for the
Casablanca Tramway.
-- Actively looking at attractive growth opportunities in a
number of new markets, with bid preparations underway in one new
market.
Dean Finch, National Express Group Chief Executive, said:
"We have made a good start to 2016 and despite subdued growth in
the UK we remain on track to deliver our expectations for the year.
The diversity of our cash generative, international portfolio of
businesses where two thirds of our earnings are generated outside
of the UK, is a key strength that allows us to grow and to declare
a 5% increase in the interim dividend.
"Our strong cash generation provides us with options and we will
continue to look to deploy capital in those parts of our business
where we believe it will generate the best returns for
shareholders. We have been particularly pleased with the
performance of the North American businesses we acquired last year
which are generating strong returns both in terms of profit and
cash validating our strategic decision to increase our investment
in this
attractive market. We will continue to seek attractive growth
opportunities, including new markets, where we can draw on our
international reputation for operational excellence and the
successful mobilisation of new operations, to deliver further
shareholder value."
Enquiries
National Express Group PLC
Matthew Ashley, Group Finance 0121 460
Director 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 28 July 2016. Details are available from
Rebecca Mitchell at Maitland.
BUSINESS REVIEW
Overview and outlook
In the first half of this year, we have seen a strong
performance across our portfolio, with the diversity of our
business emerging as a key strength in an uncertain macro-economic
environment. As we look forward to the second half of the year and
beyond, we expect to see the slowdown in the UK bus and coach
markets we first highlighted in May's management statement to
continue. We also expect, however, the impact on our business of
this on-going slowdown in the UK to be offset by the strength of
our North American and Spanish operations. With around two thirds
of our earnings generated outside the UK, we feel we are well
placed to weather any challenges the UK economy may face post
Brexit and are confident that our current level of free cash flow
generation is sustainable.
Our focus on operational excellence has always emphasised the
need for growth through both service excellence and cost control.
Our cost efficiency agenda has delivered nearly GBP60 million of
cost-based savings over the last two and a half years. We are
embarking on a global programme of continuous improvement in
critical processes, where we are looking to identify and share best
practice across the Group to drive both revenue and cost saving
benefits over the coming years.
We will continue to use our GBP100 million of free cash flow a
year to pay our dividend to shareholders and to fund future growth
in the business, where we see attractive growth opportunities both
within our existing businesses and in new markets. We will direct
our investment towards those areas of the business where we believe
we can achieve the best return for our shareholders. We continue to
view North America as an attractive market and have been
particularly pleased with the level of returns and cash generated
from the recent bolt-on acquisitions, validating our decision to
increase our investment in this large and fragmented market. We
believe there are further opportunities in this market.
In short, we have a number of levers we can pull across our
global business and overall we feel confident that we are on track
to deliver our full year results in line with our expectations as
at the start of this year. We are declaring a 5% increase in the
interim dividend to 3.87p, demonstrating our confidence in the
future growth of the business.
Performance highlights
National Express has made strong progress in the first half of
2016 with Group revenue up 10.4% in constant currency (up 14.4% on
a reported basis). We have delivered revenue growth across all our
businesses on a constant currency basis, with particularly strong
growth in Rail and North America.
Revenue by division was as follows:
First half
Revenue in local currency 2016 2015
-------------------------- ------- -----
Spain and Morocco (EURm) 344.4 330.2
North America (US$m) 630.6 548.6
Revenue in GBPm
-------------------------- ------- -----
Spain and Morocco 268.2 241.8
North America 439.9 363.0
UK Bus 142.5 141.4
UK Coach 133.8 132.2
Rail 115.3 82.0
Intercompany (0.8) (0.2)
-------------------------- ------- -----
Group 1,098.9 960.2
-------------------------- ------- -----
Group operating profit has increased by 3.0% on a constant
currency basis to GBP96.2 million (up 7.4% on a reported basis),
even after incremental rail bid costs of GBP2.3 million and a
significant increase in the rail premium charge of GBP4.1 million.
The weakening of Sterling against both the US Dollar and the Euro
contributed GBP3 million of operating profit growth. Profit before
tax rose by 9.7% to GBP73.2m.
First Half Full Year
Operating profit in constant 2016 2015 2015
currency
----------------------------- ------ ---------- ---------
Spain and Morocco (EURm) 41.4 40.5 98.5
North America (US$m) 64.8 59.1 101.9
Operating profit GBPm
----------------------------- ------ ---------- ---------
Spain and Morocco 32.3 29.7 71.5
North America 45.2 39.2 66.8
UK Bus 17.6 17.1 37.5
UK Coach 10.4 10.0 32.3
Rail (0.6) 0.6 0.6
Corporate (8.7) (7.0) (15.2)
----------------------------- ------ ---------- ---------
Operating profit 96.2 89.6 193.5
Interest and associates (23.0) (22.9) (43.4)
----------------------------- ------ ---------- ---------
Profit before tax 73.2 66.7 150.1
----------------------------- ------ ---------- ---------
Free cash flow remains strong, with the business on-target to
deliver GBP100 million at the year end.
Dividend
The Board has declared an increase in the interim dividend of 5%
to 3.87 pence per share (2015: 3.685p), reflecting its confidence
in the performance and future prospects of the business.
First half year basic earnings per share were 11.3 pence (2015:
10.2p). The dividend will be payable on 23 September 2016 to
shareholders on the register at close of business on 2 September
2016.
Delivering our strategy
Our diverse portfolio of cash generative 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 and existing, 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.
We have been clear for a number of years that the ability to
deliver strong cash flows and shareholder returns is based upon a
focus on operational excellence, and this remains central to our
strategy. We have had a particularly strong first half in North
America where we continue to enjoy industry-leading retention rates
and where customer satisfaction remains over 90%. We have seen a
successful start to our German rail operations with improvements in
both punctuality and service relative to the previous operator. In
Spain and Morocco, we have seen strong growth in passenger volumes,
up 6.3% with a record 153 million passenger journeys in the period,
and have during the period secured a contract in Marrakech to
operate sight-seeing tours in the city.
Our focus on striving for operational excellence with
industry-leading safety standards across the Group is demonstrated
by our bus operation in Bahrain already achieving similar results
as attained elsewhere in the Group. This performance helps us
further strengthen our credentials in the region and win new
business. We are now carrying over one million passengers per month
on the buses in our Bahrain joint venture, with passenger volumes
more than doubling on a monthly basis when compared to last year
and recently achieving a record 70,000 in one day.
In North America we have seen very strong revenue growth, up 15%
on a constant currency basis, driven by a combination of a
successful bid season, where we have seen an average price increase
of nearly 4% across the entire portfolio, together with the benefit
of acquisitions and new business wins. We have achieved price
increases of around 7% on those contracts up for bid and renewal,
helping to offset wage pressures in certain locations and we have
plans in place to ensure a smooth start-up to the new school year
in September.
Both our UK Bus and Coach operations have delivered further
margin progression with growth of 30 basis point and 20 basis
points respectively. We continue to make progress with our industry
leading Alliance with TfWM (formerly known as Centro) with the
introduction of new initiatives including contactless payments for
the Midland Metro tram system, which we will also introduce to our
buses in 2017. In our UK and Spanish coach operations we are
launching a more sophisticated revenue management system which will
significantly enhance our capability to actively manage pricing on
a real time basis, helping to deliver incremental revenue and
higher returns. UK Coach has been re-confirmed as the most trusted
ground transport provider in the latest UKCSI Survey.
Faster journey times deliver patronage growth. In UK Bus, we
have worked in partnership with Walsall Council to enforce bus
priority and invested in the route with 'Platinum' buses. As a
result, patronage year to date has grown by 34% and we have added
additional services to accommodate demand. In UK Coach punctuality
has improved by 1% despite worsening road congestion. This has been
achieved through a focus on understanding the root causes of delay,
allowing timetables to be redesigned. We have also invested in
continuous monitoring systems at our National Control Centre,
enabling us to 'manage in the moment' to minimise delay on our
congested road network. During the past 12 months 40% of the
network has been reviewed and enhanced. Patronage across the
network has increased by 4%.
ALSA's focus on customer service has also been recognised by
being awarded the Best Customer Experience seal for passenger
transport, ranking ahead of all other ground transport and air
operators in Spain. This award is particularly pleasing as it was
based on an independent survey of our customers and those of our
competitors. ALSA achieved record passenger numbers in Spain in the
period.
We have a relentless focus on managing our costs, with an
on-going programme to drive cost efficiencies across the Group,
targeting a reduction of at least 1% of the addressable cost base
in the current year. This programme has already delivered nearly
GBP60 million of savings in our cost base in the past two and a
half years. We have also begun new projects to deliver further
service improvements alongside cost savings - for example, DriveCam
and collision avoidance technology pilots in UK Coach and UK
Bus.
2. Superior cash and returns
National Express is focused on cash generation and improving
returns through disciplined allocation of capital. We believe our
diverse portfolio of cash generative businesses will continue to
deliver GBP100 million of free cash flow each year, which we will
use to pay dividends to our shareholders and fund our future
growth.
During the first half of the year, we generated GBP66 million of
free cash flow (2015: GBP27m) and remain on target to deliver
GBP100 million of free cash flow in the full year 2016, adding to
the GBP443 million generated over the last three years. We have
deployed GBP38 million of this free cash flow in acquisitions in
North America and Spain, in businesses which have a strong
strategic fit and which we believe are capable of generating
accretive returns on capital. The rest of the GBP57 million
increase in net debt is effectively explained by an increase of
GBP26 million from foreign currency retranslation.
Group return on capital employed remains at 11.7% (31 Dec
2015:11.7%), as the strong returns from the North American
acquisitions were offset by the impact of new buses in the UK
coming onto the balance sheet and losses from the early months of
the new German rail operations.
EPS grew by 4.5% on a constant currency basis, to 11.3 pence
(2015: 10.8p). In line with our dividend policy where the dividend
is covered two times by Group earnings, we declare a 5% increase in
the interim dividend to 3.87 pence.
In January, the Group entered into new bank facilities totalling
GBP450 million. These comprised a GBP350 million bridging facility,
in anticipation of the refinancing of the Group's existing GBP350
million bond which matures in January 2017, and a GBP100 million
general corporate purpose facility. These new facilities provide us
with flexibility as to the timing of the bond refinancing (until
January 2019) allowing us to balance the various considerations
including lower effective interest rates (market rates are
currently c. 200-250 basis points lower than those on our current
bond) and the minimisation of costs under both the old and new
bonds.
3. Creating new business opportunities
Our unique portfolio of cash generative international bus, coach
and rail businesses provides us with a stable and secure source of
earnings and cash, which we can utilise to fund further growth,
where we see attractive opportunities both within our existing
businesses and in new markets.
We set out our detailed divisional performance review below.
Divisional performance review
North America
Our North American division has delivered a strong performance
in the period, with revenue growth on a constant currency basis of
15.0%, reflecting a number of bolt-on acquisitions made in the last
12 months, together with a successful school bus bid season and new
business wins. Operating profit grew by 9.6% on a constant currency
basis delivering a slightly lower operating margin of 10.3% (2015:
10.8%), reflecting a significantly higher proportion of lower
margin Transit revenue.
Rate increases and the performance of new contracts and
acquisitions have more than offset the impact of lost contracts,
including through our 'up or out' strategy. We have added 500 buses
through acquisitions made in the period and will continue to seek
attractive growth opportunities going forward. New business wins
and acquisitions have broadly offset the contracts we have exited
and lost with an improved margin. Our overall fleet stands at
around 22,000 buses.
Change in school bus numbers - 2016 Number
bid season of buses
------------------------------------- ---------
Regretted losses (670)
Exited per 'up or out' strategy (550)
Acquisition 500
New business wins 470
Organic growth 150
Change in buses operated for 2016/17
school year (100)
------------------------------------- ---------
We have seen a successful bidding season, achieving price
increases of around 7% on those contracts up for bid and renewal
and an average price increase across the entire portfolio of 3.7%,
helping to offset wage pressures in some locations. Our current
retention rate, excluding those contracts that we have chosen to
exit, remains very high at 97%, and reflects the excellent levels
of customer service delivered by our North American School Bus
operations.
Our strategy to increase investment in new growth opportunities
in North America is bearing fruit and we have seen strong
performances from the acquisitions made to date which are
delivering margins, cash generation and return on capital well
ahead of the portfolio average. For example, the two acquisitions
made in the first half of 2015, have delivered in their first year
a ROIC of 23%.
During the period we made two school bus and transit
acquisitions, adding 420 school buses (including 170 for special
education contracts) and 80 transit vehicles. In addition, we made
a strategic acquisition of a planning and scheduling software
business in the paratransit market, which provides us with a
market-leading bespoke technology platform for our transit business
and strengthens our credentials in this attractive market. The
combined purchase price for the three acquisitions is $40 million,
and they will deliver annualised revenues of around $44 million and
generate attractive margins. Our experience over the last 12 months
has only confirmed our belief that the North American market offers
attractive growth opportunities and we will make further targeted
acquisitions where they meet our strict financial and strategic
criteria.
We have seen very strong growth in our Transit business during
the first half of the year with revenue up 52%. Whilst some of this
growth has been driven by acquisitions, it also reflects a number
of new business wins including our first airport shuttle service in
Orlando as well as contract extensions, including the extension of
our Trans Express business through to 2021. We have continued our
100% contract retention rate since the inception of our Transit
business in 2012. We are pleased to have been recognised by two
separate authorities for our transit operations in their regions,
receiving three safety awards in North Carolina and the Outstanding
Transit Organization Award in Arizona, which amongst other things
recognises innovation, customer service and operational
improvements.
Spain and Morocco
ALSA delivered a good performance over the period, growing
revenue by 4.3% on a constant currency basis, with both Spain and
Morocco seeing record number of passengers. In Spain revenues rose
4.1% including the benefit of a new contract to operate transport
services for holidaymakers ('Imserso') and the acquisition of
Herranz, whilst in Morocco we continued to see strong revenue
growth, up 6.5% supported by an increase in the network in Tangier
and strong growth in Marrakech. Operating profit increased by 2.2%
on a constant currency basis, reflecting revenue growth and profit
from Herranz. A slight decline in operating margin, from 12.3% to
12.0%, resulted principally from the new Imserso work, which is a
subsidised, capital-light contract and therefore offers revenue
visibility and minimal cash consumption, albeit at a lower margin
than the ALSA average.
Towards the end of the period, we bought an Ibizan regional bus
operator for a purchase price of EUR4.5 million. This provides our
first entry on the island and has annualised revenues of around
EUR7 million.
We are implementing a more sophisticated revenue management
system, operating on more than 200 flows. This will significantly
enhance our capability to actively manage pricing on a real time
basis, helping to drive revenue, profit and incremental demand. In
the first half of the year we have seen revenue growth of 1% and
passenger growth of 2% on those routes where revenue management is
in place.
The Spanish long distance coach concession renewal process
continues to experience delays, and with the latest general
election in June still not delivering a conclusive result, we do
not anticipate any major progress in the short-term. As a result of
this and further to our previous guidance, we now do not see a
major impact on revenues before 2018. 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.
ALSA is well placed to benefit from a strong summer season in
Spain this year, with a significantly increased number of visitors
travelling to the country. We are working closely with a number of
airlines and online travel agents and platforms to raise our
profile with foreign tourists, as well as reinforcing our presence
at airports. We have also extended our summer marketing campaign
through to the end of September.
Our Moroccan business continues to go from strength to strength
and we again expect to carry more passengers in Morocco this year
than in the whole of our Spanish business. We continue to look for
further growth opportunities and have won a six-year contract to
operate sight-seeing services in Marrakech. Our fourth urban bus
contract, in Khouribga, is progressing well and we see further
growth opportunities with the addition of services in new cities,
building on our reputation for operational excellence and good
customer service standards. We see some exciting and sizeable
opportunities ahead, and are currently working on a bid for the
Casablanca Tramway contract, with final submissions due in late
2016 and the contract commencing in December 2017.
We continue to deal with legal and political processes in
respect of the previously awarded contract to run urban bus
services in Porto, where the Portuguese Government subsequently
cancelled a number of contract awards. Consequently, we are seeking
to recover costs associated with the bid but do not expect to reach
a resolution in the short-term.
UK Bus
Our UK Bus division has grown commercial revenue by 2.3%, with
concessionary revenues bringing the overall growth figure down to
0.8%. This commercial revenue performance has been delivered
despite our operations experiencing the industry-wide challenges of
declining high street footfall, unsettled and unseasonal weather
and worsening urban congestion.
We have sought to manage these challenges through tight cost
control and efficiencies (with operating margin improving by 30
bps) and strengthened partnership working in the West Midlands. The
introduction of bus prioritisation measures at key pinch-points to
speed journey times is an example of this, which with associated
investment in state--of--the--art 'Platinum' buses continues to
deliver double digit passenger growth on these routes. We were also
delighted to receive Department for Transport funding this week for
29 hybrid and electric buses in the West Midlands.
We continue to progress our industry-leading Alliance with TfWM
(formerly known as Centro) more broadly, with the introduction of
new initiatives such as contactless payments for the Midland Metro
tram system, which we will also introduce to our buses in 2017.
Following the introduction of Swift smartcards in 2015, we are
seeing strong take up of our smart ticketing options where
multi-modal, multi-operator tickets are now available with PAYG
smartcards and carnets - with growth of over 270% in journeys using
the Swift smartcard, representing around 5% of journeys, in the
first half of the year.
In May, our Midland Metro tram service was extended to the newly
refurbished Birmingham New Street Station and recently opened Grand
Central shopping complex, and we have seen record growth in
passenger journeys of 26% in the first half of the year. We have
also secured a new contract to provide corporate transport services
for Amazon to their distribution centres around the UK, as well as
extending contracts with Jaguar Land Rover and Birmingham
Airport.
Drawing on the lessons from UK Coach and c2c we are refocusing a
greater proportion of our marketing effort to digital channels,
with campaigns such as 'Day Saved' helping to reduce costs and
deliver improved return. Later this summer UK Bus will pilot mobile
ticketing which not only will provide our customers with yet
another innovative and convenient ticketing solution, but will also
help to reduce our sales distribution costs.
Finally in January UK Bus became the first privately-owned
public transport company to introduce the Living Wage Foundation
Living Wage for all staff.
UK Coach
UK Coach grew by 1.3% as core revenue growth of 2.4% helped
offset weak demand for our Eurolines services together with lower
revenues from rail replacement services. As previously commented in
May, we did see an immediate reduction in passenger numbers
following the terrorist attacks in Brussels and more recently we
have seen an increase in competition on discounted fares from rail
operators which is resulting in lower yields.
Operating profit has risen 3.8% in the first half of the year
with operating margin rising by 20 basis points to 7.8%. Through
our constant focus on tightly managing costs, we have identified
and will deliver annualised cost savings of around GBP1.4 million
from a combination of network reviews, reducing inefficient mileage
together with procurement savings.
We are launching a more sophisticated revenue management system
across the network, which will significantly enhance our real time
price management, helping to drive revenue, profit and incremental
demand.
As well as reviewing our network efficiency, we also look to add
new routes where we see growth opportunities - in the first half of
this year we have launched new routes from London to Stansted,
further strengthening our position in the airport market. We
continue to look for new contract opportunities and have secured a
three-year contract, in conjunction with UK Bus, to provide
corporate transport services for Amazon to distribution centres
around the UK. We have also secured a new partnership agreement
with Expedia, and expanded existing partnerships with Ryanair and
the Trainline.com.
We have made further improvements to our digital platforms and
are engaging with our customers on a more personalised level, which
is helping to deliver both revenue and cost benefits. Our website
is now translated into five different languages, driving higher
conversion rates from incremental inbound traffic from European
visitors looking to travel across the UK. Improved journey planners
and a more efficient PayPal payment system are amongst other
website enhancements driving improved conversion rates.
And finally, we are pleased that customer satisfaction has
improved by 1.7% and UK Coach has been re-confirmed as the most
trusted ground transport provider in the latest UKCSI Survey.
Rail
In Rail we have seen an overall revenue increase of 40.5%,
including the first time contribution of our German rail
operations. c2c has continued to deliver a strong performance with
revenue growth of 6.2% well ahead of the average growth rate of
3.1% for London and the South East. This growth has been supported
by like-for-like passenger volume growth of 7.6%, in part driven by
the introduction of a new timetable in December 2015.
As we previously announced, we reached agreement with the
Department for Transport to bring 24 carriages into service from
the autumn onwards (three years ahead of schedule), which will
provide significant extra capacity and help drive revenue growth as
we enhance our service options, driving incremental passenger
growth.
While our Rail division has delivered an operating loss of
GBP0.6m in the first half of this year (2015: operating profit
GBP0.6m), this is stated after bid costs of GBP3.9 million which
were GBP2.3 million higher than in the previous year, a GBP4.1
million increase in the premium charge on c2c, and a loss of GBP1.4
million in the period from our new German rail operations.
We continue to introduce industry-leading initiatives in our c2c
franchise, including the introduction of an automatic compensation
scheme for smartcard holders and a flexible season ticket for
smartcard holders, aimed at part-time commuters. Both these
initiatives are driving further strong growth in smart ticketing,
with nearly 30% of annual season ticket holders now using
smartcards, which not only provides more convenient and better
value ticketing options for our customers but is also helping to
reduce cost of sales.
We are awaiting the outcome of the East Anglia franchise
competition, where we delivered a disciplined bid that balanced
significant customer improvements with excellent value to taxpayers
and fair returns to shareholders.
December 2015 saw the launch of our first German rail franchise,
Rhine Munster Express (RME). We have been encouraged by our first
full six months of operation of RME, carrying over 10 million
passengers during the period and already we are achieving
operational improvements in terms of punctuality and services
compared to the previous operator. We look forward to delivering
further benefits to our passengers in Germany in the coming
months.
The mobilisation for our second German rail franchise is
underway and our previous experience with the mobilisation of RME
is proving invaluable. The first of two contracts for the Rhine
Rhur Express (RRX) will commence in June 2019 with the second one
starting in December 2020.
We continue to see German rail as an attractive growth
opportunity with a strong pipeline of potential bids, including
four in the next year. In addition, we await the outcome of the
appeal process for the Nuremberg S-Bahn and would expect to hear in
the autumn. Including the Nuremberg S-Bahn contract, we have
already secured EUR300 million of annualised revenues from German
rail by 2020.
Middle East
In only its second year of operation, our Bahraini bus joint
venture is now carrying more than one million passengers per month
and has carried 5.7 million passengers in the period. Passenger
volumes have more than doubled on a monthly basis when compared to
last year, benefitting from the scaling up of operations last
summer together with strong underlying growth in passenger
journeys. In the second half of this year we will introduce a
smartcard ticketing option, the 'Go Card', together with online
journey planners, with both of these initiatives being
industry-leading in the region. Already our safety standards are
rivalling those of the Group's core divisions, helping to further
strengthen our credentials in the region.
We continue to work closely with the transport authority as they
seek to develop public transport further across Bahrain. And we
believe our services in Bahrain are opening up other contract
opportunities within the Middle East, where we are actively
involved in 4 bid processes with annualised revenues of around
GBP225 million. Our reputation for successfully establishing
operations in new markets is growing, and we are also looking at
attractive markets in other regions.
Outlook
We remain on course to deliver our expectations for 2016 in
spite of pressures we have experienced in the UK during the second
quarter. We have purposefully built a diverse global business which
is focussed on operational excellence, innovation, bolt-on
acquisitions in our core markets and further global
diversification. We will continue to be relentless in our
discipline on costs, continually seeking process efficiencies and
sharing best practice across the Group.
The roll-out of revenue management systems in our coach
businesses should deliver additional revenue in the second half and
into 2017. Digital transactions are increasing across the Group and
we expect this to continue as we drive an ambitious roll-out of
mobile website and app improvements to increase customer
engagement, loyalty and revenue.
We will continue to manage cash flow tightly to invest for the
future growth of the business in the areas where we see the best
returns for shareholders, including targeted acquisitions in North
America and Spain, and other capital-light opportunities in our
current markets and in new territories where these offer attractive
returns and meaningful growth potential in the longer-term. We also
look forward to continuing the development of our new rail business
in Germany, bringing to bear the operational excellence that has
brought success in our established markets and, more recently, in
places like Bahrain.
The weakening of Sterling has benefitted our result in the first
half of this year, and if current exchange rates prevail this will
also enhance the full year result. Looking further forward, we
expect to realise benefits from the refinancing of our GBP350
million bond and, in 2018, from a lower fuel price. We will
continue to hedge our fuel in local currencies.
We currently expect that the recent weakness in our UK
businesses should be offset by growth from our overseas operations
and are building on a range of initiatives including the careful
deployment of our tightly managed free cash flow to support further
growth.
For all these reasons we continue to view the future with
confidence and believe we are well placed to deliver further growth
and thus shareholder value, organically and through disciplined
investment.
Dean Finch
Group Chief Executive
28 July 2016
FINANCIAL REVIEW
Presentation of results
We present our financial results on two bases. Normalised
results show the performance of the business before intangible
amortisation, since the Board believes this gives the reader a
clearer understanding of existing business performance. IFRS
results include this item and the tax relief thereon to give the
statutory results.
Revenue
Group revenue for the period was GBP1,098.9 million (2015:
GBP960.2m), an overall increase of 10.4% on a constant currency
basis (up 14.4% on a reported basis). North America was the
strongest performer, up 15.0% on a constant currency basis,
benefitting from a number of bolt-on acquisitions made in the last
twelve months, together with a strong bidding season where we
achieved an average price increase of 3.7% across the entire
portfolio and 7% on those contracts up for bid and renewal.
Rail also delivered a strong performance with overall revenue
growth of 40.5%, including for the first time contribution from our
German Rail operations where we commenced services on our RME
network in December 2015. c2c continued its strong performance,
growing revenue by 6.2%. Record passenger numbers in both Spain and
Morocco have supported revenue growth of 4.3% on a constant
currency basis, with continued strong growth in Morocco, up 6.5%,
driven by an increase in the network in Tangier and strong growth
in Marrakech.
Revenue bridge GBPm
----------------------------------------- -------
2015 first half year revenue 960.2
Currency translation 35.1 % Change
----------------------------------------- ------- --------
2015 first half year revenue at constant
currency 995.3
Organic growth 31.8
Acquisitions 41.9
German rail 28.2
Weather 1.7
----------------------------------------- ------- --------
2016 first half year revenue 1,098.9 10.4%
----------------------------------------- ------- --------
Profit
Group operating profit increased by 3.0% to GBP96.2 million on a
constant currency basis (up 7.4% on reported basis). This is after
incremental rail bid costs of GBP2.3 million and a further increase
in the franchise premium charge for c2c of GBP4.1 million, as well
as a small loss from the first six months of our German rail
operations. Growth from our existing businesses together with a
GBP5 million contribution from acquisitions and GBP9 million of
cost efficiencies, have more than offset cost inflation of GBP12
million.
Profit bridge GBPm
-------------------------------------- ----
2015 first half year operating profit
(as reported) 90
Currency 3 % Change
-------------------------------------- ---- --------
Operating profit at constant currency 93
Growth 7
Acquisitions 5
Cost inflation (12)
Cost efficiency 9
Bid costs (2)
UK rail franchise premium (4)
German rail (1)
Weather 1
-------------------------------------- ---- --------
2016 first half operating profit 96 3.0%
-------------------------------------- ---- --------
North America grew profit by 9.6% on a constant currency basis,
including the benefit from the acquisitions made over the last year
and with a successful bid season seeing an average price increase
of 3.7% across the portfolio. Profit in ALSA was up 2.2% on a
constant currency basis, reflecting revenue growth in Spain and
Morocco in what is traditionally the 'quiet half' of the year,
together with the acquisition of Herranz. UK Bus grew profit by
GBP0.5 million while UK Coach grew profit by GBP0.4 million with
both divisions growing margins by 30 basis points and 20 basis
points respectively. Rail recorded an operating loss of GBP0.6
million, reflecting the impact of higher incremental rail bid costs
(GBP2.3m), a further increase in premium charges of GBP4.1 million
and a loss of GBP1.4 million in the period from our German rail
operations. The increase in central costs predominantly reflects
our investment in Group marketing and digital functions.
Net finance costs increased slightly to GBP23.7 million (2015:
GBP23.1m), reflecting the higher level of debt. With associate
income, including the contribution from Bahrain, of GBP0.7 million
(2015: GBP0.2m), profit before tax was GBP73.2 million (2015:
GBP66.7m).
The Group's effective tax rate for 2016 is forecast to be around
20% (2015 Full year: 19%), in line with the expected medium-term
rate, subject to future legislative changes. Basic earnings per
share were 11.3 pence (2015: 10.2p).
Exceptional items
There are no exceptional items in the period or in the prior
year.
IFRS results
Intangible amortisation increased to GBP16.3 million (2015:
GBP12.4m) reflecting recent acquisitions in North America and
Spain. Profit for the period was GBP48.0 million (2015: GBP44.8m).
Basic EPS was 9.2 pence (2015: 8.5p), an increase of 8.2%.
IFRS profit Full
First half year
-------------------------------- -------------------------- ------
2016 2015 2015
GBPm GBPm GBPm
-------------------------------- ------------ ------------ ------
Normalised profit before tax 73.2 66.7 150.1
Exceptional items - - -
Intangible amortisation (16.3) (12.4) (25.7)
-------------------------------- ------------ ------------ ------
Profit before tax 56.9 54.3 124.4
Tax charge (8.9) (9.5) (15.3)
-------------------------------- ------------ ------------ ------
Statutory profit for the period 48.0 44.8 109.1
-------------------------------- ------------ ------------ ------
Cash management
Our strong and sustainable cash flows allow us to retain a focus
on ROCE while supporting a capital investment programme that
maintains fleet age at acceptable levels. Our current target is to
invest around 1.1 to 1.2 times depreciation.
Operating cash flow was GBP103.3 million (2015: GBP62.2m), after
a more regular level of maintenance capital expenditure, net of
disposals, of GBP57.4 million, around GBP18 million lower than in
the first half of 2015. Our expectation for net maintenance capital
expenditure for the full year remains at around GBP140 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 GBP9.6 million (2015
inflow: GBP0.2m).
GBP66.1 million of free cash flow was generated in the period
(2015: GBP27.1m) reflecting the higher level of EBITDA, the lower
level of maintenance capital expenditure and the working capital
inflow. This free cash flow was after the annual interest coupon
payments on the Group's corporate bonds. We are again targeting
delivery of GBP100 million in free cash flow for 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
-------------------------------------- ----------------------------- -------
2016 2015 2015
GBPm GBPm GBPm
-------------------------------------- -------------- ------------- -------
Operating profit 96.2 89.6 193.5
Depreciation and other non-cash
items 57.7 52.3 104.6
-------------------------------------- -------------- ------------- -------
EBITDA 153.9 141.9 298.1
Net maintenance capital expenditure (57.4) (75.0) (111.7)
Working capital movement 9.6 0.2 (11.8)
Pension contributions above normal
charge (2.8) (4.9) (9.7)
-------------------------------------- -------------- ------------- -------
Operating cash flow 103.3 62.2 164.9
Payments to associates and minorities (0.1) - 0.7
Net interest paid (33.9) (33.8) (43.4)
Tax paid (3.2) (1.3) (11.2)
-------------------------------------- -------------- ------------- -------
Free cash flow 66.1 27.1 111.0
UK rail franchise exit outflow (1.1) - (2.5)
Exceptional cash (2.8) (5.8) (10.0)
-------------------------------------- -------------- ------------- -------
Cash flow available for growth
& dividends 62.2 21.3 98.5
-------------------------------------- -------------- ------------- -------
After the run-off of historical exceptional items and exit TOC
outflows which together total GBP3.9 million, the Group generated
cash flow for growth and dividends of GBP62.2 million (2015:
GBP21.3m).
Growth capex during the period of GBP15.5 million included
additions to the bus fleet in Morocco to support service expansions
in Agadir and Marrakech. We also made further investment in revenue
management systems in both Spain and the UK as well as in new
technology and infrastructure to support the ramp-up of our German
rail operations. With both RME and our current Moroccan networks
now operating at something approaching a steady state, we would
expect growth capital expenditure in respect of these operations to
fall away in future periods.
We have continued our strategy of making selective bolt-on
acquisitions where the returns and strategic fit justify the
investment, and in the period we completed three such investments
in North America and one in Spain, for total cash consideration of
GBP38 million. We expect these acquisitions to contribute
meaningfully to shareholder returns and to the future strategic
direction of the Group, building on the demonstrable success of
those businesses acquired and integrated in 2015.
Return on capital employed remains a key measure of the Group's
discipline in capital allocation. Group return on capital employed
remains at 11.7% (31 Dec 2015: 11.7%), reflecting the net effect of
improvements in North America, including the success of the 2015
acquisitions, and higher net assets in UK Bus following recent
investment in fleet.
Net funds flow for the period was an outflow of GBP57.2 million
(2015: GBP50.0m), resulting in period--end net debt of GBP802.7
million which can simply be explained by a net outflow of GBP25.8m
on retranslation of foreign currency debt balances and the
acquisitions described above. Sterling weakened against both the
Dollar and the Euro throughout the period, and devalued
dramatically in June, following the result of the EU
Referendum.
The Group maintains gearing discipline by matching the currency
denomination of its debt to the currency in which EBITDA is earned.
Simply put, gains from foreign exchange on EBITDA offset increases
in debt due to movements in foreign exchange. As such, gearing at
the end of the period was 2.5 times EBITDA, within the Group's
target range of 2-2.5 times.
Net funds flow Full
First half year
---------------------------------- ------------------------------ -------
2016 2015 2015
GBPm GBPm GBPm
---------------------------------- -------------- -------------- -------
Cash flow available for growth
& dividends 62.2 21.3 98.5
Net growth capital expenditure (15.5) (20.7) (36.4)
Acquisitions and disposals (37.6) (22.2) (69.4)
Dividends (39.1) (35.5) (54.4)
Other, including foreign exchange (27.2) 7.1 (19.5)
---------------------------------- -------------- -------------- -------
Net funds flow (57.2) (50.0) (81.2)
---------------------------------- -------------- -------------- -------
Net Debt (802.7) (714.3) (745.5)
---------------------------------- -------------- -------------- -------
Dividend
Our dividend policy is to pay a dividend covered two times by
Group earnings. In line with our dividend policy we have declared a
5% increase in the interim dividend to 3.87 pence, reflecting the
underlying increase in EPS, on a constant currency basis.
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 2016 were as
follows:
-- Gearing ratio: 2.5 times EBITDA (31 Dec 2015: 2.5x; bank covenant not to exceed 3.5x);
-- Interest cover ratio: EBITDA 6.8 times interest (31 Dec 2015:
6.6x; 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
2016, this represented GBP787 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 GBP148
million of finance leases. The residual debt balance is funded from
the Group's GBP416 million revolving credit facility (RCF),
maturing in 2020. In January 2016, the Group entered into new bank
facilities totalling GBP450 million, comprising a GBP350 million
bridging-to-bond facility in anticipation of the refinancing of the
Group's GBP350 million bond maturing in January 2017, together with
a GBP100 million general corporate purposes facility, providing the
Group with an appropriate level of medium-term liquidity and
funding headroom. Both facilities are for an initial period of 18
months and include committed options to extend the maturity date
until January 2019. This bridging facility gives the Group
significant flexibility, enabling us to choose the optimum moment
to refinance taking into account the prevailing low interest rate
environment and potential future rate developments, without
incurring punitive refinancing charges. At 30 June 2016, the Group
had GBP506 million in cash and undrawn committed facilities
available.
At 30 June 2016, 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. 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 2016, the proportion of Group
debt at floating rates was 36%.
Pensions
The Group's principal defined benefit pension schemes are all in
the UK. The combined deficit under IAS19 at 30 June 2016 was GBP8.4
million (31 Dec 2015: GBP12.6m). 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.
The IAS19 valuations at 30 June 2016 were as follows:
-- UK Bus: GBP80.9 million deficit (2015: GBP60.4m deficit);
-- UK Group scheme: GBP48.6 million surplus (2015: GBP34.9m surplus)
-- UK Rail/other: GBP23.9 million surplus (2015: GBP12.9m
surplus). The Group's rail business participates in the Railways
Pension Scheme. This pension scheme transfers to an incoming
operator in the event of a franchise termination.
Fuel costs
Fuel cost represents approximately 8% of revenue. The Group is
fully hedged for 2016 at an average price of 46.6p per litre, 93%
hedged for 2017 at an average price of 44.5p, 76% hedged for 2018
at an average price of 32.6p and 12% hedged for 2019 at an average
price of 33.1p.
The reduction in fuel costs from 2018 and the opportunity to
reduce financing costs provides us with a firm footing to increase
shareholder value going forward.
Matthew Ashley
Group Finance Director
28 July 2016
Group wide risks
Principal risks and uncertainties
The Group's principal risks and uncertainties summarised here
are in line with those that are detailed in the 2015 Annual Report
and Accounts:
-- Concession and contract renewal: 2016 is likely to see some
significant bidding activity by the Group to retain and renew its
existing portfolio of contracts and concessions, for example in
Spain, and North America, which may be underbid by competitors;
-- Economic conditions: parts of the business may be adversely
affected by economic conditions 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;
-- Contract mobilisation: principally mobilisation for new bus
and rail contracts in the Middle East and Germany.
-- Fuel cost: changes in economic and political climate can
drive changes in cost for the Group;
-- Insurance and claims: there is a risk that a successful
insurance, employment or other claim may result in material charges
to profit and cash flow;
-- Financial risks: the Group faces risks from deteriorating
customer credit and to movements in currencies.
-- Cyber security: increasingly the global markets we operate in
are subject to Information Systems and Technology failure, loss of
confidential data and damage to brand reputation.
EU Referendum result
In light of the EU Referendum result we have also added the risk
that the uncertainty over the nature and the length of the
negotiation of the 'Brexit' may have an adverse impact on the UK
economy.
It is possible that there may be an economic slowdown in the UK
as a result of the vote for Brexit in the EU Referendum. However,
with two-thirds of Group earnings generated in North America and
Spain, where we expect to see no significant immediate effects from
'Brexit', we feel that the Group is well-positioned to deal with
any short-term uncertainty in the UK.
The value of Sterling has fallen against both the Euro and US
Dollar since the EU Referendum. Whilst this affects both our
overseas earnings and debt balances, our policy of matching our
debt and earnings in local currency ensures that our key gearing
ratio is protected. We will continue to hedge our UK fuel in
Sterling. We also monitor the interest rate environment, which is
of relevance to our pension valuations and our plans to refinance
the GBP350 million bond due to expire in January 2017. However, we
do not currently expect any significant adverse effect as a result
of interest rate movements in the light of the referendum result,
particularly given the flexibility provided by our GBP450 million
bridge facility, which does not expire until January 2019. It is
too early to say if there will be any regulatory changes as a
result of the EU referendum, however given our multi-national
diversity we believe we are well placed to mitigate any risks that
may arise.
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.
28 July 2016
NATIONAL EXPRESS GROUP PLC
CONDENSED GROUP INCOME STATEMENT
For the six months ended 30 June 2016
Unaudited six months to 30
June
--------------------------------------------------------------------------- -------
Audited
Total Total Year
before before to 31
intangible Intangible intangible Intangible December
amortisation amortisation Total amortisation amortisation Total Total
2016 2016 2016 2015 2015 2015 2015
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Continuing
operations
Revenue 4 1,098.9 - 1,098.9 960.2 - 960.2 1,919.8
------------- ------------- --------- ------------- ------------- ------- ---------
Operating costs
before intangible
amortisation (1,002.7) - (1,002.7) (870.6) - (870.6) (1,726.3)
Intangible
amortisation 5 - (16.3) (16.3) - (12.4) (12.4) (25.7)
Total operating
costs (1,002.7) (16.3) (1,019.0) (870.6) (12.4) (883.0) (1,752.0)
------------------- ---- ------------- ------------- --------- ------------- ------------- ------- ---------
Group operating
profit 4 96.2 (16.3) 79.9 89.6 (12.4) 77.2 167.8
Share of results
of associates 0.7 - 0.7 0.2 - 0.2 1.8
Finance income 6 3.3 - 3.3 2.8 - 2.8 5.9
Finance costs 6 (27.0) - (27.0) (25.9) - (25.9) (51.1)
------------------- ---- ------------- ------------- --------- ------------- ------------- ------- ---------
Profit before
tax 73.2 (16.3) 56.9 66.7 (12.4) 54.3 124.4
Tax (charge)/credit 7 (14.6) 5.7 (8.9) (13.3) 3.8 (9.5) (15.3)
------------------- ---- ------------- ------------- --------- ------------- ------------- ------- ---------
Profit for the
period 58.6 (10.6) 48.0 53.4 (8.6) 44.8 109.1
------------- ------------- --------- ------------- ------------- ------- ---------
Profit attributable
to equity
shareholders 57.6 (10.6) 47.0 52.1 (8.6) 43.5 107.0
Profit attributable
to non-controlling
interests 1.0 - 1.0 1.3 - 1.3 2.1
------------- ------------- --------- ------------- ------------- ------- ---------
58.6 (10.6) 48.0 53.4 (8.6) 44.8 109.1
------------------- ---- ------------- ------------- --------- ------------- ------------- ------- ---------
Earnings per
share:
- basic earnings
per share 9 9.2p 8.5p 20.9p
- diluted earnings
per share 9 9.2p 8.5p 20.9p
Normalised earnings
per share:
- basic earnings
per share 9 11.3p 10.2p 23.4p
- diluted earnings
per share 9 11.3p 10.2p 23.3p
------------------- ---- ------------- ------------- --------- ------------- ------------- ------- ---------
NATIONAL EXPRESS GROUP PLC
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 June 2016
Unaudited Unaudited Audited
six six year
months months to
to to 31 December
30 June 30 June 2015
2016 2015 GBPm
GBPm GBPm
----------------------------------------- --------- --------- ------------
Profit for the period 48.0 44.8 109.1
Items that will not be reclassified
subsequently to profit or loss:
Actuarial gains/(losses) on defined
benefit pension plans 2.4 (4.0) (9.4)
Deferred tax on actuarial gains/(losses) 0.1 0.8 1.4
----------------------------------------- --------- --------- ------------
2.5 (3.2) (8.0)
----------------------------------------- --------- --------- ------------
Items that may be reclassified
subsequently to profit or loss:
Exchange differences on retranslation
of net assets of foreign operations
(net of hedging) 137.5 (79.3) (31.0)
Exchange differences on retranslation
of non-controlling interests 2.0 (1.1) (0.6)
Gains/(losses) on cash flow hedges 18.6 8.1 (52.5)
Less: reclassification adjustments
for gains or losses included in
profit 25.0 15.5 36.1
Tax on exchange differences 13.5 (2.7) (1.1)
Deferred tax on cash flow hedges (6.5) (4.7) 1.2
----------------------------------------- --------- --------- ------------
190.1 (64.2) (47.9)
----------------------------------------- --------- --------- ------------
Total comprehensive income/(expenditure)
for the period 240.6 (22.6) 53.2
----------------------------------------- --------- --------- ------------
Total comprehensive income/(expenditure)
attributable to:
--------- --------- ------------
Equity shareholders 237.6 (22.8) 51.7
Non-controlling interests 3.0 0.2 1.5
--------- --------- ------------
240.6 (22.6) 53.2
----------------------------------------- --------- --------- ------------
NATIONAL EXPRESS GROUP PLC
CONDENSED GROUP BALANCE SHEET
At 30 June 2016
Unaudited Unaudited Audited
30 30 31
June June December
2016 2015 2015
Note GBPm GBPm GBPm
--------------------------------- ---- --------- --------- ---------
Non-current assets
Intangible assets 1,405.4 1,121.8 1,230.7
Property, plant and equipment 894.7 736.5 801.1
Available for sale investments 7.5 6.3 6.5
Derivative financial instruments 10 20.1 15.9 22.2
Deferred tax assets 36.2 25.7 31.1
Investments accounted for
using the equity method 11.6 5.1 10.6
Trade and other receivables 3.0 1.8 4.0
Defined benefit pension
assets 11 74.9 41.4 49.7
--------------------------------- ---- --------- --------- ---------
2,453.4 1,954.5 2,155.9
--------------------------------- ---- --------- --------- ---------
Current assets
Inventories 24.2 20.9 22.5
Trade and other receivables 265.5 189.8 241.9
Derivative financial instruments 10 9.7 0.3 2.4
Current tax assets 0.6 - 1.4
Cash and cash equivalents 129.4 43.3 60.4
--------------------------------- ---- --------- --------- ---------
429.4 254.3 328.6
--------------------------------- ---- --------- --------- ---------
Total assets 2,882.8 2,208.8 2,484.5
--------------------------------- ---- --------- --------- ---------
Non-current liabilities
Borrowings (426.3) (734.1) (752.3)
Derivative financial instruments 10 (17.9) (22.4) (39.6)
Deferred tax liability (53.7) (57.4) (53.8)
Other non-current liabilities (16.0) (10.7) (16.0)
Defined benefit pension
liabilities 11 (83.3) (53.1) (62.3)
Provisions (35.7) (23.4) (32.1)
--------------------------------- ---- --------- --------- ---------
(632.9) (901.1) (956.1)
--------------------------------- ---- --------- --------- ---------
Current liabilities
Trade and other payables (554.0) (400.3) (499.5)
Borrowings (536.9) (50.5) (99.1)
Derivative financial instruments 10 (67.1) (22.9) (46.0)
Current tax liabilities (21.8) (30.8) (16.1)
Provisions (38.2) (26.9) (36.6)
--------------------------------- ---- --------- --------- ---------
(1,218.0) (531.4) (697.3)
--------------------------------- ---- --------- --------- ---------
Total liabilities (1,850.9) (1,432.5) (1,653.4)
--------------------------------- ---- --------- --------- ---------
Net assets 1,031.9 776.3 831.1
--------------------------------- ---- --------- --------- ---------
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 (2.0) (1.5) (7.8)
Other reserves 108.0 (95.9) (80.1)
Retained earnings 350.1 302.4 345.6
--------------------------------- ---- --------- --------- ---------
Total shareholders' equity 1,014.6 763.5 816.2
Non-controlling interest
in equity 17.3 12.8 14.9
--------------------------------- ---- --------- --------- ---------
Total equity 1,031.9 776.3 831.1
--------------------------------- ---- --------- --------- ---------
NATIONAL EXPRESS GROUP PLC
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2016
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
2016 25.6 532.7 0.2 (7.8) (80.1) 345.6 816.2 14.9 831.1
Own shares
released to
satisfy employee
share schemes - - - 7.3 - (7.3) - - -
Shares purchased - - - (1.5) - - (1.5) - (1.5)
Total comprehensive
income - - - - 188.1 49.5 237.6 3.0 240.6
Share-based
payments - - - - - 1.7 1.7 - 1.7
Tax on share-based
payments - - - - - (0.3) (0.3) - (0.3)
Dividends - - - - - (39.1) (39.1) - (39.1)
Dividends payable
to
non-controlling
interests - - - - - - - (0.6) (0.6)
------------------- -------- -------- ----------- ------- --------- --------- ------- --------------- -------
At 30 June
2016 (unaudited) 25.6 532.7 0.2 (2.0) 108.0 350.1 1,014.6 17.3 1,031.9
------------------- -------- -------- ----------- ------- --------- --------- ------- --------------- -------
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 25.6 532.7 0.2 (1.5) (95.9) 302.4 763.5 12.8 776.3
(unaudited)
-------------------- -------- -------- ----------- ------- --------- --------- ------ --------------- ------
NATIONAL EXPRESS GROUP PLC
CONDENSED GROUP STATEMENT OF CASH FLOWS
For the six months ended 30 June 2016
Unaudited Unaudited
six six Audited
months months year
to to 30 to
30 June June 31 December
2016 2015 2015
Note GBPm GBPm GBPm
------------------------------------- ---- --------- --------- ------------
Cash generated from operations 14 156.8 132.4 264.1
Tax paid (3.2) (2.3) (11.2)
------------------------------------- ---- --------- --------- ------------
Net cash from operating activities 153.6 130.1 252.9
------------------------------------- ---- --------- --------- ------------
Cash flows from investing activities
Payments to acquire businesses,
net of cash acquired 12 (21.5) (22.0) (62.3)
Proceeds from disposal of business,
net of cash disposed 12 0.9 - -
Deferred consideration for
businesses acquired 12 (16.3) (0.1) (0.2)
Purchase of property, plant
and equipment (51.5) (83.1) (107.5)
Proceeds from disposal of property,
plant and equipment 4.0 4.4 10.2
Payments to acquire intangible
assets (4.1) (3.3) (16.4)
Payments to acquire associates - (0.1) (3.5)
Interest received 9.8 9.3 5.6
------------------------------------- ---- --------- --------- ------------
Net cash used in investing
activities (78.7) (94.9) (174.1)
------------------------------------- ---- --------- --------- ------------
Cash flows from financing activities
Purchase of own shares (1.5) (2.3) (8.5)
Interest paid (42.5) (41.9) (46.7)
Finance lease principal payments (15.5) (13.9) (25.8)
Net loans drawn down 78.5 20.6 44.3
Receipt/(payment) on the maturity
of foreign currency swaps 8.8 (0.3) (11.1)
Dividends paid to non-controlling
interests (0.1) - (0.1)
Contribution from non-controlling
interests - - 0.8
Dividends paid to shareholders
of the Company (39.1) (35.5) (54.4)
------------------------------------- ---- --------- --------- ------------
Net cash used in financing
activities (11.4) (73.3) (101.5)
------------------------------------- ---- --------- --------- ------------
Increase/(decrease) in cash
and cash equivalents 63.5 (38.1) (22.7)
------------------------------------- ---- --------- --------- ------------
Opening cash and cash equivalents 60.4 83.7 83.7
Increase/(decrease) in cash
and cash equivalents 63.5 (38.1) (22.7)
Foreign exchange 5.5 (2.3) (0.6)
------------------------------------- ---- --------- --------- ------------
Closing cash and cash equivalents 129.4 43.3 60.4
------------------------------------- ---- --------- --------- ------------
NATIONAL EXPRESS GROUP PLC
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS
For the six months ended 30 June 2016
1. General information
These interim condensed consolidated financial statements for
the six months ended 30 June 2016 have been prepared using the
accounting policies set out on pages 111 to 119 of the Group's
Annual Report and Accounts 2015 except as described below and in
accordance with the Disclosure and Transparency Rules (DTR) of the
Financial Conduct Authority and International Accounting Standard
(IAS) 34 'Interim Financial Reporting'.
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 2015 have been extracted from the Group's Annual Report
and Accounts 2015 which has been filed with the Registrar of
Companies. The audit report on the Group's Annual Report and
Accounts 2015 was unqualified and did not contain any statement
under Section 498 of the Companies Act 2006. The Group's Annual
Report and Accounts 2015 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.
Accounting policies
The accounting policies adopted are consistent with those of the
previous financial year.
On 13th December 2015 the Group commenced operations in German
Rail and as a result we have amended our existing revenue
recognition policy for this new business. Rail revenue in Germany
comprises passenger revenues and subsidy income receivable from the
Public Transport Authorities. Passenger revenue, which is allocated
between the various transport providers in each region by the
tariff authority responsible for that region, is recognised based
on passenger counts, tariff authority estimates and historical
trends. Subsidy income is recognised over the life of each
franchise based on contractual entitlements including, where
appropriate, indexation and other adjustments made or expected to
be made to the subsidy entitlement. In accordance with IAS 20, the
subsidy income recognised in each period reflects a systematic
allocation of the total contractual subsidy entitlement, based on
the expected profile of the underlying cost base which the subsidy
is intended to compensate.
A number of amendments to IFRSs became effective for the
financial year beginning on 1 January 2016 however the group did
not have to change its accounting policies or make material
retrospective adjustments as a result of these new standards.
In addition, the following principal standards are in issue but
not yet effective, and have not been applied to these condensed
financial statements:
IFRS 9 'Financial Instruments' - effective for periods beginning
on or after 1 January 2018. The standard deals with the
classification, recognition and measurement of financial assets and
liabilities.
IFRS 15 'Revenue from Contracts with Customers' - effective for
periods beginning on or after 1 January 2018. The standard
establishes the principles for reporting the nature, amount, timing
and uncertainty of revenue and cash flows arising from contracts
with customers.
IFRS 16 'Leases' - effective for periods beginning on or after 1
January 2019. The standard sets out the principles for the
recognition, measurement, presentation and disclosure of
leases.
The Directors have assessed the following: IFRS 9 may impact
both the measurement and disclosures of the Group's financial
instruments. IFRS 15 is not likely to have a significant impact on
future financial statements. IFRS 16 is expected to result in a
material increase to both the assets and liabilities of the Group
and expected to reduce operating costs and increase finance
costs.
Taxes on income in the interim periods are accrued using the tax
rate that is expected to apply to total annual earnings.
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 (i.e. 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 2015
2016 2015
Closing Average Closing Average Closing Average
rate rate rate rate rate rate
---------------- ------- ------- ------- ------- ------- -------
US dollar 1.33 1.43 1.57 1.52 1.47 1.53
Canadian dollar 1.72 1.91 1.96 1.88 2.04 1.95
Euro 1.20 1.28 1.41 1.37 1.36 1.38
---------------- ------- ------- ------- ------- ------- -------
If the results for the 6 months to 30 June 2015 had been
retranslated at the average exchange rates for the year to 30 June
2016, North America would have achieved normalised operating profit
of GBP41.2m on revenue of GBP382.7m, compared to normalised
operating profit of GBP39.2m on revenue of GBP363.0 as reported,
and Spain and Morocco would have achieved a normalised operating
profit of GBP31.6m on revenue of GBP257.2m, compared to normalised
operating profit of GBP29.7m on revenue of GBP241.8m 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 28-31 in the Group's Annual Report and
Accounts 2015.
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
Analysis by class Revenue result Revenue result Revenue result
and geography 2016 2016 2015 2015 2015 2015
of business GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ------- --------- ------- --------- ------- ---------
UK Bus 142.5 17.6 141.4 17.1 286.4 37.5
UK Coach 133.8 10.4 132.2 10.0 281.2 32.3
Rail 115.3 (0.6) 82.0 0.6 168.4 0.6
Spain and Morocco 268.2 32.3 241.8 29.7 502.2 71.5
North America 439.9 45.2 363.0 39.2 683.2 66.8
Central functions - (8.7) - (7.0) - (15.2)
Intercompany elimination (0.8) - (0.2) - (1.6) -
------------------------- ------- --------- ------- --------- ------- ---------
Result from continuing
operations 1,098.9 96.2 960.2 89.6 1,919.8 193.5
Intangible asset
amortisation (16.3) (12.4) (25.7)
Group operating
profit 79.9 77.2 167.8
Share of results
of associates 0.7 0.2 1.8
Net finance costs (23.7) (23.1) (45.2)
------------------------- ------- --------- ------- --------- ------- ---------
Profit before
tax 56.9 54.3 124.4
Tax charge (8.9) (9.5) (15.3)
------------------------- ------- --------- ------- --------- ------- ---------
Profit for the
period 48.0 44.8 109.1
------------------------- ------- --------- ------- --------- ------- ---------
Intercompany sales are made by UK Bus to UK Coach for the
provision of coach services on a small number of routes and by UK
Coach to Rail for rail replacement services. Inter-segment trading
is undertaken on standard arm's length commercial terms.
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
2016 2015 2015
GBPm GBPm GBPm
------------------ ---------- ---------- ------------
UK Coach 0.2 0.2 0.5
Rail 0.4 - -
Spain and Morocco 4.8 5.1 9.9
North America 10.9 7.0 15.2
Central functions - 0.1 0.1
------------------ ---------- ---------- ------------
16.3 12.4 25.7
------------------ ---------- ---------- ------------
6. Net finance costs
Six months Six months Year
to to to
30 June 30 June 31 Dec
2016 2015 2015
GBPm GBPm GBPm
--------------------------------- ---------- ---------- -------
Bank and bond interest payable (23.6) (22.5) (45.5)
Finance lease interest payable (1.7) (1.6) (3.2)
Other interest payable (0.9) (0.9) (0.9)
Unwind of provision discounting (0.6) (0.8) (1.4)
Interest cost on defined benefit
pension obligations (0.2) (0.1) (0.1)
--------------------------------- ---------- ---------- -------
Finance costs (27.0) (25.9) (51.1)
Other financial income 3.3 2.8 5.9
--------------------------------- ---------- ---------- -------
Net finance costs (23.7) (23.1) (45.2)
--------------------------------- ---------- ---------- -------
7. Taxation
Tax on profit on ordinary activities for the six months to 30
June 2016 has been calculated on the basis of the estimated annual
effective rate for the year ending 31 December 2016. The normalised
tax charge of GBP14.6m (2015 interim: GBP13.3m) represents an
effective tax rate on normalised profit before tax, for continuing
operations, of 20% (2015 interim: 20%). The total tax charge of
GBP8.9m (2015 interim: GBP9.5m) includes a deferred taxation charge
of GBP1.2m (2015 interim: GBP3.9m credit).
In the March 2016 Budget Statement, it was announced that the UK
corporation tax rate would reduce from 18% to 17% from 1 April
2020. As the legislation was not enacted by the period end, the
impact is not included in these results.
8. Dividends paid and proposed
Six months Six months
to to Year to
30 June 30 June 31 December
2016 2015 2015
GBPm GBPm GBPm
------------------------------ ---------- ---------- ------------
Declared and paid during
the period:
Ordinary final dividend for
2014 of 6.95p per share - 35.5 35.5
Ordinary interim dividend
for 2015 of 3.685p per share - - 18.9
Ordinary final dividend for
2015 of 7.645p per share 39.1 - -
------------------------------ ---------- ---------- ------------
Six months Six months
to to Year to
30 June 30 June 31 December
2016 2015 2015
GBPm GBPm GBPm
------------------------------ ---------- ---------- ------------
Proposed for approval and
not recognised at period
end:
Ordinary interim dividend
for 2015 of 3.685p per share - 18.9 -
Ordinary final dividend for
2015 of 7.645p per share - - 39.1
Ordinary interim dividend
for 2016 of 3.87p per share 19.8 - --
------------------------------ ---------- ---------- ------------
9. Earnings per share
Six months Six months
to to Year to
30 June 30 June 31 December
2016 2015 2015
---------------------------- ---------- ---------- ------------
Basic earnings per share 9.2p 8.5p 20.9p
---------------------------- ---------- ---------- ------------
Normalised basic earnings
per share 11.3p 10.2p 23.4p
---------------------------- ---------- ---------- ------------
Diluted earnings per share 9.2p 8.5p 20.9p
---------------------------- ---------- ---------- ------------
Normalised diluted earnings
per share 11.3p 10.2p 23.3p
---------------------------- ---------- ---------- ------------
Basic earnings per share is calculated by dividing the profit
attributable to equity shareholders of GBP47.0m (2015 interim:
GBP43.5m; 2015 full year: GBP107.0m) 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 2015
2016 2015
------------------------------ ----------- ----------- ------------
Basic weighted average shares 510,026,180 511,174,909 510,954,717
Adjustment for dilutive
potential ordinary shares 180,345 275,107 2,399,159
------------------------------ ----------- ----------- ------------
Diluted weighted average
shares 510,206,525 511,450,016 513,353,876
------------------------------ ----------- ----------- ------------
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 Six months Year to
to to 31 December
30 June 30 June 2015
2016 2015 GBPm
GBPm GBPm
------------------------------- ---------- ---------- ------------
Profit attributable to equity
shareholders 47.0 43.5 107.0
------------------------------- ---------- ---------- ------------
Intangible asset amortisation 16.3 12.4 25.7
Tax relief on amortisation (5.7) (3.8) (13.2)
------------------------------- ---------- ---------- ------------
Normalised profit attributable
to equity shareholders 57.6 52.1 119.5
------------------------------- ---------- ---------- ------------
10. 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 2016 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 a Euro Private Placement.
These derivative financial instruments are held in the balance
sheet at fair value and include the use of level 2 inputs. These
are valued using discounted cash flow methods that incorporate
interest rates, fuel prices and yield curves observable at commonly
quoted intervals and observable credit spreads. 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 2016. 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
2016 2015 2015
GBPm GBPm GBPm
--------------------------------- -------- -------- ------------
Non-current
Fuel derivatives 2.9 - -
Interest rate derivatives 17.2 15.9 22.2
--------------------------------- -------- -------- ------------
Derivative financial assets 20.1 15.9 22.2
--------------------------------- -------- -------- ------------
Current
Fuel derivatives 0.2 - -
Interest rate derivatives 2.7 - -
Foreign exchange derivatives 6.8 0.3 2.4
Derivative financial assets 9.7 0.3 2.4
--------------------------------- -------- -------- ------------
Non-current
Fuel derivatives 17.9 22.4 39.6
Derivative financial liabilities 17.9 22.4 39.6
--------------------------------- -------- -------- ------------
Current
Fuel derivatives 31.2 22.4 44.2
Foreign exchange derivatives 35.9 0.5 1.8
Derivative financial liabilities 67.1 22.9 46.0
--------------------------------- -------- -------- ------------
11. Pensions and other post-employment benefits
The UK Bus division and National Express Group PLC (the
'Company') operate defined benefit pension schemes. The Company
defined benefit scheme also includes certain employees of the UK
Coach division. In addition, a defined contribution scheme operates
for staff in the UK Bus and UK Coach divisions and the Company.
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 the defined benefits schemes are held separately
from those of the Group and contributions to the schemes are
determined by independent professionally qualified actuaries.
Subsidiaries in North America contribute to a number of defined
contribution plans. The Group also provides certain additional
unfunded post-employment benefits to employees in North America and
Spain. These are categorised as 'Other' below.
The total pension operating cost for the six months to 30 June
2016 was GBP5.4m (2015 interim: GBP5.4m; 2015 full year: GBP11.3m),
of which GBP1.9m (2015 interim: GBP1.9m; 2015 full year: GBP3.9m)
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
2016 2015 2015
GBPm GBPm GBPm
UK Bus (80.9) (51.1) (60.4)
Rail 26.3 10.9 14.8
Company 48.6 30.5 34.9
Other (2.4) (2.0) (1.9)
-------- -------- -------- ------------
Total (8.4) (11.7) (12.6)
-------- -------- -------- ------------
The Rail defined benefit pension asset is net of a franchise
adjustment of GBP54.1m (2015 interim: GBP33.0m; 2015 full year:
GBP35.6m). An explanation of the franchise adjustment is included
in note 33 to the Group's Annual Report and Accounts 2015.
The net defined benefit pension asset/(liability) was calculated
based on the following assumptions:
Six months ended Year ended 31 December
30 June 2016 2015
--------------------- --------------------- --------------------------
UK Bus Rail Company UK Bus Rail Company
--------------------- ------ ---- ------- -------- ----- ---------
Rate of increase
in salaries 2.5% 2.4% 2.5% 2.5% 2.6% 2.5%
Rate of increase
in pensions 1.9% 1.9% 2.9% 2.1% 2.1% 3.1%
Discount rate 3.0% 3.0% 3.0% 3.9% 3.9% 3.9%
Inflation rate (RPI) 2.9% 2.9% 2.9% 3.1% 3.1% 3.1%
Inflation rate (CPI) 1.9% 1.9% 1.9% 2.1% 2.1% 2.1%
--------------------- ------ ---- ------- -------- ----- ---------
12. Business Combinations
(a) Acquisitions
During the period the Group acquired two school bus and
paratransit businesses in North America: Safeway Training and
Transportation Services Inc and White Plains Bus Company
(comprising White Plains Bus Co Inc and Suburban Paratransit
Service Inc). In addition, the North America division acquired
Ecolane Finland Oy during the period, a transit software developer.
The total provisional fair value of net assets acquired in these
businesses was GBP18.8m. Total consideration was GBP30.5m
(including deferred consideration of GBP5.7m), resulting in
provisional goodwill of GBP11.7m. Cash in the acquired businesses
was GBP2.9m, therefore the net cash outflow for the period relating
to these acquisitions was GBP21.9m.
During the period the Group also acquired Voramar el Gaucho, a
business that operates transport and charter services in Ibiza,
Spain. The total provisional fair value of net assets acquired in
this business was GBP1.4m. Total consideration was GBP3.5m
(including deferred consideration of GBP3.1m), resulting in
provisional goodwill of GBP2.1m. Cash in the acquired business was
GBP0.8m, therefore the net cash inflow for the period relating to
this acquisition was GBP0.4m.
In addition to the above, deferred consideration of GBP0.7m was
paid in the period relating to North America acquisitions from
earlier years and GBP15.7m was paid in the period relating to the
acquisition of the Madrid-El Escorial franchise in December
2015.
In the period to 30 June 2015 there were a number of small
acquisitions in North America. Further details are disclosed in the
interim condensed consolidated financial statements for that period
and in the Group's 2015 Annual Report and Accounts. No material
changes were made to the fair values during 2016.
(b) Disposals
On 31 March 2016 the Group disposed of a small business in the
UK Coach division for consideration of GBP2.0m. Cash in the
business was GBP0.8m and deferred consideration was GBP0.3m
therefore the net cash inflow in the period was GBP0.9m. There was
no material profit arising on the disposal.
13. Net debt
At 1 Cash Acquisitions Foreign Other At 30
January flow & disposals Exchange movements June
2016 GBPm GBPm GBPm GBPm 2016
GBPm GBPm
---------------------- -------- ------ ------------ --------- ---------- -------
Cash and cash
equivalents 60.4 59.8 3.7 5.5 - 129.4
---------------------- -------- ------ ------------ --------- ---------- -------
Other debt receivable 0.8 (0.2) - - - 0.6
---------------------- -------- ------ ------------ --------- ---------- -------
Borrowings:
Bank loans (45.3) (80.1) - (18.2) (0.4) (144.0)
Bonds (583.5) - - - (3.1) (586.6)
Fair value of
hedging derivatives 14.3 - - - 4.1 18.4
Finance lease
obligations (127.6) 15.5 (0.7) (14.0) (21.2) (148.0)
Other debt payable (64.6) 1.8 - (7.9) (1.8) (72.5)
---------------------- -------- ------ ------------ --------- ---------- -------
Total borrowings (806.7) (62.8) (0.7) (40.1) (22.4) (932.7)
---------------------- -------- ------ ------------ --------- ---------- -------
Net debt (745.5) (3.2) 3.0 (34.6) (22.4) (802.7)
---------------------- -------- ------ ------------ --------- ---------- -------
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)
---------------------- -------- ------ ------------- --------- ---------- -------
Borrowings include non-current interest bearing loans and
borrowings of GBP426.3m (2015 interim: GBP734.1m; 2015 full year:
GBP752.3m).
Other non-cash movements represent finance lease additions of
GBP21.2m (2015 interim: GBP13.6m) and a GBP1.2m increase to net
debt (2015 interim: GBP1.1m increase) relating to loan and bond
arrangement fees.
In January 2016, the Group entered into additional committed
credit facilities totalling GBP450m. The new facilities include a
GBP350m bridge facility to provide the Group with an appropriate
level of liquidity prior to refinancing the Group's GBP350m 2017
bonds (shown within current liabilities), and a GBP100m facility to
be used for general corporate purposes. Both facilities are for 18
months with three six-month extension options.
14. 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
2016 2015 2015
GBPm GBPm GBPm
----------------------------------- ---------- ---------- ------------
Net cash inflow from operating
activities
Profit before tax 56.9 54.3 124.4
Net finance costs 23.7 23.1 45.2
Share of post-tax results under
the equity method (0.7) (0.2) (1.8)
Depreciation of property, plant
and equipment 58.8 52.1 104.3
Intangible asset amortisation 16.3 12.4 25.7
Amortisation of fixed asset
grants (0.2) (0.3) (0.6)
Profit on disposal property,
plant and equipment (2.5) (0.1) (2.3)
Share-based payments 1.7 0.7 3.2
Decrease/(increase) in inventories 0.7 - (0.7)
(Increase)/decrease in receivables (2.9) 2.1 (32.7)
Increase in payables 12.2 7.2 34.8
Decrease in provisions (7.2) (18.9) (35.4)
----------------------------------- ---------- ---------- ------------
Cash generated from operations 156.8 132.4 264.1
----------------------------------- ---------- ---------- ------------
15. Commitments and contingencies
Capital commitments
Capital commitments contracted but not provided at 30 June 2016
were GBP100.6m (2015 full year: GBP53.0m).
Contingent liabilities
Guarantees
The Group has guaranteed credit facilities totalling GBP36.2m
(2015 full year: GBP36.4m) 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 2016, there were Rail performance bonds of GBP64.0m (2015 full
year: GBP63.3m) and Rail season ticket bonds of GBP16.5m (2015 full
year: GBP21.9m). The Group has other performance bonds which
include performance bonds in respect of businesses in the US of
GBP149.7m (2015 full year: GBP95.8m) and in Spain of GBP59.9m (2015
full year: GBP66.1m). There are also bonds of GBP6.0m (2015 full
year: GBP8.1m) relating to operations in the Middle East. Letters
of credit have been issued to support insurance retentions of
GBP74.2m (2015 full year: GBP66.1m).
16. Related party transactions
There have been no material changes to the related party
balances disclosed in the Group's Annual Report and Accounts 2015
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 2016.
17. Post balance sheet events
There have been no significant post balance sheet events.
18. Definitions
Unless otherwise stated, all operating profit, operating margin,
operating cashflow, asset return 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 and tax relief thereon. The Board
believes that the normalised result gives a better indication of
the underlying performance of the Group.
Constant currency basis compares the current year's results with
the prior year's results translated at the current year's exchange
rate.
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, including any pre-acquisition EBITDA generated in
that twelve month period by businesses acquired by the Group during
the period. For the purposes of calculating the gearing ratio,
foreign currency debt and cash balances are translated at the
average foreign currency exchange rates for the twelve month
period.
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 in the Employee Benefit Trust which
are treated as cancelled.
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.
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 2016 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 2016 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Deloitte LLP
Chartered Accountants and Statutory Auditor
Birmingham, UK
28 July 2016
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR AKODPBBKBBOB
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