TIDMSGC
RNS Number : 4869Y
Stagecoach Group PLC
06 December 2017
6 December 2017
Stagecoach Group plc - Interim results for the half-year ended
28 October 2017
Earnings per share in line with our expectation
-- Earnings per share 13.6 pence (H1 2017: 12.7 pence)
-- Adjusted earnings per share* 13.6 pence (H1 2017 restated**: 13.9 pence)
-- Interim dividend maintained at 3.8 pence per share
-- Profit before tax GBP96.7m (H1 2017: GBP89.5m)
Positive progress in all divisions
-- Management action on regional UK bus pricing, services
operated and commercial initiatives - delivering in line with our
expectations
o Revenue per vehicle mile up 2.7%
o Journeys per vehicle mile up 0.3%
-- Positive London Bus tender outcomes: 4.5% net increase in vehicle miles
-- Improved revenue trends in North America
-- Progress and opportunities in UK rail market
o Progressing negotiations with Department for Transport on new
Virgin Trains East Coast contract
o Extension of East Midlands Trains franchise to March 2019
confirmed, with plan for further Direct Award franchise beyond
that
o Good progress towards new Virgin Trains West Coast Direct
Award franchise from April 2019
o Shortlisted for new South Eastern franchise
o UK rail franchises moving to a more balanced risk profile
-- No change to our expectation of 2017/18 earnings per share
Financial summary
"Adjusted" results "Statutory"
(Results excluding results
intangible asset
amortisation
(exc. software)
and exceptional
items(*) )
H1 2018 H1 2017 H1 2018 H1 2017
(Restated**)
--------------------------- -------- -------------- -------- --------
Revenue (GBPm) 1,800.4 2,002.1 1,800.4 2,002.1
--------------------------- -------- -------------- -------- --------
Total operating profit
(GBPm) 114.8 113.8 114.8 108.9
Non-operating exceptional
items (GBPm) - - - (2.8)
Net finance charges
(GBPm) (18.1) (16.6) (18.1) (16.6)
--------------------------- -------- -------------- -------- --------
Profit before taxation
(GBPm) 96.7 97.2 96.7 89.5
Earnings per share
(pence) 13.6p 13.9p 13.6p 12.7p
Interim dividend
per share (pence) 3.8p 3.8p 3.8p 3.8p
--------------------------- -------- -------------- -------- --------
* see definitions in note 23 to the condensed
financial statements
** see note 5 for details of the restatement for
the revised definition of adjusted earnings
per share
Chief Executive, Martin Griffiths, said:
"I am pleased to report half-year financial results in line with
our expectation and an interim dividend maintained at 3.8 pence per
share.
"We have made positive progress across our businesses. In UK
rail, we are working with the Department for Transport towards new
contracts at Virgin Trains East Coast and Virgin Trains West Coast.
Our East Midlands Trains franchise has been extended through to
March 2019, with the prospect of us agreeing a further direct award
franchise from March 2019, and we are part of shortlisted bids for
new South Eastern and West Coast Partnership franchises.
"In bus, the actions we have taken on pricing, services operated
and commercial initiatives across our regional UK bus operations
are delivering the results we expected, while our London bus
business has had success in winning new contracts. In North
America, we have seen improved revenue trends, new contract wins
and growth in profit.
"We are focussed on making further progress in the second half
of the year and have maintained our expectation of full year
adjusted earnings per share."
Copies of this announcement are available on the Stagecoach
Group website at
http://www.stagecoach.com/investors/financial-analysis/reports/2017.aspx
For further information, please contact:
Stagecoach Group plc www.stagecoachgroup.com
Investors and analysts
Ross Paterson, Finance Director 01738 442111
Bruce Dingwall, Group Financial Controller 01738 442111
Media
Steven Stewart, Director of Corporate Communications 07764 774680
Notes to Editors
Stagecoach Group
-- Stagecoach is an international public transport group, with
operations in the UK, the United States and Canada. The Group
employs around 34,000 people, and operates around 11,000 buses,
coaches, trains and trams.
-- Stagecoach is one of the UK's biggest bus and coach operators
with over 8,000 buses and coaches on a network stretching from
south-west England to the Highlands and Islands of Scotland.
Low-cost coach service, megabus.com, operates a network of
inter-city services across the UK.
-- Stagecoach is a major UK rail operator, running the East
Midlands Trains network. It also has a 49% shareholding in Virgin
Rail Group, which operates the West Coast rail franchise, and a 90%
shareholding in Virgin Trains East Coast, which operates the East
Coast rail franchise.
-- Stagecoach operates the Supertram light rail network in Sheffield.
-- In North America, Stagecoach operates around 2,200 buses and
coaches in the United States and Canada. megabus.com operates a
network of inter-city coach services in North America. Stagecoach
is also involved in operating commuter, transit, contracted,
charter, airport shuttle and sightseeing services.
Interim management report
The Directors of Stagecoach Group plc are pleased to present
their report on the Group for the half-year ended 28 October
2017.
Description of the business
Stagecoach Group plc is a public limited company that is
incorporated, domiciled and has its registered office in Scotland.
Its ordinary shares are publicly traded and it is not under the
control of any single shareholder. The Company has its primary
listing on the London Stock Exchange. Throughout this document,
Stagecoach Group plc is referred to as "the Company" and the group
headed by it is referred to as "Stagecoach" or "the Group".
The Group is a leading international public transport group,
with operations in the UK, the United States and Canada. A
description of each of the Group's operating divisions is given on
pages 5 to 8 of its 2017 Annual Report.
Overview
Our strategy is designed to protect and grow our existing, core
businesses where we have deep knowledge and expertise. We aim to
provide a safe, value-for-money experience for customers. Our focus
on operational excellence underpins that with an emphasis on
providing reliable, good quality transport services. We have an
ongoing investment programme which includes investing in our
vehicle fleet but also in deploying new technology that enhances
the customers' experience and improves the efficiency of our
operations. We bid for selected rail franchises and bus contracts
to secure new business where the trade-off between risk and return
is acceptable. We are also investing in the future of transport as
we continue to take a longer term perspective on the business
opportunities.
We have met our expectation of earnings per share for the
half-year ended 28 October 2017. Revenue for the period was
GBP1,800.4m (H1 2017: GBP2,002.1m), with the reduction principally
due to the expiry of our South West Trains franchise in August.
Notwithstanding that, total operating profit, before non-software
intangible asset amortisation and exceptional items increased to
GBP114.8m (H1 2017 restated: GBP113.8m). Unadjusted total operating
profit rose to GBP114.8m (H1 2017: GBP108.9m). Earnings per share
before non-software intangible amortisation and exceptional items
were 13.6p (H1 2017 restated: 13.9p). Basic, unadjusted earnings
per share increased 0.9p to 13.6p (H1 2017: 12.7p).
We have maintained the interim dividend at 3.8p per share. We
continue to believe that the business is able to support the
current rate of dividend, taking account of the outlook for
profitability and cash flows. As usual, we will consider the final
dividend for the year in June and, while we currently have no plans
to reduce the rate of dividend, we anticipate that any dividend
growth at that time will be modest. The 3.8p dividend is payable to
shareholders on the register at 26 January 2018 and will be paid on
7 March 2018. Shareholders who wish to participate in the dividend
re-investment plan for this dividend should elect to do so by
sending their requests to the Company's registrars to arrive by 14
February 2018.
In the regional UK bus market, where independent research
confirms that we continue to offer lower than average fares, the
actions we have taken on pricing, services operated and commercial
initiatives have had the intended impact on bus revenue and
passenger volumes. While there are regional variations in bus
performance, we are seeing growth in a number of parts of the
country, including those with more robust regional economies. We
are taking steps to address weak performance in the inter-city
coach market and have started to see revenue trends improve. In the
competitive London bus market, we are pleased that through contract
wins during the first half of our financial year, we have achieved
a net increase in contracted annual bus mileage.
Revenue trends in North America have improved. Contract revenue
has benefitted from tender wins, including rail replacement work.
Reflecting the changes we made to our network to match our services
to customer demand, revenue per vehicle mile at our megabus.com
business in North America increased 3.2%.
We have made positive progress within our UK Rail business and
we welcome the new direction for the UK rail network announced
recently by the Secretary of State for Transport as part of plans
to deliver improved integration between train and track. Our
franchise term has been extended at East Midlands Trains to March
2019 and Virgin Rail Group is progressing towards agreeing a new
Direct Award franchise at Virgin Trains West Coast. In addition, we
are making good progress in discussions with the Department for
Transport on the terms of our Virgin Trains East Coast contract.
Work on our shortlisted bid for the new South Eastern franchise is
progressing and we are encouraged by indications of an improved
risk-reward balance in new franchises. We are also working with
SNCF and Virgin on our joint bid for the new West Coast Partnership
franchise.
Our expectation of the level of adjusted earnings per share for
the full year to 28 April 2018 is unchanged. We remain clear that
safe, high-quality and good value public transport has a positive
future, particularly as concerns grow about increasing road
congestion and poor air quality linked to cars. Public transport
will continue to be an enabler of regional economies and
communities, helping connect people with employment, education,
health and leisure opportunities. Urbanisation, population growth,
and demand for improved mobility all point to a strong future for
public transport and we remain confident that we can continue to
deliver long-term value to our customers and shareholders.
Earlier this year, we carried out our biggest ever survey of
employees as part of our drive to foster an environment where
everyone has access to opportunities and resources to help them
contribute to the success of our business. Engagement levels were
good with a 61% response rate and we are acting on the survey
results to make further improvements in our businesses. The Board
extends its thanks to everyone across the Group for their
contribution to making every customer journey better.
Summary of financial results
Revenue by division is summarised below:
REVENUE H1 2018 H1 2017 H1 2018 H1 2017 Growth
-----------
Functional Functional
GBPm GBPm currency currency (m) %
-------- -------- ----------- ----------------------- ---------
Continuing Group
operations
UK Bus (regional
operations) 512.4 513.9 GBP 512.4 513.9 (0.3)%
megabus Europe - 14.9 GBP - 14.9 (100.0)%
UK Bus (London) 128.4 131.5 GBP 128.4 131.5 (2.4)%
North America 256.3 252.0 US$ 333.9 338.4 (1.3)%
UK Rail 905.6 1,092.3 GBP 905.6 1,092.3 (17.1)%
Intra-Group revenue (2.3) (2.5) GBP (2.3) (2.5)
-------- -------- ----------- ----------- ---------- ---------
Group revenue 1,800.4 2,002.1
-------- --------
Operating profit by division is summarised below:
H1 2017 H1 2017
OPERATING PROFIT H1 2018 (Restated) H1 2018 (Restated)
-----------
Functional
Functional currency
GBPm % margin GBPm % margin currency (m)
------ --------- ------ --------- ----------- ----------------------
Continuing Group
operations
UK Bus (regional
operations) 61.6 12.0% 64.9 12.6% GBP 61.6 64.9
megabus Europe - - (4.6) (30.9)% GBP - (4.6)
UK Bus (London) 6.5 5.1% 9.1 6.9% GBP 6.5 9.1
North America 21.2 8.3% 17.0 6.7% US$ 27.6 22.8
UK Rail 21.7 2.4% 19.5 1.8% GBP 21.7 19.5
Group overheads (7.9) (6.3)
Restructuring costs (1.2) (0.8)
------ --------- ------
101.9 98.8
Joint ventures
- share of profit
after tax
Virgin Rail Group 12.1 13.9
Citylink 0.8 1.1
Total operating
profit before intangible
asset expenses 114.8 113.8
Non-software intangible
asset amortisation - (4.9)
Total operating
profit: Group operating
profit and share
of joint ventures'
profit after taxation 114.8 108.9
------ --------- ------
UK Bus (regional operations)
Summary
--------------------------------------------------------------
* Revenue per vehicle mile up 2.7%
* Journeys per vehicle mile up 0.3%
* Investment in enhancing customer experience
* Fastest growing contactless transit scheme in Europe
* No change to expected full year profit
--------------------------------------------------------------
Financial performance
The financial performance of the UK Bus (regional operations)
Division for the half-year ended 28 October 2017 is summarised
below, with operating profit slightly below last year:
H1 2017
H1 (Restated)
2018
GBPm GBPm Change
--------------- ------- ------------ -------
Revenue 512.4 513.9 (0.3)%
Like-for-like
revenue 512.3 512.9 (0.1)%
Operating
profit* 61.6 64.9 (5.1)%
--------------- ------- ------------ -------
Operating
margin* 12.0% 12.6% (60)bp
--------------- ------- ------------ -------
Early in 2017, we took action to adjust our pricing and services
to respond to changes in customer demand and protect the
profitability of the business. We continue to focus on operating
the right routes with prices and service frequencies that offer
good value for money and reflect the pattern of customer demand.
Vehicle miles operated in the first half of the year were 2.9%
lower than in the equivalent period last year. The vehicle miles we
operate on a commercial basis were reduced by 1.5% with greater
reductions in the mileage tendered by local authorities and
operated under contract. Reflecting the actions taken, revenue per
vehicle mile grew 2.7%, journeys per vehicle mile grew 0.3% and
revenue per journey increased 2.4%.
Like-for-like revenue was built up as follows:
H1 H1 Change
2018 2017 %
GBPm GBPm
------------------ -------- -------- ---------
Commercial
on and off
bus revenue
- megabus.com 11.2 11.2 -
- other 307.8 303.5 1.4%
Concessionary
revenue 125.9 127.5 (1.3)%
------------------ -------- -------- ---------
Commercial
& concessionary
revenue 444.9 442.2 0.6%
Tendered
and school
revenue 47.6 49.7 (4.2)%
Contract
and other
revenue 19.8 21.0 (5.7)%
Like-for-like
revenue 512.3 512.9 (0.1)%
------------------ -------- -------- ---------
The growth in commercial revenue reflects the actions we have
taken, with improvement in the yield per journey. Our low-fares
strategy remains central to our customer offer. Combined with a
focus on operational excellence and continued investment, that
underpins our strategy for growth. Reflecting that emphasis on
operational excellence, we operated 99.6% of our scheduled mileage
in the half-year.
We are starting to see improving trends at our megabus.com
business in the UK after a period of disappointing performance in
the half-year reflecting weakness in the wider inter-city coach
market. We are addressing this through improved yield management,
reviewing our network and operational plans, and modifying our
commercial and marketing strategy.
The decline in concessionary revenue includes the continuing
effects of changes in the age of eligibility for free bus travel by
older people, as we have previously reported. We have also seen a
reduction in the concessionary reimbursement rate paid to bus
operators in Manchester and lower financial support in Wales for
bus travel by young people.
We continue to work with local authorities to maximise the
community value from the financial support they can provide for
socially desirable transport services. The decline in tender
revenue mainly reflects further reductions by local authorities in
the tendered bus services that they support. We do not believe the
bottom of this cycle has yet been reached and we anticipate some
further cuts in tender services over the next year or so.
While relatively small, the movements in contract and other
revenue include the effects of year-on-year changes in the amount
and timing of one-off contract and events work.
The movement in operating margin was built up as follows:
Operating margin
- H1 2017 (restated) 12.6%
Change in:
Staff costs (0.9)%
Fuel costs 0.6%
Other (0.3)%
Operating margin
- H1 2018 12.0%
----------------------- -------
The main changes in the operating margin shown above are:
-- As expected, staff costs have continued to rise, and not all
headcount varies with vehicle miles. The half-year staff costs
include over GBP1m in respect of the new Apprenticeship Levy
applied by the UK Government to fund new apprenticeships. However,
staff costs remain under control with wage awards in the period
being in line with our forecast assumptions and stable staff
retention rates.
-- Fuel costs have reduced, reflecting market fuel prices and our fuel hedging programme.
-- Other costs have increased, including higher depreciation as
a result of our continued fleet investment.
Enhanced customer experience
We are continuing to make significant investment to further
enhance customers' experience. We are harnessing technology to make
travel easier for our customers. Stagecoach bus passengers across
the UK can now pay on the bus for their travel using a contactless
credit or debit card, Apple Pay or Android Pay. The GBP12m
programme is the fastest growing contactless transit scheme in
Europe through 2017. We have added the Scottish Citylink coach
network to an expanded national roll-out programme which will see
the technology installed on all of our buses across the UK by the
end of 2018.
In July 2017, we launched a blueprint to help ensure bus
services can effectively serve new housing developments being
planned across the country. Failure to integrate public transport
to new developments results in a greater cost to the economy in
lost productivity, poorer air quality, longer working days because
of extra commuting time and a less safe living environment with
more cars on the road.
We are continuing to improve our product offer in our local bus
networks for young people, who are a key element of our customer
base now and in the future. There is an opportunity to use new
technology to make bus travel more attractive to Millennials, who
research shows are less likely to aspire to car ownership and are
more open to the 'sharing economy'.
Commercial initiatives for growth
In addition to the developments explained above, our
restructured UK Bus commercial team is pursuing a number of other
commercial initiatives to support the growth of the Division,
examples of which are as follows:
-- Reflecting changes in travel patterns, we have seen stronger
growth on our urban and inter urban networks. Additional areas of
potential growth in these parts of the business have been
identified and implementation plans are being developed.
-- Linked to that, we are evaluating opportunities for more
demand responsive services in a number of locations.
-- Building on work to understand the segmentation of our
existing and potential customer base, we are exploring the
development and implementation of a new customer relationship
management ("CRM") system to engage and improve customer loyalty
and yield.
-- Our work on customer segmentation will also inform improved
marketing to drive revenue growth, placing less emphasis on the
traditional sector approach of "publicity" and developing closer
engagement with prospective customers.
-- While we are thinking about the changing travel landscape, we
are also ensuring we continue to perform the basics well. We are
re-visiting how we communicate our offers across all of our offline
and online channels, including how we deliver understandable
information on journeys and fares.
-- We are reviewing price elasticities, price points and
ticketing structures to simplify our ticket offering while
continuing to offer value for money and meet customers'
expectations. We are aiming to evolve our ticket offering to
reflect changing travel, shopping and working patterns.
-- We see opportunities to increase the volume of work we
undertake to support events, festivals and other businesses, where
new technology can support an increased capability to grow revenue
in these areas.
Outlook
We are encouraged that the effects of the management actions
undertaken at the start of 2017 have been in line with our
expectations. Our expectation of the Division's operating profit
for the year ending 28 April 2018 is accordingly unchanged.
UK Bus (London)
Summary
--------------------------------------------------
* Positive tender results
* Maintaining sustainable contract pricing
--------------------------------------------------
Financial performance
The financial performance of the UK Bus (London) Division for
the half-year ended 28 October 2017 is summarised below:
H1 H1 2017
2018 GBPm Change
GBPm
-------------------- ------ -------- ---------
Revenue
and like-for-like
revenue 128.4 131.5 (2.4)%
Operating
profit 6.5 9.1 (28.6)%
-------------------- ------ -------- ---------
Operating
margin 5.1% 6.9% (180)bp
-------------------- ------ -------- ---------
We are pleased that through the contract tenders on which the
outcomes were confirmed during the first half of our financial
year, we have achieved a net 4.5% increase in contracted annual bus
mileage. That should benefit our revenue in the next financial
year, 2018/19. The revenue impact of contracts lost in the prior
year is reflected in this year's financial performance and is
weighted towards the second half of the financial year.
The decrease in operating margin was expected and was built up
as follows:
Operating margin
- H1 2017 6.9%
Change in:
Staff costs (0.8)%
Other operating income (0.4)%
Operating lease costs (0.4)%
Other (0.2)%
Operating margin
- H1 2018 5.1%
------------------------- -------
Consistent with the UK Bus (regional operations), the new
Apprenticeship Levy has added to the UK Bus (London) Division's
staff costs in the half-year. The current year staff costs also
reflect pay awards and the implementation of previously disclosed
plans to increase starting rates of pay for bus drivers.
Advertising income fell year-on-year, reflecting lower yields
for on-bus advertising experienced by London bus operators more
generally. This is reflected in the reduction in other operating
income shown in the table above. Operating lease costs have moved
as a percentage of revenue, principally due to year-on-year changes
in end of lease vehicle return costs.
We see significant differences in the level of bus depot
capacity versus the demand from Transport for London for bus
services across the different areas of London. We are exploring the
extent to which that presents us with opportunities for growth
and/or possible re-deployment of capital.
Outlook
Although our 2017/18 operating margin is likely to be below our
long-term aspiration of around 7%, we are encouraged by tender
results so far this year. While Transport for London's plans to
reduce contracted bus mileage in London presents a risk to the
Division, we will aim to maintain our contract pricing at a
sustainable level where service quality can be maintained and the
financial returns reflect the capital invested.
North America
Summary
----------------------------------------------------------
* Improved revenue trends
* Innovative technology use to manage safety risks
* New megabus.com website performing well
* On course to grow profit in 2017/18
----------------------------------------------------------
Financial performance
The financial performance of the North America Division for the
half-year ended 28 October 2017 is summarised below:
H1 2017
H1 2018 (Restated)
US$m US$m Change
--------------- ---------- ------------ -------
Revenue 333.9 338.4 (1.3)%
Like-for-like
revenue 333.3 332.9 0.1%
Operating
profit 27.6 22.8 21.1%
--------------- ---------- ------------ -------
Operating
margin 8.3% 6.7% 160bp
--------------- ---------- ------------ -------
The growth in like-for-like revenue reflects the improving trend
we have seen in the first half of the year and is reflected in
increased operating profit along with the benefit of lower fuel
costs.
Like-for-like revenue was built up as follows:
H1 H1
2018 2017
US$m US$m Change
----------------- ------ ------ --------
Megabus.com 97.0 101.7 (4.6)%
Scheduled
service
- Commercial
revenue 81.4 80.8 0.7%
- Support
from local
authorities 6.1 7.0 (12.9)%
Charter 61.0 66.5 (8.3)%
Contract
services 72.0 58.7 22.7%
Sightseeing
and tour 15.8 18.2 (13.2)%
----------------- ------ ------ --------
Like-for-like
revenue 333.3 332.9 0.1%
----------------- ------ ------ --------
Trading at our megabus.com inter-city coach business in North
America continues to show some signs of improvement. Revenue per
vehicle mile increased 3.2% year-on-year reflecting the changes we
made to our network to better match our services with customer
demand.
Trading at the other businesses in North America remains in line
with our expectations. Like-for-like revenue at these businesses
increased by 2.2%. We have been encouraged by further additional
revenue generated from our focus on contract opportunities. In the
first half of the year, we have benefitted from rail replacement
contracts linked to train disruptions on New Jersey Transit and
Long Island Rail Road as a result of track repair work at
Pennsylvania Station in New York. This has contributed to the
reduction in charter revenue as we deployed some vehicles on the
rail contract work that would otherwise have been available for
charter. Elsewhere, weak sightseeing markets have impacted some of
our services, and we see potential to restructure our sightseeing
operations to improve profitability.
The movement in the operating margin of the North America
Division was built up as follows:
Operating margin
- H1 2017 (restated) 6.7%
Change in:
Staff costs (0.5)%
Fuel costs 1.8%
Insurance and claims
costs 0.4%
Other (0.1)%
----------------------- -------
Operating margin
- H1 2018 8.3%
----------------------- -------
The main changes in the operating margin shown above are:
-- Staff costs have continued to rise as a proportion of our
revenue base. That includes increased overtime levels at some
locations, where we are working to recruit new drivers to reduce
the need for overtime working. In addition, we continue to see
above-inflation increases in the cost of US healthcare benefits and
the improved financial performance of the Division is reflected in
higher staff incentive costs.
-- Fuel costs have reduced reflecting market fuel prices and our fuel hedging programme.
-- The change in insurance and claims costs reflects our latest
assessment of the required provision for claims on major incidents.
Our relentless focus on safety and reducing accident rates also
brings financial benefits through reduced insurance and claims
cost. We see opportunities to further reduce claims costs,
including through technology investment. For example, we are
trialling "seeing machines" capable of monitoring for driver
fatigue and distraction in real-time.
Customer experience
The investment we have made in our new megabus.com website has
improved our customers' experience and is supporting our growth.
The new website provides a much improved experience for those
visiting the website on a mobile device. For those visiting on a
desktop device, we have seen an 11% improvement in the conversion
rate in the US, and a 22% improvement in the conversion rate in
Canada, for the half-year compared to the equivalent period last
year. We have also seen improvements in the bounce rate, being the
percentage of visitors who leave the site without any interaction.
In the half-year, this is 13% down year-on-year for the US and 46%
down for Canada. The website also brings new functionality that has
allowed us to improve our search engine rankings. We have used
these to create route and destination pages that drive organic
traffic to the site from unbranded searches. We saw a 42% increase
in sessions from organic search from September 2016 to September
2017.
Our ongoing refinement of yield management at megabus.com has
allowed us to maintain our reputation for good value for money
while improving yield based on patterns of demand.
Outlook
We remain on course to grow the Division's operating profit in
2017/18, reflecting our targeted pursuit of contract opportunities,
and management action to match our services with customer demand at
our megabus.com inter-city coach business.
We continue to see growth opportunities from the Division in new
contract wins but will remain disciplined in ensuring that we bid
for contract opportunities at prices consistent with delivering
appropriate rates of return.
UK Rail
Summary
---------------------------------------------------------------
* Good profits from South West Trains and East Midlands
Trains
* Progressing negotiations with Department for
Transport on new contract at Virgin Trains East Coast
* East Midlands Trains franchise extended to March 2019
with plans for a further direct award franchise
beyond that time
* Bids for new franchises
* UK rail franchises moving to a more balanced risk
profile
* Limited exposure to long-term rail revenue risk
---------------------------------------------------------------
Financial performance
The financial performance of the UK Rail Division for the
half-year ended 28 October 2017 is summarised below:
H1
2017
H1 (Restated)
2018
GBPm GBPm Change
--------------- ------- ------------ --------
Revenue 905.6 1,092.3 (17.1)%
Like-for-like
revenue 596.6 579.0 3.0%
Operating
profit 21.7 19.5 11.3%
--------------- ------- ------------ --------
Operating
margin 2.4% 1.8% 60bp
--------------- ------- ------------ --------
Our UK Rail business continues to see growth in revenue, with
like-for-like revenue up 3.0% year-on-year, reflecting 3.0% growth
at each of East Midlands Trains and Virgin Trains East Coast.
The profit for the half-year principally reflects good
profitability at East Midlands Trains and South West Trains. The
South West Trains franchise expired in August 2017; its
profitability in the period was strong and included the resolution
of a number of contractual matters as part of the transition of the
train operations to a new operator. There remain a number of
matters to finalise in respect of the South West Trains franchise
and we continue to press for a timely resolution of those.
Consistent with our other franchises, the outcome on open
contractual matters could result in adjustments to our current
estimates of assets and liabilities.
The UK Rail Division's reported profit reflects the utilisation
of the onerous contract provision recorded at April 2017 in respect
of the current contractual arrangements at Virgin Trains East
Coast. As forecasted, Virgin Trains East Coast continues to incur
trading losses under the current contract, which have been applied
against the onerous contract provision.
Virgin Trains East Coast - contractual arrangements
We welcome the Secretary of State for Transport's recent
announcement on the planned new direction for the UK rail network,
which is consistent with a vision for the railway that we have
championed over many years. As part of that, we and the Department
for Transport are discussing new terms for the East Coast franchise
and we are hopeful of reaching an agreement within the next few
months. Our objective is to address the changed circumstances
affecting the franchise, deliver value for money for taxpayers,
provide innovative solutions to drive better outcomes for
customers, and secure a fair deal for investors. There is no change
to either the estimate of the onerous contract provision reported
in June or the extent of the maximum financial commitments of the
parent company in respect of the current franchise contract. The
onerous contract provision is based on a forecast that assumes the
GBP165m loan commitment is funded in full.
Virgin Trains East Coast - investment and customer
satisfaction
Virgin Trains East Coast is continuing the transformation of its
services for customers. As well as investing in our fleet of
trains, we have made our website more personalised and easier to
navigate. We have introduced improved features such as new tools to
search for the best fares, and the ability to buy season tickets
online. Customers can take advantage of easy-to-use mtickets and
can now book tickets 24 weeks before travel.
Innovation is continuing to improve the journey experience for
customers before, during and after travel. Virgin Trains'
revolutionary new on-train entertainment streaming service, BEAM,
has been well received by customers, along with a range of on-train
catering improvements. We also recently launched an industry first
tool, TrainMapper, aimed at helping customers avoid rail disruption
on their journey and get to their destination. The new Seatfrog app
allows customers to bid for first class upgrades on trains where
space permits.
These improvements have helped drive a historic shift in travel
patterns as more Scotland-London passengers are now choosing train
over plane than at any time in more than 20 years. Virgin Trains
East Coast has achieved strong customer ratings, with 91%
satisfaction in the latest National Rail Passenger Survey. Net
advocacy scores have also increased significantly.
We are introducing 24 new services on Saturdays, bringing that
day's level of service more in line with our Monday-Friday
operation and allowing us to put 6,000 additional cheap tickets on
sale every week. In early 2018, new sensors will detect which seats
on our trains are occupied. This will provide us with data to
inform customers about spare seats on our services and also enable
more dynamic on-the-day pricing.
East Midlands Trains
Like-for-like revenue at East Midlands Trains grew by 3.0% for
the period, with growth in the early months of the period adversely
affected by the terrible terrorist events in London and Manchester.
The business continues to deliver good levels of profitability.
The Department for Transport has exercised its pre-contracted
option to extend the East Midlands Trains franchise to March 2019,
with plans for a further Direct Award franchise beyond that time.
We look forward to the next competitively tendered East Midlands
franchise which the Department for Transport has indicated will be
operated by a joint team overseeing both train operations and rail
infrastructure management.
Consistent with our drive for operational excellence, East
Midlands Trains continues to deliver amongst the best punctuality
for customers of any inter-city rail franchise. We are continuing
to invest in improvements for customers, including better value
ticketing, improved information and station developments. In summer
2017, we introduced a new app and mobile website to make booking
easier. We have introduced purchase on the day for Advance tickets
on selected routes to offer better value fares, building on lower
Advance Purchase fares that we are already making available on
quieter trains to London. In August, East Midlands Trains launched
a new ticket tool offering customers email alerts as soon as
Advance tickets become available on a particular route on their
chosen travel date. We have also started the roll-out of mobile
ticketing, with the facility already live in Derby, Nottingham, and
London St. Pancras.
Passengers have responded well to the launch of our most
frequent ever Sunday services on the route between Lincoln and
Nottingham, with new hourly services for most of the day. The new
Ilkeston station - which incorporates fully accessible platforms,
modern waiting areas and car park - has expanded commuter and
leisure travel options, as well as exceeding forecasts for
passenger demand and revenue.
East Midlands Trains recently invested more than GBP300,000 in
new train driver simulator technology at our Derby training
academy, which will revolutionise driver training, briefings and
assessments. We have also completed a highly successful recruitment
campaign to employ additional drivers. In addition, we are working
closely with Network Rail on planning for a major Derby station
remodelling and signalling system upgrade. The work will remove a
bottleneck which often results in trains waiting outside of the
station. The bulk of the work will take place in 2018.
Most recent independent research shows that 89% of customers at
East Midlands Trains are satisfied with their service, equalling
the best ever results and marking a 3% year-on-year
improvement.
South West Trains
In August, we completed the delivery of our South Western rail
franchise, working collaboratively with the new operator and
industry partners to ensure a smooth transition.
Sheffield Supertram
The first passenger service of the new Citylink vehicles to be
used for the innovative Tram Train project took place at Sheffield
Supertram in September. The project, which will improve journeys
between Sheffield and Rotherham, is the first of its kind in the
country and due for completion in 2018. We are also making the
first changes to the Supertram timetable in 15 years to improve
reliability following a significant increase in traffic on roads
across Sheffield.
Franchising update
We are working on new opportunities in the UK franchised rail
market. We are shortlisted to bid for the South Eastern franchise
and we are also bidding for the West Coast Partnership franchise
jointly with Virgin Group and SNCF.
We are encouraged by indications of an improving risk-reward
balance in new franchise competitions. The Department for Transport
is looking to move to a more comprehensive sharing of revenue risk
on new franchises and while this will likely vary from franchise to
franchise, we expect to see the return of arrangements where the
Department shares in revenue variances versus the relevant bid
irrespective of the causes of those variances. We expect such an
arrangement to apply to the new South Eastern franchise. While the
train operating company will still bear some revenue risk on most
new franchises awarded by the Department, we anticipate that its
exposure to revenue risk will be significantly less than on
franchises awarded in the last few years, such as the Virgin Trains
East Coast franchise. We are also encouraged to see signs of
moderation in the level of capital put at risk on individual
franchises. While we recognise the importance that franchise bids
are backed with significant risk capital, we continue to believe
that the level of risk capital should be commensurate with the
potential financial returns.
We have delivered good investor returns from UK rail over more
than 20 years and some of the biggest returns for taxpayers. We are
focussed on ensuring that any bid for a new franchise is designed
to achieve an acceptable balance of risk and expected reward and
based on the emerging re-balancing of risk in UK rail franchises,
we are optimistic that we can deliver satisfactory financial
returns from UK rail.
Outside the UK, we were one of five bidders shortlisted for an
early train operator contract for a new high-speed railway being
constructed in California. However, following the receipt of more
information, we decided not to progress the bid based on weighing
up the risks and opportunities. Nevertheless, we do not rule out
pursuing other rail opportunities outside the UK.
Outlook
Revenue growth in the UK rail sector has, in recent years, been
below the levels typically seen since privatisation in the 1990s.
That said, revenue has continued to grow and we aim to support a
growing, vibrant rail network in the UK. From our own perspective,
our financial returns are driven less by the outlook for rail
revenue growth in general and more by how actual revenue growth
compares to that assumed in our relevant franchise bid. At this
time, we are therefore relatively content to have limited further
exposure to long-term rail revenue growth, reflecting that:
-- We expect to conclude a new contract at Virgin Trains East
Coast within the next few months and have the opportunity to ensure
that any revenue risk that remains with us is acceptable.
-- The current East Midlands Trains franchise has only around 15
months to run and Virgin Rail Group's current West Coast franchise
has only a few months to run. Both continue to report good levels
of profit. We can take account of recent revenue trends, assess
revenue risk sharing arrangements and form a view on longer term
revenue expectations as part of agreeing any new contracts.
-- In our bids for new franchises, we will assess revenue
trends, revenue risk sharing arrangements and longer term revenue
expectations to ensure we do not take unacceptable long-term rail
revenue risk. Developments in the Department for Transport's
thinking on revenue risk sharing are welcome.
Any UK Rail operating profit for the second half of 2017/18 is
expected to be modest, reflecting the end of our South West Trains
franchise and higher rail bidding costs, partially off-setting the
expected profitability at East Midlands Trains.
We will continue to consider other rail bidding opportunities
where we believe we can deliver benefits to passengers and add
value for our investors.
Group overheads
Group overheads were GBP7.9m in the half-year ended 28 October
2017 compared to GBP6.3m in the equivalent prior year period. The
overheads include the cost of some digital projects we are working
on outside of the core operating divisions.
Virgin Rail Group
Summary
--------------------------------------------------------
* Continuing good financial performance
* High customer satisfaction
* Progressing towards new direct award franchise
--------------------------------------------------------
Financial performance
The financial performance of the Group's Virgin Rail joint
venture for the half-year ended 28 October 2017 is summarised
below:
49% share: H1 H1
2018 2017
GBPm GBPm
------------------ ------ ------
Revenue and
like-for-like
revenue 288.5 280.1
------------------ ------ ------
Operating profit 14.8 17.1
Net finance
income 0.2 0.3
Taxation (2.9) (3.5)
------------------ ------ ------
Profit after
tax 12.1 13.9
------------------ ------ ------
Operating margin 5.1% 6.1%
------------------ ------ ------
Although Virgin Rail Group's operating profit has fallen
slightly year-on-year, its West Coast rail franchise continues to
perform well, with like-for-like revenue growth of 3.0% for the
half-year ended 28 October 2017, and a good profit margin. That
good performance continues to benefit taxpayers through profit
share payments by the business to the UK Department for Transport.
The reduction in profit reflects a lower rate of revenue growth
being more than offset by cost increases and the premia payable to
the Department.
Virgin Rail Group is continuing to drive improvements for
customers as it celebrates 20 years of operating the West Coast
route. Virgin Trains has broken new records for passengers
travelling between Liverpool and London. Sales of digital tickets
have more than trebled in a year, with around 20% of Virgin Trains
customers now choosing this form of ticket on the West Coast route.
Customer satisfaction remains amongst the highest in the UK, with
the latest National Rail Passenger Survey showing an overall
satisfaction score of 92%.
Virgin Rail Group is making good progress towards agreeing a new
direct award contract with the Department for Transport to run from
April 2019. We are hopeful that this will be concluded shortly.
Pre-exceptional EBITDA, depreciation and intangible asset
amortisation
Earnings before interest, taxation, depreciation, intangible
asset amortisation and exceptional items (pre-exceptional EBITDA)
amounted to GBP189.9m (H1 2017: GBP191.0m). Pre-exceptional EBITDA
can be reconciled to the financial statements as follows:
Year
H1 H1 to
2018 2017 28
GBPm GBPm Oct
2017
GBPm
--------------------- ------- ------- ------
Total operating
profit 114.8 108.9 181.9
Intangible
asset amortisation 5.5 8.1 14.2
Depreciation 66.7 70.5 141.7
Add back joint
venture finance
income & tax 2.9 3.5 6.5
--------------------- ------- ------- ------
Pre-exceptional
EBITDA 189.9 191.0 344.3
--------------------- ------- ------- ------
Intangible asset amortisation reduced from GBP8.1m to GBP5.5m,
reflecting the write-down in intangible assets at Virgin Trains
East Coast in the year to 29 April 2017.
Depreciation reduced from the previous year reflecting the
cessation of our South Western rail franchise.
Exceptional items
There were no exceptional items recognised in the half-year
ended 28 October 2017.
Net finance costs
Net finance costs for the half-year ended 28 October 2017 were
GBP18.1m (H1 2017: GBP16.6m) and are further analysed below. The
small increase in net finance costs is principally due to higher
interest expense on defined benefit pension schemes arising from
changes in market-driven assumptions used to determine pension
amounts.
H1 H1
2018 2017
GBPm GBPm
--------------------- ------ ------
Finance costs
Interest payable
and facility
costs on bank
loans, overdrafts
and trade finance 1.9 2.2
Hire purchase
and finance
lease interest
payable 0.8 1.0
Interest payable
and other finance
costs on bonds 10.9 10.9
Unwinding of
discount on
provisions 1.8 1.8
Interest expense
on defined benefit
pension schemes 3.4 1.9
--------------------- ------ ------
18.8 17.8
--------------------- ------ ------
Finance income
Interest receivable
on cash (0.3) (0.7)
Unwinding of
discount on
receivable - (0.5)
Effect of interest
rate swaps (0.4) -
--------------------- ------ ------
(0.7) (1.2)
--------------------- ------ ------
Net finance
costs 18.1 16.6
--------------------- ------ ------
Taxation
The effective tax rate for the half-year ended 28 October 2017,
excluding exceptional items, was 21.7% (H1 2017: 21.3%). The tax
charge can be analysed as follows:
Pre-tax
Half-year profit Tax Rate
to 28 October GBPm GBPm %
2017
------------------- -------- ------- -------
With joint
venture taxation
gross 99.8 (21.7) 21.7%
Reclassify
joint venture
taxation for
reporting
purposes (3.1) 3.1 -
------------------- -------- ------- -------
Reported in
income statement 96.7 (18.6) 19.2%
------------------- -------- ------- -------
Fuel costs
The Group's operations as at 28 October 2017 consume
approximately 391m litres of diesel fuel per annum. As a result,
the Group's profit is exposed to movements in the underlying price
of fuel. The Group's fuel costs include the costs of delivery and
duty as well as the costs of the underlying product. Accordingly,
not all of the cost varies with movements in oil prices.
The proportion of the Group's projected fuel usage that is now
hedged using fuel swaps is as follows:
Year ending 2018 2019 2020 2021
April
------------- ----- ----- ----- -----
Total Group 83% 74% 58% 23%
------------- ----- ----- ----- -----
The Group has no fuel hedges in place for periods beyond April
2021.
Cash flows and net debt
Consolidated net debt has, as expected, increased from 29 April
2017, reflecting operating cash outflows at Virgin Trains East
Coast, the transfer of cash following the expiry of the South West
Trains franchise, additional capital investment, the timing of
interest payments associated with our 4.00% bonds, partly offset by
continued cash generation from other operations.
Net cash from operating activities before tax for the half-year
ended 28 October 2017 was GBP44.2m (H1 2017: GBP142.9m) and can be
further analysed as follows:
H1 H1
2018 2017
GBPm GBPm
------------------------ -------- --------
EBITDA of Group
companies before
exceptional items 174.1 172.5
(Gain)/loss on
disposal of property,
plant and equipment (0.4) 0.4
Equity-settled
share based payment
expense 0.3 1.0
Working capital
movements (112.9) (20.7)
Net interest
paid (20.3) (21.1)
Dividends from
joint ventures 3.4 10.8
Net cash flows
from operating
activities before
taxation 44.2 142.9
------------------------ -------- --------
Net debt (as analysed in note 18 to the condensed financial
statements) increased from GBP409.4m at 29 April 2017 to GBP482.8m
at 28 October 2017. The movement in net debt, showing train
operating companies separately, was:
Half-year Train
to 28 October operating
2017 companies Other Total
GBPm GBPm GBPm
------------------------ ----------- -------- --------
EBITDA of
Group companies
before exceptional
items 34.1 140.0 174.1
(Gain)/loss
on disposal
of property,
plant and
equipment 0.1 (0.5) (0.4)
Equity-settled
share based
payment expense 0.1 0.2 0.3
Working capital
movements (127.1) 14.2 (112.9)
Net interest
paid (1.0) (19.3) (20.3)
Dividends
from joint
ventures - 3.4 3.4
Net cash
flows from
operating
activities
before taxation (93.8) 138.0 44.2
Inter-company
movements (12.7) 12.7 -
Tax paid (5.4) 0.4 (5.0)
Investing
activities 3.2 (70.2) (67.0)
Financing
activities - (47.6) (47.6)
Foreign exchange/other - 2.0 2.0
------------------------ ----------- -------- --------
Movement
in net debt (108.7) 35.3 (73.4)
Opening net
debt 219.4 (628.8) (409.4)
------------------------ ----------- -------- --------
Closing net
debt 110.7 (593.5) (482.8)
------------------------ ----------- -------- --------
The expiry of the South West Trains franchise has increased our
net debt in the period by around GBP50m. We would anticipate a
further net cash outflow in this respect of up to GBP30m as we
conclude open matters. The closing cash balance of GBP110.7m for
train operating companies shown in the table above excludes South
West Trains.
The working capital movements in the half-year are principally
due to the expiry of the South West Trains franchise referred to
above and the previously provided for cash losses at Virgin Trains
East Coast.
The impact of purchases of property, plant and equipment for the
half-year on net debt was GBP89.5m (H1 2017: GBP138.6m). This
primarily related to expenditure on passenger service vehicles, and
comprised cash outflows of GBP60.8m (H1 2017: GBP108.9m) and new
hire purchase and finance lease debt of GBP28.7m (H1 2017:
GBP29.7m). In addition, GBP30.7m (H1 2017: GBP13.1m) of cash was
received from disposals of property, plant and equipment. Around
GBP22.5m (H1 2017: GBP11.0m) of this cash received related to the
UK Rail Division, which include South West Trains' assets sold to
the new franchise operator.
The net impact on net debt of purchases and disposals of
property, plant and equipment, split by division, was:
H1 H1
2018 2017
GBPm GBPm
------------------ ------ ------
UK Bus (regional
operations) 31.4 83.0
megabus Europe (1.7) -
UK Bus (London) 0.7 0.8
North America 34.9 30.9
UK Rail (6.5) 10.8
58.8 125.5
------------------ ------ ------
In addition to the amounts shown in the table above, a further
net GBP8.2m (H1 2017: GBP8.5m) was invested in software and a
technology business.
Financial position and liquidity
The Group maintains a solid financial position with investment
grade credit ratings and appropriate headroom under its debt
facilities.
The Group continues to have an appropriate mix of long-term debt
enabling it to plan and invest with some certainty.
The Group's financial position remains strong and is evidenced
by:
-- The ratio of net debt at 28 October 2017 to pre-exceptional
EBITDA for the year ended 28 October 2017 was 1.4 times (year ended
29 October 2016: 1.4 times).
-- Pre-exceptional EBITDA for the half-year ended 28 October
2017 was 10.6 times (H1 2017: 11.7 times) net finance charges
(including joint venture net finance income).
-- Undrawn, committed bank facilities of GBP387.7m at 28 October
2017 (29 April 2017: GBP333.8m) were available to be drawn as bank
loans with further amounts available only for non-cash utilisation.
In addition, the Group has available asset finance lines.
-- The three main credit rating agencies continue to assign
investment grade credit ratings to the Group.
Net assets
Net assets at 28 October 2017 were GBP272.0m (29 April 2017:
GBP68.5m). The increase in the net assets reflects the good
financial results for the half-year ended 28 October 2017,
actuarial gains on defined benefit pension schemes and fair value
gains on cash flow hedges, partly offset by dividends paid.
Retirement benefits
We are pleased that our net retirement benefit obligations have
reduced in the half-year, reflecting good investment returns on
pension scheme assets, higher interest rates, changes in inflation
assumptions and experience gains on the Stagecoach Group Pension
Scheme. The Group recognised pre-tax actuarial gains of GBP184.6m
in the half-year ended 28 October 2017 (H1 2017: pre-tax actuarial
losses of GBP137.1m) on Group defined benefit schemes.
The reported net assets of GBP272.0m (29 April 2017: GBP68.5m),
that are shown on the consolidated balance sheet are after taking
account of net pre-tax retirement benefit liabilities of GBP57.8m
(29 April 2017: GBP232.5m), and associated deferred tax assets of
GBP14.9m (29 April 2017: GBP44.4m).
Related parties
Details of significant transactions with related parties are
given in note 21 to the condensed financial statements.
Principal risks and uncertainties
Like most businesses, there is a range of risks and
uncertainties facing the Group. A brief summary is given below of
those specific risks and uncertainties that the Directors believe
could have the most significant impact on the Group's financial
position and/or future financial performance. Pages 10 to 14 of the
Group's 2017 Annual Report set out specific risks and uncertainties
in more detail.
The matters summarised below are not intended to represent an
exhaustive list of all possible risks and uncertainties. The focus
below is on those specific risks and uncertainties that the
Directors believe could have the most significant impact on the
Group's performance. In assessing the Group's likely financial
performance for the second half of the current financial year,
these risks and uncertainties should be considered in addition to
the matters referred to regarding seasonality in note 3 to the
condensed financial statements, and the comments made later under
the heading "Outlook".
-- Catastrophic events - there is a risk that the Group is
involved (directly or indirectly) in a major operational
incident.
-- Terrorism - there is a risk that the demand for the Group's
services could be adversely affected by a significant terrorist
incident.
-- Economy - the economic environment in the geographic areas in
which the Group operates affects the demand for the Group's bus and
rail services. The ongoing negotiation of the terms of the UK
leaving the European Union may lead to economic, consumer and
political uncertainty. That may in turn affect asset values and
foreign exchange rates, which have a bearing on the amounts of our
pensions, financial instruments and other balances.
-- Rail cost base - a substantial element of the cost base of
the UK Rail Division is essentially fixed as under its UK rail
franchise agreements, the Group is obliged to provide a minimum
level of train services and is less able to flex supply in response
to changes in demand.
-- Sustainability of rail profit - there is a risk that the
Group's revenue and profit could be significantly affected (either
positively or negatively) as a result of the Group winning UK rail
franchises or failing to retain its existing franchises.
-- Breach of franchise - if the Group fails to comply with
certain conditions as part of its rail franchise agreements it may
be liable to penalties including potential termination of one or
more of the rail franchise agreements.
-- Changing customer habits - There is a risk that changes in
people's working patterns, shopping habits and/or other preferences
affect demand for the Group's transport services, which could in
turn affect the Group's financial performance and/or financial
position.
-- Pension scheme funding - the Group participates in a number
of defined benefit pension schemes, and there is a risk that the
cash contributions required increase or decrease due to changes in
factors such as investment performance, discount rates and life
expectancies, or due to regulatory intervention.
-- Insurance and claims environment - there is a risk that the
cost to the Group of settling claims against it is significantly
higher or lower than expected.
-- Regulatory changes and availability of public funding - there
is a risk that changes to the regulatory environment or changes to
the availability of public funding could affect the Group's
prospects. New legislation introduced and planned in the UK could
see the introduction of franchised bus networks in some areas,
which could affect our bus operations.
-- Management and Board succession - there is a risk that the
Group does not recruit and retain sufficient directors and managers
with the skills important to the operation of the business.
-- Disease - there is a risk that demand for the Group's
services could be adversely affected by a significant outbreak of
disease.
-- Information security - there is a risk that potential
malicious attacks on our systems lead to a loss of data or
disruption to operations.
-- Information technology - there is a risk that the Group's
capability to make sales digitally either fails or cannot meet
levels of demand.
-- Litigation - there is a risk of commercial and consumer
litigation arising from the legal environment in some markets,
particularly North America.
-- Competition - in certain of the markets we operate in, there
is a risk of increased competitive pressures from existing
competitors and new entrants.
Use of non-GAAP measures
Our reported interim financial information is prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union and applied in accordance with the
provisions of the Companies Act 2006. In measuring our performance,
the financial measures that we use include those which have been
derived from our reported results in order to eliminate factors
which distort period-on-period comparisons. These are considered
non-GAAP financial measures, and include measures such as
like-for-like revenue, pre-exceptional EBITDA and net debt. We
believe this information, along with comparable GAAP measurements,
is useful to shareholders and analysts in providing a basis for
measuring our financial performance. Note 23 to the condensed
financial statements provides further information on these non-GAAP
financial measures.
Updating definition of adjusted earnings per share
As well as reporting earnings per share in accordance with
Generally Accepted Accounting Principles, we also report an
adjusted earnings per share measure to help explain the financial
performance of the Group. For some years, our measure of adjusted
earnings per share has been calculated with reference to profit
excluding intangible asset expenses and exceptional items.
In our preliminary results announcement of 28 June 2017, we
noted our intention to discuss with analysts and investors whether
adjusting our definition of adjusted earnings per share to include
software amortisation would provide them with a more useful measure
of performance, reflecting the growth in these costs as we have
invested in our digital programmes. We confirmed in our trading
statement of 28 September 2017 that based on those discussions and
consistent with emerging market practice, we will now report
adjusted earnings per share inclusive of software amortisation. The
adjusted earnings per share of 13.6p that we have reported for the
half-year ended 28 October 2017 has been determined on that
basis.
The effect on previously reported amounts of including these
costs within adjusted earnings per share is set out below:
Half-year Revised
ended Build-up build-up
29 October of adjusted Software of adjusted
2016 EPS amortisation EPS
GBPm GBPm GBPm
-------------------- ------------- -------------- -------------
UK Bus
(regional
operations) 66.6 (1.7) 64.9
megabus
Europe (4.6) - (4.6)
UK Bus
(London) 9.1 - 9.1
North
America 17.5 (0.5) 17.0
UK Rail 20.5 (1.0) 19.5
Group
overheads
and restructuring
costs (7.1) - (7.1)
Joint
ventures 15.0 - 15.0
Finance
costs
(net) (16.6) - (16.6)
Taxation (17.9) 0.6 (17.3)
Non-controlling
interests (0.1) - (0.1)
-------------------- ------------- -------------- -------------
Profit
for adjusted
earnings
per share 82.4 (2.6) 79.8
-------------------- ------------- -------------- -------------
Pence Pence Pence
Adjusted
earnings
per share 14.4p (0.5)p 13.9p
-------------------- ------------- -------------- -------------
Revised
Year ended Build-up build-up
29 April of adjusted Software of adjusted
2017 EPS amortisation EPS
GBPm GBPm GBPm
-------------------- ------------- -------------- -------------
UK Bus
(regional
operations) 121.1 (4.1) 117.0
megabus
Europe (4.3) - (4.3)
UK Bus
(London) 18.4 - 18.4
North
America 19.3 (1.1) 18.2
UK Rail 31.0 (2.5) 28.5
Group
overheads
and restructuring
costs (18.9) - (18.9)
Joint
ventures 26.2 - 26.2
Finance
costs
(net) (34.1) - (34.1)
Taxation (20.7) 1.4 (19.3)
Non-controlling
interests 1.7 0.1 1.8
-------------------- ------------- -------------- -------------
Profit
for adjusted
earnings
per share 139.7 (6.2) 133.5
-------------------- ------------- -------------- -------------
Pence Pence Pence
Adjusted
earnings
per share 24.4p (1.1)p 23.3p
-------------------- ------------- -------------- -------------
Going concern
On the basis of current financial projections and the facilities
available, the Directors are satisfied that the Group has adequate
resources to continue for the foreseeable future and, accordingly,
consider it appropriate to adopt the going concern basis in
preparing the condensed financial statements for the half-year
ended 28 October 2017.
Outlook
Our expectation of adjusted earnings per share for the year
ending 28 April 2018 is unchanged.
We see positive long-term prospects for public transport. There
is a large market opportunity for modal shift from cars to public
transport against a backdrop of technological advancements, rising
road congestion and increasing environmental awareness.
Martin Griffiths
Chief Executive
6 December 2017
Responsibility Statement
We confirm that to the best of our knowledge:
(a) the condensed consolidated interim financial information
contained in this document has been prepared in accordance with
International Accounting Standard 34, "Interim Financial Reporting"
as adopted by the European Union;
(b) the interim management report contained in this document
includes a fair review of the information required by the Financial
Conduct Authority's Disclosure and Transparency Rules ("DTR")
4.2.7R (indication of important events during the first six months
and description of principal risks and uncertainties for the
remaining six months of the year); and
(c) this document includes a fair review of the information
required by DTR 4.2.8R (disclosure of related party transactions
and changes therein).
By order of and on behalf of the Board
Martin Griffiths Ross Paterson
Chief Executive Finance Director
6 December 2017 6 December 2017
Cautionary statement
The preceding interim management report has been prepared for
the shareholders of the Company, as a body, and for no other
persons. Its purpose is to assist shareholders of the Company to
assess the strategies adopted by the Company and the potential for
those strategies to succeed and for no other purpose. The interim
management report contains forward-looking statements that are
subject to risk factors associated with, amongst other things, the
economic, regulatory and business circumstances occurring from time
to time in the countries, sectors and markets in which the Group
operates. It is believed that the expectations reflected in these
statements are reasonable but they may be affected by a wide range
of variables that could cause actual results to differ materially
from those currently anticipated. No assurances can be given that
the forward-looking statements will be realised. The
forward-looking statements reflect the knowledge and information
available at the date of preparation. Nothing in the interim
management report should be considered or construed as a profit
forecast for the Group. Except as required by law, the Group has no
obligation to update forward-looking statements or to correct any
inaccuracies therein.
CONDENSED FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT
Unaudited Unaudited
---------------------------------------- ----------------------------------------
Half-year to Half-year to
28 October 2017 29 October 2016
(Restated)
Performance Intangibles Performance Intangibles
pre (exc pre (exc
intangibles software) intangibles software)
(exc and (exc and
software) exceptional Results software) exceptional Results
and items for and items for
exceptional (note the exceptional (note the
items 5) period items 5) period
Notes GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ------ ------------- ------------- ---------- ------------- ------------- ----------
Revenue 4(a) 1,800.4 - 1,800.4 2,002.1 - 2,002.1
Operating costs
and other operating
income (1,698.5) - (1,698.5) (1,903.3) (4.9) (1,908.2)
Operating profit
of Group companies 4(b) 101.9 - 101.9 98.8 (4.9) 93.9
Share of profit
of joint ventures
after net finance
income and taxation 4(c) 12.9 - 12.9 15.0 - 15.0
-------------------------- ------ ------------- ------------- ---------- ------------- ------------- ----------
Total operating
profit: Group operating
profit and share
of joint ventures'
profit after taxation 4(b) 114.8 - 114.8 113.8 (4.9) 108.9
Non-operating exceptional
items 5 - - - - (2.8) (2.8)
-------------------------- ------ ------------- ------------- ---------- ------------- ------------- ----------
Profit before interest
and taxation 114.8 - 114.8 113.8 (7.7) 106.1
Finance costs (18.8) - (18.8) (17.8) - (17.8)
Finance income 0.7 - 0.7 1.2 - 1.2
-------------------------- ------ ------------- ------------- ---------- ------------- ------------- ----------
Profit before taxation 96.7 - 96.7 97.2 (7.7) 89.5
Taxation (18.6) - (18.6) (17.3) 0.6 (16.7)
-------------------------- ------ ------------- ------------- ---------- ------------- ------------- ----------
Profit from continuing
operations and profit
after taxation for
the period 78.1 - 78.1 79.9 (7.1) 72.8
-------------------------- ------ ------------- ------------- ---------- ------------- ------------- ----------
Attributable to:
Equity holders of
the parent 78.2 - 78.2 79.8 (6.7) 73.1
Non-controlling
interests (0.1) - (0.1) 0.1 (0.4) (0.3)
78.1 - 78.1 79.9 (7.1) 72.8
Earnings per share
from continuing
and total operations
- Adjusted basic/Basic 7 13.6p 13.6p 13.9p 12.7p
- Adjusted
diluted/Diluted 7 13.6p 13.6p 13.9p 12.7p
-------------------------- ------ ------------- ------------- ---------- ------------- ------------- ----------
The accompanying notes form an integral part of this
consolidated income statement.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited
============ ============
Half-year Half-year
to to
28 October 29 October
2017 2016
GBPm GBPm
----------------------------------------------------------- ------------ ------------
Profit for the period 78.1 72.8
----------------------------------------------------------- ------------ ------------
Items that may be reclassified
to profit or loss
Cash flow hedges:
* Net fair value gains on cash flow hedges 21.2 35.4
* Reclassified and reported in profit for the period 3.6 16.4
* Share of other comprehensive (expense)/income on
joint ventures' cash flow hedges (0.1) 2.7
* Tax effect of cash flow hedges (4.7) (9.8)
* Tax effect of other comprehensive income on joint
ventures' cash flow hedges - (0.5)
Foreign exchange differences on
translation of foreign operations
(net of hedging) (0.9) 20.1
Total items that may be reclassified
to profit or loss 19.1 64.3
----------------------------------------------------------- ------------ ------------
Items that will not be reclassified
to profit or loss
Actuarial gains/(losses) on Group
defined benefit pension schemes 184.6 (137.1)
Tax effect of actuarial (gains)/losses
on Group defined benefit pension
schemes (31.1) 24.2
Share of actuarial gains on joint
ventures' defined benefit schemes - 0.8
Tax effect of actuarial gains on
joint ventures' defined benefit
pension schemes - (0.2)
Total items that will not be reclassified
to profit or loss 153.5 (112.3)
----------------------------------------------------------- ------------ ------------
Other comprehensive income/(expense)
for the period 172.6 (48.0)
----------------------------------------------------------- ------------ ------------
Total comprehensive income for
the period 250.7 24.8
----------------------------------------------------------- ------------ ------------
Attributable to:
Equity holders of the parent 250.8 25.5
Non-controlling interests (0.1) (0.7)
250.7 24.8
----------------------------------------------------------- ------------ ------------
CONSOLIDATED BALANCE SHEET (STATEMENT OF FINANCIAL POSITION)
Unaudited Audited
------------ ----------
As at As at
28 October 29 April
Notes 2017 2017
GBPm GBPm
-------------------------------- -------- ------------ ----------
ASSETS
Non-current assets
Goodwill 8 146.9 148.2
Other intangible assets 9 45.1 45.0
Property, plant and equipment 10 1,159.9 1,190.3
Interests in joint ventures 11 35.1 25.7
Available for sale investments 2.7 -
Derivative instruments
at fair value 12.8 7.0
Deferred tax asset - 14.4
Retirement benefit assets 14 47.3 45.6
Other receivables 5.1 4.9
-------------------------------- -------- ------------ ----------
1,454.9 1,481.1
-------------------------------- -------- ------------ ----------
Current assets
Inventories 23.9 25.2
Trade and other receivables 357.8 449.0
Derivative instruments
at fair value 9.4 7.3
Foreign tax recoverable - 0.3
Cash and cash equivalents 215.6 313.3
-------------------------------- -------- ------------ ----------
606.7 795.1
-------------------------------- -------- ------------ ----------
Total assets 4(d) 2,061.6 2,276.2
-------------------------------- -------- ------------ ----------
LIABILITIES
Current liabilities
Trade and other payables 663.8 848.0
Current tax liabilities 47.6 36.6
Borrowings 39.5 40.5
Derivative instruments
at fair value 4.8 16.6
Provisions 19 133.8 118.6
-------------------------------- -------- ------------ ----------
889.5 1,060.3
-------------------------------- -------- ------------ ----------
Non-current liabilities
Other payables 33.5 35.8
Borrowings 661.1 693.0
Derivative instruments
at fair value 2.6 6.9
Deferred tax liabilities 23.7 -
Provisions 19 74.1 133.6
Retirement benefit obligations 14 105.1 278.1
-------------------------------- -------- ------------ ----------
900.1 1,147.4
-------------------------------- -------- ------------ ----------
Total liabilities 4(d) 1,789.6 2,207.7
-------------------------------- -------- ------------ ----------
Net assets 4(d) 272.0 68.5
-------------------------------- -------- ------------ ----------
EQUITY
Ordinary share capital 15 3.2 3.2
Share premium account 8.4 8.4
Retained earnings (135.0) (320.4)
Capital redemption reserve 422.8 422.8
Own shares (38.0) (37.0)
Translation reserve 9.3 10.2
Cash flow hedging reserve 11.1 (9.0)
-------------------------------- -------- ------------ ----------
Total equity attributable
to the parent 281.8 78.2
Non-controlling interests (9.8) (9.7)
-------------------------------- -------- ------------ ----------
Total equity 272.0 68.5
-------------------------------- -------- ------------ ----------
The accompanying notes form an integral part of this
consolidated balance sheet.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Capital Cash Total Non-controlling
Notes Ordinary premium Retained redemption Translation flow equity interest Total
share account earnings reserve Own reserve hedging attributable GBPm equity
capital GBPm GBPm GBPm shares GBPm reserve to the GBPm
GBPm GBPm GBPm parent
GBPm
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Balance at 29
April
2017 and 30
April 2017 3.2 8.4 (320.4) 422.8 (37.0) 10.2 (9.0) 78.2 (9.7) 68.5
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Profit for the
period - - 78.2 - - - - 78.2 (0.1) 78.1
Other
comprehensive
income/(expense)
net
of tax - - 153.4 - - (0.9) 20.1 172.6 - 172.6
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Total
comprehensive
income/(expense) - - 231.6 - - (0.9) 20.1 250.8 (0.1) 250.7
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Own ordinary
shares
purchased - - - - (1.0) - - (1.0) - (1.0)
Credit in
relation to
equity-settled
share
based payments - - 0.3 - - - - 0.3 - 0.3
Dividends paid on
ordinary
shares 6 - - (46.5) - - - - (46.5) - (46.5)
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Balance at 28
October
2017 3.2 8.4 (135.0) 422.8 (38.0) 9.3 11.1 281.8 (9.8) 272.0
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Balance at 30
April
2016 and 1 May
2016 3.2 8.4 (185.1) 422.8 (34.3) 1.3 (40.3) 176.0 1.8 177.8
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Profit for the
period - - 73.1 - - - - 73.1 (0.3) 72.8
Other
comprehensive
(expense)/income
net
of tax - - (109.9) - - 20.1 42.2 (47.6) (0.4) (48.0)
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Total
comprehensive
(expense)/income - - (36.8) - - 20.1 42.2 25.5 (0.7) 24.8
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Own ordinary
shares
purchased - - - - (2.7) - - (2.7) - (2.7)
Credit in
relation to
equity-settled
share
based payments - - 1.0 - - - - 1.0 - 1.0
Dividends paid on
ordinary
shares 6 - - (45.3) - - - - (45.3) - (45.3)
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Balance at 29
October
2016 3.2 8.4 (266.2) 422.8 (37.0) 21.4 1.9 154.5 1.1 155.6
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
The accompanying notes form an integral part of this
consolidated statement of changes in equity.
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited
------------ ------------
Half-year Half-year
to to
28 October 29 October
2017 2016
Notes GBPm GBPm
-------------------------------------- ------ ------------ ------------
Cash flows from operating activities
Cash generated by operations 16 61.1 153.2
Interest paid (22.4) (21.8)
Interest received 2.1 0.7
Dividends received from joint
ventures 3.4 10.8
-------------------------------------- ------ ------------ ------------
Net cash flows from operating
activities 44.2 142.9
Tax paid (5.0) (4.6)
-------------------------------------- ------ ------------ ------------
Net cash from operating activities
after tax 39.2 138.3
-------------------------------------- ------ ------------ ------------
Cash flows from investing activities
Disposals of businesses, net
of cash disposed of 12 - (2.7)
Purchase of property, plant
and equipment (60.8) (108.9)
Disposal of property, plant
and equipment 30.7 13.1
Purchase of intangible assets
and other investments (10.9) (8.5)
Disposal of intangible assets 2.7 -
Net cash outflow from investing
activities (38.3) (107.0)
-------------------------------------- ------ ------------ ------------
Cash flows from financing activities
Purchase of treasury shares (1.0) (2.7)
Repayments of hire purchase
and lease finance debt (14.2) (30.4)
Drawdown of other borrowings 100.0 102.9
Repayment of other borrowings (136.8) (100.4)
Dividends paid on ordinary
shares 6 (46.5) (45.3)
Sale of tokens 0.1 0.1
Redemption of tokens (0.2) (0.2)
-------------------------------------- ------ ------------ ------------
Net cash used in financing
activities (98.6) (76.0)
-------------------------------------- ------ ------------ ------------
Net decrease in cash and cash
equivalents (97.7) (44.7)
Cash and cash equivalents at
beginning of period 313.3 382.3
Exchange rate effects - 3.8
-------------------------------------- ------ ------------ ------------
Cash and cash equivalents at
end of period 215.6 341.4
-------------------------------------- ------ ------------ ------------
Cash and cash equivalents for the purposes of the consolidated
statement of cash flows comprise cash at bank and in hand,
overdrafts and other short-term highly liquid investments with
maturities at the balance sheet date of twelve months or less.
The accompanying notes form an integral part of this
consolidated statement of cash flows.
NOTES
1 BASIS OF PREPARATION
The condensed consolidated interim financial information for the
half-year ended 28 October 2017 has been prepared in accordance
with the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority and International Accounting Standard
34, "Interim Financial Reporting", as adopted by the European
Union. The condensed consolidated interim financial information
should be read in conjunction with the annual financial statements
for the year ended 29 April 2017, which have been prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union. As explained in note 5 to the
condensed financial statements, the definition of adjusted earnings
has been changed to include software amortisation. The accounting
policies and methods of computation applied in the consolidated
interim financial information are otherwise the same as those of
the annual financial statements for the year ended 29 April 2017,
as described on pages 79 to 87 of the Group's 2017 Annual Report
which can be found on the Stagecoach Group website at
http://www.stagecoach.com/investors/financial-analysis/reports/.
The figures for this half-year include the results for all
divisions for the 26 weeks to 28 October 2017. The comparative
figures for the half-year ended 29 October 2016 include the results
for all divisions for the 26 weeks ended 29 October 2016.
This condensed consolidated interim financial information for
the half-year ended 28 October 2017 has not been audited, nor has
the comparative financial information for the half-year ended 29
October 2016 but they have both been reviewed by the auditors. The
comparative financial information presented in this announcement
for the year ended 29 April 2017 does not constitute statutory
accounts as defined in section 434 of the Companies Act 2006 and
does not reflect all of the information contained in the Company's
annual financial statements. The annual financial statements for
the year ended 29 April 2017, were approved by the Board of
Directors on 28 June 2017, were reported on by the auditors under
sections 495 and 496 of the Companies Act 2006, received an
unqualified audit report, did not contain an emphasis of matter
paragraph, did not contain a statement under section 498(2) or (3)
of the Companies Act 2006 and have been filed with the Registrar of
Companies.
The Board of Directors approved this announcement, including the
condensed consolidated interim financial information, on 6 December
2017. This announcement will be available on the Group's website at
http://www.stagecoach.com/investors/financial-analysis/reports/.
New standards, amendments to standards and interpretations that
are mandatory for the first time for the financial year beginning
30 April 2017, do not have any significant effect on the
consolidated financial statements of the Group.
2 FOREIGN CURRENCIES
The principal rates of exchange used to translate the results of
foreign operations are as follows:
Half-year Half-year Year to
to to 29 April
28 October 29 October 2017
2017 2016
------------------ ------------ ------------ ----------
US Dollar:
Period end rate 1.3110 1.2149 1.2937
Average rate 1.3029 1.3426 1.2937
Canadian Dollar:
Period end rate 1.6899 1.6243 1.7689
Average rate 1.6748 1.7487 1.7036
3 SEASONALITY
The Group's North American bus operations typically earn higher
operating profit for the first half of the financial year (i.e. the
half-year to the end of October) than for the second half. This is
because leisure customers generate an element of the revenue with
demand being at its strongest in the summer months.
4 SEGMENTAL ANALYSIS
The Group is managed, and reports internally, on a basis
consistent with its five operating segments, being UK Bus (regional
operations), megabus Europe, UK Bus (London), North America and UK
Rail. During the year ended 29 April 2017, the Group exited the
operations of its megabus Europe Division. The Group's accounting
policies are applied consistently, where appropriate, to each
segment.
The segmental information provided in this note is on the basis
of five operating segments as follows:
Segment name Service operated Countries of operation
UK Bus (regional Coach and bus operations United Kingdom
operations)
megabus Europe Coach operations United Kingdom
and mainland Europe
UK Bus (London) Bus operations United Kingdom
North America Coach and bus operations USA and Canada
UK Rail Rail operations United Kingdom
The basis of segmentation and the basis on which segment profit
is measured are consistent with the Group's last annual financial
statements for the year ended 29 April 2017.
The Group has interests in two material joint ventures: Virgin
Rail Group that operates in UK Rail and Citylink that operates in
UK Bus (regional operations). The results of these joint ventures
are shown separately in note 4(c).
(a) Revenue
Due to the nature of the Group's business, the origin and
destination of revenue (i.e. United Kingdom, mainland Europe or
North America) is the same in all cases except in respect of an
immaterial amount of revenue for services previously operated by
megabus Europe between the UK and mainland Europe. As the Group
sells bus and rail services to individuals, it has few customers
that are individually "major". Its major customers are typically
public bodies that subsidise or procure transport services - such
customers include local authorities, transport authorities and the
UK Department for Transport.
Revenue split by segment was as follows:
Unaudited Unaudited
------------ ------------
Half-year Half-year
to to
28 October 29 October
2017 2016
GBPm GBPm
---------------------------------------- ------------ ------------
UK Bus (regional operations) 512.4 513.9
megabus Europe - 14.9
UK Bus (London) 128.4 131.5
North America 256.3 252.0
---------------------------------------- ------------ ------------
Total bus operations 897.1 912.3
UK Rail 905.6 1,092.3
---------------------------------------- ------------ ------------
Total Group revenue 1,802.7 2,004.6
Intra-Group revenue - UK Bus (regional
operations) (2.3) (2.5)
---------------------------------------- ------------ ------------
Reported Group revenue 1,800.4 2,002.1
---------------------------------------- ------------ ------------
4 SEGMENTAL ANALYSIS (CONTINUED)
(b) Operating profit
Operating profit split by segment was as follows:
Unaudited Unaudited
-------------------------------------- --------------------------------------
Half-year to 28 Half-year to 29
October 2017 October 2016
(Restated)
Performance Intangibles Performance Intangibles
pre (exc pre (exc
intangibles software) intangibles software)
(exc and (exc and
software) exceptional Results software) exceptional Results
and items for and items for
exceptional (note the exceptional (note the
items 5) period items 5) period
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ------------- ------------- -------- ------------- ------------- --------
UK Bus (regional
operations) 61.6 - 61.6 64.9 - 64.9
megabus Europe - - - (4.6) - (4.6)
UK Bus (London) 6.5 - 6.5 9.1 - 9.1
North America 21.2 - 21.2 17.0 - 17.0
-------------------------- ------------- ------------- -------- ------------- ------------- --------
Total bus operations 89.3 - 89.3 86.4 - 86.4
UK Rail 21.7 - 21.7 19.5 - 19.5
-------------------------- ------------- ------------- -------- ------------- ------------- --------
111.0 - 111.0 105.9 - 105.9
Group overheads (7.9) - (7.9) (6.3) - (6.3)
Intangible asset
amortisation (exc
software) - - - - (4.9) (4.9)
Restructuring costs (1.2) - (1.2) (0.8) - (0.8)
-------------------------- ------------- ------------- -------- ------------- ------------- --------
Total operating
profit of Group
companies 101.9 - 101.9 98.8 (4.9) 93.9
Share of joint ventures'
profit after net
finance income and
taxation 12.9 - 12.9 15.0 - 15.0
-------------------------- ------------- ------------- -------- ------------- ------------- --------
Total operating
profit: Group operating
profit and share
of joint ventures'
profit after taxation 114.8 - 114.8 113.8 (4.9) 108.9
-------------------------- ------------- ------------- -------- ------------- ------------- --------
(c) Joint ventures
The share of profit from joint ventures was further split as
follows:
Unaudited Unaudited
------------ ------------
Half-year Half-year
to to
28 October 29 October
2017 2016
GBPm GBPm
----------------------------- ------------ ------------
Virgin Rail Group (UK Rail)
Operating profit 14.8 17.1
Finance income (net) 0.2 0.3
Taxation (2.9) (3.5)
12.1 13.9
Citylink (UK Bus, regional
operations)
Operating profit 1.0 1.4
Taxation (0.2) (0.3)
------------------------------ ------------ ------------
0.8 1.1
----------------------------- ------------ ------------
Share of profit of joint
ventures after net finance
income and taxation 12.9 15.0
------------------------------ ------------ ------------
4 SEGMENTAL ANALYSIS (CONTINUED)
(d) Gross assets and liabilities
Assets and liabilities split by segment were as follows:
Unaudited Audited
--------------------------------------------- ----------------------------------------------
As at 28 October 2017 As at 29 April 2017
Net Net
Gross assets/ Gross assets/
Gross assets liabilities (liabilities) Gross assets liabilities (liabilities)
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- ------------- -------------- -------------- ------------- -------------- ---------------
UK Bus (regional
operations) 926.1 (237.9) 688.2 952.5 (358.3) 594.2
megabus Europe - (2.6) (2.6) 7.1 (10.1) (3.0)
UK Bus (London) 67.6 (113.5) (45.9) 69.1 (176.7) (107.6)
North America 453.5 (144.2) 309.3 429.5 (144.7) 284.8
UK Rail 342.5 (482.4) (139.9) 426.2 (704.3) (278.1)
----------------------- ------------- -------------- -------------- ------------- -------------- ---------------
1,789.7 (980.6) 809.1 1,884.4 (1,394.1) 490.3
Central functions 21.2 (37.1) (15.9) 38.1 (43.5) (5.4)
Joint ventures 35.1 - 35.1 25.7 - 25.7
Borrowings and cash 215.6 (700.6) (485.0) 313.3 (733.5) (420.2)
Taxation - (71.3) (71.3) 14.7 (36.6) (21.9)
----------------------- ------------- -------------- -------------- ------------- -------------- ---------------
Total 2,061.6 (1,789.6) 272.0 2,276.2 (2,207.7) 68.5
----------------------- ------------- -------------- -------------- ------------- -------------- ---------------
Central assets and liabilities include interest payable and
receivable and other net assets of the holding company and other
head office companies. Segment assets and liabilities are
determined by identifying the assets and liabilities that relate to
the business of each segment but excluding intra-Group balances,
cash, borrowings, taxation, interest payable, interest receivable
and the token provision.
5 EXCEPTIONAL ITEMS AND INTANGIBLE ASSET AMORTISATION
The Group separately highlights non-software intangible asset
amortisation and exceptional items. Exceptional items are defined
in note 23. As explained in the section headed "Updating definition
of adjusted earnings per share" on page 13, adjusted earnings per
share are now reported inclusive of software amortisation, and the
effect on previously reported amounts of including these costs
within adjusted earnings is set out below:
(a) Consolidated income statement - restatement of adjusted
amounts
Half-year to 29 October 2016
--------------------------------------------------------------------
Performance pre
intangibles and Intangibles and
exceptional items exceptional items
--------------------------------- ---------------------------------
H1 2017 H1 2017 H1 2017 H1 2017
reported Software restated reported Software restated
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ---------- --------- ---------- ---------- --------- ----------
Revenue 2,002.1 - 2,002.1 - - -
Operating costs
and other operating
income (1,900.1) (3.2) (1,903.3) (8.1) 3.2 (4.9)
------------------------ ---------- --------- ---------- ---------- --------- ----------
Operating profit
of Group companies 102.0 (3.2) 98.8 (8.1) 3.2 (4.9)
Share of profit
of joint ventures
after net finance
income and taxation 15.0 - 15.0 - - -
------------------------ ---------- --------- ---------- ---------- --------- ----------
Total operating
profit: Group and
share of joint
ventures profit
after taxation 117.0 (3.2) 113.8 (8.1) 3.2 (4.9)
Non-operational
exceptional items - - - (2.8) - (2.8)
------------------------ ---------- --------- ---------- ---------- --------- ----------
Profit before interest
and taxation 117.0 (3.2) 113.8 (10.9) 3.2 (7.7)
Finance costs (17.8) - (17.8) - - -
Finance income 1.2 - 1.2 - - -
------------------------ ---------- --------- ---------- ---------- --------- ----------
Profit before taxation 100.4 (3.2) 97.2 (10.9) 3.2 (7.7)
Taxation (17.9) 0.6 (17.3) 1.2 (0.6) 0.6
------------------------ ---------- --------- ---------- ---------- --------- ----------
Profit from continuing
operations and
profit after taxation
for the period 82.5 (2.6) 79.9 (9.7) 2.6 (7.1)
------------------------ ---------- --------- ---------- ---------- --------- ----------
5 EXCEPTIONAL ITEMS AND INTANGIBLE ASSET AMORTISATION
(CONTINUED)
(b) Segmental operating profit - restatement of adjusted
amounts
Half-year to 29 October 2016
--------------------------------------------------------------------
Performance pre
intangibles and Intangibles and
exceptional items exceptional items
--------------------------------- ---------------------------------
H1 2017 H1 2017 H1 2017 H1 2017
reported Software restated reported Software restated
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ---------- --------- ---------- ---------- --------- ----------
UK Bus (regional
operations) 66.6 (1.7) 64.9 - - -
megabus Europe (4.6) - (4.6) - - -
UK Bus (London) 9.1 - 9.1 - - -
North America 17.5 (0.5) 17.0 - - -
-------------------------- ---------- --------- ---------- ---------- --------- ----------
Total bus operations 88.6 (2.2) 86.4 - - -
UK Rail 20.5 (1.0) 19.5 - - -
-------------------------- ---------- --------- ---------- ---------- --------- ----------
109.1 (3.2) 105.9 - - -
Group overheads (6.3) - (6.3) - - -
Intangible asset
amortisation - - - (8.1) 3.2 (4.9)
Restructuring costs (0.8) - (0.8) - - -
-------------------------- ---------- --------- ---------- ---------- --------- ----------
Total operating
profit of Group
companies 102.0 (3.2) 98.8 (8.1) 3.2 (4.9)
Share of profit
of joint ventures
after net finance
income and taxation 15.0 - 15.0 - - -
-------------------------- ---------- --------- ---------- ---------- --------- ----------
Total operating
profit: Group operating
profit and share
of joint ventures'
profit after taxation 117.0 (3.2) 113.8 (8.1) 3.2 (4.9)
-------------------------- ---------- --------- ---------- ---------- --------- ----------
(c) Reported exceptional items and non-software intangible asset
amortisation
The items shown in the column headed "Intangibles (exc software)
and exceptional items" on the face of the consolidated income
statement for the half-year ended 29 October 2016 can be further
analysed as follows:
Unaudited
------------------------------------------------------------------------------------
Half-year to 29 October 2016
Intangible asset amortisation Intangibles (exc software) and
Exceptional items (exc software) exceptional items
GBPm GBPm GBPm
-------------------------------- ------------------ ------------------------------- -------------------------------
Operating costs
Intangible asset amortisation
(exc software) - (4.9) (4.9)
-------------------------------- ------------------ ------------------------------- -------------------------------
Non-operating exceptional items
megabus Europe disposal (2.8) - (2.8)
Intangible asset amortisation
(exc software) and exceptional
items (2.8) (4.9) (7.7)
Tax effect - 0.6 0.6
-------------------------------- ------------------ ------------------------------- -------------------------------
Intangible asset amortisation
(exc software) and exceptional
items after taxation (2.8) (4.3) (7.1)
-------------------------------- ------------------ ------------------------------- -------------------------------
6 DIVIDS
Dividends on ordinary shares are shown below.
Unaudited Unaudited Audited Unaudited Unaudited Audited
--------------- --------------- --------------- --------------- --------------- ---------------
Half-year to Half-year to Half-year to Half-year to
28 October 29 October Year to 28 October 29 October Year to
2017 2016 29 April 2017 2017 2016 29 April 2017
pence per pence per pence per
share share share GBPm GBPm GBPm
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Amounts
recognised as
distributions
Dividends on
ordinary
shares:
Final dividend
in respect of
the previous
year 8.1 7.9 7.9 46.5 45.3 45.3
Interim
dividend in
respect of the
current year - - 3.8 - - 21.8
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Amounts
recognised as
distributions
to equity
holders 8.1 7.9 11.7 46.5 45.3 67.1
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Dividends
declared or
proposed but
neither paid
nor included as
liabilities in
the financial
statements
Dividends on
ordinary
shares:
Final dividend
in respect of
the current
year - - 8.1 - - 46.5
Interim
dividend in
respect of the
current year 3.8 3.8 - 21.8 21.8 -
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
3.8 3.8 8.1 21.8 21.8 46.5
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
The interim ordinary dividend of 3.8p per ordinary share was
declared by the Board of Directors on 6 December 2017 and has not
been included as a liability as at 28 October 2017. It is payable
on 7 March 2018 to shareholders on the register at close of
business on 26 January 2018.
7 EARNINGS PER SHARE
Basic earnings per share ("EPS") have been calculated by
dividing the profit attributable to equity shareholders by the
weighted average number of ordinary shares in issue during the
period, excluding any ordinary shares held in treasury and by
employee share ownership trusts.
The diluted earnings per share was calculated by adjusting the
weighted average number of ordinary shares outstanding to assume
conversion of all dilutive potential ordinary shares in relation to
share based payment arrangements and long-term incentive plans.
Unaudited Unaudited
-------------- --------------
Half-year Half-year
to to
28 October 29 October
2017 2016
No. of shares No. of shares
Million Million
------------------------------- -------------- --------------
Basic weighted average number
of ordinary shares 573.4 573.6
Dilutive ordinary shares
- Executive Participation
Plan 2.7 2.2
-------------------------------- -------------- --------------
Diluted weighted average
number of ordinary shares 576.1 575.8
-------------------------------- -------------- --------------
Unaudited Unaudited
------------ ------------
Half-year Half-year
to to
28 October 29 October
2017 2016
(restated)
Notes GBPm GBPm
------------------------------------ ------ ------------ ------------
Net profit attributable to
equity holders of the parent
(for basic EPS calculation) 78.2 73.1
Intangible asset amortisation
(exc software) 5 - 4.9
Non-controlling interest
in intangible asset expenses
(exc software) - (0.4)
Exceptional items before
tax 5 - 2.8
Tax effect of intangible
asset amortisation (exc software) 5 - (0.6)
Net profit attributable to
equity holders of the parent
for adjusted EPS calculation 78.2 79.8
------------------------------------ ------ ------------ ------------
Adjusted earnings per share is calculated after adding back
non-software intangible asset amortisation and exceptional items
after taking account of taxation and the non-controlling interest,
as shown on the consolidated income statement. This has been
presented to allow shareholders to gain a clearer understanding of
underlying performance.
8 GOODWILL
The movements in goodwill were as follows:
Unaudited Unaudited Audited
------------ ------------ ----------
Half-year Half-year Year
to to to
28 October 29 October 29 April
2017 2016 2017
GBPm GBPm GBPm
--------------------------------- ------------ ------------ ----------
Net book value at beginning
of period 148.2 136.9 136.9
Foreign exchange movements (1.3) 17.5 11.3
--------------------------------- ------------ ------------ ----------
Net book value at end of period 146.9 154.4 148.2
--------------------------------- ------------ ------------ ----------
9 OTHER INTANGIBLE ASSETS
The movements in other intangible assets were as follows:
Unaudited Unaudited Audited
------------ ------------ ----------
Half-year Half-year Year
to to to
28 October 29 October 29 April
2017 2016 2017
GBPm GBPm GBPm
--------------------------------- ------------ ------------ ----------
Cost at beginning of period 163.1 142.9 142.9
Additions 8.2 8.5 17.8
Disposals (6.4) (0.1) (0.5)
Foreign exchange movements (0.3) 4.6 2.9
Cost at end of period 164.6 155.9 163.1
--------------------------------- ------------ ------------ ----------
Accumulated amortisation at
beginning of period (118.1) (54.2) (54.2)
Amortisation charged to income
statement (5.5) (8.1) (16.8)
Impairment charged to income
statement - - (44.8)
Disposals 3.8 - 0.5
Foreign exchange movements 0.3 (4.4) (2.8)
Accumulated amortisation at
end of period (119.5) (66.7) (118.1)
--------------------------------- ------------ ------------ ----------
Net book value at beginning
of period 45.0 88.7 88.7
--------------------------------- ------------ ------------ ----------
Net book value at end of period 45.1 89.2 45.0
--------------------------------- ------------ ------------ ----------
10 PROPERTY, PLANT AND EQUIPMENT
The movements in property, plant and equipment were as
follows:
Unaudited Unaudited Audited
------------ ------------ ----------
Half-year Half-year Year
to to to
28 October 29 October 29 April
2017 2016 2017
GBPm GBPm GBPm
--------------------------------- ------------ ------------ ----------
Cost at beginning of period 2,178.2 2,049.4 2,049.4
Additions 69.3 117.9 199.5
Disposals (114.2) (38.7) (133.0)
Foreign exchange movements (4.8) 102.8 62.3
Transferred to assets held - (18.1) -
for sale
Cost at end of period 2,128.5 2,213.3 2,178.2
--------------------------------- ------------ ------------ ----------
Depreciation at beginning of
period (987.9) (884.2) (884.2)
Depreciation charged to income
statement (66.7) (70.5) (145.5)
Impairment charged to income
statement - (3.0) (3.2)
Disposals 83.7 25.1 73.5
Foreign exchange movements 2.3 (47.4) (28.5)
Transferred to assets held - 6.3 -
for sale
Depreciation at end of period (968.6) (973.7) (987.9)
--------------------------------- ------------ ------------ ----------
Net book value at beginning
of period 1,190.3 1,165.2 1,165.2
--------------------------------- ------------ ------------ ----------
Net book value at end of period 1,159.9 1,239.6 1,190.3
--------------------------------- ------------ ------------ ----------
11 INTERESTS IN JOINT VENTURES
The movements in the carrying values of interests in joint
ventures were as follows:
Unaudited Unaudited Audited
------------ ------------ ----------
Half-year Half-year Year
to to to
28 October 29 October 29 April
2017 2016 2017
GBPm GBPm GBPm
----------------------------------- ------------ ------------ ----------
Net book value at beginning
of period 25.7 22.4 22.4
Share of recognised profit 12.9 15.0 26.2
Share of actuarial gains on
defined benefit pension schemes,
net of tax - 0.6 2.5
Share of other comprehensive
(expense)/income on cash flow
hedges, net of tax (0.1) 2.2 2.7
Dividends received in cash (3.4) (10.8) (28.1)
Net book value at end of period 35.1 29.4 25.7
----------------------------------- ------------ ------------ ----------
A loan payable to Scottish Citylink Coaches Limited of GBP1.7m
(29 April 2017: GBP1.7m) is included within current liabilities
under the caption "Trade and other payables".
12 BUSINESS COMBINATIONS AND DISPOSALS
The Group completed no material business combinations or
business disposals in the half-year to 28 October 2017, or since
then.
Details of acquisitions and disposals completed in earlier
periods are given in the Group's annual reports for the relevant
periods.
13 FINANCIAL INSTRUMENTS AND FINANCIAL RISK
MANAGEMENT
The Group is exposed to a variety of financial risks: market
risk (including currency risk, interest rate risk and price risk),
credit risk and liquidity risk.
These condensed financial statements do not include all
financial risk management information and disclosures required in
the annual financial statements. They should be read in conjunction
with the Group's consolidated financial statements for the year
ended 29 April 2017. There have been no material changes in any of
the Group's significant financial risk management policies since 29
April 2017.
Liquidity risk
There have been no material changes since 29 April 2017 in the
contractual undiscounted cash outflows for financial
liabilities.
Fair value estimation
Financial instruments that are measured in the balance sheet at
fair value are disclosed by level of the following fair value
measurement hierarchy.
Level 1 Quoted price (unadjusted) in active markets for identical assets or liabilities
Level 2 Inputs other than quoted prices included within Level 1
that are observable for the asset or liability either directly
(that is, as prices) or indirectly (that is, derived from
prices)
Level 3 Inputs for the assets or liabilities that are not based
on observable market data (that is, unobservable inputs)
13 FINANCIAL INSTRUMENTS AND FINANCIAL RISK
MANAGEMENT (CONTINUED)
The following table presents the Group's financial assets and
liabilities that are measured at fair value within the hierarchy at
28 October 2017.
Unaudited
-----------
Level
2 & Total
GBPm
-------------------------------- -----------
Assets
Derivatives used for hedging 22.2
Available for sale investments
- equity securities 2.7
-------------------------------- -----------
24.9
Liabilities
Derivatives used for hedging (7.4)
-------------------------------- -----------
The following table presents the Group's financial assets and
liabilities that are measured at fair value within the hierarchy at
29 April 2017.
Audited
-----------
Level
2 & Total
GBPm
------------------------------ -----------
Assets
Derivatives used for hedging 14.3
Liabilities
Derivatives used for hedging (23.5)
------------------------------ -----------
There were no transfers between levels during the half-year
ended 28 October 2017.
The table below provides a comparison of carrying amounts and
fair values of the Group's financial instruments.
Unaudited Audited
------------------------ -----------------------
Carrying Carrying
value Fair Value value Fair value
----------- ----------- ---------- -----------
28 October 28 October 29 April 29 April
2017 2017 2017 2017
GBPm GBPm GBPm GBPm
------------------------------------------------------------------- ----------- ----------- ---------- -----------
Loans and receivables
* Non-current assets - Other receivables 0.2 0.2 0.2 0.2
- Available for sale
investments 2.7 2.7 - -
* Current assets - Accrued income 46.2 46.2 54.0 54.0
- Trade receivables,
net of impairment 204.3 204.3 254.4 254.4
- Other receivables 24.1 24.1 39.4 39.4
- Cash and cash equivalents 215.6 215.6 313.3 313.3
Total financial assets 493.1 493.1 661.3 661.3
----------- ----------- ---------- -----------
Financial liabilities
measured at amortised
cost
* Non-current liabilities - Borrowings (661.1) (698.7) (693.0) (737.0)
* Current liabilities - Trade payables (158.1) (158.1) (270.0) (270.0)
- Accruals (355.4) (355.4) (436.7) (436.7)
- Loans from joint
ventures (1.7) (1.7) (1.7) (1.7)
- Loan from non-controlling
interest (10.6) (10.6) (5.8) (5.8)
- Borrowings (39.5) (39.5) (40.5) (40.5)
----------- ----------- ---------- -----------
Total financial liabilities (1,226.4) (1,264.0) (1,447.7) (1,491.7)
----------- ----------- ---------- -----------
Net financial liabilities (733.3) (770.9) (786.4) (830.4)
----------- ----------- ---------- -----------
Derivatives that are designated as effective hedging instruments
are not shown in the above table.
13 FINANCIAL INSTRUMENTS AND FINANCIAL RISK
MANAGEMENT (CONTINUED)
The fair values of financial assets and financial liabilities
shown in the table are determined as follows:
-- The carrying value of GBP2.7m (29 April 2017: GBPNil) of an
available for sale investment is measured at cost, which based on
recent transactions is considered to be a reasonable approximation
of fair value.
-- The carrying value of cash and cash equivalents, accrued
income, trade receivables, and other receivables is considered to
be a reasonable approximation of fair value. The effect of credit
losses not already reflected in the carrying value as impairment
losses is assumed to be immaterial. Given the short average time to
maturity, no specific assumptions on discount rates have been
made.
-- The carrying value of trade payables, accruals, loan from
non-controlling interest and loans from joint ventures is
considered to be a reasonable approximation of fair value. Given
the relatively short average time to maturity, no specific
assumptions on discount rates have been made.
-- The fair value of fixed-rate notes (included in borrowings)
that are quoted on a recognised stock exchange is determined with
reference to the "bid" price at the balance sheet date.
-- The carrying value of fixed-rate notes that are not quoted on
a recognised stock exchange and fixed-rate hire purchase and
finance lease liabilities (included in borrowings) is considered to
be a reasonable approximation of fair value taking account of the
amounts involved in the context of total financial liabilities and
the fixed interest rates relative to market interest rates at the
balance sheet date.
-- The fair value of other borrowings on which interest is
payable at floating rates is not considered to be materially
different from the carrying value.
14 RETIREMENT BENEFITS
The Group contributes to a number of pension schemes. The
principal defined benefit schemes are as follows:
-- The Stagecoach Group Pension Scheme ("SPS");
-- The South West Trains section of the Railways
Pension Scheme ("RPS"), although the Group's
participation in that ceased in August 2017;
-- The Island Line section of the Railways Pension
Scheme ("RPS"), where the Group's participation
also ceased in August 2017;
-- The East Midlands Trains section of the Railways
Pension Scheme ("RPS");
-- The East Coast Main Line section of the Railways
Pension Scheme ("RPS");and
-- A number of UK Local Government Pension Schemes
("LGPS");
The Directors believe that separate consideration should be
given to RPS as the Group has no rights or obligations in respect
of sections of the scheme following expiry of the related rail
franchises. In addition, under the terms of RPS, any fund deficit
or surplus is shared by the employer (60%) and the employees (40%)
in accordance with the shared cost nature of RPS. The employees'
share of the deficit (or surplus) is reflected as an adjustment to
the RPS liabilities (or assets). Therefore the liability (or asset)
recognised for the relevant sections of RPS reflects that part of
the net deficit (or surplus) of each section that the employer is
expected to fund (or expected to recover) over the life of the
franchise to which the section relates. The "franchise adjustment"
is the portion of the deficit (or surplus) that is expected to
exist at the end of the franchise and which the Group would not be
obliged to fund (or entitled to recover).
In addition, the Group contributes to a number of defined
contribution schemes.
The movements for the half-year ended 28 October 2017 in the net
pre-tax retirement benefit liabilities recognised in the balance
sheet were as follows:
SPS RPS LGPS Other Unfunded plans Total
Unaudited GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------------ -------- ------- ------ ------ --------------- --------
Liability/(asset) at beginning of period 251.8 (45.1) 17.5 4.0 4.3 232.5
Current service cost 2.4 25.4 0.6 0.8 - 29.2
Administration costs 0.5 0.2 - - - 0.7
Net Interest expense 3.5 4.3 0.3 0.1 0.1 8.3
Unwinding of franchise adjustment - (4.9) - - - (4.9)
Employers' contributions (1.8) (17.1) (3.9) (0.5) (0.1) (23.4)
Actuarial (gains)/losses (174.4) (9.7) 0.1 (0.6) - (184.6)
Liability/(asset) at end of period 82.0 (46.9) 14.6 3.8 4.3 57.8
------------------------------------------ -------- ------- ------ ------ --------------- --------
14 RETIREMENT BENEFITS (CONTINUED)
The net liability shown above is presented in the consolidated
balance sheet as:
Unaudited Audited
---------------------- --------------------
As at 28 October 2017 As at 29 April 2017
GBPm GBPm
---------------------------------- ---------------------- --------------------
Retirement benefit assets 47.3 45.6
Retirement benefit obligations (105.1) (278.1)
---------------------------------- ---------------------- --------------------
Net retirement benefit liability (57.8) (232.5)
---------------------------------- ---------------------- --------------------
15 ORDINARY SHARE CAPITAL
At 28 October 2017, there were 576,099,960 ordinary shares in
issue (29 April 2017: 576,099,960). This figure includes 2,757,038
(29 April 2017: 2,467,204) ordinary shares held in treasury, which
are treated as a deduction from equity in the Group's financial
statements. The shares held in treasury do not qualify for
dividends.
16 RECONCILIATION OF OPERATING PROFIT TO CASH
GENERATED BY OPERATIONS
The operating profit of Group companies reconciles to cash
generated by operations as follows:
Unaudited Unaudited
------------ ------------
Half-year Half-year
to to
28 October 29 October
2017 2016
GBPm GBPm
-------------------------------------------- ------------ ------------
Operating profit of Group companies 101.9 93.9
Depreciation 66.7 70.5
Intangible asset amortisation 5.5 8.1
-------------------------------------------- ------------ ------------
EBITDA of Group companies before
exceptional items 174.1 172.5
(Gain)/loss on disposal of property,
plant and equipment (0.4) 0.4
Equity-settled share based payment
expense 0.3 1.0
-------------------------------------------- ------------ ------------
Operating cashflows before working
capital movements 174.0 173.9
Decrease in inventories 1.3 2.4
Decrease/(increase) in receivables 96.7 (18.6)
Decrease in payables (172.4) (22.7)
(Decrease)/increase in provisions (45.0) 16.3
Differences between employer contributions
and pension expense in operating
profit 6.5 1.9
-------------------------------------------- ------------ ------------
Cash generated by operations 61.1 153.2
-------------------------------------------- ------------ ------------
17 RECONCILIATION OF NET CASH FLOW TO MOVEMENT
IN NET DEBT
The movement in cash and cash equivalents reconciles to the
movement in net debt as follows:
Unaudited Unaudited
------------- -------------
Half-year to Half-year to
28 October 29 October
2017 2016
Notes GBPm GBPm
--------------------------------------- ------ ------------- -------------
Decrease in cash and cash equivalents (97.7) (44.7)
Cash flow from movement in borrowings 51.0 27.9
--------------------------------------- ------ ------------- -------------
(46.7) (16.8)
New hire purchase and finance leases (28.7) (29.7)
Foreign exchange movements 2.3 (38.3)
Other movements (0.3) (0.3)
--------------------------------------- ------ ------------- -------------
Increase in net debt (73.4) (85.1)
Net debt at beginning of period 18 (409.4) (399.3)
--------------------------------------- ------ ------------- -------------
Net debt at end of period 18 (482.8) (484.4)
--------------------------------------- ------ ------------- -------------
During the period, the Group entered into hire purchase and
finance lease arrangements in respect of assets with a total
capital value at inception of the contracts of GBP28.7m (H1 2017:
GBP33.1m). After taking account of deposits paid up-front, new hire
purchase and finance lease liabilities of GBP28.7m (H1 2017:
GBP29.7m) were recognised.
18 ANALYSIS OF NET DEBT
The analysis provided below shows the analysis of net debt as
defined in note 23. The analysis below further shows the other
items classified as net borrowings in the consolidated balance
sheet.
Charged to income
New hire purchase Foreign exchange statement/
Opening Cashflows and finance leases movements other Closing
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- -------- ---------- -------------------- -------------------- -------------------- --------
Cash and cash
equivalents 294.7 (97.7) - - - 197.0
Cash collateral 18.6 - - - - 18.6
Hire purchase and
finance lease
obligations (72.0) 14.2 (28.7) 0.8 - (85.7)
Bank loans and loan
notes (140.4) 36.8 - - - (103.6)
Bonds and notes (510.3) - - 1.5 (0.3) (509.1)
Net debt (409.4) (46.7) (28.7) 2.3 (0.3) (482.8)
Accrued interest on
bonds (9.5) 18.4 - 0.1 (10.6) (1.6)
Effect of fair
value hedges (1.3) - - - 0.7 (0.6)
Net borrowings
(IFRS) (420.2) (28.3) (28.7) 2.4 (10.2) (485.0)
-------------------- -------- ---------- -------------------- -------------------- -------------------- --------
The cash collateral balance as at 28 October 2017 of GBP18.6m
(29 April 2017: GBP18.6m) comprises balances held in respect of
loan notes of GBP18.2m (29 April 2017: GBP18.2m) and North America
restricted cash balances of GBP0.4m (29 April 2017: GBP0.4m). In
addition, cash includes train operating company cash of GBP110.7m
(29 April 2017: GBP219.4m). Under the terms of the franchise
agreements, other than with the UK Department for Transport's
consent, train operating companies can only distribute cash out of
retained earnings and only to the extent they do not breach the
financial covenants specified in applicable contracts.
19 PROVISIONS
The Group's provisions principally relate to insurance
provisions on incurred accidents where claims have not been fully
settled, and onerous contracts where the costs of fulfilling the
contract outweigh the economic benefits to be received. The total
provision for uninsured claims of GBP166.0m (29 April 2017:
GBP156.8m) has increased during the half-year, reflecting both our
latest assessment of the required provision for claims on major
incidents and foreign exchange movements. The Group engages with
third party actuarial professionals to assist in the calculation of
these provisions. As expected, the onerous contract provisions have
decreased from GBP88.6m at 29 April 2017 to GBP33.9m at 28 October
2017, principally reflecting the utilisation of a provision for
losses incurred by Virgin Trains East Coast.
20 COMMITMENTS AND CONTINGENCIES
(i) Capital commitments
Capital commitments contracted but not provided
for at 28 October 2017 were GBP55.8m (29 April
2017: GBP115.2m).
(ii) Rail bonds
At 28 October 2017, the Group has provided performance
bonds backed by bank facilities or insurance
arrangements of GBP75.3m (29 April 2017: GBP75.3m)
and season ticket bonds backed by bank facilities
or insurance arrangements of GBP11.8m (29 April
2017: GBP72.1m) to the Department for Transport
in relation to the Group's rail franchise operations.
Liabilities for deferred season ticket income,
which the season ticket bonds are intended to
cover, are reflected in the consolidated balance
sheet. No liabilities have been recorded in
respect of performance bonds. GBP82.5m (29 April
2017: GBP82.5m) of an inter-company loan facility
provided to a subsidiary train operating company
is backed by a guarantee issued under a bank
facility.
(iii) Legal actions
The Group and the Company are from time to time
party to legal actions arising in the ordinary
course of business. Liabilities have been recognised
in the financial statements for the best estimate
of the expenditure required to settle obligations
arising under such legal actions. As at 28 October
2017 and 29 April 2017, the aggregate amount
of such liabilities was not material. In addition,
certain of the claims intended to be covered
by insurance provisions are subject to or might
become subject to litigation against the Group.
21 RELATED PARTY TRANSACTIONS
Details of major related party transactions during the half-year
ended 28 October 2017 are provided below, except for those relating
to the remuneration of the Directors and management.
(i) Virgin Rail Group Holdings Limited - Non-Executive
Directors
Two of the Group's directors are non-executive
directors of the Group's joint venture, Virgin
Rail Group Holdings Limited. During the half-year
ended 28 October 2017, the Group earned fees
of GBP30,000 (half-year ended 29 October 2016:
GBP30,000) from Virgin Rail Group Holdings
Limited in this regard. As at 28 October 2017,
the Group had GBP30,000 (29 April 2017: GBP60,000)
receivable from Virgin Rail Group Holdings
Limited in respect of this. In addition, the
Group net purchased GBP0.3m (half-year ended
29 October 2016: GBP0.1m) from the group headed
by Virgin Rail Group Holdings Limited and had
immaterial amounts outstanding as at 28 October
2017 and 29 April 2017 in this respect.
(ii) West Coast Trains Limited
West Coast Trains Limited is a subsidiary of
Virgin Rail Group Holdings Limited (see above).
In the half-year ended 28 October 2017, East
Midlands Trains Limited (a subsidiary of the
Company) had purchases totalling GBP0.1m (half-year
ended 29 October 2016: GBP0.1m) from West Coast
Trains Limited. The outstanding amounts payable
as at 28 October 2017 and 29 April 2017 were
immaterial.
During the half-year ended 28 October 2017,
South West Trains Limited (a subsidiary of
the Group) sold services of GBP0.1m (half-year
ended 29 October 2016: GBP0.2m) to West Coast
Trains Limited.
(iii) Alexander Dennis Limited
Sir Brian Souter (Chairman) and Ann Gloag (Non-Executive
Director) collectively hold, via companies
that they control, 55.1% (29 April 2017: 55.1%)
of the shares and voting rights in Alexander
Dennis Limited. Noble Grossart Investments
Limited (of which, Sir Ewan Brown (Non-Executive
Director) is a director of its holding company)
controls a further 33.2% (29 April 2017: 33.2%)
of the shares and voting rights of Alexander
Dennis Limited. None of Sir Brian Souter, Ann
Gloag or Sir Ewan Brown is a director of Alexander
Dennis Limited nor do they have any involvement
in the management of Alexander Dennis Limited.
Furthermore, they do not participate in deciding
on and negotiating the terms and conditions
of transactions between the Group and Alexander
Dennis Limited.
For the half-year ended 28 October 2017, the
Group purchased GBP26.4m (half-year ended 29
October 2016: GBP52.6m) of vehicles from Alexander
Dennis Limited and GBP6.3m (half-year ended
29 October 2016: GBP4.9m) of spare parts and
other services. As at 28 October 2017, the
Group had GBP6.7m (29 April 2017: GBP0.5m)
payable to Alexander Dennis Limited, along
with outstanding orders of GBP31.9m (29 April
2017: GBP56.7m).
(iv) Pension Schemes
Details of contributions made to pension schemes
are contained in note 14.
(v) Scottish Citylink Coaches Limited
A non interest bearing loan of GBP1.7m (29
April 2017: GBP1.7m) was due to the Group's
joint venture, Scottish Citylink Coaches Limited,
as at 28 October 2017. The Group earned GBP9.1m
in the half-year ended 28 October 2017 in respect
of the operation of services subcontracted
by Scottish Citylink Coaches Limited (half-year
ended 29 October 2016: GBP9.9m). The Group
also collected revenue of GBP7.9m on behalf
of Scottish Citylink Coaches Limited in the
half-year ended 28 October 2017 (half-year
ended 29 October 2016: GBP9.5m). As at 28 October
2017, the Group had a net GBP0.4m receivable
(29 April 2017: GBP1.6m receivable) from Scottish
Citylink Coaches Limited, excluding the loan
referred to above.
(vi) Twin America LLC
In the year to 29 April 2017, the Group disposed
of its interest in Twin America LLC. In the
half-year ended 29 October 2016, Twin America
LLC sold travel of GBP1.4m for tour services
operated by the Group.
21 RELATED PARTY TRANSACTIONS (CONTINUED)
(vii) East Coast Main Line Company Limited
The Group owns 90% and Virgin Holdings Limited
owns 10% of the ordinary shares in Inter City
Railways Limited. East Coast Main Line Company
Limited is 100% owned by Inter City Railways
Limited and enters into various arm's length
transactions with other Group companies. In
the half-year ended 28 October 2017, other Group
companies earned GBP8.6m from East Coast Main
Line Company Limited in respect of the provision
of certain services including train maintenance
and rail replacement bus services (half-year
ended 29 October 2016: GBP8.8m). Other Group
companies had a net payable balance of GBP1.7m
to East Coast Main Line Company Limited as at
28 October 2017 (29 April 2017: GBP4.5m payable).
The ultimate parent company of the Group, Stagecoach
Group plc, had an outstanding receivable of
GBP105.7m as at 28 October 2017 in respect of
a loan to East Coast Main Line Company Limited
(29 April 2017: GBP57.5m). The interest receivable
on the loan for the half-year ended 28 October
2017 was GBP1.0m (half-year ended 29 October
2016: GBP0.7m) and the accrued interest outstanding
at 28 October 2017 was GBP2.5m (29 April 2017:
GBP1.5m). Related to that, the Group had an
outstanding payable for GBP10.6m as at 28 October
2017 in respect of a loan from Virgin Holdings
Limited (29 April 2017: GBP5.8m) and the accrued
interest outstanding at 28 October 2017 was
GBP0.2m (29 April 2017: GBP0.1m).
22 POST BALANCE SHEET EVENTS
Details of the interim dividend declared are given in note
6.
23 DEFINITIONS
(a) Alternative performance measures
The Group uses a number of alternative performance measures in
this document to help explain the financial performance and
financial position of the Group. More information on the definition
of these alternative performance measures and how they are
calculated is provided below. All of the alternative performance
measures explained below have been calculated consistently for the
half-year ended 28 October 2017 and for comparative amounts shown
in this document for prior periods.
Adjusted earnings per share
Adjusted earnings per share is calculated by dividing profit
attributable to equity holders of the parent, excluding
non-software intangible asset amortisation and exceptional items,
by the basic weighted average number of shares in issue in the
period.
For the half-year ended 28 October 2017 and the comparative
prior year period, the numerators for the calculations (i.e. the
adjusted profit) are shown clearly on the face of the consolidated
income statement in the columns headed "performance pre intangibles
(exc software) and exceptional items". The denominators for the
calculations (i.e. the weighted average number of shares in issue)
and further details of the calculations are shown in note 7 to the
condensed financial statements.
Like-for-like amounts
Like-for-like amounts are derived, on a constant currency basis,
by comparing the relevant year-to-date amount with the equivalent
prior year period for those businesses and individual operating
units that have been part of the Group throughout both periods.
Like-for-like revenue growth for the half-year ended 28 October
2017 is calculated by comparing the revenue for the current and
comparative periods, each adjusted as described above. The revenue
of each segment is shown in note 4(a) to the condensed financial
statements. The reconciliation to the adjusted revenue figures for
the purposes of calculating like-for-like revenue growth is shown
below:
Unaudited
-------------------------------------------------------------------
Half-year to 28 October 2017
Exclude effect Exclude Exclude effect
Reported of business expired rail of foreign Like-for-like
revenue closed franchise exchange revenue
UK Bus (regional
operations) GBPm 512.4 (0.1) - - 512.3
UK Bus (London) GBPm 128.4 - - - 128.4
North America US$m 333.9 - (0.6) 333.3
UK Rail GBPm 905.6 - (309.0) - 596.6
----------------------- ------ ---------------- --------------- --------------- --------------- ----------------
23 DEFINITIONS (CONTINUED)
Unaudited
-------------------------------------------------------------------
Half-year to 29 October 2016
Exclude effect Exclude
Reported Normalise for of business expired rail Like-for-like
revenue no. of days closed franchise revenue
UK Bus (regional
operations) GBPm 513.9 - (1.0) - 512.9
UK Bus (London) GBPm 131.5 - - - 131.5
North America US$m 338.4 (5.5) - - 332.9
UK Rail GBPm 1,092.3 - - (513.3) 579.0
----------------------- ------ ---------------- --------------- --------------- --------------- ----------------
Operating profit
Operating profit for the Group as a whole is profit before
non-operating exceptional items, finance costs, finance income,
taxation and non-controlling interests. Operating profit of Group
companies is operating profit on that basis, excluding the Group's
share of joint ventures' profit/loss after taxation. Both total
operating profit and operating profit from Group companies are
shown on the face of the consolidated income statement.
Operating profit (or loss) for a particular business unit or
division within the Group refers to profit (or loss) before net
finance income/charges, taxation, non-controlling interests,
non-software intangible asset amortisation, exceptional items and
restructuring costs. The operating profit (or loss) for each
segment is directly identifiable from the financial statements -
see note 4(b) to the condensed financial statements.
Operating margin
Operating margin for a particular business unit or division
within the Group means operating profit (or loss) as a percentage
of revenue. The revenue and operating profit (or loss) for each
segment is directly identifiable from the financial statements -
see notes 4(a) and 4(b) to the condensed financial statements. The
revenue, operating profit (or loss) and operating margin (being
operating profit (or loss) as a percentage of revenue) for each
segment are also shown on page 4 of this document.
Pre-exceptional EBITDA
Pre-exceptional EBITDA is earnings before interest, taxation,
depreciation, intangible asset amortisation and exceptional
items.
A reconciliation of pre-exceptional EBITDA for the half-year
ended 28 October 2017, and the comparative prior year period, to
the financial statements is shown on page 10 of this document.
EBITDA from Group companies before exceptional items
EBITDA from Group companies before exceptional items is earnings
before interest, taxation, depreciation, intangible asset
amortisation and exceptional items from Group companies (i.e. the
parent company and all of its subsidiaries consolidated but
excluding share of profit from joint ventures).
EBITDA from Group companies before exceptional items is directly
identifiable from the financial statements - see note 16 to the
condensed financial statements.
Net finance charges
Net finance charges are finance costs less finance income, each
as shown on the face of the consolidated income statement.
Gross debt
Gross debt is borrowings as reported on the consolidated balance
sheet, adjusted to exclude accrued interest and the effect of fair
value hedges on the carrying value of borrowings.
The components of gross debt are shown in note 18 to the
condensed financial statements, which also reconciles net debt to
the net borrowings (cash less borrowings) shown on the face of the
consolidated balance sheet.
Net debt
Net debt (or net funds) is the net of cash/cash equivalents and
gross debt (see above).
The components of net debt are shown in note 18 to the condensed
financial statements, which also reconciles net debt to the net
borrowings (cash less borrowings) shown on the face of the
consolidated financial statements.
Net capital expenditure
Net capital expenditure is the impact of purchases and sales of
property, plant and equipment. Its reconciliation to the
consolidated financial statements is explained on page 11 of this
document.
23 DEFINITIONS (CONTINUED)
(b) Other definition
The following other definition is also used in this
document:
Exceptional items
Exceptional items means items which individually or, if of a
similar type, in aggregate need to be disclosed by virtue of their
nature, size or incidence in order to allow a proper understanding
of the underlying financial performance of the Group.
Independent review report to Stagecoach Group plc
Introduction
We have been engaged by the Company to review the condensed
consolidated interim financial statements in the half-yearly
financial report for the half-year ended 28 October 2017 which
comprises:
-- The Consolidated Income Statement for the half-year ended 28 October 2017;
-- The Consolidated Statement of Comprehensive Income for the half-year ended 28 October 2017;
-- The Consolidated Balance Sheet as at 28 October 2017;
-- The Consolidated Statement of Changes in Equity for the half-year ended 28 October 2017;
-- The Consolidated Statement of Cash Flows for the half-year ended 28 October 2017;
-- The related explanatory notes.
We have read the other information contained in the half-yearly
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed consolidated interim financial statements.
This report is made solely to the Company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
Company, for our work, for this report, or for the conclusions we
have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union. The
condensed consolidated interim financial statements included in
this half-yearly financial report have been prepared in accordance
with International Accounting Standard 34, "Interim Financial
Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed consolidated interim financial statements in the
half-yearly financial report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed consolidated interim
financial statements in the half-yearly financial report for the
half-year ended 28 October 2017 is not prepared, in all material
respects, in accordance with International Accounting Standard 34
as adopted by the European Union and the Disclosure and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
Ernst & Young LLP
Glasgow
6 December 2017
Notes:
(a) The maintenance and integrity of the Stagecoach Group plc
website is the responsibility of the Directors; the work carried
out by the auditors does not involve consideration of these matters
and, accordingly, the auditors accept no responsibility for any
changes that may have occurred to the interim financial statements
since they were initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR FMMGZVVDGNZG
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