TIDMNEX
RNS Number : 3173G
National Express Group PLC
01 March 2018
1 March 2018
Full Year Results for the year ended 31 December 2017
Growth across every division of an internationally diversified
business
-- Strong performances in both international divisions, combined
with growth in the UK, delivering significant increases in Group
revenue, profit and cash and reduced gearing.
-- Good start to 2018, with Group revenues and profits up in
January, notwithstanding significant weather-related disruption in
North America.
-- Expect organic revenue growth in 2018 in every division and
encouraging start to current North American School Bus bid
season.
-- Enter 2018 with tailwinds including GBP20 million lower fuel
costs and a lower Group effective tax rate after recent US
reform.
-- Proposing a 10% increase in the final dividend and expecting
annual free cash flow to be broadly the same as 2017.
Financial highlights
Change at
constant
2017 2016 Change currency
---------------------------- --------- --------- ------ ---------
Continuing operations
---------------------------------------------------------------------
Group revenue GBP2.32bn GBP2.09bn +10.9% +6.1%
---------------------------- --------- --------- ------ ---------
Group normalised operating
profit GBP241.5m GBP217.5m +11.0% +6.0%
---------------------------- --------- --------- ------ ---------
Group normalised PBT GBP200.0m GBP168.6m +18.6% +11.7%
---------------------------- --------- --------- ------ ---------
Normalised basic EPS 29.1p 26.3p +10.6%
---------------------------- --------- --------- ------
Statutory
----------------------------------------------------------
Group statutory operating
profit GBP197.9m GBP183.7m +7.7%
---------------------------- --------- --------- ------
Group statutory PBT GBP156.4m GBP134.8m +16.0%
---------------------------- --------- --------- ------
Group PAT from continuing
operations GBP128.4m GBP114.9m +11.7%
---------------------------- --------- --------- ------
Statutory basic EPS 25.7p 23.0p +11.7%
---------------------------- --------- --------- ------
Free cash flow GBP146.4m GBP138.6m +5.6%
---------------------------- --------- --------- ------
Net debt GBP887.9m GBP878.0m +1.1%
---------------------------- --------- --------- ------
Full year proposed dividend 13.51p 12.28p +10.0%
---------------------------- --------- --------- ------
Our focus on operational excellence continues to deliver
results
-- North America grew revenue (10.1%) and normalised operating
profit (6.6%) in constant currency. This has been delivered through
a combination of organic growth, cost efficiencies and the benefit
of recent acquisitions.
-- ALSA has delivered revenue growth of 3.6% and a normalised
operating profit increase of 4.4%, both in constant currency.
-- Sophisticated pricing in our UK bus and coach businesses has
delivered strong second halves to the year, reversing their first
halves' declines. As a newly combined division, growth in both
revenue of 0.6% and normalised operating profit of 5.3% has been
achieved.
-- German Rail saw big increases in constant currency revenue
(20.4%) and normalised operating profit (EUR7.7m) in part due to a
recognition of revenues we were unable to include in the 2016
accounts.
We continue to deploy technology to drive efficiency, growth and
raise standards
-- Our increasingly sophisticated real-time Revenue Management
Systems (RMS) have helped drive both revenue and seat occupancy
rate increases in UK coach and ALSA.
-- We have seen further growth in our more cost-efficient
digital sale channels, which also allow more sophisticated and
targeted pricing.
-- We continue to roll-out Lytx DriveCam smart safety cameras on
our vehicles, improving safety performance, raising service
standards and delivering cost savings.
Growing through new business opportunities, including bolt-on
acquisitions
-- We made a further nine acquisitions in the year, with
targeted returns of at least 15% and have a strong pipeline of new
opportunities.
-- We continue to target new contract opportunities, in
particular: North American transit and charter markets, as well as
Morocco and German rail.
Dean Finch, National Express Group Chief Executive said:
"I am very pleased with our performance in 2017. Strong
performances in our North American and ALSA divisions, combined
with growth in our UK businesses, have delivered significant
increases in Group profit, revenue and cash generation. We carried
more passengers than we did last year reflecting the strong focus
in all our businesses on good service and value for money. Our
international diversity is an important asset, but it is
particularly pleasing that all divisions contributed strongly to
our Group performance. The second half performances of our UK
businesses were particularly impressive.
"We continue to invest in the future success of our business,
with our focus on operational excellence and the deployment of
technology to raise standards and drive efficiency. We will
continue to pursue new growth opportunities, including through
further acquisitions to add to the nine we made in 2017. I believe
our industry-leading position means we are well-placed for the
upcoming concession renewals in Spain. Although the business has
suffered weather disruption in North America at the start of 2018,
I expect the missed days to be recovered later this year and I am
so far pleased with the above inflation price increases in school
bus contract renewals.
"Our strategy is simple: we focus on providing well run, safe,
value for money services in and around some of the most affluent
cities and regions in the world. This sustainable strategy is
proving to be highly successful as the proposed 10% increase in the
final dividend demonstrates. I am looking forward with optimism to
the coming year, which I expect once again will deliver growth in
revenue, profits, cash flow and dividends."
Enquiries
National Express Group PLC
Chris Davies, Group Finance Director 0121 460 8655
Anthony Vigor, Director of Policy
and External Affairs 07767 425822
Louise Richardson, Head of Investor
Relations 07827 807766
Maitland
Neil Bennett and Rebecca Mitchell 020 7379 5151
There will be a presentation and webcast for investors and
analysts at 0930 on 1 March 2018. Details are available from Mads
Neumann at Maitland.
Normalised operating profit, margin and EPS data, as referenced
in this report, can be found on the face of the Group Income
Statement in the first column. Normalised profit is defined as
being statutory profit before intangible amortisation for acquired
businesses, US tax reform, profit for the year from discontinued
operations and consequent UK restructuring. The Board believes that
this gives a more comparable year-on-year indication of the
operating performance of the Group and allows the users of the
financial statements to understand management's key performance
measures.
Unless otherwise noted, all references to profit measures
throughout this review are for continuing operations for both the
current and prior reporting period. Further details of discontinued
operations can be found in note 6 to the financial statements.
Underlying revenue compares the current year with the prior year
on a consistent basis, after adjusting for the impact of
currency.
Constant currency basis compares current year's results with the
prior year's results translated at the current year's exchange
rates. The Board believes that this gives a better comparison of
the underlying performance of the Group.
Notes
Legal Entity Identifier: 213800A8IQEMY8PA5X34
Classification: 1.1 (with reference to DTR6 Annex 1R)
Dividend
If approved by shareholders at the AGM on 16 May 2018, the final
dividend of 9.25p per ordinary share will be paid on 21 May to
those shareholders registered on 27 April 2018.
Group Chief Executive's Review
Introduction
National Express has delivered perhaps its strongest ever set of
results in 2017, with good growth across all of our internationally
diversified portfolio. We have achieved particularly strong
performances in both North America and ALSA. Our performance in the
second half of 2017 in the UK has reversed the declines seen in the
first six months, to deliver annual growth in both our bus and
coach businesses.
I believe that we are seeing the benefit of our focus on
operational excellence, technology investment and disciplined
acquisition in these results. North America's combination of
customer focus, contract retention and successful acquisitions has
driven a record result. ALSA has also delivered a very strong
performance, propelled by its increasingly sophisticated real time
Revenue Management System (RMS). Both our UK bus and coach
businesses have used sophisticated pricing techniques and
efficiency programmes to drive second half performances that have
more than reversed their first half challenges.
These divisional performances are reflected in the strength of
our Group results. We again delivered a record statutory profit of
GBP134.3 million (up nearly 12% on last year's record). Free cash
flow also increased to GBP146.4 million (2016: GBP138.6m) and our
gearing reduced to 2.3 times EBITDA. With this strong performance
we are proposing a 10% increase in the final dividend. Our
consistent delivery is also reflected in the fact that over the
last five years we have generated over GBP750 million of free cash
flow and, including this year's proposed final dividend, returned
over GBP325 million to shareholders.
While I am pleased our international portfolio and strategic
focuses have driven another year of growth, I am firmly focused on
the future. We have significant opportunities still to capture to
drive organic growth as well as new avenues for further expansion
emerging.
With the Group out of UK rail we have removed both significant
financial commitments and political distraction and are able to
concentrate on growing our bus and coach presence in our existing,
interesting adjacent and targeted new, markets.
We have moved deliberately away from a business model where our
prosperity was significantly determined by the instabilities of UK
rail. Indeed, a key attraction of our internationally diversified
portfolio is that it has a significantly reduced exposure to any
one country's political or regulatory movement.
Our largest contract is worth less than four percent of our
Group earnings; we are less dependent on the success or failure of
a specific contract. So, rather than spending tens of millions of
pounds on rail bids where we may win, say, one in four competitions
- which were also won on increasingly eye-watering terms, with
vanishingly thin returns - we have decided to invest our
strengthening resources on improving the quality, safety and
efficiency of our operations as well as on attractive acquisition
opportunities. We have expanded in and into large, wealthy cities
and also launched successfully in three new markets (Germany,
Bahrain and Switzerland) in recent years. These three new market
entries have all been profitable in their first full year of
operations.
Our strategy therefore remains focused on three key pillars:
-- Operational excellence, including organic growth, tight cost
control, rigorous cash flow management and the disciplined
allocation of capital to maximise returns;
-- Investment in technology to drive customer-focused innovation
and excellence, improved safety performance and greater cost
efficiency; and,
-- Growth through targeted acquisitions in the world's most affluent cities and regions.
I will now set out how we are already delivering against each of
these pillars and outline some of the emerging opportunities for
further benefits to come.
Strategy
Operational Excellence
We aim to give our customers safe, punctual and frequent
transport services at excellent prices. During 2017, we gave our
customers lower fares and improved services. We also invested to
improve the safety of our services and their ease of use through
enhancements including the provision of better real time
information, mobile journey planning tools, contactless ticketing
and faster services with better end to end connections.
This relentless focus on improving our service to customers and
our fares, coupled with constantly improving the efficiency of our
operations, was rewarded with an increase in the number of
passengers we carried and with improving customer satisfaction.
Across the Group we have carried over 882 million passengers, up
1.2% on a continuing basis, on 2016. Our value for money scores
were already high and are rising, for example: UK coach's score was
over 87%, up 0.5% year-on-year; and, ALSA's 72% was up 6%
year-on-year.
Our businesses have again demonstrated their industry-leading
customer service credentials in the year. ALSA has achieved a
record customer satisfaction score of 7.4 out of 10 (up 4.8%
year-on-year) and also won the IZO 'Best Customer Experience for
the Transport Industry' award, the largest satisfaction survey
conducted in Spain. Our UK bus business achieved a record-equalling
customer satisfaction score of 87% in the independent Transport
Focus survey (also up 1% year-on-year). Our UK coach business'
customer satisfaction score was also up, three percent to 86%, with
the independent Temkin Group Net Promoter Score index ranking
National Express fourth in its select group of companies. North
America again delivered another year of customer satisfaction above
90%, coming in at 91.2%.
We are also seeing the benefits in the safety performances of
our business. Safety is our top priority and we established our
Driving Out Harm programme in 2010 with the deliberately ambitious
objective of removing all harm caused by our businesses. I am
delighted that since Driving Out Harm's inception, we have reduced
harm, as measured by our industry-leading Fatalities and Weighted
Injuries (FWI) index, by 74% per million miles operated.
We are also receiving significant external recognition for our
safety programmes and performance. Both UK bus and coach received
five-star British Safety Council scores, and their highest honour,
the Sword of Honour: bus' score of 97.4% was the highest in the
transport industry; coach also received a ROSPA Gold Award. ALSA
received two awards from MAPFE: the 'International Road Safety' and
'Best Initiative in the Prevention of Accidents' awards. And our
North American School Bus business has again received the highest
possible safety rating from the Federal Motor Carrier
Administration. Safety will remain our Group's - and my personal -
top priority as long as I am Chief Executive. I will say more about
our technology investments that are a crucial part of our plan for
further improvement in the next section.
We also continue to forge and leverage strong partnerships with
local authorities to tackle key operational and customer service
challenges. For example, through a joint bid with Transport for
West Midlands, our bus business has recently secured Department for
Transport investment for new bus lanes on the important Harborne to
Birmingham city centre route. We have introduced our
state-of-the-art Platinum buses to this route, with the aspiration
of repeating the significant increases in passengers we have seen
where previous schemes (such as Lode Lane in Solihull) have
combined journey time savings with new, premium vehicles. It is
precisely this strong partnership approach that we are looking to
further enhance by working closely together to make sure the 2022
Commonwealth Games in Birmingham are a success and deliver
significant transport improvements before the games begin.
Investment in technology
We are in a period of significant technological change. The
seemingly constant stream of innovations present many opportunities
for customer-focused businesses, such as ours. We are working on
innovative new transport technologies, with ALSA developing
autonomous, electric vehicle projects in Madrid, for example.
Beyond this, our task is to focus on the improved outcomes that can
be delivered through the right technologies, rather than chasing
every innovation that appears on the market. I believe new
technology presents a real opportunity to drive organic growth,
improve standards and realise cost efficiencies. We have therefore
focused our interest in three principal areas.
First, improving our service to customers. Our RMS is a
significant example of this. This allows us to provide real-time
pricing that becomes increasingly sophisticated through time as it
builds up a 'memory' of historic customer behaviour and applies it
to the current market. This has allowed our UK coach services to
respond to the reduction in travel demand after the terrorist
attacks in 2017, with a prompt, targeted lowering of ticket prices
to sustain passenger numbers. That our UK coach business carried
more passengers in 2017 than 2016, despite the significant
challenges it faced, is testament to the benefit of this real-time
and granular pricing. Overall, our UK coach services saw an
underlying revenue benefit of two percent from RMS, with seat
occupancy rates also up two percent - also demonstrating the
efficiency benefit of the technology. Our Spanish long haul
services which have RMS installed also saw revenue increase by 3.9%
and seat occupancy rates up over two percent.
In 2018, we expect RMS to underpin further organic growth and
deliver a one percent underlying benefit in both UK coach and ALSA.
We also continue to see significant growth in digital sales
channels across our businesses. It is by far the most significant
means of payment for UK coach, with 66% of revenue coming through
digital channels (up 3% year-on-year). ALSA saw significant growth
in digital channels in 2017 of over 9%, with more than 40% of all
its sales now through digital. On ALSA's long haul coach services,
44% of all sales are through digital channels. UK bus is also
experiencing a rapid rise in the number of passengers using digital
channels, with 10% of all passengers now travelling on m-tickets.
This growth in m-ticket use has almost entirely occurred during
2017 and this trend is accelerating in 2018.
We are investing to accelerate this shift. We have introduced
new contactless ticket machines to our UK buses, allowing a
wide-range of digital and contactless ticket types to be used.
These machines enable the daily capping of prices and allow us to
move decisively away from the use of exact cash fares to travel.
Our customers in Coventry started using these new machines in
January and they will be fully operational across the whole West
Midlands in April, making it the single largest contactless network
outside of London. We will be complementing this with the launch of
a much-improved app in March that will allow real-time tracking of
buses, amongst other customer-friendly features.
We have also invested to make UK coach's digital presence
easier, quicker and more responsive to use. An upgrade to our UK
coach website has significantly reduced the number of clicks
necessary (and therefore time taken) to purchase a ticket, with
online sales conversion rates increasing 3% during the year. We
have also piloted a successful seat reservation system which will
be rolled out network-wide in 2018. These innovations and
investments have: helped raise its rating in the App Store to 4.5
stars (up from 2.5 stars at the start of 2017); seen
nationalexpress.com significantly improve its Google search
optimisation scores so it is now the best ranked land transport
website in the UK; and, also been recognised with the Best
Technology Award at the UK Coach Awards for the customer
entertainment system, VUER.
Our North America business is also accelerating its use of
technology to make it more responsive to customer demands. During
2017 we launched new apps in transit and school bus, and through
our market-leading software company Ecolane, for para-transit
customers. The Ecolane app allows users to book and view trips in
real time and also proactively alerts them when their vehicle is on
its way. We have also - uniquely within the industry - installed an
online complaints management system in all of our school bus
depots.
German Rail and Bahrain continue to use market-leading
technologies to enhance their services to customers. In Germany,
our 'Scout' WhatsApp group, which provides up-to-date travel
information for customers, has the equivalent of around 15% of
daily passengers signed up. In Bahrain the local app has seen a 50%
increase in downloads during 2017, and the 'GO Card' smartcard is
used in between 45% and 50% of journeys.
The second area where technology is also playing a very
important role in our determination to continue to improve our
performance is safety. In 2017 we saw significant progress in our
roll-out of the industry-leading Lytx DriveCam smart safety cameras
that allow incidents to be recorded and analysed. This provides the
opportunity for both tailored driver training and fuller evidence
to be used in insurance claims. The cameras are now installed:
across all our UK fleet; in 6,351 vehicles in North America, with a
target of around another 10,000 by the end of the year; and, in 150
vehicles in ALSA, with a target of over 1,000 (around 45% of the
Spanish fleet) by the end of the year.
There are very encouraging results of reductions in 'event
severity', the number of incidents and insurance costs where the
smart safety cameras have been in place the longest. In North
America, for example, we started rolling Lytx DriveCam out in 2014
and it is now installed in 46 locations. The results so far show
that when comparing the costs of claims from preventable street
accidents for the 12 months prior to fitment against
post-installation, there has been a 30% reduction. So with the
significant further roll out programme in 2018, we expect to reap
further driving standards, safety and cost benefits over the coming
years.
Alongside the investment in the smart safety cameras we have
begun a comprehensive programme addressing speed management across
the Group. Technology is already playing a crucial role in
identifying issues and allowing targeted management interventions.
It will be augmented in 2018 with a comprehensive internal
communications campaign to reinforce the crucial importance of
speed management. We will have the near universal roll-out of this
technology by the end of 2018.
We are also investing in technology which improves our third
principle area: business and cost efficiency. Two North American
pilots are providing particularly interesting opportunities. First,
a new budget management system which provides to a very granular
level, detailed cost management for local management use but also
central review. Second, a business management system will
systematise good customer and operational practice across our
business supporting local management and also enhancing central
oversight. In a continent-wide business where customer
relationships are key, striking the right balance between local
flexibility and central control is a crucial challenge to running
an effective and efficient business.
These two emerging tools are providing encouraging early results
and exciting opportunities for the future. By using the business
management system we have been able to revise our fleet management
system and in so doing have identified over 750 buses we believe
can be more effectively deployed in 2018. This will have direct
benefits in terms of a significant reduction in new capital
requirements. This system is being extended to cover our
maintenance processes and we expect to again generate improved
efficiency in our systems generally and also allow for greater
claims on parts warranties, specifically.
Acquisitions and new opportunities
With our strong and sustainable cash flows, we have targeted new
acquisitions in recent years to deliver growth as well as add
quality new businesses to our portfolio. In 2017, we have continued
to do this in a disciplined manner, with targeted returns above
15%. We made a further nine acquisitions in the year, with North
America remaining the focus of our capital allocation, but ALSA
also adding six new businesses.
The acquisitions we made in recent years continue to perform
strongly and we have a strong pipeline of further opportunities
that we are actively pursuing in both North America and through
ALSA. Through the appointment of James Stamp as Group Commercial
Director - previously KPMG's UK Head of Transport and Global Head
of Aviation - and other hires in his team, we have strengthened our
Group support to the divisions in their acquisition and new market
identification.
Our ALSA acquisitions include three that build on our successful
Swiss ski market entry through AlpyBus and strengthen our presence
in the Geneva area. We are developing Geneva as an emerging growth
'hub' with expansion in to local school bus and discretionary
transport alongside the growing transfer business; AlpyBus itself
grew significantly in 2017. ALSA made another three acquisitions in
the year that add new bus operations in Madrid and Granada as well
as 'Maitours', which provides: staff transfers for a large local
airline and national bank headquarters; an urban transport contract
in Azuqueca, Guadalajara; and, school bus services in Madrid.
We made three acquisitions in North America during 2017, adding
over 800 vehicles across the school bus, para-transit, transit and
special education sectors. These acquisitions included Cook-DuPage
Transportation, providing entry in to the US's largest para-transit
market (Chicago). Para-transit is a fast-growing market and this
acquisition therefore strengthens our credentials in this important
sector.
By using our presence - helped by recent acquisitions - in large
city markets to operate services across, for example, school bus,
transit, para-transit, charter and employee shuttle, we can offer
competitive pricing and operational resilience as we benefit from
the synergies between the different operations. With a greater
local concentration we can also develop strong local relationships.
Across the Group, our best markets are often those where we
successfully combine service excellence, competitive pricing and
strong relationships. We believe, therefore, that developing and
expanding this approach provides an interesting opportunity for new
growth.
Our North American acquisitions have also brought new thinking
in to our business and we believe one area where we will benefit in
particular is in charter. Learning from the way a recently acquired
business had developed and grown its own local charter revenue, we
see the opportunity for significant nationwide growth. We estimate
the national charter market to be worth more than $1.5 billion a
year. In 2017, for example, National Express only captured around
three percent of this market, demonstrating the opportunity for
growth.
We have continued to target new growth opportunities through
selected bidding. ALSA has recently submitted a joint venture bid
to operate a bus contract in Rabat, to consolidate our position in
Morocco. We plan to submit further German rail bids this year to
augment our presence in North Rhine Westphalia.
I am very proud of our industry-leading work in the community.
We launched the National Express Foundation in 2012 and in that
time have supported over 14,200 youngsters in the West Midlands,
East London, South Essex and Medway. This support has helped local
community groups working with disadvantaged young people as well as
those who would otherwise not be able to access further or higher
education because of financial challenges, attend college or
university. This year National Express Group will provide
GBP300,000 to the foundation to further its good work.
Equally, our leadership on the Living Wage has been a source of
pride. Our UK bus operations have been a Living Wage Foundation
accredited employer for 2 years and the feedback from staff has
been very positive. Our UK coach business is currently securing the
accreditation; it has introduced the Living Wage Foundation living
wage to directly employed staff and will shortly roll this out to
contractors' employees.
I was very sad to hear of the untimely passing of John Devaney
in January this year. John served as National Express' Chairman
between April 2009 and January 2013. John also served as Executive
Chairman for a period during this time, including leading the
challenging rights issue that rescued the business. John brought a
wealth of experience to his time at National Express and I always
found him a helpful source of both support and challenge, essential
for any Chief Executive. Both personally, and on behalf of National
Express, I would like to offer my sincerest condolences to John's
family and friends.
Outlook
We expect to deliver growth in every business again in 2018, as
our strategy continues to generate strong shareholder value.
We will remain focused on operational excellence and technology
investment to deliver high quality services to customers at good
value prices. Our businesses are increasingly sophisticated, using
technology to get ever-closer to our customers and drive through
efficiencies in our operations, whether RMS, Lytx DriveCam or
contactless ticketing. We are confident therefore that we will
deliver organic growth in each business in 2018 and complement this
with a strong acquisition pipeline of opportunities with returns of
at least 15%, across ALSA and North America. We are actively
working on further acquisitions.
Our strong and sustainable cash flow - we believe our free cash
flow in 2018 will be broadly similar to 2017 - combined with GBP20
million of fuel cost savings and the benefit of acquisitions made
at the end of 2017, give us strong tailwinds. These have recently
been strengthened by recent US tax reform, which will see our Group
effective tax rate reduced to the low 20s, in percentage
points.
I look forward to 2018 with both excitement and optimism. I am
ably supported by a strong, dynamic management team that operate
National Express' many businesses with relentless focus and
efficiency. The technological tools now available to the business
give us the granularity and transparency to control and manage the
business in a way that I think could be transformational over time.
The strength and resilience of the business proved to be very
impressive in 2017 and will continue to underpin our future in the
years to come. Our strong cash generation coupled with our numerous
growth opportunities give me confidence as we once again look ahead
to deliver growth in revenue, profits and returns in the years
ahead.
North America
2017 2016
Year ended 31 December GBPm GBPm
---------------------------- ---------- -----------
Revenue GBP1,017.2 GBP877.2
Normalised operating profit GBP94.3 GBP84.0
Revenue US$1,311.1 US$1,191.3*
Normalised operating profit US$121.6 US$114.1*
Operating margin 9.3% 9.6%
---------------------------- ---------- -----------
* Revenue and normalised operating profit at constant currency,
adjusting for Canadian Dollar to US Dollar foreign exchange rate
movement in the year
Overview
North America is now a fundamentally different business to five
years ago. It is consistently delivering growth by embedding a
culture of customer service, efficiency and technological
investment across the business. As well as identifying and
integrating high-return businesses, it is opening new avenues of
growth. We see significant opportunty for growth in charter
markets, and are developing a new model in major cities where we
operate a number of different local services.
$m
------------------------------------------------------ ----
2016 normalised operating profit 114
Exchange movement (CAD to USD) -
------------------------------------------------------ ----
2016 normalised operating profit at constant currency 114
Net impact of revenue growth 15
Cost inflation (21)
Cost efficiencies 10
Weather (2)
Merger and acquisitions 13
M&A incentives (5)
Operating days (2)
------------------------------------------------------ ----
2017 normalised operating profit 122
------------------------------------------------------ ----
The terrible accident in Chattanooga in November 2016 is a
tragedy that still weighs very heavily on us all. We have sought to
learn any appropriate lessons and as described in this section,
have accelerated enhanced safety measures such as Lytx DriveCam and
speed monitoring. We continue to co-operate with all the relevant
authorities, including the on-going National Transportation Safety
Board investigation. We have donated to local community groups and
funded a new home being built through Habitat for Humanity. We
continue to provide support to the families affected by the
tragedy. Last year, we had our local school bus contract renewed
and received the Federal Motor Carrier Administration's highest
safety rating for our national operations.
Operational excellence
The benefits of our approach so far are reflected in another
record year of normalised operating profit (up 6.6% to $121.6
million) and a revenue increase of 10.1% to $1.31 billion (both in
constant currency). Our North American business has delivered
industry-leading margins for a number of years and has had to
absorb the on-going pressure from driver wages for some time now.
In 2017 driver wage inflation increased to five percent, leading to
a reduction in our normalised operating margin to 9.3% (2016:
9.6%).
We managed to contain this margin reduction through cost
discipline across the business, including $10 million of cost
savings, and our prudent bidding. We maintained strong retention
rates (96% of those school bus contracts we wanted to retain) and
achieved an average of three percent price increases on renewal or
retention, or above two percent across the whole portfolio. Our
focus on service and strong local relationships, with customer
satisfaction scores again above 90%, has helped deliver these
results.
This was augmented by our continued 'up or out' strategy, to
ensure that we focused on only retaining contracts that are
delivering acceptable returns. We relinquished contracts amounting
to 190 buses in 2017 - and also exited our first transit contract
for this reason as well in the year - and will maintain this
discipline in 2018. So far early bidding this year has been very
positive, with our most successful January for contract retention
and new business wins in four years, and above inflation price
increases secured.
Change in school bus numbers - 2017 Number
bid season of buses
-------------------------------------- ---------
Regretted losses (856)
Exited per 'up or out' strategy (190)
Acquisition 625
New business wins 797
Organic growth 15
Change in buses operated for 2016/17
school year 391
-------------------------------------- ---------
Deployment of technology
Technology investment is playing an increasingly important role
in our determination to drive efficiency, improve standards and
deliver growth.
Our investment in Lytx DriveCam smart safety cameras is
continuing apace, with 6,351 vehicles already fitted in North
America, and a target of around another 10,000 installed by the end
of the year. We are already recording a significant reduction in
the cost of preventable accidents after DriveCam has been
installed. Over 90% of our vehicles also have the necessary
technology installed to enable enhanced speed management to take
place. This is an increasingly important area of our safety
management, with a high profile internal campaign being launched
shortly.
We are also investing in new business management systems to
drive improved standards and efficiency. A new budget management
system and a business management system both allow very detailed
analysis for local management use but also central review.
Fundamentally, we are aspiring to use these new technologies and
systems to industrialise service excellence and cost efficiency
across the business, with enhanced central management oversight and
assurance married with good local management and customer
relationships. This will not only deliver more, happier customers
but also support a relentless pursuit of safety and service
improvement, organic growth and cost efficiency.
We started rolling Lytx DriveCam out in 2014 and it is now
installed in 46 locations. The results so far show that when
comparing the costs of claims from preventable street accidents for
the 12 months prior to fitment against post-installation, there has
been a 30% reduction. The business management system has already
been used to revise our fleet management systems and has helped
identify over 750 buses that can more effectively be deployed. This
alone will provide meaningful capital savings.
We continue to grow our Ecolane acquisition, a market leader in
on-demand scheduling technology. In 2017 Ecolane installed the
United States' first cloud-based state-wide para-transit software,
in Pennsylvania and won 24 new contracts in its specialist field in
2017. Ecolane is also increasingly becoming a key credential in our
other North American bids and we are exploring its broader
application across the Group.
Creating new opportunities
North America remains a very attractive market for further
acquisitions. The market is very fragmented - with over 1,000
private school bus businesses in the US alone - and we have a
strong pipeline of opportunities. There are very few active buyers
in the market and we continue to avoid becoming involved in an
auction for a business.
In line with this strategy we acquired another three businesses
in North America last year, all in the last six months. These were:
a significant para-transit operator in Chicago, the US' largest
para-transit market; a school bus and charter operator in
Cincinnati, Ohio; and a school bus business (specialising in
special education services) in Rochester, New York. Together they
amount to over 800 additional vehicles and we continue to target at
least 15% returns from these new acquisitions.
Our transit business grew 60% in 2017, with annualised revenues
now around $300 million. This is significant growth for a business
that has only been in place for five years. We won five new
contracts in 2017, at a win rate of 33%, and have already secured
our first contract win of 2018.
We see the opportunity for significant nationwide growth in the
charter market. We estimate there to be at least a $1.5 billion
annualised market available and National Express only captured
around 3% of it in 2017.
We have now developed credentials in a number of sectors within
North American transport. Drawing on the lessons of our most
successful markets, we are building our presence in the largest
cities. By running a mix of school bus, transit, para-transit,
charter and employee shuttle services, we have the opportunity to
more effectively offer competitive pricing and operational
excellence, alongside developing strong local relationships, and
generate new growth centres in North America. So while we will
continue to pursue acquisitions in North America, we also see
exciting growth opportunities in these emerging new models.
Whilst the bid season still has some months yet to run, I am
pleased that the early indications suggest that competitors are
being disciplined in their bidding. Our focus in 2018 will be to
recover the wage inflation we suffered in 2017 through a
combination of disciplined bidding, overhead reductions and further
cost efficiencies.
ALSA
2017 2016
Year ended 31 December GBPm GBPm
---------------------------- -------- --------
Revenue GBP663.5 GBP597.3
Normalised operating profit GBP94.9 GBP84.7
Revenue EUR757.4 EUR731.2
Normalised operating profit EUR108.3 EUR103.7
Operating margin 14.3% 14.2%
---------------------------- -------- --------
Overview
ALSA has delivered another strong performance, growing
normalised operating profit to EUR108.3 million (up 4.4% in
constant currency), increasing its margin and carrying more
passengers (313.8 million, up 2.1%) whilst at the same time
improving its customer satisfaction score (up 4.8%
year-on-year).
Technology investment has again underpinned these results, with
our sophisticated, real-time Revenue Management System (RMS)
particularly important. We will continue to invest in RMS as it
becomes more sophisticated through time, and complement this with
the roll out of Lytx DriveCam, speed monitoring and further
customer service improvements.
Concession renewal is a key challenge over the next few years,
but with our technology investment and industry-leading customer
service, the announced scoring methodology changes which place
greater emphasis on quality over price, means we are well-placed.
The main concession renewal process has been further delayed and we
now do not expect any profit impact in 2018 at all, and a minimal
impact in 2019. However, we anticipate the renewal process will
resume shortly, with some smaller contracts due for re-bid first
and a larger contract delayed at least until later this year. While
we expect margins will be compressed as new franchises begin, we
believe that ALSA is very well placed to compete effectively
through the concession renewal process and grow revenues and
earnings through the medium and long term.
ALSA is also an increasingly diversified business. There are
already clear benefits from the acquisitions made in 2016, with
AlpyBus in particular performing very well, and they are opening
new growth markets for us. We have augmented these opportunities
with further acquisitions in 2017 and again see a strong pipeline
of further opportunities to come.
EURm
--------------------------------- ----
2016 normalised operating profit 104
--------------------------------- ----
Growth 9
Acquisitions 2
Other cost inflation (13)
Cost efficiencies 6
2017 normalised operating profit 108
--------------------------------- ----
Operational excellence
Already widely recognised as the industry leader, ALSA
consolidated its reputation with a number of important awards to
complement its record customer satisfaction score. Amongst other
awards in 2017, ALSA received: IZO's 'Best Customer Experience for
the Transport Sector'; and, the 'International Safety Award' and
'Best Initiative in the Prevention of Accidents' from the MAPFRE
Foundation. ALSA's Spanish operations also received a five-star
accreditation from the European Foundation for Quality
Management.
Our excellence has also importantly been recognised in
concession renewals during 2017. ALSA won the Madrid-Guadalajara
contract on quality, not price: scoring 34 out of 35 on quality
while finishing third on price. This is both pleasing in itself and
significant given the transport ministry's announced changes to the
concession renewal methodology that emphasises quality over
price.
ALSA also reversed Morocco's revenue decline in the first half
of the year by - amongst other actions - offering innovative new
fares and products, to deliver growth in the year as a whole.
Deployment of technology
RMS is allowing ALSA to target its pricing to the market in a
much more granular and accurate manner. On the long haul routes
where it is operational we have seen revenues increase by 3.9%,
passenger numbers grow by 1.9% and average ticket prices increase
by 1.9%, in 2017. It has also helped drive efficiency, with
occupancy rates across ALSA up two percent. ALSA project that RMS
will also deliver incremental revenue growth of around one percent
in 2018.
ALSA also continues to grow significantly its proportion of
sales made through digital channels - they now account for over 40%
of sales (up over 9% year-on-year). Continuing to draw on best
practice across the Group, ALSA has invested further in targeted,
digital marketing and also launched a number of foreign language
apps to serve the in-bound tourist market.
ALSA is also using technology to drive up standards and has
started installing DriveCam smart safety cameras, aiming to have
over 1,000 (around 45% of the Spanish fleet) by the end of 2018.
Additionally, by the end of March, all their vehicles will have
speed monitoring technology installed, supporting a Group-wide
campaign to reduce its incidence and enhance driving standards and
training.
ALSA successfully piloted a new service - ALSACab - in Madrid
where a customer buying a bus ticket through digital channels could
also order a cab trip to complete their journey. The pilot has been
successful with the service already expanded to Santander and ALSA
looking to launch it in other cities soon.
Creating new opportunities
ALSA has also benefitted from the acquisitions made in 2016,
during 2017. AlpyBus is in particular performing very well and
three further acquisitions have been made to augment this and
extend our operations in the Geneva area. This has included both
new business acquired in the ski-transfer market and also in school
bus and discretionary travel, as we seek to develop a larger
presence in this market.
A further three acquisitions were made in 2017, adding new
services in Madrid and Granada to our expanding portfolio. Our
strategy remains the same: remain disciplined and target returns
above 15%. We saw a number of new contracts start in 2017: an up to
seven year bus and sightseeing train contract in Tenerife; new
urban bus services in Lorca, Murcia; and, bus rapid transit
services and sightseeing tours in Marrakech, Morocco.
ALSA has recently established a joint venture - which also
involves our UK coach business as well as Ouibus - to offer new
international services across selected European countries. They
have also submitted a bid with a local joint venture partner for a
400 bus contract in Rabat, to consolidate our presence in
Morocco.
We will continue to look to drive organic revenue growth in
2018, as RMS and our marketing become ever-more sophisticated.
There remain good opportunities to complement this through further
acquisitions and growth in Morocco and Geneva. While we do not
expect any impact on profits in 2018 and only a marginal effect in
2019 from the concession renewal process, it is very likely to put
pressure on margins as it progresses. However, through our
increasingly sophisticated pricing and market diversification, we
believe we are well placed to compete strongly for our own - and
other contract - renewals and can manage the pressure on margins to
grow revenue and earnings in the medium and long term.
UK
2017 2016*
Year ended 31 December GBPm GBPm
---------------------------- ----- -----
Revenue 561.5 557.9
Normalised operating profit 70.9 67.3
Operating margin 12.6% 12.1%
---------------------------- ----- -----
Overview
Following our exit from UK rail in 2017, we restructured
management across our remaining bus and coach businesses, combining
the senior functions to operate as a combined team. We therefore
present our UK operations together for the first time, as a new
combined division. We have also included the separate bus and coach
data in this transition year.
In the UK we employed sophisticated pricing, network efficiency
and disciplined cost management to reverse the declines we reported
at the 2017 half year results. In a challenging year, the division
grew normalised operating profits 5.3% in the year, with the
combined margin improving to 12.6% (2016: 12.1%).
These headline figures can obscure the detail of the
particularly impressive recovery in both our UK bus and coach
businesses as management action addressed the challenges they
faced:
-- Bus: West Midlands like-for-like commercial passengers
declined by 0.7% in the first half of the year; in the second half
of the year they bounced back to record 0.7% growth;
-- In coach, the year-on-year revenues for each quarter were:
1.9% up (Q1); 2.3% down (Q2); 0.8% down (Q3); and, 2.3% up (Q4) (Q1
and Q2 have been normalised for Easter).
During the year, we concluded an asset sale and leaseback
transaction, monetising the value in one of our coach depots and
booking a profit of GBP2.5m.
GBPm
--------------------------------- ----
2016 normalised operating profit 67
Growth/new routes 3
Property disposal 3
Terrorism (7)
Cost inflation (11)
Cost efficiencies 12
Fuel 4
2017 normalised operating profit 71
--------------------------------- ----
Operational excellence
Within their distinct markets, our bus and coach businesses have
focused on their services and pricing to attract new paying
passengers and drive growth - the essence of our operational
excellence strategy.
Bus
2017 2016*
Year ended 31 December GBPm GBPm
---------------------------- ----- -----
Revenue 275.3 276.8
Normalised operating profit 36.7 34.0
Operating margin 13.3% 12.3%
---------------------------- ----- -----
* Restated in relation to the exit from UK rail
Our first two West Midlands Low Fare Zones (LFZ) have
successfully driven bus passenger (4%) and revenue growth (1.5%).
In 2017 our LFZs covered around 28% of our commercial patronage and
continue to be successful in 2018. Our bus business has delivered
broadly flat revenue overall, while running 1.5% fewer commercial
miles. This translates to an improved revenue per mile in the West
Midlands of 1.6% and overall normalised operating margin growth of
100 basis points.
We have also worked with the Mayor of the West Midlands and
Transport for West Midlands to establish a credible plan to tackle
congestion and promote bus prioritisation. Demonstrating the
importance of strong relationships, we are delighted that our joint
bid to the Department for Transport for bus lanes on the key
Harborne to Birmingham city centre route was successful. We have
already started operating our state-of-the-art Platinum buses on
this route, with the prioritisation work due to start shortly. Our
experience shows that where we have introduced Platinum buses and
faster routes before, such as Lode Lane, we have seen double digit
patronage growth.
Coach
2017 2016
Year ended 31 December GBPm GBPm
---------------------------- ----- -----
Revenue 287.7 282.8
Normalised operating profit 34.2 33.3
Operating margin 11.9% 11.8%
---------------------------- ----- -----
Our coach operations used RMS to drive core revenues and
increase passenger numbers. Our sophisticated real-time pricing
generated an incremental two percent of revenue growth in 2017 and
helped increase core passenger numbers by nearly one percent. New
routes, especially to airports, generated an additional one percent
of revenue growth and when combined with the RMS benefits, helped
offset the revenue decline attributable to terrorism (-3%).
The coach business also focused on the efficiency of their
operation and removed 3 million route miles from the network.
Combined with the benefit of RMS already noted, this increased
coach occupancy rates by two percent and drove revenue per mile up
by 5.5% during 2017. We believe there is more opportunity to come,
with RMS likely to generate a further incremental revenue benefit
of one percent in 2018 and additional network optimisation
opportunities to pursue.
Both our UK bus and coach operations have received significant
external operational excellence recognition in 2017: both hold
five-star British Safety Council ratings, as well as the Sword of
Honour, the safety council's highest accolade; both recorded
improved customer satisfaction scores - 87% in bus, up 1%
year-on-year; 86% in coach, up 3% year-on-year; and, both hold
five-star European Foundation for Quality Management awards.
Deployment of technology
The importance of RMS to our coach operations has already been
covered; the importance of new technology in enabling us to
innovate further in our bus pricing is becoming increasingly
apparent. As we look to build on the success of the LFZs, we roll
out new ticketing products in bus. From near zero usage at the
start of the year, 10% of all journeys on our bus services are now
by m-ticket. We have introduced the latest contactless ticketing
machines to our bus fleet. Customers in Coventry are already using
and benefitting from them, with daily capping a key feature. These
machines will be fully operational across the West Midlands in
April, making it the single largest contactless network outside of
London. This crucial technology not only responds to a customer
demand, but also enables us to offer new, targeted pricing through
a range of payment methods rather than the exact change fare that
frustrates passengers.
Our coach website - nationalexpress.com - and customer app now
provide 66% of all sales revenue (up 3% year-on-year). We therefore
invested in 2017 to make them easier and quicker to use. The
benefit is seen in both the improved online conversion rates, up
1.5 percentage points to 18.5% and an App Store rating of 4.5 (up
from 2.5 at the start of the year).
We have also invested in technology to improve our safety
performance. All our vehicles in the UK are fitted with Lytx
DriveCam smart safety cameras. All of our UK fleet is fitted with
GPS technology allowing detailed speed management and monitoring.
Alongside enhanced management and training programmes, we
anticipate these technologies will deliver both improved driving
performance and cost savings through reduced accidents.
Creating new opportunities
With the investment in improved sales channels and on-board
ticketing, alongside a continued focus on efficiency and customer
service, we anticipate organic revenue growth in the UK during
2018.
During 2017 we set a new record for the most revenue raised and
passengers carried in a day on our coach services: Boxing Day saw
revenue exceed GBP1.3 million and around 75,000 passengers carried.
Our Glastonbury Festival services also secured their highest ever
revenues. We also won a contract to transport Amazon employees to
and from work and have signed new partnerships with, amongst
others, The Jockey Club and BoomTown Fair Festival.
Our acquisition of Clarkes has performed well, achieved the
targeted synergies and demonstrated a resilience to the impact of
the terrorist attacks in London. We anticipate this will continue
to grow our presence in Kent and Medway commuter services as well
as the in-bound tourist and discretionary travel markets. We have
also taken the opportunity to exit operations during 2017 - Hotel
Hoppa and the Eurolines network - that were underperforming. We
made a small profit on the sale of Hotel Hoppa and have entered a
new joint venture with ALSA and Ouibus to provide coach services
across selected European locations.
In 2018 we expect our sophisticated approach to pricing will
drive further revenue growth. We expect RMS to provide an
incremental revenue benefit of one percent in coach. And by moving
away from a traditional annual (largely cash) fare increase in UK
bus, to more agile and targeted pricing - including fare cuts - we
also expect to generate revenue growth. This is being complemented
in both bus and coach by investment in technology to make our
ticketing portals and services easier to access and also encourage
loyalty and frequency of use amongst existing customers. We are
optimistic about our prospects in the UK for 2018.
Germany
Our German rail services continue to perform strongly. 2017 saw
a significant increase in revenue (20.4%) and normalised operating
profit (EUR7.7 million) in part due to a recognition of revenues we
were unable to include in the 2016 accounts. They have been
profitable from their first full year of operation and we believe
will continue to deliver typical rail margins in the future.
Our Rhine Munster Express services grew passengers by nearly one
percent in 2017 despite significant track maintenance disruption.
We continue to focus on delivering improved customer service and
operational performance and launched 'NX Scout' during 2017. 'NX
Scout' is a WhatsApp group which provides up-to-date travel
information for customers, and has the equivalent of around 15% of
daily passengers already signed up.
Our mobilisation for our Rhine Ruhr Express contracts is well
advanced, ahead of the first services staring in June 2019. We will
continue to submit further bids this year as we look to build our
presence in Germany.
Group Finance Director's Review
I am delighted to be writing to you for the first time as Group
Finance Director of National Express. The strength of the financial
performance delivered in 2017, and outlined below, demonstrates the
Group's strong and stable financial position.
Presentation of results
To supplement IFRS reporting, we also present our results on a
normalised basis which shows the performance of the business before
intangible amortisation for acquired businesses, US tax reform,
profit for the year from discontinued operations and consequent UK
restructuring. The Board believes that this gives a more comparable
year-on-year indication of the operating performance of the Group
and allows the users of the financial statements to understand
management's key performance measures. Unless otherwise noted, all
references to profit measures throughout this review are for
continuing operations for both the current and prior reporting
period.
Changes to reporting segments
Following the strategic exit from UK rail operations in February
2017, the UK business was restructured with UK Bus and UK Coach
combined under a single UK management structure to drive cost
reductions and facilitate better, clearer decision-making. To align
external reporting with internal decision making structures, we are
presenting the UK as a single operating segment. We will continue
to disclose revenue separately for our UK bus and coach operations
on the Group website www.nationalexpressgroup.com, in order to
provide an understanding of drivers of performance in the UK
Division.
Statutory profit
The Group again delivered a record statutory profit after tax
amounting to GBP128.4 million (2016: GBP114.9m) driving basic
earnings per share of 25.7 pence (2016: 23.0p), an increase of
11.7%.
2017 2016*
GBPm GBPm
------------------------------------------------------ ------ ------
Normalised profit before tax 200.0 168.6
UK restructuring (5.6) -
Intangible amortisation on acquired businesses (38.0) (33.8)
------------------------------------------------------ ------ ------
Statutory profit before tax 156.4 134.8
Tax charge (28.0) (19.9)
------------------------------------------------------ ------ ------
Statutory profit after tax from continuing operations 128.4 114.9
------------------------------------------------------ ------ ------
Profit from discontinued operations 5.9 5.1
------------------------------------------------------ ------ ------
Statutory profit for the year 134.3 120.0
------------------------------------------------------ ------ ------
* Restated in relation to the exit from UK rail
The exit from our UK rail operations with the strategic disposal
of the Group's final UK rail franchise, c2c, in February 2017, led
to a reorganisation of the UK management structure and a one-off
cash inflow of GBP27.5 million. The aggregated impact of the UK
rail exit including the c2c disposal and the consequent UK
restructuring has been a small profit after tax, which has been
excluded from normalised results. The gross profit on the sale of
the c2c franchise and the discontinuation of other direct UK rail
costs (GBP5.9m after tax) is separated on the income statement from
the associated costs of restructuring the UK business (GBP5.6m).
Further detail can be found in note 6 to the financial
statements.
Revenue
GBPm
---------------------------------- -----
2016 revenue 2,094
Currency translation 94
---------------------------------- -----
2016 revenue at constant currency 2,188
Organic growth 54
Acquisitions 79
2017 revenue 2,321
---------------------------------- -----
Group revenue for the period was GBP2,321.2 million (2016:
GBP2,093.7m), an overall increase of 6.1% on a constant currency
basis (up 10.9% on a reported basis with GBP94 million of foreign
currency gains on translation). Revenue growth of GBP54 million
from our existing businesses, representing organic growth of 2.5%,
was boosted by a further GBP79 million from acquisitions,
principally in North America and Spain.
Revenue growth has been delivered across the business with
performance particularly strong in our overseas businesses. North
America delivered 10.1% growth in constant currency, with growth
being driven by the full year benefit of acquisitions completed in
2016, augmented by the three new bolt-on acquisitions made in the
second half of 2017. Organic growth benefitted from another
successful bidding season in which we achieved an average price
increase of 2.4% across the entire portfolio and 3.0% on those
contracts up for bid and renewal. ALSA also delivered a strong
performance, with revenue growth of 3.6% on a constant currency
basis. This growth was driven predominantly in Spain, most notably
on our Spanish long distance routes where our revenue management
system contributed 3.9% to revenue growth on our long haul
services. This was augmented by six bolt-on acquisitions made in
the year.
We delivered a robust performance in our UK business, despite
softer market conditions, with revenue growth of 0.6% and an
improving trajectory in the second half of the year. This is the
result of a number of decisive management actions taken in the
first half of the year which drove an improved performance in the
second half. Our UK bus operations grew revenue by 0.3% in the
second half following the successful introduction of a number of
low fare zones, reversing the declines seen in the first half of
the year. For the year as a whole, bus revenue declined 0.5% with
concessionary revenue down 1.3%, while commercial revenue was
broadly flat despite a 1.5% reduction in mileage. Our UK coach
operations delivered revenue growth of 1.8%, where our Revenue
Management System helped drive passenger and revenue growth to
overcome a reduced propensity to travel over the summer following a
number of terror events. We delivered particularly strong
performance in the final quarter of the year.
German Rail delivered revenue growth of 20.4% on a constant
currency basis and up 28.9% on a reported basis to GBP79.0m. This
growth was boosted by the clarification of our revenue position
which included latest passenger count data, allowing us to
recognise all revenue earned. The 2017 results therefore include an
element of catch up from prior years that we were not able to
recognise before this year.
Normalised profit
GBPm
------------------------------------------------------ ----
2016 normalised operating profit (as reported) 218
Currency translation 10
------------------------------------------------------ ----
2016 normalised operating profit at constant currency 228
Growth 24
Acquisitions 11
Terrorism impact (7)
Cost inflation (41)
Cost efficiency 25
Fuel price benefit 5
Other (3)
2017 normalised operating profit 242
------------------------------------------------------ ----
Group normalised operating profit increased by 6.0% to GBP241.5
million on a constant currency basis, up 11.0% on a reported basis
(2016: GBP217.5m). The Group delivered a strong performance from
its existing businesses with a GBP24 million contribution
representing growth of 10.5%. This was supplemented by a strong
contribution from the full year benefit of acquisitions completed
in 2016 together with the acquisitions made in the second half of
2017.
These results include cost inflation of GBP41 million, most
notably in the form of driver wage inflation in North America. We
have retained our disciplined approach to cost management and
through a programme of efficiency measures across the Group,
including the GBP10 million of efficiencies delivered through the
reorganisation of our UK business, we have generated total cost
efficiencies of GBP25 million.
We also saw a GBP5 million benefit from lower fuel prices
year-on-year as a direct result of our hedging policy.
We have benefitted from GBP10 million of currency translation
during the course of the year, driven by the weakening of Sterling
following the result of the 'Brexit' referendum. This benefit was
mostly delivered in the first half of the year with year-on-year
currency translation broadly flat in the second half as we cycle
post-Brexit Sterling levels in the prior year.
Segmental profit performance
2017 2016 2017 2016
Local currency Local currency GBPm GBPm
---------------------------------- --------------- --------------- ------- ------
ALSA 108.3 103.7 94.9 84.7
North America 121.6 114.1 94.3 84.0
UK 70.9 67.3
German Rail 5.9 (1.8) 5.2 (1.5)
Central functions (23.8) (17.0)
---------------------------------- --------------- --------------- ------- ------
Group normalised operating profit 241.5 217.5
---------------------------------- --------------- --------------- ------- ------
We have delivered profit growth across each of our businesses,
with the strongest performance in our North America business, where
normalised operating profit increased by 6.6% on a constant
currency basis and by 12.3% on a normalised reported basis. Organic
growth was boosted by acquisitions made in 2016 and 2017, with
those acquisitions made in 2016 achieving returns of at least
15%.
In ALSA, normalised operating profit increased by 4.4% on a
constant currency basis, driven by a combination of organic growth,
and the benefit of acquisitions made in 2016 and 2017, together
with cost efficiencies and lower fuel costs. Reported normalised
operating profit increased by 12.0%.
Our UK business delivered normalised operating profit growth of
5.3% with the flow through of management actions on revenue
supplemented by a programme of cost saving and efficiency
initiatives which delivered GBP10 million of savings.
Our German Rail operations delivered a strong normalised
operating profit contribution of EUR5.9 million (2016: loss
EUR1.8m), which was boosted as discussed above by the element of
catch up on revenue not previously recognised.
Central costs have increased by GBP6.8 million, reflecting
strategic investment in a number of Group-wide initiatives together
with a new International Development Team. Central costs also
include the amounts expensed for unsuccessful bidding in the Middle
East and Singapore.
Summary income statement
2017 2016*
GBPm GBPm
--------------------------------- --------- ---------
Revenue 2,321.2 2,093.7
Operating costs (2,079.7) (1,876.2)
--------------------------------- --------- ---------
Normalised operating profit 241.5 217.5
Share of results from associates (3.5) 1.1
Net finance costs (38.0) (50.0)
--------------------------------- --------- ---------
Normalised profit before tax 200.0 168.6
Tax (48.0) (31.4)
--------------------------------- --------- ---------
Normalised profit after tax 152.0 137.2
--------------------------------- --------- ---------
* Restated in relation to the exit from UK rail
Group normalised operating profit margin was stable at 10.4%
(2016: 10.4%) as margin growth in the UK and ALSA offset a small
decline in North America driven by significant inflationary
pressure on drivers' wages.
Net finance costs decreased by GBP12.0 million to GBP38.0
million (2016: GBP50.0m), reflecting lower interest costs following
the successful bond refinancing in November 2016 and continued
optimisation of the Group's funding base as noted below.
We recorded a loss of GBP3.5 million (2016: profit of GBP1.1m)
from associates, reflecting the write down of our investment in a
minority stake in Deutsche Touring Group, a German partner in
Eurolines, which entered into administration in the early part of
this year.
Normalised profit before tax of GBP200.0 million grew 11.7% on a
constant currency basis, up 18.6% on a reported basis (2016:
GBP168.6 million).
The normalised tax charge from continuing operations was GBP48.0
million (2016: GBP31.4m), a normalised effective tax rate of 24.0%
(2016: 18.6%). The increase in the normalised effective tax rate is
largely the result of mix of profits, with a greater proportion of
profits coming from the US where federal corporate income tax rates
have been higher relative to the UK and Spain. This was also
accompanied by changes in BEPS legislation relating to corporate
tax interest deductibility.
On 22 December 2017, the US Tax Cuts and Jobs Act was signed
into law representing the most significant change to the US tax
system in the last 30 years, reducing US federal corporate income
tax from 35% to 21% from 2018. This resulted in a GBP7.5 million
net tax credit on the revaluation of deferred tax liabilities.
Looking forward, we anticipate that the Group's effective
normalised tax rate will be in the low 20s percentage range,
assuming no further reform in any of our major markets.
Normalised basic earnings per share were 29.1 pence (2016:
26.3p), an increase of 10.6%.
Return on Capital Employed (ROCE)
ROCE is a key performance measure for the Group, guiding how we
deploy capital resources and as such is a key component of
executive incentives. ROCE is 11.9% (2016: 11.9%), demonstrating
our disciplined approach to capital allocation and balance sheet
management.
Reconciliation of ROCE
2017
GBPm
--------------------------------------------------------------- -------
Group statutory operating profit 197.9
--------------------------------------------------------------- -------
Intangible amortisation for acquired businesses 38.0
UK restructuring costs 5.6
--------------------------------------------------------------- -------
Return - Normalised Group operating profit 241.5
Average net assets 1,146.0
Remove: Average net debt 883.0
Remove: Average derivatives, excluding amounts within net debt 2.6
Foreign exchange adjustment (10.4)
Average capital employed 2,021.2
Return on capital employed 11.9%
--------------------------------------------------------------- -------
Cash management
2017 2016*
Free cash flow GBPm GBPm
-------------------------------------------- ------- -------
Continuing normalised operating profit 241.5 217.5
Trading profit from discontinued operations - 6.4
-------------------------------------------- ------- -------
241.5 223.9
Depreciation and other non-cash items 135.5 120.7
-------------------------------------------- ------- -------
EBITDA 377.0 344.6
Net maintenance capital expenditure (165.2) (134.7)
Working capital movement 4.8 (3.1)
Pension contributions above normal charge (5.0) (5.5)
-------------------------------------------- ------- -------
Operating cash flow 211.6 201.3
Payments to associates and minorities - (1.5)
Net interest paid (50.6) (47.6)
Tax paid (14.6) (13.6)
-------------------------------------------- ------- -------
Free cash flow 146.4 138.6
-------------------------------------------- ------- -------
* Restated in relation to the exit from UK rail
Our strong and sustainable cash flows support a capital
investment programme that maintains fleet age at acceptable levels.
Our current target is to invest around 1.1 to 1.2 times
depreciation in net maintenance capital expenditure.
Free cash flow improved by GBP7.8 million to GBP146.4 million
(2016: GBP138.6m) driven by the growth in EBITDA which was offset
by net maintenance capital expenditure, GBP30.5 million higher than
the prior year. The majority of the maintenance capital investment
has been in fleet replacement predominantly in ALSA and North
America. Continued focus and discipline in the management of
working capital resulted in an inflow of GBP4.8 million (2016:
outflow GBP3.1m). This constitutes a strong 61% free cash flow
conversion creating a solid platform for investing in growth and
paying dividends.
Reconciliation of free cash flow to net cash flow from operating
activities
2017
GBPm
---------------------------------------------------------------- ------
Free cash flow 146.4
Add: Operating cash flows from discontinued operations (note 6) (14.8)
Add: Cash outflows from exceptional items in prior years (2.5)
Remove: Net maintenance capital expenditure 165.2
Remove: Movements in arrangement fees (note 11) 1.2
Net cash flow from operating activities 295.5
---------------------------------------------------------------- ------
Net funds flow
2017 2016
GBPm GBPm
---------------------------------------- ------- -------
Free cash flow 146.4 138.6
Net growth capital expenditure (13.2) (27.0)
Net inflow from discontinued operations 27.5 -
Acquisitions (101.5) (88.8)
Dividends (64.7) (58.9)
Other, including foreign exchange (4.4) (96.4)
---------------------------------------- ------- -------
Net funds flow (9.9) (132.5)
---------------------------------------- ------- -------
Net debt (887.9) (878.0)
---------------------------------------- ------- -------
Growth capital expenditure during the period of GBP13.2 million
included investment in digital and e-commerce initiatives in the
UK; capital expenditure on fleet upgrades in newly acquired
businesses; and new contracts won in North America; and costs
associated with the mobilisation of our RRX rail contract in
Germany.
Cash inflow from discontinued operations of GBP27.5 million
relates to the exit of the UK rail business and is broken out
below.
Net inflow from discontinued operations
GBPm
-------------------------------------------- ------
Proceeds from disposal 71.8
Cash in the business (14.9)
Outflow relating to costs of disposal (14.1)
-------------------------------------------- ------
Net cash inflow from c2c disposal 42.8
Outflow relating to discontinued operations (15.3)
Net cash inflow 27.5
-------------------------------------------- ------
We have continued our strategy of making selective bolt-on
acquisitions where the returns and strategic fit justify the
investment, and we completed nine such investments in the year,
three in our North American division and six in ALSA. Total cash
consideration for these acquisitions, net of cash and debt held,
was GBP52.5 million with a further GBP75.0 million of consideration
deferred into future years. GBP49.0 million of deferred
consideration relating to acquisitions completed in prior years was
settled in 2017, resulting in a total net funds outflow in the
period of GBP101.5 million. We continue to deliver strong
performances from our acquisitions, delivering returns on invested
capital of at least 15% in the first full year after
acquisition.
Net funds flow for the period was an outflow of GBP9.9 million
(2016: outflow GBP132.5m), resulting in year-end net debt of
GBP887.9 million.
Dividend
National Express's dividend policy, agreed in 2015, is for
dividend cover at normalised earnings per share of at least two
times. In considering the level of the dividend to declare, the
Board considers three principal factors, in addition to level of
cover:
1. Available distributable reserves
2. In-year free cash flow generation
3. Company gearing and indebtedness
With GBP290 million of distributable reserves, strong free cash
flow of GBP146.4 million and gearing reduced to 2.3 times, and in
line with the interim dividend, the Board has proposed a 10%
increase in the final dividend to 9.25p, to give a full year
dividend of 13.51p at 2.2 times cover.
Treasury management
The Group maintains a prudent approach to its financing and is
committed to an investment grade credit rating. The Board's policy
targets a level of debt that allows for disciplined investment and
ample headroom on its covenants, with net debt to EBITDA at a ratio
of 2.0x to 2.5x in the medium-term. The Group continues to maintain
investment grade ratings with both Moody's and Fitch.
The Group's key accounting debt ratios at 31 December 2017 were
as follows:
-- Gearing ratio: 2.3 times EBITDA (31 Dec 2016: 2.5x; bank covenant not to exceed 3.5x);
-- Interest cover ratio: EBITDA 10.2 times interest (31 Dec
2016: 6.6x; bank covenant not to be less than 3.5x).
To underpin delivery of its strategy, the Group has a strong
funding platform across a diversified range of funding sources with
a balanced maturity profile. Through 2017, the Group has put in
place a number of new facilities, further diversifying the sources
of funding and providing additional liquidity until 2020 in a low
interest rate environment. In July 2017, the Group entered into a
$130 million term loan maturing in April 2018. In November 2017,
the Group issued a EUR250 million 2.5 year Floating Rate Note
('FRN') maturing in 2020 with a coupon of Euribor +40bps,
representing the Group's debut issuance in the Eurobond market. In
December 2017, the Group entered into an additional unsecured
revolving credit facility ('RCF') totalling GBP32 million. This new
facility is on the same terms as the Group's GBP512 million of bank
facilities and matures in November 2021.
At 31 December 2017, the Group had GBP1.7 billion of debt
capital and committed facilities, comprised of the $130 million
term loan maturing in April 2018, a GBP225 million Sterling bond
and the EUR250 million FRN both maturing in 2020; a private
placement of EUR78 million maturing in 2021; GBP544 million of RCF
maturing in 2021; a GBP400 million Sterling bond maturing in 2023
and GBP173 million of finance leases. At 31 December 2017, the
Group's RCF was undrawn with GBP858 million in cash and undrawn
committed facilities available.
At 31 December 2017, the Group had foreign currency debt and
swaps held as net investment hedges. These help mitigate volatility
in foreign currency profit translation with corresponding movements
in the Sterling value of debt. These corresponded to 1.9x EBITDA
earned in the US, held in US Dollars, and 2.4x EBITDA earned in
Spain and Germany, held in Euros. The Group hedges its exposure to
interest rate movements to maintain an appropriate balance between
fixed and floating interest rates on borrowings. It has therefore
entered into a series of swaps that have the effect of converting
fixed rate debt to floating rate debt. The net effect of these
transactions was that, at 31 December 2017, the proportion of Group
debt at floating rates was 43% (2016: 24%).
Group tax policy
We pursue a cautious approach to our tax affairs which are
aligned to business transactions and economic activity. We have a
constructive and good working relationship with the various tax
authorities in the countries in which we operate and there are no
outstanding tax audits in any of our main three markets of the UK,
Spain and the United States of America.
The Group's tax strategy has been published on the Group website
in accordance with recent UK tax law.
Pensions
The Group's principal defined benefit pension schemes are all in
the UK. The combined deficit under IAS 19 at 31 December 2017 was
GBP94.5 million (Dec 2016: GBP88.2m).
During the year, the principal UK Rail defined benefit scheme
was transferred to Trenitalia as part of the disposal of NXET
Trains Limited on 10 February 2017. In addition, with effect from
30 June 2017, the assets and liabilities of the Tayside Transport
Fund (a defined benefit pension scheme for certain past and present
employees of Tayside Public Transport Company Limited, a subsidiary
of the UK Bus division) were transferred into the Tayside Pension
Fund (a fund administered by Dundee City Council).
The two principal plans are the UK Group scheme, which closed to
new accrual in 2011, and the West Midlands Bus plan, which remains
open to accrual for existing active members only. We have completed
the triennial valuation of both schemes and expect that the overall
level of deficit contributions will remain at around GBP10 million
in total per annum until 2020.
The IAS 19 valuations for the principal schemes at 31 December
2017 were as follows:
-- WM Bus: GBP133.8million deficit (2016: GBP128.5m deficit);
-- UK Group scheme: GBP43.2 million surplus (2016: GBP44.5m surplus)
Fuel costs
The Group consumes approximately 225 million litres of fuel each
year for which it is at risk (i.e. there is no direct fuel
escalator in the contract or concession price). Fuel costs
represented a total cost to the Group in 2017 of GBP178 million
(approximately 8% of related revenue), at an average fuel component
cost (i.e. excluding delivery and taxes) of 44.4 pence per litre.
The Group has adopted a forward fuel buying policy in order to
secure a degree of certainty in its planning. This policy is to
hedge fully a minimum of 15 months addressable consumption against
movements in price of the underlying commodity, together with at
least 50% of the next nine months' consumption in the contract
businesses. Currently, the Group is 100% fixed for 2018 at an
average price of 34.3 pence per litre, 75% fixed for 2019 at an
average price of 33.8p and 42% fixed for 2020 at 32.9p. Based on
this, year-on-year fuel costs for the same mileage will be around
GBP20 million less in 2018.
Where businesses have freedom to price services, this hedge
provides sufficient protection to recover fuel price increases
through the fare basket. In contract businesses, where price
escalation may be restricted by a formula independent of fuel
costs, extended cover, may be taken, subject to availability and
liquidity in the hedging market.
Impact of new accounting standards - IFRS 9, 15 and 16
Three new accounting standards are to be introduced, two of
which came into effect on 1 January 2018 (IFRS 9 and IFRS 15), with
the third, IFRS 16, coming into effect on 1 January 2019.
IFRS 9 'Financial Instruments' addresses accounting for our
financial assets and financial liabilities. As part of this, it
introduces new rules for hedge accounting and a new impairment
model for financial assets. The Group has reviewed its existing
financial assets and liabilities accounting and expects to make a
number of transitional adjustments, including an increase in the
impairment provision for trade and other receivables.
IFRS 15 'Revenue from Contracts with Customers' is based on the
principle that revenue is recognised when control of a good or
service transfers to a customer. We have reviewed a sample of
contracts from across the Group and do not envisage a material
impact from the adoption of this standard.
IFRS 16 'Leases' will primarily effect the accounting for the
Group's operating leases and will result in an increase in the
number of leases being recognised on the balance sheet as the
distinction between operating and finance leases is removed. The
new standard will be adopted on 1 January 2019. An assessment of
the impact is on-going and we will formally conclude on this in
2018.
See the financial statements in the Annual Report 2017 for
further detail of the new accounting standards.
Summary
The strong financial performance delivered in 2017, coupled with
the additional financing facilities and continued prudent balance
sheet management, further augment the Group's robust financial
position. We remain confident about the prospects for the year
ahead.
Chris Davies
Group Finance Director
1 March 2018
Group wide risks
Principal risks and uncertainties
The Group's principal risks and uncertainties summarised here
are in line with those that are detailed in the 2017 Annual Report
and Accounts:
-- Economic conditions: parts of the business may be adversely
affected by economic conditions as revenues in many of the
businesses are historically correlated to GDP and employment. The
terms on which Brexit is negotiated may affect the Group's ability
to bid competitively within the EU.
-- Political and regulatory changes: changes in political and
regulatory environments can impact a regulated transport business
through the operation of concessions; safety procedures; equipment
specifications; employment requirements; environmental procedures
and other operating issues.
-- Increased competition from other modes of transport and/or in
terms of increased price competition.
-- Terrorism: the longer term impact of terrorism attacks
potentially softening demand for travel.
-- Safety: a major safety-related incident could impact the
Group both financially and reputationally.
-- HR risks: poor labour relations leading to operational
disruption, reputational damage and increased costs.
-- Changing customer expectations: failure to adapt to changing
customer expectations especially in the digital environment could
affect customer satisfaction and the business's ability to
capitalise on valuable customer data and commercial
initiatives.
-- Cyber security: loss of confidential data causing damage to
brand reputation; major IT failure causing severe or sustained
disruption to the business.
-- Credit risk: the impact of customer payment default in the
North America and ALSA divisions.
-- Hazard risk: asset loss due to natural disaster which may
also impact Group revenue and profits.
-- Foreign exchange risk: the impact of foreign exchange or
interest rate movements on profits and cash and counterparty
risk.
-- Fuel cost: changes in economic and political climate could
drive changes in cost for the Group.
-- Pension costs: scheme funding could rise should market conditions materially worsen.
Cautionary statement
This Review is intended to focus on matters which are relevant
to the interests of shareholders in the Company. The purpose of the
Review is to assist shareholders in assessing the strategies
adopted and performance delivered by the Company and the potential
for those strategies to succeed. It should not be relied upon by
any other party or for any other purpose.
Forward looking statements are made in good faith, based on a
number of assumptions concerning future events and information
available to Directors at the time of their approval of this
report. These forward looking statements should be treated with
caution due to the inherent uncertainties underlying any such
forward looking information. The user of these accounts should not
rely unduly on these forward looking statements, which are not a
guarantee of performance and which are subject to a number of
uncertainties and other events, many of which are outside of the
Company's control and could cause actual events to differ
materially from those in these statements. No guarantee can be
given of future results, levels of activity, performance or
achievements.
Chris Davies
Group Finance Director
1 March 2018
Definitions
National Express Group PLC ("National Express" or the "Group"),
a leading international public transport group, operates bus, coach
and rail services in the UK, Continental Europe, North Africa,
North America and the Middle East.
Normalised operating profit, margin and EPS data, as referenced
in this report, can be found on the face of the Group Income
Statement in the first column. Normalised profit is defined as
being statutory profit before intangible amortisation for acquired
businesses, US tax reform, profit for the year from discontinued
operations and consequent UK restructuring. The Board believes that
this gives a more comparable year-on-year indication of the
operating performance of the Group and allows the users of the
financial statements to understand management's key performance
measures.
Unless otherwise noted, all references to profit measures
throughout this review are for continuing operations for both the
current and prior reporting period. Further details of discontinued
operations can be found in note 6 to the financial statements.
Underlying revenue compares the current year with the prior year
on a consistent basis, after adjusting for the impact of
currency.
Constant currency basis compares current year's results with the
prior year's results translated at the current year's exchange
rates. The Board believes that this gives a better comparison of
the underlying performance of the Group.
Operating margin or 'margin' is the ratio of normalised
operating profit to revenue.
'Return on capital employed' ('ROCE') is normalised operating
profit divided by average capital employed. Capital employed is net
assets excluding net debt and derivative financial instruments, and
for the purposes of this calculation is translated using average
exchange rates.
'Return on assets' ('ROA') is the same calculation as ROCE, with
the additional exclusion of intangible assets from capital
employed.
Return on invested capital (ROIC) is normalised operating profit
divided by invested capital. For acquisitions, invested capital is
total consideration for the acquired business.
Operating cash flow is the cash flow equivalent of normalised
operating profit.
Free cash flow is the cash flow equivalent of normalised profit
after tax.
EBITDA is "Earnings Before Interest, Tax, Depreciation and
Amortisation." It is calculated by taking normalised operating
profit and adding depreciation, fixed asset grant amortisation,
normalised profit on disposal of non-current assets and share-based
payments.
Net debt is defined as cash and cash equivalents (cash overnight
deposits and other short-term deposits), and other debt
receivables, offset by borrowings (loan notes, bank loans and
finance lease obligations) and other debt payable (excluding
accrued interest).
Gearing ratio is the ratio of net debt to EBITDA over the last
12 months, including any pre-acquisition EBITDA generated in that
12 month period by businesses acquired by the Group during the
period. For the purposes of this calculation, net assets are
translated using average exchange rates.
Earnings per share (EPS) is the profit for the year attributable
to shareholders, divided by the weighted average number of shares
in issue, excluding those held in the Employee Benefit Trust which
are treated as cancelled.
In the UK, commercial revenue is that from fare-paying bus
customers and excludes concessions and contracted services. Core
express revenue is that from the scheduled National Express coach
network.
Safety Incidents measure those for which the Group is
responsible and is based on the Fatalities and Weighted Injuries
Index used in the UK Rail industry.
Group Income Statement
For the year ended 31 December 2017
Separately
Normalised disclosed
Separately
disclosed result items Total
Normalised
result items Total (restated) (restated) (restated)
2017 2017 2017 2016 2016 2016
Note GBPm GBPm GBPm GBPm GBPm GBPm
========================= ==== ========== ========== ========= ============ ============ ============
Continuing operations
Revenue 3 2,321.2 - 2,321.2 2,093.7 - 2,093.7
========== ========== ========= ============ ============ ============
Operating costs
before UK restructuring (2,079.7) (38.0) (2,117.7) (1,876.2) (33.8) (1,910.0)
UK restructuring 3 - (5.6) (5.6) - - -
========== ========== ========= ============ ============ ============
Operating costs (2,079.7) (43.6) (2,123.3) (1,876.2) (33.8) (1,910.0)
========================= ==== ========== ========== ========= ============ ============ ============
Group operating
profit 3 241.5 (43.6) 197.9 217.5 (33.8) 183.7
Share of results
from associates
and joint ventures (3.5) - (3.5) 1.1 - 1.1
Finance income 4 10.0 - 10.0 7.5 - 7.5
Finance costs 4 (48.0) - (48.0) (57.5) - (57.5)
========================= ==== ========== ========== ========= ============ ============ ============
Profit before
tax 200.0 (43.6) 156.4 168.6 (33.8) 134.8
Tax charge 5 (48.0) 20.0 (28.0) (31.4) 11.5 (19.9)
========================= ==== ========== ========== ========= ============ ============ ============
Profit after tax
for the year
from continuing
operations 152.0 (23.6) 128.4 137.2 (22.3) 114.9
Profit for the
year from discontinued
operations 6 - 5.9 5.9 - 5.1 5.1
========================= ==== ========== ========== ========= ============ ============ ============
Profit for the
year 152.0 (17.7) 134.3 137.2 (17.2) 120.0
========== ========== ========= ============ ============ ============
Profit attributable
to equity shareholders 148.7 (17.7) 131.0 134.4 (17.2) 117.2
Profit attributable
to non-controlling
interests 3.3 - 3.3 2.8 - 2.8
========== ========== ========= ============ ============ ============
152.0 (17.7) 134.3 137.2 (17.2) 120.0
========================= ==== ========== ========== ========= ============ ============ ============
Earnings per share: 8
- basic earnings
per share 25.7p 23.0p
- diluted earnings
per share 25.5p 22.8p
Normalised earnings
per share:
- basic earnings
per share 29.1p 26.3p
- diluted earnings
per share 29.0p 26.2p
Earnings per share
from continuing
operations:
- basic earnings
per share 24.5p 22.0p
- diluted earnings
per share 24.4p 21.8p
========================= ==== ========== ========== ========= ============ ============ ============
Separately disclosed items includes intangible amortisation for
acquired businesses, US tax reform, profit for the year from
discontinued operations and consequent UK restructuring. The Board
believes that this gives a more comparable year-on-year indication
of the operating performance of the Group and allows the users of
the financial statements to understand management's key performance
measures. Further details relating to separately disclosed items
are provided in note 3.
Prior year comparatives have been restated in relation to the
exit from UK rail, as described in note 6.
Group Statement of Comprehensive Income
For the year ended 31 December 2017
2017 2016
GBPm GBPm
============================================== ====== ======
Profit for the year 134.3 120.0
Items that will not be reclassified
subsequently to profit or loss:
Actuarial losses on defined benefit
pension plans (14.0) (45.6)
Deferred tax on actuarial losses 2.1 8.0
=============================================== ====== ======
(11.9) (37.6)
============================================== ====== ======
Items that may be reclassified subsequently
to profit or loss:
Exchange differences on retranslation
of foreign operations (net of hedging) (15.2) 189.6
Exchange differences on retranslation
of non-controlling interests 0.7 2.5
(Loss)/gain on cash flow hedges (18.5) 38.8
Less: reclassification adjustments
for gains or losses included in profit 23.6 43.7
Tax on exchange differences 1.0 14.3
Deferred tax on cash flow hedges (3.4) (12.2)
=============================================== ====== ======
(11.8) 276.7
============================================== ====== ======
Comprehensive (expenditure)/income
for the year (23.7) 239.1
=============================================== ====== ======
Total comprehensive income for the
year 110.6 359.1
=============================================== ====== ======
Total comprehensive income attributable
to:
====== ======
Equity shareholders 106.6 353.8
Non-controlling interests 4.0 5.3
====== ======
110.6 359.1
============================================== ====== ======
Group Balance Sheet
At 31 December 2017
2017 2016
Note GBPm GBPm
===================================== ==== ========= =========
Non-current assets
Intangible assets 1,633.4 1,548.6
Property, plant and equipment 968.2 983.6
Available-for-sale investments 8.1 7.8
Derivative financial instruments 13.4 31.1
Deferred tax assets 41.4 48.3
Investments accounted for using the
equity method 11.3 13.7
Trade and other receivables 20.1 18.2
Defined benefit pension assets 10 43.2 44.5
===================================== ==== ========= =========
2,739.1 2,695.8
===================================== ==== ========= =========
Current assets
Inventories 24.9 25.0
Trade and other receivables 356.3 302.7
Derivative financial instruments 15.4 13.0
Current tax assets 1.5 2.3
Cash and cash equivalents 314.3 318.1
Assets classified as held for sale - 78.0
===================================== ==== ========= =========
712.4 739.1
===================================== ==== ========= =========
Total assets 3,451.5 3,434.9
===================================== ==== ========= =========
Non-current liabilities
Borrowings (1,058.0) (816.7)
Derivative financial instruments (1.3) (4.2)
Deferred tax liability (60.0) (82.9)
Other non-current liabilities (36.0) (21.2)
Defined benefit pension liabilities 10 (137.7) (132.7)
Provisions (65.4) (57.2)
===================================== ==== ========= =========
(1,358.4) (1,114.9)
===================================== ==== ========= =========
Current liabilities
Trade and other payables (672.4) (600.7)
Borrowings (167.4) (443.8)
Derivative financial instruments (9.8) (26.0)
Current tax liabilities (11.6) (6.7)
Provisions (65.5) (57.2)
Liabilities directly associated with
assets classified as held for sale - (60.1)
===================================== ==== ========= =========
(926.7) (1,194.5)
===================================== ==== ========= =========
Total liabilities (2,285.1) (2,309.4)
===================================== ==== ========= =========
Net assets 1,166.4 1,125.5
===================================== ==== ========= =========
Shareholders' equity
Called-up share capital 25.6 25.6
Share premium account 532.7 532.7
Capital redemption reserve 0.2 0.2
Own shares (6.0) (7.8)
Other reserves 181.6 194.1
Retained earnings 410.9 362.0
===================================== ==== ========= =========
Total shareholders' equity 1,145.0 1,106.8
Non-controlling interests in equity 21.4 18.7
===================================== ==== ========= =========
Total equity 1,166.4 1,125.5
===================================== ==== ========= =========
D Finch C Davies
Group Chief Executive Group Finance Director
1 March 2018
Group Statement of Changes in Equity
For the year ended 31 December 2017
Share Capital
Share premium redemption Own Other Retained Non-controlling Total
capital account reserve shares reserves earnings Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=================== ======== ======== =========== ======= ========= ========= ======= =============== =======
At 1 January
2017 25.6 532.7 0.2 (7.8) 194.1 362.0 1,106.8 18.7 1,125.5
======== ======== =========== ======= ========= ========= ======= =============== =======
Profit for
the year - - - - - 131.0 131.0 3.3 134.3
Comprehensive
income for
the year - - - - (12.5) (11.9) (24.4) 0.7 (23.7)
======== ======== =========== ======= ========= ========= ======= =============== =======
Total comprehensive
income - - - - (12.5) 119.1 106.6 4.0 110.6
Shares purchased - - - (8.1) - - (8.1) - (8.1)
Own shares
released to
satisfy employee
share schemes - - - 9.9 - (9.9) - - -
Share-based
payments - - - - - 6.3 6.3 - 6.3
Tax on share-based
payments - - - - - (1.6) (1.6) - (1.6)
Dividends - - - - - (64.7) (64.7) - (64.7)
Dividends
paid to
non-controlling
interests - - - - - - - (1.1) (1.1)
Other movements
with
non-controlling
interests - - - - - (0.3) (0.3) (0.2) (0.5)
=================== ======== ======== =========== ======= ========= ========= ======= =============== =======
At 31 December
2017 25.6 532.7 0.2 (6.0) 181.6 410.9 1,145.0 21.4 1,166.4
=================== ======== ======== =========== ======= ========= ========= ======= =============== =======
Share Capital
Share premium redemption Own Other Retained Non-controlling Total
capital account reserve shares reserves earnings Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=================== ======== ======== =========== ======= ========= ========= ======= =============== =======
At 1 January
2016 25.6 532.7 0.2 (7.8) (80.1) 345.6 816.2 14.9 831.1
======== ======== =========== ======= ========= ========= ======= =============== =======
Profit for
the year - - - - - 117.2 117.2 2.8 120.0
Comprehensive
income for
the year - - - - 274.2 (37.6) 236.6 2.5 239.1
======== ======== =========== ======= ========= ========= ======= =============== =======
Total comprehensive
income - - - - 274.2 79.6 353.8 5.3 359.1
Shares purchased - - - (7.7) - - (7.7) - (7.7)
Own shares
released to
satisfy employee
share schemes - - - 7.7 - (7.7) - - -
Share-based
payments - - - - - 4.1 4.1 - 4.1
Tax on share-based
payments - - - - - (0.7) (0.7) - (0.7)
Dividends - - - - - (58.9) (58.9) - (58.9)
Dividends paid
to non-controlling
interests - - - - - - - (0.9) (0.9)
Payments for
equity in
non-controlling
interests - - - - - - - (0.6) (0.6)
=================== ======== ======== =========== ======= ========= ========= ======= =============== =======
At 31 December
2016 25.6 532.7 0.2 (7.8) 194.1 362.0 1,106.8 18.7 1,125.5
=================== ======== ======== =========== ======= ========= ========= ======= =============== =======
Group Statement of Cash Flows
For the year ended 31 December 2017
2016
2017 (restated)
Note GBPm GBPm
========================================== ==== ======= ===========
Cash generated from operations 11 359.0 330.2
Tax paid (14.1) (13.6)
Interest paid (62.5) (51.8)
Interest received 13.1 7.1
========================================== ==== ======= ===========
Net cash flow from operating activities 295.5 271.9
========================================== ==== ======= ===========
Cash flows from investing activities
Payments to acquire businesses, net
of cash acquired 9 (48.2) (58.9)
Deferred consideration for businesses
acquired 9 (49.0) (24.4)
Proceeds from the disposal of business,
net of cash disposed 9 42.8 0.9
Purchase of property, plant and equipment (124.6) (130.3)
Proceeds from disposal of property,
plant and equipment 17.9 14.4
Payments to acquire intangible assets (11.9) (6.3)
Payments to acquire investments - (0.2)
Net cash flow from investing activities (173.0) (204.8)
========================================== ==== ======= ===========
Cash flows from financing activities
Finance lease principal payments (34.4) (37.9)
Increase in borrowings 328.1 393.3
Repayment of borrowings (356.7) (50.3)
Receipts/(payments) for the maturity
of foreign currency contracts 5.7 (46.3)
Purchase of own shares (8.1) (7.7)
Dividends paid to non-controlling
interests (1.1) (0.9)
Payments for equity in non-controlling
interests (0.2) (0.6)
Dividends paid to shareholders of
the Company 7 (64.7) (58.9)
========================================== ==== ======= ===========
Net cash flow from financing activities (131.4) 190.7
========================================== ==== ======= ===========
(Decrease)/increase in cash and cash
equivalents (8.9) 257.8
========================================== ==== ======= ===========
Opening cash and cash equivalents 324.4 60.4
(Decrease)/increase in cash and cash
equivalents (8.9) 257.8
Foreign exchange (1.2) 6.2
========================================== ==== ======= ===========
Closing cash and cash equivalents 314.3 324.4
========================================== ==== ======= ===========
Cash and cash equivalents in continuing
operations 314.3 318.1
Cash and cash equivalents classified
in assets held for sale - 6.3
========================================== ==== ======= ===========
Closing cash and cash equivalents 314.3 324.4
========================================== ==== ======= ===========
Certain prior year comparatives have been recategorised
following an amendment to IAS 7 'Changes in liabilities arising
from financing activities'.
Notes to the Consolidated Accounts
For the year ended 31 December 2017
1 Basis of preparation
The results are based on the Group Financial Statements, which
have been prepared in accordance with International Financial
Reporting Standards ('IFRS') and interpretations of the
International Financial Reporting Interpretations Committee
('IFRIC') as adopted by the European Union ('EU'), and with those
parts of the Companies Act 2006 applicable to companies reporting
under IFRS.
These results have been prepared on the going concern basis
under the historical cost convention, except for the recognition of
derivative financial instruments and available-for-sale
investments, and using the accounting policies set out in the
Group's 2017 statutory financial statements. The accounting
policies adopted are consistent with those of the previous
financial year and there have been no changes in accounting
standards during the year that have had a material effect on the
Group.
Prior year figures in the Group Income Statement and related
notes have been restated to present separately the amounts relating
to operations classified as discontinued in the current year. For
further details see note 6.
2 Exchange rates
The most significant exchange rates to UK Sterling for the Group
are as follows:
2017 2017 2016 2016
Closing Average Closing Average
rate rate rate rate
================ ======== ======== ======== ========
US Dollar 1.35 1.29 1.23 1.36
Canadian Dollar 1.70 1.67 1.66 1.80
Euro 1.13 1.14 1.17 1.22
================ ======== ======== ======== ========
If the results for the year to 31 December 2016 had been
retranslated at the average exchange rates for the year to 31
December 2017, North America would have achieved normalised
operating profit of GBP88.5m on revenue of GBP924.3m, compared with
normalised operating profit of GBP84.0m on revenue of GBP877.2m as
reported, and ALSA would have achieved a normalised operating
profit of GBP90.8m on revenue of GBP640.5m, compared with
normalised operating profit of GBP84.7m on revenue of GBP597.3m as
reported.
3 Segmental analysis
The Group's reportable segments have been determined based on
reports issued to and reviewed by the Group Executive Team, and are
organised in accordance with the geographical regions in which they
operate and nature of services that they provide. Management
consider the Group Executive Committee to be the chief
decision-making body for deciding how to allocate resources and for
assessing operating performance.
The principal services from which each reportable segment
derives its revenues are as follows:
UK - Bus and coach operations
German Rail - Rail operations
ALSA (predominantly Spain and Morocco) - Bus and coach
operations
North America (USA and Canada) - School bus and transit bus
operations
Further details on the activities of each segment are described
in the Strategic Report.
The UK division includes operations previously reported as two
separate segments: UK Bus and UK Coach. Following the
discontinuation of UK Rail and the resulting simplified UK
footprint, the Group has reorganised its UK management structure
such that these businesses now report as one operating segment.
Prior period segmental information has been restated
accordingly.
Revenue is analysed by reportable segment as follows:
Segment
revenue
Segment
revenue (restated)
2017 2016
GBPm GBPm
================= ======== ============
UK revenue 561.5 557.9
================= ======== ============
German Rail 79.0 61.3
ALSA 663.5 597.3
North America 1,017.2 877.2
================= ======== ============
Overseas revenue 1,759.7 1,535.8
================= ======== ============
Total revenue 2,321.2 2,093.7
================= ======== ============
There are no material inter-segment sales between reportable
segments.
No single external customer amounts to 10% or more of the total
revenue.
Due to the nature of the Group's businesses, the origin and
destination of revenue is the same.
Revenue in ALSA comprises GBP610.5m (2016: GBP553.8m) in Spain,
GBP45.7m (2016: GBP43.1m) in Morocco and GBP7.3m (2016: GBP0.4m) in
Switzerland.
Revenue in North America comprises GBP934.1m (2016: GBP798.7m)
in the USA and GBP83.1m (2016: GBP78.5m) in Canada.
Revenue in the UK comprises GBP273.8m (2016: GBP275.1m) of
external revenue from bus operations and GBP287.7m (2016:
GBP282.8m) from coach operations. Previously, these amounts were
reported as the UK Bus and UK Coach segments respectively.
Operating profit is analysed by reportable segment as
follows:
Normalised Segment
Normalised operating
operating Segment profit result
Intangible Intangible
amortisation amortisation
for acquired for acquired
profit businesses UK restructuring result (restated) businesses (restated)
2017 2017 2017 2017 2016 2016 2016
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
==================== ========== ============= ================ ======== ============ ============= ============
UK 70.9 (0.7) (5.6) 64.6 67.3 (0.4) 66.9
German Rail 5.2 (1.0) - 4.2 (1.5) (0.8) (2.3)
ALSA 94.9 (10.0) - 84.9 84.7 (9.5) 75.2
North America 94.3 (26.3) - 68.0 84.0 (23.0) 61.0
Central functions (23.8) - - (23.8) (17.0) (0.1) (17.1)
==================== ========== ============= ================ ======== ============ ============= ============
Operating profit
from
continuing
operations 241.5 (38.0) (5.6) 197.9 217.5 (33.8) 183.7
Share of results
from associates
and joint ventures (3.5) - - (3.5) 1.1 - 1.1
Net finance costs (38.0) - - (38.0) (50.0) - (50.0)
==================== ========== ============= ================ ======== ============ ============= ============
Profit before
tax 200.0 (38.0) (5.6) 156.4 168.6 (33.8) 134.8
Tax charge (28.0) (19.9)
==================== ========== ============= ================ ======== ============ ============= ============
Profit after tax
for the year
from continuing
operations 128.4 114.9
Profit for the
year from
discontinued
operations 5.9 5.1
==================== ========== ============= ================ ======== ============ ============= ============
Profit for the
year 134.3 120.0
==================== ========== ============= ================ ======== ============ ============= ============
As disclosed in note 6, in February 2017 the Group disposed of
its final UK rail franchise, c2c, as part of a broader UK strategic
review in which the Group discontinued all activity in UK Rail.
Consequent on this exit and given the simplified UK footprint, the
Group also reorganised its UK management structure to reduce costs
and facilitate better, clearer decision-making. The cost in the
year relating to this restructuring was GBP5.6m.
Depreciation is analysed by reportable segment as follows:
2017 2016
GBPm GBPm
================== ===== =====
UK 21.8 20.0
German Rail 0.2 0.1
ALSA 39.3 35.6
North America 73.6 65.9
Central functions 0.7 0.8
================== ===== =====
Total 135.6 122.4
================== ===== =====
Included in note 11 for 2016 is depreciation of GBP0.6m in
relation to discontinued UK rail operations.
4 Net finance costs
2017 2016
GBPm GBPm
============================================= ====== ======
Bond and bank interest payable (38.0) (50.3)
Finance lease interest payable (3.9) (3.5)
Other interest payable (2.7) (1.5)
Unwind of provision discounting (1.3) (1.2)
Net interest cost on defined benefit pension
obligations (2.1) (1.0)
============================================= ====== ======
Finance costs (48.0) (57.5)
Other financial income 10.0 7.5
============================================= ====== ======
Net finance costs (38.0) (50.0)
============================================= ====== ======
Of which, from financial instruments:
Financial liabilities measured at amortised
cost (40.7) (51.1)
Derivatives 9.3 7.5
Loan fee amortisation (1.2) (2.7)
============================================= ====== ======
5 Taxation
(a) Analysis of taxation charge in the year
2017 2016
GBPm GBPm
================================================== ====== ======
Current taxation:
UK corporation tax 5.0 0.5
Overseas taxation 14.5 9.9
================================================== ====== ======
Current income tax charge 19.5 10.4
Adjustments with respect to prior years
- UK and overseas 1.2 (6.9)
================================================== ====== ======
Total current income tax charge 20.7 3.5
================================================== ====== ======
Deferred taxation:
Origination and reversal of temporary differences
- continuing operations 19.5 19.6
Adjustments with respect to prior years
- UK and overseas (13.7) (1.9)
================================================== ====== ======
Deferred tax charge 5.8 17.7
================================================== ====== ======
Total tax charge for the Group 26.5 21.2
================================================== ====== ======
Amounts relating to discontinued items 1.5 (1.3)
================================================== ====== ======
Total tax charge for the continuing Group 28.0 19.9
================================================== ====== ======
The tax charge for the continuing Group
is disclosed as follows:
Tax charge on profit before separately
disclosed items 48.0 31.4
Tax credit on separately disclosed items (20.0) (11.5)
================================================== ====== ======
28.0 19.9
================================================== ====== ======
The tax credit on separately disclosed items of GBP20.0m
comprises a GBP11.4m tax credit on intangibles, a GBP7.5m net
credit in relation to a US tax rate reduction and a tax credit of
GBP1.1m for other items.
The tax relief relating to intangible amortisation is determined
by reference to the tax rates in the jurisdiction to which the
intangible amortisation relates. The effective tax rate relating to
intangible amortisation is significantly higher than the UK tax
rate of 19.25% due to the weighting of intangibles in jurisdictions
with higher tax rates than the UK, specifically the US (40%) and
Spain (25%).
(b) Tax on items recognised in Other Comprehensive Income or
Equity
2017 2016
GBPm GBPm
============================================ ===== ======
Current taxation:
Credit on exchange movements offset in
reserves 1.0 -
============================================ ===== ======
1.0 -
============================================ ===== ======
Deferred taxation:
Deferred tax credit on actuarial losses 2.1 8.0
Deferred tax charge on cash flow hedges (3.4) (12.2)
Deferred tax credit on foreign exchange
differences - 14.3
Deferred tax charge on share-based payments (1.6) (0.7)
============================================ ===== ======
(2.9) 9.4
============================================ ===== ======
6 Discontinued operations and assets and liabilities held for
sale
As previously announced, on 10 February 2017 the Group disposed
of its only UK rail franchise, National Express Essex Thameside
'c2c', to Trenitalia and as a result has recognised all UK rail
operating activity as discontinued.
On 22 March 2017, Transport for West Midlands announced its
intention to take over the running of the Midland Metro tram
operations at the end of the current franchise. We have therefore
also shown this as discontinued.
Prior period figures have been restated to present separately
the above operations as discontinued.
Details of the discontinued operations are as follows:
(restated)
2017 2016
GBPm GBPm
========================================= ====== ==========
Revenue 29.7 185.5
Operating costs (31.2) (179.1)
========================================= ====== ==========
Trading (loss)/profit before tax (1.5) 6.4
One-off costs relating to discontinued
operations (7.0) -
Gross profit on disposal of discontinued
operation 12.9 -
----------------------------------------- ------ ----------
Net profit from discontinued operations
before tax 4.4 6.4
Attributable income tax credit/(expense) 1.5 (1.3)
========================================= ====== ==========
Net profit from discontinued operations
attributable to equity shareholders 5.9 5.1
========================================= ====== ==========
Details of assets and liabilities held for sale in the prior
year, which relate to c2c, are disclosed in the Financial
Statements for the year ended 31 December 2016.
The net cash flows incurred by the discontinued operations
during the year are as follows. These cash flows are included
within the Group Statement of Cash Flows:
(restated)
2017 2016
GBPm GBPm
======================================= ====== ==========
Cash outflow from operating activities (14.8) (10.4)
Cash outflow from investing activities (0.5) (6.7)
Net cash outflow (15.3) (17.1)
======================================= ====== ==========
7 Dividends paid and proposed
2017 2016
GBPm GBPm
============================================ ===== =====
Declared and paid during the year
Ordinary final dividend for 2016 paid of
8.41p per share (2015: 7.645p) 42.9 39.1
Ordinary interim dividend for 2017 of 4.26p
per share (2016: 3.87p) 21.8 19.8
============================================ ===== =====
64.7 58.9
============================================ ===== =====
Proposed for approval (not recognised as
a liability at 31 December)
Ordinary final dividend for 2017 of 9.25p
per share (2016: 8.41p per share) 47.3 42.9
============================================ ===== =====
8 Earnings per share
(restated)
2017 2016
=========================================== ===== ==========
Basic earnings per share 25.7p 23.0p
Normalised basic earnings per share 29.1p 26.3p
Basic earnings per share from continuing
operations 24.5p 22.0p
Diluted earnings per share 25.5p 22.8p
Normalised diluted earnings per share 29.0p 26.2p
Diluted earnings per share from continuing
operations 24.4p 21.8p
=========================================== ===== ==========
Basic EPS is calculated by dividing the earnings attributable to
equity shareholders of GBP131.0m (2016: GBP117.2m) by the weighted
average number of ordinary shares in issue during the year,
excluding those held by the Group's Employee Benefit Trust which
are treated as cancelled.
Basic EPS for continuing operations is calculated by dividing
the earnings from the continuing Group attributable to equity
shareholders of GBP125.1m (2016: GBP112.1m). Basic and diluted EPS
in the year for discontinued operations was 1.2p (2016: 1.0p) and
1.1p (2016: 1.0p) respectively.
For diluted EPS, the weighted average number of ordinary shares
in issue during the year is adjusted to include the weighted
average number of ordinary shares that would be issued on the
conversion of all the dilutive potential ordinary shares into
ordinary shares.
The reconciliation of basic and diluted weighted average number
of ordinary shares is as follows:
2017 2016
=========================================== =========== ===========
Basic weighted average shares 510,407,865 510,255,410
Adjustment for dilutive potential ordinary
shares 2,336,951 2,859,856
=========================================== =========== ===========
Diluted weighted average shares 512,744,816 513,115,266
=========================================== =========== ===========
The normalised basic and normalised diluted earnings per share
have been calculated in addition to the basic and diluted earnings
per share required by IAS 33 since, in the opinion of the
Directors, they reflect the underlying performance of the business'
operations more appropriately.
The reconciliation of the earnings and earnings per share to
their normalised equivalent is as follows:
2017 2016
====== ===== ======= ====== ===== =======
Basic Diluted Basic Diluted
EPS EPS EPS EPS
GBPm p p GBPm p p
=============================== ====== ===== ======= ====== ===== =======
Profit attributable
to equity shareholders 131.0 25.7 25.5 117.2 23.0 22.8
Intangible amortisation
for acquired businesses 38.0 7.4 7.4 33.8 6.6 6.6
UK restructuring costs 5.6 1.1 1.1 - - -
Separately disclosed
tax (20.0) (3.9) (3.9) (11.5) (2.3) (2.2)
Profit for the year
from discontinued operations (5.9) (1.2) (1.1) (5.1) (1.0) (1.0)
=============================== ====== ===== ======= ====== ===== =======
Normalised profit attributable
to equity shareholders 148.7 29.1 29.0 134.4 26.3 26.2
=============================== ====== ===== ======= ====== ===== =======
9 Business combinations
(a) Acquisitions - North America
During the year, the North America division acquired 100%
control of three businesses in the US, none of which are material
individually:
-- Cook-DuPage Transport Co. Inc - paratransit bus services in Chicago, Illinois
-- Queen City Transportation - school bus and charter bus services in Cincinnati, Ohio
-- Monroe School Transportation Inc - school bus and paratransit services in Rochester, NY
In aggregate, the provisional fair values of the assets and
liabilities acquired, along with adjustments to the fair values of
prior year acquisitions, were as follows:
GBPm
============================================= ======
Intangible assets 53.7
Property, plant and equipment 5.6
Trade and other receivables 4.7
Cash and cash equivalents 4.2
Trade and other payables (11.4)
Provisions (21.6)
Deferred tax assets 23.8
Net assets acquired 59.0
Goodwill 51.5
============================================= ======
Total consideration 110.5
============================================= ======
Represented by:
============================================= ======
Cash consideration 31.5
Payments for cash acquired in the businesses 4.2
Deferred consideration 74.8
============================================= ======
110.5
============================================= ======
Trade and other receivables had a fair value and a gross
contractual value of GBP4.7m. The best estimate at acquisition date
of the contractual cash flows not to be collected was GBPnil.
Goodwill of GBP51.5m arising from the acquisitions consists of
certain intangible benefits that cannot be separately identified
and measured due to their nature. This includes control over the
acquired businesses and increased scale in our North American
operations, along with synergy benefits expected to be
achieved.
Included in the consideration shown above is contingent
consideration of GBP38.4m relating to three acquisitions. For the
first acquisition, the Group is required to pay consideration on
renewal of contracts on a 5 year or 10 year basis. For the second
acquisition, the Group is required to pay an indemnity contingent
on the performance of seller's indemnification obligations or other
post-closing obligations under the acquisition agreement. On the
third acquisition, the Group is required to pay consideration on
renewal of a significant contract and the contingent consideration
is dependent on the renewed revenue level. The payment under these
arrangements is dependent on meeting the respective conditions,
with a minimum expected undiscounted payment of GBPnil and maximum
expected undiscounted payment of GBP38.4m. Based on projections,
management expects the maximum amount to be paid. The amount
recognised is undiscounted as the effect of discounting is not
material.
The acquired businesses contributed GBP25.7m of revenue and
GBP6.0m to the Group's profit for the periods between the dates of
acquisition and the Balance Sheet date. Had the acquisitions been
completed on the first day of the financial year, the Group's
continuing revenue for the year would have been GBP2,367.6m and the
Group's continuing operating profit would have been GBP205.7m.
(b) Acquisitions - ALSA
During the year the ALSA division acquired 100% control of six
businesses in Spain and Switzerland, none of which are material
individually:
-- Odier Excursions SA - tourist charter and other
transportation services in Geneva, Switzerland
-- Transportes Santo Domingo S.L. - urban bus services in Madrid, Spain
-- TranvÃas Metropolitanos de Granada - regional bus services in Granada, Spain
-- Maitours S.L. - charter and school bus transportation in Madrid, Spain
-- Chamexpress - airport transfers from Geneva to French and Swiss mountain resorts
-- GVA Transfers - airport transfers from Geneva to French and Swiss mountain resorts
In aggregate, the provisional fair values of the assets and
liabilities acquired were as follows:
GBPm
============================================= =====
Intangible assets 5.9
Property, plant and equipment 5.0
Trade and other receivables 2.7
Cash and cash equivalents 1.6
Trade and other payables (4.8)
Borrowings and finance leases (4.3)
Deferred tax assets 0.8
Net assets acquired 6.9
Goodwill 11.6
============================================= =====
Total consideration 18.5
============================================= =====
Represented by:
============================================= =====
Cash consideration 16.7
Payments for cash acquired in the businesses 1.6
Deferred consideration 0.2
============================================= =====
18.5
============================================= =====
Trade and other receivables had a fair value and a gross
contractual value of GBP2.7m. The best estimate at acquisition date
of the contractual cash flows not to be collected was GBPnil.
Goodwill of GBP11.6m arising from the acquisitions consists of
certain intangible benefits that cannot be separately identified
and measured due to their nature. This includes control over the
acquired businesses and increased scale in our operations in Spain
and Switzerland, along with synergy benefits expected to be
achieved.
There are no contingent amounts within the consideration for the
above ALSA acquisitions.
The acquired businesses contributed GBP6.8m of revenue and
GBP1.5m to the Group's profit for the periods between the dates of
acquisition and the Balance Sheet date. Had the acquisitions been
completed on the first day of the financial year, the Group's
continuing revenue for the year would have been GBP2,327.7m and the
Group's continuing operating profit would have been GBP198.7m.
(c) Acquisitions - further information
Deferred consideration of GBP44.5m was paid in the year relating
to acquisitions in North America in earlier years. Total cash
outflow in the year from acquisitions in the North America division
was therefore GBP76.0m, comprising consideration for current year
acquisitions of GBP35.7m and deferred consideration of GBP44.5m,
less cash acquired in the businesses of GBP4.2m.
In addition for North America, during the year there was
reduction to the provisional fair values of businesses acquired in
the prior year of GBP9.5m.
Total cash outflow in the year from acquisitions in the ALSA
division was GBP16.7m, comprising consideration of GBP18.3m, less
cash acquired in the businesses of GBP1.6m.
In December 2016, the UK division acquired E Clarke & Son
(Coaches) Limited. The fair values of net assets were adjusted in
2017 resulting in additional goodwill of GBP1.4m. In addition,
GBP4.5m of deferred consideration relating to the acquisition was
settled during 2017.
(d) Disposals
On 10 February 2017, the Group disposed of the National Express
Essex Thameside 'c2c' franchise to Trenitalia. The consideration
received was GBP71.8m. Cash in the business on disposal was
GBP14.9m and cash outflows in the year relating to costs of
disposal were GBP14.1m, therefore the net cash inflow in the year
from the disposal was GBP42.8m.
Further details of this disposal are disclosed in note 6.
10 Pensions and other post-employment benefits
(a) Summary of pension benefits and assumptions
The UK division ('UK') and National Express Group PLC (the
'Company') operate both defined benefit and defined contribution
schemes.
Subsidiaries in North America contribute to a number of defined
contribution plans.
The Group also provides certain additional unfunded
post-employment benefits to employees in North America and ALSA,
and maintains a small defined benefit scheme for National Express
Services Limited, previously part of the UK Rail division. The
principal UK Rail defined benefit scheme was transferred to
Trenitalia as part of the disposal of NXET Trains Limited on 10
February 2017 (note 6). Post-employment benefits for North America,
ALSA and UK rail have been combined into the 'Other' category.
With effect from 30 June 2017, the assets and liabilities of the
Tayside Transport Fund (a defined benefit pension scheme for
certain past and present employees of Tayside Public Transport
Company Limited, a subsidiary of the UK Bus division) were
transferred into the Tayside Pension Fund (a fund administered by
Dundee City Council). The Group will continue to make contributions
into the Tayside Pension Fund in respect of current service costs
on the basis of a fixed percentage of pensionable pay and will
account for this on a defined contribution basis. Prior to
transfer, the Tayside Transport Fund was in a net surplus position
and had been derecognised in full.
The assets of the defined benefit schemes are held separately
from those of the Group and contributions to the schemes are
determined by independent professionally qualified actuaries.
In 2017, the UK division agreed a three-year annual deficit
repayment plan with the trustees of the West Midlands Integrated
Transport Authority Pension Fund, which continues until March 2020
with an average contribution of GBP7.7m per annum. The plan remains
open to accrual for existing members only.
The Group expects to contribute approximately GBP10.0m to its
defined benefit pension plans in 2018.
The total pension cost charged to operating profit in the year
for the continuing Group was GBP8.7m (2016: GBP7.4m), of which
GBP3.9m (2016: GBP3.7m) relates to the defined contribution
schemes.
The defined benefit pension (liability)/asset included in the
Balance Sheet is as follows:
2017 2016
GBPm GBPm
==================== ======= =======
Company 43.2 44.5
==================== ======= =======
Pension assets 43.2 44.5
==================== ======= =======
UK (133.8) (128.5)
Other (3.9) (4.2)
==================== ======= =======
Pension liabilities (137.7) (132.7)
==================== ======= =======
Total (94.5) (88.2)
==================== ======= =======
11 Cash flow statement
(a) Reconciliation of Group profit before tax to cash generated
from operations
2017 2016
Total operations GBPm GBPm
============================================== ====== =======
Net cash inflow from operating activities
Profit before tax from continuing operations 156.4 134.8
(Loss)/profit before tax from discontinued
operations (note 6) (1.5) 6.4
---------------------------------------------- ------ -------
Total profit before tax 154.9 141.2
Net finance costs 38.0 50.0
Share of results from associates and joint
ventures 3.5 (1.1)
Depreciation of property, plant and equipment 135.6 123.0
Intangible asset amortisation 41.6 33.8
Amortisation of fixed asset grants (1.0) (0.5)
Profit on disposal of property, plant and
equipment (5.4) (5.9)
Share-based payments 5.3 4.1
(Increase)/decrease in inventories (0.5) 1.1
Increase in receivables (52.7) (42.5)
Increase in payables 62.5 23.6
(Decrease)/increase in provisions (22.8) 3.4
============================================== ====== =======
Cash generated from operations 359.0 330.2
============================================== ====== =======
(b) Analysis of changes in net debt
At At
1 January Cash Acquisitions Exchange Other 31 December
2017 flow and disposals differences movements 2017
GBPm GBPm GBPm GBPm GBPm GBPm
========================== ========== ====== ============== ============ ========== ============
Components of financing
activities:
Bank and other loans (13.3) (98.7) (3.7) 0.8 (0.7) (115.6)
Bonds (983.2) 126.8 - 1.9 2.6 (851.9)
Fair value of interest
rate derivatives 14.4 - - - (4.1) 10.3
Fair value of foreign
exchange swaps (3.9) (5.7) - 11.1 - 1.5
Cross currency swaps 11.1 - - (10.1) - 1.0
Finance lease obligations (159.5) 34.4 (0.6) 13.0 (60.4) (173.1)
Other debt payable (72.4) 0.5 - (2.8) 1.1 (73.6)
-------------------------- ---------- ------ -------------- ------------ ---------- ------------
Total components
of financing activities (1,206.8) 57.3 (4.3) 13.9 (61.5) (1,201.4)
-------------------------- ---------- ------ -------------- ------------ ---------- ------------
Cash 72.3 38.7 (9.1) (1.2) - 100.7
Overnight deposits 3.5 1.4 - - - 4.9
Other short-term
deposits 248.6 (39.9) - - - 208.7
-------------------------- ---------- ------ -------------- ------------ ---------- ------------
Cash and cash equivalents 324.4 0.2 (9.1) (1.2) - 314.3
-------------------------- ---------- ------ -------------- ------------ ---------- ------------
Other debt receivables 0.5 0.2 - - - 0.7
Fair value of foreign
exchange swaps 3.9 5.7 - (11.1) - (1.5)
Net debt* (878.0) 63.4 (13.4) 1.6 (61.5) (887.9)
========================== ========== ====== ============== ============ ========== ============
* Excludes accrued interest on long-term borrowings
Short-term deposits included within liquid resources relate to
term deposits repayable within three months.
Borrowings include non-current interest-bearing borrowings of
GBP1,058.0m (2016: GBP816.7m).
Other non-cash movements in net debt include finance lease
additions of GBP60.4m (2016: GBP39.5m) and a GBP1.2m reduction from
the amortisation of loan and bond arrangement fees (2016: GBP2.7m).
A GBP4.1m decrease to the fair value of the hedging derivatives is
offset by opposite movements in the fair value of the related
hedged borrowings. This comprises a GBP3.2m fair value increase in
bonds and a GBP1.1m fair value increase in other debt payable.
At
1 January Cash Exchange Other At 31 December
2016 flow Acquisitions differences movements 2016
GBPm GBPm GBPm GBPm GBPm GBPm
========================== ========== ======= ============ ============ ========== ==============
Components of financing
activities:
Bank and other loans (45.3) 53.5 (0.2) (19.9) (1.4) (13.3)
Bonds (583.5) (398.9) - - (0.8) (983.2)
Fair value of interest
rate derivatives 14.3 - - - 0.1 14.4
Fair value of foreign
exchange swaps 0.6 46.3 - (50.8) - (3.9)
Cross currency swaps - - - 11.1 - 11.1
Finance lease obligations (127.6) 37.9 (6.0) (24.3) (39.5) (159.5)
Other debt payable (64.6) 2.4 - (9.2) (1.0) (72.4)
-------------------------- ---------- ------- ------------ ------------ ---------- --------------
Total components of
financing activities (806.1) (258.8) (6.2) (93.1) (42.6) (1,206.8)
-------------------------- ---------- ------- ------------ ------------ ---------- --------------
Cash 59.2 (2.2) 9.1 6.2 - 72.3
Overnight deposits 0.7 2.8 - - - 3.5
Other short-term deposits 0.5 248.1 - - - 248.6
-------------------------- ---------- ------- ------------ ------------ ---------- --------------
Cash and cash equivalents 60.4 248.7 9.1 6.2 - 324.4
-------------------------- ---------- ------- ------------ ------------ ---------- --------------
Other debt receivables 0.8 (0.4) - 0.1 - 0.5
Fair value of foreign
exchange swaps (0.6) (46.3) - 50.8 - 3.9
Net debt* (745.5) (56.8) 2.9 (36.0) (42.6) (878.0)
========================== ========== ======= ============ ============ ========== ==============
* Excludes accrued interest on long-term borrowings.
(c) Reconciliation of net cash flow to movement in net debt
(restated)
2017 2016
GBPm GBPm
================================================= ======= ==========
(Decrease)/increase in cash and cash equivalents
in the year (8.9) 257.8
Cash inflow/(outflow) from movement in
other debt receivables 0.2 (0.4)
Cash inflow/(outflow) from movement in
debt and finance leases 58.7 (311.3)
================================================= ======= ==========
Change in net debt resulting from cash
flows 50.0 (53.9)
Change in net debt resulting from non-cash
movements (59.9) (78.6)
================================================= ======= ==========
Movement in net debt in the year (9.9) (132.5)
Opening net debt (878.0) (745.5)
================================================= ======= ==========
Net debt (887.9) (878.0)
================================================= ======= ==========
13 Post Balance Sheet events
There are no post balance sheet events.
14 Financial information
The financial information set out above does not constitute the
Group's statutory financial statements for the years ended 31
December 2017 or 2016, but is derived from those financial
statements. Statutory financial statements for 2016 have been
delivered to the Registrar of Companies and those for 2017 will be
delivered following the Company's annual general meeting. The
auditors have reported on those financial statements; their reports
were unqualified, did not draw attention to any matters by way of
emphasis without qualifying their report and did not contain
statements under s498(2) or (3) Companies Act 2006.
The Annual Report will be posted to shareholders on 29 March
2018 and will also be available from the Company Secretary at
National Express House, Birmingham Coach Station, Mill Lane,
Digbeth, Birmingham, B5 6DD. Copies are also available via
www.nationalexpressgroup.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SEUESAFASELE
(END) Dow Jones Newswires
March 01, 2018 02:01 ET (07:01 GMT)
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