TIDMNEX
RNS Number : 8004V
National Express Group PLC
26 July 2018
26 July 2018
National Express Group PLC: Half Year results for the six month
period ended 30 June 2018
Diversity paying dividends
Dean Finch, Group Chief Executive said:
"National Express has had another strong start to the year,
delivering its best ever half year statutory profit, up 24%
year-on-year. Our increasingly diversified portfolio has again
delivered strong results and has entered a new phase of expansion
in to complementary growth markets.
"All of our divisions have grown revenue, profit and commercial
passengers through a relentless focus on good customer service and
technology investment. We also continue to make disciplined
acquisitions that help grow our portfolio strategically. We have
made seven acquisitions so far this year and have entered new
fast-growing markets, providing avenues for interesting future
expansion. Our pipeline of new opportunities remains strong and
growing.
"This combination of growth in our core business and the number
of exciting new opportunities allows us to again increase the
interim dividend by 10%. We remain on course to deliver the board's
expectations."
Financial highlights
Change at constant
HY 2018 HY 2017 Change currency
Continuing operations
--------- --------- --------- ------------------
Group revenue GBP1.21bn GBP1.17bn +3.2% +6.4%
--------- --------- --------- ------------------
Group normalised operating
profit GBP118.7m GBP111.6m +6.4% +9.8%
--------- --------- --------- ------------------
Group normalised PBT GBP100.7m GBP88.9m +13.3% +18.0%
--------- --------- --------- ------------------
Normalised basic EPS 15.0p 13.0p +15.4%
--------- --------- ---------
Statutory
--------- --------- ---------
Group statutory operating
profit GBP98.1m GBP87.3m +12.4%
--------- --------- ---------
Group statutory PBT GBP80.1m GBP64.6m +24.0%
--------- --------- ---------
Group PAT from continuing
operations GBP63.0m GBP50.8m +24.0%
--------- --------- ---------
Statutory basic EPS 12.1p 10.9p +11.0%
--------- --------- ---------
Free cash flow GBP85.2m GBP82.4m +GBP2.8m
--------- --------- ---------
Net debt GBP922.1m GBP873.3m +GBP48.8m
--------- --------- ---------
Interim dividend 4.69p 4.26p +10.1%
--------- --------- ---------
Highlights
-- Record Group statutory half year profit before tax of GBP80.1 million, up 24%.
-- Growth in free cash of over 3% to GBP85.2 million; full year
guidance raised to GBP170 million.
-- ROCE increased by 20 basis points to 12.2%; net debt gearing held flat at 2.3x EBITDA.
-- Interim dividend increased by 10.1% (4.69p).
Operational excellence: organic revenue growth in every
division
-- Revenue growth in all main divisions:
o North America: grew by 9.7% in constant currency to $753.2
million;
o ALSA: grew by 7% in constant currency to EUR395.7 million;
o UK: grew by 0.8% to GBP273.6 million, with strong commercial
growth in core coach (5.2%) offset by last year's strategic exit
from 2 operations;
o German Rail: declined 1.3% in constant currency, as last year
benefitted from catch up revenues (up 5.6% on an underlying
basis).
-- Record normalised operating profits in our main international
divisions combined with strong UK growth:
o North America: grew by 8.7% in constant currency to $76.6
million;
o ALSA: grew by 7.5% in constant currency to EUR48.6
million;
o UK: grew by 21.5% to GBP31.6 million, boosted by GBP3.4
million of property disposals; underlying profit growth was
8.5%.
-- A disciplined North American school bus bidding season, with
rates secured higher than driver wage inflation:
o Average rate increase of 6.6% on contracts up for bid or
renewal, or 3.7% across the whole portfolio. Driver wage increases
are projected to be 3.4% in the next school year.
-- All main divisions have grown commercial passengers, with the
Group carrying nearly 1.5% more year-on-year.
Technology investment driving innovation, efficiency and
excellence
-- We have installed the largest contactless payment system on
buses outside of London, helping to drive like-for-like commercial
passenger growth of 1.3% in the West Midlands.
-- Our sophisticated revenue management systems on UK core and
Spanish long haul coach routes have helped increase revenue per
mile by 6.6% and 1.3% respectively.
-- We are accelerating the roll out of smart safety DriveCam
technology, which is helping reduce the incidence and cost of
accidents.
Targeted expansion through strategic acquisition and new market
entries
-- We have made 7 acquisitions in the period: 3 in ALSA and 4 in
North America, consolidating our presence in existing core markets
and expanding in to growth segments.
-- In July we won a significant 500 bus contract in Rabat,
Morocco. We are now the largest public transport operator in
Morocco.
-- Our new Geneva, Switzerland operations have grown very
strongly, with our first acquisition - AlpyBus - growing revenue by
26.3% and profit by 33% in the first half. New summer tourist
services have been launched.
-- Significant expansion in US charter and UK employee shuttle
services, with new opportunities secured in the rapidly-growing
Spanish cruise ship and urban minicab markets.
-- A new on-demand bus service due to start shortly in the West Midlands.
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
Rebecca Mitchell 07951 057351
There will be a presentation and webcast for investors and
analysts at 0900 on 26 July 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 7 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.
For a full list of definitions, please refer to note 17 to the
financial statements.
Legal Entity Identifier: 213800A8IQEMY8PA5X34
Classification: 1.1 (with reference to DTR6 Annex 1R)
Dividend
The dividend will be paid on 21 September 2018 to shareholders
on the register at close of business on 31 August 2018.
Group Chief Executive's Review
Overview and outlook
Our first half has again been a very successful one. Record
profit performances again in our North American and ALSA divisions,
alongside strong growth in the UK, demonstrate that our strategy is
consistently delivering growth and underpinning growing shareholder
returns.
Our investment and innovation in new systems and technology to
deliver efficient, operationally excellent and customer-focused
services is helping drive organic growth. Our returns on
acquisitions also remain very strong at over 15%, with another
seven made in the period and a strong pipeline of further
opportunities in place. This combination of organic growth and
strategic acquisition is proving a sustainable basis for growth.
Further, we continue to benefit from a diversity of earnings with
around 80% generated outside the UK and no single contract worth
more than 4% of revenue.
Perhaps most pleasingly in the period we have seen the emergence
of exciting new growth opportunities. We are building on the
platforms we have established in strong markets, including through
our recent acquisitions. We aim to be a market leader on service,
price and customer relationships and grow our presence in the most
affluent cities and regions. I believe we have established an
exciting growth dynamic that is doing just that.
Fundamentally we continue to invest in improving our existing
businesses, using new technology to engage our customers in new
ways and run services more efficiently. This generates our organic
growth and strong cash flow which then helps to secure new
strategic acquisitions in growing markets with strong returns. But,
we are now moving into a new phase of our acquisition strategy:
beyond securing good businesses in their own right that also allow
synergies through consolidation, and into a period where these new
assets and local expertise are used to pursue growth in new market
segments in an efficient way. We are combining operational
excellence with local expertise and the new consolidated assets to
pursue growth efficiently, providing the opportunity for even
stronger returns.
Examples of this new approach include our strong charter growth
in North America, cruise ship servicing operations in Spain and B2B
services in the UK. Every division is also already pursuing other
opportunities and further detail is provided in their sections
below.
Our strategy therefore remains focused on the three pillars we
have consistently set out as they have underpinned this
performance, with increased activity in identifying and securing
diversification opportunities:
-- 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 and market
diversification in the world's most affluent cities and
regions.
This is a strategy that I am confident will continue to deliver
strong and growing shareholder returns. We continue to deliver a
strong free cash flow of GBP85.2 million (2017: GBP82.4m) and have
raised our year-end target to GBP170 million. Normalised earnings
per share again grew significantly, up 15.4% to 15.0p (2017:
13.0p). The Board has therefore again increased the interim
dividend by 10.1% to 4.69p (2017: 4.26p), the third 10% increase in
four years. Our policy is to pay a dividend covered two times by at
least Group normalised earnings.
It is a strategy delivered by strong divisional performances,
acting within this Group framework. I will therefore explain in
more detail below how they have delivered strong organic growth
through excellence and innovation as well as expanded through
acquisition and new market segment growth, after first setting out
the Group's financial highlights.
Financial performance highlights
National Express has made good progress in the first half of
2018, with Group revenue up 6.4% on a constant currency basis (3.2%
on a reported basis). This has been driven in particular by the
growth in North America and ALSA. Strong commercial revenue
increases in UK core coach (up 5.2%) has been offset by last year's
strategic exit from Eurolines and Hoppa (an airport shuttle
service), therefore lowering the overall growth rate. German Rail
saw a small decline in revenue, down 1.3% on a constant currency
basis, with last year benefitting from catch up revenues not fully
recognised in 2016. Like-for-like revenues increased by 5.6%.
First half Full Year
Revenue in constant currency 2018 2017 2017
----------------------------- ------- ------- ---------
ALSA (EURm) 395.7 369.9 757.4
North America (US$m) 753.2 686.6 1,311.3
German Rail (EURm) 43.7 44.3 90.3
Revenue in GBPm
----------------------------- ------- ------- ---------
ALSA 348.1 318.1 663.5
North America 547.5 543.0 1,017.2
UK 273.6 271.3 561.5
German Rail 38.5 38.1 79.0
Group 1,207.7 1,170.5 2,321.2
----------------------------- ------- ------- ---------
Normalised operating profit has increased by 9.8% on a constant
currency basis to GBP118.7 million (up 6.4% on a reported basis);
statutory operating profit has increased by 12.4%. These results
have been achieved due to record profits again in North America and
ALSA and strong growth in the UK. The decline in German Rail's
operating profits compared to the first half of last year reflects
the catch-up revenues recognised in the 2017 results.
These results were adversely impacted by GBP4 million of
currency translation in the first half driven by the overall
strengthening of Sterling against the US Dollar over the last 12
months. Normalised profit before tax rose by 13.3% to GBP100.7
million, up 18.0% on a constant currency basis. After intangible
amortisation of GBP20.6 million, statutory profit before tax was
GBP80.1 million (2017: GBP64.6m), a new Group record for the half
year.
First Half Full Year
Normalised operating profit in constant 2018 2017 2017
currency
---------------------------------------- ------ ---------- ---------
ALSA (EURm) 48.6 45.2 108.3
North America (US$m) 76.6 70.5 121.6
German Rail (EURm) 1.3 2.0 5.9
Normalised operating profit GBPm
---------------------------------------- ------ ---------- ---------
ALSA 42.8 38.8 94.9
North America 55.7 55.7 94.3
UK 31.6 26.0 70.9
German Rail 1.1 1.7 5.2
Central Functions (12.5) (10.6) (23.8)
---------------------------------------- ------ ---------- ---------
Normalised operating profit 118.7 111.6 241.5
Interest and associates (18.0) (22.7) (41.5)
---------------------------------------- ------ ---------- ---------
Normalised profit before tax 100.7 88.9 200.0
---------------------------------------- ------ ---------- ---------
Divisional performance review
ALSA
2018 2017 Change
Revenue EUR395.7m EUR369.9m +7.0%
============ ============ =======
Normalised operating
profit EUR48.6m EUR45.2m +7.5%
============ ============ =======
Operating margin 12.3% 12.2% +10bps
============ ============ =======
Passengers 157,423,000 154,194,000 +2.1%
============ ============ =======
Overview and outlook
ALSA has combined a strong increase in revenue and profit from
existing operations and recent acquisitions, with the entering of
new market segments that provide significant new opportunities for
growth in the coming years. ALSA has delivered another record
profit performance.
We remain well placed in the concession renewal process, with
recent delay further reducing our previous guidance of a minimal
impact in 2019. Continued investment in our core business, new
contract wins such as Rabat, Morocco, three strategic acquisitions
in the period and new market entries are helping to further
diversify our earnings and provide growth opportunities. ALSA
remains a high quality, well run business, with many opportunities
ahead to continue to deliver value for shareholders.
Operational Excellence: driving organic growth
All main segments of the ALSA business grew in the period,
except Spanish long haul services. A combination of the deliberate
exiting of a loss-making contract last year, disruption in
Catalonia and strikes in Madrid served to lower long haul revenue
on a reported basis (down 1.2%). However, accounting for these,
underlying revenues were flat. Further, this was more than off-set
by the increases in our other segments: Spanish regional (up 3.6%);
Spanish urban (up 2.1%); Morocco (up 8.6%); and ancillary revenues
(up 25.1%).
This combined to deliver a revenue increase to EUR395.7 million
and another record half year profit of EUR48.6 million. Normalised
operating margin increased to 12.3% and passenger numbers also grew
to over 157 million, another record. It is pleasing that ALSA's
Spanish operations' customer satisfaction score continues to grow,
up 5.9% to 7.7 (out of 10).
Technology investment to underpin excellence, efficiency and
innovation
Our increasingly sophisticated revenue management system (RMS)
has helped both drive the revenue and passenger increases on our
Spanish regional services and mitigate the impact of the reduced
demand on long haul services. The introduction of a new price
ladder similar to UK Coach's in the period is proving successful.
However, RMS has also embedded much stricter matching of services
to demand; in the period we reduced long haul mileage operated by
2.5%.
We are continuing to invest in further enhancements to improve
the quality and safety of our services and the ease with which
customers can buy a ticket. We have accelerated the roll-out of
smart safety Lytx DriveCam cameras, proven to reduce both the
incidence and cost of accidents in our business: 1,000 will now be
installed by the end of August. Our digital sales continue to grow
strongly, up 3.5% to 41.6% of revenue in the period.
We continue to believe that our reputation for excellence and
investment in technology such as RMS mean we are well-placed for
the concession renewal process. As previously reported, the
assessment methodology has been reformed to increase the importance
of quality scores and reduce the weighting of price. We believe
this should also provide a framework for more sustainable, sensible
bidding.
The concession renewals programme has begun, with two of ALSA's
medium-size contracts currently subject to re-bid. However, a
combination of legal challenge and the recent Spanish government
change has further delayed the programme. While we expect the
process to re-start in September, experience suggests that this
cannot be guaranteed. We previously guided that we do not expect
any profit impact from renewals in 2018 and only a minimal impact
in 2019. This new delay will only serve to reduce any 2019 impact
further.
Targeted growth through strategic acquisition and market
diversification
During the period we continued to grow our business and
diversify our earnings through: new contract wins; acquisitions;
and entry and expansion in to complementary markets.
We recently announced the new 500 bus contract in Rabat,
Morocco. This 15 year contract, with an optional seven year
extension, is expected to secure EUR1 billion of revenue. ALSA is
the majority shareholder of a joint venture with a local company.
With this contract ALSA will run services in five Moroccan cities,
making it the largest public transport operator in Morocco. This
win shows the benefit of our approach of consolidating new market
entry and then looking for complementary expansion. This is our
fourth new Moroccan contract in eight years, building on our
initial entry to Marrakesh.
Our recent growth in and around Geneva, Switzerland is another
example. After the initial purchase of the ski-transfer business
AlpyBus in December 2016 - which itself has grown revenue 26.3% in
the period - we have complemented its presence with three further
acquisitions that operate in other local markets (principally urban
and school bus services). We have consolidated back-office and
operational functions to secure synergies. Our Swiss operations
have grown strongly with revenue up 53.4% and profit growth of
52.6%. We are now using these combined assets and local expertise
to target new growth segments in an efficient way. In particular we
are targeting the summer tourist season where we see a strong
growth opportunity, using vehicles in their historically quieter
period.
We have made three further acquisitions in the period, all of
which have a similar strategic logic. First, we purchased ArgaBus,
a 77 bus operator of commuter and school services within the Madrid
Consortium. This acquisition helps consolidate our position in
Madrid, where we are now the second largest operator, and to secure
synergy benefits.
Our second acquisition, Cal Pita, where we have taken a majority
stake, helps open up a new Spanish region where ALSA's presence is
small. Galicia has a significant pipeline of concession renewals in
the coming years, and this well-respected 75 bus operator of
interurban, school and discretionary services now gives us a
platform to expand.
Third, we acquired BC Tours, the largest operator of transport
and logistical services to the growing cruise market in Spain. As
well as providing an entry in to a growing market segment, it also
secures significant synergy benefits as our vehicles can be used to
provide the tourist services that make up the majority of the
business.
We have also added an additional avenue of entrepreneurial
expansion, through the rapid growth in the number of minicab
services we run. From 120 earlier this year, ALSA now operate over
400 minicab services in Madrid and Barcelona. We have sold a stake
in this business to a minority partner. This is already providing a
strong low-risk income stream that complements our bus and coach
services. Our ambition is to be the premier inter-modal and 'last
mile' service provider in Spain. It is a very interesting avenue
for future growth.
Summary
ALSA remains a well-run and expanding business that is
delivering record growth while diversifying in to interesting new
markets. It is this combination of core excellence and a reputation
for quality, as well as increasing diversification, that means we
are confident it will emerge from the concession renewal process
stronger.
North America
2018 2017 Change
Revenue $753.2m $686.6m +9.7%
============ ============ =======
Normalised operating
profit $76.6m $70.5m +8.7%
============ ============ =======
Operating margin 10.2% 10.3% -10bps
============ ============ =======
Passengers 150,422,000 146,996,000 +2.3%
============ ============ =======
Overview and outlook
North America recorded another record profit performance as the
benefits of our organic growth and new acquisitions continue to
grow our business. Operating margin reduced by 10 basis points
principally due to on-going driver wage pressure and fewer
operating days, because of the exceptionally bad weather. In a
disciplined school bus season we secured rate increases above
driver wage inflation, with the benefit beginning later this
year.
We continue to invest in excellence, with our new systems aiding
management oversight, reducing risk and delivering cost savings.
Our strategic acquisition programme continues, with four made in
the period. Our determination to grow in complementary markets
continues at a quickening pace, with strong progress in charter and
transit; and new opportunities in the Charter School sector.
Operational Excellence: driving organic growth
Revenue growth of nearly 10% and a profit increase of 8.7%
demonstrate the on-going benefit from recent acquisitions
complementing our core business' performance. This growth has been
achieved despite the significant disruption caused by the
exceptionally cold weather. This disruption led to the school bus
business alone losing nearly twice as many operational days as the
year before.
The school bus business had a disciplined bid season. With North
America at near full employment, driver wage inflation has been
running at an exceptionally high level. We therefore adopted our
'up or out' strategy on all contracts up for renewal to ensure
disciplined bids that protected returns. We secured rate increases
of 6.6% on those contracts up for bid or renewal (2017: 3.7%),
which translates to 3.7% across the whole portfolio (2017: 2.2%).
These rate increases are larger than projected driver wage
inflation of 3.4% for the 2018/19 school year, so we will begin to
benefit from this pricing in the second half of this year.
This strategy of protecting profit and returns has inevitably
led to our retention rate dropping to 90% of all contracts. Our
overall bus count is currently down by 596 vehicles after losses
are netted off against growth and acquisitions. So while our core
school bus business will have fewer buses in the next school year,
it will be more profitable.
We continue to grow our transit operations, with another
contract win in Massachusetts and over $16.3 million of new
business secured in the period. In six years we have therefore
grown transit to be a more than $300 million annualised business.
With a programme of renewals for our transit services starting this
year, it is pleasing to have secured 15 contracts at re-bid,
including one of our largest.
We are seeking to further embed customer-focus in the business.
We are using detailed surveys and even closer engagement to ensure
we understand and monitor delivery of customer requirements. This
is augmented by BusReport, a centralised system where all parent
and customer complaints are logged, allocated to the relevant CSC
and then tracked to ensure completion but also to identify
trends.
Technology investment to underpin excellence, efficiency and
innovation
In such a large, continent-wide business, modern technology is
proving increasingly important. We are determined to embed
operational and safety excellence and secure efficiencies while
respecting the need for local management to maintain strong
relationships. Like the BusReport example above, we have been
investing in technology that provides enhanced tools to do
this.
We have created an industry-leading bus tracker system ('Durham
Bus Tracker') that allows parents to view their child's school bus
location. It provides information about the route, in near real
time, including the scheduled and estimated arrival times to their
stop. We already have over 158,000 parents as registered users,
covering 356,000 students.
There are very encouraging reductions in 'event severity', the
number of incidents and insurance costs where Lytx DriveCam smart
safety cameras have been in place the longest. Beginning in 2014,
our programme has over 7,400 vehicles in 63 North American
locations now equipped. The results 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 in the average cost of claims. So with further roll out
in 2018 and 2019, alongside programmes that target speed awareness
and enhanced driver monitoring, we expect to reap further driving
standards, safety and cost benefits over the coming years.
Targeted growth through strategic acquisition and market
diversification
We continue to pursue strategic acquisitions to grow our
business and secure synergy benefits. Our previous acquisitions
continue to make strong returns of at least 15% and we retain a
strong pipeline of opportunities. What is becoming increasingly
interesting is how we are using our existing presence and new
acquisitions to access growing markets in an efficient manner.
Our ambition is that our CSCs move from the traditional
management of existing local contracted services to become an
entrepreneurial hub of multi-service operations. This would combine
operational excellence and increasingly sophisticated technology
with the targeting of complementary growth in, for example, local
charter, employee shuttle, transit and Charter School markets. We
are already seeing good progress as we combine the upgrading of our
local management with new acquisitions in key locations that both
secure synergy benefits but also open new market opportunities.
The four acquisitions we made in the period sought to combine
securing synergies with existing operations and providing a
platform for growth in interesting new markets:
-- A&S Transportation: a Florida-based business of 260 vehicles, serving local Charter Schools;
-- A1A Transportation: another Florida-based Charter School
business of 94 buses, providing synergies with A&S
Transportation;
-- Quality Bus: a 315 vehicle school bus business in New York
State, with over half in special education transport;
-- Aristocrat Bus: a 30 vehicle motor coach and charter business in New Jersey.
We have identified the Charter School market as an interesting
rapidly-growing market. There are currently 6,900 Charter Schools
in 42 states, a six-fold increases in the last 15 years. Charter
Schools are autonomous and operate their own bussing contracts
typically allowing greater vehicle age flexibility (within rigorous
safety standards) than traditional school bus contracts. As well as
the two acquisitions listed above we are looking to grow in to this
market from existing school bus locations, with strong asset
utilisation opportunities.
In a similar way, we have expanded our small presence in the
charter market (utilising buses for discretionary travel outside
home-to-school hours). We learnt from the acquisition of Trinity in
Detroit, Michigan (in late 2016), which had a strong charter
business alongside its school bus operation. We placed the relevant
Trinity manager in charge of a nationwide charter plan, with growth
targets for every region, and are on course to deliver profit
growth of around $4 million in this segment this year.
The Charter Schools and charter market examples demonstrate how
we are looking to deliver good returns from sophisticated asset
utilisation in markets adjacent to our existing operations. As well
as our school bus operations, our transit sites are also providing
useful platforms for adjacent growth. For example, this year we
have begun a programme to target small transit shuttle contracts -
to casinos and for a business' employees, or similar - in the
adjacent area to recent acquisitions. So far this year we have
already won 13 such contracts in New York, many of which can be
serviced using existing vehicles in periods when they would
otherwise not be used. Our 147 bus para-transit contract win in
Massachusetts during the period is both good news in itself and
provides another potential platform for growth. We believe there
are further opportunities for asset-light growth here.
Summary
After a good bid season, and with the benefit of further
strategic acquisitions our North America business continues to grow
strongly. With programmes in place to modernise through
technological innovation and diversify our earnings by growing in
to complementary markets - often with attractive asset-light
qualities - combined with a strong pipeline of further
opportunities, North America remains an attractive growth
market.
UK
2018 2017 Change
Revenue GBP273.6m GBP271.3m +0.8%
============ ============ ========
Normalised operating
profit GBP31.6m GBP26.0m +21.5%
============ ============ ========
Operating margin 11.5% 9.6% +190bps
============ ============ ========
Commercial passengers 118,031,000 116,153,000 +1.6%
============ ============ ========
Overview and outlook
Our UK bus and coach businesses have accelerated their growth
trends from the last quarter of 2017, with passenger growth amongst
the strongest seen in years. In the period, core coach passengers
increased 6% and West Midlands bus like-for-like commercial
passengers grew by 1.3%. This helped boost core coach revenue by
5.2% and UK bus commercial revenue by 0.8%. Reported revenue growth
is relatively subdued, however, because of last year's exit from
Eurolines and Hoppa (a hotel shuttle business). Reported profit has
been boosted by property disposals of GBP3.4 million, with
underlying profit up by 8.5% and operating margin increasing by 70
basis points.
We continue to invest in further technology improvements to
drive growth and are launching new services to capture
opportunities within or adjacent to core markets. We have seen
particularly encouraging results in a rapidly expanding market
segment of employee shuttle and will also shortly launch an
on-demand bus service in the West Midlands.
Operational Excellence: driving organic growth
As indicated above, both of our main UK businesses are seeing
the benefit of increasingly sophisticated pricing to generate
commercial passenger growth, alongside a focus on operational
efficiency. After a number of years of declining passengers in
Dundee, we have rolled-out a number of the pricing lessons from the
West Midlands and are now seeing passenger growth. In coach our RMS
is helping drive growth, with record passenger numbers over Easter
and during both May bank holidays, while increasing yield in each
case, demonstrating the benefit of the increasingly sophisticated
system, that has helped drive core coach revenues up by 5.2%.
This organic growth has been coupled with a focus on efficiency.
We have exited low margin or loss making businesses - such as Hoppa
and Eurolines - and amended routes and added new services to
growing markets in both coach and bus. Our bus operation has
reduced commercial mileage operated by 2.1% principally by speeding
up existing journeys; coach has amended existing airport routes to
serve new stops (such as Kings Cross) and added frequency to those
with strong growth.
The benefit of the combination of organic growth and operational
efficiency is seen in the significant improvements of revenue per
mile: bus' has improved by 3%; core coach's has improved by 6.6%.
We have also recognised GBP3.4 million of property profit from the
sale and leaseback of our Dundee depot and exit of a facility in
London. This has boosted operating profit to GBP31.6 million (up
21.5%) and operating margin to 11.5% (up 190bps). When normalising
for these receipts, underlying profit increased by 8.5% and
operating profit by 70 basis points (to 10.3%) reflecting the
strong trading performance.
It is pleasing that we are also seeing the quality of our
operations being recognised externally. In the independent
Transport Focus customer survey, our bus satisfaction result is up
1% to 85%. In the period, UK coach has secured many award wins,
including Operator of the Year, Large Operator of the Year and
Making Coach a Better Choice at the UK coach awards. UK coach was
also awarded a ROSPA Gold Award for the fourth year running.
We continue to work very closely with Transport for West
Midlands (TfWM) and the West Midlands Mayor, to improve services
and meet the region's congestion and air quality challenges. We
also successfully transferred the Midland Metro tram service to
TfWM in June.
Technology investment to underpin excellence, efficiency and
innovation
We have invested to make our services increasingly easy to
access. This involves a sophisticated digital 'front end', whether
an app, mobile or website, to allow customers to easily identify
the right service and secure the best price.
As well as continued investment in RMS, UK coach has further
improved its website, with the journey planner now 35% faster and a
programme to deliver a personalised web presence for customers
underway. Customers will be recognised when they log on, with
tailored offers presented reflecting their location and
demographic. Coach has seen the proportion of revenue secured
through digital channels increase by nearly 5 percentage points to
70.5%.
Our West Midlands bus services have installed the largest
contactless payment network outside of London; also the only one to
offer a daily fare cap like the capital. Alongside our investment
in m-ticketing and apps, this is driving more frequent travel: for
example, in a March survey, 53% of our mobile app users said
digital tickets are making them travel more frequently. Through
digital channels we can also target offers directly to customers. A
promotion on June's Clean Air Day, for example, saw 13,444 people
sign up with us digitally to redeem a free journey, 5,635 of whom
were new or infrequent customers. In the subsequent three weeks we
sold GBP19,000 of further m-tickets to these new digital customers.
67% of the non-users now say they travel with us after this
promotion. We are targeting similar future offers.
A quiet revolution is underway: 50% of our UK bus journeys are
now made using digital, smartcard or contactless payments methods.
We expect this to reach 70% by the end of the year.
We have also continued our investment in technology to improve
our safety performance. Lytx DriveCam is now installed across our
UK operations, and is helping to drive double digit reductions in
key harm metrics in both the bus and coach businesses. We are
seeking to sustain this improvement through further investment in
speed awareness and collision avoidance technologies, enhanced
driver coaching - often using the video evidence provided by
DriveCam - and Group-wide safety campaigns.
Targeted growth through strategic acquisition and market
diversification
Since our acquisition of Clarke's of London in December 2016, we
have secured synergy benefits with our Kings Ferry operations,
including in the Kent to London coach commuter services. However, a
key rationale for the acquisition was the opportunity to expand in
to the growing in-bound tourist work in which Clarke's specialise.
In the last year, we have grown Clarke's revenue in this area by
10% and see further opportunity for growth here.
UK coach has also placed a greater focus on growing commercial
partnerships this year, to further diversify its income streams. We
have signed 12 new partnerships, including with Webloyalty and the
Jockey Club. When these new deals are combined with the expansion
of existing offers, revenue from partnerships has increased by 50%
in the period.
Our UK bus business has also started to look at opportunities in
adjacent markets, deploying existing vehicles on new and additional
services. In the West Midlands, we have recently launched a new
service in Lichfield, secured another tender contract in
Staffordshire and will shortly begin an on-demand service. Our
Dundee depot, also drawing on West Midlands bus and UK coach
vehicles and staff, has just operated the spectator bussing for the
British Open golf championship.
Most significantly, we have combined our bus and coach
operations to target employee shuttle contracts. In the period we
won a new GBP4 million a year contract to operate employee shuttle
services for Jaguar Land Rover in the West Midlands and
Warwickshire. We are drawing on our combined bus and coach
expertise and resources to target further similar growth
opportunities. In the first half of the year we have grown this B2B
work in the UK by 41% alone.
Summary
As the accelerating commercial passenger growth and digital and
ticketing innovation demonstrates, our UK bus and coach businesses
have recovered very strongly from the challenges of last year's
first half. We are determined to maintain this momentum and
innovation alongside combining our bus and coach expertise in
interesting new growth markets.
German Rail
Headline revenue and profit were down in the period - (1.3%) and
(35%) respectively - because the comparator period last year
included an earnings catch-up from income we were unable to book in
2016. On an underlying basis, revenue is up 5.6%. Our mobilisation
for our Rhine-Ruhr Express (RRX) services is progressing well. The
first of our 3 RRX contracts starts in June 2019 and when combined
with our existing 2 Rhine-Munster Express services will represent a
strong presence in the Nord-Rhine Westphalia region. This remains
an attractive market and we continue to bid for new contracts that
meet our strict criteria.
Outlook
We have continued to build on this strong first half performance
with a good start to summer sales. The strong school bus price
growth in North America is particularly pleasing as it positions us
well to grow profits and returns this year and next. Through its
deliberate focus on quality and diversification, our Spanish
business remains very well-placed to compete in the concession
renewal process and maintain stable margins this year and next.
We retain a good pipeline of growth opportunities, with organic
growth, new acquisitions, bid wins and complementary growth markets
providing exciting avenues for further expansion. A strong
management team is investing in technology to deliver excellent
customer service and control the risks in our business in an
ever-more sophisticated way.
The consistent delivery of our strategy has again secured strong
cashflow and growing shareholder returns. Our confidence in the
future of the business allows us to increase our target for free
cash (to GBP170 million) and raise the interim dividend by 10% for
the third time in four years.
Dean Finch
Group Chief Executive
26 July 2018
FINANCIAL REVIEW
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
reference to profit measures throughout this review are for
normalised continuing operations for both the current and prior
year reporting period.
Statutory profit
The Group again delivered a record first half statutory profit
after tax amounting to GBP63.0 million (2017: GBP50.8m), driving
basic earnings per share of 12.1 pence (2017: 10.9p), an increase
of 11.0%.
Statutory profit
Reconciliation of statutory profit to normalised
operating profit First half Full year
------------------------------------------------- -------------- ---------
2018 2017 2017
GBPm GBPm GBPm
------------------------------------------------- ------ ------ ---------
Normalised profit before tax 100.7 88.9 200.0
UK restructuring - (5.6) (5.6)
Intangible amortisation (20.6) (18.7) (38.0)
------------------------------------------------- ------ ------ ---------
Profit before tax 80.1 64.6 156.4
Tax charge (17.1) (13.8) (28.0)
------------------------------------------------- ------ ------ ---------
Profit after tax from continuing operations 63.0 50.8 128.4
------------------------------------------------- ------ ------ ---------
Profit from discontinued operations 0.5 6.4 5.9
------------------------------------------------- ------ ------ ---------
Profit for the period 63.5 57.2 134.3
------------------------------------------------- ------ ------ ---------
Intangible amortisation increased to GBP20.6 million (2017:
GBP18.7m) driven by the acquisitions made over the last 12 months
in our North America and ALSA divisions.
In the prior year, UK restructuring costs relate to the disposal
of the Group's final UK rail franchise, c2c, as part of a broader
UK strategic review in which the Group discontinued all activity in
UK rail and reorganised its UK organisation to reduce costs and
facilitate better, clearer decision-making. The final stage in this
process was the hand-back of the West Midlands tram business to the
West Midlands Combined Authority in June 2018.
Revenue
Revenue bridge GBPm
-------------------------------------------------- -----
2017 first half year revenue 1,171
Currency translation (36)
-------------------------------------------------- -----
2017 first half year revenue at constant currency 1,135
Organic growth 21
Acquisitions 52
2018 first half year revenue 1,208
-------------------------------------------------- -----
Group revenue for the period was GBP1,207.7 million (2017:
GBP1,170.5m), an overall increase of 6.4% on a constant currency
basis (up 3.2% on a reported basis with GBP36 million of foreign
currency losses on translation). Constant currency revenue growth
of GBP21 million from our existing businesses was boosted by a
further GBP52 million from acquisitions.
Performance has again been particularly strong in our overseas
businesses, with North America delivering 9.7% growth in constant
currency benefitting from a number of bolt-on acquisitions made in
the last 12 months. ALSA also delivered a strong performance, with
revenue growth of 7.0% on a constant currency basis. This was
driven by strong performance in Spain, notably on our regional and
urban routes, together with another strong ski season in
Switzerland, and strong growth in Morocco, with revenue growing by
8.6%.
Our UK business delivered revenue growth of 0.8%, with our Bus
business growing revenue by 0.7% and Coach growing by 1.1%.
Commercial bus revenue increased by 0.8%, with like-for-like
passenger growth of 1.2% benefitting from the continuation of the
low fare zones together with the launch of contactless and growing
penetration of m-tickets. In Coach, core network revenue rose by
5.2%, where our Revenue Management System drove passenger and yield
growth. This strong performance has been partially offset by lower
revenue from festival events, together with the exit from Eurolines
and a small coach transfer services business in 2017.
Normalised profit
Profit bridge for the continuing operations GBPm
----------------------------------------------------- ----
2017 first half year normalised operating profit (as
reported) 112
Currency (4)
----------------------------------------------------- ----
Normalised operating profit at constant currency 108
Net impact of revenue growth 8
Acquisitions 10
Profit on exit of properties 3
Cost inflation (28)
Cost efficiency 13
Fuel 9
Weather / operator days (3)
Other (1)
2018 first half normalised operating profit 119
----------------------------------------------------- ----
Group normalised operating profit increased by 9.8% to GBP118.7
million on a constant currency basis, up 6.4% on a reported basis
(2017: GBP111.6m) after the adverse impact of GBP4 million of
currency translation driven by the strengthening of Sterling
against the US Dollar. We delivered robust organic growth of GBP8
million from our existing businesses as the drivers of revenue
growth noted above flow through. This was supplemented by a strong
contribution of GBP10 million from acquisitions made in the last
year, predominantly in the US.
These results include GBP28 million of cost inflation, most
notably in the form of driver wage inflation in North America. We
have retained our disciplined focus on cost control which, along
with the ongoing benefit of efficiency measures introduced across
the Group last year has delivered GBP13 million of savings in the
first six months of 2018. Coupled with GBP9m lower hedged fuel
prices, overall cost inflation has been limited to GBP6
million.
In the period, we recognised property-related profits of GBP3.4
million relating to the sale and leaseback of a facility in Dundee
and cost provisions released following a smoother than expected
exit of a facility in London.
Weather has impacted the first half results, with the severe
storms in North America reducing the number of operator days,
adversely impacting profit by GBP3 million, with a further GBP1
million impact from other factors including a strike in Madrid.
Summary income statement First half Full year
2018 2017 2017
GBPm GBPm GBPm
------------------------------------------- --------- --------- -----------
Revenue 1,207.7 1,170.5 2,321.2
Operating costs (1,089.0) (1,058.9) (2,079.7)
------------------------------------------- --------- --------- -----------
Normalised operating profit 118.7 111.6 241.5
Share of results from associates and joint
ventures 0.3 (3.9) (3.5)
Net finance costs (18.3) (18.8) (38.0)
------------------------------------------- --------- --------- -----------
Normalised profit before tax 100.7 88.9 200.0
Tax (22.4) (21.4) (48.0)
------------------------------------------- --------- --------- -----------
Normalised profit after tax 78.3 67.5 152.0
------------------------------------------- --------- --------- -----------
Group normalised operating profit margin grew by 30 basis points
to 9.8% (2017: 9.5%) with margin growth in the UK and ALSA more
than offsetting a small margin decline in North America, driven by
ongoing inflationary pressure in drivers' wages.
Net finance costs decreased by GBP0.5 million to GBP18.3 million
(2017: GBP18.8m), reflecting the lower interest costs following the
successful debut issuance in the Eurobond market in November 2017
of the EUR250 million Floating Rate Note together with continued
optimisation of our funding base.
We recorded a profit of GBP0.3 million (2017: loss GBP3.9m) from
associates and joint ventures, with the loss last year 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 2017.
After accounting for net finance costs and profit from
associates and joint ventures, profit before tax of GBP100.7
million grew 18.0% on a constant currency basis and by 13.3% on a
reported basis (2017: GBP88.9m).
The Group's effective tax rate for 2018 normalised profit is
forecast to be around 22% (2017 full year: 24.0%), in line with our
previous guidance earlier this year.
Normalised basic earnings per share were 15.0 pence (2017:
13.0p), an increase of 15.4%.
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 has increased again to 12.2% (2017:
12.0%), demonstrating our disciplined approach to capital
allocation and balance sheet management and the accretive impact of
our high return acquisitions.
HY 2018
Reconciliation of ROCE GBPm
-------------------------------------------------------- -------
Group statutory operating profit (on a 12 month rolling
basis) 208.7
-------------------------------------------------------- -------
Intangible amortisation for acquired businesses 39.9
Return - Normalised Group operating profit (on a 12
month rolling basis) 248.6
Average net assets 1,155.6
Remove: Average net debt 894.4
Remove: Average derivatives, excluding amounts within
net debt 0.4
Foreign exchange adjustment (10.5)
Average capital employed 2,039.9
Return on capital employed 12.2%
-------------------------------------------------------- -------
Cash management
The Group delivered GBP85.2 million of free cash flow in the
period (2017: GBP82.4m) creating a solid platform for investing in
growth and paying dividends. Given the expected lower level of
capital expenditure for the full year as outlined below, we now
expect to deliver free cash flow of GBP160 million to GBP170
million for the full year.
Free cash flow Full
First half year
--------------------------------------------- --------------- -------
2018 2017 2017
GBPm GBPm GBPm
--------------------------------------------- ------- ------ -------
Continuing normalised operating profit 118.7 111.6 241.5
Depreciation and other non-cash items 69.9 69.2 135.5
--------------------------------------------- ------- ------ -------
EBITDA 188.6 180.8 377.0
Net maintenance capital expenditure (59.1) (76.9) (165.2)
Working capital movement (22.2) 16.6 4.8
Pension contributions above normal charge (3.7) (1.4) (5.0)
--------------------------------------------- ------- ------ -------
Operating cash flow 103.6 119.1 211.6
Net interest paid (16.5) (32.9) (50.6)
Tax paid (1.9) (3.8) (14.6)
--------------------------------------------- ------- ------ -------
Free cash flow 85.2 82.4 146.4
--------------------------------------------- ------- ------ -------
Operating cash flow was GBP103.6m (2017: GBP119.1m) a decline of
GBP15.5m, this is principally explained by EBITDA growth of GBP7.8m
and a reduction in capex payments of GBP17.8m offset by a working
capital reversal of GBP38.8m. The 2017 working capital inflow of
GBP16.6m was due to catch-up receipts on German Rail and one-off
collections catch-up in North America. In the first half of this
year, the outflow reflects normal working capital movements and
timing in our growing business. The majority of the maintenance
capital investment has been in fleet replacement predominantly in
Spain and North America. Net maintenance capital expenditure was
GBP17.8 million lower, benefitting from lower capital spend in
North America as enhanced maintenance programmes enable us to
return buses to service. Consequently, we now expect net capital
expenditure for the full year to be lower than previously
anticipated, at around GBP160 million.
Statutory cash generated from operations for the period was
GBP160.6 million (2017: GBP181.2m) as shown in the Condensed Group
Statement of Cash Flows and expanded further in note 14. Operating
cash flow of GBP103.6 million (2017: GBP119.1m) presented in the
table above is different, predominantly due to the inclusion of net
maintenance capital expenditure of GBP59.1 million (2017: GBP76.9m)
and the separate disclosure of discontinued operations.
Reconciliation of free cash flow to net cash flow from operating HY 2018
activities GBPm
------------------------------------------------------------------ -------
Free cash flow 85.2
Add: Operating cash flows from discontinued operations (note 7) 1.2
Add: Cash inflow from exceptional items in prior years 0.5
Remove: Net maintenance capital expenditure 59.1
Remove: Movements in arrangement fees (note 13) 0.7
(Profit) on disposal of fixed assets (3.8)
Net cash flow from operating activities 142.9
------------------------------------------------------------------ -------
Net funds flow Full
First half year
---------------------------------------- ---------------- -------
2018 2017 2017
GBPm GBPm GBPm
---------------------------------------- ------- ------- -------
Free cash flow 85.2 82.4 146.4
Net growth capital expenditure (4.2) (3.0) (13.2)
Net inflow from discontinued operations 1.2 29.9 27.5
Acquisitions (net of cash acquired) (58.9) (52.9) (101.5)
Dividends (47.3) (42.9) (64.7)
Other, including foreign exchange (10.2) (8.8) (4.4)
---------------------------------------- ------- ------- -------
Net funds flow (34.2) 4.7 (9.9)
---------------------------------------- ------- ------- -------
Net debt (922.1) (873.3) (887.9)
---------------------------------------- ------- ------- -------
Growth capital expenditure during the period of GBP4.2 million
included infrastructure to support the mobilisation of the RRX
contract in our German rail operations and further investment in
new technology, ticketing and digital platforms in our UK
operations.
We have continued our strategy of making selective bolt-on
acquisitions where the returns and strategic fit justify the
investment, and in the period we completed seven such investments:
four in our North America division and three in ALSA, for total
consideration of GBP111.9 million of which GBP65.4 million is
deferred. Deferred consideration for acquisitions made in 2017 was
GBP35.6 million. We continue to deliver strong performances from
our acquisitions, delivering returns on invested capital of at
least 15%.
Net funds flow for the period was an outflow of GBP34.2 million
(2017: inflow GBP4.7m), resulting in period--end net debt of
GBP922.1 million.
The Group maintains gearing discipline by matching the currency
denomination of its debt to the currency in which EBITDA is earned.
Gearing at the end of the period was 2.3 times EBITDA, within the
Group's target range of 2-2.5 times.
Dividend
Our policy is to pay a dividend covered at least two times by
Group normalised earnings. In line with our dividend policy, we
have declared a 10.1% increase in the interim dividend to 4.69
pence reflecting these strong results.
Treasury management
The Group maintains a prudent approach to its financing and is
committed to an investment grade credit rating. The Board's policy
is to target a level of debt that allows for disciplined investment
and ample headroom on its covenants, with net debt to EBITDA in a
ratio of 2.0x to 2.5x over the medium-term. Fitch (BBB-/stable)
credit rating agency has reaffirmed its investment grade credit
rating in the second quarter of this year, with Moody's due to
review its rating later in the year (BBB-/positive outlook).
The Group's key accounting debt ratios at 30 June 2018 were as
follows:
-- Gearing ratio: 2.3 times EBITDA (31 Dec 2017: 2.3x; bank covenant not to exceed 3.5x);
-- Interest cover ratio: EBITDA 10.5 times interest (31 Dec
2017: 10.2x; bank covenant not to be less than 3.5x).
The Group has a strong funding platform that underpins the
delivery of its strategy. Core funding is provided from non-bank
sources, to provide improved certainty and maturity of funding.
At 30 June 2018, the Group had GBP1.6 billion of debt capital
and committed facilities, comprised of a GBP225 million Sterling
bond and a EUR250 million FRN, both maturing in 2020; a private
placement of EUR78 million maturing in 2021; GBP32 million and
GBP495 million revolving credit facilities ('RCF') maturing in
2021; and 2023 respectively (with two one year optional
extensions); a GBP400 million bond maturing in 2023; and GBP159
million of finance leases. At 30 June 2018, the Group's RCF were
undrawn with GBP691 million in cash and undrawn committed
facilities available.
At 30 June 2018, 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 1.8x EBITDA
earned in the US, held in US Dollars, and 2.0x 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 30 June 2018, the proportion of Group
debt at floating rates was 39% (Dec 2017: 43%).
Pensions
The Group's principal defined benefit pension schemes are all in
the UK. The combined deficit under IAS19 at 30 June 2018 was
GBP70.1 million (Dec 2017: GBP94.5m). The two principal plans are
the UK Group scheme, which is closed to new accrual, 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 contribution will
be around GBP10 million per annum until 2020.
The IAS19 valuations for the principal schemes at 30 June 2018
were as follows:
-- WM Bus: GBP115.8 million deficit (Dec 2017: GBP133.8m deficit);
-- UK Group scheme: GBP49.6 million surplus (Dec 2017: GBP43.2m surplus)
Fuel costs
Fuel cost represents approximately 7% of revenue. The Group is
fully hedged for 2018 at an average price of 34.4p per litre, 80%
hedged for 2019 at an average price of 35.0p, 57% hedged for 2020
at an average price of 33.6p and 8% hedged for 2021 at an average
price of 34.4p. As previously guided, we anticipate fuel savings of
around GBP20 million for the full year.
Impact of new accounting standards
A new accounting standard, IFRS 16, comes into effect on 1
January 2019.
IFRS 16 "Leases" will come into effect on 1 January 2019. The
standard will primarily impact the treatment of the operating
leases held by the Group, with these leases being recognised on the
balance sheet. Work is ongoing to assess the full impact of the new
standard, with an implementation project well advanced. The Group,
however, has not yet concluded on the value of right-of-use assets
and lease liabilities that will be recognised on adoption, or on
how they will impact the Group's income statement or cash flow
classification. By way of indication, the Group had gross operating
lease commitments of GBP603.9m at 31 December 2017. This does not
reflect the discounting of commitments to present value, as
required by IFRS16.
In line with the estimate disclosed in the Group's Annual Report
and Accounts for the year ending 31 December 2017, the adoption of
IFRS 9 'Financial Instruments' gave rise to transitional
adjustments to provisions of GBP24.8m (see note 1 for more detail).
Note 1 also provides details of our adoption of IFRS 15 'Revenue
from contracts with customers'. Both of these new standards came
into effect on 1 January 2018.
Summary
The Group has again delivered a strong financial performance in
the first half of the year and we remain confident about the
prospects for the full year.
Chris Davies
Group Finance Director
26 July 2018
NATIONAL EXPRESS GROUP PLC
CONDENSED GROUP INCOME STATEMENT
For six months ended 30 June 2018
Unaudited six months to 30 June
--------------------------------------------------------------- ---------
Audited
Year
Separately Separately to 31
Normalised disclosed Normalised disclosed December
result items Total result items Total Total
2018 2018 2018 2017 2017 2017 2017
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Continuing operations
Revenue 4 1,207.7 - 1,207.7 1,170.5 - 1,170.5 2,321.2
---------- ---------- --------- ---------- ---------- --------- ---------
Operating costs
before UK restructuring 4 (1,089.0) (20.6) (1,109.6) (1,058.9) (18.7) (1,077.6) (2,117.7)
UK restructuring 4 - - - - (5.6) (5.6) (5.6)
--------- ----------
Total operating
costs (1,089.0) (20.6) (1,109.6) (1,058.9) (24.3) (1,083.2) (2,123.3)
------------------------- ---- ---------- ---------- --------- ---------- ---------- --------- ---------
Group operating
profit 4 118.7 (20.6) 98.1 111.6 (24.3) 87.3 197.9
Share of results
from associates
and joint ventures 0.3 - 0.3 (3.9) - (3.9) (3.5)
Finance income 5 4.8 - 4.8 4.4 - 4.4 10.0
Finance costs 5 (23.1) - (23.1) (23.2) - (23.2) (48.0)
------------------------- ---- ---------- ---------- --------- ---------- ---------- --------- ---------
Profit before tax 100.7 (20.6) 80.1 88.9 (24.3) 64.6 156.4
Tax charge 6 (22.4) 5.3 (17.1) (21.4) 7.6 (13.8) (28.0)
------------------------- ---- ---------- ---------- --------- ---------- ---------- --------- ---------
Profit after tax
for the period from
continuing operations 78.3 (15.3) 63.0 67.5 (16.7) 50.8 128.4
Profit for the period
from discontinued
operations 7 - 0.5 0.5 - 6.4 6.4 5.9
------------------------- ---- ---------- ---------- --------- ---------- ---------- --------- ---------
Profit for the period 78.3 (14.8) 63.5 67.5 (10.3) 57.2 134.3
---------- ---------- --------- ---------- ---------- --------- ---------
Profit attributable
to equity shareholders 76.8 (14.8) 62.0 66.1 (10.3) 55.8 131.0
Profit attributable
to non-controlling
interests 1.5 - 1.5 1.4 - 1.4 3.3
---------- ---------- --------- ---------- ---------- --------- ---------
78.3 (14.8) 63.5 67.5 (10.3) 57.2 134.3
------------------------- ---- ---------- ---------- --------- ---------- ---------- --------- ---------
Earnings per share: 9
- basic earnings
per share 12.1p 10.9p 25.7p
- diluted earnings
per share 12.1p 10.9p 25.5p
Normalised earnings
per share:
- basic earnings
per share 15.0p 13.0p 29.1p
- diluted earnings
per share 15.0p 13.0p 29.0p
Earnings per share
from continuing
operations:
- basic earnings
per share 12.0p 9.7p 24.5p
- diluted earnings
per share 12.0p 9.7p 24.4p
------------------------- ---- ---------- ---------- --------- ---------- ---------- --------- ---------
NATIONAL EXPRESS GROUP PLC
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 June 2018
Unaudited Unaudited Audited
six months six months year
to to to
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
------------------------------------------------- ----------- ----------- ------------
Profit for the period 63.5 57.2 134.3
Items that will not be reclassified subsequently
to profit or loss:
Actuarial gains/(losses) on defined benefit
pension plans 23.1 (11.0) (14.0)
Deferred tax on actuarial gains/(losses) (4.4) 2.0 2.1
------------------------------------------------- ----------- ----------- ------------
18.7 (9.0) (11.9)
------------------------------------------------- ----------- ----------- ------------
Items that may be reclassified subsequently
to profit or loss:
Exchange differences on retranslation of
net assets of foreign operations
(net of hedging) 3.1 (12.6) (15.2)
Exchange differences on retranslation of
non-controlling interests - 0.4 0.7
Tax on exchange differences 0.8 (0.3) 1.0
Gains/(losses) on cash flow hedges 21.9 (31.6) (18.5)
Less: reclassification adjustments for gains
or losses included in profit 3.9 13.3 23.6
Deferred tax on cash flow hedges (4.5) 3.0 (3.4)
------------------------------------------------- ----------- ----------- ------------
25.2 (27.8) (11.8)
------------------------------------------------- ----------- ----------- ------------
Comprehensive income/(expenditure) for the
period 43.9 (36.8) (23.7)
------------------------------------------------- ----------- ----------- ------------
Total comprehensive income for the period 107.4 20.4 110.6
------------------------------------------------- ----------- ----------- ------------
Total comprehensive income attributable
to:
----------- ----------- ------------
Equity shareholders 105.9 18.6 106.6
Non-controlling interests 1.5 1.8 4.0
----------- ----------- ------------
107.4 20.4 110.6
------------------------------------------------- ----------- ----------- ------------
NATIONAL EXPRESS GROUP PLC
CONDENSED GROUP BALANCE SHEET
At 30 June 2018
Unaudited Unaudited Audited
30 June 30 June 31 December
2018 2017 2017
Note GBPm GBPm GBPm
------------------------------------ ---- --------- --------- ------------
Non-current assets
Intangible assets 1,711.8 1,532.5 1,633.4
Property, plant and equipment 975.4 974.8 968.2
Available for sale investments 7.1 8.0 8.1
Derivative financial instruments 10 21.3 15.5 13.4
Deferred tax assets 32.9 52.3 41.4
Investments accounted for using
the equity method 11.7 10.8 11.3
Trade and other receivables 4.7 16.7 20.1
Defined benefit pension assets 11 49.6 39.8 43.2
------------------------------------ ---- --------- --------- ------------
2,814.5 2,650.4 2,739.1
------------------------------------ ---- --------- --------- ------------
Current assets
Inventories 26.3 25.9 24.9
Trade and other receivables 390.6 319.1 356.3
Derivative financial instruments 10 21.1 10.7 15.4
Current tax assets - - 1.5
Cash and cash equivalents 163.5 78.0 314.3
Assets classified as held for sale 14.0 - -
------------------------------------ ---- --------- --------- ------------
615.5 433.7 712.4
------------------------------------ ---- --------- --------- ------------
Total assets 3,430.0 3,084.1 3,451.5
------------------------------------ ---- --------- --------- ------------
Non-current liabilities
Borrowings (1,044.8) (817.1) (1,058.0)
Derivative financial instruments 10 - (13.0) (1.3)
Deferred tax liability (51.4) (79.0) (60.0)
Other non-current liabilities (11.8) (11.4) (36.0)
Defined benefit pension liabilities 11 (119.7) (129.1) (137.7)
Provisions (49.5) (57.0) (65.4)
------------------------------------ ---- --------- --------- ------------
(1,277.2) (1,106.6) (1,358.4)
------------------------------------ ---- --------- --------- ------------
Current liabilities
Trade and other payables (793.0) (623.0) (672.4)
Borrowings (61.8) (158.7) (167.4)
Derivative financial instruments 10 (3.4) (25.8) (9.8)
Current tax liabilities (22.3) (13.0) (11.6)
Provisions (70.0) (58.1) (65.5)
(950.5) (878.6) (926.7)
------------------------------------ ---- --------- --------- ------------
Total liabilities (2,227.7) (1,985.2) (2,285.1)
------------------------------------ ---- --------- --------- ------------
Net assets 1,202.3 1,098.9 1,166.4
------------------------------------ ---- --------- --------- ------------
Shareholders' equity
Called up share capital 25.6 25.6 25.6
Share premium account 532.7 532.7 532.7
Capital redemption reserve 0.2 0.2 0.2
Own shares (2.0) (3.0) (6.0)
Other reserves 206.8 165.9 181.6
Retained earnings 414.6 358.2 410.9
------------------------------------ ---- --------- --------- ------------
Total shareholders' equity 1,177.9 1,079.6 1,145.0
Non-controlling interest in equity 24.4 19.3 21.4
------------------------------------ ---- --------- --------- ------------
Total equity 1,202.3 1,098.9 1,166.4
------------------------------------ ---- --------- --------- ------------
NATIONAL EXPRESS GROUP PLC
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2018
Capital
Share Share Redemption Own Other Retained Non-controlling
capital premium reserve shares reserves earnings* Total* interests Total*
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- -------- -------- ---------- ------- --------- --------- --------- --------------- ---------
At 1 January
2018 25.6 532.7 0.2 (6.0) 181.6 386.1 1,120.2 21.4 1,141.6
---------------- -------- -------- ---------- ------- --------- --------- --------- --------------- ---------
Profit for the
period - - - - - 62.0 62.0 1.5 63.5
Comprehensive
income for the
period - - - - 25.2 18.7 43.9 - 43.9
---------------- -------- -------- ---------- ------- --------- --------- --------- --------------- ---------
Total
comprehensive
income - - - - 25.2 80.7 105.9 1.5 107.4
Shares purchased - - - (2.8) - (2.8) - (2.8)
Own shares
released
to equity
employee
share schemes - - - 6.8 - (6.8) - - -
Share based
payments - - - - - 2.3 2.3 - 2.3
Tax on share
based
payments - - - - - (0.4) (0.4) - (0.4)
Dividends - - - - - (47.3) (47.3) - (47.3)
Dividends
payable
to
non-controlling
interests - - - - - - - (0.6) (0.6)
Other movements
with
non-controlling
interests - - - - - - - 2.1 2.1
---------------- -------- -------- ---------- ------- --------- --------- --------- --------------- ---------
At 30 June 2018
(unaudited) 25.6 532.7 0.2 (2.0) 206.8 414.6 1,177.9 24.4 1,202.3
---------------- -------- -------- ---------- ------- --------- --------- --------- --------------- ---------
* opening balances have been restated for the adoption of IFRS 9
'Financial instruments' (see note 1).
Capital
Share Share Redemption Own Other Retained Non-controlling
capital premium reserve shares reserves earnings Total interests Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- -------- -------- ---------- ------- --------- --------- --------- --------------- ---------
At 1 January
2017 25.6 532.7 0.2 (7.8) 194.1 362.0 1,106.8 18.7 1,125.5
---------------- -------- -------- ---------- ------- --------- --------- --------- --------------- ---------
Profit for the
period - - - - - 55.8 55.8 1.4 57.2
Comprehensive
income for the
period - - - - (28.2) (9.0) (37.2) 0.4 (36.8)
---------------- -------- -------- ---------- ------- --------- --------- --------- --------------- ---------
Total
comprehensive
income - - - - (28.2) 46.8 18.6 1.8 20.4
Shares purchased - - - (4.4) - -- (4.4) - (4.4)
Own shares
released
to satisfy
employee
share schemes - - - 9.2 - (9.2) - - -
Share based
payments - - - - - 2.2 2.2 - 2.2
Tax on share
based
payments - - - - - (0.4) (0.4) - (0.4)
Dividends - - - - - (42.9) (42.9) - (42.9)
Dividends
payable
to
non-controlling
interests - - - - - - - (1.1) (1.1)
Other movements
with
non-controlling
interests - - - - - (0.3) (0.3) (0.1) (0.4)
---------------- -------- -------- ---------- ------- --------- --------- --------- --------------- ---------
At 30 June 2017
(unaudited) 25.6 532.7 0.2 (3.0) 165.9 358.2 1,079.6 19.3 1,098.9
---------------- -------- -------- ---------- ------- --------- --------- --------- --------------- ---------
NATIONAL EXPRESS GROUP PLC
CONDENSED GROUP STATEMENT OF CASH FLOWS
For the six months ended 30 June 2018
Unaudited Unaudited Audited
six months six months year
to 30 to 30 to
June June 31 December
2018 2017 2017
Note GBPm GBPm GBPm
-------------------------------------------- ---- ----------- ----------- ------------
Cash generated from operations 14 160.6 181.2 359.0
Tax paid (1.9) (3.8) (14.1)
Interest paid (23.0) (43.2) (62.5)
Interest received 7.2 10.8 13.1
-------------------------------------------- ---- ----------- ----------- ------------
Net cash flow from operating activities 142.9 145.0 295.5
-------------------------------------------- ---- ----------- ----------- ------------
Cash flows from investing activities
Payments to acquire businesses, net
of cash acquired 12 (22.3) (5.7) (48.2)
Deferred consideration for businesses
acquired 12 (35.6) (45.8) (49.0)
Proceeds from disposal of business,
net of cash disposed 0.7 43.9 42.8
Purchase of property, plant and equipment (58.8) (63.8) (124.6)
Proceeds from disposal of property,
plant and equipment 7.5 4.5 17.9
Payments to acquire intangible assets (6.6) (1.3) (11.9)
Receipts/(payments) relating to associates
and investments 0.8 (0.9) -
Net cash flow from investing activities (114.3) (69.1) (173.0)
-------------------------------------------- ---- ----------- ----------- ------------
Cash flows from financing activities
Finance lease principal payments (20.3) (19.0) (34.4)
Increase in borrowings - 95.3 328.1
Repayment of borrowings (98.7) (351.8) (356.7)
(Payments)/receipts for the maturity
of foreign currency swaps (10.8) 1.1 5.7
Purchase of own shares (2.8) (4.2) (8.1)
Dividends paid to non-controlling interests (0.1) (0.2) (1.1)
Payments for equity in non-controlling
interests - (0.4) (0.2)
Dividends paid to shareholders of the
Company (47.3) (42.9) (64.7)
-------------------------------------------- ---- ----------- ----------- ------------
Net cash flow from financing activities (180.0) (322.1) (131.4)
-------------------------------------------- ---- ----------- ----------- ------------
Decrease in cash and cash equivalents (151.4) (246.2) (8.9)
-------------------------------------------- ---- ----------- ----------- ------------
Opening cash and cash equivalents 314.3 324.4 324.4
Decrease in cash and cash equivalents (151.4) (246.2) (8.9)
Foreign exchange 0.6 (0.2) (1.2)
-------------------------------------------- ---- ----------- ----------- ------------
Closing cash and cash equivalents 163.5 78.0 314.3
-------------------------------------------- ---- ----------- ----------- ------------
NATIONAL EXPRESS GROUP PLC
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS
For the six months ended 30 June 2018
1. General information
These condensed interim financial statements for the six months
ended 30 June 2018 do not comprise statutory accounts within the
meaning of section 434 of the Companies Act 2006. Statutory
accounts for the year ended 31 December 2017 were approved by the
board of directors on 1 March 2018 and delivered to the Registrar
of Companies. The report of the auditors on those accounts was
unqualified, did not contain an emphasis of matter paragraph and
did not contain any statement under Section 498 of the Companies
Act 2006.
The Group's Annual Report and Accounts for the year ended 31
December 2017 were prepared in accordance with IFRS as adopted by
the European Union. The condensed interim financial statements
included in this half-yearly financial report have been prepared in
accordance with International Accounting Standard 34 'Interim
Financial Reporting', as adopted by the European Union.
Figures for the year ended 31 December 2017 have been extracted
from the Group's Annual Report and Accounts for the year ended
2017. The interim results are unaudited but have been reviewed by
the Group's auditor.
Going concern
The Directors have reviewed assumptions about current trading
performance, and have taken account of reasonably possible adverse
changes to performance impacting availability of resources over the
time period assessed. The Directors confirm that they have a
reasonable expectation that the Group has adequate resources to
continue in operation for the period to 31 December 2019, and
accordingly the Directors continue to adopt the going concern basis
of accounting in preparing the financial statements.
Accounting policies
The accounting policies adopted in the preparation of the
condensed interim financial statements are consistent with those
followed in the preparation of the Group's 2017 Annual Report and
Accounts, except for the adoption of new standards effective as of
1 January 2018.
Taxes on income in the interim periods are accrued using the tax
rate that is expected to apply to total annual earnings.
The Group has applied for the first time IFRS 9 'Financial
instruments' and IFRS 15 'Revenue from contracts with customers'.
As required by IAS 34, the nature and effect of these changes are
disclosed below.
IFRS 9 Financial Instruments
This standard addresses the classification, measurement and
de-recognition of financial assets and liabilities. The standard
also introduces new rules for hedge accounting and a new impairment
model for financial assets.
The new impairment model in IFRS 9 requires the recognition of
impairment provisions on expected credit losses rather than
incurred credit losses under IAS 39. For trade and other
receivables we have applied the simplified approach as permitted by
IFRS 9 and for significant portfolios of receivables have
determined expected credit losses using the matrix method. This
change in accounting policy has resulted in a transitional increase
in provisions of GBP24.8m.
Hedge accounting for the period has been prepared in accordance
with IFRS 9. There has been no financial impact to the opening
position or to the movements in the period as a result of the new
standard and our hedging relationships remain highly effective.
The Group has applied the new rules prospectively from 1 January
2018. The reclassifications and adjustments referred to above have
been recognised in the opening balance sheet as at 1 January 2018
as follows:
31 December 1 January
2017 Remeasurements 2018
GBPm GBPm GBPm
---------------------------- ----------- -------------- ---------
Current assets
Trade and other receivables 356.3 (24.8) 331.5
712.4 (24.8) 687.6
---------------------------- ----------- -------------- ---------
Total assets 3,451.5 (24.8) 3,426.7
----------------------------- ----------- -------------- ---------
Net assets 1,166.4 (24.8) 1,141.6
----------------------------- ----------- -------------- ---------
Shareholders' equity
Retained earnings 410.9 (24.8) 386.1
----------------------------- ----------- -------------- ---------
Total equity 1,166.4 (24.8) 1,141.6
----------------------------- ----------- -------------- ---------
IFRS 15 'Revenue from contracts with customers'
IFRS 15 establishes the principles for reporting the nature,
amount, timing and uncertainty of revenue and cash flows arising
from customers. The new standard is based on the principle that
revenue is recognised when control of a good or service transfers
to the customer.
The adoption of IFRS 15 has had no material impact on Group
revenue recognition. With regard to disclosures, a new numerical
disaggregation of revenue has been presented in note 4. A brief
description of the types of revenue included in the note is as
follows:
Contract revenues
For the purposes of disclosure, the Group has applied the term
contract revenues to describe documented contracts that typically
cover periods of at least one year, excluding grants and subsidies.
The contracts primarily relate to home to school and transit
contracts in North America, urban bus contracts in Spain and
certain coach contracts in the UK. Revenues are recognised as the
services are provided and in accordance with the terms of the
contract.
Passenger revenues
Passenger revenues primarily relate to ticket sales in the UK,
German Rail, intercity coach services in Spain and urban bus
services in Morocco. Ticket sales revenue is recognised by
reference to the date of customer travel. Revenue from tickets that
cover more than one day, for example monthly travel cards and
season tickets, are initially deferred as a liability and released
to the income statement over the period of the ticket.
Passenger revenue in German Rail is allocated between the
various transport providers in each region by the tariff authority
responsible for that region, and is recognised based on passenger
counts, tariff authority estimates and historical trends.
Grants and subsidies
Grants and subsidies are received in the UK, ALSA and German
Rail. For the UK and ALSA, revenues are recognised as the services
are provided and in accordance with the terms of the contracts.
In German Rail, subsidy income is recognised over the life of
the franchise and based on contractual entitlements including,
where appropriate, indexation and other adjustments made or
expected to be made to the subsidy entitlement. In accordance with
IAS 20, the subsidy income recognised in each period reflects a
systematic allocation of the total contractual subsidy entitlement,
based on the expected profile of the underlying cost base which the
subsidy is intended to compensate.
Private hire
Private hire operations are contracts provided in the UK, ALSA
and North America divisions and are typically of a short duration.
Revenue is recognised over the period in which the private hire is
provided to the customer.
Other revenues
Other revenues primarily comprise non-passenger services in
Spain, transit software income in North America and advertising
revenues.
New accounting standards not yet applied
The Group has not yet applied IFRS 16 'Leases', which becomes
effective on 1 January 2019.
A project to assess the impact of IFRS 16 is at an advanced
stage and will complete in the coming months. The assessment has
focused on all of the Group's existing operating and finance
leases, as well as considering other contractual arrangements to
identify whether they constitute a lease under the definitions of
the new standard.
Given that the project has not finalised, it is not possible to
disclose the amount of right-of-use assets and new lease
liabilities that will be recognised on adoption of the standard, or
how this will affect the Group's income statement and
classification of cash flows.
By way of indication, IFRS 16 will primarily affect the
accounting for the Group's operating leases, to which the Group had
commitments of GBP603.9m at 31 December 2017. This is a gross value
and does not reflect a discounting of the commitments to their
present value, as required by IFRS 16.
Short term and low-value leases are excluded and will continue
to be charged to the income statement on a straight-line basis over
the term of the lease. The Group estimates that only a small
proportion of the existing operating leases will relate to payments
for short-term and low value leases.
IFRS 16 will be adopted on 1 January 2019 and management intend
to apply the modified retrospective approach on transition.
Seasonality
The Group operates a diversified portfolio of bus, coach and
rail businesses operating in international markets. The North
American bus business typically earns higher operating profits for
the first half of the year (i.e. the 6 months to 30 June) than for
the second half. This is because of the timing of school terms and
the summer holiday period. The UK and Spanish coach businesses
typically earn lower operating profits for the first half of the
year than the second half. This is because of the higher demand
created by leisure travellers during the summer months. On a Group
basis, the results are not materially seasonal in nature.
2. Exchange rates
The most significant exchange rates to UK Sterling for the Group
are as follows:
Six months to Six months to Year to 31 December
30 June 2018 30 June 2017 2017
Closing Average Closing Average Closing Average
rate rate rate rate rate rate
---------------- ------- ------- ------- ------- ---------- ---------
US dollar 1.32 1.38 1.30 1.26 1.35 1.29
Canadian dollar 1.73 1.76 1.69 1.68 1.70 1.67
Euro 1.13 1.14 1.14 1.16 1.13 1.14
---------------- ------- ------- ------- ------- ---------- ---------
If the results for the 6 months to 30 June 2017 had been
retranslated at the average exchange rates for the period to 30
June 2018, North America would have achieved normalised operating
profit of GBP51.2m on revenue of GBP499.1m, compared to normalised
operating profit of GBP55.7m on revenue of GBP543.0m as reported,
and ALSA would have achieved a normalised operating profit of
GBP39.7m on revenue of GBP325.3m, compared to normalised operating
profit of GBP38.8m on revenue of GBP318.1m as reported.
3. Risks and uncertainties
The principal risks and uncertainties are described in the
Financial Review. Additional information on risks and uncertainties
is contained on pages 36-40 in the Group's Annual Report and
Accounts for the year ended 2017.
4. Segmental analysis
The Group's reportable segments have been determined based on
reports issued to and reviewed by the Group Executive Committee,
and are organised in accordance with the geographical regions in
which they operate and nature of services that they provide.
Management considers the Group Executive Committee to be the chief
decision-making body for deciding how to allocate resources and for
assessing operating performance.
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 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 disaggregated by reportable segment, class and type
of service as follows:
Six months to 30 June 2018
-----------------------------------------------------------------
Contract Passenger Grants Private Other
Analysis by class and revenues revenues and subsidies hire revenues Total
reportable segment GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- --------- --------- -------------- ------- --------- -------
UK 13.0 217.8 27.0 6.3 9.5 273.6
German Rail - 21.0 15.2 - 2.3 38.5
ALSA 94.6 216.7 7.8 18.7 10.3 348.1
North America 502.4 - - 38.1 7.0 547.5
---------------------------- --------- --------- -------------- ------- --------- -------
Total 610.0 455.5 50.0 63.1 29.1 1,207.7
---------------------------- --------- --------- -------------- ------- --------- -------
Analysis by major service
type:
---------------------------- --------- --------- -------------- ------- --------- -------
Passenger transport 610.0 455.5 50.0 63.1 10.2 1,188.8
Other products and
services - - - - 18.9 18.9
Total 610.0 455.5 50.0 63.1 29.1 1,207.7
---------------------------- --------- --------- -------------- ------- --------- -------
Six months to 30 June 2017
-----------------------------------------------------------------
Contract Passenger Grants Private Other
Analysis by class and revenues revenues and subsidies hire revenues Total
reportable segment GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- --------- --------- -------------- ------- --------- -------
UK 12.2 215.1 28.6 4.5 10.9 271.3
German Rail - 20.7 16.8 - 0.6 38.1
ALSA 89.1 191.4 8.3 18.9 10.4 318.1
North America 498.8 - - 38.6 5.6 543.0
---------------------------- --------- --------- -------------- ------- --------- -------
Total 600.1 427.2 53.7 62.0 27.5 1,170.5
---------------------------- --------- --------- -------------- ------- --------- -------
Analysis by major service
type:
---------------------------- --------- --------- -------------- ------- --------- -------
Passenger transport 600.1 427.2 53.7 62.0 9.7 1,152.7
Other products and
services - - - - 17.8 17.8
Total 600.1 427.2 53.7 62.0 27.5 1,170.5
---------------------------- --------- --------- -------------- ------- --------- -------
There are no material inter-segment sales between reportable
segments.
Operating profit is analysed by reportable segment as
follows:
Intangible Intangible
Normalised amortisation Normalised amortisation
operating for acquired Segment operating for acquired Segment
profit businesses result profit businesses UK restructuring result
Analysis by class and 2018 2018 2018 2017 2017 2017 2017
reportable segment GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ---------- ------------- ------- ---------- ------------- ---------------- -------
UK 31.6 (0.5) 31.1 26.0 (0.4) (5.6) 20.0
German Rail 1.1 (0.5) 0.6 1.7 (0.5) - 1.2
ALSA 42.8 (5.3) 37.5 38.8 (4.3) - 34.5
North America 55.7 (14.3) 41.4 55.7 (13.5) - 42.2
Central functions (12.5) - (12.5) (10.6) - - (10.6)
-------------------------- ---------- ------------- ------- ---------- ------------- ---------------- -------
Operating profit from
continuing operations 118.7 (20.6) 98.1 111.6 (18.7) (5.6) 87.3
Share of results from
associates and joint
ventures 0.3 (3.9)
Net finance costs (18.3) (18.8)
-------------------------- ---------- ------------- ------- ---------- ------------- ---------------- -------
Profit before tax 80.1 64.6
Tax charge (17.1) (13.8)
-------------------------- ---------- ------------- ------- ---------- ------------- ---------------- -------
Profit after tax for
the period from
continuing
operations 63.0 50.8
Profit for the period
from discontinued
operations 0.5 6.4
Profit for the period 63.5 57.2
-------------------------- ---------- ------------- ------- ---------- ------------- ---------------- -------
5. Net finance costs
Six months Six months Year to
to to 31 Dec
30 June 30 June 2017
2018 2017 GBPm
GBPm GBPm
----------------------------------------- ---------- ---------- -------
Bank and bond interest payable (18.9) (19.3) (38.0)
Finance lease interest payable (2.3) (2.0) (3.9)
Other interest payable (0.2) (0.4) (2.7)
Unwind of provision discounting (0.5) (0.5) (1.3)
Interest cost on defined benefit pension
obligations (1.2) (1.0) (2.1)
----------------------------------------- ---------- ---------- -------
Finance costs (23.1) (23.2) (48.0)
Other financial income 4.8 4.4 10.0
----------------------------------------- ---------- ---------- -------
Net finance costs (18.3) (18.8) (38.0)
----------------------------------------- ---------- ---------- -------
6. Taxation
Tax on profit on ordinary activities for the six months to 30
June 2018 has been calculated on the basis of the estimated annual
effective rate for the year ending 31 December 2018. The normalised
tax charge of GBP22.4m (2017 interim: GBP21.4m) represents an
effective tax rate on normalised profit before tax for continuing
operations of 22% (2017 interim: 24%). The total tax charge of
GBP17.1m (2017 interim: GBP13.8m) includes a deferred taxation
charge of GBP0.6m (2017 interim: GBP0.7m).
7. Discontinued operations
On 24 June 2018 the Group handed back the Midland Metro tram
operations to the West Midlands Combined Authority. This operation
was recognised as discontinued in the 2017 Annual Report, along
with the disposal of the National Express Thameside 'c2c' franchise
to Trenitalia and overall exit from UK rail operations that
year.
Details of the discontinued operations are as follows:
Six months Six months
to to Year to
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
----------------------------------------- ---------- ---------- ------------
Revenue 5.0 25.3 29.7
Operating costs (6.1) (26.2) (31.2)
----------------------------------------- ---------- ---------- ------------
Trading loss before tax (1.1) (0.9) (1.5)
One-off costs relating to discontinued
operations - (7.0) (7.0)
Gross profit on disposal of discontinued
operations - 12.9 12.9
----------------------------------------- ---------- ---------- ------------
Net (loss)/profit from discontinued
operations before tax (1.1) 5.0 4.4
Attributable income tax credit 1.6 1.4 1.5
----------------------------------------- ---------- ---------- ------------
Net profit from discontinued operations
attributable to equity shareholders 0.5 6.4 5.9
----------------------------------------- ---------- ---------- ------------
The net cash flows incurred by the discontinued operations
during the period are as follows. These cash flows are included
within the Group Statement of Cash Flows:
Six months Six months
to to Year to
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
--------------------------------------- ---------- ---------- ------------
Cash inflow/(outflow) from operating
activities 1.2 (13.5) (14.8)
Cash outflow from investing activities - (0.5) (0.5)
Net cash inflow/(outflow) 1.2 (14.0) (15.3)
--------------------------------------- ---------- ---------- ------------
8. Dividends paid and proposed
Six months Six months
to to Year to
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
------------------------------------- ---------- ---------- ------------
Declared and paid during the period:
Ordinary final dividend for 2016
of 8.41p per share - 42.9 42.9
Ordinary interim dividend for 2017
of 4.26p per share - - 21.8
Ordinary final dividend for 2017
of 9.25p per share 47.3 - -
------------------------------------- ---------- ---------- --------------
Six months Six months
to to Year to
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
----------------------------------------- ---------- ---------- ------------
Proposed for approval and not recognised
at period end:
Ordinary interim dividend for 2017
of 4.26p per share - 21.8 -
Ordinary final dividend for 2017
of 9.25p per share - - 47.3
Ordinary interim dividend for 2018
of 4.69p per share 23.9 - --
----------------------------------------- ---------- ---------- --------------
9. Earnings per share
Six months Six months
to to Year to
30 June 30 June 31 December
2018 2017 2017
------------------------------------------- ---------- ---------- ------------
Basic earnings per share 12.1p 10.9p 25.7p
------------------------------------------- ---------- ---------- ------------
Normalised basic earnings per share 15.0p 13.0p 29.1p
------------------------------------------- ---------- ---------- ------------
Basic earnings per share from continuing
operations 12.0p 9.7p 24.5p
------------------------------------------- ---------- ---------- ------------
Diluted earnings per share 12.1p 10.9p 25.5p
------------------------------------------- ---------- ---------- ------------
Normalised diluted earnings per share 15.0p 13.0p 29.0p
------------------------------------------- ---------- ---------- ------------
Diluted earnings per share from continuing
operations 12.0p 9.7p 24.4p
------------------------------------------- ---------- ---------- ------------
Basic earnings per share is calculated by dividing the profit
attributable to equity shareholders of GBP62.0m (2017 interim:
GBP55.8m; 2017 full year: GBP131.0m) by the weighted average number
of ordinary shares in issue during the period, excluding those held
by employees' share ownership trusts and held as own shares which
are both treated as cancelled.
For diluted earnings per share, the weighted average number of
ordinary shares in issue is adjusted to include the weighted
average number of ordinary shares that would be issued on the
conversion of all the dilutive potential ordinary shares into
ordinary shares.
The reconciliation of the weighted average number of ordinary
shares is as follows:
Six months Six months Year to
to to 31 December
30 June 30 June 2017
2018 2017
---------------------------------- ----------- ----------- ------------
Basic weighted average shares 510,654,886 509,862,298 510,407,865
Adjustment for dilutive potential
ordinary shares 310,922 504,834 2,336,951
---------------------------------- ----------- ----------- ------------
Diluted weighted average shares 510,965,808 510,367,132 512,744,816
---------------------------------- ----------- ----------- ------------
The normalised basic and normalised diluted earnings per share
have been calculated in addition to the basic and diluted earnings
per share since, in the opinion of the Directors, they reflect the
underlying performance of the business' operations more
appropriately.
The reconciliation of statutory profit to normalised profit for
the financial period is as follows:
Six months Six months Year to
to to 31 December
30 June 30 June 2017
2018 2017 GBPm
GBPm GBPm
------------------------------------------- ---------- ---------- ------------
Profit attributable to equity shareholders 62.0 55.8 131.0
------------------------------------------- ---------- ---------- ------------
Intangible asset amortisation for
acquired businesses 20.6 18.7 38.0
UK restructuring costs - 5.6 5.6
Separately disclosed tax (5.3) (7.6) (20.0)
Profit for the period from discontinued
operations (0.5) (6.4) (5.9)
------------------------------------------- ---------- ---------- ------------
Normalised profit attributable to
equity shareholders 76.8 66.1 148.7
------------------------------------------- ---------- ---------- ------------
10. Derivative financial assets and liabilities
The Group's multi-national transport operations and debt
financing expose it to a variety of financial risks, including the
effects of changes in fuel prices, foreign currency exchange rates
and interest rates. The Group has in place a risk management
programme that seeks to limit the adverse effects of these
financial risks on the financial performance of the Group by means
of derivative financial instruments.
As at 30 June 2018 the Group's portfolio of hedging instruments
included fuel price derivatives, foreign exchange derivatives and
interest rate derivatives. The fuel price derivatives are in place
to hedge the changes in price of the different types of fuel used
in each division. The foreign exchange derivatives are in place to
hedge the foreign exchange risk on translation of net assets
denominated in foreign currency. In addition, the Group holds two
GBP50.0 million denominated interest rate derivatives to swap fixed
interest on GBP100m of the Group's Sterling bonds to a floating
rate and two EUR39.25m denominated interest rate derivatives equal
in value to a Euro Private Placement.
These derivative financial instruments are held in the balance
sheet at fair value and are measured using level 2 inputs. The fair
value is either determined by the third-party financial institution
with which the Group holds the instrument, in line with the market
value of similar financial instruments, or by the use of valuation
techniques using market data. The Group has no financial
instruments with fair values that are determined by reference to
significant unobservable inputs i.e. those that would be classified
as level 3 in the fair value hierarchy, other than deferred
contingent consideration and available for sale investments, which
are considered immaterial. There have not been any transfers of
assets or liabilities between levels of the fair value hierarchy
and there are no non-recurring fair value measurements.
The Group applies relevant hedge accounting to all derivatives
outstanding as at 30 June 2018. All hedge relationships were
effective under the rules of IFRS 9.
Derivative financial assets and liabilities on the balance sheet
are as follows:
At At At
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
--------------------------------- -------- -------- ------------
Non-current
Fuel derivatives 11.9 0.4 2.5
Interest rate derivatives 8.4 10.7 10.0
Cross currency swaps 1.0 4.4 0.9
--------------------------------- -------- -------- ------------
Derivative financial assets 21.3 15.5 13.4
--------------------------------- -------- -------- ------------
Current
Fuel derivatives 19.4 2.2 7.9
Interest rate derivatives 0.6 1.9 4.2
Foreign exchange derivatives 1.1 6.6 3.3
Derivative financial assets 21.1 10.7 15.4
--------------------------------- -------- -------- ------------
Non-current
Fuel derivatives - 13.0 1.3
Derivative financial liabilities - 13.0 1.3
--------------------------------- -------- -------- ------------
Current
Fuel derivatives 0.4 21.1 3.9
Cross currency swaps - - 4.1
Foreign exchange derivatives 3.0 4.7 1.8
Derivative financial liabilities 3.4 25.8 9.8
--------------------------------- -------- -------- ------------
11. Pensions and other post-employment benefits
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, legacy rail defined benefit scheme. The
post-employment benefits for these schemes have been combined into
the 'Other' category below.
The assets of the defined benefits schemes are held separately
from those of the Group and contributions to the schemes are
determined by independent professionally qualified actuaries.
The total pension operating cost for the six months to 30 June
2018 was GBP4.7m (2017 interim: GBP3.9m; 2017 full year: GBP8.7m),
of which GBP2.4m (2017 interim: GBP1.9m; 2017 full year: GBP3.9m)
relates to the defined contribution schemes.
The defined benefit pension asset/(liability) included in the
balance sheet is as follows:
At At At
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
UK (115.8) (124.9) (133.8)
Company 49.6 39.8 43.2
Other (3.9) (4.2) (3.9)
-------- -------- -------- ------------
Total (70.1) (89.3) (94.5)
-------- -------- -------- ------------
The net defined benefit pension asset/(liability) was calculated
based on the following assumptions:
Six months ended Year ended 31 December
30 June 2018 2017
------------------------------- ------------------ ------------------------
UK Company UK Company
------------------------------- --------- ------- --------- -------------
Rate of increase in salaries 2.5% 2.5% 2.5% 2.5%
Rate of increase in pensions 2.1% 3.1% 2.2% 3.2%
Discount rate 2.7% 2.7% 2.5% 2.5%
Inflation rate (RPI) 3.1% 3.1% 3.2% 3.2%
Inflation rate (CPI) 2.1% 2.1% 2.2% 2.2%
------------------------------- --------- ------- --------- -------------
12. Business Combinations
(a) Acquisitions - North America
During the period, the North American division acquired 100%
control of four businesses in the US, none of which are material
individually:
- Quality Bus Service LLC - school bus and charter bus services
in Sparrowbush, NY
- Aristocrat Limousine & Bus Company - charter bus services
in Parsippany, NJ
- A&S Transportation Inc - school bus transportation
services in Naples, FL
- A1A Transportation Inc - school bus transportation services in
Davie, FL
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 14.7
Property, Plant and Equipment 3.0
Trade and other receivables 6.1
Cash and other equivalents 0.6
Trade and other payables (8.9)
Provisions (7.8)
Deferred tax assets 9.3
------------------------------------ -----
Net assets acquired 17.0
Goodwill 25.0
------------------------------------ -----
Total consideration 42.0
------------------------------------ -----
Represented by:
---------------------------------- -----
Cash consideration 33.2
Payments for cash acquired in the
business 0.6
Deferred consideration 8.2
------------------------------------ -----
42.0
---------------------------------- -----
The fair value adjustments made in respect of acquisitions
during the period are provisional and will be finalised within 12
months of the acquisition date, principally in relation to the
valuation of intangible assets and provisions acquired.
Trade and other receivables had a gross contracted value of
GBP6.2m, and the best estimate at acquisition date of the
contractual cash flows not to be collected was GBP0.1m.
Goodwill of GBP25.0m arising from the acquisitions consists of
certain intangibles that cannot be separately identified and
measured due to their nature. This includes control over the
acquired business 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 GBP4.6m relating to four acquisitions. For these
acquisitions, the Group is required to pay an indemnity contingent
on the performance of sellers' indemnification obligations or other
post-closing obligations under the acquisition agreements. The
payments are dependent on meeting the respective conditions, with a
minimum expected undiscounted payment of GBPnil and maximum
expected undiscounted payment of GBP4.6m. Based on projections, the
Group expects the maximum amount to be paid. The amount recognised
is undiscounted as the effect of discounting is not material.
The acquired businesses contributed GBP8.3m of revenue and
GBP2.4m to the Group's profit for the periods between acquisition
and the Balance Sheet date. Had the acquisitions been completed on
the first day of the financial year, the Group's continuing revenue
would have been GBP1,215.5m and the Group's continuing operating
profit would have been GBP99.2m.
(b) Acquisitions - ALSA
During the period, the ALSA division acquired a controlling
interest in three businesses in Spain, none of which are material
individually:
- Argabus SA (100%) - commuter urban and charter bus services in
Madrid area, Spain
- BC Tours (75%) - tourist charter, other transportation
services and coastal trade in Palma de Mallorca, Spain
- Autos Cal Pita SA (97%) - regional and charter bus services in
Galicia, Spain
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 26.6
Property, Plant and Equipment 11.5
Trade and other receivables 4.2
Cash and other equivalents 23.6
Debt and debt equivalents (1.7)
Trade and other payables (6.4)
Provisions (5.0)
Deferred tax assets 0.6
Minority interests (2.1)
------------------------------------ -----
Net assets acquired 51.3
Goodwill 18.6
------------------------------------ -----
Total consideration 69.9
------------------------------------ -----
Represented by:
---------------------------------- -----
Cash consideration 4.5
Payments for cash acquired in the
business 8.2
Deferred consideration* 57.2
------------------------------------ -----
69.9
---------------------------------- -----
* Deferred consideration includes net cash of GBP13.7m
The fair value adjustments made in respect of acquisitions
during the period are provisional and will be finalised within 12
months of the acquisition date, principally in relation to the
valuation of intangible assets and provisions acquired.
Trade and other receivables had a fair value and a gross
contracted value of GBP4.2m. The best estimate at acquisition date
of the contractual cash flows not to be collected was GBPnil.
Goodwill of GBP18.6m arising from the acquisitions consists of
certain intangibles that cannot be separately identified and
measured due to their nature. This includes control over the
acquired business and increased scale in our operations in Spain,
along with synergy benefits expected to be achieved.
Included in the consideration shown above is contingent
consideration of GBP2.6m relating to Autos Cal Pita SA. The Group
is required to pay consideration on renewal of contracts on a one
year to two year basis. The payment is dependent on meeting the
respective conditions, with a minimum expected undiscounted payment
of GBPnil and maximum expected undiscounted payment of GBP2.6m.
Based on projections, the Group expects the maximum amount to be
paid. The amount recognised is undiscounted as the effect of
discounting is not material.
The acquired businesses contributed GBP3.5m of revenue and
GBP1.2m to the Group's profit for the periods between acquisition
and the Balance Sheet date. Had the acquisitions been completed on
the first day of the financial year, the Group's continuing revenue
would have been GBP1,218.8m and the Group's continuing operating
profit would have been GBP98.8m.
(c) Acquisitions - further information
Deferred consideration of GBP35.4m was paid in the period
relating to acquisitions in North America in earlier years. Total
cash outflow in the period from acquisitions in the North America
division was GBP68.6m, comprising consideration for current year
acquisitions of GBP33.8m and deferred consideration of GBP35.4m,
less cash acquired in the business of GBP0.6m.
In addition for North America, during the period there was a
decrease to the provisional fair values of businesses acquired in
the prior year of GBP4.0m.
Deferred consideration of GBP0.2m was paid in the period
relating to acquisitions in the ALSA division in earlier years.
Total cash inflow in the period from acquisitions in the ALSA
division was GBP10.7m, comprising consideration for current year
acquisitions of GBP12.7m and deferred consideration of GBP0.2m,
less cash acquired in the business of GBP23.6m.
In addition for ALSA, during the period there was an increase to
the provisional fair values of businesses acquired in the prior
year of GBP1.4m.
During the period to 30 June 2018, the movement in the Group's
carrying value of goodwill principally relates to these
acquisitions.
(d) Disposals
There have been no material business disposals in the
period.
13. Net debt
At 30
At 1 January Cash Acquisitions Foreign Other June
2018 Flow & disposals Exchange movements 2018
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ------------ -------- ------------ --------- ---------- -----------
Components of financing
activities
Bank and other loans (115.6) 98.7 - 0.3 (0.3) (16.9)
Bonds (851.9) - - 1.0 1.2 (849.7)
Fair value of interest
rate derivatives 10.3 - - - (1.9) 8.4
Fair value of foreign
exchange swaps 1.5 10.8 - (14.2) - (1.9)
Cross currency swaps 1.0 - - 2.2 - 3.2
Finance lease obligations (173.1) 20.3 (1.7) (2.7) (1.7) (158.9)
Other debt payable (73.6) - - 0.3 0.3 (73.0)
-------------------------- ------------ -------- ------------ --------- ---------- -----------
Total components of
financing facilities (1,201.4) 129.8 (1.7) (13.1) (2.4) (1,088.8)
-------------------------- ------------ -------- ------------ --------- ---------- -----------
Cash 100.7 (32.5) 24.2 0.6 - 93.0
Overnight deposits 4.9 (1.9) - - - 3.0
Other short-term deposits 208.7 (141.2) - - - 67.5
-------------------------- ------------ -------- ------------ --------- ---------- -----------
Cash and cash equivalents 314.3 (175.6) 24.2 0.6 - 163.5
-------------------------- ------------ -------- ------------ --------- ---------- -----------
Other debt receivables 0.7 - - 0.6 - 1.3
Remove: Fair value of
foreign exchange swaps (1.5) (10.8) - 14.2 - 1.9
-------------------------- ------------ -------- ------------ --------- ---------- -----------
Net debt* (887.9) (56.6) 22.5 2.3 (2.4) (922.1)
-------------------------- ------------ -------- ------------ --------- ---------- -----------
At 30
At 1 January Cash Acquisitions Foreign Other June
2017 Flow & disposals Exchange movements 2017
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ------------ ------- ------------ --------- ---------- -------
Components of financing
activities
Bank and other loans (13.3) (93.5) (0.3) (1.8) (0.2) (109.1)
Bonds (983.2) 350.0 - - 2.7 (630.5)
Fair value of interest
rate derivatives 14.4 - - - (3.7) 10.7
Fair value of foreign
exchange swaps (3.9) (1.1) - 6.8 - 1.8
Cross currency swaps 11.1 - - (6.1) - 5.0
Finance lease obligations (159.5) 19.0 (1.1) 7.1 (19.8) (154.3)
Other debt payable (72.4) - - (1.9) 0.7 (73.6)
-------------------------- ------------ ------- ------------ --------- ---------- -------
Total components of
financing facilities (1,206.8) 274.4 (1.4) 4.1 (20.3) (950.0)
-------------------------- ------------ ------- ------------ --------- ---------- -------
Cash 72.3 1.2 (14.9) (0.2) - 58.4
Overnight deposits 3.5 0.6 - - - 4.1
Other short-term deposits 248.6 (233.1) - - 15.5
-------------------------- ------------ ------- ------------ --------- ---------- -------
Cash and cash equivalents 324.4 (231.3) (14.9) (0.2) - 78.0
-------------------------- ------------ ------- ------------ --------- ---------- -------
Other debt receivables 0.5 - - - - 0.5
Remove: Fair value of
foreign exchange swaps 3.9 1.1 - (6.8) - (1.8)
-------------------------- ------------ ------- ------------ --------- ---------- -------
Net debt* (878.0) 44.2 (16.3) (2.9) (20.3) (873.3)
-------------------------- ------------ ------- ------------ --------- ---------- -------
* Excludes accrued interest on long-term borrowings
Borrowings include non-current interest bearing loans and
borrowings of GBP1,044.8m (2017 interim: GBP817.1m; 2017 full year:
GBP1,058.0m).
Other non-cash movements represent finance lease additions of
GBP1.7m (2017 interim: GBP19.8m) and a GBP0.7m reduction from the
amortisation of loan and bond arrangement fees (2017 interim:
GBP0.5m). A GBP1.9m 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 GBP1.6m fair value
increase in bonds and a GBP0.3m fair value increase in other debt
payable.
14. Cash flow statement
The reconciliation of Group profit before tax to cash generated
from operations is as follows:
Six months Six months
to to Year to
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
---------------------------------------------- ---------- ---------- ------------
Net cash inflow from operating activities
Profit before tax from continuing operations 80.1 64.6 156.4
Loss before tax from discontinued operations
(note 7) (1.1) (0.9) (1.5)
---------------------------------------------- ---------- ---------- ------------
Total profit before tax 79.0 63.7 154.9
Net finance costs 18.3 18.8 38.0
Share of results from associates and
joint ventures (0.3) 3.9 3.5
Depreciation of property, plant and equipment 66.3 71.2 135.6
Intangible asset amortisation 22.3 18.7 41.6
Amortisation of fixed asset grants (0.2) (0.3) (1.0)
Profit on disposal property, plant and
equipment (3.8) (1.0) (5.4)
Share-based payments 2.3 2.0 5.3
Increase in inventories (0.6) (1.2) (0.5)
Increase in receivables (43.5) (28.8) (52.7)
Increase in payables 34.0 46.3 62.5
Decrease in provisions (13.2) (12.1) (22.8)
---------------------------------------------- ---------- ---------- ------------
Cash generated from operations 160.6 181.2 359.0
---------------------------------------------- ---------- ---------- ------------
15. Commitments and contingencies
Capital commitments
Capital commitments contracted but not provided at 30 June 2018
were GBP58.1m (2017 full year: GBP32.7m).
Contingent liabilities
Guarantees
The Group has guaranteed credit facilities totalling GBP24.1m
(2017 full year: GBP24.7m) relating to certain joint ventures.
Bonds and letters of credit
In the ordinary course of business, the Group is required to
issue counter-indemnities in support of its operations. As at 30
June 2018, there were Rail performance bonds of GBP6.3m (2017 full
year: GBP6.3m). The Group has other performance bonds which include
performance bonds in respect of businesses in the US of GBP194.6m
(2017 full year: GBP148.3m) and in Spain of GBP41.2m (2017 full
year: GBP41.9m). There are also bonds relating to operations in the
Middle East of GBP6.0m (2017 full year: GBP5.9m). Letters of credit
have been issued to support insurance retentions of GBP95.8m (2017
full year: GBP91.9m).
16. Related party transactions
There have been no material changes to the related party
balances disclosed in the Group's 2017 Annual Report and there have
been no transactions which have materially affected the financial
position or performance of the Group in the six months to 30 June
2018.
17. Definitions
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 7.
Underlying revenue compares the current period with the prior
period on a consistent basis, after adjusting for the impact of
currency.
Constant currency basis compares current period's results with
the prior period's results translated at the current period'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, 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 period
attributable to shareholders, divided by the weighted average
number of shares in issue, excluding those held in the Employee
Benefit Trust which are treated as cancelled.
Safety Incidents measure those for which the Group is
responsible and is based on the Fatalities and Weighted Injuries
Index used in the UK Rail industry.
Independent Review Report to National Express Group PLC
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2018 which comprises the Condensed Group
Income Statement, the Condensed Group Statement of Comprehensive
Income, the Condensed Group Balance Sheet, the Condensed Group
Statement of changes in Equity, Condensed Group Statement of Cash
Flows and the related notes 1 to 17. We have read the other
information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the company those matters we are required to state to it
in an independent review report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company, for our review
work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34 "Interim
Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2018 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
Birmingham, United Kingdom
26 July 2018
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR BELLLVDFZBBV
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