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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Stagecoach Group Plc | LSE:SGC | London | Ordinary Share | GB00B6YTLS95 | ORD 125/228P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 104.70 | 104.80 | 105.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMSGC
RNS Number : 1372R
Stagecoach Group PLC
07 December 2016
7 December 2016
Stagecoach Group plc - Interim results for the half-year ended 29 October 2016
Earnings per share in line with expectations, investing for growth
-- Adjusted earnings per share* 14.4 pence (H1 2016: 17.0 pence) -- Interim dividend per share up 8.6% to 3.8 pence (H1 2016: 3.5 pence) -- Profit before tax GBP89.5m (H1 2016: GBP90.8m) -- Further investment in new vehicles and technology
o net capital expenditure* GBP125.5m (H1 2016: GBP83.9m)
-- Bid for new South Western rail franchise submitted, current franchise extended to August 2017
-- Our expectation of 2016/17 adjusted earnings per share broadly unchanged
Financial summary
Hot Features
Premium
Results excluding Statutory results
intangible
asset expenses
and exceptional
items(*)
H1 2017 H1 2016 H1 2017 H1 2016
--------------------------- --------- --------- --------- ---------
Revenue (GBPm) 2,002.1 1,970.4 2,002.1 1,970.4
--------------------------- --------- --------- --------- ---------
Total operating profit
(GBPm) 117.0 144.6 108.9 137.2
Non-operating exceptional - - (2.8) -
items (GBPm)
Net finance charges
(GBPm) (16.6) (23.1) (16.6) (46.4)
--------------------------- --------- --------- --------- ---------
Profit before taxation
(GBPm) 100.4 121.5 89.5 90.8
Earnings per share
(pence) 14.4p 17.0p 12.7p 12.8p
Interim dividend per
share (pence) 3.8p 3.5p 3.8p 3.5p
--------------------------- --------- --------- --------- ---------
* see definitions in note 23 to the condensed
financial statements
Chief Executive, Martin Griffiths, said:
"We are pleased with the performance of the business in the face of a challenging and uncertain political and economic environment. We have met our expectations of earnings per share for the first half of the year.
"We see positive long-term prospects for public transport and have increased the interim dividend by 8.6%. We have a growth strategy built on continued investment, value-for-money travel and high customer satisfaction and we have made further significant investments to improve our bus and rail services for customers now and in the future. There is a large market opportunity for modal shift from cars to public transport against a backdrop of population growth, urbanisation, technological advancements, and increasing pressure to tackle road congestion and improve air quality.
"We remain confident that we can continue to deliver long-term value to our customers and shareholders. The prospects for growth in public transport in the UK and North America remain good and we are continuing to invest to ensure that our businesses are a central part of that growth."
Copies of this announcement are available on the Stagecoach Group website at http://www.stagecoach.com/investors/financial-analysis/reports/2016.aspx
For further information, please contact:
Stagecoach Group plc www.stagecoachgroup.com
Investors and analysts
Ross Paterson, Finance Director 01738 442111 Bruce Dingwall, Group Financial Controller 01738 442111
Media
Steven Stewart, Director of Corporate Communications 07764 774680
Notes to Editors
Stagecoach Group
-- Stagecoach is an international public transport group, with operations in the UK, mainland Europe, the United States and Canada. The Group employs around 40,000 people, and operates around 13,000 buses, coaches, trains and trams.
-- Stagecoach is one of the UK's biggest bus and coach operators with around 8,500 buses and coaches on a network stretching from south-west England to the Highlands and Islands of Scotland. Low-cost coach service, megabus.com, operates a network of inter-city services across the UK. We also operate some contracted coach services in mainland Europe.
-- Stagecoach is a major UK rail operator, running the South West Trains, Island Line and East Midlands Trains networks. It also has a 49% shareholding in Virgin Rail Group, which operates the West Coast rail franchise, and a 90% shareholding in Virgin Trains East Coast, which operates the East Coast rail franchise.
-- Stagecoach operates the Supertram light rail network in Sheffield.
-- In North America, Stagecoach operates around 2,300 buses and coaches in the United States and Canada. megabus.com operates a network of inter-city coach services in North America. Stagecoach is also involved in operating commuter, transit, contracted, charter, airport shuttle and sightseeing services.
Interim management report
As announced in our 2016 Annual Report, the Group will report its annual results from 2016/17 onwards based on a financial year ending on the Saturday nearest to 30 April. The half-year results for each year will be for the first twenty six weeks of the relevant financial year. The Directors of Stagecoach Group plc are pleased to present their report on the Group for the twenty six weeks ended 29 October 2016. Comparatives are presented for the six months to 31 October 2015.
Description of the business
Stagecoach Group plc is a public limited company that is incorporated, domiciled and has its registered office in Scotland. Its ordinary shares are publicly traded and it is not under the control of any single shareholder. The Company has its primary listing on the London Stock Exchange. Throughout this document, Stagecoach Group plc is referred to as "the Company" and the group headed by it is referred to as "Stagecoach" or "the Group".
The Group is a leading international public transport group, with operations in the UK, mainland Europe, the United States and Canada. A description of each of the Group's operating divisions is given on pages 3 to 6 of its 2016 Annual Report.
Overview
We have achieved our expectation of earnings per share for the twenty six weeks ended 29 October 2016. Revenue for the period was up 1.6% at GBP2,002.1m (H1 2016: GBP1,970.4m). Total operating profit (before intangible asset expenses and exceptional items) was GBP117.0m (H1 2016: GBP144.6m). Earnings per share before intangible asset expenses and exceptional items ("adjusted earnings per share") were 14.4p (H1 2016: 17.0p), with the year-on-year decrease principally due to the anticipated fall in operating profit from our UK Rail Division.
We have declared an interim dividend up 8.6% to 3.8p per share (H1 2016: 3.5p). This is consistent with our policy of generally setting the interim dividend per share at approximately one-third of the rate for the previous full financial year. The dividend is payable to shareholders on the register at 10 February 2017 and will be paid on 8 March 2017. Shareholders who wish to participate in the dividend re-investment plan for this dividend should elect to do so by 15 February 2017. Election requests should be made to the Company's registrars in good time before that date.
Across all of our divisions, we have continued to see subdued revenue trends relative to the stronger growth we have delivered over the last ten years or so. We continue to take steps to boost revenue with the long-term success of the Group in mind. Our approach to pricing and investment is intended to ensure that we do not adversely affect the Group's long-term prospects in how we respond to weaker revenue trends in the short-term.
In the UK and North America, we have seen revenue growth in both the bus and rail sectors affected by sustained low fuel prices that have resulted in heightened competition from cars and airlines. We have taken proactive steps to respond by matching service provision with consumer demand, whilst also identifying and progressing initiatives to generate passenger revenue growth.
Across the Group, our focus remains on driving growth by investing in our services and anticipating the evolving requirements of our customers to deliver safe, high quality and value-for-money travel. Local transport is central to the growth aspirations in our communities and regional economies. In UK Rail, we are able to draw on our 20 years' experience of the franchised rail market to deliver customer improvements, taxpayer value and profitable businesses in varying conditions.
A key element of our growth plan is significant investment in our digital offerings to customers, making it easier to choose greener and smarter public transport. Our bus and rail businesses are investing in better information and mobile ticketing, as well as other measures to deliver a better travel experience for our customers. We are also investing in the training and development of our teams across the Group to equip them to deliver continued excellent service to our customers. Our employees are fundamental to our success and the Board extends its thanks to them for their hard work and professionalism.
In recent months, we have strengthened the Board with new appointments. Ray O'Toole, who joined as a non-executive director in September 2016, has a wealth of strategic and senior management experience and an in-depth understanding of public transport markets. Similarly, Julie Southern, who joined as a non-executive director in October 2016, brings further considerable experience to the Board in senior finance and management roles, including in the transport sector.
Our expectation of the level of adjusted earnings per share for the full year to 29 April 2017 is broadly unchanged. We have updated our view of the mix of profits for the year, taking a more cautious view on the short-term outlook for revenue trends in our UK Bus (regional operations) Division, broadly offset by improved forecasts for UK Rail as well as finance and tax costs. There are several medium to long-term positive drivers for our businesses, including urbanisation, population growth, action to tackle road congestion, demand for improved mobility and environmental pressures. These drivers of public transport growth in general are supported by Stagecoach-specific fundamental long-term growth drivers including our long-term perspective on pricing, our continued investment through the business cycle, our significant digital and technology investment, an experienced management team and our capital discipline. We continue to benefit from a collaborative approach with our public sector partners and other stakeholders. This results in better transport networks and maximises the effectiveness of our collective resources. We remain confident that we can continue to deliver long-term value to our customers and shareholders.
Summary of financial results
Revenue by division is summarised below:
REVENUE H1 2017 H1 2016 H1 2017 H1 2016 Growth
-----------
GBPm GBPm Functional Functional %
currency currency (m)
-------- -------- ----------- ----------------------- -------
Segment revenue
UK Bus (regional
operations) 513.9 522.4 GBP 513.9 522.4 (1.6)%
megabus Europe 14.9 8.4 GBP 14.9 8.4 77.4%
UK Bus (London) 131.5 133.1 GBP 131.5 133.1 (1.2)%
North America 252.0 225.7 US$ 338.4 349.2 (3.1)%
UK Rail 1,092.3 1,083.2 GBP 1,092.3 1,083.2 0.8%
Intra-Group revenue (2.5) (2.4) GBP (2.5) (2.4)
-------- -------- ----------- ----------- ---------- -------
Group revenue 2,002.1 1,970.4
-------- --------
Operating profit by division is summarised below:
H1
OPERATING PROFIT H1 2017 H1 2016 H1 2017 2016
-----------
GBPm % margin GBPm % margin Functional
Functional currency
currency (m)
------ --------- ------ --------- ----------- ----------------
Segment operating
profit
UK Bus (regional
operations) 66.6 13.0% 71.9 13.8% GBP 66.6 71.9
megabus Europe (4.6) (30.9)% (9.2) (109.5)% GBP (4.6) (9.2)
UK Bus (London) 9.1 6.9% 10.0 7.5% GBP 9.1 10.0
North America 17.5 6.9% 18.5 8.2% US$ 23.5 28.6
UK Rail 20.5 1.9% 43.8 4.0% GBP 20.5 43.8
Group overheads (6.3) (6.9)
Restructuring costs (0.8) (1.2)
------ --------- ------
102.0 126.9
Joint ventures
- share of profit
after tax
Virgin Rail Group 13.9 13.5
Citylink 1.1 1.1
Twin America - 3.1
------ --------- ------
Total operating
profit before intangible
asset expenses 117.0 144.6
Intangible asset
expenses (8.1) (7.4)
Total operating
profit: Group operating
profit and share
of joint ventures'
profit after taxation 108.9 137.2
------ --------- ------
UK Bus (regional operations)
Financial performance
The financial performance of the UK Bus (regional operations) Division for the half-year ended 29 October 2016 is summarised below:
H1 H1 Change
2017 2016
GBPm GBPm
--------------- ------ ------ -------
Revenue 513.9 522.4 (1.6)%
Like-for-like
revenue 510.4 521.5 (2.1)%
Operating
profit* 66.6 71.9 (7.4)%
--------------- ------ ------ -------
Operating
margin* 13.0% 13.8% (80)bp
--------------- ------ ------ -------
The figures above exclude the results of the megabus.com inter-city coach business involving mainland Europe, which has been reported as a separate operating segment. The prior year figures for the UK Bus (regional operations) Division have been re-stated to exclude megabus Europe.
Like-for-like revenue was built up as follows:
H1 H1 Change
2017 2016 %
GBPm GBPm
------------------ ------- ------- ---------
Commercial
on and off
bus revenue
- megabus.com 12.2 12.7 (3.9)%
- other 300.9 306.0 (1.7)%
Concessionary
revenue 126.9 127.7 (0.6)%
------------------ ------- ------- ---------
Commercial
& concessionary
revenue 440.0 446.4 (1.4)%
Tendered
and school
revenue 49.4 54.5 (9.4)%
Contract
revenue 19.2 18.8 2.1%
Hires and
excursions 1.8 1.8 -
------------------ ------- ------- ---------
Like-for-like
revenue 510.4 521.5 (2.1)%
------------------ ------- ------- ---------
The age at which older people are entitled to free bus travel in England has been increasing in line with changes to the state pension entitlement age. Therefore, the number of older people eligible for free bus travel in England has reduced year-on-year. While that has some adverse effect on the number of concessionary passenger journeys on our bus services, it should have a positive effect on the number of commercial (i.e. where the passenger pays for his or her own travel) journeys. To understand the year-on-year revenue trends, therefore, we consider commercial and concessionary revenue together.
Like-for-like combined commercial and concessionary revenue was 1.4% lower than in the previous year. We have seen pressure on both passenger journey numbers and the yield per journey during the period.
Total like-for-like passenger journeys fell by 1.5%. Growth rates remain variable across the country. Trends in passenger journey numbers continue to be weaker than we have seen in the UK Bus (regional operations) Division in recent years. This is partly attributable to weak underlying local economic conditions in some parts of the UK, sustained lower fuel prices, worsening road congestion and increased competition from other transport providers.
In light of the pressure we have seen on our passenger journey numbers, there were no price rises on many of our tickets this year, with any increases kept to a minimum. We have continued to promote our loyalty tickets, which offer particularly good value to customers. While these decisions are reflected in the revenue trends, we consider them to be the right decisions for the long-term success of the Division.
Revenue from tendered and school services provided under contract has continued to decline, as a result of local authorities reducing spending due to budget constraints. Contract revenue, on the other hand, has grown reflecting new commercial contract work that we secured.
We continue to review and adjust our bus networks in response to changing demand. We work with transport authorities to maximise the value from their funding for socially necessary services to provide as wide a set of bus networks as possible for local communities.
Road works and worsening road congestion in many towns and cities are increasingly having a negative impact on customer use of bus services, damaging reliability and adding to operating costs. Along with other bus operators, we are increasing pressure on local authorities to take practical steps to address road congestion and invest in bus priority measures which can help improve mobility and air quality for everyone.
We remain positive on the longer term opportunities for the Division. Urbanisation, population growth, technological advancements, environmental concerns and the economic imperative to address road congestion all point to growth in the use of public transport in general, and bus services in particular.
The movement in operating margin was built up as follows:
Operating margin - H1 2016 13.8% Change in: Staff costs (2.1)% Fuel costs 1.8% Other (0.5)% Operating margin - H1 2017 13.0% ------------------- -------
The main changes in the operating margin shown above are:
-- Staff costs have continued to rise by more than inflation, against a backdrop of subdued revenue.
-- Fuel costs have reduced, reflecting market fuel prices and our fuel hedging programme.
-- Other costs have increased, including higher depreciation as a result of our continued fleet investment.
Enhanced customer experience
We are continuing to invest in the quality of our services, and initiatives to further increase customer satisfaction. We have now launched our new Stagecoach bus app which will save passengers time by providing mobile ticketing, better journey planning information and live bus tracking. We have also started the roll-out of a GBP12m initiative to deliver contactless payment for bus travel on all of our regional bus services across the UK by the end of 2018. The technology, which is already live on our Oxfordshire bus services, allows passengers to pay for their travel with contactless credit or debit card, Apple Pay and Android Pay.
Stagecoach customers across the country are already benefitting from smartcard ticketing and we are continuing to work with other bus operators to offer multi-operator products. We are pleased to have been part of the launch of Scotland's first smartcard multi-operator initiative covering Aberdeen City and Aberdeenshire, as well as the introduction of a similar initiative in Dundee. Further multi-operator schemes are set to follow in Glasgow and Edinburgh in the next few months. These projects will provide a platform to deliver multi-modal travel in partnership with transport authorities.
As well as our continuing investment in technology and digital initiatives, we continue to explore other ideas to grow passenger journeys numbers on our services. In Ashford in Kent, for example, we will shortly introduce Mercedes Benz Sprinter minibuses to replace larger vehicles on some routes. The frequency of the services will be increased with the use of smaller vehicles. Our aim is that more frequent services will be of greater appeal to customers and result in strong growth in the number of journeys made on those services.
Extending partnership
One of our strengths is the breadth of partnership working with local authorities who understand the joint responsibility we share for improving bus services for passengers. We are pleased to have signed a new partnership agreement that will deliver significant investment in improved bus services in Merseyside over the next five years. The Liverpool City Region Bus Alliance, a partnership with Merseytravel and Arriva, will deliver more than GBP25m worth of investment in bus services in the first year to boost services for existing passengers and attract more people to bus travel. Around 80% of public transport journeys in the Liverpool City Region are made by bus, with overall customer satisfaction at 89%. The partnership will provide more modern bus fleet, improved smartcard ticketing, Wi-Fi and USB charging on all new buses, joint marketing campaigns, improved bus links, and clearly defined targets around punctuality and passenger satisfaction. This builds on existing strong partnerships in several other city regions and local authority areas around the country.
Bus Services Bill
We are continuing to engage constructively with a range of stakeholders, including the UK Department for Transport and transport authorities, on the refinement of the principles and measures in the Bus Services Bill. Enhanced partnership working is central to the Bill, although we are cognisant of regulatory provisions around franchising and other measures related to accessibility and open data which affect the sector. We are continuing to focus on ensuring that the final legislation promotes partnership working, contains proper protections for passengers and taxpayers, and that these objectives are underpinned by associated Department for Transport guidance and secondary legislation. Most areas served by the Division have shown little appetite for bus franchising and, indeed, no franchising proposal outside London has ever passed the necessary test of providing a demonstrably better service while offering taxpayers value for money. Private sector capital is vital to delivering the improvements passengers demand, at a time of rapid technological change and shrinking public sector budgets.
Outlook
We continue to expect subdued revenue trends from our local bus services in the short-term and have updated the Division's forecasts for the current financial year to reflect that. We are reviewing our pricing strategy at a number of our UK Bus businesses in light of the revenue trends and the increasing proportion of sales being made "off bus". Our costs continue to be well controlled, and we have benefitted from a reduction in fuel costs this year. We continue to monitor demand and the competitive position in each of our local markets, and evaluate the financial performance of each of our depots, networks and individual routes. Based on that, changes are made to our services that we consider will support the long-term success of the business.
Notwithstanding short-term challenges, the Division continues to earn good profit margins and returns on capital. With our continued fleet and digital investment, greater urbanisation, opportunities to address rising road congestion and continued environmental concerns, we remain positive on the longer term prospects of the Division.
megabus Europe
Financial performance
The financial performance of the megabus Europe Division for the half-year ended 29 October 2016 is summarised below:
H1 H1 Change
2017 2016
GBPm GBPm
-------------------- -------- --------- --------
Revenue
and like-for-like
revenue 14.9 8.4 77.4%
Operating
loss (4.6) (9.2) 50.0%
-------------------- -------- --------- --------
Operating
margin (30.9)% (109.5)% 7,860bp
-------------------- -------- --------- --------
The Group completed the sale of the retailing part of the megabus Europe business to FlixBus on 1 July 2016. The consideration was satisfied by the issue of a loan note and the Group expects that loan note to be fully settled by the end of 2017. The Group has also agreed that it will transfer a number of vehicles to FlixBus, or a nominee of FlixBus. After taking account of costs and losses related to the sale, we have reported a pre-tax exceptional loss on the disposal of the business of GBP2.8m. We had anticipated a gain on disposal but costs have exceeded our initial forecasts.
The operating loss of GBP4.6m shown above represents the loss incurred prior to 1 July 2016, partly offset by a small profit from the continued operation since 1 July of an international network of coach services between the UK and mainland Europe. These ongoing services are operated by us under contract to FlixBus, the revenue from passengers flows to FlixBus and FlixBus pays us for the operation of the coach services.
FlixBus does not wish us to continue operating the other coach services we operated in mainland Europe prior to 1 July 2016. We are still operating services for FlixBus on the megabus.com French network but are no longer operating the other megabus.com services. Losses on all of these services since 1 July 2016 and costs associated with terminating services, where applicable, have been accounted for as part of the exceptional loss on the sale of the retail business.
UK Bus (London)
Financial performance
The financial performance of the UK Bus (London) Division for the half-year ended 29 October 2016 is summarised below:
H1 H1 Change
2017 2016
GBPm GBPm
-------------------- ------ ------ -------
Revenue
and like-for-like
revenue 131.5 133.1 (1.2)%
Operating
profit 9.1 10.0 (9.0)%
-------------------- ------ ------ -------
Operating
margin 6.9% 7.5% (60)bp
-------------------- ------ ------ -------
As expected, revenue was 1.2% below the equivalent prior year period. That reflected a net reduction in vehicle miles operated resulting from contract tenders concluded in the prior year. Revenue per vehicle mile increased 2.1%.
The results of contract tenders in the current financial year-to-date have not significantly changed our forecast vehicle miles. We have increased the number of contracts by three through tenders for new contracts.
The decrease in operating margin was expected and was built up as follows:
Operating margin - H1 2016 7.5% Change in: Staff costs (0.8)% Fuel costs 0.8% Other operating leases (0.4)% Other (0.2)% Operating margin - H1 2017 6.9% ------------------------- -------
Although the Division's fuel costs have reduced year-on-year, there is an offsetting effect from the impact of lower fuel costs on the indexation of contract revenue. Staff and other costs have continued to rise as a proportion of revenue.
Outlook
The overall outlook for the Division is positive with the London Bus operations well placed to capitalise on opportunities arising from the planned procurement of new or extended contracts by Transport for London in the next few years.
North America
Financial performance
The financial performance of the North America Division for the half-year ended 29 October 2016 is summarised below:
H1 H1 Change
2017 2016
US$m US$m
--------------- ------ ------ --------
Revenue 338.4 349.2 (3.1)%
Like-for-like
revenue 338.9 349.2 (2.9)%
Operating
profit 23.5 28.6 (17.8)%
--------------- ------ ------ --------
Operating
margin 6.9% 8.2% (130)bp
--------------- ------ ------ --------
Like-for-like revenue was built up as follows:
H1 H1 Change
2017 2016
US$m US$m
----------------- ------ ------ --------
Megabus.com 103.5 112.2 (7.8)%
Scheduled
service
- Commercial
revenue 82.6 83.6 (1.2)%
- Support
from local
authorities 6.9 6.6 4.5%
Charter 67.8 70.1 (3.3)%
Contract
services 59.5 55.8 6.6%
Sightseeing
and tour 18.6 20.9 (11.0)%
----------------- ------ ------ --------
Like-for-like
revenue 338.9 349.2 (2.9)%
----------------- ------ ------ --------
Trading at our megabus.com inter-city coach business in North America reflects the positive action we have taken to match our services with changes in demand from customers. Sustained lower fuel prices have heightened car and air competition and had an impact on operators generally across the inter-city coach market. Like-for-like revenue at megabus.com North America in the first half of the year is 7.8% below the equivalent period last year but revenue per vehicle mile was up 2.4%.
As well as having taken proactive steps to reduce the mileage operated by megabus.com in North America, we are making targeted use of smaller vehicles, to respond to market conditions and customer demand. In addition, we are moving the core operating bases of our Midwest operation from Chicago to Wisconsin and Ohio to deliver a more efficient service. Marketing activity is continuing to capitalise on the 10th anniversary of the megabus.com brand in North America, with a particular focus on digital channels to generate new customers. We remain well positioned to quickly respond to a recovery in demand by adding back mileage.
Overall like-for-like revenue at the other businesses in North America declined by 0.7% and trading remains in line with our expectations. While revenue from the more leisure-dependent activities (charter, sightseeing and tour) reduced during the half-year ended 29 October 2016, we saw better trends in our scheduled service and contract revenues. Contract revenue growth of 6.6% was a particular highlight, largely reflecting the year over year impact of new contract wins.
In October 2016, we began operating a new, park and ride, commuter bus service between Hillsborough, New Jersey, and New York City. The service operates Monday to Friday. We have an agreement with a retailer for commuters to use the retailer's available car park capacity to park their cars and catch the bus. The car park is then fully available for the retailer's own customers to use at the weekends. We continue to look for similar opportunities to develop more park and ride services.
As in the UK, the North America Division is expanding its digital initiatives. Mobile ticket sales have continued to increase, particularly on our airport express services. We will also shortly launch a refresh of our websites.
We are currently in discussions regarding several further opportunities to secure new contract business. Our experience of operating more complex contracts for mining companies may prove valuable in this regard.
The movement in the operating margin of the North America Division was built up as follows:
Operating margin - H1 2016 8.2% Change in: Staff costs (1.4)% Fuel costs 2.3% Insurance and claims costs (2.1)% Other (0.1)% ----------------------- ------- Operating margin - H1 2017 6.9% ----------------------- -------
The main changes in the operating margin shown above are:
-- Staff costs have continued to rise as a proportion of our lower revenue base.
-- The change in insurance and claims costs reflects our latest assessment of the required provision for claims on major incidents.
-- Fuel costs have reduced reflecting market fuel prices and our fuel hedging programme.
Outlook
As oil prices have stabilised, the trend in our megabus.com revenue per vehicle mile has improved. If these revenue trends continue to recover, we have the fleet capacity and operational plans to return the business to growth.
We also see growth opportunities for the Division in new contract wins but will remain disciplined in ensuring that our contract bids are designed to deliver a satisfactory rate of return on capital.
UK Rail
Financial performance
The financial performance of the UK Rail Division for the half-year ended 29 October 2016 is summarised below:
H1 H1 Change
2017 2016
GBPm GBPm
---------------- -------- -------- --------
Revenue and
like-for-like
revenue 1,092.3 1,083.2 0.8%
Operating
profit 20.5 43.8 (53.2)%
---------------- -------- -------- --------
Operating
margin 1.9% 4.0% (210)bp
---------------- -------- -------- --------
Our UK Rail Division has exceeded its year-to-date profit target. Poor Network Rail operational performance has contributed to lower than forecast passenger revenue from our rail businesses but income received from Network Rail in respect of that operational performance has helped offset that. Cost savings have also helped offset the lower than forecast revenue. However, as expected, profit declined year-on-year, with South West Trains and Virgin Trains East Coast both seeing notably reduced profitability, reflecting passenger revenue growth being insufficient to cover the combination of increased premia payments to Government and movements in operating costs.
Revenue growth across the UK rail industry has slowed over the last year. Revenue growth in our own UK Rail Division was 0.8% in the first half of the financial year. We estimate that underlying revenue growth was around 2% after normalising for differences in the timing of events between years and for one-off revenue effects. We further estimate that normalised passenger revenue growth for the UK Rail sector was also around 2%. As previously highlighted, we believe the reduced rate of growth reflects a number of factors including the following:
-- As explained above, we have experienced poor Network Rail operating performance in our UK Rail businesses, although performance has varied across the rail network, with Virgin Rail Group's West Coast franchise, for example, seeing notable improvements in Network Rail performance.
-- We have seen increased car competition, with a significant increase in fuel purchases for cars since fuel prices became permanently lower in the eyes of consumers. The impact of lower fuel prices on demand for rail travel was not immediate but we have now seen an effect.
-- Competition from airlines has also increased in light of lower fuel prices.
-- UK GDP growth has slowed. There is evidence of weakening consumer and business confidence, and we see continuing uncertainty among consumers and businesses in the context of the UK's decision to leave the European Union.
-- Price increases in January 2016 were lower than for some years, reflecting low inflation and a Government policy decision to cap increases on regulated fares at inflation (with reference to the Retail Prices Index).
-- Other factors such as increased terrorism concerns and poor weather have had some impact on revenue but to a lesser extent than the factors summarised above.
We are, however, able to draw on our 20 years' experience of the UK franchised rail market in delivering customer improvements, taxpayer value and profitable businesses. We are taking steps to mitigate the effects of lower revenue growth, focusing on cost control, as well as additional initiatives to grow revenue. We also continue to work constructively with the Department for Transport and other industry partners to meet our obligations, manage contract changes and ensure the continued stability and growth of our rail businesses.
East Midlands Trains
In September 2015, the Group agreed a new East Midlands Trains franchise with the Department for Transport, which commenced on 18 October 2015 and is scheduled to run until 4 March 2018. The Department for Transport has the option to extend the contract by up to one year on commercial terms that have been agreed and has already indicated its intention to extend the franchise to July 2018. East Midlands Trains remains Britain's most punctual long-distance train operator and has once again been rated the best train operator for customer satisfaction in the most recent Institute of Customer Service UK index. Passengers are benefitting from previously announced investment of around GBP13m under the current franchise. In addition, Network Rail is progressing with a GBP48m investment in East Nottinghamshire's railway with modern digital signalling upgrades nearing completion. This piece of work will support improved reliability for our trains running through Nottinghamshire. Looking ahead, East Midlands Trains recently published a report using input from local stakeholders to outline the need for new trains, extra carriages and other measures to continue driving faster economic growth for the region. The Government recently issued a prospectus for the next East Midlands franchise which is due to start in 2018.
South West Trains
The UK Government has now formally extended our South West Trains franchise until August 2017.
Work is nearing completion on the delivery of a GBP50m package of investment to provide a more personal customer service and easier end-to-end journeys. We have now opened the South West Trains video contact centre, which provides real time help and advice to passengers across the network. The centre is connected to a network of new state-of-the-art video ticket machines. In December 2016, South West Trains is launching new links to London for many communities across the West of England following the approval of the plans by the rail regulator in August 2015. Customer and stakeholder communications have started to publicise the major upgrade works being undertaken at London Waterloo, Britain's busiest station, in August 2017. It is part of a wider GBP800m Waterloo upgrade programme which will deliver a 30% increase in the station's peak-time capacity by 2019. These projects will provide the capacity to further grow revenue under the next South Western franchise.
We note that the Mayor of London, has presented the Secretary of State for Transport with a business case for the devolution of London's suburban rail services to Transport for London, including inner suburban rail services operating out of London Waterloo that currently form part of the South West Trains business. Although this transfer will not happen during our current franchise term, we will continue to monitor developments and press the case for any decisions to balance long-term capacity improvements for customers, continued value for money for taxpayers, and the retention of the benefits of an integrated rail network.
Virgin Trains East Coast
As previously highlighted, revenue at Virgin Trains East Coast is below our original plans for the franchise, although we are yet to deliver some of the major elements of our GBP140m programme of investment to transform customer journeys and increase revenue. We are nearing completion of a GBP40m programme of investment to improve the current train fleet, including leather seats and mood lighting in First Class and new red cloth seats in Standard, as well as new carpets and other fittings. Virgin Trains continues to innovate and has extended its booking horizon from the industry standard of three months to six months in advance for weekday tickets. A cross-Virgin Trains brand advertising campaign has been launched, under the "Be Bound For Glory" banner as part of our efforts to grow revenue. This includes focusing closely on those who currently take domestic flights between Scotland and London. We recently re-launched our Plane Relief promotion in which we offered up to 20,000 customers the chance to travel between Edinburgh and London for GBP15 each way on presentation of a used flight ticket. Looking ahead, a new fleet of Azuma trains is set to revolutionise travel on the East Coast franchise from 2018, providing extra capacity and cutting journey times.
We recently updated our forecast for the business. We continue to expect that the business will be profitable for the remaining franchise period to 2023 and will fully repay loans from its shareholders. That recent forecast is based upon the Group's appropriate assumptions including on future macroeconomic trends, the availability of railway infrastructure and our strong contractual positions.
We expect revenue growth to accelerate at Virgin Trains East Coast in the second half of this financial year, reflecting:
-- More stable/increasing year-on-year fuel prices supportive of modal shift back to rail; -- Targeted price changes intended to increase the average revenue per passenger mile;
-- Improving returns on marketing investment as we see a cumulative effect of successive market campaigns building on the success of the prior campaigns;
-- Increasing demand for the additional train services to Edinburgh that commenced in May 2016;
-- Additional services to Edinburgh and Leeds at weekends from December 2016;
-- Initiatives to enhance customers' experience, such as the "Beam" on-board entertainment system launched earlier in 2016.
Very recent revenue growth and forward bookings show some signs of an improving trend.
Franchising update
The Group has submitted its bid for the new South Western rail franchise, which is now expected to start in August 2017. It is one of two bidders to have been shortlisted by the Department for Transport. We are proud to have operated the network under the South West Trains brand for the past 20 years and we believe our detailed knowledge of the business and good relationships with our stakeholders and railway partners places us in a good position. We expect the operator for the franchise to be selected in early 2017.
We will continue to consider other rail bidding opportunities where we believe we can deliver benefits to passengers and add value for our investors.
Outlook
The slower UK Rail industry revenue growth experienced in the past year increases the uncertainty in outlook for the industry, particularly given its sensitivity to economic conditions. The exposure of our current rail franchises to variations in passenger revenue is partly offset by movements in amounts payable and receivable to/from the Department for Transport under contractual sharing mechanisms: revenue support at South West Trains, GDP support at Virgin Trains East Coast and GDP support and profit share at East Midlands Trains.
However, we are beginning to see signs of improving revenue growth in UK Rail. We continue with our emphasis on growing revenue, controlling costs, managing contracts and bidding selectively for franchise opportunities for the long-term success of the Division.
Group overheads
Group overheads were broadly in line with last year at GBP6.3m in the half-year ended 29 October 2016 compared to GBP6.9m in the equivalent prior year period.
Virgin Rail Group
Financial performance
The financial performance of the Group's Virgin Rail joint venture for the half-year ended 29 October 2016 is summarised below:
49% share: H1 H1
2017 2016
GBPm GBPm
------------------ ------ ------
Revenue and
like-for-like
revenue 280.1 270.0
------------------ ------ ------
Operating profit 17.1 16.6
Net finance
income 0.3 0.3
Taxation (3.5) (3.4)
------------------ ------ ------
Profit after
tax 13.9 13.5
------------------ ------ ------
Operating margin 6.1% 6.1%
------------------ ------ ------
Virgin Rail Group's West Coast rail franchise continues to perform well and that is benefitting taxpayers through profit share payments by the business to the UK Department for Transport. The franchise is continuing to perform ahead of our expectations at the time the contract was agreed. The current franchise is contracted to run until March 2018.
As well as the good financial performance, we have seen significantly improved punctuality on the West Coast services, reflecting positive work by Network Rail and Virgin Rail Group.
Virgin Rail Group continues to lead the rail industry in innovating for customers, such as being the first train company to automatically compensate customers who book advance tickets through virgintrains.com or its app if their train service is delayed. West Coast has been voted the Best UK Domestic Train Service at the Business Traveller Awards 2016. A joint advertising campaign was recently undertaken to promote the Virgin Trains brand across both the West Coast and East Coast franchises.
Revenue at West Coast Trains in the second half of last financial year was adversely affected by the severe weather in the Cumbria area and the temporary closure of Lamington viaduct in southern Scotland, which carries the West Coast mainline railway. We have also seen improving punctuality on West Coast rail services and fuel prices (which affect demand for inter-city rail travel) are now higher than last year. Given these various factors, we therefore expect the rate of revenue growth to increase in the second half of this financial year relative to the 3.7% rate reported for the first half.
In November 2016, the UK Government announced that it plans to invite bids for a new rail franchise that will combine the current West Coast Trains services with the development and introduction of High Speed 2 ("HS2") services. The franchise, the West Coast Partnership, will include responsibility for services on both the West Coast Main Line from March 2019, and designing and running the initial high speed services. The franchise will encompass the first three to five years of operation of HS2.
The Government has also confirmed that its plans will require a short-term franchise of approximately twelve months to cover the period from the end of the current West Coast franchise in March 2018 until the planned start of the West Coast Partnership franchise in March 2019. Virgin Rail Group is already in discussions with the Department for Transport with a view to agreeing commercial terms for Virgin Rail Group to continue operating the West Coast Trains business through to at least March 2019.
Our partnership with Virgin on West Coast has delivered two decades of investment, innovation and a step-change in customers' experience of rail travel, with substantial growth in passenger demand and satisfaction. We look forward to evaluating the Department for Transport's detailed specification for the new West Coast Partnership franchise in due course.
Twin America
Financial performance
Our Twin America joint venture has not made any material profit for the half-year ended 29 October 2016. In the year ended 30 April 2016, we determined that the carrying value of the Group's investment in Twin America was impaired and an impairment loss was recorded to reduce the carrying value to nil as at 30 April 2016.
A combination of difficult economic conditions and continued strong competition in the New York sightseeing market continues to make trading challenging at Twin America. The business continues to pursue a number of initiatives to boost revenue and save costs.
Litigation
In December 2012, the United States Department of Justice and the Attorney General of the State of New York initiated legal proceedings against Twin America and others alleging that the formation of Twin in 2009 was anticompetitive. Several private actions were also filed in relation to this matter. A settlement was reached with the private plaintiffs in 2014. A settlement was agreed with the US Department of Justice and the New York Attorney General's office in 2015 and has received court approval. Related to the Twin America litigation involving the Group's North America Division, the Department of Justice has investigated the conduct of company personnel in responding to discovery obligations in the investigation and litigation. The Group has co-operated with the investigation and the Department of Justice has now indicated that it does not anticipate taking any further action against the Group in respect of these matters.
Pre-exceptional EBITDA, depreciation and intangible asset expenses
Earnings before interest, taxation, depreciation, intangible asset expenses and exceptional items (pre-exceptional EBITDA) amounted to GBP191.0m (H1 2016: GBP211.8m). Pre-exceptional EBITDA can be reconciled to the financial statements as follows:
Year
H1 H1 to
2017 2016 29
GBPm GBPm Oct
2016
GBPm
------------------ -------- -------- --------
Total operating
profit before
intangible
asset expenses
and exceptional
items 117.0 144.6 201.2
Depreciation 70.5 63.6 139.1
Add back joint
venture finance
income & tax 3.5 3.6 8.9
------------------ -------- -------- --------
Pre-exceptional
EBITDA 191.0 211.8 349.2
------------------ -------- -------- --------
The income statement charge for intangible assets, increased from GBP7.4m to GBP8.1m. The increase is principally due to higher software amortisation associated with sustained investment in technology throughout the Group.
Depreciation increased from the previous year reflecting continued capital investment and the effect of foreign exchange movements on the sterling amount of depreciation for the North America Division.
Exceptional items
A pre-tax exceptional loss of GBP2.8m was recognised in the half-year ended 29 October 2016, which related to the sale of the retailing part of the megabus Europe business, as explained earlier in this report in the section headed "megabus Europe".
Net finance costs
Net finance costs, excluding exceptional items, for the half-year ended 29 October 2016 were GBP16.6m (H1 2016: GBP23.1m) and are further analysed below. The reduction in costs is principally due to the re-financing of bonds in 2015 with new bonds issued at a lower interest rate.
H1 H1
2017 2016
GBPm GBPm
------------------------ ------ ------
Finance costs,
excluding exceptional
items
Interest payable
and facility
costs on bank
loans, overdrafts
and trade finance 2.2 2.9
Hire purchase
and finance
lease interest
payable 1.0 1.1
Interest payable
and other finance
costs on bonds 10.9 14.9
Unwinding of
discount on
provisions 1.8 2.0
Interest charge
on defined benefit
pension schemes 1.9 3.2
------------------------ ------ ------
17.8 24.1
------------------------ ------ ------
Finance income
Interest receivable
on cash (0.7) (0.8)
Unwinding of
discount on
receivable (0.5) -
Effect of interest
rate swaps - (0.2)
------------------------ ------ ------
(1.2) (1.0)
------------------------ ------ ------
Net finance
costs, excluding
exceptional
items 16.6 23.1
Exceptional
items - 23.3
------------------------ ------ ------
Net finance
costs 16.6 46.4
------------------------ ------ ------
Taxation
The effective tax rate for the half-year ended 29 October 2016, excluding exceptional items, was 21.3% (H1 2016: 21.3%). This is around 1.4% higher than our expected rate for the full year ending 29 April 2017 due to the seasonality of taxable profits in different tax territories.
The tax charge can be analysed as follows:
Pre-tax
Half-year profit Tax Rate
to 29 October GBPm GBPm %
2016
------------------- -------- ------- -------
Excluding
intangible
asset expenses
and exceptional
items 104.2 (21.7) 20.8%
Intangible
asset expenses (8.1) 1.2 14.8%
------------------- -------- ------- -------
96.1 (20.5) 21.3%
Exceptional (2.8) - -
items
------------------- -------- ------- -------
93.3 (20.5) 22.0%
Reclassify
joint venture
taxation for
reporting
purposes (3.8) 3.8
------------------- -------- ------- -------
Reported in
income statement 89.5 (16.7) 18.7%
------------------- -------- ------- -------
Fuel costs
The Group's operations as at 29 October 2016 consume approximately 420m litres of diesel fuel per annum. As a result, the Group's profit is exposed to movements in the underlying price of fuel. The Group's fuel costs include the costs of delivery and duty as well as the costs of the underlying product. Accordingly, not all of the cost varies with movements in oil prices.
The proportion of the Group's projected fuel usage that is now hedged using fuel swaps is as follows:
Year ending 2017 2018 2019 2020 April ------------- ----- ----- ----- ----- Total Group 92% 78% 55% 23% ------------- ----- ----- ----- -----
The Group has no fuel hedges in place for periods beyond April 2020.
Cash flows and net debt
Consolidated net debt has, as expected, increased from 30 April 2016, reflecting additional investment in our bus fleet, the timing of interest payments associated with our 4.00% bonds, partly offset by continued cash generation from operations.
Net cash from operating activities before tax for the half-year ended 29 October 2016 was GBP142.9m (H1 2016: GBP79.1m) and can be further analysed as follows:
H1 H1
2017 2016
GBPm GBPm
---------------------- -------- --------
EBITDA of Group
companies before
exceptional items 172.5 190.5
Loss on disposal
of property,
plant and equipment 0.4 0.2
Equity-settled
share based payment
expense 1.0 1.1
Working capital
movements (20.7) (92.2)
Net interest
paid (21.1) (25.4)
Dividends from
joint ventures 10.8 4.9
Net cash flows
from operating
activities before
taxation 142.9 79.1
---------------------- -------- --------
Net debt (as analysed in note 18 to the condensed financial statements) increased from GBP399.3m at 30 April 2016 to GBP484.4m at 29 October 2016. The movement in net debt, showing train operating companies separately, was:
Half-year Train
to 29 October operating
2016 companies Other Total
GBPm GBPm GBPm
------------------------ ----------- -------- --------
EBITDA of
Group companies
before exceptional
items 30.2 142.3 172.5
Loss on disposal
of property,
plant and
equipment - 0.4 0.4
Equity-settled
share based
payment expense 0.3 0.7 1.0
Working capital
movements 2.4 (23.1) (20.7)
Net interest
paid (0.8) (20.3) (21.1)
Dividends
from joint
ventures - 10.8 10.8
Net cash
flows from
operating
activities
before taxation 32.1 110.8 142.9
Inter-company
movements (27.6) 27.6 -
Tax paid (7.4) 2.8 (4.6)
Investing
activities (12.8) (123.9) (136.7)
Financing
activities - (48.1) (48.1)
Foreign exchange/other - (38.6) (38.6)
------------------------ ----------- -------- --------
Movement
in net debt (15.7) (69.4) (85.1)
Opening net
debt 283.1 (682.4) (399.3)
------------------------ ----------- -------- --------
Closing net
debt 267.4 (751.8) (484.4)
------------------------ ----------- -------- --------
The cash held by the train operating companies at any point in time is affected by the timing of rail industry cash flows, which can be individually substantial.
The working capital movements in the half-year are principally due to seasonal variations in working capital in our bus divisions. These include insurance premia payments made at the start of the financial year for the year as a whole and a reduction in North America deferred revenue ahead of the seasonally quieter winter period.
The impact of purchases of property, plant and equipment for the half-year on net debt was GBP138.6m (H1 2016: GBP103.5m). This primarily related to expenditure on passenger service vehicles, and comprised cash outflows of GBP108.9m (H1 2016: GBP82.3m) and new hire purchase and finance lease debt of GBP29.7m (H1 2016: GBP21.2m). In addition, GBP13.1m (H1 2016: GBP19.6m) of cash was received from disposals of property, plant and equipment. Around GBP11.0m (H1 2016: GBP16.4m) of this cash received related to the UK Rail Division, where assets constructed or purchased by the Division were then sold to Network Rail.
The net impact on net debt of purchases and disposals of property, plant and equipment, split by division, was:
H1 H1
2017 2016
GBPm GBPm
------------------ ------ ------
UK Bus (regional
operations) 83.0 33.2
megabus Europe - 7.0
UK Bus (London) 0.8 1.2
North America 30.9 37.9
UK Rail 10.8 4.6
125.5 83.9
------------------ ------ ------
Financial position and liquidity
The Group maintains a good financial position with investment grade credit ratings and appropriate headroom under its debt facilities.
During the half-year ended 29 October 2016, we extended the duration of GBP480m of our committed, bi-lateral core bank facilities by a further year to October 2021.
The Group continues to have an appropriate mix of long-term debt enabling it to plan and invest with some certainty.
The Group's financial position remains strong and is evidenced by:
-- The ratio of net debt at 29 October 2016 to pre-exceptional EBITDA for the year ended 29 October 2016 was 1.4 times (H1 2016: 1.2 times).
-- Pre-exceptional EBITDA for the half-year ended 29 October 2016 was 11.7 times (H1 2016: 9.2 times) pre-exceptional net finance charges (including joint venture net finance income).
-- Undrawn, committed bank facilities of GBP252.5m at 29 October 2016 (30 April 2016: GBP281.2m) were available to be drawn as bank loans with further amounts available only for non-cash utilisation. In addition, the Group has available asset finance lines.
-- The three main credit rating agencies continue to assign investment grade credit ratings to the Group.
Capital structure
We remain positive on the opportunities to develop further the Group's business. Investment in these opportunities is underpinned by the Group's financial position and continued capital discipline. It remains the Group's objective to maintain an investment grade credit rating and that underpins the Group's financial strategy.
In particular, there are a number of UK rail franchise competitions underway or expected to be undertaken within the next two years. Those will include tenders for new South West, East Midlands and West Coast rail franchises, to succeed existing franchises in which the Group is currently involved. Significant value can be secured from winning a rail franchise, although a new franchise can have a negative short-term effect on the measures of credit worthiness used by the major credit rating agencies. Maintaining an investment grade credit rating should enable the Group to bid with confidence for franchises.
The Board is continuing with its dividend policy of seeking to grow the rate of dividend per share over time. The Group will continue to regularly review its financial strategy and capital structure.
Net assets
Net assets at 29 October 2016 were GBP155.6m (30 April 2016: GBP177.8m). The movement in the net assets reflects the good financial results for the half-year ended 29 October 2016 and fair value gains on cash flow hedges being more than offset by the actuarial losses on defined benefit pension schemes explained below and dividends paid.
Retirement benefit obligations
The reported net assets of GBP155.6m (30 April 2016: GBP177.8m), that are shown on the consolidated balance sheet are after taking account of net pre-tax retirement benefit liabilities of GBP237.6m (30 April 2016: GBP96.7m), and associated deferred tax assets of GBP45.5m (30 April 2016: GBP21.0m).
The Group recognised pre-tax actuarial losses of GBP137.1m in the half-year ended 29 October 2016 (H1 2016: pre-tax actuarial gains of GBP80.0m) on Group defined benefit schemes.
The discount rate used to determine pension scheme liabilities is determined with reference to AA-rated bond yields. As AA-rated bond yields have generally decreased in the half-year ended 29 October 2016, the forecast future cash flows to settle pension scheme liabilities are now discounted at a lower rate. This is the principal reason for the pre-tax actuarial losses and the increase in the pre-tax retirement benefit liabilities in the half-year.
Related parties
Details of significant transactions with related parties are given in note 21 to the condensed financial statements.
Principal risks and uncertainties
Like most businesses, there is a range of risks and uncertainties facing the Group. A brief summary is given below of those specific risks and uncertainties that the Directors believe could have the most significant impact on the Group's financial position and/or future financial performance. Pages 8 to 12 of the Group's 2016 Annual Report set out specific risks and uncertainties in more detail.
The matters summarised below are not intended to represent an exhaustive list of all possible risks and uncertainties. The focus below is on those specific risks and uncertainties that the Directors believe could have the most significant impact on the Group's performance. In assessing the Group's likely financial performance for the second half of the current financial year, these risks and uncertainties should be considered in addition to the matters referred to regarding seasonality in note 3 to the condensed financial statements, and the comments made later under the heading "Current trading and outlook".
-- Catastrophic events - there is a risk that the Group is involved (directly or indirectly) in a major operational incident.
-- Terrorism - there is a risk that the demand for the Group's services could be adversely affected by a significant terrorist incident.
-- Economy - the economic environment in the geographic areas in which the Group operates affects the demand for the Group's bus and rail services. The referendum in favour of the UK leaving the European Union may lead to economic, consumer and political uncertainty. That may in turn affect asset values and foreign exchange rates, which have a bearing on the amounts of our pensions, financial instruments and other balances.
-- Rail cost base - a substantial element of the cost base of the UK Rail Division is essentially fixed as under its UK rail franchise agreements, the Group is obliged to provide a minimum level of train services and is less able to flex supply in response to changes in demand.
-- Sustainability of rail profit - there is a risk that the Group's revenue and profit could be significantly affected (either positively or negatively) as a result of the Group winning UK rail franchises or failing to retain its existing franchises.
-- Breach of franchise - if the Group fails to comply with certain conditions as part of its rail franchise agreements it may be liable to penalties including potential termination of one or more of the rail franchise agreements.
-- Pension scheme funding - the Group participates in a number of defined benefit pension schemes, and there is a risk that the cash contributions required increase or decrease due to changes in factors such as investment performance, discount rates and life expectancies.
-- Insurance and claims environment - there is a risk that the cost to the Group of settling claims against it is significantly higher or lower than expected.
-- Regulatory changes and availability of public funding - there is a risk that changes to the regulatory environment or changes to the availability of public funding could affect the Group's prospects. The current UK Government's plans for greater devolution of powers within the UK could see the introduction of franchised bus networks in some areas, which could affect our bus operations.
-- Management and Board succession - there is a risk that the Group does not recruit and retain sufficient directors and managers with the skills important to the operation of the business.
-- Disease - there is a risk that demand for the Group's services could be adversely affected by a significant outbreak of disease.
-- Information security - there is a risk that potential malicious attacks on our systems lead to a loss of data or disruption to operations.
-- Information technology - there is a risk that the Group's capability to make sales digitally either fails or cannot meet levels of demand.
-- Litigation - there is a risk of commercial and consumer litigation arising from the legal environment in some markets, particularly North America.
-- Competition - in certain of the markets we operate in, there is a risk of increased competitive pressures from existing competitors and new entrants.
-- Treasury risks - the Group is affected by changes in fuel prices, interest rates and exchange rates.
Use of non-GAAP measures
Our reported interim financial information is prepared in accordance with International Financial Reporting Standards as adopted by the European Union and applied in accordance with the provisions of the Companies Act 2006. In measuring our performance, the financial measures that we use include those which have been derived from our reported results in order to eliminate factors which distort period-on-period comparisons. These are considered non-GAAP financial measures, and include measures such as like-for-like revenue, pre-exceptional EBITDA and net debt. We believe this information, along with comparable GAAP measurements, is useful to shareholders and analysts in providing a basis for measuring our financial performance. Note 23 to the condensed financial statements provides further information on these non-GAAP financial measures.
Going concern
On the basis of current financial projections and the facilities available, the Directors are satisfied that the Group has adequate resources to continue for the foreseeable future and, accordingly, consider it appropriate to adopt the going concern basis in preparing the condensed financial statements for the half-year ended 29 October 2016.
Current trading and outlook
As explained in the "overview" section earlier, our expectation of adjusted earnings per share for the year ending 29 April 2017 is broadly unchanged, although there have been some movements in the expected composition of earnings.
We see positive long-term prospects for public transport. There is a large market opportunity for modal shift from cars to public transport against a backdrop of technological advancements, rising road congestion and increasing environmental awareness. We have an organic growth strategy built on continued investment, value-for-money travel and high customer satisfaction.
Martin Griffiths
Chief Executive
7 December 2016
Responsibility Statement
We confirm that to the best of our knowledge:
(a) the condensed consolidated interim financial information contained in this document has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting" as adopted by the European Union;
(b) the interim management report contained in this document includes a fair review of the information required by the Financial Conduct Authority's Disclosure and Transparency Rules ("DTR") 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and
(c) this document includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).
By order of and on behalf of the Board
Martin Griffiths Ross Paterson
Chief Executive Finance Director
7 December 2016 7 December 2016
Cautionary statement
The preceding interim management report has been prepared for the shareholders of the Company, as a body, and no other persons. Its purpose is to assist shareholders of the Company to assess the strategies adopted by the Company and the potential for those strategies to succeed and for no other purpose. The interim management report contains forward-looking statements that are subject to risk factors associated with, amongst other things, the economic, regulatory and business circumstances occurring from time to time in the countries, sectors and markets in which the Group operates. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a wide range of variables that could cause actual results to differ materially from those currently anticipated. No assurances can be given that the forward-looking statements will be realised. The forward-looking statements reflect the knowledge and information available at the date of preparation. Nothing in the interim management report should be considered or construed as a profit forecast for the Group. Except as required by law, the Group has no obligation to update forward-looking statements or to correct any inaccuracies therein.
CONDENSED FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT
Unaudited Unaudited
---------------------------------------- ----------------------------------------
Half-year to Half-year to
29 October 2016 31 October 2015
Performance Intangibles Performance Intangibles
pre and pre and
intangibles exceptional Results intangibles exceptional Results
and items for and items for
exceptional (note the exceptional (note the
items 5) period items 5) period
Notes GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ------ ------------- ------------- ---------- ------------- ------------- ----------
Revenue 4(a) 2,002.1 - 2,002.1 1,970.4 - 1,970.4
Operating costs
and other operating
income (1,900.1) (8.1) (1,908.2) (1,843.5) (7.4) (1,850.9)
Operating profit
of Group companies 4(b) 102.0 (8.1) 93.9 126.9 (7.4) 119.5
Share of profit
of joint ventures
after net finance
income and taxation 4(c) 15.0 - 15.0 17.7 - 17.7
-------------------------- ------ ------------- ------------- ---------- ------------- ------------- ----------
Total operating
profit: Group operating
profit and share
of joint ventures'
profit after taxation 4(b) 117.0 (8.1) 108.9 144.6 (7.4) 137.2
Non-operating exceptional
items 5 - (2.8) (2.8) - - -
-------------------------- ------ ------------- ------------- ---------- ------------- ------------- ----------
Profit before interest
and taxation 117.0 (10.9) 106.1 144.6 (7.4) 137.2
Finance costs (17.8) - (17.8) (24.1) (23.3) (47.4)
Finance income 1.2 - 1.2 1.0 - 1.0
-------------------------- ------ ------------- ------------- ---------- ------------- ------------- ----------
Profit before taxation 100.4 (10.9) 89.5 121.5 (30.7) 90.8
Taxation (17.9) 1.2 (16.7) (22.3) 5.7 (16.6)
-------------------------- ------ ------------- ------------- ---------- ------------- ------------- ----------
Profit from continuing
operations and profit
after taxation for
the period 82.5 (9.7) 72.8 99.2 (25.0) 74.2
-------------------------- ------ ------------- ------------- ---------- ------------- ------------- ----------
Attributable to:
Equity holders of
the parent 82.4 (9.3) 73.1 97.8 (24.6) 73.2
Non-controlling
interests 0.1 (0.4) (0.3) 1.4 (0.4) 1.0
82.5 (9.7) 72.8 99.2 (25.0) 74.2
Earnings per share
from continuing
and total operations
- Adjusted basic/Basic 7 14.4p 12.7p 17.0p 12.8p
- Adjusted
diluted/Diluted 7 14.3p 12.7p 17.0p 12.7p
-------------------------- ------ ------------- ------------- ---------- ------------- ------------- ----------
The accompanying notes form an integral part of this consolidated income statement.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited
============ ============
Half-year Half-year
to to
29 October 31 October
2016 2015
GBPm GBPm
-------------------------------------------------------------- ------------ ------------
Profit for the period 72.8 74.2
-------------------------------------------------------------- ------------ ------------
Items that may be reclassified
to profit or loss
Cash flow hedges:
* Net fair value gains/(losses) on cash flow hedges 35.4 (58.1)
* Reclassified and reported in profit for the period 16.4 33.1
* Share of other comprehensive income/(expense) on
joint ventures' cash flow hedges 2.7 (0.6)
* Tax effect of cash flow hedges (9.8) 3.8
* Tax effect of other comprehensive (income)/expense on
joint ventures' cash flow hedges (0.5) 0.1
Foreign exchange differences on
translation of foreign operations
(net of hedging) 20.1 (3.3)
Total items that may be reclassified
to profit or loss 64.3 (25.0)
-------------------------------------------------------------- ------------ ------------
Items that will not be reclassified
to profit or loss
Actuarial (losses)/gains on Group
defined benefit pension schemes (137.1) 80.0
Tax effect of actuarial losses/(gains)
on Group defined benefit pension
schemes 24.2 (18.4)
Share of actuarial gains/(losses)
on joint ventures' defined benefit
schemes 0.8 (1.4)
Tax effect of actuarial (gains)/losses
on joint ventures' defined benefit
pension schemes (0.2) 0.3
Total items that will not be reclassified
to profit or loss (112.3) 60.5
-------------------------------------------------------------- ------------ ------------
Other comprehensive (expense)/income
for the period (48.0) 35.5
-------------------------------------------------------------- ------------ ------------
Total comprehensive income for
the period 24.8 109.7
-------------------------------------------------------------- ------------ ------------
Attributable to:
Equity holders of the parent 25.5 109.4
Non-controlling interests (0.7) 0.3
24.8 109.7
-------------------------------------------------------------- ------------ ------------
CONSOLIDATED BALANCE SHEET (STATEMENT OF FINANCIAL POSITION)
Unaudited Audited
------------ ----------
As at As at
29 October 30 April
Notes 2016 2016
GBPm GBPm
-------------------------------- -------- ------------ ----------
ASSETS
Non-current assets
Goodwill 8 154.4 136.9
Other intangible assets 9 89.2 88.7
Property, plant and equipment 10 1,239.6 1,165.2
Interests in joint ventures 11 29.4 22.4
Derivative instruments
at fair value 24.1 5.6
Retirement benefit assets 14 56.9 24.8
Other receivables 29.2 5.6
-------------------------------- -------- ------------ ----------
1,622.8 1,449.2
-------------------------------- -------- ------------ ----------
Current assets
Inventories 25.8 27.5
Trade and other receivables 408.6 382.2
Derivative instruments
at fair value 3.1 1.0
Cash and cash equivalents 341.4 382.3
Assets classified as held
for sale 12 11.8 -
-------------------------------- -------- ------------ ----------
790.7 793.0
-------------------------------- -------- ------------ ----------
Total assets 4(d) 2,413.5 2,242.2
-------------------------------- -------- ------------ ----------
LIABILITIES
Current liabilities
Trade and other payables 818.1 825.2
Current tax liabilities 46.2 33.2
Borrowings 51.0 53.6
Derivative instruments
at fair value 12.5 41.3
Provisions 19 74.1 54.9
-------------------------------- -------- ------------ ----------
1,001.9 1,008.2
-------------------------------- -------- ------------ ----------
Non-current liabilities
Other payables 45.3 45.5
Borrowings 777.8 738.2
Derivative instruments
at fair value 12.2 19.5
Deferred tax liabilities 10.3 25.6
Provisions 19 115.9 105.9
Retirement benefit obligations 14 294.5 121.5
-------------------------------- -------- ------------ ----------
1,256.0 1,056.2
-------------------------------- -------- ------------ ----------
Total liabilities 4(d) 2,257.9 2,064.4
-------------------------------- -------- ------------ ----------
Net assets 4(d) 155.6 177.8
-------------------------------- -------- ------------ ----------
EQUITY
Ordinary share capital 15 3.2 3.2
Share premium account 8.4 8.4
Retained earnings (266.2) (185.1)
Capital redemption reserve 422.8 422.8
Own shares (37.0) (34.3)
Translation reserve 21.4 1.3
Cash flow hedging reserve 1.9 (40.3)
-------------------------------- -------- ------------ ----------
Total equity attributable
to the parent 154.5 176.0
Non-controlling interests 1.1 1.8
-------------------------------- -------- ------------ ----------
Total equity 155.6 177.8
-------------------------------- -------- ------------ ----------
The accompanying notes form an integral part of this consolidated balance sheet.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Capital Cash Total Non-controlling
Notes Ordinary premium Retained redemption Translation flow equity interest Total
share account earnings reserve Own reserve hedging attributable GBPm equity
capital GBPm GBPm GBPm shares GBPm reserve to the GBPm
GBPm GBPm GBPm parent
GBPm
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Balance at 30
April
2016 and 1 May
2016 3.2 8.4 (185.1) 422.8 (34.3) 1.3 (40.3) 176.0 1.8 177.8
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Profit for the
period - - 73.1 - - - - 73.1 (0.3) 72.8
Other
comprehensive
(expense)/income
net
of tax - - (109.9) - - 20.1 42.2 (47.6) (0.4) (48.0) ------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- -------- Total comprehensive (expense)/income - - (36.8) - - 20.1 42.2 25.5 (0.7) 24.8 ------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- -------- Own ordinary shares purchased - - - - (2.7) - - (2.7) - (2.7) Credit in relation to equity-settled share based payments - - 1.0 - - - - 1.0 - 1.0 Dividends paid on ordinary shares 6 - - (45.3) - - - - (45.3) - (45.3) ------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- -------- Balance at 29 October 2016 3.2 8.4 (266.2) 422.8 (37.0) 21.4 1.9 154.5 1.1 155.6 ------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- -------- Balance at 30 April 2015 and 1 May 2015 3.2 8.4 (279.6) 422.8 (32.1) (1.8) (26.8) 94.1 0.9 95.0 ------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- -------- Profit for the period - - 73.2 - - - - 73.2 1.0 74.2 Other comprehensive income/(expense) net of tax - - 60.4 - - (3.3) (20.9) 36.2 (0.7) 35.5 ------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- -------- Total comprehensive income/(expense) - - 133.6 - - (3.3) (20.9) 109.4 0.3 109.7 ------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- -------- Own ordinary shares purchased - - - - (2.2) - - (2.2) - (2.2) Credit in relation to equity-settled share based payments - - 1.1 - - - - 1.1 - 1.1 Dividends paid on ordinary shares 6 - - (41.9) - - - - (41.9) - (41.9) ------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- -------- Balance at 31 October 2015 3.2 8.4 (186.8) 422.8 (34.3) (5.1) (47.7) 160.5 1.2 161.7 ------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
The accompanying notes form an integral part of this consolidated statement of changes in equity.
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited
------------ ------------
Half-year Half-year
to to
29 October 31 October
2016 2015
Notes GBPm GBPm
-------------------------------------- ------ ------------ ------------
Cash flows from operating activities
Cash generated by operations 16 153.2 99.6
Interest paid (21.8) (26.4)
Interest received 0.7 1.0
Dividends received from joint
ventures 10.8 4.9
-------------------------------------- ------ ------------ ------------
Net cash flows from operating
activities 142.9 79.1
Tax paid (4.6) (5.3)
-------------------------------------- ------ ------------ ------------
Net cash from operating activities
after tax 138.3 73.8
-------------------------------------- ------ ------------ ------------
Cash flows from investing activities
Disposals of businesses, net
of cash disposed of 12 (2.7) -
Purchase of property, plant
and equipment (108.9) (82.3)
Disposal of property, plant
and equipment 13.1 19.6
Purchase of intangible assets (8.5) (5.9)
Movement in loans with joint
ventures - 5.9
Net cash outflow from investing
activities (107.0) (62.7)
-------------------------------------- ------ ------------ ------------
Cash flows from financing activities
Purchase of treasury shares (2.7) (2.2)
Repayments of hire purchase
and lease finance (30.4) (17.8)
Drawdown of other borrowings 102.9 170.0
Repayment of other borrowings (100.4) (160.1)
Redemption of 5.75% sterling
bond - principal - (400.0)
Redemption of 5.75% sterling
bond - exceptional items - (23.3)
Issue of 4.00% sterling bond - 393.5
Dividends paid on ordinary
shares 6 (45.3) (41.9)
Sale of tokens 0.1 0.2
Redemption of tokens (0.2) (0.4)
-------------------------------------- ------ ------------ ------------
Net cash used in financing
activities (76.0) (82.0)
-------------------------------------- ------ ------------ ------------
Net decrease in cash and cash
equivalents (44.7) (70.9)
Cash and cash equivalents at
beginning of period 382.3 395.6
Exchange rate effects 3.8 (0.3)
-------------------------------------- ------ ------------ ------------
Cash and cash equivalents at
end of period 341.4 324.4
-------------------------------------- ------ ------------ ------------
Cash and cash equivalents for the purposes of the consolidated cash flow statement comprise cash at bank and in hand, overdrafts and other short-term highly liquid investments with maturities at the balance sheet date of twelve months or less.
The accompanying notes form an integral part of this consolidated statement of cash flows.
NOTES
1 BASIS OF PREPARATION
The condensed consolidated interim financial information for the half-year ended 29 October 2016 has been prepared in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority and International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union. The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 30 April 2016, which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The accounting policies and methods of computation applied in the consolidated interim financial information are the same as those of the annual financial statements for the year ended 30 April 2016, as described on pages 71 to 78 of the Group's 2016 Annual Report which can be found on the Stagecoach Group website at http://www.stagecoach.com/investors/financial-analysis/reports/.
The figures for this half-year include the results for all divisions for the 26 weeks to 29 October 2016. The comparative figures for the half-year ended 31 October 2015 include the results for all divisions for the six months ended 31 October 2015.
This condensed consolidated interim financial information for the half-year ended 29 October 2016 has not been audited, nor has the comparative financial information for the half-year ended 31 October 2015 but they have both been reviewed by the auditors. The comparative financial information presented in this announcement for the year ended 30 April 2016 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006 and does not reflect all of the information contained in the Company's annual financial statements. The annual financial statements for the year ended 30 April 2016, were approved by the Board of Directors on 8 July 2016, were reported on by the then auditors under sections 495 and 496 of the Companies Act 2016, received an unqualified audit report, did not contain an emphasis of matter paragraph, did not contain a statement under section 498(2) or (3) of the Companies Act 2006 and have been filed with the Registrar of Companies.
The Board of Directors approved this announcement, including the condensed consolidated interim financial information, on 7 December 2016. This announcement will be available on the Group's website at http://www.stagecoach.com/investors/financial-analysis/reports/.
New standards, amendments to standards and interpretations that are mandatory for the first time for the financial year beginning 1 May 2016, do not have any significant effect on the consolidated financial statements of the Group.
2 FOREIGN CURRENCIES
The principal rates of exchange used to translate the results of foreign operations are as follows:
Half-year Half-year Year to
to to 30 April
29 October 31 October 2016
2016 2015
------------------ ------------ ------------ ----------
US Dollar:
Period end rate 1.2149 1.5444 1.4649
Average rate 1.3426 1.5471 1.5031
Canadian Dollar:
Period end rate 1.6243 2.0206 1.8349
Average rate 1.7487 1.9824 1.9756
Euro:
Period end rate 1.1116 1.3981 1.2790
Average rate 1.2004 1.3863 1.3565
3 SEASONALITY
The Group's North American bus operations typically earn higher operating profit for the first half of the financial year (i.e. the half-year to the end of October) than for the second half. This is because leisure customers generate an element of the revenue with demand being at its strongest in the summer months.
4 SEGMENTAL ANALYSIS
The Group is managed, and reports internally, on a basis consistent with its five operating segments, being UK Bus (regional operations), megabus Europe, UK Bus (London), North America and UK Rail. The Group's IFRS accounting policies are applied consistently, where appropriate, to each segment.
The segmental information provided in this note is on the basis of five operating segments as follows:
Segment name Service operated Countries of operation
UK Bus (regional Coach and bus operations United Kingdom
operations)
megabus Europe Coach operations United Kingdom
and mainland Europe
UK Bus (London) Bus operations United Kingdom
North America Coach and bus operations USA and Canada
UK Rail Rail operations United Kingdom
The basis of segmentation and the basis on which segment profit is measured are consistent with the Group's last annual financial statements for the year ended 30 April 2016. In those annual financial statements, megabus Europe was reported as a separate segment, having previously been reported within UK Bus (regional operations). Comparative information for the half-year to 31 October 2015 has been restated accordingly.
The Group has interests in three joint ventures: Virgin Rail Group that operates in UK Rail, Citylink that operates in UK Bus (regional operations) and Twin America that operates in North America. The results of these joint ventures are shown separately in note 4(c) where material.
(a) Revenue
Due to the nature of the Group's business, the origin and destination of revenue (i.e. United Kingdom, mainland Europe or North America) is the same in all cases except in respect of an immaterial amount of revenue for services operated by megabus Europe between the UK and mainland Europe. As the Group sells bus and rail services to individuals, it has few customers that are individually "major". Its major customers are typically public bodies that subsidise or procure transport services - such customers include local authorities, transport authorities and the UK Department for Transport.
Revenue split by segment was as follows:
Unaudited Unaudited
------------ ------------
Half-year Half-year
to to
29 October 31 October
2016 2015
GBPm GBPm
---------------------------------------- ------------ ------------
UK Bus (regional operations) 513.9 522.4
megabus Europe 14.9 8.4
UK Bus (London) 131.5 133.1
North America 252.0 225.7
---------------------------------------- ------------ ------------
Total bus operations 912.3 889.6
UK Rail 1,092.3 1,083.2
---------------------------------------- ------------ ------------
Total Group revenue 2,004.6 1,972.8
Intra-Group revenue - UK Bus (regional
operations) (2.5) (2.4)
---------------------------------------- ------------ ------------
Reported Group revenue 2,002.1 1,970.4
---------------------------------------- ------------ ------------
4 SEGMENTAL ANALYSIS (CONTINUED)
(b) Operating profit
Operating profit split by segment was as follows:
Unaudited Unaudited
-------------------------------------- --------------------------------------
Half-year to 29 Half-year to 31
October 2016 October 2015
Performance Intangibles Performance Intangibles
pre and pre and
intangibles exceptional Results intangibles exceptional Results
and items for and items for
exceptional (note the exceptional (note the
items 5) period items 5) period
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ------------- ------------- -------- ------------- ------------- --------
UK Bus (regional
operations) 66.6 - 66.6 71.9 - 71.9
megabus Europe (4.6) - (4.6) (9.2) - (9.2)
UK Bus (London) 9.1 - 9.1 10.0 - 10.0
North America 17.5 - 17.5 18.5 - 18.5
-------------------------- ------------- ------------- -------- ------------- ------------- --------
Total bus operations 88.6 - 88.6 91.2 - 91.2
UK Rail 20.5 - 20.5 43.8 - 43.8
-------------------------- ------------- ------------- -------- ------------- ------------- --------
109.1 - 109.1 135.0 - 135.0
Group overheads (6.3) - (6.3) (6.9) - (6.9)
Intangible asset
expenses - (8.1) (8.1) - (7.4) (7.4)
Restructuring costs (0.8) - (0.8) (1.2) - (1.2)
-------------------------- ------------- ------------- -------- ------------- ------------- --------
Total operating
profit of Group
companies 102.0 (8.1) 93.9 126.9 (7.4) 119.5
Share of joint ventures'
profit after net
finance income and
taxation 15.0 - 15.0 17.7 - 17.7
-------------------------- ------------- ------------- -------- ------------- ------------- --------
Total operating
profit: Group operating
profit and share
of joint ventures'
profit after taxation 117.0 (8.1) 108.9 144.6 (7.4) 137.2
-------------------------- ------------- ------------- -------- ------------- ------------- --------
(c) Joint ventures
The share of profit from joint ventures was further split as follows:
Unaudited Unaudited
------------ ------------
Half-year Half-year
to to
29 October 31 October
2016 2015
GBPm GBPm
------------------------------ ------------ ------------
Virgin Rail Group (UK Rail)
Operating profit 17.1 16.6
Finance income (net) 0.3 0.3
Taxation (3.5) (3.4)
13.9 13.5
Citylink (UK Bus, regional
operations)
Operating profit 1.4 1.4
Taxation (0.3) (0.3)
------------------------------- ------------ ------------
1.1 1.1
------------------------------ ------------ ------------
Twin America (North America)
Operating profit - 3.3
Finance costs (net) - (0.1)
Taxation - (0.1)
------------------------------- ------------ ------------
- 3.1
------------------------------ ------------ ------------
Share of profit of joint
ventures after net finance
income and taxation 15.0 17.7
------------------------------- ------------ ------------
4 SEGMENTAL ANALYSIS (CONTINUED)
(d) Gross assets and liabilities
Assets and liabilities split by segment were as follows:
Unaudited Audited
--------------------------------------------- ----------------------------------------------
As at 29 October 2016 As at 30 April 2016
Net Net
Gross assets/ Gross assets/
Gross assets liabilities (liabilities) Gross assets liabilities (liabilities)
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- ------------- -------------- -------------- ------------- -------------- ---------------
UK Bus (regional
operations) 953.4 (368.8) 584.6 909.2 (283.2) 626.0
megabus Europe 28.2 (18.2) 10.0 24.2 (5.6) 18.6
UK Bus (London) 71.8 (170.1) (98.3) 74.3 (103.6) (29.3)
North America 489.6 (148.8) 340.8 391.8 (132.4) 259.4
UK Rail 431.3 (626.7) (195.4) 413.0 (635.8) (222.8)
----------------------- ------------- -------------- -------------- ------------- -------------- ---------------
1,974.3 (1,332.6) 641.7 1,812.5 (1,160.6) 651.9
Central functions 68.4 (40.0) 28.4 25.0 (53.2) (28.2)
Joint ventures 29.4 - 29.4 22.4 - 22.4
Borrowings and cash 341.4 (828.8) (487.4) 382.3 (791.8) (409.5)
Taxation - (56.5) (56.5) - (58.8) (58.8)
----------------------- ------------- -------------- -------------- ------------- -------------- ---------------
Total 2,413.5 (2,257.9) 155.6 2,242.2 (2,064.4) 177.8
----------------------- ------------- -------------- -------------- ------------- -------------- ---------------
Central assets and liabilities include the token provision, interest payable and receivable and other net assets of the holding company and other head office companies. Segment assets and liabilities are determined by identifying the assets and liabilities that relate to the business of each segment but excluding intra-Group balances, cash, borrowings, taxation, interest payable, interest receivable and the token provision.
5 EXCEPTIONAL ITEMS AND INTANGIBLE ASSET EXPENSES
The Group separately highlights intangible asset expenses and exceptional items. Exceptional items are defined in note 23.
The items shown in the column headed "Intangibles and exceptional items" on the face of the consolidated income statement for the half-year ended 29 October 2016 and the half-year ended 31 October 2015 can be further analysed as follows:
Unaudited Unaudited
----------------------------------------------- ---------------------------------------------------
Half-year to 29 October 2016 Half-year to 31 October 2015
Intangibles Intangibles
and and
Exceptional Intangible exceptional Exceptional Intangible exceptional
items asset expenses items items asset expenses items
GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------------ ---------------- --------------- ---------------- ---------------- ---------------
Operating costs
Intangible
asset expenses - (8.1) (8.1) - (7.4) (7.4)
---------------- ------------ ---------------- --------------- ---------------- ---------------- ---------------
Non-operating
exceptional
items
megabus Europe
disposal (2.8) - (2.8) - - -
Finance costs
Premium on
early
redemption of
bonds - - - (21.3) - (21.3)
Cancellation of
ineffective
interest rate
swaps - - - (2.0) - (2.0)
---------------- ------------ ---------------- --------------- ---------------- ---------------- ---------------
Finance costs - - - (23.3) - (23.3)
Intangible
asset expenses
and
exceptional
items (2.8) (8.1) (10.9) (23.3) (7.4) (30.7)
Tax effect - 1.2 1.2 4.7 1.0 5.7
---------------- ------------ ---------------- --------------- ---------------- ---------------- ---------------
Intangible
asset expenses
and
exceptional
items after
taxation (2.8) (6.9) (9.7) (18.6) (6.4) (25.0)
---------------- ------------ ---------------- --------------- ---------------- ---------------- ---------------
6 DIVIDS
Dividends on ordinary shares are shown below.
Unaudited Unaudited Audited Unaudited Unaudited Audited
--------------- --------------- --------------- --------------- --------------- ---------------
Half-year to Half-year to Half-year to Half-year to
29 October 31 October Year to 29 October 31 October Year to
2016 2015 30 April 2016 2016 2015 30 April 2016
pence per pence per pence per
share share share GBPm GBPm GBPm
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Amounts
recognised as
distributions
Dividends on
ordinary
shares:
Final dividend
in respect of
the previous
year 7.9 7.3 7.3 45.3 41.9 41.9
Interim
dividend in
respect of the
current year - - 3.5 - - 20.1
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Amounts
recognised as
distributions
to equity
holders 7.9 7.3 10.8 45.3 41.9 62.0
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Dividends
declared or
proposed but
neither paid
nor included as
liabilities in
the financial
statements
Dividends on
ordinary
shares:
Final dividend
in respect of
the current
year - - 7.9 - - 45.3
Interim
dividend in
respect of the
current year 3.8 3.5 - 21.8 20.1 -
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
3.8 3.5 7.9 21.8 20.1 45.3
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
The interim ordinary dividend of 3.8p per ordinary share was declared by the Board of Directors on 7 December 2016 and has not been included as a liability as at 29 October 2016. It is payable on 8 March 2017 to shareholders on the register at close of business on 10 February 2017.
7 EARNINGS PER SHARE
Basic earnings per share ("EPS") have been calculated by dividing the profit attributable to equity shareholders by the weighted average number of ordinary shares in issue during the period, excluding any ordinary shares held in treasury or by employee share ownership trusts.
The diluted earnings per share was calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares in relation to share based payment arrangements and long-term incentive plans.
Unaudited Unaudited
-------------- --------------
Half-year Half-year
to to
29 October 31 October
2016 2015
No. of shares No. of shares
million million
------------------------------- -------------- --------------
Basic weighted average number
of ordinary shares 573.6 573.8
Dilutive ordinary shares
- Long Term Incentive Plan - 0.2
- Executive Participation
Plan 2.2 2.1
-------------------------------- -------------- --------------
Diluted weighted average
number of ordinary shares 575.8 576.1
-------------------------------- -------------- --------------
Unaudited Unaudited
------------ ------------
Half-year Half-year
to to
29 October 31 October
2016 2015
Notes GBPm GBPm
--------------------------------- ------ ------------ ------------
Net profit attributable to
equity holders of the parent
(for basic EPS calculation) 73.1 73.2
Intangible asset expenses 5 8.1 7.4
Non-controlling interest
in intangible asset expenses (0.4) (0.4)
Exceptional items before
tax 5 2.8 23.3
Tax effect of intangible
asset expenses and exceptional
items 5 (1.2) (5.7)
Net profit attributable to
equity holders of the parent
for adjusted EPS calculation 82.4 97.8
--------------------------------- ------ ------------ ------------
Adjusted earnings per share is calculated by adding back intangible asset expenses and exceptional items (after taking account of taxation and the non-controlling interest) as shown on the consolidated income statement. We believe this information, along with comparable GAAP measurement, is useful to shareholders and analysts in providing a basis for measuring our financial performance.
8 GOODWILL
The movements in goodwill were as follows:
Unaudited Unaudited Audited
------------ ------------ ----------
Half-year Half-year Year
to to to
29 October 31 October 30 April
2016 2015 2016
GBPm GBPm GBPm
--------------------------------- ------------ ------------ ----------
Net book value at beginning
of period 136.9 132.9 132.9
Foreign exchange movements 17.5 (0.4) 4.0
--------------------------------- ------------ ------------ ----------
Net book value at end of period 154.4 132.5 136.9
--------------------------------- ------------ ------------ ----------
9 OTHER INTANGIBLE ASSETS
The movements in other intangible assets were as follows:
Unaudited Unaudited Audited
------------ ------------ ----------
Half-year Half-year Year
to to to
29 October 31 October 30 April
2016 2015 2016
GBPm GBPm GBPm
--------------------------------- ------------ ------------ ----------
Cost at beginning of period 142.9 133.4 133.4
Additions 8.5 5.9 19.6
Disposals (0.1) - (11.4)
Foreign exchange movements 4.6 (0.1) 1.3
--------------------------------- ------------ ------------ ----------
Cost at end of period 155.9 139.2 142.9
--------------------------------- ------------ ------------ ----------
Accumulated amortisation at
beginning of period (54.2) (48.7) (48.7)
Amortisation charged to income
statement (8.1) (7.4) (15.8)
Disposals - - 11.4
Foreign exchange movements (4.4) 0.1 (1.1)
--------------------------------- ------------ ------------ ----------
Accumulated amortisation at
end of period (66.7) (56.0) (54.2)
--------------------------------- ------------ ------------ ----------
Net book value at beginning
of period 88.7 84.7 84.7
--------------------------------- ------------ ------------ ----------
Net book value at end of period 89.2 83.2 88.7
--------------------------------- ------------ ------------ ----------
10 PROPERTY, PLANT AND EQUIPMENT
The movements in property, plant and equipment were as follows:
Unaudited Unaudited Audited
------------ ------------ ----------
Half-year Half-year Year
to to to
29 October 31 October 30 April
2016 2015 2016
GBPm GBPm GBPm
--------------------------------- ------------ ------------ ----------
Cost at beginning of period 2,049.4 1,913.1 1,913.1
Additions 117.9 110.9 219.6
Disposals (38.7) (52.3) (104.9)
Foreign exchange movements 102.8 (6.0) 21.6
Transferred to assets held (18.1) - -
for sale
Cost at end of period 2,213.3 1,965.7 2,049.4
--------------------------------- ------------ ------------ ----------
Depreciation at beginning of
period (884.2) (815.2) (815.2)
Depreciation charged to income
statement (70.5) (63.6) (132.2)
Impairment charged to income (3.0) - -
statement
Disposals 25.1 29.1 73.1
Foreign exchange movements (47.4) 2.6 (9.9)
Transferred to assets held 6.3 - -
for sale
Depreciation at end of period (973.7) (847.1) (884.2)
--------------------------------- ------------ ------------ ----------
Net book value at beginning
of period 1,165.2 1,097.9 1,097.9
--------------------------------- ------------ ------------ ----------
Net book value at end of period 1,239.6 1,118.6 1,165.2
--------------------------------- ------------ ------------ ----------
11 INTERESTS IN JOINT VENTURES
The movements in the carrying values of interests in joint ventures were as follows:
Unaudited Unaudited Audited
------------ ------------ ----------
Half-year Half-year Year
to to to
29 October 31 October 30 April
2016 2015 2016
GBPm GBPm GBPm
----------------------------------- ------------ ------------ ----------
Net book value at beginning
of period 22.4 57.8 57.8
Share of recognised profit/(loss) 15.0 17.7 (11.1)
Share of actuarial gains/(losses)
on defined benefit pension
schemes, net of tax 0.6 (1.1) 4.0
Share of other comprehensive
income/(expense) on cash flow
hedges, net of tax 2.2 (0.5) (0.3)
Dividends received in cash (10.8) (4.9) (28.8)
Foreign exchange movements - (0.2) 0.8
----------------------------------- ------------ ------------ ----------
Net book value at end of period 29.4 68.8 22.4
----------------------------------- ------------ ------------ ----------
A loan payable to Scottish Citylink Coaches Limited of GBP1.7m (30 April 2016: GBP1.7m) is included within current liabilities under the caption "Trade and other payables".
12 BUSINESS COMBINATIONS, DISPOSALS AND HELD-FOR-SALE
ASSETS
On 1 July 2016, the Group completed the sale of the retailing part of the megabus Europe business to FlixBus. The consideration was satisfied by the issue of a loan note and the Group expects that loan note to be fully settled by the end of 2017.
As part of the sale of the retailing part of megabus Europe, the Group has also agreed that it will transfer a number of vehicles to FlixBus, or a nominee of FlixBus. These assets have been presented as held for sale in the interim financial information and have been re-measured to the lower of carrying amount at the date of held-for-sale classification and fair value less costs to sell. At 29 October 2016, these assets amounted to GBP11.8m (30 April 2016: GBPNil).
After taking account of costs incurred as a result of the sale, we have reported an exceptional loss on the disposal of the business of GBP2.8m. The Group has also reported a cash outflow in the half-year ended 29 October 2016 of GBP2.7m in relation to the disposal - this relates to costs related to the disposal, with the amounts due from the purchaser yet to be settled in cash.
Details of acquisitions and disposals completed in earlier periods are given in the Group's annual reports for the relevant periods.
13 FINANCIAL INSTRUMENTS AND FINANCIAL RISK
MANAGEMENT
The Group is exposed to a variety of financial risks: market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk.
These condensed financial statements do not include all financial risk management information and disclosures required in the annual financial statements. They should be read in conjunction with the Group's consolidated financial statements for the year ended 30 April 2016. There have been no material changes in any of the Group's significant financial risk management policies since 30 April 2016.
Liquidity risk
During the half-year ended 29 October 2016, the following significant change to the contractual maturities of debt occurred:
-- GBP485m of unsecured bank facilities that were due to mature in October 2020 were reduced to GBP480m and extended to October 2021. As at 29 October 2016, bank loans of GBP203.4m (30 April 2016: GBP189.6m) were drawn on these facilities.
There have been no other material changes since 30 April 2016 in the contractual undiscounted cash outflows for financial liabilities.
13 FINANCIAL INSTRUMENTS AND FINANCIAL RISK
MANAGEMENT (CONTINUED)
Fair value estimation
Financial instruments that are measured in the balance sheet at fair value are disclosed by level of the following fair value measurement hierarchy.
Level 1 Quoted price (unadjusted) in active markets for identical assets or liabilities
Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly (that is, as prices) or indirectly (that is, derived from prices)
Level 3 Inputs for the assets or liability that are not based on observable market data (that is, unobservable inputs)
For recurring fair value measurements using significant unobservable inputs (Level 3), there was no impact of the measurements on profit or loss or other comprehensive income for the half-year ended 29 October 2016.
The following table presents the Group's financial assets and liabilities that are measured at fair value within the hierarchy at 29 October 2016.
Unaudited
-----------
Level
2 & Total
GBPm
------------------------------ -----------
Assets
Derivatives used for hedging 27.2
Liabilities
Derivatives used for hedging (24.7)
------------------------------ -----------
The following table presents the Group's financial assets and liabilities that are measured at fair value within the hierarchy at 30 April 2016.
Audited
-----------
Level
2 & Total
GBPm
------------------------------ -----------
Assets
Derivatives used for hedging 6.6
Liabilities
Derivatives used for hedging (60.8)
------------------------------ -----------
There were no transfers between levels during the half-year ended 29 October 2016.
13 FINANCIAL INSTRUMENTS AND FINANCIAL RISK
MANAGEMENT (CONTINUED)
The table below provides a comparison of carrying amounts and fair values of the Group's financial instruments.
Unaudited Audited
------------------------ -----------------------
Carrying Fair Value Carrying Fair value
value value
----------- ----------- ---------- -----------
29 October 29 October 30 April 30 April
2016 2016 2016 2016
GBPm GBPm GBPm GBPm
------------------------------------------------------------------- ----------- ----------- ---------- -----------
Loans and receivables
* Non-current assets - Other receivables 23.2 23.2 0.2 0.2
* Current assets - Accrued income 54.4 54.4 38.5 38.5
- Trade receivables,
net of impairment 224.8 224.8 234.6 234.6
- Other receivables 35.4 35.4 30.8 30.8
- Cash and cash equivalents 341.4 341.4 382.3 382.3
Total financial assets 679.2 679.2 686.4 686.4
----------- ----------- ---------- -----------
Financial liabilities
measured at amortised
cost
* Non-current liabilities - Accruals (5.6) (5.6) (6.0) (6.0)
- Borrowings (777.8) (819.4) (738.2) (755.6)
* Current liabilities - Trade payables (195.1) (195.1) (270.3) (270.3)
- Accruals (428.6) (428.6) (381.8) (381.8)
- Loans from joint
ventures (1.7) (1.7) (1.7) (1.7)
- Other payables (5.7) (5.7) (5.3) (5.3)
- Borrowings (51.0) (51.0) (53.6) (53.6)
----------- ----------- ---------- -----------
Total financial liabilities (1,465.5) (1,507.1) (1,456.9) (1,474.3)
----------- ----------- ---------- -----------
Net financial liabilities (786.3) (827.9) (770.5) (787.9)
----------- ----------- ---------- -----------
Derivatives that are designated as effective hedging instruments are not shown in the above table.
The fair values of financial assets and financial liabilities shown in the table are determined as follows:
-- The carrying value of cash and cash equivalents, accrued income, trade receivables, and other receivables is considered to be a reasonable approximation of fair value. The effect of credit losses not already reflected in the carrying value as impairment losses is assumed to be immaterial. Given the short average time to maturity, no specific assumptions on discount rates have been made except in respect of a loan note receivable for the disposal of a business. The loan note includes a six-month interest free period and the gross receivable has been discounted for that period at a rate equivalent to 10% per annum.
-- The carrying value of trade payables, other payables, accruals and loans from joint ventures is considered to be a reasonable approximation of fair value. Given the relatively short average time to maturity, no specific assumptions on discount rates have been made.
-- The fair value of fixed-rate notes (included in borrowings) that are quoted on a recognised stock exchange is determined with reference to the "bid" price at the balance sheet date.
-- The carrying value of fixed-rate notes that are not quoted on a recognised stock exchange and fixed-rate hire purchase and finance lease liabilities (included in borrowings) is considered to be a reasonable approximation of fair value taking account of the amounts involved in the context of total financial liabilities and the fixed interest rates relative to market interest rates at the balance sheet date.
-- The fair value of other borrowings on which interest is payable at floating rates is not considered to be materially different from the carrying value.
14 RETIREMENT BENEFITS
The Group contributes to a number of pension schemes. The principal defined benefit schemes are as follows:
-- Stagecoach Pension Schemes ("SPS") comprising
the Stagecoach Group Pension Scheme ("SGPS")
and the East London and Selkent Pension Scheme,
the latter of which was merged into SGPS during
the year ended 30 April 2016 and is now a separate
section of SGPS;
-- The South West Trains section of the Railways
Pension Scheme ("RPS");
-- The Island Line section of the Railways Pension
Scheme ("RPS");
-- The East Midlands Trains section of the Railways
Pension Scheme ("RPS");
-- The East Coast Main Line section of the Railways
Pension Scheme ("RPS");and
-- A number of UK Local Government Pension Schemes
("LGPS");
The Directors believe that separate consideration should be given to RPS as the Group has no rights or obligations in respect of sections of the scheme following expiry of the related rail franchises. In addition, under the terms of RPS, any fund deficit or surplus is shared by the employer (60%) and the employees (40%) in accordance with the shared cost nature of RPS. The employees' share of the deficit (or surplus) is reflected as an adjustment to the RPS liabilities (or assets). Therefore the liability (or asset) recognised for the relevant sections of RPS reflects that part of the net deficit (or surplus) of each section that the employer is obliged to fund (or expected to recover) over the life of the franchise to which the section relates. The "franchise adjustment" is the portion of the deficit (or surplus) that is expected to exist at the end of the franchise and for which the Group will not be obliged to fund (or entitled to recover).
In addition, the Group contributes to a number of defined contribution schemes covering UK and non-UK employees.
The movements for the half-year ended 29 October 2016 in the net pre-tax liabilities recognised in the balance sheet were as follows:
SPS RPS LGPS Other Unfunded plans Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------------ ------ ------- ------ ------ --------------- -------
Liability/(asset) at beginning of period 110.2 (24.4) 4.3 2.8 3.8 96.7
Current service cost 9.1 24.4 0.4 0.7 - 34.6
Administration costs 0.4 0.3 - - - 0.7
Net Interest cost 2.1 3.1 0.1 0.1 - 5.4
Unwinding of franchise adjustment - (3.5) - - - (3.5)
Employers' contributions (8.4) (20.4) (4.0) (0.5) (0.1) (33.4)
Actuarial losses/(gains) 171.6 (34.1) (0.8) 0.4 - 137.1
Liability/(asset) at end of period 285.0 (54.6) - 3.5 3.7 237.6
------------------------------------------ ------ ------- ------ ------ --------------- -------
The net liability at 29 October 2016 shown above is presented in the consolidated balance sheet as:
Total
GBPm
---------------------------------- --------
Retirement benefit assets 56.9
Retirement benefit obligations (294.5)
---------------------------------- --------
Net retirement benefit liability (237.6)
---------------------------------- --------
15 ORDINARY SHARE CAPITAL
At 29 October 2016, there were 576,099,960 ordinary shares in issue (30 April 2016: 576,099,960). This figure includes 2,467,204 (30 April 2016: 1,885,887) ordinary shares held in treasury, which are treated as a deduction from equity in the Group's financial statements. The shares held in treasury do not qualify for dividends.
The Group operates two Employee Share Ownership Trusts: the Stagecoach Group Qualifying Employee Share Ownership Trust ("QUEST") and the Stagecoach Group Employee Benefit Trust ("EBT"). Shares held by these trusts are treated as a deduction from equity in the Group's financial statements. Other assets and liabilities of the trusts are consolidated in the Group's financial statements as if they were assets and liabilities of the Group. As at 29 October 2016, the QUEST held 300,634 (30 April 2016: 300,634) ordinary shares in the Company and the EBT held no (30 April 2016: Nil) ordinary shares in the Company. The trusts have waived dividends on the shares they hold and therefore received no dividends during the half-year ended 29 October 2016 (half-year ended 31 October 2015: GBPNil). The trust deed for the EBT obliges the trustee to waive the right to any dividend on the shares unless and until they are vested in an individual. The trustee is confirmed not to be liable for any lost income as a result of that waiver. The QUEST deed requires the trustee to waive any dividends payable on the shares and the QUEST confirms that waiver within the deed. This can be reversed by a direction from the Company to the trustee but is otherwise ongoing.
16 RECONCILIATION OF OPERATING PROFIT TO CASH
GENERATED BY OPERATIONS
The operating profit of Group companies reconciles to cash generated by operations as follows:
Unaudited Unaudited
------------ ------------
Half-year Half-year
to to
29 October 31 October
2016 2015
GBPm GBPm
-------------------------------------------- ------------ ------------
Operating profit of Group companies 93.9 119.5
Depreciation 70.5 63.6
Intangible asset expenses 8.1 7.4
-------------------------------------------- ------------ ------------
EBITDA of Group companies before
exceptional items 172.5 190.5
Loss on disposal of property, plant
and equipment 0.4 0.2
Equity-settled share based payment
expense 1.0 1.1
-------------------------------------------- ------------ ------------
Operating cashflows before working
capital movements 173.9 191.8
Decrease in inventories 2.4 0.7
Increase in receivables (18.6) (17.9)
Decrease in payables (22.7) (72.5)
Increase/(decrease) in provisions 16.3 (5.6)
Differences between employer contributions
and pension expense in operating
profit 1.9 3.1
-------------------------------------------- ------------ ------------
Cash generated by operations 153.2 99.6
-------------------------------------------- ------------ ------------
During the period, the Group entered into hire purchase and finance lease arrangements in respect of assets with a total capital value at inception of the contracts of GBP33.1m (H1 2016: GBP21.2m). After taking account of deposits paid up-front, new hire purchase and finance lease liabilities of GBP29.7m (H1 2016: GBP21.2m) were recognised.
17 RECONCILIATION OF NET CASH FLOW TO MOVEMENT
IN NET DEBT
The movement in cash reconciles to the movement in net debt as follows:
Unaudited Unaudited
------------- -------------
Half-year to Half-year to
29 October 31 October
2016 2015
Notes GBPm GBPm
--------------------------------------- ------ ------------- -------------
Decrease in cash (44.7) (70.9)
Cash flow from movement in borrowings 27.9 37.7
--------------------------------------- ------ ------------- -------------
(16.8) (33.2)
New hire purchase and finance leases (29.7) (21.2)
Foreign exchange movements (38.3) 0.8
Other movements (0.3) (23.1)
--------------------------------------- ------ ------------- -------------
Increase in net debt (85.1) (76.7)
Net debt at beginning of period 18 (399.3) (381.3)
--------------------------------------- ------ ------------- -------------
Net debt at end of period 18 (484.4) (458.0)
--------------------------------------- ------ ------------- -------------
18 ANALYSIS OF NET DEBT
IFRS does not explicitly define "net debt". The analysis provided below therefore shows the analysis of net debt as defined in note 23. The analysis below further shows the other items classified as net borrowings in the consolidated balance sheet.
Charged to income
New hire purchase Foreign exchange statement/
Opening Cashflows and finance leases movements other Closing
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- -------- ---------- -------------------- -------------------- -------------------- --------
Cash and cash
equivalents 363.7 (44.7) - 3.7 - 322.7
Cash collateral 18.6 - - 0.1 - 18.7
Hire purchase and
finance lease
obligations (76.8) 30.4 (29.7) (9.8) - (85.9)
Bank loans and loan
notes (208.9) (2.5) - (11.2) - (222.6)
Bonds and Notes (495.9) - - (21.1) (0.3) (517.3)
Net debt (399.3) (16.8) (29.7) (38.3) (0.3) (484.4)
Accrued interest on
bonds (9.5) 18.4 - (0.1) (10.4) (1.6)
Effect of fair
value hedges (0.7) - - - (0.7) (1.4)
Net borrowings
(IFRS) (409.5) 1.6 (29.7) (38.4) (11.4) (487.4)
-------------------- -------- ---------- -------------------- -------------------- -------------------- --------
The cash collateral balance as at 29 October 2016 of GBP18.7m (30 April 2016: GBP18.6m) comprises balances held in respect of loan notes of GBP18.2m (30 April 2016: GBP18.2m) and North America restricted cash balances of GBP0.5m (30 April 2016: GBP0.4m). In addition, cash includes train operating company cash of GBP267.4m (30 April 2016: GBP283.1m). Under the terms of the franchise agreements, other than with the UK Department for Transport's consent, train operating companies can only distribute cash out of retained earnings and only to the extent they do not breach the financial covenants specified in applicable contracts.
19 PROVISIONS
The Group's provisions principally relate to insurance reserves on incurred accidents where claims have not been settled, and onerous contracts where the costs of fulfilling the contract outweigh the economic benefits to be received. The total provision for uninsured claims of GBP164.4m (30 April 2016: GBP148.6m) has increased during the year, reflecting both our latest assessment of the required provision for claims on major incidents and foreign exchange movements. The Group engages with third party actuarial professionals to assist in the calculation of these provisions.
20 COMMITMENTS AND CONTINGENCIES
(i) Capital commitments
Capital commitments contracted but not provided
for at 29 October 2016 were GBP56.9m (30 April
2016: GBP141.7m).
(ii) Performance and season ticket bonds
At 29 October 2016, the Group has provided performance
bonds backed by bank facilities or insurance
arrangements of GBP75.2m (30 April 2016: GBP75.2m)
and season ticket bonds backed by bank facilities
or insurance arrangements of GBP68.3m (30 April
2016: GBP71.7m) to the Department for Transport
in relation to the Group's rail franchise operations.
GBP82.5m (30 April 2016: GBP82.5m) of an inter-company
loan facility provided to a subsidiary train
operating company is backed by a guarantee issued
under a bank facility.
(iii) Legal actions
The US Department of Justice and the New York
Attorney General (together, "the Government
plaintiffs") initiated litigation against Twin
America and its joint venture partners ("the
Defendants", which include two Stagecoach US
subsidiaries) in 2012. The litigation alleged
that the formation of the Twin America joint
venture in 2009 was anti-competitive. A settlement
was agreed with the Government plaintiffs in
2015, and has received court approval.
Related to the Twin America litigation involving
the Group's North America Division, the Department
of Justice investigated the conduct of company
personnel in responding to discovery obligations
in the investigation and litigation. The Group
has co-operated with the investigation and the
Department of Justice has now indicated that
it does not anticipate taking any further action
against the Group in respect of these matters.
The Group and the Company are from time to time
party to other legal actions arising in the
ordinary course of business. Liabilities have
been recognised in the financial statements
for the best estimate of the expenditure required
to settle obligations arising under such legal
actions. As at 29 October 2016 and 30 April
2016, the aggregate amount of such liabilities
was not material. In addition, certain of the
claims intended to be covered by insurance provisions
are subject to or might become subject to litigation
against the Group.
21 RELATED PARTY TRANSACTIONS
Details of major related party transactions during the half-year ended 29 October 2016 are provided below, except for those relating to the remuneration of the Directors and management.
(i) Virgin Rail Group Holdings Limited - Non-Executive
Directors
Two of the Group's directors are non-executive
directors of the Group's joint venture, Virgin
Rail Group Holdings Limited. During the half-year
ended 29 October 2016, the Group earned fees
of approximately GBP30,000 (half-year ended
31 October 2015: GBP30,000) from Virgin Rail
Group Holdings Limited in this regard. As at
29 October 2016, the Group had GBP30,000 (30
April 2016: GBP60,000) receivable from Virgin
Rail Group Holdings Limited in respect of this.
In addition, the Group net purchased GBP0.1m
(half-year ended 31 October 2015: GBP0.2m)
from the group headed by Virgin Rail Group
Holdings Limited in respect of work undertaken
on rail franchise bids and had no outstanding
payable as at 29 October 2016 or 30 April 2016
in this respect.
(ii) West Coast Trains Limited
West Coast Trains Limited is a subsidiary of
Virgin Rail Group Holdings Limited (see above).
In the half-year ended 29 October 2016, East
Midlands Trains Limited (a subsidiary of the
Group) had purchases totalling GBP0.1m (half-year
ended 31 October 2015: GBP0.1m) from West Coast
Trains Limited, and sales to West Coast Trains
Limited were immaterial (half-year ended 31
October 2015: immaterial). The outstanding
amounts payable as at 29 October 2016 and 30
April 2016 were immaterial.
As at 29 October 2016, East Coast Main Line
Company Limited (a subsidiary of the Group)
also has a receivable from West Coast Trains
Limited of GBP0.7m (30 April 2016: GBPNil)
in respect of rail contractual settlements.
During the half-year ended 29 October 2016,
South West Trains Limited (a subsidiary of
the Group) sold services of GBP0.2m (half-year
ended 31 October 2015: GBPNil) to West Coast
Trains Limited and as at 29 October 2016, had
GBP0.2m receivable in respect of this (30 April
2016: GBPNil).
(iii) Alexander Dennis Limited
Sir Brian Souter (Chairman) and Ann Gloag (Non-Executive
Director) collectively hold, via companies
that they control, 55.1% (30 April 2016: 55.1%)
of the shares and voting rights in Alexander
Dennis Limited. Noble Grossart Investments
Limited (of which, Sir Ewan Brown (Non-Executive
Director) is a director of its holding company)
controls a further 33.2% (30 April 2016: 33.2%)
of the shares and voting rights of Alexander
Dennis Limited. None of Sir Brian Souter, Ann
Gloag or Sir Ewan Brown is a director of Alexander
Dennis Limited nor do they have any involvement
in the management of Alexander Dennis Limited.
Furthermore, they do not participate in deciding
on and negotiating the terms and conditions
of transactions between the Group and Alexander
Dennis Limited.
For the half-year ended 29 October 2016, the
Group purchased GBP52.6m (half-year ended 31
October 2015: GBP30.9m) of vehicles from Alexander
Dennis Limited and GBP4.9m (half-year ended
31 October 2015: GBP3.9m) of spare parts and
other services. As at 29 October 2016, the
Group had GBP0.3m (30 April 2016: GBP1.0m)
payable to Alexander Dennis Limited, along
with outstanding orders of GBP36.4m (30 April
2016: GBP96.0m).
(iv) Pension Schemes
Details of contributions made to pension schemes
are contained in note 14.
(v) Scottish Citylink Coaches Limited
A non interest bearing loan of GBP1.7m (30
April 2016: GBP1.7m) was due to the Group's
joint venture, Scottish Citylink Coaches Limited,
as at 29 October 2016. The Group earned GBP9.9m
in the half-year ended 29 October 2016 in respect
of the operation of services subcontracted
by Scottish Citylink Coaches Limited (half-year
ended 31 October 2015: GBP9.2m). The Group
also collected revenue of GBP9.5m on behalf
of Scottish Citylink Coaches Limited in the
half-year ended 29 October 2016 (half-year
ended 31 October 2015: GBP10.3m). As at 29
October 2016, the Group had a net GBP0.2m payable
(30 April 2016: GBP0.5m receivable) to Scottish
Citylink Coaches Limited, excluding the loan
referred to above.
(vi) Twin America LLC
In the half-year ended 29 October 2016, the
Group's joint venture, Twin America LLC, sold
travel of GBP1.4m (half-year ended 31 October
2015: GBP1.4m) for tour services operated by
the Group. The commission received by Twin
America from the Group was not material. As
at 29 October 2016, the Group had GBP0.8m (30
April 2016: GBP0.2m) receivable from Twin America
LLC in this regard.
21 RELATED PARTY TRANSACTIONS (CONTINUED)
(vii) East Coast Main Line Company Limited
The Group owns 90% and Virgin Holdings Limited
owns 10% of the ordinary shares in Inter City
Railways Limited. East Coast Main Line Company
Limited is 100% owned by Inter City Railways
Limited and enters into various arm's length
transactions with other Group companies. In
the half-year ended 29 October 2016, other Group
companies earned GBP8.8m from East Coast Main
Line Company Limited in respect of the provision
of certain services including train maintenance
and rail replacement bus services (half-year
ended 31 October 2015: GBP7.7m). Other Group
companies had a net payable balance of GBP13.2m
as at 29 October 2016 (30 April 2016: GBP0.8m),
which principally relates to VAT payments.
The ultimate parent company of the Group, Stagecoach
Group plc, had an outstanding receivable of
GBP56.5m as at 29 October 2016 in respect of
a loan to East Coast Main Line Company Limited
(30 April 2016: GBP52.5m). The interest receivable
on the loan for the half-year ended 29 October
2016 was GBP0.7m (half-year ended 31 October
2015: GBP0.1m). Related to that, the Group had
an outstanding payable for GBP5.7m as at 29
October 2016 in respect of a loan from Virgin
Holdings Limited (30 April 2016: GBP5.3m).
In addition, in the half-year ended 29 October
2016, East Coast Main Line Company Limited purchased
services amounting to GBPNil from Virgin Holdings
Limited (half-year ended 31 October 2015: GBP1.5m).
The Group had a payable balance of GBPNil to
Virgin Holdings Limited at 29 October 2016 in
this respect (30 April 2016: GBPNil).
22 POST BALANCE SHEET EVENTS
Details of the interim dividend declared are given in note 6.
23 DEFINITIONS (a) Alternative performance measures
The Group uses a number of alternative performance measures in this document to help explain the financial performance and financial position of the Group. More information on the definition of these alternative performance measures and how they are calculated is provided below. All of the alternative performance measures explained below have been calculated consistently for the half-year ended 29 October 2016 and for comparative amounts shown in this document for prior periods.
Adjusted earnings per share
Adjusted earnings per share is calculated by dividing profit attributable to equity holders of the parent, excluding intangible asset expenses and exceptional items, by the basic weighted average number of shares in issue in the period.
For the half-year ended 29 October 2016 and the comparative prior year period, the numerators for the calculations (i.e. the adjusted profit) are shown clearly on the face of the consolidated income statement in the columns headed "performance pre intangibles and exceptional items". The denominators for the calculations (i.e. the weighted average number of shares in issue) and further details of the calculations are shown in note 7 to the condensed financial statements.
Like-for-like amounts
Like-for-like amounts are derived, on a constant currency basis, by comparing the relevant year-to-date amount with the equivalent prior year period for those businesses and individual operating units that have been part of the Group throughout both periods.
Like-for-like revenue growth for the half-year ended 29 October 2016 is calculated by comparing the revenue for the current and comparative periods, each adjusted as described above. The revenue of each segment is shown in note 4(a) to the condensed financial statements. The reconciliation to the adjusted revenue figures for the purposes of calculating like-for-like revenue growth is shown below:
Unaudited
------------------------------------------------------------------
Half-year to 29 October 2016
Exclude effect of Exclude effect of Like-for-like
Reported revenue businesses acquired foreign exchange revenue
UK Bus (regional
operations) GBPm 513.9 (3.5) - 510.4
megabus Europe GBPm 14.9 - - 14.9
UK Bus (London) GBPm 131.5 - - 131.5
North America US$m 338.4 - 0.5 338.9
UK Rail GBPm 1,092.3 - - 1,092.3
----------------------- ------ ----------------- -------------------- --------------------- ---------------------
23 DEFINITIONS (CONTINUED)
Unaudited
-----------------------------------------------------------
Half-year to 31 October 2015
Exclude effect of businesses
Reported revenue acquired Like-for-like revenue
UK Bus (regional operations) GBPm 522.4 (0.9) 521.5
megabus Europe GBPm 8.4 - 8.4
UK Bus (London) GBPm 133.1 - 133.1
North America US$m 349.2 - 349.2
UK Rail GBPm 1,083.2 - 1,083.2
------------------------------ ------ ----------------- ----------------------------------- ----------------------
Operating profit
Operating profit for a particular business unit or division within the Group refers to profit before net finance income/charges, taxation, intangible asset expenses, exceptional items and restructuring costs. The operating profit for each segment is directly identifiable from the financial statements - see note 4(b) to the condensed financial statements.
Operating margin
Operating margin for a particular business unit or division within the Group means operating profit as a percentage of revenue. The revenue and operating profit for each segment is directly identifiable from the financial statements - see notes 4(a) and 4(b) to the condensed financial statements. The revenue, operating profit and operating margin (being operating profit as a percentage of revenue) for each segment are also shown on page 4 of this document.
Pre-exceptional EBITDA
Pre-exceptional EBITDA is earnings before interest, taxation, depreciation, intangible asset expenses and exceptional items.
A reconciliation of pre-exceptional EBITDA for the half-year ended 29 October 2016, and the comparative prior year period, to the financial statements is shown on page 10 of this document.
EBITDA from Group companies before exceptional items
EBITDA from Group companies before exceptional items is earnings before interest, taxation, depreciation, intangible asset expenses and exceptional items from Group companies (i.e. the parent company and all of its subsidiaries consolidated but excluding share of profit from joint ventures).
EBITDA from Group companies before exceptional items is directly identifiable from the financial statements - see note 16 to the condensed financial statements.
Pre-exceptional net finance charges
Pre-exceptional net finance charges are finance costs (excluding exceptional items) less finance income, each as shown on the face of the consolidated income statement.
Gross debt
Gross debt is borrowings as reported on the consolidated balance sheet, adjusted to exclude accrued interest and the effect of fair value hedges on the carrying value of borrowings.
The components of gross debt are shown in note 18 to the condensed financial statements, which also reconciles net debt to the net borrowings (cash less borrowings) shown on the face of the consolidated financial statements.
Net debt
Net debt (or net funds) is the net of cash/cash equivalents and gross debt (see above).
The components of net debt are shown in note 18 to the condensed financial statements, which also reconciles net debt to the net borrowings (cash less borrowings) shown on the face of the consolidated financial statements.
Net capital expenditure
Net capital expenditure is the impact of purchases and sales of property, plant and equipment. Its reconciliation to the consolidated financial statements is explained on page 12 of this document.
(b) Other definition
The following other definition is also used in this document:
Exceptional items
Exceptional items means items which individually or, if of a similar type, in aggregate need to be disclosed by virtue of their nature, size or incidence in order to allow a proper understanding of the underlying financial performance of the Group.
Independent review report to Stagecoach Group plc
Introduction
We have been engaged by the Company to review the condensed consolidated interim financial statements in the half-yearly financial report for the half-year ended 29 October 2016 which comprises:
-- The Consolidated Income Statement for the half-year ended 29 October 2016; -- The Consolidated Statement of Comprehensive Income for the half-year ended 29 October 2016; -- The Consolidated Balance Sheet as at 29 October 2016; -- The Consolidated Statement of Changes in Equity for the half-year ended 29 October 2016; -- The Consolidated Statement of Cash Flows for the half-year ended 29 October 2016; -- The related explanatory notes.
We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated interim financial statements.
This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The condensed consolidated interim financial statements included in this half-yearly financial report have been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed consolidated interim financial statements in the half-yearly financial report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated interim financial statements in the half-yearly financial report for the half-year ended 29 October 2016 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
Glasgow
7 December 2016
Notes:
(a) The maintenance and integrity of the Stagecoach Group plc website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim financial statements since they were initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR KMMGZLVZGVZM
(END) Dow Jones Newswires
December 07, 2016 02:00 ET (07:00 GMT)
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