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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 : 5750Y
Stagecoach Group PLC
06 December 2017
This announcement replaces the 'Interim results for half-year ended 28 Oct 2017' released on 6 December 2017 under RNS Number 4869Y and corrects a typographical error in the date mentioned on pages 1 and 10. All other details in the announcement remain the same. The full amended text is shown below.
6 December 2017
Stagecoach Group plc - Interim results for the half-year ended 28 October 2017
Earnings per share in line with our expectation
-- Earnings per share 13.6 pence (H1 2017: 12.7 pence) -- Adjusted earnings per share* 13.6 pence (H1 2017 restated**: 13.9 pence) -- Interim dividend maintained at 3.8 pence per share -- Profit before tax GBP96.7m (H1 2017: GBP89.5m)
Positive progress in all divisions
-- Management action on regional UK bus pricing, services operated and commercial initiatives - delivering in line with our expectations
o Revenue per vehicle mile up 2.7%
o Journeys per vehicle mile up 0.3%
-- Positive London Bus tender outcomes: 4.5% net increase in vehicle miles -- Improved revenue trends in North America -- Progress and opportunities in UK rail market
o Progressing negotiations with Department for Transport on new Virgin Trains East Coast contract
o Extension of East Midlands Trains franchise to March 2019 confirmed, with plan for further Direct Award franchise beyond that
o Good progress towards new Virgin Trains West Coast Direct Award franchise from April 2018
o Shortlisted for new South Eastern franchise
o UK rail franchises moving to a more balanced risk profile
-- No change to our expectation of 2017/18 earnings per share
Financial summary
Hot Features
Premium
"Adjusted" results "Statutory"
(Results excluding results
intangible asset
amortisation
(exc. software)
and exceptional
items(*) )
H1 2018 H1 2017 H1 2018 H1 2017
(Restated**)
--------------------------- -------- -------------- -------- --------
Revenue (GBPm) 1,800.4 2,002.1 1,800.4 2,002.1
--------------------------- -------- -------------- -------- --------
Total operating profit
(GBPm) 114.8 113.8 114.8 108.9
Non-operating exceptional
items (GBPm) - - - (2.8)
Net finance charges
(GBPm) (18.1) (16.6) (18.1) (16.6)
--------------------------- -------- -------------- -------- --------
Profit before taxation
(GBPm) 96.7 97.2 96.7 89.5
Earnings per share
(pence) 13.6p 13.9p 13.6p 12.7p
Interim dividend
per share (pence) 3.8p 3.8p 3.8p 3.8p
--------------------------- -------- -------------- -------- --------
* see definitions in note 23 to the condensed
financial statements
** see note 5 for details of the restatement for
the revised definition of adjusted earnings
per share
Chief Executive, Martin Griffiths, said:
"I am pleased to report half-year financial results in line with our expectation and an interim dividend maintained at 3.8 pence per share.
"We have made positive progress across our businesses. In UK rail, we are working with the Department for Transport towards new contracts at Virgin Trains East Coast and Virgin Trains West Coast. Our East Midlands Trains franchise has been extended through to March 2019, with the prospect of us agreeing a further direct award franchise from March 2019, and we are part of shortlisted bids for new South Eastern and West Coast Partnership franchises.
"In bus, the actions we have taken on pricing, services operated and commercial initiatives across our regional UK bus operations are delivering the results we expected, while our London bus business has had success in winning new contracts. In North America, we have seen improved revenue trends, new contract wins and growth in profit.
"We are focussed on making further progress in the second half of the year and have maintained our expectation of full year adjusted earnings per share."
Copies of this announcement are available on the Stagecoach Group website at http://www.stagecoach.com/investors/financial-analysis/reports/2017.aspx
For further information, please contact:
Stagecoach Group plc www.stagecoachgroup.com
Investors and analysts
Ross Paterson, Finance Director 01738 442111 Bruce Dingwall, Group Financial Controller 01738 442111
Media
Steven Stewart, Director of Corporate Communications 07764 774680
Notes to Editors
Stagecoach Group
-- Stagecoach is an international public transport group, with operations in the UK, the United States and Canada. The Group employs around 34,000 people, and operates around 11,000 buses, coaches, trains and trams.
-- Stagecoach is one of the UK's biggest bus and coach operators with over 8,000 buses and coaches on a network stretching from south-west England to the Highlands and Islands of Scotland. Low-cost coach service, megabus.com, operates a network of inter-city services across the UK.
-- Stagecoach is a major UK rail operator, running the East Midlands Trains network. It also has a 49% shareholding in Virgin Rail Group, which operates the West Coast rail franchise, and a 90% shareholding in Virgin Trains East Coast, which operates the East Coast rail franchise.
-- Stagecoach operates the Supertram light rail network in Sheffield.
-- In North America, Stagecoach operates around 2,200 buses and coaches in the United States and Canada. megabus.com operates a network of inter-city coach services in North America. Stagecoach is also involved in operating commuter, transit, contracted, charter, airport shuttle and sightseeing services.
Interim management report
The Directors of Stagecoach Group plc are pleased to present their report on the Group for the half-year ended 28 October 2017.
Description of the business
Stagecoach Group plc is a public limited company that is incorporated, domiciled and has its registered office in Scotland. Its ordinary shares are publicly traded and it is not under the control of any single shareholder. The Company has its primary listing on the London Stock Exchange. Throughout this document, Stagecoach Group plc is referred to as "the Company" and the group headed by it is referred to as "Stagecoach" or "the Group".
The Group is a leading international public transport group, with operations in the UK, the United States and Canada. A description of each of the Group's operating divisions is given on pages 5 to 8 of its 2017 Annual Report.
Overview
Our strategy is designed to protect and grow our existing, core businesses where we have deep knowledge and expertise. We aim to provide a safe, value-for-money experience for customers. Our focus on operational excellence underpins that with an emphasis on providing reliable, good quality transport services. We have an ongoing investment programme which includes investing in our vehicle fleet but also in deploying new technology that enhances the customers' experience and improves the efficiency of our operations. We bid for selected rail franchises and bus contracts to secure new business where the trade-off between risk and return is acceptable. We are also investing in the future of transport as we continue to take a longer term perspective on the business opportunities.
We have met our expectation of earnings per share for the half-year ended 28 October 2017. Revenue for the period was GBP1,800.4m (H1 2017: GBP2,002.1m), with the reduction principally due to the expiry of our South West Trains franchise in August. Notwithstanding that, total operating profit, before non-software intangible asset amortisation and exceptional items increased to GBP114.8m (H1 2017 restated: GBP113.8m). Unadjusted total operating profit rose to GBP114.8m (H1 2017: GBP108.9m). Earnings per share before non-software intangible amortisation and exceptional items were 13.6p (H1 2017 restated: 13.9p). Basic, unadjusted earnings per share increased 0.9p to 13.6p (H1 2017: 12.7p).
We have maintained the interim dividend at 3.8p per share. We continue to believe that the business is able to support the current rate of dividend, taking account of the outlook for profitability and cash flows. As usual, we will consider the final dividend for the year in June and, while we currently have no plans to reduce the rate of dividend, we anticipate that any dividend growth at that time will be modest. The 3.8p dividend is payable to shareholders on the register at 26 January 2018 and will be paid on 7 March 2018. Shareholders who wish to participate in the dividend re-investment plan for this dividend should elect to do so by sending their requests to the Company's registrars to arrive by 14 February 2018.
In the regional UK bus market, where independent research confirms that we continue to offer lower than average fares, the actions we have taken on pricing, services operated and commercial initiatives have had the intended impact on bus revenue and passenger volumes. While there are regional variations in bus performance, we are seeing growth in a number of parts of the country, including those with more robust regional economies. We are taking steps to address weak performance in the inter-city coach market and have started to see revenue trends improve. In the competitive London bus market, we are pleased that through contract wins during the first half of our financial year, we have achieved a net increase in contracted annual bus mileage.
Revenue trends in North America have improved. Contract revenue has benefitted from tender wins, including rail replacement work. Reflecting the changes we made to our network to match our services to customer demand, revenue per vehicle mile at our megabus.com business in North America increased 3.2%.
We have made positive progress within our UK Rail business and we welcome the new direction for the UK rail network announced recently by the Secretary of State for Transport as part of plans to deliver improved integration between train and track. Our franchise term has been extended at East Midlands Trains to March 2019 and Virgin Rail Group is progressing towards agreeing a new Direct Award franchise at Virgin Trains West Coast. In addition, we are making good progress in discussions with the Department for Transport on the terms of our Virgin Trains East Coast contract. Work on our shortlisted bid for the new South Eastern franchise is progressing and we are encouraged by indications of an improved risk-reward balance in new franchises. We are also working with SNCF and Virgin on our joint bid for the new West Coast Partnership franchise.
Our expectation of the level of adjusted earnings per share for the full year to 28 April 2018 is unchanged. We remain clear that safe, high-quality and good value public transport has a positive future, particularly as concerns grow about increasing road congestion and poor air quality linked to cars. Public transport will continue to be an enabler of regional economies and communities, helping connect people with employment, education, health and leisure opportunities. Urbanisation, population growth, and demand for improved mobility all point to a strong future for public transport and we remain confident that we can continue to deliver long-term value to our customers and shareholders.
Earlier this year, we carried out our biggest ever survey of employees as part of our drive to foster an environment where everyone has access to opportunities and resources to help them contribute to the success of our business. Engagement levels were good with a 61% response rate and we are acting on the survey results to make further improvements in our businesses. The Board extends its thanks to everyone across the Group for their contribution to making every customer journey better.
Summary of financial results
Revenue by division is summarised below:
REVENUE H1 2018 H1 2017 H1 2018 H1 2017 Growth
-----------
Functional Functional
GBPm GBPm currency currency (m) %
-------- -------- ----------- ----------------------- ---------
Continuing Group
operations
UK Bus (regional
operations) 512.4 513.9 GBP 512.4 513.9 (0.3)%
megabus Europe - 14.9 GBP - 14.9 (100.0)%
UK Bus (London) 128.4 131.5 GBP 128.4 131.5 (2.4)%
North America 256.3 252.0 US$ 333.9 338.4 (1.3)%
UK Rail 905.6 1,092.3 GBP 905.6 1,092.3 (17.1)%
Intra-Group revenue (2.3) (2.5) GBP (2.3) (2.5)
-------- -------- ----------- ----------- ---------- ---------
Group revenue 1,800.4 2,002.1
-------- --------
Operating profit by division is summarised below:
H1 2017 H1 2017
OPERATING PROFIT H1 2018 (Restated) H1 2018 (Restated)
-----------
Functional
Functional currency
GBPm % margin GBPm % margin currency (m)
------ --------- ------ --------- ----------- ----------------------
Continuing Group
operations
UK Bus (regional
operations) 61.6 12.0% 64.9 12.6% GBP 61.6 64.9
megabus Europe - - (4.6) (30.9)% GBP - (4.6)
UK Bus (London) 6.5 5.1% 9.1 6.9% GBP 6.5 9.1
North America 21.2 8.3% 17.0 6.7% US$ 27.6 22.8
UK Rail 21.7 2.4% 19.5 1.8% GBP 21.7 19.5
Group overheads (7.9) (6.3)
Restructuring costs (1.2) (0.8)
------ --------- ------
101.9 98.8
Joint ventures
- share of profit
after tax
Virgin Rail Group 12.1 13.9
Citylink 0.8 1.1
Total operating
profit before intangible
asset expenses 114.8 113.8
Non-software intangible
asset amortisation - (4.9)
Total operating
profit: Group operating
profit and share
of joint ventures'
profit after taxation 114.8 108.9
------ --------- ------
UK Bus (regional operations)
Summary
--------------------------------------------------------------
* Revenue per vehicle mile up 2.7%
* Journeys per vehicle mile up 0.3%
* Investment in enhancing customer experience
* Fastest growing contactless transit scheme in Europe
* No change to expected full year profit
--------------------------------------------------------------
Financial performance
The financial performance of the UK Bus (regional operations) Division for the half-year ended 28 October 2017 is summarised below, with operating profit slightly below last year:
H1 2017
H1 (Restated)
2018
GBPm GBPm Change
--------------- ------- ------------ -------
Revenue 512.4 513.9 (0.3)%
Like-for-like
revenue 512.3 512.9 (0.1)%
Operating
profit* 61.6 64.9 (5.1)%
--------------- ------- ------------ -------
Operating
margin* 12.0% 12.6% (60)bp
--------------- ------- ------------ -------
Early in 2017, we took action to adjust our pricing and services to respond to changes in customer demand and protect the profitability of the business. We continue to focus on operating the right routes with prices and service frequencies that offer good value for money and reflect the pattern of customer demand. Vehicle miles operated in the first half of the year were 2.9% lower than in the equivalent period last year. The vehicle miles we operate on a commercial basis were reduced by 1.5% with greater reductions in the mileage tendered by local authorities and operated under contract. Reflecting the actions taken, revenue per vehicle mile grew 2.7%, journeys per vehicle mile grew 0.3% and revenue per journey increased 2.4%.
Like-for-like revenue was built up as follows:
H1 H1 Change
2018 2017 %
GBPm GBPm
------------------ -------- -------- ---------
Commercial
on and off
bus revenue
- megabus.com 11.2 11.2 -
- other 307.8 303.5 1.4%
Concessionary
revenue 125.9 127.5 (1.3)%
------------------ -------- -------- ---------
Commercial
& concessionary
revenue 444.9 442.2 0.6%
Tendered
and school
revenue 47.6 49.7 (4.2)%
Contract
and other
revenue 19.8 21.0 (5.7)%
Like-for-like
revenue 512.3 512.9 (0.1)%
------------------ -------- -------- ---------
The growth in commercial revenue reflects the actions we have taken, with improvement in the yield per journey. Our low-fares strategy remains central to our customer offer. Combined with a focus on operational excellence and continued investment, that underpins our strategy for growth. Reflecting that emphasis on operational excellence, we operated 99.6% of our scheduled mileage in the half-year.
We are starting to see improving trends at our megabus.com business in the UK after a period of disappointing performance in the half-year reflecting weakness in the wider inter-city coach market. We are addressing this through improved yield management, reviewing our network and operational plans, and modifying our commercial and marketing strategy.
The decline in concessionary revenue includes the continuing effects of changes in the age of eligibility for free bus travel by older people, as we have previously reported. We have also seen a reduction in the concessionary reimbursement rate paid to bus operators in Manchester and lower financial support in Wales for bus travel by young people.
We continue to work with local authorities to maximise the community value from the financial support they can provide for socially desirable transport services. The decline in tender revenue mainly reflects further reductions by local authorities in the tendered bus services that they support. We do not believe the bottom of this cycle has yet been reached and we anticipate some further cuts in tender services over the next year or so.
While relatively small, the movements in contract and other revenue include the effects of year-on-year changes in the amount and timing of one-off contract and events work.
The movement in operating margin was built up as follows:
Operating margin - H1 2017 (restated) 12.6% Change in: Staff costs (0.9)% Fuel costs 0.6% Other (0.3)% Operating margin - H1 2018 12.0% ----------------------- -------
The main changes in the operating margin shown above are:
-- As expected, staff costs have continued to rise, and not all headcount varies with vehicle miles. The half-year staff costs include over GBP1m in respect of the new Apprenticeship Levy applied by the UK Government to fund new apprenticeships. However, staff costs remain under control with wage awards in the period being in line with our forecast assumptions and stable staff retention rates.
-- Fuel costs have reduced, reflecting market fuel prices and our fuel hedging programme.
-- Other costs have increased, including higher depreciation as a result of our continued fleet investment.
Enhanced customer experience
We are continuing to make significant investment to further enhance customers' experience. We are harnessing technology to make travel easier for our customers. Stagecoach bus passengers across the UK can now pay on the bus for their travel using a contactless credit or debit card, Apple Pay or Android Pay. The GBP12m programme is the fastest growing contactless transit scheme in Europe through 2017. We have added the Scottish Citylink coach network to an expanded national roll-out programme which will see the technology installed on all of our buses across the UK by the end of 2018.
In July 2017, we launched a blueprint to help ensure bus services can effectively serve new housing developments being planned across the country. Failure to integrate public transport to new developments results in a greater cost to the economy in lost productivity, poorer air quality, longer working days because of extra commuting time and a less safe living environment with more cars on the road.
We are continuing to improve our product offer in our local bus networks for young people, who are a key element of our customer base now and in the future. There is an opportunity to use new technology to make bus travel more attractive to Millennials, who research shows are less likely to aspire to car ownership and are more open to the 'sharing economy'.
Commercial initiatives for growth
In addition to the developments explained above, our restructured UK Bus commercial team is pursuing a number of other commercial initiatives to support the growth of the Division, examples of which are as follows:
-- Reflecting changes in travel patterns, we have seen stronger growth on our urban and inter urban networks. Additional areas of potential growth in these parts of the business have been identified and implementation plans are being developed.
-- Linked to that, we are evaluating opportunities for more demand responsive services in a number of locations.
-- Building on work to understand the segmentation of our existing and potential customer base, we are exploring the development and implementation of a new customer relationship management ("CRM") system to engage and improve customer loyalty and yield.
-- Our work on customer segmentation will also inform improved marketing to drive revenue growth, placing less emphasis on the traditional sector approach of "publicity" and developing closer engagement with prospective customers.
-- While we are thinking about the changing travel landscape, we are also ensuring we continue to perform the basics well. We are re-visiting how we communicate our offers across all of our offline and online channels, including how we deliver understandable information on journeys and fares.
-- We are reviewing price elasticities, price points and ticketing structures to simplify our ticket offering while continuing to offer value for money and meet customers' expectations. We are aiming to evolve our ticket offering to reflect changing travel, shopping and working patterns.
-- We see opportunities to increase the volume of work we undertake to support events, festivals and other businesses, where new technology can support an increased capability to grow revenue in these areas.
Outlook
We are encouraged that the effects of the management actions undertaken at the start of 2017 have been in line with our expectations. Our expectation of the Division's operating profit for the year ending 28 April 2018 is accordingly unchanged.
UK Bus (London)
Summary
--------------------------------------------------
* Positive tender results
* Maintaining sustainable contract pricing
--------------------------------------------------
Financial performance
The financial performance of the UK Bus (London) Division for the half-year ended 28 October 2017 is summarised below:
H1 H1 2017
2018 GBPm Change
GBPm
-------------------- ------ -------- ---------
Revenue
and like-for-like
revenue 128.4 131.5 (2.4)%
Operating
profit 6.5 9.1 (28.6)%
-------------------- ------ -------- ---------
Operating
margin 5.1% 6.9% (180)bp
-------------------- ------ -------- ---------
We are pleased that through the contract tenders on which the outcomes were confirmed during the first half of our financial year, we have achieved a net 4.5% increase in contracted annual bus mileage. That should benefit our revenue in the next financial year, 2018/19. The revenue impact of contracts lost in the prior year is reflected in this year's financial performance and is weighted towards the second half of the financial year.
The decrease in operating margin was expected and was built up as follows:
Operating margin - H1 2017 6.9% Change in: Staff costs (0.8)% Other operating income (0.4)% Operating lease costs (0.4)% Other (0.2)% Operating margin - H1 2018 5.1% ------------------------- -------
Consistent with the UK Bus (regional operations), the new Apprenticeship Levy has added to the UK Bus (London) Division's staff costs in the half-year. The current year staff costs also reflect pay awards and the implementation of previously disclosed plans to increase starting rates of pay for bus drivers.
Advertising income fell year-on-year, reflecting lower yields for on-bus advertising experienced by London bus operators more generally. This is reflected in the reduction in other operating income shown in the table above. Operating lease costs have moved as a percentage of revenue, principally due to year-on-year changes in end of lease vehicle return costs.
We see significant differences in the level of bus depot capacity versus the demand from Transport for London for bus services across the different areas of London. We are exploring the extent to which that presents us with opportunities for growth and/or possible re-deployment of capital.
Outlook
Although our 2017/18 operating margin is likely to be below our long-term aspiration of around 7%, we are encouraged by tender results so far this year. While Transport for London's plans to reduce contracted bus mileage in London presents a risk to the Division, we will aim to maintain our contract pricing at a sustainable level where service quality can be maintained and the financial returns reflect the capital invested.
North America
Summary
----------------------------------------------------------
* Improved revenue trends
* Innovative technology use to manage safety risks
* New megabus.com website performing well
* On course to grow profit in 2017/18
----------------------------------------------------------
Financial performance
The financial performance of the North America Division for the half-year ended 28 October 2017 is summarised below:
H1 2017
H1 2018 (Restated)
US$m US$m Change
--------------- ---------- ------------ -------
Revenue 333.9 338.4 (1.3)%
Like-for-like
revenue 333.3 332.9 0.1%
Operating
profit 27.6 22.8 21.1%
--------------- ---------- ------------ -------
Operating
margin 8.3% 6.7% 160bp
--------------- ---------- ------------ -------
The growth in like-for-like revenue reflects the improving trend we have seen in the first half of the year and is reflected in increased operating profit along with the benefit of lower fuel costs.
Like-for-like revenue was built up as follows:
H1 H1
2018 2017
US$m US$m Change
----------------- ------ ------ --------
Megabus.com 97.0 101.7 (4.6)%
Scheduled
service
- Commercial
revenue 81.4 80.8 0.7%
- Support
from local
authorities 6.1 7.0 (12.9)%
Charter 61.0 66.5 (8.3)%
Contract
services 72.0 58.7 22.7%
Sightseeing
and tour 15.8 18.2 (13.2)%
----------------- ------ ------ --------
Like-for-like
revenue 333.3 332.9 0.1%
----------------- ------ ------ --------
Trading at our megabus.com inter-city coach business in North America continues to show some signs of improvement. Revenue per vehicle mile increased 3.2% year-on-year reflecting the changes we made to our network to better match our services with customer demand.
Trading at the other businesses in North America remains in line with our expectations. Like-for-like revenue at these businesses increased by 2.2%. We have been encouraged by further additional revenue generated from our focus on contract opportunities. In the first half of the year, we have benefitted from rail replacement contracts linked to train disruptions on New Jersey Transit and Long Island Rail Road as a result of track repair work at Pennsylvania Station in New York. This has contributed to the reduction in charter revenue as we deployed some vehicles on the rail contract work that would otherwise have been available for charter. Elsewhere, weak sightseeing markets have impacted some of our services, and we see potential to restructure our sightseeing operations to improve profitability.
The movement in the operating margin of the North America Division was built up as follows:
Operating margin - H1 2017 (restated) 6.7% Change in: Staff costs (0.5)% Fuel costs 1.8% Insurance and claims costs 0.4% Other (0.1)% ----------------------- ------- Operating margin - H1 2018 8.3% ----------------------- -------
The main changes in the operating margin shown above are:
-- Staff costs have continued to rise as a proportion of our revenue base. That includes increased overtime levels at some locations, where we are working to recruit new drivers to reduce the need for overtime working. In addition, we continue to see above-inflation increases in the cost of US healthcare benefits and the improved financial performance of the Division is reflected in higher staff incentive costs.
-- Fuel costs have reduced reflecting market fuel prices and our fuel hedging programme.
-- The change in insurance and claims costs reflects our latest assessment of the required provision for claims on major incidents. Our relentless focus on safety and reducing accident rates also brings financial benefits through reduced insurance and claims cost. We see opportunities to further reduce claims costs, including through technology investment. For example, we are trialling "seeing machines" capable of monitoring for driver fatigue and distraction in real-time.
Customer experience
The investment we have made in our new megabus.com website has improved our customers' experience and is supporting our growth. The new website provides a much improved experience for those visiting the website on a mobile device. For those visiting on a desktop device, we have seen an 11% improvement in the conversion rate in the US, and a 22% improvement in the conversion rate in Canada, for the half-year compared to the equivalent period last year. We have also seen improvements in the bounce rate, being the percentage of visitors who leave the site without any interaction. In the half-year, this is 13% down year-on-year for the US and 46% down for Canada. The website also brings new functionality that has allowed us to improve our search engine rankings. We have used these to create route and destination pages that drive organic traffic to the site from unbranded searches. We saw a 42% increase in sessions from organic search from September 2016 to September 2017.
Our ongoing refinement of yield management at megabus.com has allowed us to maintain our reputation for good value for money while improving yield based on patterns of demand.
Outlook
We remain on course to grow the Division's operating profit in 2017/18, reflecting our targeted pursuit of contract opportunities, and management action to match our services with customer demand at our megabus.com inter-city coach business.
We continue to see growth opportunities from the Division in new contract wins but will remain disciplined in ensuring that we bid for contract opportunities at prices consistent with delivering appropriate rates of return.
UK Rail
Summary
---------------------------------------------------------------
* Good profits from South West Trains and East Midlands
Trains
* Progressing negotiations with Department for
Transport on new contract at Virgin Trains East Coast
* East Midlands Trains franchise extended to March 2019
with plans for a further direct award franchise
beyond that time
* Bids for new franchises
* UK rail franchises moving to a more balanced risk
profile
* Limited exposure to long-term rail revenue risk
---------------------------------------------------------------
Financial performance
The financial performance of the UK Rail Division for the half-year ended 28 October 2017 is summarised below:
H1
2017
H1 (Restated)
2018
GBPm GBPm Change
--------------- ------- ------------ --------
Revenue 905.6 1,092.3 (17.1)%
Like-for-like
revenue 596.6 579.0 3.0%
Operating
profit 21.7 19.5 11.3%
--------------- ------- ------------ --------
Operating
margin 2.4% 1.8% 60bp
--------------- ------- ------------ --------
Our UK Rail business continues to see growth in revenue, with like-for-like revenue up 3.0% year-on-year, reflecting 3.0% growth at each of East Midlands Trains and Virgin Trains East Coast.
The profit for the half-year principally reflects good profitability at East Midlands Trains and South West Trains. The South West Trains franchise expired in August 2017; its profitability in the period was strong and included the resolution of a number of contractual matters as part of the transition of the train operations to a new operator. There remain a number of matters to finalise in respect of the South West Trains franchise and we continue to press for a timely resolution of those. Consistent with our other franchises, the outcome on open contractual matters could result in adjustments to our current estimates of assets and liabilities.
The UK Rail Division's reported profit reflects the utilisation of the onerous contract provision recorded at April 2017 in respect of the current contractual arrangements at Virgin Trains East Coast. As forecasted, Virgin Trains East Coast continues to incur trading losses under the current contract, which have been applied against the onerous contract provision.
Virgin Trains East Coast - contractual arrangements
We welcome the Secretary of State for Transport's recent announcement on the planned new direction for the UK rail network, which is consistent with a vision for the railway that we have championed over many years. As part of that, we and the Department for Transport are discussing new terms for the East Coast franchise and we are hopeful of reaching an agreement within the next few months. Our objective is to address the changed circumstances affecting the franchise, deliver value for money for taxpayers, provide innovative solutions to drive better outcomes for customers, and secure a fair deal for investors. There is no change to either the estimate of the onerous contract provision reported in June or the extent of the maximum financial commitments of the parent company in respect of the current franchise contract. The onerous contract provision is based on a forecast that assumes the GBP165m loan commitment is funded in full.
Virgin Trains East Coast - investment and customer satisfaction
Virgin Trains East Coast is continuing the transformation of its services for customers. As well as investing in our fleet of trains, we have made our website more personalised and easier to navigate. We have introduced improved features such as new tools to search for the best fares, and the ability to buy season tickets online. Customers can take advantage of easy-to-use mtickets and can now book tickets 24 weeks before travel.
Innovation is continuing to improve the journey experience for customers before, during and after travel. Virgin Trains' revolutionary new on-train entertainment streaming service, BEAM, has been well received by customers, along with a range of on-train catering improvements. We also recently launched an industry first tool, TrainMapper, aimed at helping customers avoid rail disruption on their journey and get to their destination. The new Seatfrog app allows customers to bid for first class upgrades on trains where space permits.
These improvements have helped drive a historic shift in travel patterns as more Scotland-London passengers are now choosing train over plane than at any time in more than 20 years. Virgin Trains East Coast has achieved strong customer ratings, with 91% satisfaction in the latest National Rail Passenger Survey. Net advocacy scores have also increased significantly.
We are introducing 24 new services on Saturdays, bringing that day's level of service more in line with our Monday-Friday operation and allowing us to put 6,000 additional cheap tickets on sale every week. In early 2018, new sensors will detect which seats on our trains are occupied. This will provide us with data to inform customers about spare seats on our services and also enable more dynamic on-the-day pricing.
East Midlands Trains
Like-for-like revenue at East Midlands Trains grew by 3.0% for the period, with growth in the early months of the period adversely affected by the terrible terrorist events in London and Manchester. The business continues to deliver good levels of profitability.
The Department for Transport has exercised its pre-contracted option to extend the East Midlands Trains franchise to March 2019, with plans for a further Direct Award franchise beyond that time. We look forward to the next competitively tendered East Midlands franchise which the Department for Transport has indicated will be operated by a joint team overseeing both train operations and rail infrastructure management.
Consistent with our drive for operational excellence, East Midlands Trains continues to deliver amongst the best punctuality for customers of any inter-city rail franchise. We are continuing to invest in improvements for customers, including better value ticketing, improved information and station developments. In summer 2017, we introduced a new app and mobile website to make booking easier. We have introduced purchase on the day for Advance tickets on selected routes to offer better value fares, building on lower Advance Purchase fares that we are already making available on quieter trains to London. In August, East Midlands Trains launched a new ticket tool offering customers email alerts as soon as Advance tickets become available on a particular route on their chosen travel date. We have also started the roll-out of mobile ticketing, with the facility already live in Derby, Nottingham, and London St. Pancras.
Passengers have responded well to the launch of our most frequent ever Sunday services on the route between Lincoln and Nottingham, with new hourly services for most of the day. The new Ilkeston station - which incorporates fully accessible platforms, modern waiting areas and car park - has expanded commuter and leisure travel options, as well as exceeding forecasts for passenger demand and revenue.
East Midlands Trains recently invested more than GBP300,000 in new train driver simulator technology at our Derby training academy, which will revolutionise driver training, briefings and assessments. We have also completed a highly successful recruitment campaign to employ additional drivers. In addition, we are working closely with Network Rail on planning for a major Derby station remodelling and signalling system upgrade. The work will remove a bottleneck which often results in trains waiting outside of the station. The bulk of the work will take place in 2018.
Most recent independent research shows that 89% of customers at East Midlands Trains are satisfied with their service, equalling the best ever results and marking a 3% year-on-year improvement.
South West Trains
In August, we completed the delivery of our South Western rail franchise, working collaboratively with the new operator and industry partners to ensure a smooth transition.
Sheffield Supertram
The first passenger service of the new Citylink vehicles to be used for the innovative Tram Train project took place at Sheffield Supertram in September. The project, which will improve journeys between Sheffield and Rotherham, is the first of its kind in the country and due for completion in 2018. We are also making the first changes to the Supertram timetable in 15 years to improve reliability following a significant increase in traffic on roads across Sheffield.
Franchising update
We are working on new opportunities in the UK franchised rail market. We are shortlisted to bid for the South Eastern franchise and we are also bidding for the West Coast Partnership franchise jointly with Virgin Group and SNCF.
We are encouraged by indications of an improving risk-reward balance in new franchise competitions. The Department for Transport is looking to move to a more comprehensive sharing of revenue risk on new franchises and while this will likely vary from franchise to franchise, we expect to see the return of arrangements where the Department shares in revenue variances versus the relevant bid irrespective of the causes of those variances. We expect such an arrangement to apply to the new South Eastern franchise. While the train operating company will still bear some revenue risk on most new franchises awarded by the Department, we anticipate that its exposure to revenue risk will be significantly less than on franchises awarded in the last few years, such as the Virgin Trains East Coast franchise. We are also encouraged to see signs of moderation in the level of capital put at risk on individual franchises. While we recognise the importance that franchise bids are backed with significant risk capital, we continue to believe that the level of risk capital should be commensurate with the potential financial returns.
We have delivered good investor returns from UK rail over more than 20 years and some of the biggest returns for taxpayers. We are focussed on ensuring that any bid for a new franchise is designed to achieve an acceptable balance of risk and expected reward and based on the emerging re-balancing of risk in UK rail franchises, we are optimistic that we can deliver satisfactory financial returns from UK rail.
Outside the UK, we were one of five bidders shortlisted for an early train operator contract for a new high-speed railway being constructed in California. However, following the receipt of more information, we decided not to progress the bid based on weighing up the risks and opportunities. Nevertheless, we do not rule out pursuing other rail opportunities outside the UK.
Outlook
Revenue growth in the UK rail sector has, in recent years, been below the levels typically seen since privatisation in the 1990s. That said, revenue has continued to grow and we aim to support a growing, vibrant rail network in the UK. From our own perspective, our financial returns are driven less by the outlook for rail revenue growth in general and more by how actual revenue growth compares to that assumed in our relevant franchise bid. At this time, we are therefore relatively content to have limited further exposure to long-term rail revenue growth, reflecting that:
-- We expect to conclude a new contract at Virgin Trains East Coast within the next few months and have the opportunity to ensure that any revenue risk that remains with us is acceptable.
-- The current East Midlands Trains franchise has only around 15 months to run and Virgin Rail Group's current West Coast franchise has only a few months to run. Both continue to report good levels of profit. We can take account of recent revenue trends, assess revenue risk sharing arrangements and form a view on longer term revenue expectations as part of agreeing any new contracts.
-- In our bids for new franchises, we will assess revenue trends, revenue risk sharing arrangements and longer term revenue expectations to ensure we do not take unacceptable long-term rail revenue risk. Developments in the Department for Transport's thinking on revenue risk sharing are welcome.
Any UK Rail operating profit for the second half of 2017/18 is expected to be modest, reflecting the end of our South West Trains franchise and higher rail bidding costs, partially off-setting the expected profitability at East Midlands Trains.
We will continue to consider other rail bidding opportunities where we believe we can deliver benefits to passengers and add value for our investors.
Group overheads
Group overheads were GBP7.9m in the half-year ended 28 October 2017 compared to GBP6.3m in the equivalent prior year period. The overheads include the cost of some digital projects we are working on outside of the core operating divisions.
Virgin Rail Group
Summary
--------------------------------------------------------
* Continuing good financial performance
* High customer satisfaction
* Progressing towards new direct award franchise
--------------------------------------------------------
Financial performance
The financial performance of the Group's Virgin Rail joint venture for the half-year ended 28 October 2017 is summarised below:
49% share: H1 H1
2018 2017
GBPm GBPm
------------------ ------ ------
Revenue and
like-for-like
revenue 288.5 280.1
------------------ ------ ------
Operating profit 14.8 17.1
Net finance
income 0.2 0.3
Taxation (2.9) (3.5)
------------------ ------ ------
Profit after
tax 12.1 13.9
------------------ ------ ------
Operating margin 5.1% 6.1%
------------------ ------ ------
Although Virgin Rail Group's operating profit has fallen slightly year-on-year, its West Coast rail franchise continues to perform well, with like-for-like revenue growth of 3.0% for the half-year ended 28 October 2017, and a good profit margin. That good performance continues to benefit taxpayers through profit share payments by the business to the UK Department for Transport. The reduction in profit reflects a lower rate of revenue growth being more than offset by cost increases and the premia payable to the Department.
Virgin Rail Group is continuing to drive improvements for customers as it celebrates 20 years of operating the West Coast route. Virgin Trains has broken new records for passengers travelling between Liverpool and London. Sales of digital tickets have more than trebled in a year, with around 20% of Virgin Trains customers now choosing this form of ticket on the West Coast route. Customer satisfaction remains amongst the highest in the UK, with the latest National Rail Passenger Survey showing an overall satisfaction score of 92%.
Virgin Rail Group is making good progress towards agreeing a new direct award contract with the Department for Transport to run from April 2018. We are hopeful that this will be concluded shortly.
Pre-exceptional EBITDA, depreciation and intangible asset amortisation
Earnings before interest, taxation, depreciation, intangible asset amortisation and exceptional items (pre-exceptional EBITDA) amounted to GBP189.9m (H1 2017: GBP191.0m). Pre-exceptional EBITDA can be reconciled to the financial statements as follows:
Year
H1 H1 to
2018 2017 28
GBPm GBPm Oct
2017
GBPm
--------------------- ------- ------- ------
Total operating
profit 114.8 108.9 181.9
Intangible
asset amortisation 5.5 8.1 14.2
Depreciation 66.7 70.5 141.7
Add back joint
venture finance
income & tax 2.9 3.5 6.5
--------------------- ------- ------- ------
Pre-exceptional
EBITDA 189.9 191.0 344.3
--------------------- ------- ------- ------
Intangible asset amortisation reduced from GBP8.1m to GBP5.5m, reflecting the write-down in intangible assets at Virgin Trains East Coast in the year to 29 April 2017.
Depreciation reduced from the previous year reflecting the cessation of our South Western rail franchise.
Exceptional items
There were no exceptional items recognised in the half-year ended 28 October 2017.
Net finance costs
Net finance costs for the half-year ended 28 October 2017 were GBP18.1m (H1 2017: GBP16.6m) and are further analysed below. The small increase in net finance costs is principally due to higher interest expense on defined benefit pension schemes arising from changes in market-driven assumptions used to determine pension amounts.
H1 H1
2018 2017
GBPm GBPm
--------------------- ------ ------
Finance costs
Interest payable
and facility
costs on bank
loans, overdrafts
and trade finance 1.9 2.2
Hire purchase
and finance
lease interest
payable 0.8 1.0
Interest payable
and other finance
costs on bonds 10.9 10.9
Unwinding of
discount on
provisions 1.8 1.8
Interest expense
on defined benefit
pension schemes 3.4 1.9
--------------------- ------ ------
18.8 17.8
--------------------- ------ ------
Finance income
Interest receivable
on cash (0.3) (0.7)
Unwinding of
discount on
receivable - (0.5)
Effect of interest
rate swaps (0.4) -
--------------------- ------ ------
(0.7) (1.2)
--------------------- ------ ------
Net finance
costs 18.1 16.6
--------------------- ------ ------
Taxation
The effective tax rate for the half-year ended 28 October 2017, excluding exceptional items, was 21.7% (H1 2017: 21.3%). The tax charge can be analysed as follows:
Pre-tax
Half-year profit Tax Rate
to 28 October GBPm GBPm %
2017
------------------- -------- ------- -------
With joint
venture taxation
gross 99.8 (21.7) 21.7%
Reclassify
joint venture
taxation for
reporting
purposes (3.1) 3.1 -
------------------- -------- ------- -------
Reported in
income statement 96.7 (18.6) 19.2%
------------------- -------- ------- -------
Fuel costs
The Group's operations as at 28 October 2017 consume approximately 391m litres of diesel fuel per annum. As a result, the Group's profit is exposed to movements in the underlying price of fuel. The Group's fuel costs include the costs of delivery and duty as well as the costs of the underlying product. Accordingly, not all of the cost varies with movements in oil prices.
The proportion of the Group's projected fuel usage that is now hedged using fuel swaps is as follows:
Year ending 2018 2019 2020 2021 April ------------- ----- ----- ----- ----- Total Group 83% 74% 58% 23% ------------- ----- ----- ----- -----
The Group has no fuel hedges in place for periods beyond April 2021.
Cash flows and net debt
Consolidated net debt has, as expected, increased from 29 April 2017, reflecting operating cash outflows at Virgin Trains East Coast, the transfer of cash following the expiry of the South West Trains franchise, additional capital investment, the timing of interest payments associated with our 4.00% bonds, partly offset by continued cash generation from other operations.
Net cash from operating activities before tax for the half-year ended 28 October 2017 was GBP44.2m (H1 2017: GBP142.9m) and can be further analysed as follows:
H1 H1
2018 2017
GBPm GBPm
------------------------ -------- --------
EBITDA of Group
companies before
exceptional items 174.1 172.5
(Gain)/loss on
disposal of property,
plant and equipment (0.4) 0.4
Equity-settled
share based payment
expense 0.3 1.0
Working capital
movements (112.9) (20.7)
Net interest
paid (20.3) (21.1)
Dividends from
joint ventures 3.4 10.8
Net cash flows
from operating
activities before
taxation 44.2 142.9
------------------------ -------- --------
Net debt (as analysed in note 18 to the condensed financial statements) increased from GBP409.4m at 29 April 2017 to GBP482.8m at 28 October 2017. The movement in net debt, showing train operating companies separately, was:
Half-year Train
to 28 October operating
2017 companies Other Total
GBPm GBPm GBPm
------------------------ ----------- -------- --------
EBITDA of
Group companies
before exceptional
items 34.1 140.0 174.1
(Gain)/loss
on disposal
of property,
plant and
equipment 0.1 (0.5) (0.4)
Equity-settled
share based
payment expense 0.1 0.2 0.3
Working capital
movements (127.1) 14.2 (112.9)
Net interest
paid (1.0) (19.3) (20.3)
Dividends
from joint
ventures - 3.4 3.4
Net cash
flows from
operating
activities
before taxation (93.8) 138.0 44.2
Inter-company
movements (12.7) 12.7 -
Tax paid (5.4) 0.4 (5.0)
Investing
activities 3.2 (70.2) (67.0)
Financing
activities - (47.6) (47.6)
Foreign exchange/other - 2.0 2.0
------------------------ ----------- -------- --------
Movement
in net debt (108.7) 35.3 (73.4)
Opening net
debt 219.4 (628.8) (409.4)
------------------------ ----------- -------- --------
Closing net
debt 110.7 (593.5) (482.8)
------------------------ ----------- -------- --------
The expiry of the South West Trains franchise has increased our net debt in the period by around GBP50m. We would anticipate a further net cash outflow in this respect of up to GBP30m as we conclude open matters. The closing cash balance of GBP110.7m for train operating companies shown in the table above excludes South West Trains.
The working capital movements in the half-year are principally due to the expiry of the South West Trains franchise referred to above and the previously provided for cash losses at Virgin Trains East Coast.
The impact of purchases of property, plant and equipment for the half-year on net debt was GBP89.5m (H1 2017: GBP138.6m). This primarily related to expenditure on passenger service vehicles, and comprised cash outflows of GBP60.8m (H1 2017: GBP108.9m) and new hire purchase and finance lease debt of GBP28.7m (H1 2017: GBP29.7m). In addition, GBP30.7m (H1 2017: GBP13.1m) of cash was received from disposals of property, plant and equipment. Around GBP22.5m (H1 2017: GBP11.0m) of this cash received related to the UK Rail Division, which include South West Trains' assets sold to the new franchise operator.
The net impact on net debt of purchases and disposals of property, plant and equipment, split by division, was:
H1 H1
2018 2017
GBPm GBPm
------------------ ------ ------
UK Bus (regional
operations) 31.4 83.0
megabus Europe (1.7) -
UK Bus (London) 0.7 0.8
North America 34.9 30.9
UK Rail (6.5) 10.8
58.8 125.5
------------------ ------ ------
In addition to the amounts shown in the table above, a further net GBP8.2m (H1 2017: GBP8.5m) was invested in software and a technology business.
Financial position and liquidity
The Group maintains a solid financial position with investment grade credit ratings and appropriate headroom under its debt facilities.
The Group continues to have an appropriate mix of long-term debt enabling it to plan and invest with some certainty.
The Group's financial position remains strong and is evidenced by:
-- The ratio of net debt at 28 October 2017 to pre-exceptional EBITDA for the year ended 28 October 2017 was 1.4 times (year ended 29 October 2016: 1.4 times).
-- Pre-exceptional EBITDA for the half-year ended 28 October 2017 was 10.6 times (H1 2017: 11.7 times) net finance charges (including joint venture net finance income).
-- Undrawn, committed bank facilities of GBP387.7m at 28 October 2017 (29 April 2017: GBP333.8m) were available to be drawn as bank loans with further amounts available only for non-cash utilisation. In addition, the Group has available asset finance lines.
-- The three main credit rating agencies continue to assign investment grade credit ratings to the Group.
Net assets
Net assets at 28 October 2017 were GBP272.0m (29 April 2017: GBP68.5m). The increase in the net assets reflects the good financial results for the half-year ended 28 October 2017, actuarial gains on defined benefit pension schemes and fair value gains on cash flow hedges, partly offset by dividends paid.
Retirement benefits
We are pleased that our net retirement benefit obligations have reduced in the half-year, reflecting good investment returns on pension scheme assets, higher interest rates, changes in inflation assumptions and experience gains on the Stagecoach Group Pension Scheme. The Group recognised pre-tax actuarial gains of GBP184.6m in the half-year ended 28 October 2017 (H1 2017: pre-tax actuarial losses of GBP137.1m) on Group defined benefit schemes.
The reported net assets of GBP272.0m (29 April 2017: GBP68.5m), that are shown on the consolidated balance sheet are after taking account of net pre-tax retirement benefit liabilities of GBP57.8m (29 April 2017: GBP232.5m), and associated deferred tax assets of GBP14.9m (29 April 2017: GBP44.4m).
Related parties
Details of significant transactions with related parties are given in note 21 to the condensed financial statements.
Principal risks and uncertainties
Like most businesses, there is a range of risks and uncertainties facing the Group. A brief summary is given below of those specific risks and uncertainties that the Directors believe could have the most significant impact on the Group's financial position and/or future financial performance. Pages 10 to 14 of the Group's 2017 Annual Report set out specific risks and uncertainties in more detail.
The matters summarised below are not intended to represent an exhaustive list of all possible risks and uncertainties. The focus below is on those specific risks and uncertainties that the Directors believe could have the most significant impact on the Group's performance. In assessing the Group's likely financial performance for the second half of the current financial year, these risks and uncertainties should be considered in addition to the matters referred to regarding seasonality in note 3 to the condensed financial statements, and the comments made later under the heading "Outlook".
-- Catastrophic events - there is a risk that the Group is involved (directly or indirectly) in a major operational incident.
-- Terrorism - there is a risk that the demand for the Group's services could be adversely affected by a significant terrorist incident.
-- Economy - the economic environment in the geographic areas in which the Group operates affects the demand for the Group's bus and rail services. The ongoing negotiation of the terms of the UK leaving the European Union may lead to economic, consumer and political uncertainty. That may in turn affect asset values and foreign exchange rates, which have a bearing on the amounts of our pensions, financial instruments and other balances.
-- Rail cost base - a substantial element of the cost base of the UK Rail Division is essentially fixed as under its UK rail franchise agreements, the Group is obliged to provide a minimum level of train services and is less able to flex supply in response to changes in demand.
-- Sustainability of rail profit - there is a risk that the Group's revenue and profit could be significantly affected (either positively or negatively) as a result of the Group winning UK rail franchises or failing to retain its existing franchises.
-- Breach of franchise - if the Group fails to comply with certain conditions as part of its rail franchise agreements it may be liable to penalties including potential termination of one or more of the rail franchise agreements.
-- Changing customer habits - There is a risk that changes in people's working patterns, shopping habits and/or other preferences affect demand for the Group's transport services, which could in turn affect the Group's financial performance and/or financial position.
-- Pension scheme funding - the Group participates in a number of defined benefit pension schemes, and there is a risk that the cash contributions required increase or decrease due to changes in factors such as investment performance, discount rates and life expectancies, or due to regulatory intervention.
-- Insurance and claims environment - there is a risk that the cost to the Group of settling claims against it is significantly higher or lower than expected.
-- Regulatory changes and availability of public funding - there is a risk that changes to the regulatory environment or changes to the availability of public funding could affect the Group's prospects. New legislation introduced and planned in the UK could see the introduction of franchised bus networks in some areas, which could affect our bus operations.
-- Management and Board succession - there is a risk that the Group does not recruit and retain sufficient directors and managers with the skills important to the operation of the business.
-- Disease - there is a risk that demand for the Group's services could be adversely affected by a significant outbreak of disease.
-- Information security - there is a risk that potential malicious attacks on our systems lead to a loss of data or disruption to operations.
-- Information technology - there is a risk that the Group's capability to make sales digitally either fails or cannot meet levels of demand.
-- Litigation - there is a risk of commercial and consumer litigation arising from the legal environment in some markets, particularly North America.
-- Competition - in certain of the markets we operate in, there is a risk of increased competitive pressures from existing competitors and new entrants.
Use of non-GAAP measures
Our reported interim financial information is prepared in accordance with International Financial Reporting Standards as adopted by the European Union and applied in accordance with the provisions of the Companies Act 2006. In measuring our performance, the financial measures that we use include those which have been derived from our reported results in order to eliminate factors which distort period-on-period comparisons. These are considered non-GAAP financial measures, and include measures such as like-for-like revenue, pre-exceptional EBITDA and net debt. We believe this information, along with comparable GAAP measurements, is useful to shareholders and analysts in providing a basis for measuring our financial performance. Note 23 to the condensed financial statements provides further information on these non-GAAP financial measures.
Updating definition of adjusted earnings per share
As well as reporting earnings per share in accordance with Generally Accepted Accounting Principles, we also report an adjusted earnings per share measure to help explain the financial performance of the Group. For some years, our measure of adjusted earnings per share has been calculated with reference to profit excluding intangible asset expenses and exceptional items.
In our preliminary results announcement of 28 June 2017, we noted our intention to discuss with analysts and investors whether adjusting our definition of adjusted earnings per share to include software amortisation would provide them with a more useful measure of performance, reflecting the growth in these costs as we have invested in our digital programmes. We confirmed in our trading statement of 28 September 2017 that based on those discussions and consistent with emerging market practice, we will now report adjusted earnings per share inclusive of software amortisation. The adjusted earnings per share of 13.6p that we have reported for the half-year ended 28 October 2017 has been determined on that basis.
The effect on previously reported amounts of including these costs within adjusted earnings per share is set out below:
Half-year Revised
ended Build-up build-up
29 October of adjusted Software of adjusted
2016 EPS amortisation EPS
GBPm GBPm GBPm
-------------------- ------------- -------------- -------------
UK Bus
(regional
operations) 66.6 (1.7) 64.9
megabus
Europe (4.6) - (4.6)
UK Bus
(London) 9.1 - 9.1
North
America 17.5 (0.5) 17.0
UK Rail 20.5 (1.0) 19.5
Group
overheads
and restructuring
costs (7.1) - (7.1)
Joint
ventures 15.0 - 15.0
Finance
costs
(net) (16.6) - (16.6)
Taxation (17.9) 0.6 (17.3)
Non-controlling
interests (0.1) - (0.1)
-------------------- ------------- -------------- -------------
Profit
for adjusted
earnings
per share 82.4 (2.6) 79.8
-------------------- ------------- -------------- -------------
Pence Pence Pence
Adjusted
earnings
per share 14.4p (0.5)p 13.9p
-------------------- ------------- -------------- -------------
Revised
Year ended Build-up build-up
29 April of adjusted Software of adjusted
2017 EPS amortisation EPS
GBPm GBPm GBPm
-------------------- ------------- -------------- -------------
UK Bus
(regional
operations) 121.1 (4.1) 117.0
megabus
Europe (4.3) - (4.3)
UK Bus
(London) 18.4 - 18.4
North
America 19.3 (1.1) 18.2
UK Rail 31.0 (2.5) 28.5
Group
overheads
and restructuring
costs (18.9) - (18.9)
Joint
ventures 26.2 - 26.2
Finance
costs
(net) (34.1) - (34.1)
Taxation (20.7) 1.4 (19.3)
Non-controlling
interests 1.7 0.1 1.8
-------------------- ------------- -------------- -------------
Profit
for adjusted
earnings
per share 139.7 (6.2) 133.5
-------------------- ------------- -------------- -------------
Pence Pence Pence
Adjusted
earnings
per share 24.4p (1.1)p 23.3p
-------------------- ------------- -------------- -------------
Going concern
On the basis of current financial projections and the facilities available, the Directors are satisfied that the Group has adequate resources to continue for the foreseeable future and, accordingly, consider it appropriate to adopt the going concern basis in preparing the condensed financial statements for the half-year ended 28 October 2017.
Outlook
Our expectation of adjusted earnings per share for the year ending 28 April 2018 is unchanged.
We see positive long-term prospects for public transport. There is a large market opportunity for modal shift from cars to public transport against a backdrop of technological advancements, rising road congestion and increasing environmental awareness.
Martin Griffiths
Chief Executive
6 December 2017
Responsibility Statement
We confirm that to the best of our knowledge:
(a) the condensed consolidated interim financial information contained in this document has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting" as adopted by the European Union;
(b) the interim management report contained in this document includes a fair review of the information required by the Financial Conduct Authority's Disclosure and Transparency Rules ("DTR") 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and
(c) this document includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).
By order of and on behalf of the Board
Martin Griffiths Ross Paterson
Chief Executive Finance Director
6 December 2017 6 December 2017
Cautionary statement
The preceding interim management report has been prepared for the shareholders of the Company, as a body, and for no other persons. Its purpose is to assist shareholders of the Company to assess the strategies adopted by the Company and the potential for those strategies to succeed and for no other purpose. The interim management report contains forward-looking statements that are subject to risk factors associated with, amongst other things, the economic, regulatory and business circumstances occurring from time to time in the countries, sectors and markets in which the Group operates. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a wide range of variables that could cause actual results to differ materially from those currently anticipated. No assurances can be given that the forward-looking statements will be realised. The forward-looking statements reflect the knowledge and information available at the date of preparation. Nothing in the interim management report should be considered or construed as a profit forecast for the Group. Except as required by law, the Group has no obligation to update forward-looking statements or to correct any inaccuracies therein.
CONDENSED FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT
Unaudited Unaudited
---------------------------------------- ----------------------------------------
Half-year to Half-year to
28 October 2017 29 October 2016
(Restated)
Performance Intangibles Performance Intangibles
pre (exc pre (exc
intangibles software) intangibles software)
(exc and (exc and
software) exceptional Results software) exceptional Results
and items for and items for
exceptional (note the exceptional (note the
items 5) period items 5) period
Notes GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ------ ------------- ------------- ---------- ------------- ------------- ----------
Revenue 4(a) 1,800.4 - 1,800.4 2,002.1 - 2,002.1
Operating costs
and other operating
income (1,698.5) - (1,698.5) (1,903.3) (4.9) (1,908.2)
Operating profit
of Group companies 4(b) 101.9 - 101.9 98.8 (4.9) 93.9
Share of profit
of joint ventures
after net finance
income and taxation 4(c) 12.9 - 12.9 15.0 - 15.0
-------------------------- ------ ------------- ------------- ---------- ------------- ------------- ----------
Total operating
profit: Group operating
profit and share
of joint ventures'
profit after taxation 4(b) 114.8 - 114.8 113.8 (4.9) 108.9
Non-operating exceptional
items 5 - - - - (2.8) (2.8)
-------------------------- ------ ------------- ------------- ---------- ------------- ------------- ----------
Profit before interest
and taxation 114.8 - 114.8 113.8 (7.7) 106.1
Finance costs (18.8) - (18.8) (17.8) - (17.8)
Finance income 0.7 - 0.7 1.2 - 1.2
-------------------------- ------ ------------- ------------- ---------- ------------- ------------- ----------
Profit before taxation 96.7 - 96.7 97.2 (7.7) 89.5
Taxation (18.6) - (18.6) (17.3) 0.6 (16.7)
-------------------------- ------ ------------- ------------- ---------- ------------- ------------- ----------
Profit from continuing
operations and profit
after taxation for
the period 78.1 - 78.1 79.9 (7.1) 72.8
-------------------------- ------ ------------- ------------- ---------- ------------- ------------- ----------
Attributable to:
Equity holders of
the parent 78.2 - 78.2 79.8 (6.7) 73.1
Non-controlling
interests (0.1) - (0.1) 0.1 (0.4) (0.3)
78.1 - 78.1 79.9 (7.1) 72.8
Earnings per share
from continuing
and total operations
- Adjusted basic/Basic 7 13.6p 13.6p 13.9p 12.7p
- Adjusted
diluted/Diluted 7 13.6p 13.6p 13.9p 12.7p
-------------------------- ------ ------------- ------------- ---------- ------------- ------------- ----------
The accompanying notes form an integral part of this consolidated income statement.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited
============ ============
Half-year Half-year
to to
28 October 29 October
2017 2016
GBPm GBPm
----------------------------------------------------------- ------------ ------------
Profit for the period 78.1 72.8
----------------------------------------------------------- ------------ ------------
Items that may be reclassified
to profit or loss
Cash flow hedges:
* Net fair value gains on cash flow hedges 21.2 35.4
* Reclassified and reported in profit for the period 3.6 16.4
* Share of other comprehensive (expense)/income on
joint ventures' cash flow hedges (0.1) 2.7
* Tax effect of cash flow hedges (4.7) (9.8)
* Tax effect of other comprehensive income on joint
ventures' cash flow hedges - (0.5)
Foreign exchange differences on
translation of foreign operations
(net of hedging) (0.9) 20.1
Total items that may be reclassified
to profit or loss 19.1 64.3
----------------------------------------------------------- ------------ ------------
Items that will not be reclassified
to profit or loss
Actuarial gains/(losses) on Group
defined benefit pension schemes 184.6 (137.1)
Tax effect of actuarial (gains)/losses
on Group defined benefit pension
schemes (31.1) 24.2
Share of actuarial gains on joint
ventures' defined benefit schemes - 0.8
Tax effect of actuarial gains on
joint ventures' defined benefit
pension schemes - (0.2)
Total items that will not be reclassified
to profit or loss 153.5 (112.3)
----------------------------------------------------------- ------------ ------------
Other comprehensive income/(expense)
for the period 172.6 (48.0)
----------------------------------------------------------- ------------ ------------
Total comprehensive income for
the period 250.7 24.8
----------------------------------------------------------- ------------ ------------
Attributable to:
Equity holders of the parent 250.8 25.5
Non-controlling interests (0.1) (0.7)
250.7 24.8
----------------------------------------------------------- ------------ ------------
CONSOLIDATED BALANCE SHEET (STATEMENT OF FINANCIAL POSITION)
Unaudited Audited
------------ ----------
As at As at
28 October 29 April
Notes 2017 2017
GBPm GBPm
-------------------------------- -------- ------------ ----------
ASSETS
Non-current assets
Goodwill 8 146.9 148.2
Other intangible assets 9 45.1 45.0
Property, plant and equipment 10 1,159.9 1,190.3
Interests in joint ventures 11 35.1 25.7
Available for sale investments 2.7 -
Derivative instruments
at fair value 12.8 7.0
Deferred tax asset - 14.4
Retirement benefit assets 14 47.3 45.6
Other receivables 5.1 4.9
-------------------------------- -------- ------------ ----------
1,454.9 1,481.1
-------------------------------- -------- ------------ ----------
Current assets
Inventories 23.9 25.2
Trade and other receivables 357.8 449.0
Derivative instruments
at fair value 9.4 7.3
Foreign tax recoverable - 0.3
Cash and cash equivalents 215.6 313.3
-------------------------------- -------- ------------ ----------
606.7 795.1
-------------------------------- -------- ------------ ----------
Total assets 4(d) 2,061.6 2,276.2
-------------------------------- -------- ------------ ----------
LIABILITIES
Current liabilities
Trade and other payables 663.8 848.0
Current tax liabilities 47.6 36.6
Borrowings 39.5 40.5
Derivative instruments
at fair value 4.8 16.6
Provisions 19 133.8 118.6
-------------------------------- -------- ------------ ----------
889.5 1,060.3
-------------------------------- -------- ------------ ----------
Non-current liabilities
Other payables 33.5 35.8
Borrowings 661.1 693.0
Derivative instruments
at fair value 2.6 6.9
Deferred tax liabilities 23.7 -
Provisions 19 74.1 133.6
Retirement benefit obligations 14 105.1 278.1
-------------------------------- -------- ------------ ----------
900.1 1,147.4
-------------------------------- -------- ------------ ----------
Total liabilities 4(d) 1,789.6 2,207.7
-------------------------------- -------- ------------ ----------
Net assets 4(d) 272.0 68.5
-------------------------------- -------- ------------ ----------
EQUITY
Ordinary share capital 15 3.2 3.2
Share premium account 8.4 8.4
Retained earnings (135.0) (320.4)
Capital redemption reserve 422.8 422.8
Own shares (38.0) (37.0)
Translation reserve 9.3 10.2
Cash flow hedging reserve 11.1 (9.0)
-------------------------------- -------- ------------ ----------
Total equity attributable
to the parent 281.8 78.2
Non-controlling interests (9.8) (9.7)
-------------------------------- -------- ------------ ----------
Total equity 272.0 68.5
-------------------------------- -------- ------------ ----------
The accompanying notes form an integral part of this consolidated balance sheet.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Capital Cash Total Non-controlling
Notes Ordinary premium Retained redemption Translation flow equity interest Total
share account earnings reserve Own reserve hedging attributable GBPm equity
capital GBPm GBPm GBPm shares GBPm reserve to the GBPm
GBPm GBPm GBPm parent
GBPm
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Balance at 29
April
2017 and 30
April 2017 3.2 8.4 (320.4) 422.8 (37.0) 10.2 (9.0) 78.2 (9.7) 68.5
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Profit for the
period - - 78.2 - - - - 78.2 (0.1) 78.1
Other
comprehensive
income/(expense)
net
of tax - - 153.4 - - (0.9) 20.1 172.6 - 172.6
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Total
comprehensive
income/(expense) - - 231.6 - - (0.9) 20.1 250.8 (0.1) 250.7
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Own ordinary
shares
purchased - - - - (1.0) - - (1.0) - (1.0)
Credit in
relation to
equity-settled
share
based payments - - 0.3 - - - - 0.3 - 0.3
Dividends paid on
ordinary
shares 6 - - (46.5) - - - - (46.5) - (46.5)
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Balance at 28
October
2017 3.2 8.4 (135.0) 422.8 (38.0) 9.3 11.1 281.8 (9.8) 272.0
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Balance at 30
April
2016 and 1 May
2016 3.2 8.4 (185.1) 422.8 (34.3) 1.3 (40.3) 176.0 1.8 177.8
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Profit for the
period - - 73.1 - - - - 73.1 (0.3) 72.8
Other
comprehensive
(expense)/income
net
of tax - - (109.9) - - 20.1 42.2 (47.6) (0.4) (48.0)
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Total
comprehensive
(expense)/income - - (36.8) - - 20.1 42.2 25.5 (0.7) 24.8
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Own ordinary
shares
purchased - - - - (2.7) - - (2.7) - (2.7)
Credit in
relation to
equity-settled
share
based payments - - 1.0 - - - - 1.0 - 1.0
Dividends paid on
ordinary
shares 6 - - (45.3) - - - - (45.3) - (45.3)
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Balance at 29
October
2016 3.2 8.4 (266.2) 422.8 (37.0) 21.4 1.9 154.5 1.1 155.6
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
The accompanying notes form an integral part of this consolidated statement of changes in equity.
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited
------------ ------------
Half-year Half-year
to to
28 October 29 October
2017 2016
Notes GBPm GBPm
-------------------------------------- ------ ------------ ------------
Cash flows from operating activities
Cash generated by operations 16 61.1 153.2
Interest paid (22.4) (21.8)
Interest received 2.1 0.7
Dividends received from joint
ventures 3.4 10.8
-------------------------------------- ------ ------------ ------------
Net cash flows from operating
activities 44.2 142.9
Tax paid (5.0) (4.6)
-------------------------------------- ------ ------------ ------------
Net cash from operating activities
after tax 39.2 138.3
-------------------------------------- ------ ------------ ------------
Cash flows from investing activities
Disposals of businesses, net
of cash disposed of 12 - (2.7)
Purchase of property, plant
and equipment (60.8) (108.9)
Disposal of property, plant
and equipment 30.7 13.1
Purchase of intangible assets
and other investments (10.9) (8.5)
Disposal of intangible assets 2.7 -
Net cash outflow from investing
activities (38.3) (107.0)
-------------------------------------- ------ ------------ ------------
Cash flows from financing activities
Purchase of treasury shares (1.0) (2.7)
Repayments of hire purchase
and lease finance debt (14.2) (30.4)
Drawdown of other borrowings 100.0 102.9
Repayment of other borrowings (136.8) (100.4)
Dividends paid on ordinary
shares 6 (46.5) (45.3)
Sale of tokens 0.1 0.1
Redemption of tokens (0.2) (0.2)
-------------------------------------- ------ ------------ ------------
Net cash used in financing
activities (98.6) (76.0)
-------------------------------------- ------ ------------ ------------
Net decrease in cash and cash
equivalents (97.7) (44.7)
Cash and cash equivalents at
beginning of period 313.3 382.3
Exchange rate effects - 3.8
-------------------------------------- ------ ------------ ------------
Cash and cash equivalents at
end of period 215.6 341.4
-------------------------------------- ------ ------------ ------------
Cash and cash equivalents for the purposes of the consolidated statement of cash flows comprise cash at bank and in hand, overdrafts and other short-term highly liquid investments with maturities at the balance sheet date of twelve months or less.
The accompanying notes form an integral part of this consolidated statement of cash flows.
NOTES
1 BASIS OF PREPARATION
The condensed consolidated interim financial information for the half-year ended 28 October 2017 has been prepared in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority and International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union. The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 29 April 2017, which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union. As explained in note 5 to the condensed financial statements, the definition of adjusted earnings has been changed to include software amortisation. The accounting policies and methods of computation applied in the consolidated interim financial information are otherwise the same as those of the annual financial statements for the year ended 29 April 2017, as described on pages 79 to 87 of the Group's 2017 Annual Report which can be found on the Stagecoach Group website at http://www.stagecoach.com/investors/financial-analysis/reports/.
The figures for this half-year include the results for all divisions for the 26 weeks to 28 October 2017. The comparative figures for the half-year ended 29 October 2016 include the results for all divisions for the 26 weeks ended 29 October 2016.
This condensed consolidated interim financial information for the half-year ended 28 October 2017 has not been audited, nor has the comparative financial information for the half-year ended 29 October 2016 but they have both been reviewed by the auditors. The comparative financial information presented in this announcement for the year ended 29 April 2017 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006 and does not reflect all of the information contained in the Company's annual financial statements. The annual financial statements for the year ended 29 April 2017, were approved by the Board of Directors on 28 June 2017, were reported on by the auditors under sections 495 and 496 of the Companies Act 2006, received an unqualified audit report, did not contain an emphasis of matter paragraph, did not contain a statement under section 498(2) or (3) of the Companies Act 2006 and have been filed with the Registrar of Companies.
The Board of Directors approved this announcement, including the condensed consolidated interim financial information, on 6 December 2017. This announcement will be available on the Group's website at http://www.stagecoach.com/investors/financial-analysis/reports/.
New standards, amendments to standards and interpretations that are mandatory for the first time for the financial year beginning 30 April 2017, do not have any significant effect on the consolidated financial statements of the Group.
2 FOREIGN CURRENCIES
The principal rates of exchange used to translate the results of foreign operations are as follows:
Half-year Half-year Year to
to to 29 April
28 October 29 October 2017
2017 2016
------------------ ------------ ------------ ----------
US Dollar:
Period end rate 1.3110 1.2149 1.2937
Average rate 1.3029 1.3426 1.2937
Canadian Dollar:
Period end rate 1.6899 1.6243 1.7689
Average rate 1.6748 1.7487 1.7036
3 SEASONALITY
The Group's North American bus operations typically earn higher operating profit for the first half of the financial year (i.e. the half-year to the end of October) than for the second half. This is because leisure customers generate an element of the revenue with demand being at its strongest in the summer months.
4 SEGMENTAL ANALYSIS
The Group is managed, and reports internally, on a basis consistent with its five operating segments, being UK Bus (regional operations), megabus Europe, UK Bus (London), North America and UK Rail. During the year ended 29 April 2017, the Group exited the operations of its megabus Europe Division. The Group's accounting policies are applied consistently, where appropriate, to each segment.
The segmental information provided in this note is on the basis of five operating segments as follows:
Segment name Service operated Countries of operation
UK Bus (regional Coach and bus operations United Kingdom
operations)
megabus Europe Coach operations United Kingdom
and mainland Europe
UK Bus (London) Bus operations United Kingdom
North America Coach and bus operations USA and Canada
UK Rail Rail operations United Kingdom
The basis of segmentation and the basis on which segment profit is measured are consistent with the Group's last annual financial statements for the year ended 29 April 2017.
The Group has interests in two material joint ventures: Virgin Rail Group that operates in UK Rail and Citylink that operates in UK Bus (regional operations). The results of these joint ventures are shown separately in note 4(c).
(a) Revenue
Due to the nature of the Group's business, the origin and destination of revenue (i.e. United Kingdom, mainland Europe or North America) is the same in all cases except in respect of an immaterial amount of revenue for services previously operated by megabus Europe between the UK and mainland Europe. As the Group sells bus and rail services to individuals, it has few customers that are individually "major". Its major customers are typically public bodies that subsidise or procure transport services - such customers include local authorities, transport authorities and the UK Department for Transport.
Revenue split by segment was as follows:
Unaudited Unaudited
------------ ------------
Half-year Half-year
to to
28 October 29 October
2017 2016
GBPm GBPm
---------------------------------------- ------------ ------------
UK Bus (regional operations) 512.4 513.9
megabus Europe - 14.9
UK Bus (London) 128.4 131.5
North America 256.3 252.0
---------------------------------------- ------------ ------------
Total bus operations 897.1 912.3
UK Rail 905.6 1,092.3
---------------------------------------- ------------ ------------
Total Group revenue 1,802.7 2,004.6
Intra-Group revenue - UK Bus (regional
operations) (2.3) (2.5)
---------------------------------------- ------------ ------------
Reported Group revenue 1,800.4 2,002.1
---------------------------------------- ------------ ------------
4 SEGMENTAL ANALYSIS (CONTINUED)
(b) Operating profit
Operating profit split by segment was as follows:
Unaudited Unaudited
-------------------------------------- --------------------------------------
Half-year to 28 Half-year to 29
October 2017 October 2016
(Restated)
Performance Intangibles Performance Intangibles
pre (exc pre (exc
intangibles software) intangibles software)
(exc and (exc and
software) exceptional Results software) exceptional Results
and items for and items for
exceptional (note the exceptional (note the
items 5) period items 5) period
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ------------- ------------- -------- ------------- ------------- --------
UK Bus (regional
operations) 61.6 - 61.6 64.9 - 64.9
megabus Europe - - - (4.6) - (4.6)
UK Bus (London) 6.5 - 6.5 9.1 - 9.1
North America 21.2 - 21.2 17.0 - 17.0
-------------------------- ------------- ------------- -------- ------------- ------------- --------
Total bus operations 89.3 - 89.3 86.4 - 86.4
UK Rail 21.7 - 21.7 19.5 - 19.5
-------------------------- ------------- ------------- -------- ------------- ------------- --------
111.0 - 111.0 105.9 - 105.9
Group overheads (7.9) - (7.9) (6.3) - (6.3)
Intangible asset
amortisation (exc
software) - - - - (4.9) (4.9)
Restructuring costs (1.2) - (1.2) (0.8) - (0.8)
-------------------------- ------------- ------------- -------- ------------- ------------- --------
Total operating
profit of Group
companies 101.9 - 101.9 98.8 (4.9) 93.9
Share of joint ventures'
profit after net
finance income and
taxation 12.9 - 12.9 15.0 - 15.0
-------------------------- ------------- ------------- -------- ------------- ------------- --------
Total operating
profit: Group operating
profit and share
of joint ventures'
profit after taxation 114.8 - 114.8 113.8 (4.9) 108.9
-------------------------- ------------- ------------- -------- ------------- ------------- --------
(c) Joint ventures
The share of profit from joint ventures was further split as follows:
Unaudited Unaudited
------------ ------------
Half-year Half-year
to to
28 October 29 October
2017 2016
GBPm GBPm
----------------------------- ------------ ------------
Virgin Rail Group (UK Rail)
Operating profit 14.8 17.1
Finance income (net) 0.2 0.3
Taxation (2.9) (3.5)
12.1 13.9
Citylink (UK Bus, regional
operations)
Operating profit 1.0 1.4
Taxation (0.2) (0.3)
------------------------------ ------------ ------------
0.8 1.1
----------------------------- ------------ ------------
Share of profit of joint
ventures after net finance
income and taxation 12.9 15.0
------------------------------ ------------ ------------
4 SEGMENTAL ANALYSIS (CONTINUED)
(d) Gross assets and liabilities
Assets and liabilities split by segment were as follows:
Unaudited Audited
--------------------------------------------- ----------------------------------------------
As at 28 October 2017 As at 29 April 2017
Net Net
Gross assets/ Gross assets/
Gross assets liabilities (liabilities) Gross assets liabilities (liabilities)
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- ------------- -------------- -------------- ------------- -------------- ---------------
UK Bus (regional
operations) 926.1 (237.9) 688.2 952.5 (358.3) 594.2
megabus Europe - (2.6) (2.6) 7.1 (10.1) (3.0)
UK Bus (London) 67.6 (113.5) (45.9) 69.1 (176.7) (107.6)
North America 453.5 (144.2) 309.3 429.5 (144.7) 284.8
UK Rail 342.5 (482.4) (139.9) 426.2 (704.3) (278.1)
----------------------- ------------- -------------- -------------- ------------- -------------- ---------------
1,789.7 (980.6) 809.1 1,884.4 (1,394.1) 490.3
Central functions 21.2 (37.1) (15.9) 38.1 (43.5) (5.4)
Joint ventures 35.1 - 35.1 25.7 - 25.7
Borrowings and cash 215.6 (700.6) (485.0) 313.3 (733.5) (420.2)
Taxation - (71.3) (71.3) 14.7 (36.6) (21.9)
----------------------- ------------- -------------- -------------- ------------- -------------- ---------------
Total 2,061.6 (1,789.6) 272.0 2,276.2 (2,207.7) 68.5
----------------------- ------------- -------------- -------------- ------------- -------------- ---------------
Central assets and liabilities include interest payable and receivable and other net assets of the holding company and other head office companies. Segment assets and liabilities are determined by identifying the assets and liabilities that relate to the business of each segment but excluding intra-Group balances, cash, borrowings, taxation, interest payable, interest receivable and the token provision.
5 EXCEPTIONAL ITEMS AND INTANGIBLE ASSET AMORTISATION
The Group separately highlights non-software intangible asset amortisation and exceptional items. Exceptional items are defined in note 23. As explained in the section headed "Updating definition of adjusted earnings per share" on page 13, adjusted earnings per share are now reported inclusive of software amortisation, and the effect on previously reported amounts of including these costs within adjusted earnings is set out below:
(a) Consolidated income statement - restatement of adjusted amounts
Half-year to 29 October 2016
--------------------------------------------------------------------
Performance pre
intangibles and Intangibles and
exceptional items exceptional items
--------------------------------- ---------------------------------
H1 2017 H1 2017 H1 2017 H1 2017
reported Software restated reported Software restated
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ---------- --------- ---------- ---------- --------- ----------
Revenue 2,002.1 - 2,002.1 - - -
Operating costs
and other operating
income (1,900.1) (3.2) (1,903.3) (8.1) 3.2 (4.9)
------------------------ ---------- --------- ---------- ---------- --------- ----------
Operating profit
of Group companies 102.0 (3.2) 98.8 (8.1) 3.2 (4.9)
Share of profit
of joint ventures
after net finance
income and taxation 15.0 - 15.0 - - -
------------------------ ---------- --------- ---------- ---------- --------- ----------
Total operating
profit: Group and
share of joint
ventures profit
after taxation 117.0 (3.2) 113.8 (8.1) 3.2 (4.9)
Non-operational
exceptional items - - - (2.8) - (2.8)
------------------------ ---------- --------- ---------- ---------- --------- ----------
Profit before interest
and taxation 117.0 (3.2) 113.8 (10.9) 3.2 (7.7)
Finance costs (17.8) - (17.8) - - -
Finance income 1.2 - 1.2 - - -
------------------------ ---------- --------- ---------- ---------- --------- ----------
Profit before taxation 100.4 (3.2) 97.2 (10.9) 3.2 (7.7)
Taxation (17.9) 0.6 (17.3) 1.2 (0.6) 0.6
------------------------ ---------- --------- ---------- ---------- --------- ----------
Profit from continuing
operations and
profit after taxation
for the period 82.5 (2.6) 79.9 (9.7) 2.6 (7.1)
------------------------ ---------- --------- ---------- ---------- --------- ----------
5 EXCEPTIONAL ITEMS AND INTANGIBLE ASSET AMORTISATION
(CONTINUED)
(b) Segmental operating profit - restatement of adjusted amounts
Half-year to 29 October 2016
--------------------------------------------------------------------
Performance pre
intangibles and Intangibles and
exceptional items exceptional items
--------------------------------- ---------------------------------
H1 2017 H1 2017 H1 2017 H1 2017
reported Software restated reported Software restated
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ---------- --------- ---------- ---------- --------- ----------
UK Bus (regional
operations) 66.6 (1.7) 64.9 - - -
megabus Europe (4.6) - (4.6) - - -
UK Bus (London) 9.1 - 9.1 - - -
North America 17.5 (0.5) 17.0 - - -
-------------------------- ---------- --------- ---------- ---------- --------- ----------
Total bus operations 88.6 (2.2) 86.4 - - -
UK Rail 20.5 (1.0) 19.5 - - -
-------------------------- ---------- --------- ---------- ---------- --------- ----------
109.1 (3.2) 105.9 - - -
Group overheads (6.3) - (6.3) - - -
Intangible asset
amortisation - - - (8.1) 3.2 (4.9)
Restructuring costs (0.8) - (0.8) - - -
-------------------------- ---------- --------- ---------- ---------- --------- ----------
Total operating
profit of Group
companies 102.0 (3.2) 98.8 (8.1) 3.2 (4.9)
Share of profit
of joint ventures
after net finance
income and taxation 15.0 - 15.0 - - -
-------------------------- ---------- --------- ---------- ---------- --------- ----------
Total operating
profit: Group operating
profit and share
of joint ventures'
profit after taxation 117.0 (3.2) 113.8 (8.1) 3.2 (4.9)
-------------------------- ---------- --------- ---------- ---------- --------- ----------
(c) Reported exceptional items and non-software intangible asset amortisation
The items shown in the column headed "Intangibles (exc software) and exceptional items" on the face of the consolidated income statement for the half-year ended 29 October 2016 can be further analysed as follows:
Unaudited
------------------------------------------------------------------------------------
Half-year to 29 October 2016
Intangible asset amortisation Intangibles (exc software) and
Exceptional items (exc software) exceptional items
GBPm GBPm GBPm
-------------------------------- ------------------ ------------------------------- -------------------------------
Operating costs
Intangible asset amortisation
(exc software) - (4.9) (4.9)
-------------------------------- ------------------ ------------------------------- -------------------------------
Non-operating exceptional items
megabus Europe disposal (2.8) - (2.8)
Intangible asset amortisation
(exc software) and exceptional
items (2.8) (4.9) (7.7)
Tax effect - 0.6 0.6
-------------------------------- ------------------ ------------------------------- -------------------------------
Intangible asset amortisation
(exc software) and exceptional
items after taxation (2.8) (4.3) (7.1)
-------------------------------- ------------------ ------------------------------- -------------------------------
6 DIVIDS
Dividends on ordinary shares are shown below.
Unaudited Unaudited Audited Unaudited Unaudited Audited
--------------- --------------- --------------- --------------- --------------- ---------------
Half-year to Half-year to Half-year to Half-year to
28 October 29 October Year to 28 October 29 October Year to
2017 2016 29 April 2017 2017 2016 29 April 2017
pence per pence per pence per
share share share GBPm GBPm GBPm
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Amounts
recognised as
distributions
Dividends on
ordinary
shares:
Final dividend
in respect of
the previous
year 8.1 7.9 7.9 46.5 45.3 45.3
Interim
dividend in
respect of the
current year - - 3.8 - - 21.8
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Amounts
recognised as
distributions
to equity
holders 8.1 7.9 11.7 46.5 45.3 67.1
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Dividends
declared or
proposed but
neither paid
nor included as
liabilities in
the financial
statements
Dividends on
ordinary
shares:
Final dividend
in respect of
the current
year - - 8.1 - - 46.5
Interim
dividend in
respect of the
current year 3.8 3.8 - 21.8 21.8 -
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
3.8 3.8 8.1 21.8 21.8 46.5
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
The interim ordinary dividend of 3.8p per ordinary share was declared by the Board of Directors on 6 December 2017 and has not been included as a liability as at 28 October 2017. It is payable on 7 March 2018 to shareholders on the register at close of business on 26 January 2018.
7 EARNINGS PER SHARE
Basic earnings per share ("EPS") have been calculated by dividing the profit attributable to equity shareholders by the weighted average number of ordinary shares in issue during the period, excluding any ordinary shares held in treasury and by employee share ownership trusts.
The diluted earnings per share was calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares in relation to share based payment arrangements and long-term incentive plans.
Unaudited Unaudited
-------------- --------------
Half-year Half-year
to to
28 October 29 October
2017 2016
No. of shares No. of shares
Million Million
------------------------------- -------------- --------------
Basic weighted average number
of ordinary shares 573.4 573.6
Dilutive ordinary shares
- Executive Participation
Plan 2.7 2.2
-------------------------------- -------------- --------------
Diluted weighted average
number of ordinary shares 576.1 575.8
-------------------------------- -------------- --------------
Unaudited Unaudited
------------ ------------
Half-year Half-year
to to
28 October 29 October
2017 2016
(restated)
Notes GBPm GBPm
------------------------------------ ------ ------------ ------------
Net profit attributable to
equity holders of the parent
(for basic EPS calculation) 78.2 73.1
Intangible asset amortisation
(exc software) 5 - 4.9
Non-controlling interest
in intangible asset expenses
(exc software) - (0.4)
Exceptional items before
tax 5 - 2.8
Tax effect of intangible
asset amortisation (exc software) 5 - (0.6)
Net profit attributable to
equity holders of the parent
for adjusted EPS calculation 78.2 79.8
------------------------------------ ------ ------------ ------------
Adjusted earnings per share is calculated after adding back non-software intangible asset amortisation and exceptional items after taking account of taxation and the non-controlling interest, as shown on the consolidated income statement. This has been presented to allow shareholders to gain a clearer understanding of underlying performance.
8 GOODWILL
The movements in goodwill were as follows:
Unaudited Unaudited Audited
------------ ------------ ----------
Half-year Half-year Year
to to to
28 October 29 October 29 April
2017 2016 2017
GBPm GBPm GBPm
--------------------------------- ------------ ------------ ----------
Net book value at beginning
of period 148.2 136.9 136.9
Foreign exchange movements (1.3) 17.5 11.3
--------------------------------- ------------ ------------ ----------
Net book value at end of period 146.9 154.4 148.2
--------------------------------- ------------ ------------ ----------
9 OTHER INTANGIBLE ASSETS
The movements in other intangible assets were as follows:
Unaudited Unaudited Audited
------------ ------------ ----------
Half-year Half-year Year
to to to
28 October 29 October 29 April
2017 2016 2017
GBPm GBPm GBPm
--------------------------------- ------------ ------------ ----------
Cost at beginning of period 163.1 142.9 142.9
Additions 8.2 8.5 17.8
Disposals (6.4) (0.1) (0.5)
Foreign exchange movements (0.3) 4.6 2.9
Cost at end of period 164.6 155.9 163.1
--------------------------------- ------------ ------------ ----------
Accumulated amortisation at
beginning of period (118.1) (54.2) (54.2)
Amortisation charged to income
statement (5.5) (8.1) (16.8)
Impairment charged to income
statement - - (44.8)
Disposals 3.8 - 0.5
Foreign exchange movements 0.3 (4.4) (2.8)
Accumulated amortisation at
end of period (119.5) (66.7) (118.1)
--------------------------------- ------------ ------------ ----------
Net book value at beginning
of period 45.0 88.7 88.7
--------------------------------- ------------ ------------ ----------
Net book value at end of period 45.1 89.2 45.0
--------------------------------- ------------ ------------ ----------
10 PROPERTY, PLANT AND EQUIPMENT
The movements in property, plant and equipment were as follows:
Unaudited Unaudited Audited
------------ ------------ ----------
Half-year Half-year Year
to to to
28 October 29 October 29 April
2017 2016 2017
GBPm GBPm GBPm
--------------------------------- ------------ ------------ ----------
Cost at beginning of period 2,178.2 2,049.4 2,049.4
Additions 69.3 117.9 199.5
Disposals (114.2) (38.7) (133.0)
Foreign exchange movements (4.8) 102.8 62.3
Transferred to assets held - (18.1) -
for sale
Cost at end of period 2,128.5 2,213.3 2,178.2
--------------------------------- ------------ ------------ ----------
Depreciation at beginning of
period (987.9) (884.2) (884.2)
Depreciation charged to income
statement (66.7) (70.5) (145.5)
Impairment charged to income
statement - (3.0) (3.2)
Disposals 83.7 25.1 73.5
Foreign exchange movements 2.3 (47.4) (28.5)
Transferred to assets held - 6.3 -
for sale
Depreciation at end of period (968.6) (973.7) (987.9)
--------------------------------- ------------ ------------ ----------
Net book value at beginning
of period 1,190.3 1,165.2 1,165.2
--------------------------------- ------------ ------------ ----------
Net book value at end of period 1,159.9 1,239.6 1,190.3
--------------------------------- ------------ ------------ ----------
11 INTERESTS IN JOINT VENTURES
The movements in the carrying values of interests in joint ventures were as follows:
Unaudited Unaudited Audited
------------ ------------ ----------
Half-year Half-year Year
to to to
28 October 29 October 29 April
2017 2016 2017
GBPm GBPm GBPm
----------------------------------- ------------ ------------ ----------
Net book value at beginning
of period 25.7 22.4 22.4
Share of recognised profit 12.9 15.0 26.2
Share of actuarial gains on
defined benefit pension schemes,
net of tax - 0.6 2.5
Share of other comprehensive
(expense)/income on cash flow
hedges, net of tax (0.1) 2.2 2.7
Dividends received in cash (3.4) (10.8) (28.1)
Net book value at end of period 35.1 29.4 25.7
----------------------------------- ------------ ------------ ----------
A loan payable to Scottish Citylink Coaches Limited of GBP1.7m (29 April 2017: GBP1.7m) is included within current liabilities under the caption "Trade and other payables".
12 BUSINESS COMBINATIONS AND DISPOSALS
The Group completed no material business combinations or business disposals in the half-year to 28 October 2017, or since then.
Details of acquisitions and disposals completed in earlier periods are given in the Group's annual reports for the relevant periods.
13 FINANCIAL INSTRUMENTS AND FINANCIAL RISK
MANAGEMENT
The Group is exposed to a variety of financial risks: market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk.
These condensed financial statements do not include all financial risk management information and disclosures required in the annual financial statements. They should be read in conjunction with the Group's consolidated financial statements for the year ended 29 April 2017. There have been no material changes in any of the Group's significant financial risk management policies since 29 April 2017.
Liquidity risk
There have been no material changes since 29 April 2017 in the contractual undiscounted cash outflows for financial liabilities.
Fair value estimation
Financial instruments that are measured in the balance sheet at fair value are disclosed by level of the following fair value measurement hierarchy.
Level 1 Quoted price (unadjusted) in active markets for identical assets or liabilities
Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly (that is, as prices) or indirectly (that is, derived from prices)
Level 3 Inputs for the assets or liabilities that are not based on observable market data (that is, unobservable inputs)
13 FINANCIAL INSTRUMENTS AND FINANCIAL RISK
MANAGEMENT (CONTINUED)
The following table presents the Group's financial assets and liabilities that are measured at fair value within the hierarchy at 28 October 2017.
Unaudited
-----------
Level
2 & Total
GBPm
-------------------------------- -----------
Assets
Derivatives used for hedging 22.2
Available for sale investments
- equity securities 2.7
-------------------------------- -----------
24.9
Liabilities
Derivatives used for hedging (7.4)
-------------------------------- -----------
The following table presents the Group's financial assets and liabilities that are measured at fair value within the hierarchy at 29 April 2017.
Audited
-----------
Level
2 & Total
GBPm
------------------------------ -----------
Assets
Derivatives used for hedging 14.3
Liabilities
Derivatives used for hedging (23.5)
------------------------------ -----------
There were no transfers between levels during the half-year ended 28 October 2017.
The table below provides a comparison of carrying amounts and fair values of the Group's financial instruments.
Unaudited Audited
------------------------ -----------------------
Carrying Carrying
value Fair Value value Fair value
----------- ----------- ---------- -----------
28 October 28 October 29 April 29 April
2017 2017 2017 2017
GBPm GBPm GBPm GBPm
------------------------------------------------------------------- ----------- ----------- ---------- -----------
Loans and receivables
* Non-current assets - Other receivables 0.2 0.2 0.2 0.2
- Available for sale
investments 2.7 2.7 - -
* Current assets - Accrued income 46.2 46.2 54.0 54.0
- Trade receivables,
net of impairment 204.3 204.3 254.4 254.4
- Other receivables 24.1 24.1 39.4 39.4
- Cash and cash equivalents 215.6 215.6 313.3 313.3
Total financial assets 493.1 493.1 661.3 661.3
----------- ----------- ---------- -----------
Financial liabilities
measured at amortised
cost
* Non-current liabilities - Borrowings (661.1) (698.7) (693.0) (737.0)
* Current liabilities - Trade payables (158.1) (158.1) (270.0) (270.0)
- Accruals (355.4) (355.4) (436.7) (436.7)
- Loans from joint
ventures (1.7) (1.7) (1.7) (1.7)
- Loan from non-controlling
interest (10.6) (10.6) (5.8) (5.8)
- Borrowings (39.5) (39.5) (40.5) (40.5)
----------- ----------- ---------- -----------
Total financial liabilities (1,226.4) (1,264.0) (1,447.7) (1,491.7)
----------- ----------- ---------- -----------
Net financial liabilities (733.3) (770.9) (786.4) (830.4)
----------- ----------- ---------- -----------
Derivatives that are designated as effective hedging instruments are not shown in the above table.
13 FINANCIAL INSTRUMENTS AND FINANCIAL RISK
MANAGEMENT (CONTINUED)
The fair values of financial assets and financial liabilities shown in the table are determined as follows:
-- The carrying value of GBP2.7m (29 April 2017: GBPNil) of an available for sale investment is measured at cost, which based on recent transactions is considered to be a reasonable approximation of fair value.
-- The carrying value of cash and cash equivalents, accrued income, trade receivables, and other receivables is considered to be a reasonable approximation of fair value. The effect of credit losses not already reflected in the carrying value as impairment losses is assumed to be immaterial. Given the short average time to maturity, no specific assumptions on discount rates have been made.
-- The carrying value of trade payables, accruals, loan from non-controlling interest and loans from joint ventures is considered to be a reasonable approximation of fair value. Given the relatively short average time to maturity, no specific assumptions on discount rates have been made.
-- The fair value of fixed-rate notes (included in borrowings) that are quoted on a recognised stock exchange is determined with reference to the "bid" price at the balance sheet date.
-- The carrying value of fixed-rate notes that are not quoted on a recognised stock exchange and fixed-rate hire purchase and finance lease liabilities (included in borrowings) is considered to be a reasonable approximation of fair value taking account of the amounts involved in the context of total financial liabilities and the fixed interest rates relative to market interest rates at the balance sheet date.
-- The fair value of other borrowings on which interest is payable at floating rates is not considered to be materially different from the carrying value.
14 RETIREMENT BENEFITS
The Group contributes to a number of pension schemes. The principal defined benefit schemes are as follows:
-- The Stagecoach Group Pension Scheme ("SPS");
-- The South West Trains section of the Railways
Pension Scheme ("RPS"), although the Group's
participation in that ceased in August 2017;
-- The Island Line section of the Railways Pension
Scheme ("RPS"), where the Group's participation
also ceased in August 2017;
-- The East Midlands Trains section of the Railways
Pension Scheme ("RPS");
-- The East Coast Main Line section of the Railways
Pension Scheme ("RPS");and
-- A number of UK Local Government Pension Schemes
("LGPS");
The Directors believe that separate consideration should be given to RPS as the Group has no rights or obligations in respect of sections of the scheme following expiry of the related rail franchises. In addition, under the terms of RPS, any fund deficit or surplus is shared by the employer (60%) and the employees (40%) in accordance with the shared cost nature of RPS. The employees' share of the deficit (or surplus) is reflected as an adjustment to the RPS liabilities (or assets). Therefore the liability (or asset) recognised for the relevant sections of RPS reflects that part of the net deficit (or surplus) of each section that the employer is expected to fund (or expected to recover) over the life of the franchise to which the section relates. The "franchise adjustment" is the portion of the deficit (or surplus) that is expected to exist at the end of the franchise and which the Group would not be obliged to fund (or entitled to recover).
In addition, the Group contributes to a number of defined contribution schemes.
The movements for the half-year ended 28 October 2017 in the net pre-tax retirement benefit liabilities recognised in the balance sheet were as follows:
SPS RPS LGPS Other Unfunded plans Total
Unaudited GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------------ -------- ------- ------ ------ --------------- --------
Liability/(asset) at beginning of period 251.8 (45.1) 17.5 4.0 4.3 232.5
Current service cost 2.4 25.4 0.6 0.8 - 29.2
Administration costs 0.5 0.2 - - - 0.7
Net Interest expense 3.5 4.3 0.3 0.1 0.1 8.3
Unwinding of franchise adjustment - (4.9) - - - (4.9)
Employers' contributions (1.8) (17.1) (3.9) (0.5) (0.1) (23.4)
Actuarial (gains)/losses (174.4) (9.7) 0.1 (0.6) - (184.6)
Liability/(asset) at end of period 82.0 (46.9) 14.6 3.8 4.3 57.8
------------------------------------------ -------- ------- ------ ------ --------------- --------
14 RETIREMENT BENEFITS (CONTINUED)
The net liability shown above is presented in the consolidated balance sheet as:
Unaudited Audited
---------------------- --------------------
As at 28 October 2017 As at 29 April 2017
GBPm GBPm
---------------------------------- ---------------------- --------------------
Retirement benefit assets 47.3 45.6
Retirement benefit obligations (105.1) (278.1)
---------------------------------- ---------------------- --------------------
Net retirement benefit liability (57.8) (232.5)
---------------------------------- ---------------------- --------------------
15 ORDINARY SHARE CAPITAL
At 28 October 2017, there were 576,099,960 ordinary shares in issue (29 April 2017: 576,099,960). This figure includes 2,757,038 (29 April 2017: 2,467,204) ordinary shares held in treasury, which are treated as a deduction from equity in the Group's financial statements. The shares held in treasury do not qualify for dividends.
16 RECONCILIATION OF OPERATING PROFIT TO CASH
GENERATED BY OPERATIONS
The operating profit of Group companies reconciles to cash generated by operations as follows:
Unaudited Unaudited
------------ ------------
Half-year Half-year
to to
28 October 29 October
2017 2016
GBPm GBPm
-------------------------------------------- ------------ ------------
Operating profit of Group companies 101.9 93.9
Depreciation 66.7 70.5
Intangible asset amortisation 5.5 8.1
-------------------------------------------- ------------ ------------
EBITDA of Group companies before
exceptional items 174.1 172.5
(Gain)/loss on disposal of property,
plant and equipment (0.4) 0.4
Equity-settled share based payment
expense 0.3 1.0
-------------------------------------------- ------------ ------------
Operating cashflows before working
capital movements 174.0 173.9
Decrease in inventories 1.3 2.4
Decrease/(increase) in receivables 96.7 (18.6)
Decrease in payables (172.4) (22.7)
(Decrease)/increase in provisions (45.0) 16.3
Differences between employer contributions
and pension expense in operating
profit 6.5 1.9
-------------------------------------------- ------------ ------------
Cash generated by operations 61.1 153.2
-------------------------------------------- ------------ ------------
17 RECONCILIATION OF NET CASH FLOW TO MOVEMENT
IN NET DEBT
The movement in cash and cash equivalents reconciles to the movement in net debt as follows:
Unaudited Unaudited
------------- -------------
Half-year to Half-year to
28 October 29 October
2017 2016
Notes GBPm GBPm
--------------------------------------- ------ ------------- -------------
Decrease in cash and cash equivalents (97.7) (44.7)
Cash flow from movement in borrowings 51.0 27.9
--------------------------------------- ------ ------------- -------------
(46.7) (16.8)
New hire purchase and finance leases (28.7) (29.7)
Foreign exchange movements 2.3 (38.3)
Other movements (0.3) (0.3)
--------------------------------------- ------ ------------- -------------
Increase in net debt (73.4) (85.1)
Net debt at beginning of period 18 (409.4) (399.3)
--------------------------------------- ------ ------------- -------------
Net debt at end of period 18 (482.8) (484.4)
--------------------------------------- ------ ------------- -------------
During the period, the Group entered into hire purchase and finance lease arrangements in respect of assets with a total capital value at inception of the contracts of GBP28.7m (H1 2017: GBP33.1m). After taking account of deposits paid up-front, new hire purchase and finance lease liabilities of GBP28.7m (H1 2017: GBP29.7m) were recognised.
18 ANALYSIS OF NET DEBT
The analysis provided below shows the analysis of net debt as defined in note 23. The analysis below further shows the other items classified as net borrowings in the consolidated balance sheet.
Charged to income
New hire purchase Foreign exchange statement/
Opening Cashflows and finance leases movements other Closing
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- -------- ---------- -------------------- -------------------- -------------------- --------
Cash and cash
equivalents 294.7 (97.7) - - - 197.0
Cash collateral 18.6 - - - - 18.6
Hire purchase and
finance lease
obligations (72.0) 14.2 (28.7) 0.8 - (85.7)
Bank loans and loan
notes (140.4) 36.8 - - - (103.6)
Bonds and notes (510.3) - - 1.5 (0.3) (509.1)
Net debt (409.4) (46.7) (28.7) 2.3 (0.3) (482.8)
Accrued interest on
bonds (9.5) 18.4 - 0.1 (10.6) (1.6)
Effect of fair
value hedges (1.3) - - - 0.7 (0.6)
Net borrowings
(IFRS) (420.2) (28.3) (28.7) 2.4 (10.2) (485.0)
-------------------- -------- ---------- -------------------- -------------------- -------------------- --------
The cash collateral balance as at 28 October 2017 of GBP18.6m (29 April 2017: GBP18.6m) comprises balances held in respect of loan notes of GBP18.2m (29 April 2017: GBP18.2m) and North America restricted cash balances of GBP0.4m (29 April 2017: GBP0.4m). In addition, cash includes train operating company cash of GBP110.7m (29 April 2017: GBP219.4m). Under the terms of the franchise agreements, other than with the UK Department for Transport's consent, train operating companies can only distribute cash out of retained earnings and only to the extent they do not breach the financial covenants specified in applicable contracts.
19 PROVISIONS
The Group's provisions principally relate to insurance provisions on incurred accidents where claims have not been fully settled, and onerous contracts where the costs of fulfilling the contract outweigh the economic benefits to be received. The total provision for uninsured claims of GBP166.0m (29 April 2017: GBP156.8m) has increased during the half-year, reflecting both our latest assessment of the required provision for claims on major incidents and foreign exchange movements. The Group engages with third party actuarial professionals to assist in the calculation of these provisions. As expected, the onerous contract provisions have decreased from GBP88.6m at 29 April 2017 to GBP33.9m at 28 October 2017, principally reflecting the utilisation of a provision for losses incurred by Virgin Trains East Coast.
20 COMMITMENTS AND CONTINGENCIES
(i) Capital commitments
Capital commitments contracted but not provided
for at 28 October 2017 were GBP55.8m (29 April
2017: GBP115.2m).
(ii) Rail bonds
At 28 October 2017, the Group has provided performance
bonds backed by bank facilities or insurance
arrangements of GBP75.3m (29 April 2017: GBP75.3m)
and season ticket bonds backed by bank facilities
or insurance arrangements of GBP11.8m (29 April
2017: GBP72.1m) to the Department for Transport
in relation to the Group's rail franchise operations.
Liabilities for deferred season ticket income,
which the season ticket bonds are intended to
cover, are reflected in the consolidated balance
sheet. No liabilities have been recorded in
respect of performance bonds. GBP82.5m (29 April
2017: GBP82.5m) of an inter-company loan facility
provided to a subsidiary train operating company
is backed by a guarantee issued under a bank
facility.
(iii) Legal actions
The Group and the Company are from time to time
party to legal actions arising in the ordinary
course of business. Liabilities have been recognised
in the financial statements for the best estimate
of the expenditure required to settle obligations
arising under such legal actions. As at 28 October
2017 and 29 April 2017, the aggregate amount
of such liabilities was not material. In addition,
certain of the claims intended to be covered
by insurance provisions are subject to or might
become subject to litigation against the Group.
21 RELATED PARTY TRANSACTIONS
Details of major related party transactions during the half-year ended 28 October 2017 are provided below, except for those relating to the remuneration of the Directors and management.
(i) Virgin Rail Group Holdings Limited - Non-Executive
Directors
Two of the Group's directors are non-executive
directors of the Group's joint venture, Virgin
Rail Group Holdings Limited. During the half-year
ended 28 October 2017, the Group earned fees
of GBP30,000 (half-year ended 29 October 2016:
GBP30,000) from Virgin Rail Group Holdings
Limited in this regard. As at 28 October 2017,
the Group had GBP30,000 (29 April 2017: GBP60,000)
receivable from Virgin Rail Group Holdings
Limited in respect of this. In addition, the
Group net purchased GBP0.3m (half-year ended
29 October 2016: GBP0.1m) from the group headed
by Virgin Rail Group Holdings Limited and had
immaterial amounts outstanding as at 28 October
2017 and 29 April 2017 in this respect.
(ii) West Coast Trains Limited
West Coast Trains Limited is a subsidiary of
Virgin Rail Group Holdings Limited (see above).
In the half-year ended 28 October 2017, East
Midlands Trains Limited (a subsidiary of the
Company) had purchases totalling GBP0.1m (half-year
ended 29 October 2016: GBP0.1m) from West Coast
Trains Limited. The outstanding amounts payable
as at 28 October 2017 and 29 April 2017 were
immaterial.
During the half-year ended 28 October 2017,
South West Trains Limited (a subsidiary of
the Group) sold services of GBP0.1m (half-year
ended 29 October 2016: GBP0.2m) to West Coast
Trains Limited.
(iii) Alexander Dennis Limited
Sir Brian Souter (Chairman) and Ann Gloag (Non-Executive
Director) collectively hold, via companies
that they control, 55.1% (29 April 2017: 55.1%)
of the shares and voting rights in Alexander
Dennis Limited. Noble Grossart Investments
Limited (of which, Sir Ewan Brown (Non-Executive
Director) is a director of its holding company)
controls a further 33.2% (29 April 2017: 33.2%)
of the shares and voting rights of Alexander
Dennis Limited. None of Sir Brian Souter, Ann
Gloag or Sir Ewan Brown is a director of Alexander
Dennis Limited nor do they have any involvement
in the management of Alexander Dennis Limited.
Furthermore, they do not participate in deciding
on and negotiating the terms and conditions
of transactions between the Group and Alexander
Dennis Limited.
For the half-year ended 28 October 2017, the
Group purchased GBP26.4m (half-year ended 29
October 2016: GBP52.6m) of vehicles from Alexander
Dennis Limited and GBP6.3m (half-year ended
29 October 2016: GBP4.9m) of spare parts and
other services. As at 28 October 2017, the
Group had GBP6.7m (29 April 2017: GBP0.5m)
payable to Alexander Dennis Limited, along
with outstanding orders of GBP31.9m (29 April
2017: GBP56.7m).
(iv) Pension Schemes
Details of contributions made to pension schemes
are contained in note 14.
(v) Scottish Citylink Coaches Limited
A non interest bearing loan of GBP1.7m (29
April 2017: GBP1.7m) was due to the Group's
joint venture, Scottish Citylink Coaches Limited,
as at 28 October 2017. The Group earned GBP9.1m
in the half-year ended 28 October 2017 in respect
of the operation of services subcontracted
by Scottish Citylink Coaches Limited (half-year
ended 29 October 2016: GBP9.9m). The Group
also collected revenue of GBP7.9m on behalf
of Scottish Citylink Coaches Limited in the
half-year ended 28 October 2017 (half-year
ended 29 October 2016: GBP9.5m). As at 28 October
2017, the Group had a net GBP0.4m receivable
(29 April 2017: GBP1.6m receivable) from Scottish
Citylink Coaches Limited, excluding the loan
referred to above.
(vi) Twin America LLC
In the year to 29 April 2017, the Group disposed
of its interest in Twin America LLC. In the
half-year ended 29 October 2016, Twin America
LLC sold travel of GBP1.4m for tour services
operated by the Group.
21 RELATED PARTY TRANSACTIONS (CONTINUED)
(vii) East Coast Main Line Company Limited
The Group owns 90% and Virgin Holdings Limited
owns 10% of the ordinary shares in Inter City
Railways Limited. East Coast Main Line Company
Limited is 100% owned by Inter City Railways
Limited and enters into various arm's length
transactions with other Group companies. In
the half-year ended 28 October 2017, other Group
companies earned GBP8.6m from East Coast Main
Line Company Limited in respect of the provision
of certain services including train maintenance
and rail replacement bus services (half-year
ended 29 October 2016: GBP8.8m). Other Group
companies had a net payable balance of GBP1.7m
to East Coast Main Line Company Limited as at
28 October 2017 (29 April 2017: GBP4.5m payable).
The ultimate parent company of the Group, Stagecoach
Group plc, had an outstanding receivable of
GBP105.7m as at 28 October 2017 in respect of
a loan to East Coast Main Line Company Limited
(29 April 2017: GBP57.5m). The interest receivable
on the loan for the half-year ended 28 October
2017 was GBP1.0m (half-year ended 29 October
2016: GBP0.7m) and the accrued interest outstanding
at 28 October 2017 was GBP2.5m (29 April 2017:
GBP1.5m). Related to that, the Group had an
outstanding payable for GBP10.6m as at 28 October
2017 in respect of a loan from Virgin Holdings
Limited (29 April 2017: GBP5.8m) and the accrued
interest outstanding at 28 October 2017 was
GBP0.2m (29 April 2017: GBP0.1m).
22 POST BALANCE SHEET EVENTS
Details of the interim dividend declared are given in note 6.
23 DEFINITIONS (a) Alternative performance measures
The Group uses a number of alternative performance measures in this document to help explain the financial performance and financial position of the Group. More information on the definition of these alternative performance measures and how they are calculated is provided below. All of the alternative performance measures explained below have been calculated consistently for the half-year ended 28 October 2017 and for comparative amounts shown in this document for prior periods.
Adjusted earnings per share
Adjusted earnings per share is calculated by dividing profit attributable to equity holders of the parent, excluding non-software intangible asset amortisation and exceptional items, by the basic weighted average number of shares in issue in the period.
For the half-year ended 28 October 2017 and the comparative prior year period, the numerators for the calculations (i.e. the adjusted profit) are shown clearly on the face of the consolidated income statement in the columns headed "performance pre intangibles (exc software) and exceptional items". The denominators for the calculations (i.e. the weighted average number of shares in issue) and further details of the calculations are shown in note 7 to the condensed financial statements.
Like-for-like amounts
Like-for-like amounts are derived, on a constant currency basis, by comparing the relevant year-to-date amount with the equivalent prior year period for those businesses and individual operating units that have been part of the Group throughout both periods.
Like-for-like revenue growth for the half-year ended 28 October 2017 is calculated by comparing the revenue for the current and comparative periods, each adjusted as described above. The revenue of each segment is shown in note 4(a) to the condensed financial statements. The reconciliation to the adjusted revenue figures for the purposes of calculating like-for-like revenue growth is shown below:
Unaudited
-------------------------------------------------------------------
Half-year to 28 October 2017
Exclude effect Exclude Exclude effect
Reported of business expired rail of foreign Like-for-like
revenue closed franchise exchange revenue
UK Bus (regional
operations) GBPm 512.4 (0.1) - - 512.3
UK Bus (London) GBPm 128.4 - - - 128.4
North America US$m 333.9 - (0.6) 333.3
UK Rail GBPm 905.6 - (309.0) - 596.6
----------------------- ------ ---------------- --------------- --------------- --------------- ----------------
23 DEFINITIONS (CONTINUED)
Unaudited
-------------------------------------------------------------------
Half-year to 29 October 2016
Exclude effect Exclude
Reported Normalise for of business expired rail Like-for-like
revenue no. of days closed franchise revenue
UK Bus (regional
operations) GBPm 513.9 - (1.0) - 512.9
UK Bus (London) GBPm 131.5 - - - 131.5
North America US$m 338.4 (5.5) - - 332.9
UK Rail GBPm 1,092.3 - - (513.3) 579.0
----------------------- ------ ---------------- --------------- --------------- --------------- ----------------
Operating profit
Operating profit for the Group as a whole is profit before non-operating exceptional items, finance costs, finance income, taxation and non-controlling interests. Operating profit of Group companies is operating profit on that basis, excluding the Group's share of joint ventures' profit/loss after taxation. Both total operating profit and operating profit from Group companies are shown on the face of the consolidated income statement.
Operating profit (or loss) for a particular business unit or division within the Group refers to profit (or loss) before net finance income/charges, taxation, non-controlling interests, non-software intangible asset amortisation, exceptional items and restructuring costs. The operating profit (or loss) for each segment is directly identifiable from the financial statements - see note 4(b) to the condensed financial statements.
Operating margin
Operating margin for a particular business unit or division within the Group means operating profit (or loss) as a percentage of revenue. The revenue and operating profit (or loss) for each segment is directly identifiable from the financial statements - see notes 4(a) and 4(b) to the condensed financial statements. The revenue, operating profit (or loss) and operating margin (being operating profit (or loss) as a percentage of revenue) for each segment are also shown on page 4 of this document.
Pre-exceptional EBITDA
Pre-exceptional EBITDA is earnings before interest, taxation, depreciation, intangible asset amortisation and exceptional items.
A reconciliation of pre-exceptional EBITDA for the half-year ended 28 October 2017, and the comparative prior year period, to the financial statements is shown on page 10 of this document.
EBITDA from Group companies before exceptional items
EBITDA from Group companies before exceptional items is earnings before interest, taxation, depreciation, intangible asset amortisation and exceptional items from Group companies (i.e. the parent company and all of its subsidiaries consolidated but excluding share of profit from joint ventures).
EBITDA from Group companies before exceptional items is directly identifiable from the financial statements - see note 16 to the condensed financial statements.
Net finance charges
Net finance charges are finance costs less finance income, each as shown on the face of the consolidated income statement.
Gross debt
Gross debt is borrowings as reported on the consolidated balance sheet, adjusted to exclude accrued interest and the effect of fair value hedges on the carrying value of borrowings.
The components of gross debt are shown in note 18 to the condensed financial statements, which also reconciles net debt to the net borrowings (cash less borrowings) shown on the face of the consolidated balance sheet.
Net debt
Net debt (or net funds) is the net of cash/cash equivalents and gross debt (see above).
The components of net debt are shown in note 18 to the condensed financial statements, which also reconciles net debt to the net borrowings (cash less borrowings) shown on the face of the consolidated financial statements.
Net capital expenditure
Net capital expenditure is the impact of purchases and sales of property, plant and equipment. Its reconciliation to the consolidated financial statements is explained on page 11 of this document.
23 DEFINITIONS (CONTINUED) (b) Other definition
The following other definition is also used in this document:
Exceptional items
Exceptional items means items which individually or, if of a similar type, in aggregate need to be disclosed by virtue of their nature, size or incidence in order to allow a proper understanding of the underlying financial performance of the Group.
Independent review report to Stagecoach Group plc
Introduction
We have been engaged by the Company to review the condensed consolidated interim financial statements in the half-yearly financial report for the half-year ended 28 October 2017 which comprises:
-- The Consolidated Income Statement for the half-year ended 28 October 2017; -- The Consolidated Statement of Comprehensive Income for the half-year ended 28 October 2017; -- The Consolidated Balance Sheet as at 28 October 2017; -- The Consolidated Statement of Changes in Equity for the half-year ended 28 October 2017; -- The Consolidated Statement of Cash Flows for the half-year ended 28 October 2017; -- The related explanatory notes.
We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated interim financial statements.
This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The condensed consolidated interim financial statements included in this half-yearly financial report have been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed consolidated interim financial statements in the half-yearly financial report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated interim financial statements in the half-yearly financial report for the half-year ended 28 October 2017 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
Glasgow
6 December 2017
Notes:
(a) The maintenance and integrity of the Stagecoach Group plc website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim financial statements since they were initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR BDBDDUDGBGRL
(END) Dow Jones Newswires
December 06, 2017 07:40 ET (12:40 GMT)
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