Final Results
Embargoed until 07:00hrs on Wednesday 12 May 2004
FIRSTGROUP PLC
PRELIMINARY RESULTS FOR THE YEAR TO
31 MARCH 2004
GROUP HIGHLIGHTS
* Turnover up 8%, earnings per share1 up 2% and dividend up 6%
* Group return on capital employed 12%
* North America - continued strong growth, US Dollar operating profit1 up 15%
* Operating profit up in all divisions - Student +10%, Transit +32%, Services
+ 38%
* Five years of consistent growth - EBITDA up 76.5% and operating profit up
65% since acquisition in 1999
* 80% of projected 2004/05 revenue secured under medium-term contracts
* UK Bus - revenue up 5.4%
* Continued growth in London bus operations
* Partnerships in urban areas - growth of up to 40% on individual routes
* Focus on growing passenger volumes and cost control
* UK Rail - strong performance, First Great Western passenger income up 8%
* TPE ahead of expectations, First Great Western Link started 1 April 2004
* Shortlisted for four franchises with potential annual turnover of £1.6
billion
* GB Railways acquisition - entry to growing rail freight market and East
Coast Main Line
* Underlying business growth and management actions absorbing:
* £17m of rail subsidy reduction and increased franchise payments
* £15m of incremental pension and NI costs in UK operations
* Additional £250m 15-year bond successfully raised to improve debt maturity
profile and reduce bank borrowings
FINANCIAL SUMMARY
* Turnover £2,479m (2003: £2,291m)
* EBITDA2 £307.1m (2003: £315.3m)
* Operating profit1 £204.1m (2003: £216.1m)
* Profit before tax1 £161.3m (2003: £159.8m)
* Profit on ordinary activities after tax £92.2m (2003: £97.6m)
* Adjusted basic earnings per share1 27.3p (2003: 26.8p)
* Basic earnings per share 22.3p (2003: 23.4p)
* Interest cover3 7.2x (2003: 5.6x)
* Dividend per share 11.65p (2003: 11p)
1Before goodwill amortisation, exceptional items and profit on disposal of
fixed assets, as shown in the consolidated profit and loss account on page 19.
2Group operating profit before goodwill amortisation and exceptional items plus
depreciation.
3Calculated as EBITDA divided by net interest payable and similar charges
before exceptional items.
/Cont…
Commenting, FirstGroup's Chief Executive, Moir Lockhead said:
'This has been another successful year for the Group. I look forward to
continued growth in North America where we have delivered five years of
consistent profit growth. The business has highly dependable revenue streams of
which approximately 80% are covered by medium-term contracts. In UK Rail we are
now well positioned to benefit from rail re-franchising having been shortlisted
for all four franchises in the current round. In UK Bus we are seeing further
growth in our London business and other urban areas and continue to focus on
cost control and process improvements. The Group's strong free cash flows will
continue to be used to invest in the business, increase dividends and buy back
shares while maintaining a strong balance sheet. With, on average, £250m of
borrowing headroom the Group is in a strong financial position to maximise
opportunities for growth. I am extremely confident about our future prospects.
Trading in the new financial year has started well and is in line with our
expectations.'
Enquiries FirstGroup plc :
Moir Lockhead, Chief Executive Tel: 020 7291 0512
Iain Lanaghan, Finance Director Tel: 020 7291 0512
Dean Finch, Commercial Director Tel: 020 7291 0512
Michael Mitchell, Corporate Communications Director Tel: 020 7291 0504
PHOTOGRAPHS FOR THE MEDIA ARE AVAILABLE AT WWW.NEWSCAST.CO.UK
Notes for Editors
FirstGroup plc is a UK based international transport company with a turnover of
approximately £2.5 billion a year, and 62,000 employees throughout the UK and
North America.
* The Group is the UK's largest bus operator running more than one in five of
all local bus services. A fleet of some 9,300 buses carries 2.8 million
passengers a day in more than 40 towns and cities.
* The Group is also one of the UK's largest rail operators with four
passenger franchises - First Great Western, TransPennine Express, First
Great Western Link (operating suburban services from London Paddington) and
First North Western. The Group operates Hull Trains (an open access
operator running services between London Kings Cross and Hull) and freight
services through GB Railfreight.
* It holds the operating contract for the Croydon Tramlink network, which
carries over 20 million passengers a year.
* In North America the Group has three operating divisions: yellow school
buses (First Student), transit contracting and management services (First
Transit) and vehicle maintenance and ancillary services (First Services).
Headquartered in Cincinnati the businesses operate across the US and
Canada.
*
+ First Student is the second largest provider of yellow school buses in
the USA and the third largest in Canada. Operating over 17,400 school
buses it transports over one million students every day.
+ First Transit is the largest private sector provider of urban bus
services in the US, managing public transport systems on behalf of
cities such as Houston, Los Angeles and Denver. We also manage call
centers, paratransit operations and other related light transit
activities.
+ First Services is the largest private sector provider of vehicle
maintenance and ancillary services in the US. As well as maintaining
vehicle fleets and equipment for public sector customers such as
cities, counties, fire and police departments, we also operate a
specialist business which provides a full turnkey operation, fitting
communications equipment to emergency service vehicles.
Chairman's statement
The safety and security of passengers and staff is of paramount importance to
the Group. Buses and trains remain among the safest methods of surface
transport, and we will strive to ensure that we use every opportunity to
improve our performance wherever possible.
I am pleased to report another year of excellent progress across all divisions.
All of our new businesses have performed ahead of our expectations confirming
our ability to make earnings enhancing acquisitions and integrate and manage
new businesses effectively. Group turnover and profit before tax, exceptional
items and goodwill amortisation, have again increased with strong underlying
cash generation that has enabled us to invest a net £197m in the business
through capital expenditure and acquisitions whilst continuing with our
progressive dividend policy and share buy back programme.
Turnover has increased to £2,479m (2003: £2,291m) and profit before tax,
goodwill amortisation and exceptional items increased to £161.3m (2003: £
159.8m). This result is impressive, as we have absorbed some £32m of additional
costs and subsidy reductions in our UK operations. Adjusted basic earnings per
share has increased to 27.3p (2003: 26.8p) and the Board has proposed a final
dividend, subject to approval by shareholders, of 7.9p making a full year
payment of 11.65p, an increase of 6%. The dividend is covered 1.9 times and
will be paid on 27 August 2004 to shareholders on the register on 23 July 2004.
The Group's strong financial position is underpinned by an investment grade BBB
stable credit rating from Standard & Poor's. In December we successfully issued
a £250m, 15-year bond, which was substantially oversubscribed, to improve our
debt maturity profile and reduce bank debt. The Group now has, on average, £
250m of unutilised bank headroom.
A number of strategic acquisitions and franchise wins took place during the
year which strengthened the Group's core businesses. In July we acquired a
North American transit business which complements and extends our existing
operations in this sector. In August we acquired GB Railways Group Plc, which
gives us an entry into the growing rail freight market through GB Railfreight,
and into passenger operations on the East Coast Main Line through Hull Trains.
On 1 February 2004 we commenced operation of the TransPennine Express passenger
rail franchise for 8 years with an option to extend for a further 5 years. On 1
April 2004 we took over the franchise to run suburban services from London
Paddington, as First Great Western Link.
In March we announced a number of changes to simplify reporting lines and
strengthen the Board by the appointment of Dean Finch as Commercial Director,
and David Leeder as Managing Director UK Bus. Dr Mike Mitchell, previously
Chief Operating Officer UK, becomes Business Change Director and will step down
from the Board later in the year prior to his retirement in 2005. Iain
Lanaghan, currently Finance Director, will step down from the Board at the end
of May and will leave the Group later in the year. He will be succeeded by Dean
Finch. I would like to thank Mike and Iain for their contribution to the Group
and wish them every success for the future.
We have a strong and dedicated workforce and once again I would like to thank
them for their hard work and commitment that has delivered another set of good
results for the Group.
We will continue to increase shareholder value by expanding our businesses in
North America and the UK through a combination of organic growth and
acquisitions. We are extremely pleased with the performance of our North
American operations and confident about the prospects for growth in this very
large and fragmented market. Our UK bus business continues to generate
significant cash flow and we anticipate further growth in London and other
cities where we are able to work with local authorities to manage traffic
congestion. In UK Rail we will continue to bid for new rail franchises in order
to create a strong portfolio of railway operations and we are encouraged by the
opportunities for further expansion in the rail freight market.
Martin Gilbert
Chairman
*Operating profit referred to in this statement and in the Chief Executive's
Review and Financial Review refers to operating profit before goodwill
amortisation and exceptional items.Chief Executive's operating review
OVERVIEW
Safety
Safety is our number one priority and every employee has a responsibility for
safety. The right attitude towards safety and putting in place the right
policies, procedures, equipment, training and support will help us embed a
safety culture. I am pleased to report that across the Group lost time
incidents have been reduced and we have seen positive trends in other key
safety indicators. The separate Corporate Responsibility Report details the
progress we have made to further improve our safety record, as well as to
advance environmental management and stakeholder consultation in the
communities in which we operate.
Results
I am extremely pleased to report another successful year with expansion in our
core markets in the US and UK. Group turnover increased by 8% to £2,479m (2003:
£2,291m). Operating profit was £204.1m (2003: £216.1m). Underlying growth in
earnings, together with management actions to control costs, was offset by £17m
reduction in rail subsidy and increased franchise payments, as well as
increased National Insurance and Pension contributions of £15m. Strong EBITDA
(operating profit plus depreciation) of £307.1m (2003: £315.3m) has enabled the
Group to continue to invest in the business, with net capital expenditure and
business acquisitions totalling £197m, as well as increasing the dividend by 6%
and returning £29m to shareholders through the further repurchase of equity
during the year. Over the last five years the Group's revenue profile has
changed substantially. Approximately 80% of the revenue in our North American
operations is secured under medium term contracts. Currently the Group has
contracts with government agencies and other large organisations for periods
averaging 3-5 years in both North America and the UK, representing a secure
revenue stream worth £2.8 billion. As we expand in North America and grow our
UK rail operations we expect that more than half of the Group's annual revenues
will be covered by such contracts.
NORTH AMERICA
In North America the Group is the second largest operator of student
transportation with some 17,400 school buses across the US and Canada. We
operate the largest transit contracting and management business in North
America and we have an expanding management and maintenance services division.
Results
I am delighted with our performance in North America where we have delivered a
fifth year of strong growth. Turnover from our three North American operations
increased to £620.7m or $1,051.6m (2003: £582.4m or $901.0m), an increase in
dollars of 16.7%. Operating profit increased to £63.5m or $109.2m (2003: £61.3m
or $95.1m), an increase in dollars of 14.8%. Margins in each of the divisions
have been maintained or increased. The business is generating excellent returns
with EBITDA of £107.1m or $183.7m (2003: £103.3m or $159.5m) making the
business self financing for maintenance capital expenditure, contract growth
and in-fill acquisitions. Since acquisition in 1999, turnover has grown by 73%
and profit has grown by 65% generating a cash return on invested capital of 12%
which comfortably exceeds our cost of capital.
First Student
The division has had a very successful year. US Dollar turnover and operating
profit increased by 10% with margins maintained at 13.8%. We now operate
approximately 17,400 buses, an increase of approximately 1,900 buses during the
year. We retained 90% of our existing school bus contracts that came up for
renewal and we won contracts to operate some 1,300 additional buses. We were
particularly pleased to be awarded the management contract to run all of the
683 school buses on behalf of the City of Boston. The start up of this large
contract and other new business in the autumn of 2003 went extremely well. We
have also obtained significant additional business in Pennsylvania, Washington
and California as well as continuing to gain new business in Illinois,
Minnesota, Massachusetts, Missouri and Louisiana.
We have continued to make strategic in-fill acquisitions of smaller privately
owned school bus companies at attractive multiples and during the year acquired
approximately 560 new buses. We purchased two New York state based companies
operating 285 buses that fit well with our current business mix in that region.
In addition, we made our first acquisition of 35 buses in the large and growing
Miami market. At the end of March 2004 we purchased a 244 bus company operating
in New Hampshire and Vermont which will contribute to the trading result for
2004/05.
Bidding is underway for new contracts to commence in autumn 2004 and we are
confident that we will be able to continue to win and acquire new business at
our target margins.
First Transit
US Dollar turnover increased by 25% and operating profit by 32%. These results
include nine months contribution from the transit business we acquired in July
2003 for $22.5m. This business, which has proved to be an excellent fit with
our existing operations, is performing ahead of our acquisition model and has
an annualised turnover of $95m with contracts to operate some 1,200 buses on
behalf of transit authorities in states such as California, Florida and New
York. The strategy of First Transit is to gradually increase margins on urban
transit contracting business and develop the fast expanding and higher value
call centre, paratransit and transit management markets. In line with this
strategy we entered the corporate shuttle market with the strategic purchase of
a small company operating university and corporate shuttles in the three states
of Michigan, Ohio and Kentucky. During the year bidding remained competitive
for new and re-bid contracts and we withdrew from, or did not renew, some of
our lower margin contracts. However we renewed important contracts with the
cities of Miami and Los Angeles and most recently we were delighted to be
re-awarded the contract to run the largest paratransit call centre in New York.
We also gained new outsourced management contracts from the public sector in
Arkansas, North Carolina, Illinois and Virginia.
First Services
The division, which provides a range of management and maintenance services,
has had a very successful year with US Dollar turnover increasing by 35% and
operating profit by 38%, reflecting significant growth in First Vehicle and a
full year contribution from L&E Mobile which has proved to be an excellent
acquisition. This specialist business, which fits communications equipment into
police cars and emergency vehicles, was acquired in February 2003. During the
year 100% of all re-bids were retained without margin dilution. First Services
has also seen significant contract growth with the addition of 11 new contracts
including Atlantic City, Arlington, Roswell and Exxon Mobil Inc. In addition, L
&E Mobile has won contracts with the Massachusetts State Police and American
Water Inc. servicing 500 and 800 vehicles respectively. Over the next 12 months
the business plans to increase its range of services and look for additional
opportunities in the Federal sector. The outlook for further growth remains
strong.
Investment and margins
The North American operations are now able to fund their own maintenance
capital expenditure, contract growth and in-fill acquisitions from internally
generated resources. We have achieved excellent returns from acquisitions
demonstrating our rigorous investment criteria. All new investment, including
contract bids must meet our internal return targets to ensure that margins in
each of the divisions are maintained.
Outlook North America
Our North American operations are delivering excellent returns for
shareholders, and we are confident that we can continue to expand the business
and maintain margins through our proven combination of organic growth and well
researched acquisitions.
UK BUS
The Group is the largest bus operator in the UK with a fleet of 9,300 buses,
and a market share of approximately 23%. We carry some 2.8 million passengers
every day.
Results
Turnover increased to £906.2m (2003: £859.4m) and operating profit before lease
financing costs was £111.2m (2003: £111.7m). This is a particularly pleasing
performance as the division has absorbed £12m of additional costs comprising £
4m in National Insurance charges and £8m of additional pension contributions.
The absorption of these additional costs, combined with a small increase in
volume (1%) and maintaining bus fares at around the level of inflation, has
resulted in a fall in operating margin to 12.3% (2003: 13%).
London
The introduction of Transport for London's (TfL) congestion charge in February
2003 has created worldwide interest because of the dramatic and sustained
reduction in traffic delays. We have invested heavily to increase the size and
quality of our London bus fleet and properties to support this policy. Contract
mileage operated on behalf of TfL has increased by 13% and average bus speeds
in the capital have improved by around 15%. We now operate approximately 1,370
buses in London (2003: 1,235). We have opened two new depots at Willesden and
Rainham and are developing a new site in Dagenham. We are now well placed to
benefit from further growth in the London bus market because of our strong
position in the Thames Gateway corridor which is expected to be the focus of
substantial growth in population and employment over the next few years.
Urban areas
In urban operations outside London, which represent approximately 55% of our
business, passenger growth continues to be driven by a mixture of our own
marketing initiatives and partnership working with local authorities to develop
bus lanes, park & ride sites and other projects to improve the competitive
position of public transport. First's policy is to concentrate our capital and
operating investment in those areas where local councils are committed to
supporting the use of public transport. In York, where passenger volumes have
grown by up to 40% on individual routes, we will introduce a fifth park & ride
site in partnership with the City Council in 2004. In other areas, we have seen
increases on individual Quality Partnership routes of up to 28% in Essex, 20%
in Manchester and 13% in Glasgow.
We continue to work closely with South and West Yorkshire Passenger Transport
Executives (PTEs) and the District Councils to develop the Yorkshire Bus
Initiative. We have already provided 86 new buses to upgrade services in
Sheffield and Leeds, and we hope to introduce the first pilot projects for our
new concept vehicle during 2004/05. In Sheffield we have signed a draft
Statutory Quality Partnership agreement for bus services in the north of the
city, under which the local authority will improve the public transport
infrastructure and we will introduce new vehicles and improved levels of
service and reliability. It is through programmes like these that we will be
able to develop cost effective, urban transport solutions that bring real
improvements to the travelling public.
During the year, we have focused on building loyalty with various customer
groups such as students and commuters through targeted campaigns. Improved
point of sale marketing material also helped to increase sales of daily, weekly
and monthly season tickets that encourage customer loyalty and speed up
boarding time on the bus.
Rural operations
Rural operations represent less than 20% of our business. We welcome the
Government's new Kickstart initiative which will enable us to develop more
marginal services where car ownership and congestion is increasing and
passenger volumes continue to fall. In Devon and Cornwall we have carried out a
complete review of our route structure with the objective of improving
frequencies on the higher-demand corridors. In many rural areas we operate
local authority contracts to provide socially necessary services. In Wales,
where the Welsh Assembly Government has introduced free travel for senior
citizens, we have provided new buses as a response to the increase in
patronage.
In April 2003 we established a new base in North Staffordshire, with 20 new
buses, to provide a bespoke bus replacement service to support the West Coast
Main Line rail upgrade works. We plan to further develop contracted bus
services in 2004/05.
Yellow school bus
We continue to develop our school bus pilot projects and now have seven
programmes across the UK. We were encouraged by the Transport Select
Committee's Report on school transport that proposed a large-scale yellow bus
trial to assess its potential impact on modal shift. We have ordered a further
26 new buses for further projects in 2004.
Investment
Capital expenditure has been focused on areas of high passenger growth in major
urban centres such as Sheffield and Leeds. During the year £65m was spent on
new, low-floor, easy access vehicles and £25m has been spent on new depots
principally in London, Glasgow and Bolton. In December 2003 we completed the
acquisition of a 90% stakeholding in Aircoach, the leading operator of express
coaches between Dublin city centre and the airport and contracted services for
airport car parks. We believe this puts us in a good position to benefit from
the forthcoming liberalisation of the Irish transport market.
Operational performance
As part of our continued drive to control costs and reduce overheads we have
reorganised our divisional management structure and are undertaking a thorough
review of business processes. We have already made good progress in improving
our recruitment methods which resulted in a reduction in driver shortages at
the year end.
We continue to achieve useful cost savings across a range of goods and services
through centralised purchasing procedures. Accounting functions have also been
rationalised and overhead costs reduced through the opening, earlier in the
year, of the Shared Service Accounting Centre in Aberdeen
Throughout the year we have worked closely and productively with staff, trade
unions and local management to reform the pensions provision within our UK bus
companies. The varied plans inherited from previous owners are being combined
to reduce administration and funding costs, introduce risk sharing and produce
substantial savings, as well as improving investment performance. A wider range
of savings plans is also now offered to employees.
Outlook UK Bus
The results of congestion charging in terms of mode shift, reduced congestion
and improved environment have been unprecedented. We believe that the London
experience demonstrates what can be achieved to improve traffic flow in our
major towns and cities, and the role that buses can play in providing an
alternative to private motoring. We look forward to developing further bus
priority and route enhancement projects with environmentally minded local
authorities. We will continue to focus on growing passenger volumes, as well as
further developing our contracted bus business, whilst targeting continued cost
control and process improvements.
UK RAIL
The rail division operates passenger and freight services in the UK. Passenger
rail franchises operated during the year consist of First Great Western, First
Great Eastern, First North Western, Anglia and TransPennine Express. Hull
Trains is a non franchised, open access intercity passenger train operator and
we provide rail freight services through GB Railfreight.
Results
Turnover in the Group's rail division was £945.0m (2003: £842.3m) and operating
profit was £49.8m (2003: £61.3m). This is a strong result as it reflects the
combined impact of the reduction in subsidy on First Great Western and the
increase in franchise payments on First Great Eastern totalling £17m, as well
as increased National Insurance and pension costs of £3m.
Franchise changes
During the year we were successful in winning two out of the three franchises
for which we bid. The Group is now shortlisted for all four franchises in the
current round - Northern, ScotRail, Integrated Kent and InterCity East Coast,
demonstrating that we have a long term role to play in the UK rail industry.
The division continues to work closely with the Strategic Rail Authority and
Network Rail. In addition we were pleased that the provisional findings of the
Competition Commission would allow us to proceed with our bid for ScotRail,
subject to mutual agreement of behavioural undertakings principally concerning
a small number of individual bus routes in Scotland.
On 1 February 2004 we commenced operation of the new TransPennine Express
franchise with our partner Keolis. The franchise, which consists of intercity
services between the North West and North East of England, runs for a period of
eight years with an option to extend for a further five years. Operations have
started well and we are very encouraged by passenger volumes, which are running
ahead of expectations in the first two months. We have already ordered a £260m
fleet of new trains and contracted for two new maintenance depots that will
greatly improve the service offered to passengers in the region.
On 1 April 2004 we commenced operation of suburban services from London
Paddington in a new franchise branded as First Great Western Link. This new
franchise will run for two years and allow us to offer significant benefits to
passengers through the integration of services into Paddington ahead of the
creation of the Greater Western franchise in 2006. From December 2004 a new
integrated timetable will offer an 18% increase in capacity on suburban trains.
In addition, services to Oxford and the Cotswolds will benefit from new
intercity quality 125 mph trains and there will be improved journey times to
Devon and Cornwall.
During the year we continued to operate First North Western on behalf of the
Strategic Rail Authority. This franchise will become part of the new Northern
franchise later in 2004.
Operational performance
Passenger income on First Great Western continues to show encouraging growth of
8%. Operational performance has been at its highest level since 2000 with delay
minutes attributable to us reduced by 24% in the period. Passenger complaints
during the year are also significantly down. Improvements in our maintenance
systems on High Speed Trains have resulted in the best availability for these
units that we have ever experienced. The reliability of the new Adelante units
has also improved. A new platform has been opened at Swindon on the Great
Western main line, funded jointly by the SRA, Network Rail and First Great
Western, which has simplified train operations through the station and improved
operating reliability. Network Rail is making further improvements to the
infrastructure in the Thames Valley area and Cornwall which will improve train
running. We have opened a joint control room with Network Rail at Swindon which
has enabled us to co-ordinate and simplify train operations on the Great
Western zone. This model can be rolled out to deliver improved integration
across other parts of the railway network.
Acquisitions
Through our acquisition of GB Railways we acquired GB Railfreight (GBRf) and
Hull Trains.
Hull Trains
Hull Trains is a non-franchised, open access intercity train company operating
between London Kings Cross and Hull. It now carries 330,000 passengers per year
with four direct services from London to Hull each weekday. The company has
upgraded its fleet of class 170 multiple units and has placed an order for four
new four-car class 222/1 Bombardier 125mph trains, which will reduce the
journey time by approximately 15 minutes when they enter service in 2005, and
is expected to further increase patronage on this corridor.
GB Railfreight
The UK rail freight market is estimated to be worth some £725m and we have been
encouraged by the continued expansion of GBRf. The company was created in 2000
and has grown rapidly by offering a high level of service developed through a
flexible business model. GBRf now provides freight services for customers such
as Network Rail, British Gypsum and Medite Shipping Company Limited. During the
year the company has won new contracts from Network Rail for haulage, as well
as a contract for the operation and management of the infrastructure owner's
Whitemoor depot in Cambridgeshire. In addition it has started new intermodal
services from Felixstowe, which are used by, amongst others, ASDA for the
transport of their goods to the Midlands. GBRf has ordered 93 container flat
wagons with a capital value of over £4m to support these new contracts. We
believe that the rail freight market offers further growth opportunities for
the Group.
Outlook UK Rail
We have an active programme of new franchise bids underway which offer
excellent prospects for the future growth of the division and, in addition, we
are expanding our Railfreight activities. We welcome the opportunity to be
involved in the Government's Rail review and remain very optimistic about the
role we can play in the future of the UK's railways.
STAFF
I would like to thank all our staff for their continued commitment to the
Group. We place high importance on the views and concerns of our workforce. Our
fourth employee satisfaction survey showed improvements in performance in all
ten areas covered by the survey and an overall increase in satisfaction since
the last survey. We are actively addressing areas of concern which were
highlighted by the survey and continue to feedback actions and progress to
staff.
Retention and recruitment of high quality staff is a key issue within our
industry. The Group has become a 'Recruitment Partner of Choice' nationally
with JobCentre Plus which will provide wider geographic coverage of job
opportunities in the Group. The Group has also become an Age Positive Champion
in particular reflecting our newly launched `Flexible Decade of Retirement'
programme which provides our people with the opportunity to work beyond normal
retirement age, but with flexible pension and working hour arrangements.
We continue to encourage our staff to further their development and progress
their careers within the Group. Our National Vocational Qualification (NVQ)
programme continues to grow with 13% of the workforce now qualified and a
further 3,000 drivers currently in training. The number of Workplace Learning
Schemes has increased to 29 which means that over 10% of staff have access to
workplace learning. This will increase to 15% with the opening of new centres
in 2004/05.
ENVIRONMENT AND COMMUNITY
Our environmental management framework is now well established and all our
companies and depots are audited against the requirements of the Group
environmental management system. We have extended our supplier audit programme
to include more companies, as well as social audits. An increasing number of
our companies and divisions are now developing management systems in line with
ISO14001.
We are very encouraged by the continued reduction in energy usage in our
depots. For example, water usage fell by 8% and energy consumption by 10.5%
within the bus division alone, as a result of local depot initiatives and
incentives for staff. In terms of waste, the bus operating companies reduced
the overall general waste arising by 7% and increased recycling by 16%.
In the UK, we were pleased to support Future Forests 'carbon neutral' tree
planting initiative to offset CO2 emissions. Our US operations are reducing
emissions through investment in new engines and emission control technology.
In recognition of our commitment to the environment we were delighted to
receive the following awards: the Green Apple Award, for the third year
running, the Bus Industry Award for Environmental Achievement, and the Network
Rail Environmental Award, for the second time in three years. In addition we
were very pleased to be included in the top 100 Business in the Community
Corporate Responsibility Index.
During the year the Group and its staff in the UK and North America have
continued to support a number of local and national charities. Further details
of all these activities can be found in our Corporate Responsibility Report
which is published separately and is available on our website
www.firstgroup.com.
GROUP OUTLOOK
I look forward to continued growth in North America where we have delivered
five years of consistent profit growth. The business has highly dependable
revenue streams of which approximately 80% are covered by medium-term
contracts. In UK Rail we are now well positioned to benefit from rail
re-franchising having been shortlisted for all four franchises in the current
round. In UK bus we are seeing further growth in our London business and other
urban areas and continue to focus on cost control and process improvements. The
Group's strong free cash flows will continue to be used to invest in the
business, increase dividends and buy back shares while maintaining a strong
balance sheet. With, on average, £250m of borrowing headroom the Group is in a
strong financial position to maximise opportunities for growth. I am extremely
confident about our future prospects. Trading in the new financial year has
started well and is in line with our expectations.
Moir Lockhead
Chief Executive
Finance Director's review
Overview
The Group has a portfolio of businesses in the UK and North America which
generate strong and predictable revenue streams with 40% of turnover arising
from contracts with government and statutory bodies in the UK and US. The
Group's cash flows are used to increase shareholder value by investing for
growth, increasing dividends and, where appropriate, share repurchases . The
Group's pre-tax return on capital employed now stands at 12% and dividends have
been increased by 6%, significantly ahead of inflation, giving an excellent
yield. This year our cash tax rate is 17% and we expect this rate to remain low
over the medium term. We have generated £312.3 m of operational cash flow and
invested a net £197.0 m in the business through £147.3 m of capital expenditure
and £49.7 m on business acquisitions. It is our policy to maintain a strong
balance sheet and we have strengthened our financial position through the issue
of an additional £250.0m 15-year bond. The weighted average duration of our
debt now stands at 9.7 years equivalent . Interest, before exceptional items,
was covered 7.2 times by earnings before interest, tax, depreciation and
amortisation (EBITDA).
Results
Turnover was £2,479.0m (2003: £2,291.0), an increase of 8.2%. Operating profit
was £204.1m (2003: £216.1m). This result was achieved despite increases in
National Insurance and pension contributions of £15 m and reduction in
subsidies and increase in franchise payments in UK Rail of approximately £17 m.
Year to Year to
31 March 2004 31 March 2003
Divisional Turnover Operating Operating Turnover Operating Operating
results
£m profit * Margin * £m profit * Margin *
£m % £m %
UK Bus 906.2 111.2 12.3 859.4 111.7 13.0
UK Rail 945.0 49.8 5.3 842.3 61.3 7.3
North America 620.7 63.5 10.2 582.4 61.3 10.5
Financing - (8.3) - - (6.7) -
element of
leases **
Other *** 7.1 (12.1) - 6.9 (11.5) -
Total Group 2,479.0 204.1 8.2 2,291.0 216.1 9.4
* Before goodwill amortisation, exceptional items and profit on disposal of
fixed assets
** Financing element of UK PCV operating lease costs
*** Tram operations, central management, Group information technology and other
items
Throughout the financial review, operating profit and operating margin are
defined as being before goodwill amortisation and exceptional items
North American turnover was £620.7m (2003: £582.4m). At constant exchange rates
this represents an increase of 16.7%. Operating profit for the division was £
63.5m (2003: £61.3m) an increase of 14.8% at constant exchange rates.
We continued our strong growth in First Student with an addition of
approximately 1,900 new buses. At constant exchange rates, turnover and EBIT
increased by 10.4 %, giving a margin of 13.8%. First Transit acquired a transit
business during the year for $22.5m which was less than three times EBITDA.
At constant exchange rates, turnover increased by 24.5 % and operating profit
by 32.3 % giving a margin of 5.0%. First Services results incorporate a full
year contribution from L&E Mobile which was acquired in February 2003. At
constant exchange rates, turnover increased by 35.4 % and operating profit by
38.2 % giving a margin of 7.3%. The margins in First Transit and First Services
reflect the low capital investment requirements in these businesses.
UK Bus turnover was £906.2m (2003: £859.4m), an increase of 5.4% reflecting
increased tender wins in London and growth in urban areas where we are able to
work in partnership with local authorities. UK Bus operating profit was £111.2m
(2003: £111.7m). This was a strong performance reflecting management actions to
contain costs and improve operational efficiency which substantially offset the
significant cost pressures from pensions and National Insurance contributions
(£12m). Operating margins were 12.3%.
UK Rail turnover was £945.0m (2003: £842.3m), an increase of 12.2%. Passenger
income increased by 7.7% at First Great Western and increased by 4.5% at First
Great Eastern. The acquisition of GB Railways plc added £64.3m to turnover. UK
Rail operating profit was £49.8m (2003: £61.3m) with the reduction principally
due to subsidy reduction in First Great Western of £10.1m and an increase in
the franchise payment in First Great Eastern of £6.5m. Since First Great
Eastern was acquired in 1997, whilst consistently delivering profitability, a
pre-privatisation subsidy of £40m has been converted into a £11.4m premium to
the Government. GB Railways contributed £2.8m of operating profit in the period
since acquisition. The TransPennine Express franchise which commenced in
February 2004 is performing ahead of our expectations and
Property gains, goodwill amortisation and exceptional items contributed £2.6 m
to operating profit in the two months of ownership.
Property
The Group has a substantial portfolio of properties many of which are in prime
sites in urban areas. We have a programme of realising value from these sites
which enables us to re-invest in more modern and efficient facilities and to
generate cash which can be used for further investment within the Group.
Property disposal gains in the year were £19.6m (2003: £10.0m). We expect to
continue with this programme for a number of years.
Goodwill
The goodwill amortisation charge was £25.9m (2003: £25.8m) representing
additional goodwill on acquisitions partly mitigated by favourable foreign
exchange movements.
Exceptional items
The charge for the year includes £18.7m arising on the cancellation of certain
US Dollar and Sterling interest rate swaps in April 2003. Subsequently, new US
Dollar swaps were implemented with a significantly lower average interest rate
of
2.85% and a longer term. Other exceptional items
principally comprise £6.7m of bid costs, predominantly on UK Rail and £6.8 m of
restructuring costs mainly in UK Bus. This is the last year in which we expect
to incur exceptional costs of this nature as we move towards the completion of
the restructuring of the UK Bus business.
Interest charge before exceptional item
The net interest charge was £42.8m (2003: £56.3m) with the reduction
principally due to lower Sterling and US Dollar interest rates resulting from
the cancellation of interest rate swaps. The interest charge was covered 7.2
times (2003: 5.6 times) by EBITDA.
Taxation
The taxation charge on profit before goodwill amortisation and exceptional
items was £48.4m (2003: £47.9m) representing an effective rate of 30% (2003:
30%). Tax relief on US goodwill amortisation and exceptional items reduces the
tax charge to £30.6m (2003: £35.8m). No tax has been provided on property gains
as it is not envisaged that tax will become payable on these gains.
The actual cash cost of taxation to the Group is £21.3m (2003: £27.2m) which is
17% of profit before tax (2003: 20%). The Group pays a minimal amount of tax on
its profits in the US due to the ability to offset goodwill of some $650m
spread over fifteen years from the acquisition of Ryder Public Transportation
Services in 1999, and the level of tax allowances on the purchase of new buses.
At 31 March 2004 in excess of $200m of accumulated tax losses were carried
forward to be used against future profits in the US. We therefore believe that
the level of cash tax charge in the US will remain at minimal rates for the
medium term. A full reconciliation of this rate to the UK standard rate of
corporation tax is set out in note 8 to the financial statements.
Dividends
The final proposed dividend per share of 7.9 pence (2003: 7.45 pence) takes the
full year dividend per share to 11.65 pence (2003: 11.0 pence), an increase of
5.9% , significantly ahead of the rate of inflation and in line with the G
roup's progressive dividend policy. The final dividend will be paid on 27
August 2004 to shareholders on the register at 23 July 2004.
Earnings per share (EPS)
The adjusted basic EPS, before goodwill amortisation, exceptional items and
profit on disposal of fixed assets, was 27.3 pence (2003: 26.8 pence), an
increase of 1.9%. Basic EPS was 22.3 pence (2003: 23.4 pence) with the
reduction principally due to the level of exceptional charges, including
interest, mitigated by higher property gains year on year.
Capital expenditure and acquisitions
Capital expenditure, as set out in note 12, was £164.7m (2003: £106.4m) with
the increase principally due to outright purchase of buses in the UK. The
majority of capital expenditure was in our bus operations with £60.3m spent in
North America and £64.9m in the United Kingdom. In addition £24.8m was
re-invested in new bus depots in the United Kingdom.
On 14 August 2003 our offer for GB Railways Group plc was declared
unconditional in all respects. Between this date and December 2003 100% of the
shares were acquired for £25.1m generating provisional goodwill of £20.2m.
In December 2003 we acquired 90% of Aircoach, a leading operator of coaches
between Dublin city centre and the airport, for a total consideration of £8.5m
generating provisional goodwill of £9.0m.
In July 2003 we acquired a transit business for a total consideration of
$22.5m. Provisional goodwill arising on this acquisition amounted to $5.4m. In
addition there were five bolt on acquisitions in North America during the year,
however only four of these acquisitions contributed to the trading results in
North America during the year. The total consideration for these six businesses
was £26.4m and the goodwill arising on these acquisitions amounted to £14.9m.
Cash flow
EBITDA and EBITDA as a percentage of turnover, by division was as follows:
Operating Deprec EBITDA EBITDA Operating Deprec EBITDA EBITDA
Profit -iation £m % Profit -iation £m %
£m £m £m £m
UK Bus 111.2 52.2 163.4 18.0 111.7 51.4 163.1 19.0
UK Rail 49.8 5.4 55.2 5.8 61.3 4.3 65.6 7.8
North America 63.5 43.6 107.1 17.3 61.3 42.0 103.3 17.7
Financing (8.3) - (8.3) - (6.7) - (6.7) -
element of
leases
Other (12.1) 1.8 (10.3) - (11.5) 1.5 (10.0) -
Total Group 204.1 103.0 307.1 12.4 216.1 99.2 315.3 13.8
The Group's businesses continue to generate strong operating profits which are
converted into cash. Net cash inflow from operating activities was £312.3m
(2003: £219.7 m). All of our businesses are either cash or contract based.
During the year there was a positive working capital movement of £17 m,
reversing an outflow in the previous year of £83 m, primarily resulting from
timing differences in rail receipts and payments and in particular the
commencement of the TransPennine franchise .
Funding and risk management
At the year end, total bank borrowing facilities amounted to £598m of which £
525m is committed, and approximately £400m of these committed facilities had
more than two years to maturity. Of these £525m committed facilities, £134.6m
were utilised at 31 March 2004.
The maturity profile of committed banking facilities is regularly reviewed and
well in advance of their expiry such facilities are extended or replaced. In
October 2003, the Group's short term committed bilateral facilities totalling £
140m were replaced with new short term committed facilities for £125m, with
more flexible terms.
In December 2003, the Group successfully issued a 15 year £250m bond, repayable
in 2019. The bond proceeds were swapped to US Dollars, and used to refinance US
Dollar drawings under committed bank facilities. The bond transaction, which
was oversubscribed 2.2 times, has further improved the Group's debt maturity
profile which at the year end was 9.7 years (2003: 6.4 years).
As the Group is a net borrower, it minimises cash and bank deposits, which
arise principally in the Rail companies. The Group can only withdraw cash and
bank deposits from the Rail companies to the extent of retained profits. The
Group limits deposits to short terms, and with any one bank to the maximum of £
30m, depending upon the individual bank's credit rating, which must not be less
than 'A' rated.
The Group does not enter into speculative financial transactions and uses
financial instruments for certain risk management purposes only. With regard to
net interest rate risk, the Group reduces exposure by using a combination of
fixed rate debt and interest rate derivatives to achieve an overall hedged
position of between 75% to 100%. Fuel price risk from crude oil price
volatility is 100% hedged in both UK Bus and Rail, this hedge expiring in March
2005. We have recently commenced effecting successor hedges and plan to be
significantly hedged well ahead of April 2005. In North America the Group has
hedged price risk at crude oil level of approximately 80% of our at risk fuel
requirements up to June 2007.
The Group hedges part of its exposure to the impact of exchange rate movements
on translation of foreign currency net assets by holding currency swaps and net
borrowings in foreign currencies. (March 2004 : 34%, March 2003 : 35%)
Net debt
The Group's net debt at 31 March 2004 was £630.7m and is comprised as follows:
Analysis of net debt Fixed Variable Total
£m £m £m
Cash - 26.2 26.2
Rail ring-fenced cash and deposits - 99.0 99.0
Sterling bond (2013 6.875%) (295.5) - (295.5)
Bond (2019 6.125%) * (239.6) - (239.6)
Sterling bank loans and overdrafts - (137.1) (137.1)
US dollar bank loans and overdrafts - (9.5) (9.5)
Canadian bank loans and overdrafts - (8.0) (8.0)
Euro bank loans and overdrafts - (8.0) (8.0)
HP and finance leases (20.9) (16.0) (36.9)
Loan notes (8.7) (12.6) (21.3)
Interest rate swaps,net 16.8 (16.8) -
Total (547.9) (82.8) (630.7)
* The 2019 bond was swapped to floating rate US Dollars, and is shown net of
arrangement costs and foreign exchange gains on translation to Sterling at year
end.
Shares in issue
During the year 10.4m shares were repurchased and cancelled at a total cost of
£29.2m. Accordingly the total number of shares in issue decreased by 2.5% from
413.4m to 403.0m. For the purpose of the EPS calculation (excluding 0.2m own
shares held in trust for employees), the weighted average number of shares in
issue for the year was 410.0m (2003: 416.7m).
Foreign exchange
The profits from North America have been translated at an average rate of £1:
$1.69 (2002: £1:$1.55). The year end rate was £1:$1.81, compared with £1:$1.57
last year.
Pensions
During the year the Group was successful in achieving the merger of six
existing occupational bus pension schemes and employee and employer
contributions have increased with effect from April 2004 . This will result in
significant savings through reductions in annual administration costs and
increased employee contributions, whilst still allowing us to offer a choice of
salary related benefits to existing members, and career average or money
purchase benefits to new employees. The introduction of this scheme, founded on
cost sharing principles, should secure good pension provision, at an affordable
cost and risk to both the Group and its employees, for the long-term.
Pension and post retirement costs have been accounted for on a SSAP 24 basis.
The total charge to the profit and loss account was £34.2m (2003: £26.1m). We
have continued to apply the transitional rules and disclosures under FRS 17. At
31 March 2004, after taking account of deferred taxation, the FRS 17 net
deficit in the group pension funds, excluding Rail franchises, was
approximately £162m (2003: £194m). In addition it should be noted that a
post-tax deficit of £28m (2003: £20m) relates to Rail franchises where we
believe that no liability will be borne beyond the end of the franchise.
Equity markets have improved during the year, following the dip in 2003 around
the time of the commencement of war in Iraq. This has helped to boost asset
values, although the change in bond rates has led to a corresponding increase
in the value of liabilities. The Group has continued to make tax-deductible
payments into the schemes of £9m over and above the SSAP 24 charge, and intends
that these payments will continue in the coming years.
International Financial Reporting Standards
The Council of the European Union announced in 2002 that all listed companies
would adopt International Financial Reporting Standards (IFRS), formerly known
as International Accounting Standards (IAS), from 1 January 2005. The adoption
of IFRS will be first reflected in the Group's financial statements for the
half year ending 30 September 2005 and the year ending 31 March 2006. The Group
has established a project team to manage the convergence to IFRS. Throughout
this process we have worked closely with our auditors, Deloitte & Touche LLP.
At the date of this report, the Group has made good progress on converting to
IFRS. The Group has undertaken an exercise to understand the differences
between IFRS and the Group's current policies, and a conversion project is
ongoing. The IASB is expected to continue to issue further new standards during
2004, 2005 and beyond, for which the Group will consider early adoption on a
case by case basis. In addition, the International Financial Reporting
Interpretations Committee are expected to continue to issue interpretations
which will apply to the standards that are mandatory for 2005.
Accounting policies
The financial statements for the year to 31 March 2004 have been prepared using
the same accounting policies, as set out in note 1 to the financial statements,
as were applied last year.
Iain M Lanaghan
Finance Director
Consolidated profit and loss account
For the year ended 31 March 2004
Notes Before Goodwill Total Before Goodwill Total
goodwill amortisation 2004 goodwill amortisation 2003
amortisation and £m amortisation and £m
and exceptional and exceptional
exceptional items exceptional items
items 2004 items 2003
2004 £m 2003 £m
£m £m
Turnover
Continuing 2,369.4 - 2,369.4 2,291.0 - 2,291.0
operations
Acquisitions 109.6 - 109.6 - - -
Group turnover 2 2,479.0 - 2,479.0 2,291.0 - 2,291.0
Operating profit
Continuing 196.4 (37.0) 159.4 216.1 (36.4) 179.7
operations
Acquisitions 7.7 (2.4) 5.3 - - -
Group operating 2 204.1 (39.4) 164.7 216.1 (36.4) 179.7
profit
Group operating 204.1 - 204.1 216.1 - 216.1
profit before
goodwill
amortisation and
exceptional items
Goodwill 2 - (25.9) (25.9) - (25.8) (25.8)
amortisation
Exceptional items, 4 - (13.5) (13.5) - (10.6) (10.6)
net
Group operating 2 204.1 (39.4) 164.7 216.1 (36.4) 179.7
profit
Profit on disposal - 19.6 19.6 - 10.0 10.0
of fixed assets
Profit on ordinary 2 204.1 (19.8) 184.3 216.1 (26.4) 189.7
activities before
interest
Net interest 6 (42.8) (18.7) (61.5) (56.3) - (56.3)
payable and similar
charges
Profit on ordinary 161.3 (38.5) 122.8 159.8 (26.4) 133.4
activities before
taxation
Tax on profit on 7 (48.4) 17.8 (30.6) (47.9) 12.1 (35.8)
ordinary activities
Profit on ordinary 112.9 (20.7) 92.2 111.9 (14.3) 97.6
activities after
taxation
Equity minority (0.9) - (0.9) (0.1) - (0.1)
interests
Profit for the 112.0 (20.7) 91.3 111.8 (14.3) 97.5
financial year
Equity dividends 8 (47.3) - (47.3) (45.5) - (45.5)
paid and proposed
Retained profit for 20 64.7 (20.7) 44.0 66.3 (14.3) 52.0
the financial year
Adjusted Actual Adjusted Actual
Basic earnings per 9 27.3 22.3 26.8 23.4
share
Cash earnings per 9 52.4 - 50.6 -
share
Diluted earnings - 22.2 - 23.4
per share
Consolidated balance sheet
At 31 March 2004
Notes 2004 2003
£m £m
Assets employed:
Fixed assets
Goodwill 10 461.2 496.7
Tangible fixed assets 11 797.6 775.8
Investments 12 0.6 0.7
1,259.4 1,273.2
Current assets
Stocks 13 35.1 28.9
Debtors 14 394.7 345.8
Investments 15 30.3 45.7
Cash at bank and in hand 16 94.9 35.6
555.0 456.0
Creditors: amounts falling due within one 17 (647.9) (571.5)
year
Net current (liabilities)/assets
Amounts due within one year (143.0) (159.3)
Amounts due after more than one year 14 50.1 43.8
Net current liabilities (92.9) (115.5)
Total assets less current liabilities 1,166.5 1,157.7
Creditors: amounts falling due after more 17 (682.8) (630.9)
than one year
Provisions for liabilities and charges 18 (128.1) (124.0)
355.6 402.8
Financed by:
Capital and reserves
Called up share capital 20.1 20.7
Share premium account 20 238.8 238.8
Revaluation reserve 20 3.4 3.5
Other reserves 20 4.4 3.8
Profit and loss account 20 86.8 134.9
Equity shareholders' funds 353.5 401.7
Equity minority interests 2.1 1.1
355.6 402.8
Consolidated cash flow statement
For the year ended 31 March 2004
Notes 2004 2003
£m £m
Net cash inflow from operating activities 21(a) 312.3 219.7
Returns on investment and servicing of finance 21(b) (65.2) (31.0)
Taxation
Corporation tax paid (23.7) (23.6)
Capital expenditure and financial investment 21(c) (147.3) (82.2)
Acquisitions and disposals 21(d) (49.7) (23.8)
Equity dividends paid (45.9) (44.0)
Cash (outflow)/inflow before use of liquid (19.5) 15.1
resources and financing
Management of liquid resources
Decrease in liquid bank deposits 15.4 14.7
Financing 21(e) 46.2 (47.4)
Increase/(decrease) in cash in year 42.1 (17.6)
Reconciliation of net cash flows to movement in net debt
For the year ended 31 March 2004
Notes 2004 2003
£m £m
Increase/(decrease) in cash in year 42.1 (17.6)
Cash (inflow)/outflow from (increase)/decrease in (75.4) 32.7
debt and HP contract and finance lease financing
Movement in current asset investments (15.4) (14.7)
Fees on issue of Bond and loan facility 1.3 1.6
Amortisation of debt issuance fees (0.8) (0.5)
Foreign exchange differences 41.9 26.6
Movement in net debt in year (6.3) 28.1
Net debt at beginning of year 22 (624.4) (652.5)
Net debt at end of year 22 (630.7) (624.4)
Consolidated statement of total recognised gains and losses
For the year ended 31 March 2004
2004 2003
£m £m
Profit for the financial year 91.3 97.5
Foreign exchange differences (63.0) (53.2)
Total recognised gains for the year 28.3 44.3
Reconciliation of movement in shareholders' funds
For the year ended 31 March 2004
2004 2003
£m £m
Profit for the financial year 91.3 97.5
Dividends (47.3) (45.5)
44.0 52.0
Shares issued to QUEST - 2.1
Own shares purchased and cancelled (29.2) (17.1)
Write down of own shares held by QUEST - (1.1)
Foreign exchange differences (63.0) (53.2)
Net reduction in shareholders' funds (48.2) (17.3)
Shareholders' funds at beginning of year 401.7 419.0
Shareholders' funds at end of year 353.5 401.7
No note of historical cost profits and losses is given as there are no material
differences between the results as set out in the consolidated profit and loss
account, and their historical cost equivalents.
1 Principal accounting policies
The financial information set out herein does not constitute the Group's
Statutory Accounts but has been extracted from the accounts for the years ended
31 March 2003 and 2004. The accounts for the year ended 31 March 2003 have been
delivered to the Registrar of Companies and the accounts for the year ended 31
March 2004 will be delivered to the registrar of Companies in due course. The
auditors have reported on both sets of accounts: their reports were unqualified
and did not contain a statement under section 237 (2) or (3) of the companies
Act 1985.
The accounts for the year ended 31 March 2004 have been prepared using the same
accounting policies as were used in the preparation of the accounts for the
year ended 31 March 2003.
Copies of the Statutory Accounts for the year ended 31 March 2004 will be sent
to all shareholders by early June and will be available thereafter at the
Registered Office of the Company at 395 King Street, Aberdeen, AB24 5RP.
2 Profit and loss account analysis Continuing Acquisitions Total Total
and segmental information operations £m 2004 2003
£m £m £m
Group turnover 2,369.4 109.6 2,479.0 2,291.0
Group operating costs
- General (2,173.0) (101.9) (2,274.9) (2,074.9)
- Goodwill amortisation (24.3) (1.6) (25.9) (25.8)
- Exceptional items, net (note 4) (12.7) (0.8) (13.5) (10.6)
Total Group operating costs (note 3) (2,210.0) (104.3) (2,314.3) (2,111.3)
Group operating profit 159.4 5.3 164.7 179.7
Segmental information is as Turnover Operating Net assets/
follows: profit before (liabilities)
goodwill and
exceptional
items
2004 2003 2004 2003 2004 2003
£m £m £m £m £m £m
UK Bus 906.2 859.4 111.2 111.7 228.3 267.2
UK Rail 945.0 842.3 49.8 61.3 (4.4) (37.9)
North America 620.7 582.4 63.5 61.3 435.8 483.5
Financing element of UK Bus - - (8.3) (6.7) - -
leases
Group items 7.1 6.9 (12.1) (11.5) (304.1) (310.0)
2,479.0 2,291.0 204.1 216.1 355.6 402.8
Exceptional items (note 4) (13.5) (10.6)
Goodwill amortisation (note (25.9) (25.8)
10)
Group operating profit 164.7 179.7
Profit on disposal of fixed 19.6 10.0
assets
Profit on ordinary 184.3 189.7
activities before interest
All of the Group turnover and Group operating profit for the year was generated
in the United Kingdom, except that shown above as being generated in North
America.
3 Operating costs Continuing Acquisitions Total Total
operations £m 2004 2003
£m £m £m
Materials and consumables 251.0 7.9 258.9 235.4
Staff costs (note 5) 1,055.0 44.9 1,099.9 1,009.9
External charges 778.7 47.9 826.6 741.0
Depreciation, amortisation and other 125.3 3.6 128.9 125.0
amounts written off fixed assets
2,210.0 104.3 2,314.3 2,111.3
4 Exceptional items, net UK Bus Rail North Other Total Total
£m £m America £m 2004 2003
£m £m £m
Restructuring costs 5.9 - 0.9 - 6.8 6.0
Bid costs - 5.9 - 0.8 6.7 3.4
Claims settlements - - - - - 3.7
Gain on disposal of - - - - - (2.5)
Tramtrack Croydon
5.9 5.9 0.9 0.8 13.5 10.6
5 Employees' and Directors' remuneration 2004 2003
No. No.
The average number of persons employed by the Group
(including Directors) during the year was as follows:
Operational 56,483 52,257
Administration 5,414 4,862
61,897 57,119
The aggregate payroll costs of these persons were as 2004 2003
follows:
£m £m
Wages and salaries 996.4 923.6
Social security costs 69.3 60.2
Other pension costs 34.2 26.1
1,099.9 1,009.9
6 Net interest payable and similar charges 2004 2003
£m £m
Bond and bank facilities 37.5 47.6
Loan notes 1.5 1.9
Finance charges payable in respect of hire purchase 3.3 6.5
contracts and finance leases
42.3 56.0
Income from short-term deposits and other investments (2.4) (2.6)
Notional interest on provisions 2.9 2.9
Net interest payable and similar charges before exceptional 42.8 56.3
items
Cancellation of interest rate swaps 18.7 -
61.5 56.3
7 Tax on profit on ordinary activities £m 2004 £m 2003
£m £m
Current taxation
UK corporation tax charge for the year 20.3 26.4
Adjustment in respect of prior years 0.2 (0.4)
20.5 26.0
Overseas taxation charge
Current year 0.8 1.2
Total current taxation 21.3 27.2
Deferred taxation
Origination and reversal of timing 10.0 7.9
differences
Adjustment in respect of prior years (0.7) 0.7
9.3 8.6
30.6 35.8
8 Equity dividends 2004 2003
£m £m
Ordinary shares of 5p each
- Interim paid 3.75p (2003: 3.55p) per share 15.5 14.8
- Final proposed 7.9p (2003: 7.45p) per share 31.8 30.8
- Adjustment to prior year dividend in respect of shares - (0.1)
cancelled
47.3 45.5
9 Earnings per share (EPS)
Basic EPS is based on earnings of £91.3m (2003: £97.5m) and on the weighted
average number of ordinary shares of 410.0m (2003: 416.7m) in issue. Diluted
EPS is based on the same earnings and on the weighted average number of
ordinary shares of 411.5m (2003: 417.4m).
A reconciliation of the number of shares used in the basic and diluted measures
is set out below:
2004 2003
Number Number
(m) (m)
Weighted average number of shares used in basic calculation 410.0 416.7
SAYE share options 1.5 0.6
Long-term incentive plan awards - 0.1
411.5 417.4
The adjusted basic EPS and adjusted cash EPS measures are intended to
demonstrate recurring elements of the results of the Group before goodwill
amortisation and exceptional items. Both the adjusted basic and cash measures
of EPS use the same weighted average number of ordinary shares as the basic EPS
measure. A reconciliation of the earnings used in these measures is set out
below:
£m 2004 £m 2003
Earnings Earnings
per share per
share
(p)
(p)
Profit for basic EPS calculation 91.3 22.3 97.5 23.4
Goodwill amortisation 25.9 6.3 25.8 6.2
Taxation effect of this adjustment (8.1) (2.0) (9.0) (2.2)
Exceptional items, net 13.5 3.3 10.6 2.5
Taxation effect of this adjustment (4.1) (1.0) (3.1) (0.7)
Exceptional interest rate charge 18.7 4.6 - -
Taxation effect of this adjustment (5.6) (1.4) - -
Profit on disposal of fixed assets (19.6) (4.8) (10.0) (2.4)
Profit for adjusted basic EPS 112.0 27.3 111.8 26.8
calculation
Depreciation 103.0 25.1 99.2 23.8
Profit for adjusted cash EPS calculation 215.0 52.4 211.0 50.6
10 Goodwill £m
Cost
At 1 April 2003 584.8
Additions 44.1
Exchange rate differences (66.3)
At 31 March 2004 562.6
Amortisation
At 1 April 2003 88.1
Charge for period 25.9
Exchange rate differences (12.6)
At 31 March 2004 101.4
Net book value
At 31 March 2004 461.2
At 31 March 2003 496.7
11 Tangible fixed assets Land and Passenger Other Total
buildings carrying plant and £m
£m vehicle equipment
fleet
£m
£m
Cost or valuation
At 1 April 2003 128.4 1,134.5 142.3 1,405.2
Subsidiary undertakings and 2.4 13.5 3.3 19.2
businesses acquired
Additions 23.8 125.3 15.6 164.7
Disposals (10.0) (37.2) (2.4) (49.6)
Exchange rate differences (3.1) (62.1) (4.2) (69.4)
At 31 March 2004 141.5 1,174.0 154.6 1,470.1
Depreciation
At 1 April 2003 19.9 520.5 89.0 629.4
Subsidiary undertakings and 0.2 - 1.7 1.9
businesses acquired
Charge for year 3.2 84.1 15.7 103.0
Disposals (1.2) (32.7) (1.7) (35.6)
Exchange rate differences (0.6) (23.4) (2.2) (26.2)
At 31 March 2004 21.5 548.5 102.5 672.5
Net book value
At 31 March 2004 120.0 625.5 52.1 797.6
At 31 March 2003 108.5 614.0 53.3 775.8
12 Fixed asset investments Other Own Total
investments shares £m
£m £m
Cost
At 1 April 2003 7.5 1.2 8.7
Additions - 1.3 1.3
Disposals - (1.9) (1.9)
At 31 March 2004 7.5 0.6 8.1
Provision
At 1 April 2003 (7.5) (0.5) (8.0)
Disposals - 0.5 0.5
At 31 March 2004 (7.5) - (7.5)
Net book value
At 31 March 2004 - 0.6 0.6
At 31 March 2003 - 0.7 0.7
13 Stocks 2004 2003
£m £m
Spare parts and consumables 24.0 23.1
Property development work in progress 11.1 5.8
35.1 28.9
14 Debtors 2004 2003
£m £m
Amounts due within one year
Trade debtors 233.9 190.5
Other debtors 52.7 44.5
Pension funds' prepayments 10.4 8.1
Other prepayments and accrued income 47.6 58.9
344.6 302.0
Amounts due after more than one year
Pension funds' prepayments 48.7 42.4
Other prepayments and accrued income 1.4 1.4
50.1 43.8
394.7 345.8
15 Current asset investments 2004 2003
£m £m
Bank deposits 30.3 45.7
16 Cash at bank and in hand 2004 2003
£m £m
Ring fenced cash 68.7 22.2
Other cash 26.2 13.4
94.9 35.6
17 Creditors 2004 2003
£m £m
Amounts due within one year
Bank loans and overdrafts 52.0 40.0
Obligations under hire purchase contracts and finance 20.8 34.2
leases
Loan notes 0.3 0.6
Trade creditors 156.4 102.9
Corporation tax 25.1 27.2
Other tax and social security 21.2 18.5
Other creditors 15.9 33.0
Pension funds' creditors 11.7 11.3
Accruals and deferred income 271.8 235.0
Season ticket deferred income 40.3 37.8
Proposed dividends 32.4 31.0
647.9 571.5
2004 2003
£m £m
Amounts falling due after more than one year
Bank loans
- Due in more than two years but not more than five 110.6 286.8
years
Obligations under hire purchase contracts and finance
leases
- Due in more than one year but not more than two 7.7 21.5
years
- Due in more than two years but not more than five 3.6 6.1
years
- Due in more than five years 4.8 0.1
Loan notes
- Due in more than one year but not more than two 21.0 21.3
years
£300.0m Sterling bond - 6.875% 2013 295.5 295.1
£250.0m bond - 6.125% 2019 239.6 -
682.8 630.9
18 Provisions for liabilities and Deferred Insurance Pensions Total
charges
tax claims £m £m
£m £m
At 1 April 2003 88.2 29.8 6.0 124.0
Provided in the year 9.3 23.3 - 32.6
Utilised in the year - (27.3) (0.1) (27.4)
Subsidiary undertakings acquired (0.4) - - (0.4)
Notional interest - 2.9 - 2.9
Exchange rate differences (0.7) (2.9) - (3.6)
At 31 March 2004 96.4 25.8 5.9 128.1
19 Deferred tax 2004 2003
£m £m
Capital allowances in excess of depreciation 124.8 116.2
Other timing differences 12.7 16.0
Trading losses (41.1) (44.0)
Deferred tax provision 96.4 88.2
20 Reserves Share Revaluation Profit
premium reserve and loss
account
account £m
£m
£m
At 1 April 2003 238.8 3.5 134.9
Cancellation of shares - - (29.2)
Retained profit for the year - - 44.0
Foreign exchange differences - - (63.0)
Transfer of realised revaluation reserve - (0.1) 0.1
At 31 March 2004 238.8 3.4 86.8
Capital Capital Total
other
redemption reserve
reserves
reserve £m
£m
£m
At 1 April 2003 1.1 2.7 3.8
Cancellation of shares 0.6 - 0.6
At 31 March 2004 1.7 2.7 4.4
Between 5 November 2003 and 17 February 2004, 10,445,000 shares were
repurchased at a total cost of £29.2m and cancelled.
21 Notes to the consolidated cash flow statement 2004 2003
£m £m
(a) Reconciliation of operating profit to net cash inflow
from operating activities
Operating profit 164.7 179.7
Depreciation and other amounts written off tangible fixed 103.0 99.2
assets
Amortisation charges 25.9 25.8
Loss on sale of non-property fixed assets 1.3 0.2
Profit on sale of investment in joint venture - (2.5)
Increase in stocks (1.3) -
Increase in debtors (49.4) (77.3)
Increase/(decrease) in creditors and provisions 68.1 (5.4)
Net cash inflow from operating activities 312.3 219.7
(b) Returns on investments and servicing of finance
Interest received 2.4 2.7
Interest paid (44.3) (25.1)
Cancellation of interest rate swaps (18.7) -
Interest element of hire purchase contracts and finance (3.3) (7.0)
lease payments
Fees on issue of bond and loan facilities (1.3) (1.6)
Net cash outflow from returns on investments and (65.2) (31.0)
servicing of finance
(c) Capital expenditure and financial investment
Purchase of tangible fixed assets (179.8) (107.4)
Sale of fixed asset properties 25.4 4.4
Sale of other tangible fixed assets 7.1 4.1
Deposits for rolling stock - 16.7
Net cash outflow from capital expenditure and financial (147.3) (82.2)
investment
21 Notes to the consolidated cash flow statement 2004 2003
(continued)
£m £m
(d) Acquisitions and disposals
Purchase of subsidiary undertakings (33.7) -
Purchase of businesses (26.4) (28.1)
Net cash acquired with purchase of subsidiary 10.4 1.8
undertakings and businesses
Sale of investment in joint venture - 2.5
Net cash outflow from acquisitions and disposals (49.7) (23.8)
(e) Financing
Issue of share capital - 2.5
Own shares repurchased (29.2) (17.1)
Bond 2019 250.0 -
New bank loans - 312.1
Repayments of amounts borrowed:
- Bank loans (149.2) (285.1)
- Loan notes (0.6) (2.5)
New hire purchase contracts and finance leases 10.2 -
Capital element of hire purchase and finance lease (35.0) (57.3)
payments
Net cash inflow/(outflow) from financing 46.2 (47.4)
22 Analysis of net debt At Cash flow Other At 31
March
31 March £m non-cash
2004
2003 changes
£m
£m £m
Cash at bank and in hand 35.6 65.1 (5.8) 94.9
Bank overdrafts (10.0) (23.0) - (33.0)
Cash 25.6 42.1 (5.8) 61.9
Current asset investments 45.7 (15.4) - 30.3
Bank loans due within one year (30.0) 11.0 - (19.0)
Bank loans due after one year (286.8) 138.2 38.0 (110.6)
Sterling bond 2013 (295.1) - (0.4) (295.5)
Sterling bond 2019 - (248.7) 9.1 (239.6)
Obligations under hire purchase (61.9) 24.8 0.2 (36.9)
contracts and finance leases
Loans and loan notes (21.9) 0.6 - (21.3)
Financing (695.7) (74.1) 46.9 (722.9)
Net debt (624.4) (47.4) 41.1 (630.7)
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