Interim Results
Embargoed until 07.00am on Wednesday 8 November 2006
FIRSTGROUP PLC
INTERIM RESULTS FOR THE
SIX MONTHS TO 30 SEPTEMBER 2006
SUMMARY
* Strong Group performance despite £23m fuel cost increase
*
+ Revenue increased by 25% and adjusted operating profit up 13%
+ EBITDA increased by 14%
+ Interim dividend increased by 10%
* UK Rail - excellent performance - adjusted operating profit + 28%
*
+ New franchises - First Great Western and First Capital Connect both
performing ahead of expectations
+ First ScotRail - continues to exceed performance records
+ First TransPennine Express - strong passenger demand and successful
integration of new rolling stock
+ Pre-qualified for 2 new franchises: New Cross Country and East Midlands
* North America - continued growth
*
+ Good performance despite impact of fuel cost increases
+ First Student - good revenue growth and contract retention
+ First Transit - new business wins and margin enhancement
+ First Services - retention of important contract and growth through new
business
* UK Bus - Strong trading result
*
+ Excellent performance despite increased fuel costs
+ Revenue growth and increased passenger journeys
+ Operational performance significantly improved
+ Close management of controllable costs delivering results
FINANCIAL SUMMARY
* Revenue £1,715.7m (2005: £1,376.5m)
* Adjusted operating profit1 £92.2m (2005: £81.4m)
* Operating profit £72.0m (2005: £81.2m)
* Adjusted profit before tax1 £59.9m (2005: £55.5m)
* Profit before taxation2 £39.7m (2005: £55.3m)
* Adjusted basic earnings per share 10.1p (2005: 9.2p)
* Basic earnings per share 6.3p (2005: 9.0p)
* EBITDA3 £154.5m (2005: £135.3m)
* EBITDA:interest cover4 4.8x (2005: 5.2x)
* Interim dividend per share up 10% to 5.00p (2005: 4.55p)
Operating profit referred to throughout this document refers to operating
profit before intangible asset amortisation, bid costs, non-recurring items and
profit on disposal of fixed assets.
1 Before intangible asset amortisation, bid costs, non-recurring items and
profit on disposal of fixed assets
2 Lower than the first half of 2005/06 mainly due to lower property disposal
profits (£10.4m) and non-recurring UK Rail mobilisation costs (£8.5m)
3 Operating profit1 as defined, before depreciation
4 Calculated as EBITDA divided by the net of finance cost and finance income
Commenting, FirstGroup's Chief Executive, Moir Lockhead said:
"I am pleased to report the Group has traded well and made an excellent start
to the year. This strong set of results, despite a background of increased fuel
costs, demonstrate the strength of our core businesses. Our continued strong
cash flows and EBITDA have enabled us to invest for growth in the business
while further increasing the dividend by 10%.
Our UK Rail division continues to deliver strong passenger volume and income
growth. We successfully commenced operation of two new franchises during the
period: First Great Western and First Capital Connect and are pleased to report
that both are trading ahead of our initial projections. Across all of our
franchises we are seeing strong demand for rail services and profitable growth.
We are delighted to have pre-qualified for the new Cross Country and East
Midlands franchises and look forward to submitting innovative and compelling
bids in due course.
Our UK Bus business has continued its strong trading during the first half of
this year and I am pleased with the creditable performance from this division
despite facing strong headwinds caused by increased fuel costs. Increased
passenger journeys together with our initiatives to grow revenue and closely
manage controllable costs have delivered encouraging results. A focus on
enhanced processes and productivity is delivering a significantly improved
operating performance.
In North America our businesses have enjoyed both strong contract retention and
new business wins. We believe that the North American market offers a
significant opportunity for further growth and the Board remains pleased with
the consistent growth and returns we have delivered from this division since we
entered the market seven years ago.
I believe the Group is well placed for continued growth during the second half
of the year. The Group's clear strategy is to increase shareholder value by
profitably growing our core businesses and developing opportunities in new
markets. The Board remains confident of the Group's future prospects and
ability to generate strong cash flows and is committed to dividend growth of
10% per annum, for the foreseeable future at least until 2008, and where
appropriate share repurchase while maintaining a strong balance sheet. Trading
in the second half of the year has started well and is in line with our
expectations."
Enquiries:
FirstGroup plc
Moir Lockhead, Chief Executive, Tel: 020 7291 0512
Dean Finch, Finance Director , Tel: 020 7291 0512
Rachael Borthwick, Group Corporate Communications Director, Tel: 020 7291 0508
Photographs for the media are available at www.newscast.co.uk
NOTES TO EDITORS:
FirstGroup plc is a UK based international transport company with a turnover of
over £3 billion a year and some 74,000 employees throughout the UK and North
America.
* The Group is Britain's largest bus operator running more than one in five
of all local bus services. A fleet of some 9,000 buses carries some 2.9
million passengers a day in more than 40 major towns and cities.
* The Group is the UK's largest rail operator with four passenger franchises
- First Great Western, First Capital Connect, First TransPennine Express
and First ScotRail - and one open access operator, Hull Trains.
* The Group operates one quarter of the UK passenger rail network, with a
balanced portfolio of intercity, commuter and regional services, carrying
over 250m passengers per annum.
* The Group is shortlisted for the East Midlands and the New Cross Country
rail franchises.
* The Group operates freight services through GB Railfreight.
* The Group operates Croydon Tramlink network which carries over 22 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 Fleet Maintenance and Support Services (First
Services). Headquartered in Cincinnati the businesses operate across the US
and Canada.
* First Student is the second largest provider of student transportation in
North America with a fleet of approximately 22,000 yellow school buses,
carrying nearly 2 million students every day across the US and Canada.
* First Transit is one of the largest private sector providers of transit
management and contracting, managing public transport systems on behalf of
transit authorities in cities such as Los Angeles, Houston and Denver. It
is one of the largest providers of airport shuttle bus services in the US,
serving airports in cities such as Baltimore, Philadelphia and Miami. It
also manages call centres, paratransit operations and other light transit
activities.
* First Services is the largest private sector provider of vehicle
maintenance and ancillary support services in the US. It provides fleet
maintenance for public sector customers such as the Federal Government,
cities and fire and police departments. It also provides a range of support
services including vehicle maintenance, logistics support and facilities
management to public and private sector clients including the US Navy and
US Air Force.
Chairman's statement
The safety and security of our passengers and employees is our highest priority
and we continuously strive to achieve the highest possible standards throughout
all of our operations.
I am pleased to report a good start to this financial year with a strong
performance in the first half. Group revenue increased by 25% to £1,715.7m
(2005: £1,376.5m) and adjusted profit before tax was £59.9m (2005: £55.5m).
This is a creditable performance given the additional fuel cost increase which
impacted the Group's results by £22.7m in this period. Strong cash generation
is a feature of this business with EBITDA (adjusted operating profit before
depreciation) for the period rising to £154.5m (2005: £135.3m). Adjusted basic
earnings per share (before intangible asset amortisation, bid costs,
non-recurring items and property profits) was 10.1p (2005: 9.2p). The Board has
proposed an increase in the interim dividend of 10% to 5.00p (2005: 4.55p). The
dividend will be paid on 7 February 2007 to shareholders on the register on 12
January 2007. The continued increase of the dividend reflects the Board's
confidence in the Group's strong cash generation and prospects for growth.
During the period we commenced operation of two new rail franchises First Great
Western and First Capital Connect. We are delighted with the strong start of
these franchises both of which are currently trading ahead of our initial
expectations. Across all of our rail operations we continue to deliver
profitable growth together with a strong focus on performance. We are delighted
to be shortlisted for the New Cross Country and the East Midlands franchises
and look forward to submitting innovative and compelling bids.
The Group's strong focus on revenue growth initiatives and operational
performance has delivered good results in our UK Bus division. We have
demonstrated that where we are able to work with local authorities to develop
quality partnerships we can deliver a sustainable transport system to address
the problems of traffic congestion in our towns and cities and improve the
services offered to passengers.
Our North American division has made a good start to the year with contract
retention remaining very high. Across all of our North American operations we
continue to grow and win new business consolidating our strong position in this
large and fragmented marketplace. Our North American division has delivered
consistent growth since we entered the market in 1999 and we are optimistic
about the future prospects for further growth of this business providing
strong, dependable contracted revenues.
Audrey Baxter was appointed to the Board as Non-Executive Director in August.
As Chairman and Chief Executive Officer of Baxters Food Group she has
successfully expanded the business into new markets and led the development of
an established family business into a global brand. I am confident that she
will make a significant contribution to the Group.
I would like to take this opportunity to thank our staff for their continued
hard work and commitment in delivering another period of strong growth. I would
also like to welcome to the Group new staff who have joined our businesses in
the UK and US during the period.
Our clear strategy to continue to grow in our core businesses and explore
opportunities to develop in new markets is delivering strong and profitable
growth. We continue to invest in our businesses and remain committed to
increasing the dividend by 10% per annum and where appropriate, share
repurchases, while maintaining a strong balance sheet. This successful strategy
is delivering value for shareholders and is reflected in the Group's strong
performance.
Martin Gilbert
Chairman
Chief Executive's operating review
OVERVIEW
Safety
The safety and security of our passengers and staff is at the forefront of
everything we do and we actively endorse a culture of `Safety First' throughout
our business. We continually assess our working practices and procedures to
ensure that we are doing everything we can to meet the highest possible
standards of safety.
Results
I am pleased to report another strong performance from our businesses. Revenue
increased by 25% to £1,715.7m (2005: £1,376.5m). Adjusted operating profit
increased to £92.2m (2005: £81.4m) a particularly pleasing result given the
impact of increased fuel costs which amounted to £22.7m during this first half.
The Group generated EBITDA (adjusted operating profit as defined before
depreciation) of £154.5m (2005: £135.3m) enabling us to invest £209.2m in the
business.
UK RAIL
The UK Rail division operates passenger and freight services in the UK.
Passenger rail franchises consist of First Great Western, First Capital
Connect, First TransPennine Express and First ScotRail. We also operate Hull
Trains, a non-franchised open access intercity passenger train operator, and we
provide rail freight services through GB Railfreight. We are the UK's largest
rail operator carrying more than 250 million passengers per annum.
Results
I am pleased to report the continued success of our UK Rail division. Revenue
increased by 55% to £817.6m (2005: £526.0m) reflecting the commencement of two
new enlarged franchises First Great Western and First Capital Connect. Adjusted
operating profit increased by 28% to £43.9m (2005: £34.3m). This excellent
performance reflects the strong revenue and passenger growth across all of our
operations. Our two new franchises are performing ahead of our initial
projections and the strength of our established rail franchises First
TransPennine Express and First ScotRail is demonstrated by the continued growth
of those businesses.
Current operations
We commenced operation of both First Great Western and First Capital Connect on
1 April this year. All of our franchises are now secured for the longer-term
underpinning our rail revenues for the next ten years. We are very pleased with
the performance of both new franchises with revenue growth ahead of our
projections made at the time of the bids.
At First Great Western we have made substantial progress in integrating our
existing Great Western network with Wessex Trains and are on course to realise
significant synergies. During the period we commenced a substantial
refurbishment of the high speed train fleet which will deliver a complete
overhaul of more than 400 carriages providing a step change in quality and
comfort for passengers, as well as increasing the number of seats on high
capacity routes. In addition we have started the programme to re-engine the
high speed train fleet which will significantly increase reliability and
provide a better, more environmentally friendly, train performance. Work has
also commenced in Bristol to provide new improved, maintenance facilities for
our train fleet. Customers are benefiting from improved ticketing facilities as
we have replaced more than 200 ticketing machines with new systems that are
faster and more efficient. We have also introduced a yield management system
providing passengers with greater flexibility and a wider range of discounted
tickets. A number of station improvements have been made to improve the travel
environment and increase passenger and staff security. We have now achieved
Secure Station status for 30 stations on the network. In addition to rolling
out further CCTV and help point coverage we have extended the provision of
`lightsticks', which we pioneered in the industry, to provide emergency
lighting on local and regional services in the Thames Valley, Cotswolds, North
Downs, Berkshire and Oxfordshire. Improving performance is a key objective for
First Great Western and we are working closely with Network Rail to tackle the
deep-rooted performance issues on the network.
At First Capital Connect we have already made significant improvements in
operational performance. During the first six months of operating the new
franchise we have completed a `deep clean' of all of our stations and rolling
stock significantly enhancing the travel experience for customers. We have
implemented a Service Quality Management System to monitor key standards across
our operations and launched `Text Direct' a service for passengers to report,
directly to us, any issues with our services and facilities. Most of the
engineering of our fleet has now been brought in-house enabling greater cost
efficiency and service quality. We were pleased to open the new Joint Kings
Cross signal box with Network Rail to enable greater efficiency in day-to-day
operations across the First Capital Connect network. Revenue protection is a
key priority for this franchise and we have recruited an additional 40 staff to
manually gate six stations with plans to increase this further and to introduce
automatic ticket gates at a number of key stations starting in December. As
well as improving revenue protection automatic ticket gates are proven to
increase security on the network. The safety and security of our passengers and
staff has also benefited from our investment of £1m to provide additional
Police Community Support Officers and British Transport Police officers all of
whom are now active and providing greater security across our network.
We have now been operating First ScotRail, providing 95% of Scotland's train
services, for two years and continue to build on our excellent record of
delivering benefits for customers through improved operating performance and
enhanced service quality. We have reduced delays, for which we are responsible,
by more than 30% since the franchise began compared with our franchise
commitment of 2% per annum. During the summer we reached a record high for
performance, the best since 1999 when 10% fewer trains were operating on the
network. We are delighted to have achieved over 90% Public Performance Measure
(PPM), the industry standard for monitoring punctuality and reliability, for
eight consecutive months this year and to have once again achieved improved
levels of customer satisfaction above the national average. Investment in fleet
reliability, comfort and performance continues with upgrades and refurbishment
of rolling stock across many parts of our network. Revenue protection is a key
objective in this franchise and we have commenced a programme of installing
automatic ticket gates in a number of stations across the network. Security has
been enhanced with the provision of CCTV in almost all First ScotRail trains
with further CCTV and help points being rolled out across stations in the
franchise area. Our continued investment in training and development will see
two new driver simulators introduced in December this year. We were delighted
that our efforts were recognised when First ScotRail was awarded the top UK
industry accolade of Public Transport Operator of the Year at the National
Transport Awards. In addition the team are shortlisted as finalists for the
Scottish Transport Awards reflecting their dedication and commitment to
providing the highest possible standard of service for passengers.
First TransPennine Express has delivered another period of excellent growth,
driven by good operating performance and strong demand for rail services in the
region, with passenger numbers increased by around 13.2%. The close monitoring
and focus on performance together with the infrastructure provider, Network
Rail, has led to levels of over 91% being achieved in PPM. A new integrated
control centre is being opened in York which will house First TransPennine
Express control room staff together with counterparts from Network Rail and
other train operators in the region to enable better management of day-to-day
performance issues on the network. We have introduced a new fleet of 100mph
Siemens trains, providing a step change in quality and many new features
including air conditioning, improved seating, on-board CCTV and improved access
for passengers. We are delighted to have delivered this important upgrade to
the fleet on time and are encouraged by the good performance of the new rolling
stock and the positive feedback from customers. The new trains are now
operating on the majority of the network and we expect to roll out to the
remainder of our services in the North West from early December. In June we
took over the operation of the Manchester Airport - Blackpool services from
Northern having demonstrated our ability to manage the process smoothly and
cost efficiently. We are delighted by the Department for Transport's recent
announcement confirming that we will be extending our First TransPennine
network to operate the Manchester Airport to Glasgow and Edinburgh services
from December 2007.
Hull Trains, our non-franchised, open access intercity train operating company
between London Kings Cross and Hull, delivered another good performance during
the first half of this year with passenger volumes increased by 40%.
Operational performance has increased during the period with Hull Trains once
again ranked as the most reliable long distance operator on the East Coast Main
Line with performance figures well above the industry average for long distance
train operators. In addition to responding to customer requests for increased
First Class seating capacity on our services we have provided additional space
for luggage and enhanced the on-board catering provision. We are delighted that
our achievements have been recognised with the announcement that Hull Trains is
shortlisted for the Chartered Institute of Logistics and Transport's Award for
Excellence.
GB Railfreight
GB Railfreight (GBRf) had another successful period with new contracts won to
provide rail freight services around the UK. Our flexible business model and
high level of service approach led to Royal Mail extending the contract to move
mail by rail for a further year. In August we commenced operation of a
significant 10-year contract to transport infrastructure materials for
Metronet, as part of the renewal programme for the London Underground network.
In September we signed a contract with Drax Power to move coal from the Port of
Tyne to Drax Power Station in North Yorkshire. We are pleased with the
continued growth of GBRf and are confident of the prospects to continue to grow
this innovative and demand responsive business.
Franchise bidding
We were delighted to pre-qualify for a further two new rail franchises; New
Cross Country and East Midlands franchises both due to commence operation in
November 2007. Our breadth of expertise across UK rail operations and track
record in leveraging investment, integrating services and innovation will
enable us to submit exciting and compelling bids for both of these franchises.
NORTH AMERICA
In North America the Group is the second largest operator of student
transportation with approximately 22,000 yellow school buses carrying some 2
million students every day across the US and Canada. We operate the largest
transit contracting and management business in North America and we have a
growing services division providing fleet maintenance and ancillary services to
public and private sector clients.
Results
Our North American division performed well during the year with revenue
increased to £372.0m or $689.3m (2005: £353.3m or $647.2m) an increase of 6% in
US Dollar terms. Adjusted operating profit was £17.9m or $33.2m (2005: £19.0m
or $35.9m). Operating profit was impacted by £3.5m or $6.5m of fuel cost
increases as a result of global oil price rises. We are encouraged by the
continued strong cash generation in our North American business with EBITDA of
£39.4m or $73.2m (2005: £39.6m or $74.0m).
We believe the North American market provides excellent opportunities for
future growth and our businesses, which continue to enjoy strong contract
retention and profitable growth, remain self-financing for maintenance capital
expenditure, organic growth and in-fill acquisitions.
First Student
We were pleased to continue the successful growth of our school bus business
during the period with US Dollar revenue increased by 8%. First Student had a
good bidding season winning new contracts and successfully retaining over 97%
of our business that came up for renewal. We have grown our market share during
the period through a combination of new business wins, organic growth and
acquisitions. We were delighted to commence operations in new markets such as
Savannah, Georgia and Sedona in Arizona and to continue our expansion in the
Canadian market with a new contract in Saskatchewan.
Our focus is on margin enhancement through contract bidding and a close control
of costs and productivity. We are taking steps to mitigate the impact of
increasing fuel costs through the contract renewal cycle and are pleased to
have won or retained business on terms which better reflect the costs pressures
we face. First Student is leading the industry with the introduction of new
technology such as Zonar and GPS equipment which will deliver important
information enabling us to provide even closer management of our cost base,
more efficient scheduling of services and labour and provide customers with
crucial transportation information.
First Transit
I am pleased to report that US Dollar revenue increased by 3% and adjusted
operating profit by 52% reflecting the improved margin as a result of the
implementation of a significant cost control and efficiencies programme. During
the period we were pleased to win new business to provide paratransit
contracting services in California and two contracts in the state of Ohio. We
also added new transit management contracts in Iowa, Ohio and Texas. Contract
retention remained strong during the period and we were pleased to renew
transit contracting business in New York, California and Virginia as well as
transit management contracts in Arkansas, Tennessee, Massachusetts and
Connecticut. We have developed a growing airport shuttle bus service and are
now one of the largest providers of shuttle services in the US. We further
increased our presence in this market with a new contract to provide shuttle
bus operations in Las Vegas.
First Services
We are pleased with the performance of our Services division, which provides a
range of outsourced vehicle maintenance, operations and support services to
public and private sector customers. Over the last 3 years we have delivered
substantial revenue and profit growth in this business. During the period US
Dollar turnover increased by 7% and we retained all of our contracts that came
up for renewal. Our fleet maintenance business continued to expand with new
business won to provide vehicle maintenance services to the City of Wichita,
Kansas and a number of private sector customers. We also won a contract to
install specialist mobile communications equipment in to 2,000 vehicles for the
Florida Highway Patrol. Our support services business which operates in the
large US federal market continued to grow through new business and the securing
of additional contracted work from existing customers demonstrating the strong
reputation of delivery and customer service that First Services has acquired.
In July we were delighted to win the re-bid, with our joint venture partners,
of a substantial contract with revenues of over $450m over the 10 year term to
provide land based support services to the US Navy.
UK BUS
The Group is the largest bus operator in the UK with a fleet of some 9,000
buses and a market share of approximately 23%. We carry some 2.9 million
passengers every day.
Results
I am pleased to report that our UK Bus division has delivered a good trading
performance despite strong headwinds, principally the significant rise in fuel
prices, faced during the period. Revenue rose to £521.9m (2005: £493.6m) as a
result of increased passenger journeys, including concessions, and pricing.
Adjusted operating profit, after the finance element of leasing costs,
increased to £39.5m (2005: £36.2m). This is a particularly creditable
performance given the additional cost of fuel which impacted these results by £
16.7m. Cash generation, a key feature of this division, continued to be strong
with EBITDA increased to £75.9m (2005: £69.6m). Our initiatives to grow revenue
and closely manage controllable costs have delivered margin stability, despite
increasing fuel costs. The Bus Division has seen strong volume growth across
the business including additional journeys from concessionary fares schemes.
Our investment in engineering and maintenance functions has improved
operational performance and lost mileage is at the lowest level seen for some
years. Our driver turnover is at a record low and, as a result of the success
of initiatives such as the recruitment of European drivers and placements
through JobCentre Plus, we continue to see a very encouraging increase in
driver retention.
Outside London, which represents some 80% of UK Bus turnover, we have seen
increased revenue and passenger journeys, through concessions, service delivery
improvements, innovation and fares and ticketing initiatives. In urban areas,
growth has been strongest where our efforts, in partnership with Local
Authorities, to tackle traffic congestion have enabled us to provide punctual
and reliable bus services. We continue to work with Local Authorities across
the UK to deliver bus priority measures and focus on continuously improving bus
services for our passengers and to encourage new customers to our services.
At the beginning of April the Government launched its new concessionary fares
scheme for free local bus travel for the over 60s and disabled passengers.
Overall we are pleased that the schemes started well and concessionary fares
passengers are making additional journeys. We are currently in discussion with
a number of Local Authorities regarding the reimbursement methodology for
operators.
We continue to develop `Punctuality Improvement Partnerships' (PIPs) working
together with Local Authorities to identify traffic congestion hotspots and
identify incremental improvements where we can reduce journey times, improve
service reliability or both. Our work on PIPs with Greater Manchester Passenger
Transport Executive (GMPTE) and the Metropolitan Borough Councils in the
conurbation continue to lead the industry. GMPTE is now extending the
Punctuality Improvement Partnership framework to other operators in Greater
Manchester. We are developing PIPs in every operating area and are working
closely with Local Authorities throughout the UK to roll out these innovative
partnerships for the benefit of our passengers.
Aircoach, our business operating express coaches between Dublin city centre and
the airport and contracted services for airport car parks, continued to deliver
good growth during the period. Our services, which are benefiting from
significant growth in passenger numbers travelling to and from Dublin Airport,
continue to deliver an attractive alternative for passengers. In January we
commenced operation of the contract to provide park and ride services at
Belfast International Airport we are encouraged by the successful start to this
contract and are optimistic that we can develop further opportunities in this
marketplace.
In London, we continue to win new business and are committed to improving our
performance in the league tables issued by Transport for London (TfL) for
punctuality and reliability through improved service quality and investment and
additional focused supervision of specific routes. We are working with the
London Development Agency and TfL on the relocation of our Hackney depot in
readiness for the construction of the Olympic Park for the London 2012 Olympic
Games and Paralympic Games.
Capital expenditure has been focused on areas where there is the potential for
high passenger growth. During the period £38.5m was spent on new, low floor,
easy access buses for towns and cities including Bradford, Leeds, South
Yorkshire and Bristol. This included the completion of two large deliveries
that have seen our Glasgow operation receive a total of 220 new vehicles and
our Manchester operation take delivery of 268 new buses.
We continue to invest in our people and are rolling out our network of lifelong
learning centres. The centres are part of our wider learning strategy called
`Learning & Development Ladders' where employees are encouraged to undertake
vocational and academic qualifications suitable to their job. We have linked up
with the Open University and the Chartered Institute of Logistics and Transport
to launch a new professional development programme for our graduates and
selected senior managers. We believe that this is the first time that academic
and transport specific learning has been combined in this way and is
unprecedented within the transport and logistics sector. Twenty graduates
already working within UK Bus have started the new programme. In the Autumn a
further ten managers who have been identified as having high potential will
join the programme, along with four graduates starting their managerial career
with First.
We were pleased that our bus operations in Aberdeen were shortlisted for
`Public Transport Operator of the Year' at the National Transport Awards in
July, and have also been shortlisted in the `Scottish Public Transport Operator
of the Year' category at the Scottish Transport Awards later this month. Our
ftr project won the award for 'Innovation of the Year' at the `routeone'
Operator Excellence Awards and Barbara Bedford, ftr project director, received
the 'Special Award' for outstanding contribution to the industry as a whole.
Our bus operations in Glasgow won the 'Volvo Bus Successful Partnership Award'
at the UK Bus Awards 2006 for our work with Glasgow City Council to improve bus
services
GROUP OUTLOOK
We remain confident about our future prospects. Our UK Rail division continues
to deliver strong passenger volume and income growth. We successfully commenced
operation of our two new franchises during the period - First Great Western and
First Capital Connect -and are pleased to report that both are trading ahead of
our initial projections. Across all of our franchises we are seeing strong
demand for rail services and profitable growth. We are delighted to have
pre-qualified for the New Cross Country and East Midlands franchises and look
forward to submitting innovative and compelling bids for these two new
franchises.
Our UK Bus business has continued its strong trading during the first half of
this year and I am pleased with the creditable performance from this division
despite the strong headwinds caused by increased fuel costs. Increased
passenger journeys together with our initiatives to grow revenue and closely
manage controllable costs have delivered encouraging results. A focus on
improved processes and productivity is delivering a significantly improved
operating performance.
In North America our businesses have enjoyed strong contract retention and new
business wins. We believe that the North American market offers a significant
opportunity for further growth and the Board remains pleased with the
consistent returns we have delivered from this division since we entered the
market seven years ago.
The Group is well placed for the second half of the year. The Group's clear
strategy is to increase shareholder value by profitably growing our core
businesses and developing opportunities in new markets. The Board remains
confident of the Group's future prospects and ability to generate strong cash
flows and is committed to dividend growth of 10% per annum, for the foreseeable
future at least until 2008, and where appropriate share repurchase while
maintaining a strong balance sheet. Trading in the second half of the year has
started well and is in line with our expectations.
Moir Lockhead
Chief Executive
Finance Director's review
Overview
Over the course of the first half of 2006/07 we have continued to grow our
portfolio of businesses that generate strong and predictable cash flows and
have successfully commenced the operation of two key rail franchises in First
Great Western and First Capital Connect. We have continued to increase
shareholder value by investing for growth and increasing dividends.
Results
I am pleased to report revenue growth of 25% for the group as a whole and
overall adjusted operating profit growth of 13%. Adjusted basic earnings per
share (EPS) was 10% higher than last half year and earnings before interest,
taxation, depreciation and amortisation (EBITDA) for the six months to 30
September 2006 was £154.5m, an increase of 14%.
Profit before taxation of £39.7m (six months to 30 September 2005: £55.3m) was
lower than the first half of last year mainly due to lower property disposal
profits (£10.4m), non-recurring UK Rail mobilisation costs (£8.5m) and a higher
net interest charge (£6.4m) partly offset by a higher adjusted operating profit
(£10.8m).
Throughout the rest of this review we refer to adjusted operating profit as
this is the measure that we use to assess the performance of our businesses.
Adjusted operating profit is stated before intangible asset amortisation, bid
costs, non-recurring items and profit on disposal of fixed assets.
6 months to 6 months to Year to
30 September 2006 30 September 2005 31 March 2006
Divisional Revenue Operating Operating Revenue Operating Operating Revenue Operating Operating
results £m profit * margin * £m profit * margin * £m profit * margin *
£m % £m % £m %
UK Bus 521.9 40.8 493.6 40.7 1,031.2 108.6
Financing - (1.3) - (4.5) - (10.2)
element of
leases **
UK Bus after 521.9 39.5 7.6 493.6 36.2 7.3 1,031.2 98.4 9.5
lease
financing
UK Rail 817.6 43.9 5.4 526.0 34.3 6.5 1,164.9 79.6 6.8
North America 372.0 17.9 4.8 353.3 19.0 5.4 826.3 67.1 8.1
Other *** 4.2 (9.1) - 3.6 (8.1) - 8.5 (15.4) -
Total Group 1,715.7 92.2 5.4 1,376.5 81.4 5.9 3,030.9 229.7 7.6
* Before intangible asset amortisation, bid costs, non-recurring items and
profit on disposal of fixed assets.
** Financing element of UK Bus PCV operating lease costs.
*** Tram operations, central management and other items.
UK Bus revenue was £521.9m (six months to 30 September 2005: £493.6m), an
increase of 5.7%. Operating profit after lease financing was £39.5m (six months
to 30 September 2005: £36.2m), an increase of 9.1%. Fuel costs were £16.7m
higher than the first half of last year however this cost increase was
mitigated by a strong take up of the new concessionary fare arrangements
introduced at the start of the financial year, other pricing and yield
initiatives and a reduction in lost mileage. During the period a number of bus
operating leases were restructured as finance leases. This has resulted in a
decrease in the charge for the financing element of leases and an increase in
the depreciation charge, both of which go through the "operating cost" line and
an increase in the charge for finance lease interest which goes through the
"interest payable and similar charges" line. UK Bus margin after the financing
element of leases improved from 7.3% last half year to 7.6% this half year.
UK Rail revenue was £817.6m (six months to 30 September 2005: £526.0m), an
increase of 55.4%. Operating profit was £43.9m (six months to 30 September
2005: £34.3m), an increase of 28.0%. The two new franchises have commenced
strongly and are trading ahead of the bid models. We have experienced strong
passenger revenue growth across all the franchises that we operate and have
achieved these results despite increased fuel costs and higher electricity
charges for our electric trains.
North America revenue was £372.0m (six months to 30 September 2005: £353.3m),
an increase of 6.5% in US Dollar terms. Operating profit was £17.9m (six months
to 30 September 2005: £19.0m). The period saw a high level of contract
retentions and organic growth across all the businesses together with a limited
number of acquisitions of yellow school bus businesses. This growth was
mitigated however by higher fuel and insurance reserves.
Property
Property gains on disposal of £1.4m (six months to 30 September 2005: £11.8m)
were realised during the period. In the first six months there was only one
disposal in Leeds whereas last year there were several property disposals with
the most significant being the disposals of depots in Leicester and Motherwell.
Bid costs, and non-recurring items
Bid costs of £7.3m (six months to 30 September 2005: £10.0m) were incurred
during the period principally on our bids for the South West Trains franchise
and the ongoing activities of our European bid team.
Restructuring costs of £8.5m (six months to 30 September 2005: £nil) were
incurred during the period reflecting the one-off transition costs of taking on
the Greater Western and Capital Connect franchises. Non-recurring costs of £
1.1m (six months to 30 September 2005: £nil) were charged in North America to
provide for onerous contracts which have either already been exited or are in
the process of being exited.
Intangible asset amortisation
The intangible asset amortisation charge for the period was £4.7m (six months
to 30 September 2005: £2.0m) with the increase due to amortisation on the Great
Western and Capital Connect pension intangibles.
Interest payable and similar charges
The net interest charge was £32.3m (six months to 30 September 2005: £25.9m)
with the increase due to a higher average level of net debt compared to the
first half of last year and additional finance lease interest following the UK
Bus lease restructuring. The net interest charge is covered 4.8 times (six
months to 30 September 2005: 5.2 times) by EBITDA.
Taxation
The taxation charge for the period, on profit before tax after intangible asset
amortisation, bid costs, non-recurring items and profit on disposal of fixed
assets, was £9.9m (six months to 30 September 2005: £15.2m). The taxation
charge for the half-year has been based on the estimated effective rate for the
full year of 25.5% (six months to September 2005: 27.5%) on profit before
intangible asset amortisation and bid costs. The reduction in the effective
rate is due to efficient Group funding. The actual cash cost of taxation to the
Group is estimated to be 3% of profit before tax after intangible asset
amortisation, bid costs, non-recurring items and profit on disposal of fixed
assets for the full year (year to 31 March 2006: 5%).
Dividends
The interim dividend of 5.00 pence (six months to 30 September 2005: 4.55
pence) per ordinary share represents an increase of 10%. The interim dividend
will be paid on 7 February 2007 to shareholders on the register of members at
the close of business on 12 January 2007. In accordance with generally accepted
accounting practice this interim dividend has not been provided in the accounts
as at 30 September 2006.
EPS
Adjusted basic EPS, before intangible asset amortisation, bid costs, other
non-recurring items and profit on disposal of fixed assets, was 10.1 pence (six
months to 30 September 2005: 9.2 pence), an increase of 9.8%. Basic EPS was 6.3
pence (six months to 30 September 2005: 9.0 pence).
Cash flow
The Group's businesses continue to generate strong operating profits which are
converted into cash. EBITDA for the period was £154.5m (six months to 30
September 2005: £135.3m and year to 31 March 2005: £351.7m), an increase of
14.2%. EBITDA by division is set out below:
6 months to 6 months to Year to
30 September 2006 30 September 2005 31 March 2006
Revenue EBITDA EBITDA Revenue EBITDA EBITDA Revenue EBITDA EBITDA
£m £m % £m £m % £m £m %
UK Bus 521.9 75.9 493.6 69.6 1,031.2 167.5
Financing - (1.3) - (4.5) - (10.2)
element of
leases
UK Bus 521.9 74.6 14.3 493.6 65.1 13.2 1,031.2 157.3 15.3
after lease
financing
UK Rail 817.6 47.2 5.8 526.0 37.3 7.1 1,164.9 84.9 7.3
North 372.0 39.4 10.6 353.3 39.6 11.2 826.3 122.0 14.8
America
Other 4.2 (6.7) - 3.6 (6.7) - 8.5 (12.5) -
Total Group 1,715.7 154.5 9.0 1,376.5 135.3 9.8 3,030.9 351.7 11.6
During the period there was a working capital inflow of £17.5m due to
favourable working capital movements on the commencement of the new rail
franchises partly offset by higher payments (over and above the income
statement charge) into the UK Bus pension schemes.
Capital expenditure and acquisitions
Capital expenditure, as set out in note 9 to the interim financial information,
was £199.0m (six months to 30 September 2005: £113.1m and year to 31 March
2006: £209.1m). Capital expenditure was predominantly in North American
operations of £35.7m, UK Bus operations (including £84.0m of lease
restructuring) of £124.4m and UK Rail operations of £38.2m.
The North American division acquired US School Bus businesses for a total
consideration of £6.9m. Provisional goodwill arising amounted to £6.4m.
Net cash invested in capital expenditure, inception of new finance leases and
acquisitions was £209.2m (six months to 30 September 2005: £107.8m), with the
increase mainly down to the restructuring of certain UK Bus operating leases
into finance leases and the increase in UK Rail capital expenditure as a result
of securing the two new franchises.
Net debt
The Group's net debt at 30 September 2006 was £816.6m and was comprised as
follows:
Analysis of net debt Fixed Variable Total
£m £m £m
Cash - 27.8 27.8
Rail ring-fenced cash and deposits - 153.5 153.5
Sterling bond (2013) * (296.3) - (296.3)
Sterling bond (2019) ** (231.9) - (231.9)
Sterling bank loans and overdrafts - (311.7) (311.7)
US dollar bank loans and overdrafts (0.4) (1.4) (1.8)
Canadian bank loans and overdrafts (1.9) (37.4) (39.3)
Euro bank loans and overdrafts - (9.5) (9.5)
HP and finance leases (4.3) (87.3) (91.6)
Loan notes (8.7) (7.1) (15.8)
Interest rate swaps (57.0) 57.0 -
Total (600.5) (216.1) (816.6)
* excludes accrued interest.
** stated excluding accrued interest, swapped to US Dollars less gains on
associated derivatives.
Balance sheet and net assets
Net assets decreased by £51.4m over the period mainly due to an adverse
movement of £51.4m in the translation reserve as a result of the balance sheet
exchange rate moving from $1.74 to $1.87.
Shares in issue
As at 30 September 2006 there were 392.9m (30 September 2005: 393.6m and 31
March 2006: 392.2m) shares in issue, excluding treasury shares and shares held
in trust for employees. The weighted average number of shares in issue for the
purpose of EPS calculations (excluding own shares held in trust for employees
and treasury shares) was 392.5m (six months to 30 September 2005: 393.3m and
year to 31 March 2006: 392.6m).
Foreign exchange
The results of the North American businesses have been translated at an average
rate of £1:$1.85 (six months to 30 September 2005: £1:$1.83 and year to 31
March 2006: £1:$1.79). The period end rate was £1:$1.87 (30 September 2005: £1:
$1.78 and 31 March 2006: £1:$1.74).
Fuel hedging
In the UK 2006/07 requirements of 2.6m barrels are fully hedged at $67 per
barrel and 2007/08 requirements of 2.7m barrels are 75% hedged at current
forward rates. Our 2006/07 requirement for fuel in North America is 100% hedged
at $60 per barrel.
Dean Finch
Finance Director
Consolidated income statement
Notes Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Audited
Before Amortisation, Total Before, Amortisation, Total Total
amortisation, impairment 6 months amortisation, impairment 6 months year to
impairment charges, bid to impairment charges and to 31 March
charges, bid costs and 30 charges and bid 30 2006
costs and non-recurring September bid costs costs September
non-recurring items 2006 6 months 6 months 2005
items 6 months to to to
6 months to 30 September 30 September 30 September
30 September 2006 2005 2005
2006
£m £m £m £m £m £m £m
Revenue
Continuing operations 2 1,715.7 - 1,715.7 1,376.5 - 1,376.5 3,030.9
Operating costs before
profit on disposal of
fixed assets
Continuing operations (1,623.5) (21.6) (1,645.1) (1,295.1) (12.0) (1,307.1) (2,834.2)
Operating profit before
profit on disposal of
fixed assets
Continuing operations 92.2 (21.6) 70.6 81.4 (12.0) 69.4 196.7
Operating profit before 92.2 - 92.2 81.4 - 81.4 229.7
amortisation, impairment
charges, bid costs and
non-recurring items
Amortisation and - (4.7) (4.7) - (2.0) (2.0) (4.5)
impairment charges
Bid costs - (7.3) (7.3) - (10.0) (10.0) (28.5)
Non-recurring items - (9.6) (9.6) - - - -
Operating profit before 92.2 (21.6) 70.6 81.4 (12.0) 69.4 196.7
profit on disposal of
fixed assets
Profit on disposal of - 1.4 1.4 - 11.8 11.8 14.0
fixed assets
Operating profit 92.2 (20.2) 72.0 81.4 (0.2) 81.2 210.7
Finance income 3 4.0 - 4.0 5.2 - 5.2 8.5
Finance cost 3 (36.3) - (36.3) (31.1) - (31.1) (61.8)
Profit before taxation 59.9 (20.2) 39.7 55.5 (0.2) 55.3 157.4
Taxation 4 (15.3) 5.4 (9.9) (15.3) 0.1 (15.2) (40.0)
Profit for the period 44.6 (14.8) 29.8 40.2 (0.1) 40.1 117.4
from continuing
operations
Attributable to:
Equity holders of the 39.6 (14.7) 24.9 35.9 (0.4) 35.5 107.5
parent
Minority interest 5.0 (0.1) 4.9 4.3 0.3 4.6 9.9
44.6 (14.8) 29.8 40.2 (0.1) 40.1 117.4
Basic earnings per share 6 6.3p 9.0p 27.4p
Diluted earnings per 6 6.3p 9.0p 27.1p
share
Dividends of £37.5m were paid during the six months to 30 September 2006 (30
September 2005: £34.2m). Dividends of £19.6m were proposed for approval during
the period (30 September 2005: £17.9m and 31 March 2006: £37.5m). Consolidated
balance sheet
Notes Unaudited Unaudited Audited
30 30 31 March
September September 2006
2006 2005 £m
£m (restated)
£m
Non-current assets
Goodwill 7 482.6 485.8 503.1
Other intangible assets 8 59.4 28.0 30.0
Property, plant and equipment 9 1,036.6 904.9 926.5
Financial assets - derivative financial 13 28.7 19.8 8.5
instruments
1,607.3 1,438.5 1,468.1
Current assets
Inventories 62.4 54.4 54.2
Trade and other receivables 10 368.1 396.4 373.1
Financial assets - cash and cash 181.3 119.8 174.4
equivalents
- derivative financial instruments 13 7.5 37.6 14.1
619.3 608.2 615.8
Non-current assets classified as held 11 6.2 5.7 6.6
for sale
Total assets 2,232.8 2,052.4 2.090.5
Current liabilities
Trade and other payables 12 586.3 507.1 545.1
Tax liabilities 51.7 59.1 47.8
Financial liabilities - obligations 14.9 5.2 2.3
under finance leases
- bank overdrafts and loans 27.8 6.1 30.9
- loan notes 0.2 2.8 2.8
- derivative financial instruments 13 9.0 0.8 1.8
- accrued bond interest 20.1 20.1 23.1
710.0 601.2 653.8
Net current (liabilities)/assets (90.7) 7.0 (38.0)
Non-current liabilities
Financial liabilities - obligations 76.7 11.5 10.1
under finance leases
- bank loans 334.5 294.9 268.8
- loan notes 15.6 17.8 17.7
- derivative financial instruments 13 0.2 1.6 0.8
- bonds 549.2 556.7 553.2
Retirement benefit obligation 140.8 205.4 132.0
Deferred tax liabilities 86.2 54.4 84.6
Long-term provisions 14 39.1 38.2 37.6
1,242.3 1,180.5 1,104.8
Total liabilities 1,952.3 1,781.7 1,758.6
Net assets 280.5 270.7 331.9
Equity
Share capital 16 19.9 19.9 19.9
Share premium account 17 238.8 238.8 238.8
Hedging reserves 17 12.0 23.2 1.9
Other reserves 17 4.6 4.6 4.6
Own shares 17 (23.0) (18.8) (26.6)
Translation reserves 18 (23.7) 13.3 27.7
Retained earnings 17 40.2 (23.3) 52.9
Equity attributable to equity holders of 268.8 257.7 319.2
the parent
Minority interests 11.7 13.0 12.7
Total equity 280.5 270.7 331.9
Consolidated cash flow statement
Note Unaudited Unaudited Audited
6 months to 6 months to Year to
30 September 30 September 31 March
2006 2005 2006
£m £m £m
Net cash from operating activities 19 113.5 62.9 235.0
Investing activities
Interest received 4.1 2.7 5.9
Proceeds of disposal of property, 7.4 2.0 27.3
plant and equipment
Purchases of property, plant and (125.7) (106.3) (196.2)
equipment
Acquisition of businesses (6.9) (3.5) (12.4)
Net cash used in investing (121.1) (105.1) (175.4)
activities
Financing activities
Repurchase of ordinary share capital - - (23.0)
Share purchased by Employee Benefit - (0.7) (1.4)
Trust
Monies received on exercise of 0.4 - 8.4
options
Dividends paid (37.5) (34.0) (52.0)
Dividends paid to minority (5.7) (2.5) (7.2)
shareholders
Repayments of bank borrowings - (222.8) -
Repayment of obligations under (4.8) (7.4) (11.8)
finance leases
Repayment of loan notes (4.7) (0.4) (0.5)
Payment of new bank facility issue - (1.0) (1.0)
costs
New bank loans raised 67.3 286.8 55.7
Net cash from financing activities 15.0 18.0 (32.8)
Net increase/(decrease) in cash and 7.4 (24.2) 26.8
cash equivalents
Cash and cash equivalents at 169.9 145.9 145.9
beginning of period
Effect of foreign exchange rate 2.3 (1.9) (2.8)
changes
Cash and cash equivalents at end of 179.6 119.8 169.9
period
Cash and cash equivalents for cash flow 30 30 September 31 March
statement purposes comprise: September 2005 2006
2006 £m £m
£m
Cash and cash equivalents per balance 181.3 119.8 174.4
sheet
Overdrafts (1.7) - (4.5)
179.6 119.8 169.9
Cash and cash equivalents for the purposes of the cash flow statement comprise
cash at bank and in hand, overdrafts and other short-term highly liquid
investments with a maturity of three months or less.
Consolidated statement of recognised income and expense
Unaudited Unaudited Audited
6 months 6 months Year to
to to 31 March
30 30
September September 2006
2006 2005
£m
£m £m
Derivative hedging instrument movements 10.1 (13.8) (35.1)
Exchange differences on translation of foreign (51.4) 35.2 49.6
operations
Actuarial gains on defined benefit pension - - 36.7
schemes
Deferred tax on actuarial gains - - (11.0)
Net income recognised directly in equity (41.3) 21.4 40.2
Profit for the period 29.8 40.1 117.4
Total recognised income and expense for the (11.5) 61.5 157.6
period
Attributable to:
Equity holders of the parent (16.4) 56.9 147.7
Minority interests 4.9 4.6 9.9
(11.5) 61.5 157.6
Balances recognised on 1 April 2005 on 20.3 20.3
adoption of IAS 39, net of tax
Notes to the interim financial information
1 Basis of preparation
This interim report does not constitute statutory accounts within the meaning
of section 240 of the Companies Act 1985. The statutory accounts for the year
ended 31 March 2006 have been delivered to the Registrar of Companies. The
report of the auditors did not contain a statement under section 237 (2) or (3)
of the Companies Act 1985.
The figures for the six months to 30 September 2006 include the results of the
rail businesses for the period ended 23 September 2006 and the results for the
other businesses for the 26 weeks ended 30 September 2006.
The accounting policies used in the interim financial statements are consistent
with International Financial Reporting Standards and those followed in the
preparation of the Group's annual financial statements for the year ended 31
March 2006.
The balance sheet at 30 September 2005 has been restated due to a change in our
interpretation of IAS 12. This restatement is consistent with the restatement
at 31 March 2005 as explained on page 67 of the 2006 Annual Report. The IFRS
transition document published on the Group's website on 28 September 2005
identified a GAAP difference relating to the recognition of deferred tax and
the application of rollover relief. Current accounting practice does not
recognise this GAAP difference. The balance sheets at 31 March 2006 and 30
September 2006 reflect the revised accounting treatment. As a consequence the
deferred tax liability at 30 September 2005 has been reduced by £8.2m and
retained earnings at 30 September 2005 is £8.2m higher than previously stated.
These results are unaudited but have been reviewed by the auditors. The
comparative figures for the six months to 30 September 2005 are unaudited and
are derived from the interim report for the six months ended 30 September 2005,
which was also reviewed by the auditors.
This interim report will be sent to all shareholders in November 2006 and will
be available to the public at the Registered Office of the Company, 395 King
Street Aberdeen AB24 5RP.
This interim report was approved by the Board on 7 November 2006.
2 Segment information
For management purposes, the Group is currently organised into three operating
divisions - UK Bus, UK Rail and North America. These divisions are the basis on
which the Group reports its primary segment information. The principal
activities of these divisions are set out in the Chief Executive's operating
review.
The segment results for the six months to 30 September 2006 are as follows:
UK Bus UK Rail North Group Total
America items
£m £m £m
£m £m
Revenue 521.9 817.6 372.0 4.2 1,715.7
Segment results * 40.8 43.9 17.9 (9.1) 93.5
Amortisation of intangible - (3.8) (0.9) - (4.7)
assets
Financing element of (1.3) - - - (1.3)
operating leases
Bid costs - (5.0) - (2.3) (7.3)
Non-recurring items - (8.5) (1.1) - (9.6)
Profit on disposal of fixed 1.4 - - - 1.4
assets
Operating profit 40.9 26.6 15.9 (11.4) 72.0
Investment income 4.0
Finance costs (36.3)
Profit before tax 39.7
Tax (9.9)
Profit for the period 29.8
The segment results for the six months to 30 September 2005 are as follows:
UK Bus UK Rail North Group Total
America items
£m £m £m
£m £m
Revenue 493.6 526.0 353.3 3.6 1,376.5
Segment results * 40.7 34.3 19.0 (8.1) 85.9
Amortisation of intangible - (1.3) (0.7) - (2.0)
assets
Financing element of (4.5) - - - (4.5)
operating leases
Bid costs - (9.5) - (0.5) (10.0)
Profit on disposal of fixed 11.8 - - - 11.8
assets
Operating profit 48.0 23.5 18.3 (8.6) 81.2
Investment income 5.2
Finance costs (31.1)
Profit before tax 55.3
Tax (15.2)
Profit for the period 40.1
* operating profit before amortisation of intangible assets, financing element
of leases, bid costs, non-recurring items and profit on disposal of fixed
assets.
2 Segment information (continued)
The segment results for the year to 31 March 2006 are as follows:
UK Bus UK Rail North Group Total
America items
£m £m £m
£m £m
Revenue 1,031.2 1,164.9 826.3 8.5 3,030.9
Segment results * 108.6 79.6 67.1 (15.4) 239.9
Amortisation of intangible - (2.9) (1.6) - (4.5)
assets
Financing element of (10.2) - - - (10.2)
operating leases
Bid costs - (26.1) - (2.4) (28.5)
Profit on disposal of fixed 14.0 - - - 14.0
assets
Operating profit 112.4 50.6 65.5 (17.8) 210.7
Investment income 8.5
Finance costs (61.8)
Profit before tax 157.4
Tax (40.0)
Profit for the period 117.4
* operating profit before amortisation of intangible assets, financing element
of leases, bid costs, non-recurring items and profit on disposal of fixed
assets.
3 Net finance costs
6 months to 6 months to Year to
30 September 30 31 March
2006 September
2005 2006
£m £m £m
Interest income on bank deposits 4.0 5.2 8.5
Bond and bank facilities (29.6) (26.9) (53.1)
Loan notes (0.7) (0.9) (1.8)
Finance charges payable in respect of hire (2.5) (0.5) (0.8)
purchase contracts and finance leases
Notional interest on long-term provisions (3.5) (2.8) (6.1)
Finance costs (36.3) (31.1) (61.8)
Net finance costs (32.3) (25.9) (53.3)
4 Tax 6 months to 6 months to Year to
30 30 31 March
September September 2006
2006 2005 £m
£m £m
Corporation tax 0.4 2.6 (3.3)
Deferred tax 9.5 12.6 43.3
Tax on profit on ordinary activities 9.9 15.2 40.0
5 Dividends paid and proposed 6 months 6 months Year to
to 30
September to 30 31
2006 September March
£m 2005 2006
£m
£m
Final dividend paid for the year ended 31 March 37.5 34.2 34.2
2006 of 9.55p (2005: 8.69p) per share
Interim dividend paid for the year ended 31 March - - 17.9
2006 of 4.55p (2005: 4.125p) per share
Amounts recognised as distributions to equity 37.5 34.2 52.1
holders in the period
Proposed interim dividend for the year ended 31 19.6 17.9 -
March 2007 of 5.0p (2006: 4.55p) per share
The proposed interim dividend will be paid on 7 February 2007 to shareholders
on the register of members at the close of business on 12 January 2007. The
proposed interim dividend has not been included as a liability as at 30
September 2006.
6 Earnings per share (EPS)
Basic EPS is based on earnings of £24.9m (six months to 30 September 2005: £
35.5m and year to 31 March 2006: £107.5m) and on a weighted average number of
ordinary shares (excluding own shares held in trust for employees and treasury
shares) of 392.5m (six months to 30 September 2005: 393.3m and year to 31 March
2006: 392.6m) in issue.
Diluted EPS is based on the same earnings and on the weighted average number of
ordinary shares of 396.0m (six months to 30 September 2005: 394.6m and year to
31 March 2006: 396.5m). The difference in the number of shares between the
basic calculation and the diluted calculation represents the weighted average
number of potentially dilutive ordinary shares.
The adjusted basic EPS and adjusted cash EPS are intended to demonstrate
recurring elements of the results of the Group before amortisation of
intangible assets, bid costs, non-recurring items and profit on disposal of
fixed assets. A reconciliation of the earnings used in the bases is set out
below:
6 months to
30 September 2006
£m Earnings
per share
(p)
Profit for basic EPS calculation 24.9 6.3
Amortisation of intangible assets* 4.6 1.2
Bid costs and non-recurring items 16.9 4.3
Profit on disposal of fixed assets (1.4) (0.3)
Taxation effect of adjustments (5.4) (1.4)
Profit for adjusted basic EPS calculation 39.6 10.1
Depreciation ** 61.9 15.8
Profit for adjusted cash EPS calculation 101.5 25.9
* Amortisation of £4.7m per note 8 less £0.1m attributable to
equity minority interests.
** Depreciation charge of £62.3m per note 9 less £0.4m of
depreciation attributable to equity minority interests.
6 Earnings per share (EPS) (continued)
6 months to
30 September 2005
£m Earnings
per share
(p)
Profit for basic EPS calculation 35.5 9.0
Amortisation of intangible assets 2.0 0.5
Bid costs 10.0 2.6
Profit on disposal of fixed assets * (11.3) (2.9)
Taxation effect of adjustments (0.2) -
Profit for adjusted basic EPS calculation 36.0 9.2
Depreciation ** 53.8 13.6
Profit for adjusted cash EPS calculation 89.8 22.8
* Profit on disposal of fixed assets of £11.8m per note 2 less
£0.5m of profit on disposal attributable to equity minority
interests before tax.
** Depreciation charge of £53.9m per note 9 less £0.1m of
depreciation attributable to equity minority interests.
Year to
31 March 2006
£m Earnings
per share
(p)
Profit for basic EPS calculation 107.5 27.4
Amortisation of intangible assets * 4.3 1.1
Bid costs 28.5 7.2
Profit on disposal of fixed assets ** (13.5) (3.4)
Taxation effect of adjustments (5.3) (1.4)
Profit for adjusted basic EPS calculation 121.5 30.9
Depreciation *** 121.6 31.0
Profit for adjusted cash EPS calculation 243.1 61.9
* Amortisation charge of £4.5m less £0.2m attributable
to equity minority interests.
** Profit on disposal of fixed assets of £14.0m less £0.5m
attributable to equity minority interests.
*** Depreciation charge of £122.0m less £0.4m of
depreciation attributable to equity minority interests.
7 Goodwill £m
Cost
At 1 April 2006 503.1
Additions 6.4
Exchange rate differences (26.9)
At 30 September 2006 482.6
Accumulated impairment losses
At 1 April 2006 -
Charge for period -
Exchange rate differences -
At 30 September 2006 -
Carrying amount
At 30 September 2006 482.6
At 31 March 2006 503.1
At 30 September 2005 485.8
8 Other intangible assets Contracts Franchise Total
acquired agreements £m
£m £m
Cost
At 1 April 2006 15.7 21.0 36.7
Additions - 35.0 35.0
Exchange rate differences (1.1) - (1.1)
At 30 September 2006 14.6 56.0 70.6
Amortisation
At 1 April 2006 2.2 4.5 6.7
Charge for period 0.9 3.8 4.7
Exchange rate differences (0.2) - (0.2)
At 30 September 2006 2.9 8.3 11.2
Carrying amount
At 30 September 2006 11.7 47.7 59.4
At 31 March 2006 13.5 16.5 30.0
At 30 September 2005 9.9 18.1 28.0
Contracts acquired through the purchases of businesses and subsidiary
undertakings, are amortised on a straight-line basis over their useful lives,
which is on average, eight years.
The rail franchise agreements intangible asset represents the part of the
economic benefit derived from the rail franchise agreements that is realised as
a result of recognising our share of the rail pension deficit and is amortised
on a straight-line basis over the term of the franchise.
9 Property, plant and Land and Passenger Other Total
equipment buildings carrying plant and £m
£m vehicle equipment
fleet £m
£m
Cost
At 1 April 2006 157.0 1,331.9 203.7 1,692.6
Subsidiary undertakings and 2.0 0.6 - 2.6
businesses acquired
Additions 1.0 156.3 41.7 199.0
Disposals (1.9) (22.7) (18.9) (43.5)
Reclassified as held for - (13.8) - (13.8)
sale
Exchange rate differences (1.4) (34.0) (3.1) (38.5)
At 30 September 2006 156.7 1,418.3 223.4 1,798.4
Depreciation
At 1 April 2006 22.1 621.1 122.9 766.1
Subsidiary undertakings and - - - -
businesses acquired
Charge for period 2.3 49.5 10.5 62.3
Disposals (0.1) (21.4) (17.2) (38.7)
Reclassified as held for - (10.8) - (10.8)
sale
Exchange rate differences (0.5) (14.7) (1.9) (17.1)
At 30 September 2006 23.8 623.7 114.3 761.8
Carrying amount
At 30 September 2006 132.9 794.6 109.1 1,036.6
At 31 March 2006 134.9 710.8 80.8 926.5
At 30 September 2005 124.6 720.2 60.1 904.9
10 Trade and other receivables 30 September 30 September 31 March
2006 2005 2006
£m £m £m
Amounts due within one year
Trade debtors 265.2 260.1 279.3
Other debtors 38.2 71.2 38.8
Other prepayments and accrued income 64.7 65.1 55.0
368.1 396.4 373.1
11 Non-current assets classified as held for sale
Non-current assets held for resale comprise of North American yellow school
buses which are surplus to requirement and are being actively marketed on the
Internet. Gains or losses arising on the disposal of such assets are included
in arriving at statutory operating profit in the income statement.
12 Trade and other payables 30 September 30 September 31 March
2006 2005 2006
£m £m £m
Amounts falling due within one year
Trade creditors 180.2 141.1 129.7
Other creditors 35.1 50.7 106.5
Accruals and deferred income 326.0 301.6 294.9
Season ticket deferred income 45.0 13.7 14.0
586.3 507.1 545.1
13 Derivative financial instruments
30 September 30 September 31 March
2006 2005 2006
£m £m £m
Non-current assets
Interest rate and foreign exchange 28.6 15.1 8.5
derivatives
Fuel derivatives 0.1 4.7 -
28.7 19.8 8.5
Current assets
Interest rate and foreign exchange 3.8 6.0 3.3
derivatives
Fuel derivatives 3.7 31.6 10.8
7.5 37.6 14.1
Total assets 36.2 57.4 22.6
Current liabilities
Interest rate and foreign exchange 0.7 0.8 1.8
derivatives
Fuel derivatives 8.3 - -
9.0 0.8 1.8
Non-current liabilities
Interest rate and foreign exchange - 1.6 0.8
derivatives
Fuel derivatives 0.2 - -
0.2 1.6 0.8
Total liabilities 9.2 2.4 2.6
14 Provisions for liabilities and charges Insurance Pensions Total
claims * £m £m
£m
At 1 April 2006 30.7 6.9 37.6
Provided in the period 29.5 - 29.5
Utilised in the period (28.8) (0.3) (29.1)
Notional interest on long-term provisions 3.5 - 3.5
Exchange rate differences (2.4) - (2.4)
At 30 September 2006 32.5 6.6 39.1
At 30 September 2005 28.4 9.8 38.2
* Insurance claims accruals due within one year at 30 September 2006 amounted
to £42.7m (30 September 2005: £45.4m and 31 March 2006: £50.0m) and are
included in "accruals and deferred income" in note 12.
15 Business combinations 30 September 30 31 March
2006 September
2005 2006
£m £m £m
Provisional fair values of net assets
acquired:
Tangible assets 2.6 1.5 4.0
Intangible assets - - 4.3
Other creditors (2.1) (0.3) (6.2)
0.5 1.2 2.1
Goodwill (note 7) 6.4 2.3 10.3
6.9 3.5 12.4
Satisfied by cash paid and payable 6.9 3.5 12.4
There was no material difference between the book value and the provisional
fair values of the net assets acquired and there were no adjustments required
in respect of accounting policy alignments.
The businesses and subsidiary undertakings acquired during the period and dates
of acquisition were:
Business acquired Date acquired % Voting
equity
instruments
acquired
Ladd Bus, Inc 30 June 2006 100
T-NT Bus Service, Inc 27 July 2006 100
Earl D Stires Bus Company, Inc 28 July 2006 100
16 Share capital 30 September 30 31 March
September 2006
2006 2005 £m
£m £m
Authorised:
Ordinary shares of 5p each 30.0 30.0 30.0
Allotted, called up and fully paid
Ordinary shares of 5p each 19.9 19.9 19.9
The number of ordinary shares of 5p each in issue, excluding treasury shares,
at the end of the period was 393.2m (30 September 2005: 393.6m and 31 March
2006: 392.2m). At the end of the period 5.6m shares (30 September 2005: 5.2m
shares and 31 March 2006: 6.6m shares) were being held as treasury shares.
17 Reserves Hedging Share Own Retained
reserve shares earnings
premium
£m £m £m
account
£m
At 1 April 2006 1.9 238.8 (26.6) 52.9
Retained profit for the financial - - - 24.9
period
Dividends paid - - - (37.5)
Movement in EBT, QUEST and treasury - - 3.6 (3.1)
shares during the year
Derivative hedging instrument 10.1 - - -
movements *
Share based payments - - - 1.6
Deferred tax on share based payments - - - 1.4
At 30 September 2006 12.0 238.8 (23.0) 40.2
At 30 September 2005 23.2 238.8 (18.8) (31.5)
*Net of deferred tax
Capital Capital Total
other
redemption reserve reserves
reserve £m £m
£m
At 1 April 2006 and 30 September 2006 1.9 2.7 4.6
At 30 September 2005 1.9 2.7 4.6
18 Translation reserves
£m
At 1 April 2006 27.7
Movement for the financial period (51.4)
At 30 September 2006 (23.7)
At 30 September 2005 13.3
The movement for the financial period reflects the fact that the US Dollar
exchange rate moved from $1.74:£1 at 1 April to $1.87:£1 at 30 September 2006.
19 Notes to the consolidated cash flow 6 months to 6 months to Year to
statement 30 September 30 31 March
2006 September 2006
£m 2005 £m
£m
Operating profit 70.6 69.4 196.7
Adjustments for:
Depreciation charges 62.3 53.9 122.0
Amortisation of intangible assets 4.7 2.0 4.5
Share based payments 1.6 1.6 3.2
Loss on disposal of property, plant and 0.7 0.3 1.4
equipment
Operating cash flows before working capital 139.9 127.2 327.8
Increase in inventories (4.5) (5.7) (9.6)
(Increase)/decrease in receivables (6.0) (3.9) 3.9
Increase/(decrease) in payables 28.0 (17.6) (21.4)
Cash generated by operations 157.4 100.0 300.7
Corporation tax (paid)/repaid (3.1) 0.7 (3.5)
Interest paid (39.7) (37.3) (61.3)
Interest element of hire purchase contracts (1.1) (0.5) (0.9)
and finance lease payments
Net cash from operating activities 113.5 62.9 235.0
20 Reconciliation of net cash flows 6 months to 6 months Year to
to movement in net debt to
30 September 31 March
2006 30
September 2006
£m 2005 £m
£m
Increase/(decrease) in cash and 7.4 (24.2) 26.8
cash equivalents in period
Increase in debt and HP contract (57.8) (56.2) (43.4)
and finance lease financing
Inception of new finance leases (84.0) - -
Lease and hire purchase contracts - - (0.7)
acquired with new franchise
Fees on issue of Bond and loan - 1.0 1.0
facility
Foreign exchange differences 22.5 (15.9) (23.1)
Other non-cash movements in (0.3) (1.5) (1.9)
relation to financial instruments
Movement in net debt in period (112.2) (96.8) (41.3)
Net debt at beginning of period (704.4) (663.1) (663.1)
Net debt at end of period (816.6) (759.9) (704.4)
Net debt includes the value of derivatives in connection to the £250m bond and
excludes all accrued interest. The £250m bond is included in non-current
liabilities in the consolidated balance sheet.