Final Results

RNS Number : 5699V

Rotala PLC

30 May 2008

 



ROTALA PLC

PRELIMINARY AUDITED RESULTS FOR THE YEAR ENDED 30 NOVEMBER 2007

HIGHLIGHTS

• Turnover increased by 20% to £19.4m 
• New contracts won with annualised value of £5.7m
• Second half of the year saw near break even performance (before effect of amortisation) £4m raised in the year from existing and new stakeholders to fund new contract wins and acquisitions

Post year end 

• Integration and streamlining of the Diamond Bus business acquired from Go Ahead in February 2008 is proceeding to plan and management is confident of a positive contribution from it in 2008
• Ludlows of Halesowen Limited, acquired in March 2008, has been fully integrated into the Group's existing management structure
• Operational fleet currently stands at 400 vehicles operating around Birmingham, Bristol, Heathrow and Gatwick 

Enquiries:

Contacts:

John Gunn, Chairman                                                    020 7621 5774

Kim Taylor, CEO                                                           07825 808529

Rhod Cruwys/Matthew Marchant, Blue Oar Securities      020 7448 4400

CHAIRMAN'S STATEMENT AND REVIEW OF OPERATIONS

_____________________________________________________________________________________________

I am pleased to be able to make this report to the shareholders of Rotala plc ('Rotala' or 'the Group') for the year ended 30 November 2007, a year of great importance for the Group.  

  In this year the efforts made over the period since the foundation of the Group in 2005 to create a significant force in the transport sector began to make themselves felt. Turnover increased by 20%, to £19.4 million, compared to the previous year. This increase resulted in the main from:

• the full year benefit of the acquisition of Zak's Bus and Coach Services Limited ('Zak's') made towards the end of 2006;

• the acquisition of the business of Birmingham Motor Traction ('BMT') in December 2006;

• the beginnings of the benefits of the acquisition of the bus business of South Gloucestershire Bus & Coach Company Limited ('SGBCC') from July 2007;

• the acquisition of North Birmingham Busways Limited ('NBB'), also in July 2007;

• and the full year benefit of the £3.5m of new contracts obtained in 2006 as a whole, taken together with a partial contribution from the new contracts obtained in 2007, which had an annualised value of £5.7m. These events are discussed more fully below.

  With all of this activity as a background, cost of sales rose by less than 3%. This transformation was primarily due to two factors. First the policy decision taken by the Board some time ago to switch from operating lease to hire purchase as a method of financing the vehicle fleet began to make itself felt in reduced costs. Second the carefully planned change in the profile of the vehicle fleet has, by the acquisition of appropriate types of vehicle, standardised the fleet on reliable and efficient makes, thereby reducing maintenance and operating costs. Throughout the process of integrating all the acquisitions set out above the Board has also taken the opportunity to rationalise and improve the fleets acquired, thus reducing costs and improving margins. Consequently, gross profits rose by a factor of almost four to £3.93 million.

Administrative expenses have however increased by £0.55m. Again two factors are at work here. The majority of the increase in administrative expenses was accounted for by the uplift in depreciation which resulted from the acquisition of all additions to the vehicle fleet by hire purchase. Furthermore, from April 2007, the Group opened a new depot in Bristol, with all its attendant overheads. Numbers of vehicles in the fleet have also grown significantly. At the beginning of 2007 the Group operated a fleet of some 200 vehicles but this figure had grown to 260 by the year's end. Consequently the operating loss of £2.5m sustained by the Group in 2006 fell to one of only £219,000. It is also pertinent to point out that this figure includes goodwill amortisation of £421,000 of various kinds. Interest costs rose, reflecting the switch to hire purchase as a method of vehicle finance, but the loss before tax fell from £2.7m to £1.1m. It pleases me particularly to note that, ignoring the goodwill amortisation again, these losses were largely sustained in the first half of the year. The second half of the year, on this basis, saw a very small loss of only £37,000.

  The principal impact on the balance sheet has come from the acquisition of the many new vehicles: this has boosted not only fixed assets but also creditors, both those due within one year and those due after more than one year, with the resultant hire purchase obligations. 

Throughout the year the Board has been mindful of its desire to fulfil the strategy which I set out in the last Annual Report. I think it would be useful to set out what that strategy is and then turn to the manner in which the Board has sought to put it into effect. Your Board has consistently been of the view that the transport sector offers excellent prospects for long term investment. This view stems from an assessment that central government, through its emphasis on social responsibility, pollution reduction and relief of congestion, is creating a framework within which transport businesses can prosper. The Government is also supporting its strategy with considerably increased sums in public investment. 

The Board therefore took the view that investment in transport business and in major conurbations with suitable density of population and prospects of continuing economic growth would be rewarding for investors. In selecting its targets the Board was also well aware of the need to create a coherent and contiguous business that could be easily managed and controlled. Thus it was decided to confine the business in its start up phase to the area roughly bounded by the M5, M40 and M4. The Birmingham area is the second largest bus market in the country after London. Bristol is attractive because it is heavily congested and the local authorities there have published long term plans to alleviate this issue by investing in public transport. It is to be noted that our target is to produce a business focused on public and private bus operations and to be involved only incidentally in uncontracted coach business.

With this concept in mind the Board then took account of the other important trends in the sector at this time. Many existing operators are small and are only marginally profitable at best. The opportunity therefore exists to put businesses together, reduce overall overheads and secure better margins. Rotala is thus a consolidator in an industry which, outside of the giants within it, is highly fragmented. At the same time the industry is a product of de-regulation some 20 years ago. Those who set themselves up in business then are now approaching retirement and are looking to capitalise on their lifetime of work. Rotala is well placed to take advantage of this factor. It is therefore the overall objective of your board to fulfil its strategy by building a business, both by acquisition and organic growth, around depots situated in those parts of the country which fulfil its criteria.

By the start of 2006 the Group had acquired a Birmingham depot and added to its bus business there through the purchase of Zak's. Soon after the beginning of the accounting year under review we were able in December 2006 to acquire for £91,000 the bus business of BMT, a small operator in northern Birmingham with a turnover of about £600,000 through contracts with various local authorities. This business was loss making but, by moving its base and amalgamating it immediately with our own existing operations in the same area, we were able to eliminate duplicated management, administrative and maintenance overheads and thereby restore the contracts taken over to profitability. We also completely re-equipped its fleet with new vehicles. The same approach was used in the purchase of NBB in July 2007 for £860,000. This business, also in the north part of Birmingham, was about double the size of BMT and produced small profits. By moving all the vehicles to our existing base and relinquishing the NBB depot, we were able to eliminate unnecessary overhead as with BMT. Thus we achieved greater operational efficiencies, better margins and better utilisation of our existing overhead as represented by our depot in the Aston area of Birmingham.

A little time before this acquisition we were able to begin operations in Bristol, following the award of two prestigious park and ride contracts there. In July 2007 we added to this business by beginning to acquire the bus business of SGBCC, operating in the Bristol area. This business was acquired in tranches as route contracts were novated to our subsidiary and suitable working arrangements could be devised. By the end of 2007 just over half of the business had been acquired and the deal was completed in full by April 2008, the total consideration paid being some £1.4m, including the acquisition of 49 vehicles for just under £800,000. The financial effects of this acquisition are shown as the Acquired Business in the profit and loss account.

Finally, as I mentioned at the outset, throughout the year we were able to add new contracts from both public sector bodies, like local authorities, and private sector customers. In total these new contracts will generate £5.7m in revenue in a full year. Because these new contracts had staggered starts during the year, we have not seen their full benefit. This will only come in 2008.  

The funds to make these acquisitions and investments came via placings of new equity capital in April and July 2007 and two issues of loan notes in December 2006 and October 2007. In all in the year we raised some £4m in new capital both from existing and new shareholders. Finally, in dealing with changes in the company's share capital, it should be noted that £275,000 in convertible loan stock, which fell due on 30 June 2007, was duly converted into ordinary shares on that date, further strengthening the company's capital base.

 Since the end of the accounting year we have continued to be active in pursuing our chosen strategy. The most important transaction since the year end has been the acquisition of the Diamond Bus operation of Go Ahead Group plc in the West Midlands. We were able to purchase this business at the end of February 2008, including a freehold property, for the sum of £2m. Diamond Bus operates with a fleet of over 100 vehicles primarily in the Black Country area of the Midlands to the north west of Birmingham itself. I am pleased to be able to say that the integration of this business within our existing network is progressing very well indeed. We have been, as expected, able to streamline the overhead costs of the business by leveraging off our existing infrastructure in the region and we have made considerable changes to the bus services being run in order to focus on efficiency and contribution to overheads. We are confident that the business will make a positive contribution to profits for 2008. 

Very shortly thereafter, at the end of March 2008, we were able to acquire another local bus company, Ludlows of Halesowen Limited ('Ludlows') for £850,000. Ludlows is a well established small operator with about 20 vehicles in the Halesowen area in south west Birmingham. Here we once again have been able to relieve the business of unnecessary overhead by consolidating management and administration to our Aston depot. These two acquisitions have increased our operational fleet to over 400 vehicles. Besides our two depots in the south at Heathrow and Gatwick airports and our depot at Bristol, we now control a broad sweep of operations around Birmingham, starting from Redditch to the south, through Halesowen to the south west, Oldbury to the west and Aston in the north of Birmingham, not forgetting the depot at Great Barr which we presently do not use for operations. This presence gives us an excellent position from which we can further develop the bus business in the region and exploit the opportunities in the West Midlands, which we feel are certain to spring out of the need to improve public transport there, relieve congestion and reduce pollution. 

 I am also pleased to be able to report continuing success in our objective to increase the revenues of the Group with new contracts. In the period since the end of the year we have been awarded new contracts in both the public and private sectors with an annualised value of £3.3m. The success in obtaining new contracts underlines our commitment to increase the Group's turnover and to become a significant force in transport operations in our chosen locations. 

In order to make these acquisitions and investments we have been actively raising funds at the same time. In a series of announcements in the first quarter of 2008 we were able to state that we had raised approximately £4.7m in total through the issue of convertible loan notes, as sanctioned at the Extraordinary General Meeting held in February 2008. In addition, the Dunn family made an investment of some £400,000 in the ordinary shares of the company. As part of this investment we welcomed Robert Dunn, father of our Managing Director Simon Dunn, on to the board as a non-executive director. Robert Dunn has 37 years' experience of the transport sector, both in private and AIM-listed businesses, and is proving to be a valuable voice around the boardroom table. 

I am pleased that we have maintained profitability month by month in 2008, continuing the trend established in the second half of 2007, in accordance with our expectations. In the first half of the current financial year I expect that the Group's performance, compared to the same period of 2007, will show continued improvement and further progress. At the same time our quest for suitable new work will continue, as will our pursuit of more acquisition targets in our chosen areas of operation. The Board believes that its strategy will deliver a sizeable and profitable, integrated transport group. I look forward to being able to report further successes to you in my next annual report. 

Finally I wish to say how grateful I am to the management team and all the staff for their efforts in the year which is the subject of this report. Our senior management possesses much skill and experience but I am, in addition, particularly struck by the positive way in which employees from a number of different backgrounds and companies have worked hard to create what is really an entirely new group. We now have, with all the recent acquisitions, some 800 staff. In an industry such as this, it is overwhelmingly important that every individual, at whatever level, makes his or her contribution in meeting the needs of our customers. With these strengths, this commitment and this enthusiasm behind us, I believe the business will enjoy continued success and I remain optimistic for the future of the company.

John Gunn

Non-Executive Chairman

30 May 2008

CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30 NOVEMBER 2007
	Note		2007		2006
			£		£
					As restated
Turnover - existing business	2		17,405,329		16,094,920
- acquired business			1,942,725		-
			19,348,054		16,094,920
Cost of sales - existing business			(14,168,962)		(15,009,429)
acquired business			(1,244,513)		-
			(15,413,475)		(15,009,429)
Gross profit    -    existing business			3,236,367		1,085,491
-    acquired business			698,212		-
			3,934,579		1,085,491
Administrative expenses    - existing business			(3,728,023)		(3,616,168)
- acquired business			(425,331)		-
			(4,153,354)		(3,616,168)
Operating (loss)/profit - existing business (including goodwill amortisation of £ 412,950 (2006 - £400,000))			(436,106)		(2,530,677)
acquired business (including goodwill amortisation of £ 8,000)			217,331		-
Operating loss			(218,775)		(2,530,677)
Interest receivable			78,203		19,301
Interest payable and similar charges			(956,725)		(251,534)
Loss on ordinary activities before taxation			(1,097,297)		(2,762,910)
Taxation on loss on ordinary activities			-		-
Loss on ordinary activities after taxation			(1,097,297)		(2,762,910)
Loss per share (basic and diluted)			(6.49p)		(26.67p)
All amounts relate to continuing activities.
Movements in shareholders' funds in the current year are shown in note 5.

CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES FOR THE YEAR ENDED 30 NOVEMBER 2007
			2007		2006
			£		£
Statement of total recognised gains and losses
Total recognised gains and losses related to the year			(1,097,297)		(2,762,910)
Prior year adjustment in respect of  FRS 20			(52,533)		-
Total recognised gains and losses since last annual report			(1,149,830)		(2,762,910)

CONSOLIDATED BALANCE SHEET AS AT 30 NOVEMBER 2007
		2007	2007	2006	2006
		£	£	£	£
Fixed assets
Intangible assets
– positive goodwill		8,454,826		7,981,046
– negative goodwill		(451,246)		(475,246)
		8,003,580		7,505,800
– other intangibles		155,000		232,000
			8,158,580		7,737,800
Tangible assets			15,214,375		5,675,158
			23,372,955		13,412,958
Current assets
Stocks		145,085		164,511
Debtors – due within one year		3,878,472		3,358,994
– due after one year		288,180		180,436
		4,166,652		3,539,430
Cash at bank and in hand		10,743		-
		4,322,480		3,703,941
Creditors: amounts falling due within one year
Convertible debt		-		(275,000)
Other		(7,496,258)		(5,665,235)
Net current liabilities			(3,173,778)		(2,236,294)
Total assets less current liabilities			20,199,177		11,176,664
Creditors: amounts falling due after more than one year		(11,210,413)		(3,597,582)
Provisions for liabilities		(144,913)		(893,431)
			(11,355,326)		(4,491,013)
			8,843,851		6,685,651
Capital and reserves
Called up share capital			5,088,645		3,676,910
Share premium account			6,102,363		4,316,223
Merger reserve			2,566,667		2,566,667
Profit and loss account			(4,913,824)		(3,874,149)
Shareholders' funds			8,843,851		6,685,651

The financial statements were approved by the Board of Directors and authorised for issue on 29 May 2008.

John Gunn                                                 Kim Taylor

Chairman                                                 Chief Executive

CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 30 NOVEMBER 2007
		Note	2007	2007	2006	2006
			£	£	£	£
Net cash inflow/(outflow) from  operating activities		6		336,552		(2,977,867)
Returns on investments and servicing of finance
Interest received			78,203		19,301
Interest paid			(285,537)		(147,672)
Interest element of hire purchase payments paid			(641,982)		(52,331)
Net cash outflow from returns on investments and servicing of finance			(849,316)		(180,702)
Capital expenditure and financial investment
Payments to acquire intangible fixed assets			-		(250,000)
Payments to acquire tangible fixed assets			(429,310)		(2,173,208)
Sale of tangible fixed assets			1,168,077		90,447
Net cash inflow/(outflow) from capital expenditure and financial investment				738,767		(2,332,761)
Acquisitions
Acquisitions			(1,702,726)		(30,000)
Expenses incurred in making acquisitions			(204,376)		(132,308)
Cash/(bank overdraft) acquired with the acquisitions			217,105		(40,150)
Cash outflow from acquisitions				(1,689,997)		(202,458)
Cash outflow before use of liquid  resources and financing				(1,463,994)		(5,693,788)
Management of liquid resources
Decrease in deposits with banks				-		1,000,000
Financing
Issue of ordinary share capital			3,130,001		3,331,002
Issue costs			(207,126)		(130,006)
Issue of loan stock and loan notes			865,000		250,000
Loan note repaid			(100,000)		-
Bank loan			-		1,500,000
Bank loan repaid			(14,362)		(3,902)
Capital element of hire purchase payments			(2,889,875)		(647,801)
Cash inflow from hire purchase refinancing agreements			758,000		-
				1,541,638		4,299,293
Increase/(Decrease) in cash for the year				77,644		(394,495)

1. Basis of preparation and consolidation

The financial information included in this document has been prepared on a consistent basis and using the same accounting policies as the audited financial statements for the year ended 30 November 2006 except for the adoption of FRS20 'Share-based payments'. FRS20 requires that the cost of equity-settled transactions with employees is measured by reference to their fair value at the date at which they are granted and then recognised over the vesting period. As a result of the adoption of FRS20, there is an additional charge in the year of £57,622 (2006: £37,244). There has been no impact on the net assets of the Group. The Company has taken advantage of the exemptions under FRS20 and has therefore applied this policy only to awards granted after 7 November 2002 that had not vested at 1 December 2006.  

2. Turnover

Turnover represents sales to external customers at invoiced amounts less value added tax. Passenger revenue is recognised when payment is received in cash. Subsidy revenue from local authorities is recognised on an accruals basis, based on actual passenger numbers. Contract revenues are recognised as services are delivered based on agreed contract rates.

All of the activities of the group are conducted in the United Kingdom and all are within the transport sector.

3.     Loss per share

 

        The calculation of the basic and diluted loss per share is based on the earnings attributable to the ordinary shareholders divided by the weighted average number of shares in issue during the year. The effect of all potential ordinary shares is not dilutive, as they would decrease the loss per share.

 

        The weighted average number of equity shares in issue is 16,900,906   (2006 - 10,360,273) and the earnings, being a loss after tax, are £1,097,297 (2006 - £2,762,910). The number of potential ordinary shares as at 30 November 2007 was 4,729,594 (2006 - 2,787,203). All figures in this note have been restated as if the share consolidation of 19 July 2007 had been effective throughout both 2006 and 2007 in order to ease understanding.

4. Summarised information about the acquisitions in the year

Acquisition of North Birmingham Busways Limited

The Group acquired  North Birmingham Busways Limited and its subsidiary North Birmingham Training Limited on 26 July 2007. The consideration was £860,000, payable in cash. Further details of the acquisition are given in the Chairman's Statement.  

		Book value		Fair value adjustments		Total
		£		£		£
Fixed assets:
Tangible		315,162		101,046		416,208
Current assets:
Debtors		141,126		-		141,126
Cash at bank and in hand		217,105		-		217,105
Total assets		673,393		101,046		774,439
Creditors:
Due within one year		(197,344)				(197,344)
Provisions		(29,915)		29,915		-
Net Assets		446,134		130,961		577,095

The fair value adjustment arose as a result of the revaluation of the motor vehicle fleet to market value at the date of acquisition. The release of the provision was in respect of deferred taxation.

		£
Acquisition expenses		134,538
Cash paid		860,000
		994,538
Net assets acquired		577,095
Goodwill arising on acquisition		417,443

North Birmingham Busways Limited ('NBB') was incorporated in England and Wales on 10 September 1993 and North Birmingham Training Limited ('NBT') on 4 November 1998. These companies prepared their last financial statements for the year ended 30 November 2006. The results of NBB  and NBT to the date of acquisition were:

Profit and loss account
		Period to 25 July 2007		Year to 30 November 2006
		£		£
Turnover		906,030		1,380,269
Operating profit		74,415		151,869
Net interest		1,306		1,312
Profit on ordinary activities before taxation		75,721		153,181
Taxation on profit from ordinary activities		(11,061)		(29,104)
Profit for the period		64,660		124,077

Cash flows
The net cash outflow arising from the acquisition of NBB and NBT was as follows:
		£
Cash paid		860,000
Expenses of acquisition (as above)		134,538
Cash acquired		(217,105)
Net cash outflow		777,433

Acquisition of the bus business of Birmingham Motor Traction Limited

On 22 December 2006 the Group, through its subsidiary CCL, acquired the bus business and certain vehicle assets of Birmingham Motor Traction Limited and Birmingham Motor Traction (North) Limited (together 'BMT'). The total consideration paid was £91,200. 

		£
Acquisition expenses		16,906
Cash paid		91,200
		108,106
Assets acquired		43,200
Purchased goodwill arising on acquisition		64,906

The assets acquired consisted only of vehicles. No fair value adjustments were required.  Further details of the acquisition are given in the Chairman's Statement.

Acquisition of the bus business of South Gloucestershire Bus and Coach Company Limited

Beginning on 16 June 2007, the Group, through its subsidiary Flights Hallmark Limited ('FHL'), commenced the acquisition of the bus business of South Gloucestershire Bus and Coach Company Limited ('SGBCC'). By the terms of its agreement with SGBCC the Group undertook to acquire the rights to operate the bus routes of SGBCC for a total consideration of £600,000, together with up to 69 vehicles, being the vehicles engaged on operating these routes, for a total consideration of up to a further £1,260,000.  Since the timetable for acquisition was dictated by the pace at which the agreement of the issuers of the contracts which formed the business of SGBCC were willing to agree to their novation or assignment, the acquisition was broken down into a number of stages. By the balance sheet date the Group had paid £383,449 in respect of the rights to operate the routes of SGBCC and £368,077 in respect of the acquisition of 27 vehicles.

		£
Acquisition expenses		52,932
Cash paid		751,526
		804,458
Assets acquired		368,077
Purchased goodwill arising on acquisition		436,381

Subsequent to the balance sheet date the Group carried out the remaining stages of the acquisition of SGBCC. This involved further payments to SGBCC on 7 January and 4 April 2008 of a total of £216,551 in respect of the rights to operate the routes of SGBCC and £419,472 in respect of the acquisition of a further 22 vehicles. By the 4 April 2008, when all stages of the acquisition were complete, the Group had paid a total of £600,000 for the rights to operate the routes of SGBCC and £787,548 for 49 vehicles. In the event the Group did not take up its right to acquire the remaining 20 vehicles covered by the agreement with SGBCC and replaced these vehicles, where necessary, with existing vehicles in its fleet or vehicles sourced from other vehicle providers.

The operations acquired from SGBCC formed the new Bristol depot of the Group and the results since acquisition are shown as the Acquired Business in the profit and loss account.  Further details of the acquisition are given in the Chairman's Statement.

5.    Reconciliation of movements in shareholders' funds 

		Group 2007		Group 2006
		£		£
(Loss) for the year		(1,097,297)		(2,762,910)
Issue of shares		3,405,001		3,331,002
Expenses of share issues		(207,126)		(155,006)
Share based payment charge credited to reserves		57,622		37,244
Net addition to shareholders' funds		2,158,200		450,330
Opening shareholders' funds		6,685,651		6,235,321
Closing shareholders' funds		8,843,851		6,685,651

6.    Reconciliation of operating loss to net cash inflow/(outflow) from operating activities

		2007		2006
		£		£
Operating loss		(218,775)		(2,530,677)
Depreciation of tangible fixed assets		858,103		263,144
Amortisation of goodwill		420,950		400,000
Amortisation of intangibles		77,000		18,000
(Increase)/Decrease in debtors		(486,097)		456,322
Increase/(Decrease) in creditors		425,763		(984,641)
Decrease in stock		19,426		13,440
Share based payment		57,622		37,244
(Profit)/Loss on disposal of fixed assets		(68,922)		2,870
Movement on provisions		(748,518)		(653,569)
		336,552		(2,977,867)

7. Financial Information

The financial information set out above does not constitute the company's statutory accounts, as defined in section 240 of the Companies Act 1985, for the years ended 30 November 2007 or 2006, but is derived from those accounts. Statutory accounts for 2006 have been delivered to the Registrar of Companies and those for 2007 will be delivered following the company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports and did not contain statements under the Companies Act 1985, s 237(2) or (3).

 

END

 

 

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