Transcript Document

Interim Results
For the six months ended 31 October 2008
3 December 2008
1
Interim Results 2008
Definitions

Like-for-like amounts are derived, on a constant currency basis, by comparing
the relevant year-to-date amount with the equivalent prior year period for those
businesses and individual operating units that have been part of the Group
throughout both periods.

Operating profit for a particular business unit or division within the Group refers
to profit before net finance income/charges, taxation, intangible asset expenses,
exceptional items and restructuring costs.

Operating margin for a particular business unit or division within the Group
means operating profit as a percentage of revenue.

Exceptional items means items which individually or, if of a similar type, in
aggregate need to be disclosed by virtue of their nature, size or incidence in
order to allow a proper understanding of the underlying financial performance of
the Group.

Net debt (or net funds) is the net of cash and borrowings as reported on the
consolidated balance sheet, adjusted to exclude any accrued interest and
deferred gains on derivatives.
2
Interim Results 2008
Robert Speirs
Chairman
3
Interim Results 2008
Highlights
 Good underlying revenue growth in all core divisions
 Interim dividend of 1.8p, up 33.3%
 Adjusted earnings per ordinary share up 28.7%
 Challenging short-term outlook in UK Rail; decisive
management action in anticipation of this
4
Interim Results 2008
Martin Griffiths
Finance Director
5
Interim Results 2008
Financial summary
Revenue - continuing operations
Operating profit* - continuing operations
Adjusted earnings per ordinary share*
Basic earnings per ordinary share
Net debt
Dividend per ordinary share
31 Oct 08
31 Oct 07
Change
£1,045.0m
£820.8m
27.3%
£119.8m
£100.0m
19.8%
12.1p
9.4p
28.7%
9.7p
9.0p
7.8%
£(370.2)m
£(494.7)m
25.2%
1.8p
1.35p
33.3%
* Excluding exceptional items and intangible asset expenses
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Interim Results 2008
Summary income statement
31 Oct 08
£m
31 Oct 07
£m
Change
£m
UK Bus operating profit
60.9
52.5
8.4
North America operating profit excl megabus
20.2
18.0
2.2
megabus North America operating loss
(0.4)
(1.1)
0.7
UK Rail operating profit
31.7
25.3
6.4
Share of joint ventures’ profit after tax
15.6
13.2
2.4
Restructuring and group overheads
(8.2)
(7.9)
(0.3)
Finance charges (net)
(14.6)
(15.4)
0.8
Tax
(18.9)
(15.7)
(3.2)
86.3
68.9
17.4
(16.9)
(3.1)
(13.8)
69.4
65.8
3.6
Profit excluding intangibles and exceptionals
Intangibles and exceptionals, net of tax
Reported profit from continuing operations
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Interim Results 2008
UK Bus
31 Oct 08
31 Oct 07
Change
Revenue (£m)
410.4
367.1
11.8%
Like-for-like revenue (£m)
395.0
361.6
9.2%
Operating profit (£m)
60.9
52.5
16.0%
Operating margin
14.8%
14.3%
0.5%
Estimated like-for-like passenger journeys (m)
325.2
312.4
4.1%
Like-for-like vehicle miles operated (m)
157.4
154.4
2.0%

Revenue and journeys benefiting from marketing campaigns, investment in fleet,
excellent value fares and concessionary fare schemes

Acquisitions of small, complementary businesses

Continued underlying revenue and volume growth
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Interim Results 2008
North America (excluding megabus)
31 Oct 08
31 Oct 07
Revenue (US$m)
267.7
258.9
3.4%
Like-for-like revenue (US$m)
267.9
257.0
4.2%
Operating profit (US$m)
38.0
36.2
5.0%
Operating margin
14.2%
14.0%
0.2%

Further margin improvement

Further expansion of megabus.com
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Change
Interim Results 2008
UK Rail (wholly-owned)
31 Oct 08
31 Oct 07
Change
Revenue (£m)
486.4
322.7
50.7%
Like-for-like revenue (£m)
345.0
318.8
8.2%
31.7
25.3
25.3%
Operating profit (£m)
Operating margin
South Western Trains estimated
passenger miles (millions)



6.5%
1,675.6
7.8%
1,619.0
(1.3)%
3.5%
Continued like-for-like revenue growth and good profitability
Risk and opportunities
 Challenging economic environment
 New timetable at East Midlands Trains
 Two new stations at East Midlands Trains
 Automatic ticket gates at London Waterloo and four major East Midlands Trains stations
East Midlands revenue up 14.1% compared to equivalent predecessor businesses in prior year
10
Interim Results 2008
Virgin Rail Group
31 Oct 08
31 Oct 07
Change
Revenue - 49% share (£m)
159.3
225.8
(29.5%)
- West Coast
159.2
149.1
6.8%
- West Coast like-for-like
149.1
149.1
0.0%
Operating profit - 49% share (£m)
19.4
16.3
19.0%
Operating margin
12.2%
Dividends received (£m)
19.4
11.0
76.4%
1,378.0
1,284.7
7.3%
Estimated Passenger miles (millions) West Coast
7.2%
5.0%

2007 includes CrossCountry franchise that ended November 2007

Plans to increase number of services by approximately one-third starting December 2008

Recent performance and revenue adversely affected by infrastructure work, however overall
profitability not adversely affected
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Interim Results 2008
Miscellaneous income statement items
31 Oct 08
Citylink joint venture (£m)
31 Oct 07
Change
0.7
0.6
16.7%
Splash Tours joint venture (£m)
(0.2)
(0.3)
33.3%
Intangible asset expenses (£m)
(6.5)
(6.2)
(4.8)%
Group overheads (£m)
(7.2)
(6.2)
(16.1)%
Restructuring costs (£m)
(1.0)
(1.7)
41.2%
(11.5)
2.0
(675.0)%
Post-tax exceptional items (£m)

Increased group overheads includes higher share based payment expenses

Exceptional items include
 £13.5m exceptional tax charge in relation to the abolition of UK Industrial
Buildings Allowances
 a gain of £2.2m in relation to resolution of acquisition & disposal liabilities
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Interim Results 2008
Finance charges and credit ratios
31 Oct 08
31 Oct 07
Change
Net Group finance charges (£m)
(14.6)
(15.4)
5.2%
Net finance charges, including net finance income from joint
ventures (£m)
(13.0)
(13.6)
4.4%
- last six months
156.2
135.1
15.6%
- last twelve months
302.7
250.5
20.8%
Period-end net debt (£m)
370.2
494.7
25.2%
EBITDA from continuing operations and joint ventures* (£m)
Net Debt/EBITDA (12 months)*
EBITDA*/Net finance charges (including net finance income
from joint ventures)
1.2x
2.0x
(0.8)x
12.0x
9.9x
2.1x
* excluding exceptional items
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Interim Results 2008
Liquidity & interest rate risk

Excellent liquidity
 c.£500m of undrawn committed bank facilities
 Sufficient bank facilities to refinance US$ bond in November 2009
 Key refinancing required by 2012
 Other undrawn available credit lines – e.g. asset finance
 Operating well within bank covenants
 Cash generative

Upward pressure on debt pricing
 Significantly higher margins for new UK asset finance
 Likely step up in bank margins for refinancing
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Interim Results 2008
Taxation
31 Oct 2008
Pre-tax
Profit
£m
Excluding intangible asset expenses and exceptional
items
- Before joint ventures
- Joint ventures
Intangible asset expenses
Exceptional items
Reclassify joint venture taxation for reporting purposes
Reported in income statement
Cash tax paid (net)
89.6
21.6
(6.5)
104.7
2.0
106.7
(6.0)
100.7
Tax
£m
(18.9)
(6.0)
1.1
(23.8)
(13.5)
(37.3)
6.0
(31.3)
Rate
%
21.1%
27.8%
16.9%
22.7%
35.0%
31.1%
0.7
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Interim Results 2008
Movement in net debt
31 Oct 08
£m
EBITDA from Group companies before exceptionals
Loss on disposal of plant and equipment
Equity-settled share based payment
Dividends from joint ventures
Movement in retirement benefit obligations
Working capital movements
Net interest paid
Tax paid
Net cash from operating activities
Net capital expenditure including new hire purchase and finance leases
Acquisitions of businesses, intangibles and investments
Disposals of businesses and investments
Movement in loans to joint ventures
Token sales and redemptions
Foreign exchange/other
Increase in net debt before cash flows with shareholders
Equity dividends
Share capital movements
Increase in net debt
Opening net debt
Closing net debt
16
136.2
0.6
1.2
19.4
(15.5)
(19.6)
(14.5)
(0.7)
107.1
(79.1)
(9.6)
0.3
(0.1)
(1.8)
(38.7)
(21.9)
(28.9)
0.3
(50.5)
(319.7)
(370.2)
Interim Results 2008
Capital expenditure
UK Bus
North America
UK Rail

Cash spent
on capex*
£m
New hire
purchase
and finance
leases
£m
Impact of
capex on
net debt
£m
Disposal
proceeds**
£m
Net
£m
26.0
5.4
15.9
28.2
7.7
Nil
54.2
13.1
15.9
(3.5)
(0.5)
(0.1)
50.7
12.6
15.8
47.3
35.9
83.2
(4.1)
79.1
Significant capital expenditure planned for second half of year to 30 April 2009
* Excludes capitalised intangible assets of £3.1m (2007: £1.1m) and assets acquired through business
combinations
** Excludes proceeds from selling businesses
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Interim Results 2008
Fuel Hedging
UK Bus
North
America
UK Rail
2007/8
- average effective price (per litre)
26.5p
56.3 cents
30.7p
2008/9
- % of forecast consumption hedged
91.6%
75.7%
76.1%
- average hedge price (per litre)
33.6p
61.5 cents
31.6p
78.3%
63.3%
74.7%
49.2p
90.8 cents
31.6p
2009/10 - % of forecast consumption hedged
- average hedge price (per litre)
2010/11 - % of forecast consumption hedged
6.0%
- average hedge price (per litre)
Market price (per litre)
4.7%
74.7%
41.9p
67.9 cents
31.6p
31.6p
45.9 cents
30.7p
Market prices are as at 26 November 2008
Prices exclude premia payable on fuel caps, delivery margins, duty, taxes and Bus Services Operators Grant
18
Interim Results 2008
Fuel costs
Latest forecasts
Fuel costs
UK Bus, excluding BSOG*
UK Bus, BSOG*
UK Bus, including BSOG*
North America
South Western Trains
2008/9 UK Bus Acquisitions
(Bullocks, Highland)
East Midlands Trains
Total
Volumes
2007/08
Actual
£m
2008/09
Forecast
£m
2009/10
Forecast
£m
2010/11
Forecast
£m
2008/9
Forecast
Litres m
(150.1)
68.5
(81.6)
(25.1)
(5.3)
(112.0)
(167.1)
73.7
(93.4)
(33.6)
(6.7)
(133.7)
(183.6)
73.8
(109.8)
(43.4)
(5.4)
(158.6)
(158.5)
73.8
(84.7)
(30.1)
(5.4)
(120.2)
189.8
189.8
74.8
12.0
276.6
(10.9)
(122.9)
(4.5)
(20.6)
(158.8)
(5.8)
(22.0)
(186.4)
(5.1)
(22.0)
(147.3)
5.5
50.5
332.6
Market prices are as at 26 November 2008, when Brent Crude was US$50 per barrel
Forecast costs for the unhedged element of fuel are based on 26 November 2008 spot prices
Above costs include delivery margins, duty and taxes (duty forecast at current levels)
*
Bus Services Operators Grant (“BSOG”) represents a rebate of an element of fuel duty costs in respect of certain UK Bus Services
19
Interim Results 2008
Brian Souter
Chief Executive
20
Interim Results 2008
Overview
 Good growth in bus and rail services
 Consumer demand for good value products and
services
 Planning for challenging economic conditions in
2009/10
 Decisive management action now in UK Rail
21
Interim Results 2008
UK Bus
 Excellent performance – like-for-like revenue up 9.2%
 Further increase in like-for-like passenger volumes –
4.1%
 Consumer demand for good value transport options
 Successful discount ticketing strategy
 Resilient and flexible business model
22
Interim Results 2008
UK Rail
 Growing commuter and inter-city
 Strong operational performance and delivery on franchise
commitments
 Planning for significant drop in Central London Employment
 Decisive management action plan to minimise risk and maximise
opportunities
– Cost reduction programme
– Revenue generation: new timetables, new stations, gating,
off-peak travel
23
Interim Results 2008
UK Rail/Virgin Rail Group
Management action plan
 Critical review of cost base
 Emphasis on sustainable savings at South Western Trains &
West Coast Trains
 Headcount reductions
 Reduction in management and staff headcount and overhead
costs
 Significant improvement in staff productivity and ongoing
investment in technology driven savings
 Focus on maximising revenue generation from new initiatives –
e.g. gates
24
Interim Results 2008
London Employment and Peak Arrivals
Rail Trends 1988-1997
Passenger Volumes
Total Central London employment
1.30
South West peak arrivals
1.20
National Rail peak arrivals
Index (1988 = 1)
1.10
1.00
0.90
0.80
0.70
0.60
88
19
Sources:
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
Central London employment – Greater London Authority
South West peak arrivals – South Western Trains
National Rail peak arrivals – National Rail Trends
25
Interim Results 2008
North America
 Solid growth across diverse portfolio
 Commuter services benefiting from modal shift
 Successful contract renewal season
 Weaker leisure demand in United States
 megabus.com ahead of expectations
– Increased product investment
– Expansion to new locations
– Attractive recession product
26
Interim Results 2008
Current trading and outlook
 Current trading in line with management expectations
 Further growth expected in UK Bus and American
businesses
 Challenging environment for UK Rail 2009/10
 BUT management action plan to address cost base
and maximise revenue opportunities
 Robust and diverse portfolio of businesses with strong
cash generation
27
Interim Results 2008
Interim Results
For the six months ended 31 October 2008
3 December 2008
28
Interim Results 2008
Appendices
29
Interim Results 2008
UK Bus Revenue
31 Oct 2008
£m
Like-for-like
31 Oct 2007
£m
395.0
361.6
Acquisitions:
Highland excluding Inverness (acquired 16 May 2008)
Fens (acquired 28 March 2008)
Rennies (acquired 14 March 2008)
Bullocks (acquired 10 August 2008)
3.6
2.6
1.3
0.3
Nil
Nil
Nil
Nil
Stagecoach in Inverness*
5.3
3.0
Disposals:
Darlington (disposed August 2007)
Huddersfield (disposed April 2008)
Nil
Nil
0.9
1.6
Start-ups:
Rail replacement (started May 2008)
2.3
Nil
410.4
367.1
Total reported
Change
%
9.2%
11.8%
* Existing Inverness operations integrated with and now not distinguishable from Highland so Inverness excluded
from like-for-like comparison
Interim Results 2008
30
North America
Revenue
Excluding megabus
megabus
- Midwest
- California
- North East
Operating Profit
31 Oct 2008
US$m
31 Oct 2007
US$m
31 Oct 2008
US$m
31 Oct 2007
US$m
267.7
258.9
38.0
36.2
9.4
0.4
5.6
283.1
4.4
0.4
Nil
263.7
1.8
Nil
(2.6)
37.2
(0.5)
(1.7)
Nil
34.0
31
Interim Results 2008
North America
revenue breakdown
Scheduled service/line run/commuter
Sightseeing & tour
Charter
School bus & contract
Like-for-like revenue excl megabus
Closed operations and foreign exchange movements
Total North America excl megabus
megabus
Total North America
32
31 Oct 08
US$m
31 Oct 07
US$m
% Growth
103.7
60.8
57.9
45.5
267.9
(0.2)
267.7
15.4
283.1
100.3
60.8
54.9
41.0
257.0
1.9
258.9
4.8
263.7
3.4%
Nil
5.5%
11.0%
4.2%
n/a
3.4%
220.8%
7.4%
Interim Results 2008
Divisional income statements
Six months ended 31 October 2008
Revenue
UK Bus
£m
North America
£m
UK Rail
£m
VRG (100%)
£m
410.4
150.5
486.4
325.0
Rail franchise support
Nil
Nil
70.3
152.4
Other operating income
6.4
1.9
31.7
61.7
(206.4)
(60.6)
(133.2)
(69.8)
Fuel costs (i.e. diesel)
(53.7)
(18.6)
(15.1)
(1.5)
Insurance and claims costs
(13.9)
(9.0)
(2.6)
(1.9)
Depreciation
(22.5)
(8.7)
(0.8)
(0.2)
Rolling stock costs – lease & maintenance
Nil
Nil
(86.2)
(106.0)
Other operating leases
(4.3)
(2.2)
(3.6)
Network Rail
Nil
Nil
(207.6)
(242.7)
Electricity for trains
Nil
Nil
(14.4)
(10.0)
Staff costs
Nil
Material & consumables
(17.3)
(11.1)
(15.0)
Other costs
(37.8)
(22.4)
(78.2)
(67.4)
60.9
19.8
31.7
39.6
Operating profit
33
Nil
Interim Results 2008
Rail subsidy/(premium) profiles
South
Western
£m
East
Midlands
£m
2009
20.9
117.4
291.6
2010
(42.4)
89.2
264.4
2011
(89.6)
54.7
226.0
2012
(149.7)
12.8
195.0
2013
(224.8)
(18.6)
n/a
2014
(294.6)
(38.3)
n/a
2015
(358.1)
(93.3)
n/a
2016
(425.1)
n/a
n/a
2017
(419.0)
n/a
n/a
Year to 31 March:
West Coast
£m
The above amounts are subject to adjustment for: (1) various inflation measures (2) risks borne
by the Department for Transport (3) called options and (4) changes in Regulated Network Rail
charges. The amounts shown above are based on estimated inflation and options called to date.
34
Interim Results 2008
Exchange rates
October 2008
Closing rate
US$
C$
Average rate
1.6158
1.9645
1.8811
1.9767
35
October 2007
Closing rate
2.0774
1.9731
Average rate
2.0133
2.1034
Interim Results 2008
Interim Results
For the six months ended 31 October 2008
3 December 2008
36
Interim Results 2008