Transcript Document

Interim Results
6 December 2006
Interim Results 2006
Robert Speirs
Chairman
1
Interim Results 2006
Highlights

Strong set of results for six months ended 31 October 2006
 Revenue from continuing businesses+: +10.0%
 Earnings per share*: +7.4%


 Interim dividend: +9.1%
UK Bus: partnership and innovation driving revenue and passenger
growth
Rail: further revenue growth and excellent operational performance
North America: increased operating profit** and margin

10-year South Western franchise secured


Disposal of London bus operations in August 2006 for c.£265m
Proposal to return no less than £400m of funds to shareholders

+
Excluding acquisitions of Glenvale and Traction, and disposed operations.
* Excluding intangible asset expenses and exceptional items.
** References to the operating profit (or operating margin) of a particular business throughout this presentation mean
operating profit (or operating margin) before intangible asset expenses, exceptional items and restructuring costs.
2
Interim Results 2006
Martin Griffiths
Finance Director
3
Interim Results 2006
Financial highlights

Revenue+* from continuing businesses up 10.0%
- £711.1m (2005: £646.5m)
- Up 10.5% at constant exchange rates

Operating profit* pre intangibles and exceptionals £80.7m (2005:
£68.5m)

EBITDA* (pre exceptionals) up 15.2% at £113.5m (see slide 8)

Adjusted EPS up 7.4% to 5.8p

Net debt of £135.9m converted to net funds of £140.9m
+
excluding acquisitions of Glenvale and Traction.
* excluding disposed operations.
4
Interim Results 2006
Financial summary
October
2006
£m
October
2005
£m
Revenue*
752.1
653.3
- continuing operations, excluding Glenvale and Traction
711.1
646.5
Total operating profit*
101.5
55.3
- pre intangibles & exceptionals*
80.7
68.5
Profit before tax*
97.3
40.7
- pre intangibles & exceptionals*
77.4
57.9
Cash generated from operations
99.4
120.2
156.4
120.2
- pre £57.0m one-off pension contribution
Adjusted earnings per share
5.8p
5.4p
Interim dividend per share
1.2p
1.1p
* excluding disposed operations
5
Interim Results 2006
Revenue bridge
Businesses held throughout both
periods
UK Bus
Coach USA
Rail
Business units closed
Coach USA
Businesses acquired during
year ended 30 April 2006
UK Bus
Businesses disposed
UK Bus – London
New Zealand
October 2005
previously
Reported
£m
Revenue
reclassified
as
“discontinued”
£m
Constant
currency
revenue
growth in
continuing
businesses
£m
270.1
123.2
245.6
638.9
-
28.5
13.3
31.2
73.0
7.6
646.5
-
(5.2)
67.8
6.8
653.3
-
111.0
28.7
793.0
(111.0)
(28.7)
(139.7)
October 2006
before retranslation
(Sub total)
£m
October 2006
(Total)
£m
298.6
136.5
276.8
711.9
11.4%
(3.1)
(3.1)
298.6
133.4
276.8
708.8
10.9%
2.4
714.3
10.5%
(0.1)
(3.2)
2.3
711.1
10.0%
34.2
102.0
41.0
755.3
(3.2)
41.0
752.1
102.0
755.3
(3.2)
752.1
6
10.6%
10.8%
12.7%
Changes in
foreign
currency
exchange
rates
£m
Interim Results 2006
Revenue and margin growth
Divisions
Double-digit revenue growth in all 3 divisions
10.6%
1
UK Bus
North America
10.8%
UK Rail
12.7%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
13.0%
14.0%
% revenue grow th year on year*
Margin as % of revenue**
Operating margin growth in all 3 divisions
13.0%
12.0%
12.3%
12.0%
11.3% 11.2%
11.3%
11.0%
6 mths ended 31 Oct 2006
9.9%
10.0%
6 mths ended 31 Oct 2005
9.0%
8.0%
UK Bus
North America
UK Rail
Divisions
* Constant currency revenue growth excluding impact of businesses acquired, sold and closed
** Operating margin before intangible asset expenses, exceptional items and restructuring costs, excluding impact of businesses
acquired and discontinued operations
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Interim Results 2006
EBITDA
October
2006
£m
UK Bus - excluding Glenvale/Traction
- Glenvale/Traction
North America
Rail
Group overheads & restructuring costs
EBITDA from Group companies before exceptionals*
Virgin Rail Group (share of EBIT)
Other joint ventures and associates (share of EBIT)
Total EBITDA before exceptionals*
52.0
3.2
24.6
34.6
(5.9)
108.5
3.9
1.1
113.5
October
2005
£m
48.0
(0.5)
23.5
27.0
(5.6)
92.4
6.1
Nil
98.5
+17.4%
+15.2%
* excluding disposed operations
8
Interim Results 2006
Movement in net debt
EBITDA from continuing Group companies before exceptionals (slide 8)
EBITDA from discontinued operations
Movement in pension deficit
Working capital and other operating cash movements
Net interest paid
Tax paid
Net capital expenditure including new hire purchase (slide 35)
Acquisitions of businesses, intangibles and investments
Disposals of businesses and investments
Token sales and redemptions
Dividends and loan repayments from joint ventures
Foreign exchange
Net movement in bond issue costs
Reduction in net debt before cash flows with shareholders
Equity dividends
Other share capital movements
Reduction in net debt
Opening net debt
Closing net funds
9
October
2006
£m
108.5
7.7
(60.6)
40.1
(4.0)
(11.4)
80.3
(53.2)
(0.4)
260.6
(2.8)
11.0
8.3
(0.1)
303.7
(28.4)
1.5
276.8
(135.9)
140.9
Interim Results 2006
UK Bus trading results

Revenue growth 22.6% to £339.6m (2005: £276.9m)
 revenue growth 10.6%, excluding acquisitions of Glenvale
and Traction
 new concessionary fare schemes

Like-for-like passenger volume growth 6.1% (see slide 11)
 includes impact of new concessionary fare schemes

Operating margin 11.3% (2005: 11.2%), excluding acquisitions of
Glenvale and Traction

Glenvale and Traction operating profit £0.5m (2005: operating loss
£0.8m)

Disposal of London bus completed August 2006
10
Interim Results 2006
UK Bus revenue development
Glenvale/
Traction
Continuing
£m
2005 revenue as previously reported
%
£m
270.1
%
6.8
Discontinued
£m
111.0
Traction
Nil
n/a
30.3
445.6%
Nil
Disposals in year
Nil
n/a
Nil
n/a
(111.0)
16.4
6.1%
Nil
n/a
Nil
1.7
0.6%
Nil
n/a
Fare increases
12.1
4.5%
Nil
megabus.com (incl impact of services
transferred out to Citylink JV)
(1.7)
(0.6)%
Timing impact of prior year acquisition
Nil
Passenger volumes (incl impact of new
concessionary fare schemes)
Tender wins/ contract amendments
2006 revenue
298.6
%
Total
£m
%
387.9
30.3
7.8%
(111.0)
(28.6)%
n/a
16.4
4.2%
Nil
n/a
1.7
0.4%
n/a
Nil
n/a
12.1
3.1%
Nil
n/a
Nil
n/a
(1.7)
(0.4)%
n/a
3.9
57.3%
Nil
n/a
3.9
1.0%
10.6%
41.0
502.9%
Nil
339.6
(12.5)%
11
n/a
(100.0)%
(100.0)%
Interim Results 2006
UK Bus revenue growth



Stagecoach UK Bus: 10.6% like-for-like revenue growth
Growing share of UK Bus market
Consistent like-for-like revenue growth
Like-for-like revenue growth
UK Bus like-for-like revenue growth (excl. London)
12.0%
10.6%
10.0%
8.0%
5.2%
6.0%
4.0%
6.1%
7.3%
3.0%
2.0%
0.0%
2002/3
2003/4
2004/5
2005/6
12
2006/7 (six
months to
date)
Interim Results 2006
North America trading results

Revenue £135.7m (2005: £130.8m)

10.8% increase in constant currency revenue excluding closed/disposed
business units

Operating margin 12.3% (2005: 12.0%)
 Deploying assets to maximise returns
 Excluding Megabus, operating margin up from 12.0% to 12.8%

Operating profit £16.7m (2005: £15.7m)
 US$31.2m (2005: US$28.3m)
 excellent revenue growth
 strict cost control
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Interim Results 2006
North America
revenue breakdown
by product
Megabus
Scheduled service/Line run/Commuter
Charter
Sightseeing & Tour
School Bus & Contract
Before closed business units
Closed business units
Total
14
October
2006
US$m
October
2005
US$m
2.2
93.9
53.3
55.9
43.9
249.2
4.3
253.5
87.3
47.1
51.9
35.3
221.6
13.8
235.4
% Growth
n/a
7.6%
13.2%
7.7%
24.4%
12.5%
7.7%
Interim Results 2006
Rail trading results
Rail subsidiaries
 Revenue £276.8m (2005: £245.6m), up 12.7%
 Operating profit £31.4m (2005: £24.4m)
 Passenger volumes up 8.5% at SWT
 Revenue and profit share to Department for Transport
£43.0m (2005: £27.8m)
 Bid costs £8.0m (2005: £6.9m)
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Interim Results 2006
Virgin Rail Group (“VRG”)
 Share of profit after finance income and tax £3.7m (2005:
£4.5m)
 Significant progress on agreeing long-term commercial
arrangements for West Coast
 CrossCountry
 Current contract ends on 10 November 2007
 VRG invited to tender for New CrossCountry franchise
16
Interim Results 2006
Taxation
October 2006
Pre intangibles and exceptionals*
Exceptional items
Intangible asset expenses
Results for the period*
Cash tax paid (net)
Pre-tax
Profit
£m
Tax
£m
79.6
27.4
(7.5)
99.5
(20.7)
(6.4)
1.5
(25.6)
Effective
Rate
%
26.0%
23.4%
20.0%
25.7%
11.4
* Adjusted for share of VRG’s tax, classified within operating profit under IFRS
Excludes discontinued operations and any exceptional items relating to these discontinued operations
17
Interim Results 2006
Pensions
 Significant reduction in retirement benefit obligations
 £144.3m (30 April 2006: £222.2m)
 £22.8m exceptional past service credit reduces IAS19
pension liability
 £57.0m of additional contributions reduces IAS19
pension liability
 Rail pension schemes: under IFRS, only the part of the
deficit that we expect to fund is recognised
 Changes to schemes
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Interim Results 2006
Balance sheet & financing
 Net funds+ £140.9m ( October 2005: net debt £208.9m)
 EBITDA*/finance charges cover 32.9 times (2005: 8.7 times)
 Continuing management objective to optimise capital
structure
 Proposed return of value of no less than £400m
 Shareholders to participate pro-rata to ordinary
shareholdings
 Ordinary share consolidation
 £50.0m pension contribution agreed in principle
+ UK
GAAP definition
* from continuing group companies, before exceptional items
19
Interim Results 2006
Brian Souter
Chief Executive
20
Interim Results 2006
Group strategic objectives
 Key 5 year strategic objectives achieved
– Restructuring of North American operations
– Repositioning of UK Bus
– Retention of South Western rail franchise
– Organic growth in core operations
21
Interim Results 2006
Group strategy
Quality operations driving strong results
Excellent
operational
performance
↓
Strong
financial
results
 Bus operator of the Year – second year running
 South West Trains punctuality consistently
above 90%
 Improved punctuality at Virgin Rail Group
 UK Bus reliability 99.5%*




Adjusted EPS up 7.4%
Revenue from continuing operations* up 10.0%
Absorbing increased fuel costs
Interim dividend up 9.1%
* excluding acquired Glenvale and Traction operations
22
Interim Results 2006
UK Bus
Drivers of continued strong performance

Entrepreneurial expertise and investment focused on regional bus
operations

Strong partnerships with public sector (e.g. Kickstart successes)

Marketing strategies generating growth

Acquisition integration on target at Glenvale and Traction Group

Concessionary travel schemes

Strong like-for-like volume growth
23
Interim Results 2006
Group strategy
UK Bus passenger volume growth
Passenger volume growth by operating
company – excluding London
October 2006 v October 2005
Overall passenger growth 6.1%
> 10%
6 - 10%
0 - 5%
24
Interim Results 2006
Group strategy – Rail
 Deliver on commitments and opportunities in South
Western and West Coast Mainline franchises
 Opportunities to expand rail portfolio
– East Midlands
– New CrossCountry franchise (at Virgin Rail Group)
 Further development of megatrain.com
25
Interim Results 2006
Group strategy – North America
 Revenue and margin growth
– Core scheduled services
– Contract wins
– Capitalise on continued strong leisure bounceback
 New product development and improved marketing
– megabus.com
– Launch of New York Duck Tours
– Web-based sales
26
Interim Results 2006
Current trading and outlook
 Current trading in line with our expectations
 Continued focus on organic growth and bolt-on acquisitions
in UK and North American bus markets
 Evaluate opportunities for new rail franchises
 Good potential for further growth
27
Interim Results 2006
Interim Results
6 December 2006
Interim Results 2006
Appendices
29
Interim Results 2006
North America revenue development
2005 revenue
Ongoing
business units
US$m
Closed/
disposed units
US$m
Total
US$m
221.6
13.8
235.4
Year on year impact of
closed/disposed business units
Nil
(9.5)
(9.5)
US$/C$ currency impact
3.7
Nil
3.7
23.9
Nil
23.9
249.2
4.3
253.5
Underlying growth
2006 revenue
30
Interim Results 2006
Rail revenue development
£m
2005 revenue
%
245.6
SWT Passenger volumes
20.4
8.3%
SWT Fares/yield
8.2
3.3%
SWT Other
1.8
0.7%
Island Line/Supertram
0.8
0.3%
276.8
12.7%
2006 revenue
31
Interim Results 2006
Finance charges ratios
October
2006
£m
Finance charges (net)*
October
2005
£m
3.3
10.6
EBITDA from continuing Group companies, preexceptionals* (slide 8)
108.5
92.4
EBITDA from continuing Group companies, preexceptionals*/finance charges*
32.9 times
8.7 times
* UK GAAP definition
32
Interim Results 2006
Finance charges
Average
balance*
£m
Gross debt & related derivatives
Interest bearing cash balances
337.0
265.0
Non-utilisation/commitment fees
Amortisation of bond issue costs/bank charges
Insurance letters of credit
Discount on insurance provisions
Other
Finance
charges
£m
8.0
(6.5)
1.5
0.5
0.1
0.4
1.4
(0.6)
3.3
Annual
effective rate
%
4.7%
4.9%
*Average of month end debt/cash balances
33
Interim Results 2006
Fuel hedging
6 months to 6 months to
31 October
30 April
2006
2007
% of Group fuel hedged
Forecast
2007/08
Forecast
2008/09
- fixed
20%
19%
Nil
Nil
- cap/floor
76%
77%
52%
45%
US$50
US$60
n/a
n/a
Average hedge price (crude price US$/barrel) - fixed
- cap/floor
US$83/US$54 US$83/US$54
US$83/US$54 US$83/US$54
• The Group’s UK Bus and North American bus operations consume the equivalent of 1.6m barrels
of fuel a year
• Each US$10 per barrel movement in crude oil price impacts variable fuel costs by approximately
US$16m if no hedging in place
• Amounts shown for future periods exclude London bus operations
34
Interim Results 2006
Capital expenditure
Cash
spent on
capex*
£m
UK Bus
North America
Rail
Capex on
new hire
purchase
£m
32.2
32.2
11.7
8.5
1.9
22.1
Impact of
capex on
net debt
£m
43.9
8.5
1.9
54.3
Disposal
proceeds**
£m
(0.7)
(0.4)
(1.1)
Net
£m
43.2
8.1
1.9
53.2
* Excludes capitalised intangible assets of £0.1m and additions made as part of business combinations
** Excludes proceeds from selling businesses
35
Interim Results 2006
Exchange rates
October 2006
Closing rate
US$
NZ$
C$
Average rate
1.9073
n/a
2.1370
1.8687
n/a
2.0914
36
October 2005
Closing rate
1.7703
2.5295
2.0881
Average rate
1.7989
2.5706
2.1836
Interim Results 2006
Interim Results
6 December 2006
Interim Results 2006