Transcript Document

Annual Results
22nd June 2005
1
Annual Results 2005
Robert Speirs
Chairman
2
Annual Results 2005
Highlights

Strong set of full year results
 Headline earnings per share up 34.3%
 Organic growth in bus and rail operations in UK and overseas
 Innovative growth ideas fuelling good underlying performance
at UK Bus – operating margin maintained
 Strong revenue and passenger growth at South West Trains –
profits ahead of original expectations
 Strong growth in North American operations with operating
margin up from 4.4% to 6.7%

Final dividend of 2.3p per share (giving full year dividend of 3.3p
(2004: 2.9p) – up 13.8%)

Shortlisted for Greater Western,Thameslink/Great Northern and
Integrated Kent rail franchises
3
Annual Results 2005
Martin Griffiths
Finance Director
4
Annual Results 2005
Financial Highlights

Turnover from continuing businesses up 8.9%
 £1,787.6m (2004: £1,641.1m)
 Up 9.9% at constant exchange rates

Group operating margin enhancement in continuing divisions*
2005
%
2004
%
Before goodwill amortisation
and restructuring costs
8.8%
8.4%
Including goodwill amortisation
and restructuring costs
7.5%
7.0%
* Excluding disposed Citybus, Road King and Trainline businesses but including all of North America;
before exceptional items
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Annual Results 2005
Financial Summary
30 April
2005
£m
30 April
2004
£m
Turnover
1,794.7
1,792.3
- continuing operations
1,787.6
1,641.1
132.8
129.7
156.7
147.5
Profit before tax
108.3
95.8
- pre goodwill & exceptionals
136.8
120.2
Free cash flow**
173.6
209.5
Total operating profit*
- pre goodwill & exceptionals*
(after restructuring costs)
Adjusted earnings per share
9.0p
6.7p
Dividend per share
3.3p
2.9p
* After restructuring costs of £1.4m (2004: £7.2m)
** Free cash flow comprises net cash inflow from operating activities, dividends from joint ventures and
associates, net cash (outflow)/inflow from returns on investments and servicing of finance, and taxation.
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Annual Results 2005
EBITDA
UK Bus
North America - continuing
- discontinued
New Zealand
Rail
Virgin Rail Group
Citybus
thetrainline
Road King
Others
Overheads & restructuring
EBITDA before exceptionals
30 April
2005
£m
30 April
2004
£m
127.6
30.1
(0.7)
13.3
52.0
12.7
Nil
Nil
Nil
(0.4)
234.6
(10.2)
224.4
117.6
26.0
4.1
14.9
46.4
13.5
3.4
(2.4)
7.0
(0.4)
230.1
(15.4)
214.7
Note: The split of EBITDA between continuing and discontinued for North America is an approximation. The EBITDA
from the discontinued element of North America cannot be accurately determined because it is not clearly
distinguishable due to certain shared costs that relate to North America as a whole.
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Annual Results 2005
Management Action

Strong results reflect benefits of local management actions

Profit and margin improvement

Underlying profit improvements offset above inflation cost
pressures:
 Fuel costs up approximately £15m*
 Pension costs up £5.7m*
* In continuing operations
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Annual Results 2005
Movement in Net Debt
£m
Net cash inflow from operating activities
Cash received re joint ventures
Net interest paid
Taxation
Net capital expenditure including new hire purchase finance
Acquisitions of businesses and other investments
Sale of businesses and other investments
Token sales and redemptions
Foreign exchange
Reduction in net debt before cashflows with shareholders
Repurchase of ‘B’ shares
Equity and non-equity dividends
Other share capital movements
Increase in net debt
Opening net debt
Closing net debt
9
198.5
30.2
(20.9)
(27.1)
(92.9)
(6.1)
15.3
(0.7)
12.2
108.5
(227.4)
(37.6)
9.5
(147.0)
(67.6)
(214.6)
Annual Results 2005
UK Bus Trading Results
 Turnover growth 10.8% to £720.3m (2004: £650.2m)
 Underlying passenger growth of 1.5% outside London
 turnover growth 7.1%
 Strong contribution from London companies
 turnover growth 21.0%
 Maintained operating margin*
 Overall operating margin 11.5%
 Outside London, 12.2% versus 12.1% in 2004
* References to the operating profit or operating margin of a particular business throughout this
presentation mean operating profit (or operating margin) before goodwill amortisation, exceptional items and
restructuring costs
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Annual Results 2005
UK Bus Profit Analysis
30 April 2005
£m
Turnover
Operating profit before lease costs,
megabus.com & taxibus
Margin
Operating lease costs
Saving in depreciation arising from
operating leases
Operating profit before megabus.com & taxibus
Margin
megabus.com & taxibus
Reported operating profit
Reported operating margin
11
720.3
90.4
30 April 2004
£m
650.2
79.6
12.6%
(8.3)
12.2%
(5.0)
3.6
85.7
11.9%
(3.2)
82.5
2.0
76.6
11.8%
(1.8)
74.8
11.5%
11.5%
Annual Results 2005
North America Trading Results
 Turnover £220.8m (2004: £336.8m)
 12.7% increase in US$ turnover from continuing operations
 Operating margin up from 4.4% to 6.7%
 Operating profit £14.8m (2004: £14.8m)
 US$27.4m (2004: US$25.4m)
 excellent revenue growth
 strict cost control
 overhead reduction
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Annual Results 2005
North America Continuing
Turnover Breakdown
By Product
Scheduled service/Line run/Commuter
Charter
Sightseeing & Tour
School Bus & Contract
Total
13
30 April
2005
US$m
30 April
2004
US$m
% Growth
162.6
87.6
75.2
70.6
396.0
150.9
74.4
59.5
66.5
351.3
7.8%
17.7%
26.4%
6.2%
12.7%
Annual Results 2005
North America Operating Profit
30 April
2005
US$m
30 April
2004
US$m
Change
US$m
396.0
351.3
44.7
12.7%
13.1
225.1
(212.0)
(94.2%)
409.1
576.4
(167.3)
(29.0%)
- continuing businesses (normalised)
34.0
24.5
9.5
- continuing businesses (revised
residual values)
(5.0)
Nil
(5.0)
-
- discontinued businesses
(1.6)
0.9
(2.5)
(277.8%)
27.4
25.4
2.0
Turnover - continuing
- discontinued
Change
%
Operating profit
38.8%
7.9%
Operating margin
- continuing businesses (normalised)
Note:
8.6%
7.0%
These numbers are intended to provide an approximate indication of operating margin from continuing businesses. The operating
profit from the discontinued element of North America cannot be accurately determined because it is not clearly distinguishable due
to certain shared costs that relate to North America as a whole.
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Annual Results 2005
New Zealand Trading Results
 Turnover £59.0m (2004: £58.3m)
 Underlying revenue similar to last year (excluding currency
movements)
 Operating profit £8.7m (2004: £10.7m)
 NZ$23.7m (2004: NZ$29.5m)
 Operating margin 14.7% (2004: 18.4%)
 Increased rail competition
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Annual Results 2005
Rail Trading Results
Rail Subsidiaries
 First full year of new South West Trains franchise
 Turnover £479.4m (2004: £438.9m)
 Operating profit £48.6m (2004: £44.1m)
 ahead of original expectations
 Passenger volumes up 4.8% at SWT
 Revenue and profit share to SRA £46.0m (2004: £27.9m)
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Annual Results 2005
Virgin Rail Group

Share of turnover £315.2m (2004: £288.4m)

Share of operating profit £12.7m (2004: £13.5m)

Committed to agreeing new long-term commercial arrangements
on West Coast

Awaiting decision on SRA’s plans for future of CrossCountry

Budget imposed by SRA for year to 4 March 2006
 Claims for additional subsidy expected
17
Annual Results 2005
Taxation
2005
Pre-tax
£m
136.8
(6.0)
(22.5)
108.3
Pre goodwill and exceptionals
Exceptional items
Goodwill amortisation
Result for the year
Cash tax paid (net)
Tax
£m
(32.2)
1.6
1.1
(29.5)
%
23.5%
26.7%
4.9%
27.2%
27.1
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Annual Results 2005
Pensions

Increased employer and employee contributions

£38.6m total pension costs (2004: £32.9m)

£38.0m cash paid (2004: £36.2m)

FRS17 post-tax deficit of £148.0m for UK Bus/Group
 Up £32.2m from £115.8m

Rail pension schemes: under IFRS, will recognise only that
part of the deficit we are obliged to fund

Financial support in SWT franchise allows for cost of funding
the deficit for SWT

Managed as part of overall cost base
19
Annual Results 2005
Balance Sheet & Financing
 Net debt £214.6m (2004: £67.6m)
 Excluding redeemed ‘B’ shares, net debt decreased by
£80.4m

Outstanding ‘B’ shares £13.9m
 Investment grade credit rating

Significant bank funding support and flexibility

EBITDA*/Interest cover 11.3 times

Net Debt/EBITDA* 1.0 times

Progressive dividend policy
* Before exceptional items
20
Annual Results 2005
International Financial
Reporting Standards (“IFRS”)

First IFRS results: six months to 31 October 2005, with comparatives

Most significant adjustments will be:
- Pensions
- Goodwill
- Share-based payment
- Dividends
- ‘B’ Shares
- Other financial instruments

Many other less significant areas
21
Annual Results 2005
Brian Souter
Chief Executive
22
Annual Results 2005
Group Strategy
Delivering shareholder value through:
 Organic growth in UK and overseas bus businesses
 New products
 New policies with other stakeholders
 New people
 Railway development strategy
 Successful portfolio
 Management succession in place
 Strong and experienced bid team
 Exciting refranchising opportunities
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Annual Results 2005
Growth in UK Bus

Products
 Minibus strategy
 Telemarketing
 megabus
 Optical guidance

Policies
 Targeted investment
 Kick Start: Thanet, Chesterfield,
Cheltenham
 Local Government relations

People
 New emphasis on marketing
 Company size
 Local relationships
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Annual Results 2005
Growth in overseas bus
North America

Organic revenue growth
 Charter


 Line run
Product development – investment in New York Sightseeing
Ongoing strategy has potential for further margin development
New Zealand

Organic growth in Wellington

Rationalisation in Auckland
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Annual Results 2005
Growth in UK rail
 New commercial deal on Virgin West Coast on
acceptable risk profile
 Cost reduction at existing franchises
 Retention of SWT and Virgin CrossCountry
 Shortlisted for Greater Western,Thameslink/Great
Northern and Integrated Kent franchises
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Annual Results 2005
Current Trading and Outlook
 Strong trading performance across the Group
 Current trading in line with our expectations
 Fuel cost pressures
 Organic growth opportunities
 Improving profitability from emerging products
such as megabus
 Progressive dividend growth
 Group’s portfolio offers good potential for further
growth
27
Annual Results 2005
Annual Results
22nd June 2005
28
Annual Results 2005
Appendices
29
Annual Results 2005
UK Bus Revenue Development
London
Outwith London
£m
2003/04 turnover
Passenger volumes
Tender wins/
contract amendments
%
£m
171.7
Nil
%
478.5
-
UK Bus
£m
%
650.2
7.2
1.5%
7.2
1.1%
32.7
19.0%
2.9
0.6%
35.6
5.5%
Fare increases
2.6
1.5%
19.1
4.0%
21.7
3.3%
megabus.com
0.8
0.5%
4.8
1.0%
5.6
0.9%
207.8
21.0%
512.5
7.1%
720.3
10.8%
2004/05 turnover
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Annual Results 2005
UK Bus - London/Other
30 April 2005
30 April 2004
Operating
Profit
£m
Operating
Profit
£m
Turnover
£m
Operating
Margin
%
Operating
Turnover
£m
Margin
%
London
207.8
19.9
9.6% 171.7
16.7
9.7%
Other
512.5
62.6
12.2% 478.5
58.1
12.1%
720.3
82.5
11.5% 650.2
74.8
11.5%
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Annual Results 2005
North America
Revenue Development
Continuing
US$m
Discontinued
US$m
Total
US$m
351.3
225.1
576.4
Impact of disposals and
other movements on discontinued turnover
Nil
(212.0)
(212.0)
US$/C$ currency impact
2.7
Nil
2.7
39.6
Nil
39.6
2.4
Nil
2.4
2003/04 turnover
Underlying growth
Acquisitions
2004/05 turnover
396.0
32
13.1
409.1
Annual Results 2005
Turnover of North American
business by Region and Product
2005
North
East
US$m
2004
North
East
US$m
2005
North
Central
US$m
118.0
113.1
22.4
18.4
22.2
Charter
21.3
20.8
40.6
35.4
Sightseeing & Tour
55.7
42.6
17.2
School Bus & Contract
27.6
23.4
222.6
199.9
Scheduled service/
Line run/Commuter
Total Turnover
2004
North
2005
2004
Central Canada Canada
US$m US$m
US$m
2005
Total
US$m
2004
Total
US$m
19.4
162.6
150.9
25.7
18.2
87.6
74.4
15.4
2.3
1.5
75.2
59.5
40.0
40.4
3.0
2.7
70.6
66.5
120.2
109.6
53.2
41.8
396.0
351.3
Note: The above figures relate to turnover from the continuing elements of the three core
regions of North America
Annual Results 2005
33
Overseas Bus Revenue Development
2003/04 Turnover
Disposal of Citybus
Currency movements
Passenger volumes
Fare increases
2004/05 Turnover
34
Citybus
£m
New
Zealand
£m
17.8
(17.8)
Nil
Nil
58.3
0.8
(0.7)
0.6
59.0
Total
£m
76.1
(17.8)
0.8
(0.7)
0.6
59.0
Annual Results 2005
Rail Revenue Development
£m
2003/04 turnover
%
438.9
SWT Passenger volumes
20.3
4.6%
SWT Fares/yield
18.4
4.2%
SWT Other
1.0
0.2%
Island Line/Supertram
0.8
0.2%
479.4
9.2%
2004/05 turnover
35
Annual Results 2005
Interest/Debt Ratios
30 April
2005
£m
Finance charges (net)
EBITDA pre-exceptionals
EBITDA pre-exceptionals/finance charges
Net Debt/EBITDA
36
30 April
2004
£m
19.9
27.3
224.4
214.7
11.3 times
7.9 times
1.0 times
0.3 times
Annual Results 2005
Finance Charges
Average
balance*
£m
480
(310)
170
Gross debt & related derivatives
Cash on deposit
Joint ventures & associates
Non-utilisation/commitment fees
Amortisation of bond issue costs/bank charges
Insurance letters of credit
Discount on insurance provisions
Other
*Average of month end debt/interest earning £
and $ cash balances
37
Finance
charges
£m
29.2
(12.8)
16.4
(2.4)
0.7
0.8
1.0
3.2
0.2
19.9
Annual
Effective rate
%
6.1%
4.1%
9.6%
Annual Results 2005
Fuel Hedging
Actual
2003/04
Actual
2004/05
Forecast
2005/06
Forecast
2006/07
% of Group fuel hedged/capped at present
100%
97%
85%
0%
Average hedge price US$/barrel
US$24
US$35
US$48
1.71
1.85
1.85
1.85
Average unhedged crude price US$/barrel
US$32
US$50
US$55
US$55
Crude oil fuel costs of continuing businesses
(total volume times crude price)
£25m
£35m
£49m
£55m
Total Fuel Cost
(includes cap premiums/diesel
margin/tax/delivery)
£58m
£72m
£88m
£95m
Average US$/£ rate
n/a
Continuing Bus divisions use 1.84m barrels of fuel a year (290m litres)
Each US$10 per barrel movement in crude oil price impacts variable fuel costs by
approximately US$18m if no hedging in place
38
Annual Results 2005
Fuel Usage and Impact of Crude Price
Annual
Usage
barrels
US$ variable
costs based
on $45
a barrel
US$ variable
costs based
on $55
a barrel
193m
1.2m
$54.0m
$66.0m
North America
75m
0.5m
$22.5m
$27.5m
New Zealand
22m
0.14m
$6.4m
$7.7m
290m
1.84m
$82.9m
$101.2m
Annual
Usage
litres
UK Bus
39
Annual Results 2005
Capital Expenditure
UK Bus
North America
New Zealand
Rail
Cash
spent on
capex
£m
Capex on
new hire
purchase
£m
Impact of
capex on
net debt
£m
30.2
27.7
10.6
5.3
73.8
26.2
26.2
56.4
27.7
10.6
5.3
100.0
Disposal
proceeds*
£m
(6.0)
(0.9)
(0.2)
(7.1)
Net
£m
50.4
26.8
10.4
5.3
92.9
*Excludes proceeds from selling businesses
Note: In addition to the above, vehicles with a capital value of £25.1m were acquired by UK
Bus during the year on operating leases (2004: £16.6m)
40
Annual Results 2005
Exchange Rates
April 2005
US$
NZ$
C$
Closing rate
Average rate
1.9099
2.6088
2.3969
1.8530
2.7240
2.3621
41
April 2004
Closing rate
1.7734
2.8350
2.4388
Average rate
1.7115
2.7600
2.2985
Annual Results 2005
Annual Results
22nd June 2005
42
Annual Results 2005