Final Results

RNS Number : 4115K

Rotala PLC

22 April 2020

 

22 April 2020

Rotala plc

("Rotala", the "Company" or the "Group")

Final audited results for the year ended 30 November 2019

Rotala plc (AIM:ROL), a provider of transport solutions across the UK, is pleased to announce its audited results for the year ended 30 November 2019.

Highlights

· Turnover of £67.5 million (2018: £62.4 million), up 8%

· Adjusted EBITDA* of £10.4 million (2018: £8.8 million), up 18%

· Adjusted operating profit* of £6.05 million (2018: £5.8 million), up 5%

· Adjusted profit before taxation* up 4% to £4.42 million (2018: £4.23 million)

· Adjusted basic earnings per share* up 2% to 7.35p per share (2018: 7.22p)

*before mark to market provision, acquisition related costs and other exceptional items further described in note 3 to this announcement below

For further information please contact:

Rotala Plc	0121 322 2222
John Gunn, Chairman Simon Dunn, Chief Executive Kim Taylor, Group Finance Director
Nominated Adviser and Broker: Cenkos Securities plc	020 7397 8900
Stephen Keys/ Callum Davidson (Corporate Finance) Michael Johnson/Julian Morse (Corporate Broking)

About the business:

Rotala provides a range of transport solutions, from local bus services under contract to local authorities, to commercial bus routes. Rotala has operations at Heathrow Airport, in the West Midlands and the North West of England.

CHAIRMAN'S STATEMENT AND REVIEW OF OPERATIONS

Chairman's Statement and Review of Operations

I am pleased to be able to make this report to the shareholders of Rotala Plc for the year ended 30 November 2019.  In the year t he Company made a key acquisition in Greater Manchester which will in a full year considerably enlarge the revenues of the Group. Before the onset of the Coronavirus crisis Rotala was continuing to make good progress and to show the benefits of our stated acquisition strategy. At the time of writing this statement however the increasing seriousness of the Coronavirus epidemic, and the UK Government's response to it, have put such considerations on hold. 

Results and review of trading

Revenues for the Group for the year ended 30 November 2019 were £67.5 million. This represents an increase of 8% on the revenues of £62.4 million achieved in the previous year. Gross margin remained steady at 20.0%. Pre-tax profits before exceptional items rose by 4% to £4.42 million (2018: £4.23 million). 

·     Contracted Services

Revenues in the Contracted Services division fell overall by 6% to £20.2 million (2018: £21.6 million). Contracted Services represented 30% of Group revenues in this year (2018: 35%). The acquisition in Bolton, which was exclusively a commercial bus business, fell in its entirety into the Commercial Services division of the Group and so, relatively speaking, decreased the contribution made by Contracted Services to Group revenues.

In this division revenues come under two broad headings: corporate contracts and local authority bus contracts. Corporate contracts comprise only about a third of the revenues of the division and the most important component part of these revenues is our airline business around Heathrow airport. This is a highly competitive market in which bids for contracts are often made at unsustainable prices. As a matter of principle we always tender for contracts at prices which will ensure that the work we do contributes to Group profitability. Consequently a number of airline contracts were not renewed this year and revenues from this source declined year on year.

In contrast revenues from local authority bus contracts continue to grow, as they have done consistently since the low point reached in 2013 at the height of the Government's public sector finance cuts. This used to be the arena for the family-owned and run bus business. However the ever increasing demands and complexities of running a bus business seem to have caused many of these smaller businesses to withdraw from this part of the market in recent years. This has helped us increase our market share in Preston and the West Midlands.  In the latter region it will be recalled that we have made a number of acquisitions in the last few years with the precise objective of obtaining a greater share of the contracted bus market. We have therefore continued to be able to increase our revenues from this source and revenues from local authority contracts now form two thirds of the revenues in the Contracted Services division.

The recent Government announcement of its intention to invest considerable sums in bus transport should bode well for this sector of our business in particular. 

· Commercial Services

Revenues in the Commercial Services division grew by 18% in 2019 to reach £45.8 million for the year (2018: £38.9 million). Commercial Services comprised 68% of Group revenues in 2019, compared to 62% in 2018. The increased revenue in this division, and so also its increased contribution to Group revenues, resulted largely from the acquisition in August 2019 of part of  the commercial bus business of First Manchester Limited ("First"). The business acquired operates from a large depot in Bolton, Greater Manchester, which we also purchased. The business is an exclusively commercial bus operation servicing some 18 bus routes in Bolton, Bury and into the centre of Manchester. Its contribution to the current year revenues of the Group was limited by the date of the business purchase . However this acquisition will in time move the North West region of the Group into being its single largest component and also propelled the Group into being the Number 2 bus operator in the Greater Manchester conurbation. The Group remains the second largest bus operator in the West Midlands. Here revenues were stable year on year, as they were also at our Preston and Heathrow depots. We have made considerable investment in the Commercial Services division over the last six years. It is pleasing to be able to report that revenues in the division have as a result grown by almost 50% in that period.  

· Charter Services

Charter Services are becoming a more minor part of Group revenues as our focus is increasingly on Commercial and Contracted services. Where we have capacity we continue to look for private hire work which will maximize the usage of the vehicles in the fleet, but this capacity is at a lower level than in previous years. Consequently in the year revenues in Charter Services fell to £1.47 million (2018: £1.9 million) and now form only 2% of Group revenues (2018: 3%). Most of these revenues come from private hire work serviced by our Heathrow depots. 

Acquisition

As I have set out above, in August 2019 the Group acquired from First a commercial bus business operating from a large depot in Bolton. We also acquired the freehold of the depot and its associated plant and machinery. The consideration paid for the acquisition was £5.4 million in cash.

The annual turnover of the business is approximately £25 million, and so, given the date of the acquisition, the Group results will only begin to reflect the full impact of the acquisition in the year ending 30 November 2020.  The Bolton depot covers an area of 6.7 acres and consists largely of a combination of freehold and very long leasehold interests. The depot is a purpose-built bus depot, constructed about 15 years ago, capable of operating up to 200 vehicles. Approximately 500 staff transferred to Rotala with the business.

The aim of the acquisition was to strengthen significantly Rotala's operations in the Greater Manchester area. After London, Manchester represents one of the largest bus markets in the country, on a par with the West Midlands where Rotala already has a significant presence. The acquisition enabled Rotala to move from being a small player in the Greater Manchester bus market to the Number 2 bus operator in that region. The Bolton depot has also become the headquarters of the Group in the North West and the existing operations of the Group in the region have been completely re-organised with the objective of making full use of the facilities and capacity of the Bolton depot. The Group already had two smaller depots in Greater Manchester, in Eccles and Atherton, operating approximately 90 vehicles. The Atherton depot has been sold, subject to contract, and the vehicles formerly based there have been redeployed to Bolton and Eccles. Bolton has furthermore become the national driver training centre for the entire Group. This re-organisation will in time enable Rotala to extract all the synergy benefits which were identified in making the acquisition, and facilitate the operation in the most efficient manner possible of the Group's expanded services in the Greater Manchester area. 

We did not acquire any vehicles with the acquisition of this business. Instead, under the terms of a separate vehicle leasing agreement, we agreed with First to lease from it 125 of the vehicles which were used at the time of the acquisition to service the 18 commercial bus routes which formed the acquired business. These vehicles are being progressively replaced with modern vehicles which meet the latest air quality standards. Thus, by 30 June 2021, all the leased vehicles will have been returned to First. Immediately on making the acquisition the Board decided to acquire for it 13 new double deck buses in order to avoid taking on a matching number of leased vehicles from First. After further careful evaluation the Board has since placed orders for 130 new vehicles at a total capital cost of £25.5 million. This step is in accordance with the plan which we set out at the time of the acquisition. This capital expenditure is spread over the next two accounting periods and will be financed using the Group's existing panel of hire purchase finance providers. Crucially these new vehicles will more than justify their acquisition through significantly lower fuel consumption and other operating cost savings. 

Fleet management

Aside from the action taken on the fleet inherited with the Bolton acquisition, we have continued to be active this year in reshaping the Group's bus fleet to match changing needs. In my statement last year I reported that, at that stage of the year, we had already acquired 20 new single deck buses for our West Midlands operation. We added a further 13 for various parts of the Group later in the year. In addition we acquired another 23 of the Mercedes van-based small buses which I described in detail last year. These vehicles have proved very useful on the narrow roads often found in street grids laid out in the 19^th century. They are also well liked by passengers and drivers and we now have 38 of them. These bus acquisitions enabled us to dispose of a matching number of older vehicles. Consequently the average age of the fleet (excluding the vehicles being leased for the short term from First) fell to about 8.65 years (2018: 9.42 years).

You will be well aware that there is considerable pressure nationally to meet air quality targets and we therefore expect to continue to upgrade the bus fleet, as we have done in the West Midlands and are doing in Bolton. However all the new vehicles we are acquiring meet the Low Emission Bus standards and so qualify for the enhanced rates of Bus Services Operator's Grant. They are also much more fuel efficient and enjoy lower maintenance costs than the older vehicles that they are replacing. Therefore we do not anticipate that these fleet changes will have a material impact on our business. We will thus continue to manage the fleet actively in accordance with our policies and this will no doubt result in an on-going level of vehicle acquisition and disposal.

When acquiring any vehicle new to the fleet we are acutely conscious of its emission standards and relative fuel consumption. We believe that having a modern and efficient bus fleet is a key aspect of customer service. Management monitors each vehicle in the fleet for relative fuel consumption, reliability and maintenance cost. Older vehicles also produce a greater level of emissions and we are keen to minimise this aspect of bus operation. Those vehicles that fall outside of acceptable parameters are designated for disposal. 

Group Strategy

Whilst the Bus Services Act 2017 continues to have its impact, the Government has very recently announced that it will provide £5 billion of new funding to overhaul bus and cycle links for every region outside London. The details of this programme will be set out in a Government paper on its National Bus Strategy later this year, as part of the Comprehensive Spending Review. The package of investment will boost bus services by focusing on a range of priorities including:

· Higher frequency services (including evenings and weekends);

· More "turn up and go" routes;

· Bus priority schemes to improve punctuality;

· More affordable and simpler fares;

· More than 4,000 new Zero Emission buses.

 All this investment is very welcome after a ten year period in which Government had been steadily reducing its direct and indirect support for bus services. As I have had to report in the past, these reductions had a considerable negative impact on your company. Nevertheless we now appear to be entering a new era for bus transport with renewed and enhanced Government support for a key part of the country's transport network. We welcome this announcement and look forward to working closely with Local and National Government in making a success of these new initiatives. We do not believe at this stage that these moves mean any modification is required to the business strategy of the Group. The Government's investment is specifically not focused on London, where we have no commercial bus operations. Our focus is on the West Midlands and the North West. In the West Midlands we have now negotiated three route partnerships under the auspices of Transport for the West Midlands ("TfWM"). These partnerships have produced the expected benefit for passengers in the ability to catch any bus and also for ourselves in lowering operating costs and increasing bus loadings with no reduction in overall revenues.  

In Greater Manchester, Transport for Greater Manchester ("TfGM") has recently closed its consultation period on the refranchising of the bus network under the Bus Services Act 2017 and is digesting the various responses it has received to its refranchising proposals. At the present time the outcome of the consultation process is unknown and the next steps are consequently unclear. 

Dividend

As the Company matures I expect the dividend to be progressive. The board is conscious of the importance of dividend flows to shareholders and has set a target dividend cover of 2.5 times earnings, to match underlying earnings and free cash flows.

The Company paid an interim dividend of 0.95 pence per share in December 2019. Before the advent of the Coronavirus crisis the directors intended to propose a final dividend for the year of 1.95p per share to the Annual General Meeting ("AGM"). However the directors believe that in the current circumstances it would be imprudent to propose any final dividend to the AGM. The board will consider at an appropriate time in the future whether it may be possible to pay a special interim dividend to replace the abandoned final dividend for 2019. In respect of 2018, interim and final dividends totalling 2.70 pence per share were paid.

Fuel hedging

The annual fuel requirement of the Group is approximately 14.0 million litres .  In drawing up its budgets the Board has targeted an average fuel price of about 100p a litre . When opportunities have arisen to hedge the fuel requirements of the Group at this price level the Board has taken out a number of fuel hedge contracts, using diesel derivatives. As a result about 77% of the Group's fuel requirement for 2020 is covered by hedging contracts, at an average price of 100p per litre , and about 87% of the fuel requirement for 2021, at a similar price.

The Board will continue to monitor market conditions closely and take out such further fuel hedges as it deems are appropriate to meet its objective of reducing volatility in its costs and creating business certainty.

Financial review

Income statement

The Consolidated Income Statement is set out below. This section of the review addresses the results for continuing operations before the mark to market provision for fuel derivatives and other exceptional items.  Revenues for the year rose by 8% compared to those of 2018. This increase was principally driven by the acquisition made in Bolton at the end of the third quarter. Cost of Sales also rose by 8%. Gross Profits increased by 9%, whilst the gross profit margin remained the same as last year at 20.0%. Administrative expenses increased by 13% as a result of the general expansion in the size of the Group and the Government-mandated increased defined contribution pension costs. Profit from Operations grew to £6.05 million (2018: £5.76 million), an increase of 5% on the previous year. As a consequence EBITDA before exceptional items (defined as Profit from Operations before exceptional items plus depreciation) rose by 18% to £10.4 million (2018: £8.8 million). Finance expense however rose by 10%, reflecting the increased bank and HP borrowings used to finance the Bolton acquisition and then the start made on re-equipping it. Profit before taxation before exceptional items therefore rose by 4% when compared to the previous year to £4.42 million (2018: £4.23 million).

The exceptional items represented by the mark to market provision on fuel derivatives and other exceptional costs are analysed in detail below. As can be seen from this note the principal components of the exceptional item caption this year are acquisition costs, reorganisation and integration expense caused by the acquisition, and intangible asset amortisation. Profit from Operations after exceptional items was £4.25 million, compared to £5.18 million in 2018, a fall of 18% caused by the exceptional costs already highlighted above. Profit before Taxation and after exceptional items also fell for the same reason, to £2.61 million (2018: £3.65 million).

As a result of the share issues during the year the weighted average number of shares in issue rose slightly to 48.7 million, but the major adverse impact on earnings per share came from the Government's recent decision not to reduce the rate of corporation tax to 17% in 2020, but instead to keep that rate at 19%, and the concomitant effect on the deferred tax provision.

As a result of the factors set out above basic earnings per share in 2019, after all exceptional items, fell by 17% to 4.00p per share (2018: 4.81p). However the impact of exceptional items in particular makes the basic earnings per share numbers very difficult to understand. A better guide to true comparability is to consider the adjusted basic earnings per share numbers. Adjusted basic earnings per share (before all exceptional items) were 7.35p in 2019, compared to 7.22p in 2018, an increase of 2% year on year. 

Balance sheet

The gross assets of the Group grew by 22% in the year and stood at £92.6 million at 30 November 2019 (2018: £76.0 million). The book value of property, plant and equipment increased by some £12.25 million compared to 2018. This increase reflected the assets acquired as part of the Bolton acquisition, the new ticket machines purchased to integrate Bolton systems with the rest of the Group and the considerable changes to the vehicle fleet both at Bolton and elsewhere described under the Fleet Management section above. The asset represented by the defined benefit pension scheme increased by a further 34% this year to £2.31 million (2018: £1.74 million). Goodwill and other intangible assets increased only slightly as a result of the one acquisition made in the year and the amortisation of £501,000 of contract-related intangibles. 

As a result of the increased size of the Group stocks of parts, tyres and fuel rose by 22% compared to the previous year. The growth in Trade and Other Receivables partly reflects the increased size of the Group, but also in part reflects the fact that Bus Services Operator's Grant and Concessionary Fares recoveries are slow to adjust to increased levels of activity. Equally the increase in the size of the Group had its impact on Trade and Other Payables.

The loans and borrowings of the Group shown under Current Liabilities rose to reflect the fact that the Revolving Commercial Facility was drawn down to finance the acquisition of the Bolton business. New share capital totalling £1.1 million was also raised to finance this transaction in part but the rest of the consideration was supplied by an increase in the Group's mortgage finance secured on its freehold property, which is shown under Non-Current Liabilities.

The sections dealing with the purchase of the Bolton business and Fleet Management above describe very fully the reasons for the acquisition of a considerable number of new vehicles in the year. These vehicles were financed by hire purchase contracts and their purchase is the cause of the increase in the Obligations under Hire Purchase Contracts compared to the level reached at the end of the previous year. 

The gross liabilities of the Group therefore rose to £56.02 million (2018: £41.12 million), an increase of 36%. As already mentioned £1.1 million of new share capital was raised in the year. Therefore overall the net assets of the Group rose to £36.6 million at the end of the year, compared to £34.9 million at the end of 2018, a rise of 5% year on year.

Cash flow statement

Cash flows from operating activities (before changes in working capital and provisions) rose strongly to reach £9.50 million (2018: £7.98 million), an increase of 19%. However the Bolton acquisition, as a trade deal only, necessitated the application of a considerable quantity of working capital from the Group's own resources. Interest paid on HP agreements increased somewhat when compared to the previous year as a result of the number of vehicles acquired under HP agreements during the year.

Nevertheless net cash flows from operating activities rose by 26% to £5.21 million (2018: £4.13 million). 

Naturally the acquisition of the Bolton business caused the large increase in cash used in investing activities when compared to the previous year. As can be seen, the acquisition cost (including the expenses of acquisition of £578,000) a total of £5.99 million. Purchases of property, plant and equipment fell considerably when compared to the previous year. Thus cash used in investing activities was £7.2 million net of related proceeds (2018: £1.5 million net).

Financing activities were affected by a number of events. Through the issue of 2,044,000 new shares at a price of 56p per share we were able to raise £1.1 million towards the finance required to complete the Bolton acquisition. Dividends paid in the year reflect both an increase in the dividend per share, in accordance with our progressive dividend policy, and the number of shares in issue. The remainder of the acquisition consideration was provided, as already described, by a combination of drawings on the Group's Revolving Commercial Facility and new mortgage finance secured by the large freehold depot in Bolton that we acquired with the business purchase. The bank interest paid in the year reflects these facility drawings. The capital element of payments on hire purchase agreements rose somewhat to £4.2 million (2018: £3.75 million). This increase reflects the new HP finance arranged in the year for the new vehicles acquired, as described fully earlier in this statement. However overall £282,000 in cash was generated by financing activities, in contrast to the total of £1.15 million used for the same purpose in the previous year. 

In summary therefore cash and cash equivalents decreased by £1.73 million when compared to the previous year (2018: an increase of £1.47 million), largely as a result of the acquisition of the sizeable Bolton business from First as described extensively above. 

Outlook

The Group performed well in 2019 and, as I have already remarked, before the Coronavirus epidemic was upon us trading for the current year began in line with expectations.

Clearly we have now entered extraordinary times which are beyond any current experience. Bus services are regarded by the Government as an essential service. Government has therefore taken steps, through specific direction provided to all arms of the State at both national and local level, to ensure that bus companies have sufficient cash flow to support the operations that they are running. T he board has also taken action on many fronts to align the bus services being operated with local requirements, reduce commensurately the costs of operation and conserve cash, as previously announced by the Company on 9 April 2020.

If it is permitted to look beyond the Coronavirus crisis, having regard to the fact that it is of unknown duration and effect, the recent announcement by the Government of large scale investment in bus transport heralds a new era in the bus industry after a difficult ten year period. However, in order to prosper in these conditions, bus companies will need to possess strong and experienced management. I am glad to say that Rotala has such a management team which has consistently proved itself over the last decade. Furthermore we do not see any let up in the potential for divestment and acquisition activity in the bus market in the next few years. We believe we are very well positioned to take full advantage of all these developments. Therefore we are confident about the prospects of the Group and excited about the possibility of expanding it considerably in the years ahead.

John Gunn

Non-Executive Chairman

Date: 21 April 2020

CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 30 NOVEMBER 2019

	Note	2019	2019	2019	2018	2018	2018
		Results before  exceptional items	Exceptional items (note 3 )	Results for the year	Results before  exceptional items	Exceptional items (note 3)	Results for the year
		£'000	£'000	£'000	£'000	£'000	£'000
Continuing operations
Revenue	2	67,533	-	67,533	62,408	-	62,408
Cost of sales		(53,917)	-	(53,917)	(49,942)	-	(49,942)
Gross profit		13,616	-	13,616	12,466	-	12,466
Administrative expenses		(7,563)	(1,806)	(9,369)	(6,705)	(580)	(7,285)
Profit from operations		6,053	(1,806)	4,247	5,761	(580)	5,181
Finance income Finance expense		53 (1,688)	- -	53 (1,688)	- (1,531)	- -	- (1,531)
Profit before taxation	3	4,418	(1,806)	2,612	4,230	(580)	3,650
Tax expense	4	(840)	175	(665)	(761)	(46)	(807)
Profit for the year from continuing operations		3,578	(1,631)	1,947	3,469	(626)	2,843
Loss for the year from discontinued operations		-	-	-	-	(534)	(534)
Profit for the year attributable to the equity holders of the parent		3,578	(1,631)	1,947	3,469	(1,160)	2,309
Earnings per share for profit attributable to the equity
holders of the parent during the year:
Basic -continuing operations (pence)	5	7.35		4.00	7.22		5.92
Basic - discontinued operations (pence)	5	-		-	-		(1.11)
Total		7.35		4.00	7.22		4.81
Diluted - continuing operations (pence)	5	7.35		4.00	7.22		5.92
Diluted - discontinued operations (pence)	5	-		-	-		(1.11)
Total		7.35		4.00	7.22		4.81

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED

30 NOVEMBER 2019

		2019	2018
		£'000	£'000
Profit for the year		1,947	2,309
Other comprehensive income:
Items that will not subsequently be reclassified to profit or loss:
Actuarial gain on defined benefit pension scheme		527	1,748
Deferred tax on actuarial gain on defined benefit pension scheme		(100)	(315)
Other comprehensive profit for the year (net of tax)		427	1,433
Total comprehensive income for the year attributable to the equity holders of the parent		2,374	3,742

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 NOVEMBER 2019

	Note	2019	2018
		£'000	£'000
Assets
Non-current assets
Property, plant and equipment	6	51,698	39,444
Defined benefit pension asset		2,319	1,737
Goodwill and other intangible assets		15,246	14,876
Total non-current assets		69,263	56,057
Current assets
Inventories		4,310	3,525
Trade and other receivables		18,275	15,895
Derivative financial instruments		36	95
Cash and cash equivalents		746	446
Total current assets		23,367	19,961
Total assets		92,630	76,018
Liabilities
Current liabilities
Trade and other payables		7,648	6,465
Loans and borrowings	7	19,267	13,830
Obligations under hire purchase contracts	8	4,295	3,843
Derivative financial instruments		3	132
Defined benefit pension obligation		-	129
Total current liabilities		31,213	24,399
Non- current liabilities
Loans and borrowings	7	6,124	4,068
Obligations under hire purchase contracts	8	15,934	10,159
Provision for liabilities		234	740
Net deferred taxation		2,515	1,757
Total non-current liabilities		24,807	16,724
Total liabilities		56,020	41,123
TOTAL NET ASSETS		36,610	34,895
Shareholders' funds
Share capital		12,731	12,220
Share premium reserve		12,369	11,779
Merger reserve		2,567	2,567
Shares in treasury		(806)	(817)
Retained earnings		9,749	9,146
TOTAL EQUITY		36,610	34,895

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 NOVEMBER 2019

	Share capital £'000	Share premium reserve £'000	Merger reserve £'000	Shares in treasury £'000	Retained earnings £'000	Total £'000
At 1 December 2017	12,220	11,779	2,567	(817)	6,602	32,351
Profit for the year	-	-	-	-	2,309	2,309
Other comprehensive income	-	-	-	-	1,433	1,433
Total comprehensive income	-	-	-	-	3,742	3,742
Transactions with owners:
Dividends paid	-	-	-	-	(1,201)	(1,201)
Share based payment	-	-	-	-	3	3
Transactions with owners	-	-	-	-	(1,198)	(1,198)
At 30 November 2018	12,220	11,779	2,567	(817)	9,146	34,895
Profit for the year	-	-	-	-	1,947	1,947
Other comprehensive income					427	427
Total comprehensive income	-	-	-	-	2,374	2,374
Transactions with owners:
Dividends paid and accrued	-	-	-	-	(1,773)	(1,773)
Share based payment	-	-	-	-	2	2
Shares issued	511	590	-	11	-	1,112
Transactions with owners	511	590	-	11	(1,771)	(659)
At 30 November 2019	12,731	12,369	2,567	(806)	9,749	36,610

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 NOVEMBER 2019

		2019	2018
		£'000	£'000
Cash flows from operating activities
Profit before taxation*		2,612	2,998
Adjustments for:
Depreciation		4,361	3,391
Acquisition expenses		578	64
Finance expense (net)		1,635	1,531
Gain on sale of property, plant and equipment		(4)	(172)
Contribution to defined benefit pension scheme		(190)	(298)
Intangible asset amortisation		501	450
Notional expense of defined benefit pension scheme		5	11
Equity settled share-based payment expense		-	3
Cash flows from operating activities before changes in working capital and provisions		9,498	7,978
(Increase)/decrease in inventories		(590)	(998)
(Increase) in trade and other receivables		(2,377)	(2,250)
(Decrease)/increase in trade and other payables		(79)	(41)
Movement in provisions		(506)	(463)
Movement on derivative financial instruments		(71)	487
		(3,623)	(3,265)
Cash generated from operations		5,875	4,713
Interest paid on hire purchase agreements		(664)	(588)
Net cash flows from operating activities carried forward		5,211	4,125

		2019	2018
		£'000	£'000
*Profit before taxation comprises:
Profit before taxation in the Consolidated Income Statement		2,612	3,650
Loss before taxation for discontinued operations		-	(387)
Impairment recognised on the re-measurement of the assets of the disposed business, gross of a tax credit of £48,000		-	(265)
Profit before taxation for the purposes of the cash flow statement		2,612	2,998

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 NOVEMBER 2019 (Continued)

		2019	2018
		£'000	£'000
Cash flows from operating activities brought forward		5,211	4,125
Investing activities
Purchases of property, plant and equipment		(1,325)	(2,174)
Acquisition of businesses		(5,992)	(2,014)
Sale of property, plant and equipment		96	2,685
Net cash used in investing activities		(7,221)	(1,503)
Financing activities
Shares issued		1,112	-
Dividends paid		(1,297)	(1,201)
Proceeds of mortgage and other bank loans		6,750	18,379
Repayment of bank and other borrowings		(1,283)	(15,111)
Bank interest paid		(1,037)	(942)
Hire purchase refinancing receipts		353	1,709
Capital settlement payments on vehicles sold		(117)	(237)
Capital element of lease payments		(4,199)	(3,751)
Net cash from/(used in) financing activities		282	(1,154)
Net (decrease)/increase in cash and cash equivalents		(1,728)	1,468
Cash and cash equivalents at beginning of year		(231)	(1,699)
Cash and cash equivalents at end of year		(1,959)	(231)

Notes to the Preliminary Announcement of results for the year ended 30 November 2019

1.  Basis of preparation:

The accounting policies used in the preparation of this financial information are those that have been used in the preparation of the annual statutory financial statements of the Company for the year ended 30 November 2019.  These policies are in accordance with the recognition and measurement principles of International Financial Reporting Standards (IFRSs) as endorsed by the European Union.

2.  Turnover:

Revenue represents sales to external customers excluding value added tax. Revenue is recognised at a point in time upon satisfaction of the relevant performance obligations for the various revenue streams: 

· Passenger revenue is recognised when the service is delivered;

· Subsidy revenue from local authorities is recognised on an accruals basis, based on actual passenger numbers when services are provided; 

· Contracted and charter services revenues are recognised when services are delivered, based on agreed contract rates.

All of the activities of the Group are conducted in the United Kingdom within the operating segment of provision of bus services. The Group has three main revenue streams: contracted, commercial and charter, and management monitors revenue across these three streams.  All streams operate within a single operating segment, that is the provision of bus services.  The activities of each revenue stream are as described in the Chairman's Statement.

	2019	2018
	£'000	£'000
Commercial	45,842	38,865
Contracted	20,223	21,620
Charter	1,468	1,923
Total Revenue	67,533	62,408

3.  Profit before taxation:

Profit before taxation includes the following mark to market provisions and other exceptional items:

	2019	2018
	£'000	£'000
Mark to market profit on fuel derivatives	58	475
Acquisition costs	(578)	(64)
Abortive transaction costs	(7)	(99)
Redundancy costs and costs of integration of acquisitions	(717)	(394)
Costs of changes to banking facilities	(60)	(45)
Amortisation of intangible assets	(501)	(450)
Share based payment expense	(1)	(3)
Loss within profit before taxation	(1,806)	(580)

4.  Tax expense:

Tax expense includes the following:

	2019	2018
	£'000	£'000
Current tax
Current tax on profits for the year	-	-
	_______	_______
Total current tax	-	-
	_______	_______
Deferred tax
Origination and reversal of temporary differences	693	749
Prior year adjustments	(126)	58
Change in rate of tax	98	-
	_______	_______
Total deferred tax	665	807
	_______	_______
Income tax expense	665	807
	_______	_______

The tax assessed for the year is different to the standard rate of corporation tax in the U.K. for the following reasons:

	2019	2018
	£'000	£'000
Profit before taxation	2,612	3,650
	_______	_______
Profit at the standard rate of corporation tax in the UK of 19% (2018: 18%)	496	657
Non-taxable items	197	92
Adjustments in respect of prior periods	(126)	58
Impact of change in tax rates	98	-
	_______	_______
Total tax expense	665	807
	_______	_______

The main rate of corporation tax was formerly set to fall to 17% from 1 April 2020 but this plan has been reversed and the rate of corporation tax maintained at 19%.

Deferred tax has been measured at the average tax rates that are expected to apply in the accounting periods in which the timing differences are expected to reverse, based on the tax rates and laws which have been enacted or substantively enacted at the balance sheet date.

5.  Earnings per share:

  (a) Basic earnings per share

	2019	2018
Basic total:	£'000	£'000
Profit attributable to ordinary shareholders	1,947	2,309
Weighted average number of ordinary shares	48,673,701	48,026,580
Basic earnings per share	4.00p	4.81p

Basic continuing operations:	£'000	£'000
Profit attributable to ordinary shareholders	1,947	2,843
Weighted average number of ordinary shares	48,673,701	48,026,580
Basic earnings per share	4.00p	5.92p

Basic discontinued operations:	£'000	£'000
Loss attributable to ordinary shareholders	-	(534)
Weighted average number of ordinary shares	-	48,026,580
Basic loss per share	-	(1.11)p

The calculation of the basic earnings 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.

  (b) Diluted earnings per share

	Diluted	Diluted
	2019	2018
	£'000	£'000
Diluted total:
Profit attributable to ordinary share holders	1,947	2,309
Profit for the purposes of diluted earnings per share	1,947	2,309
Weighted average number of shares in issue	48,673,701	48,026,580
Adjustment for exercise of options	-	-
Weighted average number of ordinary shares for the purposes of diluted earnings per share	48,673,701	48,026,580
Diluted earnings per share	4.00p	4.81p

In order to arrive at the diluted earnings per share, the weighted average number of ordinary shares has been adjusted on the assumption of conversion of all dilutive potential ordinary shares. The potential ordinary shares take the form of share options. A calculation has been carried out to determine the number of shares, at the average annual market price of the Company's shares, which could have been acquired, based on the monetary value of the rights attached to those shares. This number has then been subtracted from the number of shares that could be issued on the assumption of full exercise of the outstanding options, in order to compute the necessary adjustments in the above table.  

Diluted basic - continuing operations:	£'000	£'000
Profit attributable to ordinary shareholders	1,947	2,843
Weighted average number of ordinary shares (as above)	48,673,701	48,026,580
Basic earnings per share	4.00p	5.92p

Diluted basic - discontinued operations:	£'000	£'000
Loss attributable to ordinary shareholders	-	(534)
Weighted average number of ordinary shares (as above)	-	48,026,580
Basic loss per share	-	(1.11)p

( c) Adjusted basic earnings per share (adjusted before mark to market provision and other exceptional items):

	2019	2018
Basic total:	£'000	£'000
Profit attributable to ordinary shareholders	3,578	3,469
Weighted average number of ordinary shares	48,673,701	48,026,580
Basic earnings per share	7.35p	7.22p

The calculation of the adjusted basic earnings 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.

Adjusted diluted earnings per share:

	Diluted	Diluted
	2019	2018
Adjusted diluted total:	£'000	£'000
Profit attributable to ordinary share holders	3,578	3,469
Profit for the purposes of diluted earnings per share	3,578	3,469
Weighted average number of shares in issue	48,673,701	48,026,580
Adjustment for exercise of options	-	-
Weighted average number of ordinary shares for the purposes of diluted earnings per share	48,673,701	48,026,580
Adjusted diluted earnings per share	7.35p	7.22p

In order to arrive at the diluted earnings per share, the weighted average number of ordinary shares has been adjusted on the assumption of conversion of all dilutive potential ordinary shares. The potential ordinary shares take the form of share options. A calculation has been carried out to determine the number of shares, at the average annual market price of the Company's shares, which could have been acquired, based on the monetary value of the rights attached to those shares. This number has then been subtracted from the number of shares that could be issued on the assumption of full exercise of the outstanding options, in order to compute the necessary adjustments in the above table.  

6.  Property, plant and equipment:

	Freehold land and buildings	Long and short leasehold property	Plant and machinery	Public service vehicles	Fixtures and fittings	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Cost:
At 1 December 2017	7,680	1,088	4,699	45,653	189	59,309
Acquisition	-	-	20	1,463	-	1,483
Additions	375	1	897	5,638	28	6,939
Disposals	(2,032)	-	(542)	(1,800)	(62)	(4,436)
Transfers	(5)	(4)	9	-	-	-
At 30 November 2018	6,018	1,085	5,083	50,954	155	63,295
Acquisition	4,692	-	500	-	-	5,192
Additions	186	-	880	10,435	15	11,516
Disposals	-	(11)	(316)	(2,721)	(7)	(3,055)
At 30 November 2019	10,896	1,074	6,147	58,668	163	76,948
Depreciation:
At 1 December 2017	426	230	1,516	20,115	97	22,384
Charge for the year	66	29	369	2,908	19	3,391
Disposals	(248)	-	(344)	(1,279)	(53)	(1,924)
At 30 November 2018	244	259	1,541	21,744	63	23,851
Charge for the year	51	24	466	3,800	20	4,361
Disposals	-	(11)	(314)	(2,630)	(7)	(2,962)
At 30 November 2019	295	272	1,693	22,914	76	25,250
Net book value:
At 30 November 2019	10,601	802	4,454	35,754	87	51,698
At 30 November 2018	5,774	826	3,542	29,210	92	39,444

7.  Loans and borrowings:

	2019	2018
	£'000	£'000
Current:
Overdrafts	2,705	677
Bank loans	16,562	13,153
	_______	_______
	19,267	13,830
	_______	_______
Non-current:
Bank loans	6,124	4,068
	_______	_______
	25,391	17,898
	_______	_______

In late 2017 HSBC Bank plc became the principal bankers to the Group. The Senior Facilities Agreement now provides for a revolving facility of up to £16.2 million and a mortgage facility of £8.0 million, with a corresponding overdraft facility of up to £3.5 million. The Group entered into a cross-guarantee and floating charge agreement on that same date covering these facilities. The facilities expire on 5 December 2021 but are renewable at that date. 

The bank loans are secured on the Group's freehold property. The annual mortgage repayments are calculated such that the mortgage facilities amortise in a straight line over a term of 20 years which is considered to give a reasonable approximation to the effective interest rate.

8.  Obligations under hire purchase contracts:

Future lease payments are due as follows:

	Minimum lease payments 2019	Interest 2019	Present value 2019
	£'000	£'000	£'000
Not later than one year	5,003	708	4,295
More than one year but less than two years	4,373	533	3,840
More than two years but less than five years	8,781	730	8,051
Later than five years	4,233	190	4,043
	22,390	2,161	20,229

	Minimum lease payments 2018	Interest 2018	Present value 2018
	£'000	£'000	£'000
Not later than one year	4,333	490	3,843
More than one year but less than two years	3,456	336	3,120
More than two years but less than five years	6,206	407	5,799
Later than five years	1,276	36	1,240
	15,271	1,269	14,002

The present value of future lease payments are analysed as:

	2019	2018
	£'000	£'000
Current liabilities	4,295	3,843
Non-current liabilities	15,934	10,159
	20,229	14,002

9.  Acquisition:

Bolton Depot of First Manchester Limited
 

As set out in the Chairman's Statement, in August 2019 the Group acquired the majority of the bus business of First Manchester Limited based at its Bolton bus depot, together with the freehold of the depot itself and the plant and machinery located at the depot. No vehicles were acquired with this acquisition. The Chairman's Statement describes the details of and the reasons for the acquisition, and should be consulted for a detailed description of all the relevant factors. The consideration for the acquisition (excluding acquisition costs) was £5,414,000 in cash.  The book values of the assets acquired are set out below.

	Book value	Fair value adjustments	Fair value on acquisition
	£'000	£'000	£'000
Fixed assets
Freehold property	4,800	(108)	4,692
Plant and equipment	500	-	500
Total fixed assets	5,300	(108)	5,192
Current assets
Stock	195	-	195
	195	-	195
Current liabilities
Other payables and accruals	(844)	-	(844)
	(844)	-	(844)
Net assets			4,543
Goodwill			871
Acquisition costs			578
			5,992
Total cash consideration paid

Because the acquired business was immediately folded into the existing operations of the Group in the relevant localities, it is not possible to distinguish revenues and profits for the acquired business in the period to 30 November 2019. Pre-acquisition book values were determined based on applicable IFRS, immediately prior to the acquisition.  The values of assets recognised on acquisition are their estimated fair values. 

No licenses were acquired with the business. The sale and purchase agreement included standard non-compete clauses; however, the seller has no intention of re-entering the respective markets at the acquisition date and so there could be no value attributable to these clauses.  The goodwill generated by the acquisition arose from the benefit of synergies with the existing businesses of the Group in their respective locations. The acquisition expenses incurred by the Group amounted to £578,000 and have been expensed in the Consolidated Income Statement in Administrative Expenses.

10.  Post balance sheet events:

The UK Government has designated bus operation to be an essential service in the Coronavirus crisis prevalent at the date of these accounts. Passenger numbers had fallen steeply even before the very severe restrictions on travel for all but key workers introduced on 23 March 2020. In this light Government has taken steps, through specific direction provided by the Cabinet Office to all arms of the State at both national and local level, to ensure that bus companies have sufficient cash flow to support the operations that they are running. These measures cover the maintenance of Bus Services Operator's Grant, concessionary fares re-imbursements and payments for contracted bus services broadly at their pre-crisis levels.

Internally the Board has taken a number of steps to align the bus services being operated with local requirements, reduce commensurately the costs of operation and conserve cash. These measures include the rescheduling of services to run an enhanced Sunday-level timetable; reduction in driver rosters; suspension of discretionary capital expenditure; termination of vehicle operating leases where possible; and placing a significant proportion of the workforce into the Coronavirus Job Retention Scheme.

Given the early stage of this crisis and its unknown duration it is impossible to quantify at the current time what effect the crisis will have on the business of the Group or its assets, liabilities, shareholders and employees. Potential effects might include write downs in now redundant property, plant, equipment and inventory; write off of trade and other receivables; re-evaluation of the pension scheme asset; mark to market losses on fuel derivative contracts given current oil prices and associated tax effects.  

The board has concluded that the Coronavirus pandemic is a non-adjusting post balance sheet event.

11.  Financial Information:

The Financial Statements for the year ended 30 November 2019 were approved by the Board of Directors on 21 April 2020. The financial information in this announcement does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for 2019 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The auditors have reported on the 2019 accounts; the auditors' opinion is unqualified and does not include a statement under section 498 of the Companies Act 2006.

12.  Further Information:

The Company's Annual Report and Accounts for the year ended 30 November 2019 are expected to be posted to shareholders in early May 2020 and will also be available to view on the Company's website at the following link: http://www.rotalaplc.com

Copies of this statement are available from the registered office of the Company at Cross Quays Business Park, Hallbridge Way, Tipton, Oldbury, West Midlands, B69 3HW or the Company's website at the following link: http://www.rotalaplc.com

 

END

 

 

FR SEIFMFESSEIL