Half Yearly Report

RNS Number : 2562N

Rotala PLC

31 August 2011

 



31 August 2011

Rotala plc

("Rotala" or 'the Company')

Unaudited Interim Results for the six months to 31 May 2011

Highlights

·    Growth in Turnover of 18 per cent. to £26.6 million (2010: £22.5 million)

·    Profit before tax up 15% to £0.92 million (2010: £0.80 million)

·    Basic earnings per share up 13% to 2.75 pence (2010: 2.44 pence)

·    Net cash flows from operating activities of £2.33 million (2010: £1.2 million)

·    Interim dividend up by 33% to 0.40 pence per share (2010: 0.30 pence)

For further information please contact:

Rotala Plc
John Gunn, Chairman	020 7602 7500
Simon Dunn, Chief Executive	0121-322-2222/07825 808 525
Kim Taylor, Group Finance Director	0121-322-2222/07825 808 529
Numis Securities Limited	020 7260 1000
David Poutney (Corporate Broker); Stuart Skinner/Richard Thomas (Nominated Adviser)

Chairman's Statement

I am pleased to be able to present this interim report to shareholders in respect of the six months ended 31 May 2011.

Results

The group has continued to make good progress so far this year. Revenues rose by 18%, when compared to those of the first half of 2010, to a total of £26.6 million. This rise in revenue occurred in both our major business streams, as a result of organic growth and the acquisition we made of Preston Bus Limited ("PBL") in January 2011. I shall have more to say about PBL later in this statement.  

·    Contracted Services

Revenues in Contracted Services rose by 8% to a total of £10.3 million. A large part of this rise came from the 4 month contribution of PBL in this sector, but it was pleasing to note that there was an increase of 2% in the underlying contracted business in the period. It had been our assumption that it would be difficult to grow this part of the business because of the pressure on local authority budgets, particularly in Worcestershire. Whilst this expectation was in the main fulfilled, there were modest gains in smaller aviation related contracts around Heathrow, which, taken together with RPI-driven price increases in existing contracts, served to ensure that we saw a small increase in underlying revenues. 

·    Commercial Services

Revenues in Commercial Services showed the largest period on period increase with a rise of revenue of 32% to £13.8 million. Again by far the greatest contribution to this growth came from the acquisition of PBL, which is principally a commercial bus business. However there was also a significant increase in commercial revenues from the rest of the business which reflects the investments that we have made in new commercial routes in the West Midlands and South West in recent times.

·    Charter Services

There was little year on year change in this small sector of our business. This business stream is by its very nature sensitive to one off occurrences. In the first halves of both 2011 and 2010 bouts of very poor weather in particular brought in significant business which was by its nature not repeatable.  

Financial review

I have already highlighted the 18% increase in revenues period on period. Cost of Sales was up 21% but Gross Profits rose by 6% compared to the comparative period. Administrative Expenses were only 4% higher even though they include the burden of the extra depot in Preston for the majority of the period. Profit from Operations was 8% higher than in the same period in 2010 at £1.7 million. Finance expense was little changed overall. Profit before taxation therefore showed an increase of 15% over that of the comparative period in 2010 to £0.923 million. Basic earnings per share also showed a substantial 13% increase to 2.75p per share.

The gross assets of the group stood at £49.2 million at 31 May 2011, up 13% from the position a year before. The vehicle fleet now totals, after the addition of PBL, about 540 vehicles. Despite the use of hire purchase contracts to refinance much of the acquisition cost of the Preston business, the loans and borrowings of the group, including its obligations under hire purchase contracts, remained at just over £20 million, much the same as at the 30 November 2010. Net assets reached £20.4 million at the period end (2010: £18.3 million), equivalent to 58 pence per share.

The improvement in the operating performance of the group showed in a 94% increase in net cash flows from operating activities to £2.3 million for the period. Investment in property, plant and equipment (net of settlements paid on vehicles disposed of) totalled £0.3 million, much the same as in the comparative period. The capital element of payments on HP agreements totalled £2.1 million in 2011 on a larger business base (2010: £1.8 million). We were also able to pay off early, within the period, £625,000 of the outstanding Convertible Unsecured Loan Stock, to which I will return below. After dividend and interest payments the closing figure for cash and cash equivalents at the end of the period, at £0.4 million, was some £0.6 million up on the position at 31 May 2010.

Strategy and acquisitions

Rotala is now the number two bus operator by market share in both the West Midlands, where we operate under the "Diamond Bus" banner, and Bristol, where we operate as "Wessex Connect". The West Midlands remains the second largest bus market in the country after London. We are moreover one of the leading providers of private bus networks in the country, especially to the aviation industry in the South East.

In January 2011 we took the opportunity to establish a new hub for the business by acquiring Preston Bus Limited ("PBL") from Stagecoach Group plc. We paid approximately £3.2 million for this company, roughly the same as its net asset value in our hands (see note 6 to this statement for more detail). We raised the finance for this acquisition with a small share placing of £619,000 and by re-financing, through a hire purchase facility, PBL's otherwise debt-free vehicle fleet. This brought in the balance of the consideration. 

PBL's bus services are largely commercial around Preston itself, with some contracted work in addition carried out for local authorities and other public bodies. The acquisition of PBL provides Rotala with a significant expansion of its activities into a new geographical area. This area is approximately the same distance from Birmingham as the existing activities of the Company to the south west of Bristol and creates a new hub for the operations of the group.  PBL operates in the same way as any depot in the group network, with all administrative and support services provided centrally by the Birmingham headquarters. We are pleased with the start the business has made under our ownership and, as Preston sits in a region which has a historically high level of bus usage, it offers, in the longer term, attractive areas of potential expansion.

Finally under this heading, we have recently signed a lease over a new depot at Avonmouth, near Bristol. This new depot gives us the expansion capacity we have been seeking for some time in this region, as well as excellent facilities for parking, maintenance and training. 

Dividend

The Company will pay an interim dividend of 0.40 pence per share (2010: 0.30 pence) on 5 December 2011 to all shareholders on the register on 30 September 2011.  The Board is conscious of the importance of dividend flows to shareholders and intends that dividends should grow at least in line with the growth in underlying earnings and free cash flows.

Competition Commission

The Competition Commission, as part of its on-going investigation into local bus services, in May 2011 published its reports on initial findings and possible remedies. We do not see anything detrimental to the smaller operator like ourselves in these reports and we have participated in the subsequent dialogue with the Commission. The Commission will undoubtedly seek to enhance competition in the local bus market in their final proposals. These should bring discernible benefit to our commercial bus operations.

Fleet Changes

We have ordered our first batch of 15 hybrid power buses from the Optare Group and these will be delivered in the last quarter of the year. We have received a subsidy of £1.6m from the government's Green Bus Fund for these vehicles, which will be deployed principally on routes in Solihull, Bath and Preston. We have also continued to change the composition of the bus fleet with a particular focus on fuel consumption and maintenance costs. We have sold about 30 vehicles so far this year and expect to dispose of roughly the same number in the second half of the year. We have also placed orders for 12 new conventionally powered vehicles for delivery in the latter part of 2011. This programme will continue to ensure that Rotala possesses one of the youngest bus fleets in the industry with an average age of about 7.5 years. Furthermore very few of our vehicles do not comply with the requirements of the Disability Discrimination Act, with 98% of the fleet already achieving that standard.

Fuel

Fuel is a significant cost to Rotala's business. The group now uses about 13 million litres of fuel per annum. In the period under review the price of fuel has been volatile. Given the market conditions the Board has decided to remain unhedged at the current time, but constantly reviews the situation, the availability of fuel hedges and their pricing. If a clear view of future trends emerges and a fuel hedge can be obtained at an economic rate, then the board will be quick to take out a price hedge for at least twelve months ahead.

New Contracts

It is pleasing to be able to report continuing success in achieving our target of sustained organic growth in the revenues of the Group through the addition of new contracts. Whilst in the period under review, as I have remarked above, we achieved modest gains only in contracted business, just after the period end we commenced two new route diagrams for National Express coach services. These are seven year contracts which in a full year will bring in new revenues of some £3.2 million per annum in total. In addition, as a contract term, there is a built-in hedge against fuel price increases.

Debt and Convertible Unsecured Loan Stock

In the preliminary announcement of its final results for the year ended 30 November 2010, which was made on 19 April 2011, the Company made known its intention to seek a formal commitment from holders of the Convertible Unsecured Loan Stock ("CULS"), issued in 2008, to extend the life of the stock. The Board has since contacted each loan note holder, within the terms of the loan note instrument dated 29 February 2008, to seek a formal commitment to agree to extend the life of the CULS. The terms of the offer by the Company were that the life of the loan stock would be extended to 31 December 2014, at the current coupon of 8% per annum. The conversion price (based on the price of a 25p ordinary share on 27 April 2011) would be reset at 45p per share. All other terms of the loan note remain unchanged.

The Company is pleased to announce that holders of £2,315,850 of the remaining outstanding loan stock of £4,012,500 have committed themselves to the extension of their holdings on the above terms. These holders represent 58% of the outstanding loan stock. The Board anticipates that repayment of the remaining holders of the loan stock of £1,696,650 (which expires and is repayable on 31 December 2011) will be financed through the cash generation and existing bank facilities of the Group. In the balance sheet as at 31 May 2011, before these proposals were finalised, the whole of the loan stock is shown as a loan within current liabilities, but this commitment by loan stock holders will reduce the total of loans within current liabilities to some £1.8 million.

Outlook

With the acquisition of Preston Bus, more than 50% of the group's revenues derive from commercial bus services. Our largest competitors in the West Midlands and in the South West have concentrated this year on trimming their operations and optimising their own performances. This has enabled us to take up new routes as the incumbent operators have retreated. We feel that, with a lower cost base than our larger competitors and a young bus fleet, we have a worthwhile advantage; we are keen to expand further our commercial bus services in our chosen areas of operation. We have also responded to increased operating costs by raising fares, as we did in Preston in April 2011 for example, and we will take similar action, wherever commercially appropriate, in the rest of the group. 

Local authority budgets continue to be under pressure and more adjustments may be necessary in future years. This part of our business is thus unlikely to show growth. But there is still encouraging activity in private bus network tenders and we feel confident that we will continue to win this type of business which is one of our specialisms.

In all this the Board remains very conscious of the need, in these volatile times, to retain adequate capital and minimise risk. We focus particularly on the levels of debt in the business. In the first half of the year the ratio of total debt to earnings before interest, depreciation and amortisation (pro rata to the full year) fell significantly, when compared to 2010, from 3.3 to 2.7 times. We are determined to maintain this downward trend.

The bus industry is in a period of considerable change at this time. This produces uncertainty but also opportunity. The group is founded on a solid base with sound finances, strong asset backing and balance sheet, and increasing free cash flows. We see considerable opportunities for organic growth, particularly in our commercial bus business. Therefore the Board feels confident about the Company's prospects and I look forward to being able to report further successes to you in the years to come.  

John Gunn

Non-Executive Chairman

30 August 2011

Condensed consolidated statement of comprehensive income
	Notes	Unaudited 6 months ended 31 May 2011	Unaudited and restated 6 months ended 31 May 2010	Audited year ended 30 November 2010
		£'000	£'000	£'000
Revenue	2	26,576	22,512	44,644
Cost of sales		(22,469)	(18,626)	(36,430)
		________	________	______
Gross profit		4,107	3,886	8,214
Administrative expenses		(2,385)	(2,297)	(4,765)
		_____	_____	_____
Profit from operations		1,722	1,589	3,449
Finance expense		(799)	(784)	(1,799)
		_____	_____	_____
Profit before taxation	3	923	805	1,650
Tax expense		-	-	-
		_____	_____	_____
Profit for the period attributable to the equity holders of  the parent		923	805	1,650
Other comprehensive income		-	-	-
		_____	_____	_____
Total comprehensive income for the period		923	805	1,650
		=====	=====	=====
Earnings per share for profit attributable to the equity holders of the parent during the period
Basic (pence)	4	2.75p	2.44p	5.00p
Diluted (pence)	4	2.75p	2.43p	4.98p

Condensed consolidated statement of financial position	Unaudited as at 31 May 2011	Unaudited as at 31 May 2010	Audited as at 30 November 2010
	£'000	£'000	£'000
Assets
Non-current assets
Property, plant and equipment	30,939	25,800	28,256
Goodwill and other intangible assets	9,567	9,632	9,597
	_____	_____	_____
Total non-current assets	40,506	35,432	37,853
Current assets
Inventories	985	801	779
Trade and other receivables	7,291	7,283	4,559
Cash and cash equivalents	407	202	1,128
	_____	_____	_____
Total current assets	8,683	8,286	6,466
	_____	_____	_____
Total assets	49,189	43,718	44,319
Liabilities
Current liabilities
Trade and other payables	(7,768)	(5,504)	(4,716)
Loans and borrowings	(4,093)	(1,696)	(127)
Obligations under hire purchase agreements	(4,532)	(3,988)	(4,004)
	______	______	_____
Total current liabilities	(16,393)	(11,188)	(8,847)
Non-current liabilities
Loans and borrowings	(1,647)	(5,152)	(6,254)
Obligations under hire purchase agreements	(10,198)	(9,053)	(10,114)
Provisions	(509)	-	-
	______	______	______
Total non-current liabilities	(12,354)	(14,205)	(16,368)
	______	______	______
Total liabilities	(28,747)	(25,393)	(25,215)
	_____	_____	_____
Net assets	20,442	18,325	19,104
	======	======	=====
Equity attributable to equity holders of parent
Called up share capital	8,818	8,265	8,265
Share premium reserve	7,828	7,762	7,762
Merger reserve	2,567	2,567	2,567
Warrant reserve	370	370	370
Retained earnings	859	(639)	140
	______	______	_____
Total equity	20,442	18,325	19,104
	=====	=====	====

Condensed consolidated cash flow statement	Unaudited 6 months ended 31 May 2011	Unaudited  6 months ended 31 May 2010	Audited year ended 30 November 2010
	£'000	£'000	£'000
Cash flows from operating activities
Profit for the period	923	805	1,650
Finance costs	799	784	1,799
Depreciation	1,895	1,294	2,721
Amortisation	30	30	64
Gains on sale of property, plant and equipment	(18)	(200)	(455)
Negative goodwill arising on acquisition	(144)	-	-
Equity-settled share based payment expense	8	30	64
	____	____	____
Cash flows from operating activities before changes in working capital	3,493	2,743	5,843
(Increase)/decrease in trade and other receivables	(2,590)	(1,613)	1,111
Increase/(decrease) in trade and other payables	2,194	753	(176)
Increase in inventories	(104)	(198)	(134)
Decrease in provisions	(105)	-	-
	____	____	____
	(605)	(1,058)	801
	____	____	____
Cash generated from operations	2,888	1,685	6,644
Interest paid on hire purchase obligations and overdrafts	(560)	(488)	(1,136)
	____	____	____
Net cash flows from operating activities	2,328	1,197	5,508
Cash flows from investing activities
Acquisition of subsidiary, net of cash acquired	(2,599)	-	-
Purchases of public service vehicles and other fixed assets	(438)	(538)	(1,201)
Sale of public service vehicles	498	1,519	2,391
	_____	_____	_____
Net cash flows (used in)/ from investing activities	(2,539)	981	1,190

Condensed consolidated cash flow statement	Unaudited 6 months ended 31 May 2011	Unaudited  6 months ended 31 May 2010	Audited year ended 30 November 2010
	£'000	£'000	£'000
Cash flow from financing activities
Issue of ordinary shares	619	38	38
Dividends paid	(99)	(149)	(149)
Proceeds of mortgages and other loans	618	-	1,900
Proceeds of hire purchase refinancing agreement	2,415	933	933
Other loans and loan stock repaid	(625)	(1,000)	(1,000)
Repayment of bank and other borrowings	(681)	(76)	(2,064)
Loan stock and bank loan interest paid	(220)	(236)	(538)
Capital settlement payments on vehicles sold	(399)	(1,259)	(2,073)
Capital element of lease payments	(2,138)	(1,820)	(3,765)
	_____	_____	____
Net cash used in  financing activities	(510)	(3,569)	(6,718)
Net decrease  in cash and cash equivalents	(721)	(1,391)	(20)
Cash and cash equivalents at start of period	1,128	1,148	1,148
	_____	_____	_____
Cash and cash equivalents at end of period	407	(243)	1,128
	======	=====	====

Condensed consolidated Statement of Changes in Equity	Called up share capital	Share premium account	Merger reserve	Warrant reserve	Retained earnings	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 1 December 2009	8,238	7,751	2,567	370	(1,326)	17,600
Total comprehensive income and profit for the period ended 31 May 2010	-	-	-	-	805	805
	____	____	___	__	_____	_____
	8,238	7,751	2,567	370	(521)	18,405
Transactions with owners:
Share based payment	-	-	-	-	30	30
Issue of share capital	27	11	-	-	-	38
Dividends paid	-	-	-	-	(148)	(148)
	____	____	___	__	_____	_____
Transactions with owners	27	11	-	-	(118)	(80)
	____	____	___	__	_____	_____
	____	____	___	__	_____	_____
At 31 May 2010	8,265	7,762	2,567	370	(639)	18,325
Total comprehensive income and profit for the period ended 30 November 2010	-	-	-	-	845	845
	____	____	___	__	_____	_____
	8,265	7,762	2,567	370	206	19,170
Transactions with owners:
Share based payment	-	-	-	-	34	34
Issue of share capital	-	-	-	-	-	-
Dividends paid or declared	-	-	-	-	(100)	(100)
	____	____	___	__	_____	_____
Transactions with owners	-	-	-	-	(66)	(66)
	____	____	___	__	_____	_____
	____	____	___	__	_____	_____
At 30 November 2010	8,265	7,762	2,567	370	140	19,104
Total comprehensive income and profit for the period ended 31 May 2011	-	-	-	-	923	923
	____	____	___	__	_____	_____
	8,265	7,762	2,567	370	1,063	20,027
Transactions with owners:
Share based payment	-	-	-	-	8	8
Issue of share capital	553	66	-	-	-	619
Dividends paid or declared	-	-	-	-	(212)	(212)
	____	____	___	__	_____	_____
Transactions with owners	553	66	-	-	(204)	415
	____	____	___	__	_____	_____
	____	____	____	___	_____	_____
At 31 May 2011	8,818	7,828	2,567	370	859	20,442
	====	====	====	==	=====	=====

Notes to the Unaudited Consolidated Interim Accounts for the six months ended 31 May 2011

1.   Basis of preparation:

The unaudited condensed consolidated interim accounts have been prepared using the accounting policies set out in the Group's 2010 statutory accounts. The interim figures for the period ended 31 May 2010 have been restated so that the allocation of expenses between Cost of Sales and Administrative Expenses conforms to that used in the Group's 2010 statutory accounts. The financial statements of the group for the full year are prepared in accordance with IFRS's as adopted by the European Union and these interim financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting".   

2.   Turnover:

Revenue represents sales to external customers excluding value added tax. All of the activities of the group are conducted in the United Kingdom within the operating segment of provision of bus services. Management monitors revenue across the following business streams: contracted services, commercial services and charter services.

	Six months ended 31 May 2011	Six months ended 31 May 2010	Year ended 30 November 2010
	£'000	£'000	£'000
Contracted	10,282	9,531	18,834
Commercial	13,756	10,398	21,832
Charter	2,538	2,583	3,978
Total	26,576	22,512	44,644

3.  Profit before tax includes the following:

	Six months ended 31 May 2011	Six months ended 31 May 2010	Year ended 30 November 2010
	£'000	£'000	£'000
Amortisation of intangible assets	(30)	(30)	(64)
Share based payment expense	(8)	(30)	(64)
Negative goodwill arising on acquisition	143	-	-
Expenses of acquisition	(143)	-	-
Loss within profit from operations	(38)	(60)	(128)
Finance expense - amortisation of debt component of convertible debt	(46)	(60)	(126)
Loss within profit before taxation	(84)	(120)	(254)

4.   Earnings per share:

Basic earnings per share have been calculated on the basis of profit after taxation and the weighted average number of shares in issue for the period of 33,543,703 (May 2010: 32,965,330; November 2010: 33,019,625). Diluted earnings per share have been calculated on the basis of profit after taxation (adjusted where necessary for the effect of convertible loan stock interest) and the weighted average number of shares in issue (including such potential issues as are dilutive) for the period of 33,543,703 (May 2010: 33,171,807; November 2010: 33,145,713).

5.   Dividends:

On 1 April 2010 the Company paid a special interim dividend in respect of the year ended 30 November 2010 of 0.45 pence per share. On 6 December 2010 the Company paid a normal interim dividend of 0.30 pence per share in respect of the year ended 30 November 2010 and a final dividend in respect of the same accounting year on 23 June 2011 at a rate of 0.60 pence per share. All dividends are payable in cash only.   

6.   Acquisition of Preston Bus Limited

As described in the Chairman's Statement, on 25 January 2011 the company acquired 100% of the ordinary share capital of Preston Bus Limited ("PBL") from Stagecoach Plc. The consideration for the acquisition was approximately £3.20 million in cash. In the period ended 31 May 2011 PBL contributed £4.0 million to revenues and £351,000 to profit before taxation. If PBL had been a member of the group from 1 December 2010, the group revenues for the period would have been approximately £28.0 million and its

profit before taxation would have been approximately £1.05 million.

 An estimated balance sheet of PBL as at the date of acquisition, including any necessary fair value adjustments, is set out below:

Fixed Assets		£'000
Vehicles		2,928
Freehold land and buildings		950
Other fixed assets		3
Total Fixed Assets		3,881
Current Assets
Stocks		101
Trade debtors and prepayments		96
Cash		526
Total		723
Current Liabilities
Accruals and deferred income		601
Other creditors		175
Total		776
Deferred tax asset		(45)
Pension scheme liability		613
Long term Liabilities		568
Net Assets		3,260

7.   Additional information :

The unaudited Consolidated Interim Report was approved by the Board of Directors on 30 August 2011. The consolidated interim financial information for the six months ended 31 May 2011 and for the six months ended 31 May 2010 is unaudited. The financial information in this interim announcement does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. The statutory accounts of Rotala plc for the year ended 30 November 2010 have been reported on by the Company's auditors and have been delivered to the Registrar of Companies. The report of the auditors on these accounts was unqualified and does not include a statement under section 496 of the Companies Act 2006.

8.   Copies of this statement are available from the registered office of the company at Beacon House, Long Acre, Birmingham, B7 5JJ or the Company's website www.rotalaplc.co.uk.

 

END

 

 

IR WGUCURUPGGAU