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Stagecoach Group PLC (SGC)

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Wednesday 11 December, 2013

Stagecoach Group PLC

Half Yearly Report

RNS Number : 2177V
Stagecoach Group PLC
11 December 2013
 



11 December 2013

 

Stagecoach Group plc - Interim results for the six months ended 31 October 2013

 

Delivering value for shareholders, customers and taxpayers

 

·      Adjusted earnings per share* up 2.8% to 14.6 pence (2012 as restated: 14.2 pence)

·      Interim dividend per share up 11.5% to 2.9 pence (2012: 2.6 pence)

·      Net debt down £43.4m to £494.6m

·      UK Bus

o Revenue growth in regional bus operations built on successful partnership model, investment and low fares

o New contract wins in London driven by good cost control and operational performance

o Expansion of inter-city bus services in UK and Europe

·      UK Rail 

o Good financial and operational performance at East Midlands and South Western rail franchises

o Working with Government to expand rail capacity into London

o South West Trains-Network Rail Alliance delivering improved railway

·      North America 

o Significant increase in revenue and operating profit driven by megabus.com inter-city services

o Investing in further expansion

Growth opportunities ahead in UK and North America

 

·      Modal shift from car to bus in UK supported by innovation, investment and low fares

·      Expansion of megabus.com in North America and further development of megabusGold premium products

·      Discussions with Department for Transport on planned extensions to existing South Western, East Midlands and Virgin West Coast rail franchises

·      Pipeline of new rail opportunities in UK

 

Financial summary

 


Results excluding intangible asset expenses and exceptional items*

Reported results

Six months ended 31 October

2013

2012

(restated**)

2013

2012

(restated**)






Revenue (£m)

1,473.9

1,403.3

1,473.9

1,403.3






Total operating profit (£m)

126.5

125.1

120.1

119.5

Non-operating exceptional items (£m)

-

-

(0.7)

(2.0)

Net finance charges (£m)

(20.9)

(20.7)

(20.9)

(20.7)

Profit before taxation (£m)

105.6

104.4

98.5

96.8






Earnings per share (pence)

14.6

14.2

13.7

13.1

Interim dividend per share (pence)

2.9

2.6

2.9

2.6

 

*

see definitions in note 22 to the condensed financial statements

**

See note 1 to the condensed financial statements for details of the restatement of the prior year figures

 

 

 

Commenting on the results, Chief Executive, Martin Griffiths, said: 

 

"Our bus and rail services in the UK and North America are performing well and there are a number of exciting opportunities for growth ahead. We have invested in new products and further improvements to our services for customers. Our success is delivering value for our shareholders and we are also making a strong contribution to local communities and the economy.


"In the UK, our sector-leading regional bus services have gone from strength to strength, despite lower public spending and austerity measures. We have the lowest fares and highest customer satisfaction of any major bus operator, which is helping get Britain back on board the bus. Smart ticketing and other developments in new technology are helping make our services more convenient and offer further potential to encourage people to switch from the car to public transport.

 

"We are positive about the outlook for the rail sector in the UK where the franchising programme is again moving. There is a pipeline of new opportunities in addition to the planned extensions to the duration of the rail franchises operated by our existing high quality train companies. Our experience of alliancing with Network Rail over the past 18 months has given us an invaluable insight and understanding that can be used to ensure new franchise bids can deliver better value for money for Government. We are also working closely with Government to deliver vital new rail capacity for our customers.

 

 "Our megabus branded services in the UK, mainland Europe and North America have an exciting future ahead. We see significant potential to expand our presence in the US, where we already operate in 40 states. We are also considering opportunities to roll-out our premium day and overnight services to new locations.

 

"Our people on the frontline and behind the scenes have been central to delivering consistently strong operational performance which produces the good financial results. In dealing with the operational and customer service challenges of the recent severe storms in the UK, our people showed their dedication and professionalism in tough conditions and I am proud of our team across the business.

 

 "The Group is in excellent financial shape and we are well placed to capitalise on opportunities to add value for our investors.  Private sector expertise and partnership working with the public sector has transformed bus and rail travel over the past two decades and we firmly believe that model has more to deliver."

 

Copies of this announcement are available on the Stagecoach Group website at http://www.stagecoach.com/investors/financial-analysis/reports/2013.aspx

 

 

For further information, please contact:

 

Stagecoach Group plc                                        www.stagecoachgroup.com

 

Investors and analysts

Ross Paterson, Finance Director

01738 442111

Bruce Dingwall, Group Financial Controller

01738 442111

                                                                       

                                                                       

Media

Steven Stewart, Director of Corporate Communications

01738 442111 or 07764 774680

John Kiely, Smithfield Consultants

020 7360 4900

 

Notes to Editors

 

Stagecoach Group

·      Stagecoach Group is a leading international public transport group, with extensive operations in the UK, United States and Canada. The Group employs around 36,000 people, and operates bus, coach, train, and tram services.

·      Stagecoach is one of the UK's biggest bus and coach operators with around 8,000 buses and coaches. Around 2.5 million passengers travel on Stagecoach's buses every day on a network stretching from south-west England to the Highlands and Islands of Scotland. The Group's business includes major city bus operations in London, Liverpool, Newcastle, Hull, Manchester, Oxford, Sheffield and Cambridge. Low-cost coach service, megabus.com, operates between around 60 towns and cities across the UK.

·      Stagecoach is a major UK rail operator, running the South West Trains, Island Line and East Midlands Trains networks. It has a 49% shareholding in Virgin Rail Group, which operates the West Coast rail franchise.

·      Stagecoach also operates the Supertram light rail network in Sheffield.

·      In North America, Stagecoach operates around 2,600 buses and coaches in the United States and Canada. Megabus.com links around 100 key locations in North America. Stagecoach is also involved in operating commuter and transit services, contracted bus services, charters, sightseeing tours and a small number of school bus services.

 


Chairman's statement

 


The Group has delivered a good performance in the first half of the 2013/14 financial year, improving services for our customers and adding value for our shareholders.

 

Public transport has an important role in the wider economy. Our success in growing our business is making a positive contribution to local communities in the UK and North America. We have built good relationships with government and local transport authorities, working in partnership with them to improve bus and rail services.  As one of the UK's biggest public transport operators, we want to deliver services commercially as far as we possibly can, while maintaining high levels of customer satisfaction and the value for money of public spending.

 

Our low fares and continued investment in our services have enabled our regional UK bus operations to further grow passenger volumes.  Tickets can now be obtained on smart cards across our UK bus networks, offering greater convenience and flexibility for our customers.

 

Ensuring people have access to high quality services is the shared responsibility of operators, and our central and local government partners. Looking ahead, I believe that extensive investment by local authorities in low-cost bus priority measures could deliver a further step-change in bus use in the UK. It would improve journey times and reliability, cut congestion for all road users and boost retailing in our towns and city centres.

 

In the London bus market, we are seeing the benefit of our focus on efficiencies and cost control flow through into new contract wins and improved profitability.

 

We are pleased that the UK rail franchising programme is moving once again. Franchising has always been an evolving model and there are positive signs that the Government has listened to the ideas of industry and other stakeholders on how it can continue to deliver for passengers and taxpayers.

 

There are significant opportunities ahead in UK rail. We are shortlisted for both the Docklands Light Railway and the Thameslink Southern Great Northern rail franchises.  We have also applied to bid along with our partners, Virgin, for the new East Coast rail franchise. We have formed a new entity, Inter City Railways Limited ("ICRL"), to bid for the franchise.  Stagecoach has a 90% shareholding in ICRL, with Virgin Group holding 10%. We have exciting plans for the franchise and, if selected, it would be our intention to operate Virgin branded trains and maximise the potential of the brand to significantly grow passenger volumes on what is a key part of the UK rail network.

 

We and our joint venture, Virgin Rail Group, are focused on reaching agreements on the terms of the planned extensions to the duration of the South Western and West Coast rail franchises respectively. Constructive discussions are continuing with the Department for Transport. Although these discussions have not progressed as quickly as we had hoped, we expect agreements to be concluded in the second half of 2014. We will also be progressing discussions around the planned extension to the East Midlands rail franchise in due course.

 

 North America presents huge opportunities for the Group. The current high proportion of travel by car means there is a significant potential market for our commuter and inter-city bus services. Our newest inter-city bus networks, operating under the megabus.com brand, are in Texas and California and are performing well. In the year ahead, we are planning further expansion of our megabus.com network, which already covers 40 states in the United States and two provinces in Canada. Our non-megabus services are performing satisfactorily and we are on track to deliver a significant year-on-year increase in operating profit from our North America operations for the full 2013/14 financial year.

 

As previously reported, our Twin America joint venture is facing increasing competition in the New York sightseeing market resulting in lower operating profit.  We are continuing to engage with the Department of Justice and the New York Attorney General's office to seek a resolution to the current litigation involving Twin America. 

 

The Group has achieved further revenue and profit growth in the six months to 31 October 2013. Revenue for the period was up 5.0% at £1,473.9m (2012: £1,403.3m).  Total operating profit (before intangible asset expenses and exceptional items) was up 1.1% at £126.5m (2012 as restated: £125.1m).  Earnings per share before intangible asset expenses and exceptional items were 2.8% higher at 14.6p (2012 as restated: 14.2p).

 

In line with the Group's performance and consistent with our policy of generally setting the interim dividend per share at approximately one-third of the rate for the previous full financial year, the Directors have declared an interim dividend of 2.9p per share (2012: 2.6p). The dividend is payable to shareholders on the register at 7 February 2014 and will be paid on 5 March 2014.

 

Stagecoach has made a good start to the 2013/14 financial year. Trading for the year to date is in line with our expectations and the Group remains in a strong financial position.

 

Finally, I would like to thank our employees in the UK and North America for the fantastic contribution they make to our Group. We have some of the best levels of customer satisfaction in the sector and that is down to the hard work of our people who deliver bus and rail services to the approximately three million customers who travel with us every day.

 

The Group has a strong financial foundation and the economic outlook is improving. We have new ideas and new opportunities to improve public transport and grow our business.  I believe the business and our shareholders can look ahead to 2014 and beyond with confidence.

 

 

 

Sir Brian Souter

Chairman

11 December 2013



Interim management report

 

The Directors of Stagecoach Group plc are pleased to present their report on the Group for the six months ended 31 October 2013.

 

 

Description of the business

 

Stagecoach Group plc is a public limited company that is incorporated, domiciled and has its registered office in Scotland.  Its ordinary shares are publicly traded and it is not under the control of any single shareholder.  The Company has its primary listing on the London Stock Exchange.  Throughout this document, Stagecoach Group plc is referred to as "the Company" and the group headed by it is referred to as "Stagecoach" or "the Group".

 

The Group is a leading international public transport group, with extensive operations in the UK, United States and Canada.  A description of each of the Group's operating divisions is given on pages 4 to 6 of its 2013 Annual Report.

 

 

Overview of financial results

 

The Group has achieved continued good financial and operational performance in the six months ended 31 October 2013. 

 

Revenue by division is summarised below:

 

 

REVENUE

Six months to 31 October

2013

2012

Functional

currency

2013

2012

Growth

 

£m

£m

        Functional currency (m)

%

Continuing Group operations







UK Bus (regional operations)

504.3

488.3

£

504.3

488.3

3.3%

UK Bus (London)

115.4

116.4

£

115.4

116.4

(0.9)%

North America

238.3

199.8

US$

370.9

316.4

17.2%

UK Rail

619.5

599.9

£

619.5

599.9

3.3%

Intra-Group revenue

(3.6)

(1.1)

£

(3.6)

(1.1)


Group revenue

1,473.9

1,403.3





 

 

Operating profit by division is summarised below:

 

 

OPERATING PROFIT

Six months to 31 October

 

2013

 

2012

(restated)

 

 

Functional

currency

2013

2012

(restated)


£m

% margin

£m

% margin

   Functional currency (m)

Continuing Group operations








UK Bus (regional operations)

76.9

15.2%

76.8

15.7%

£

76.9

76.8

UK Bus (London)

9.6

8.3%

8.3

7.1%

£

9.6

8.3

North America

19.6

8.2%

13.8

6.9%

US$

30.6

21.8

UK Rail

18.0

2.9%

18.5

3.1%

£

18.0

18.5

Group overheads

(7.0)


(8.2)





Restructuring costs

(0.6)


(0.4)






116.5


108.8





Joint ventures - share of profit after tax








Virgin Rail Group

1.1


5.5





Citylink

1.0


0.9





Twin America

7.9


9.9





Total operating profit before intangible asset expenses and exceptional items

126.5


125.1





Intangible asset expenses

(7.2)


(5.6)





Exceptional items

0.8


-





Total operating profit: Group operating profit and share of joint ventures' profit after tax

120.1


119.5





 




UK Bus (regional operations)

 

Financial performance

 

The financial performance of the UK Bus (regional operations) division for the six months ended 31 October 2013 is summarised below:

 

Six months to 31 October

2013

£m

2012

(restated)

£m

Change

        %

Revenue

504.3

488.3

3.3%

Like-for-like revenue

491.0

469.5

4.6%

Operating profit*

76.9

76.8

0.1%

Operating margin*

15.2%

15.7%

(50)bp

 

The division's results for the six months reflect a continuation of its successful strategy to grow revenue and passenger volumes organically.  The previous year's financial results for the six months ended 31 October 2012 included revenue of £18.8m and operating profit of around £4m arising from the successful delivery of contracts to provide transport for the media and athletes at the London 2012 Olympic and Paralympic Games.  Excluding that £4m operating profit, the division has increased operating profit by £4.1m or 5.6% in the six months ended 31 October 2013.

 

Passenger and revenue growth

 

Like-for-like revenue was built up as follows:

 

Six months to 31 October

2013

£m

2012

£m

Change

        %

Commercial on and off bus revenue

 

295.8

 

284.0

 

4.2%

Concessionary revenue

119.8

117.2

2.2%

Tendered and school revenue

 

50.2

 

47.8

 

5.0%

Contract revenue

21.6

17.3

24.9%

Hires and excursions

3.6

3.2

12.5%

Like-for-like revenue

491.0

469.5

4.6%

 

Both passenger volumes and revenue grew further year-on-year.  The like-for-like revenue growth of 4.6% shown above for the six months ended 31 October 2013 is below the rate of 5.0% that we previously reported for the twenty four weeks ended 13 October 2013.  This is principally due to £1.8m of revenue recognised in the period 15 to 31 October 2012 in relation to the resolution of a claim for concessionary revenue.  Excluding this, like-for-like revenue for the six months ended 31 October 2013 was 5.0%, consistent with growth seen in first twenty four weeks. 

 

Like-for-like passenger volume growth for the six months was 1.0%. The passenger volume growth achieved by our UK Bus (regional operations) over the past decade has been driven by continued investment and our successful low fares strategy with independent research showing we offer the best value fares of any major operator.  In addition to underlying growth, revenue during the first half of the year benefitted from the division providing additional bus services to replace train services that were affected by planned railway resignalling work in the Nottingham area.

 

The decrease in operating margin was built up as follows:

 


Operating margin - 2012 (restated)

15.7%

Effect of Olympics contracts

(0.1)%

Change in:


Insurance and claims costs

0.4%

Bus Service Operators' Grant

(0.2)%

Fuel costs

(0.3)%

Other

(0.3)%

Operating margin - 2013

15.2%

 

The main changes in the operating margin shown above are:

·      The Olympics contracts in the prior year earned an operating margin in excess of the average operating margin for the division.  The non recurrence of those contracts this year results in a slight decrease in margin.

·      Continuing the trend seen in the second half of the year ended 30 April 2013, insurance and claims costs have reduced as we remain focussed on minimising claims.

·      In April 2012, the proportion of fuel duty that is rebated to bus operators in the form of Bus Service Operators' Grant ("BSOG") was cut.  Since April 2012, the rate of BSOG has remained stable meaning that the total BSOG received by the division has fallen as a percentage of revenue.

·      Fuel costs in the six months increased by a higher percentage than revenue due to the phasing of our fuel hedging programme.  We would expect the proportionate increase in fuel costs in the second half of this financial year to be less that that seen in the first half.

 

Smart ticketing and customer service

 

We are continuing to roll out smart ticketing schemes across our UK businesses to make travel easier for our customers. StagecoachSmart travel cards are currently in use for commercial transactions throughout almost all of our regional companies in England.  In addition, we are testing smartphone ticketing using near-field communications technology. Around 140 million commercial and concessionary smartcard transactions were made on our buses in the UK in 2012/13 and that continues to grow as we roll out our smart products to other UK regions. We are working hard to further improve the passenger experience, by for example rolling out our use of social media site, Twitter, to new parts of the country.

 

Inter-city coach services

 

Inter-city coach services operated under the megabus.com brand continue to grow in the UK and in mainland Europe. In the UK, we have expanded the number of daily services between London and both Swansea and Norwich. We have also established new links between Wales and several destinations in the Midlands, and new connections in the west of England. A new link to Ireland has been added, with megabus.com services operating from London and Manchester to Holyhead where passengers can catch the ferry service to Dublin.

 

Our megabus.com network in mainland Europe is performing well and we have invested in 10 new left-hand drive coaches to serve these locations. In addition to our Paris, Brussels, Amsterdam and Boulogne, services, we now offer several new destinations. In October 2013, we entered the German market for the first time with a new route from London to Cologne. We have also added services to Ghent, Lille, Rotterdam and Antwerp. To support the marketing of these services, we have launched a mobile version of the megabus.com website together with Dutch and French language versions where payments for travel may be made in Euros.

 

Partnership

 

Strong partnerships with local authorities continue to be a key element of our success. We are part of a highly successful award-winning partnership in Sheffield, launched in October 2012 between South Yorkshire Passenger Transport Executive and several operators. Under the partnership, bus reliability and punctuality is at record levels, customer satisfaction is up and adult fare paying passenger numbers have grown by more than 10%.  Further investment is planned from January 2014 in Sheffield's bus network and roads, including improved bus stops, real-time information and improvements for all traffic at key junctions. Passenger Focus recently reported on the successful multi-operator smart ticketing scheme we have in place in Oxford in partnership with Oxfordshire County Council and other operators. It has delivered coordinated high-frequency bus services and an improved urban environment, whilst maintaining high levels of bus use in the city.

 

Against that background, we strongly believe that this type of partnership is the best model, rather than the potential bus contracting scheme being pursued by the transport authority in Tyne and Wear. The region already has one of the most used bus networks and highest levels of customer satisfaction in the country, and we are clear that a contracting scheme would damage the interests of passengers, taxpayers and bus employees. Stagecoach and other operators have put forward a compelling package of investment as well as ticketing, network and customer service improvements. Our extensive engagement with customers, bus employees and other stakeholders during the consultation process suggests that there is significant opposition within the community to the bus contracting proposals and we will continue to use all avenues to press the case for partnership.

 

Outlook

 

In the UK Bus (regional operations) division, further economic recovery in the UK should provide a boost to revenue growth and enable us to continue to mitigate cost increases and the effects of pressure on government spending.  We expect that any growth in concessionary revenue and tendered revenue is likely to remain modest in the shorter term as government finances remain under pressure and local government bodies continue to seek to minimise the amounts paid to bus operators under concessionary fare schemes and for tendered bus services.  We continue to receive Bus Service Operators' Grant ("BSOG", a rebate of fuel duty), which we expect to remain relatively stable until at least 2015, in line with Government promises.

 

Looking further ahead, the market conditions are positive with a combination of a rising population, increasing road congestion, the cost of running a car and widespread concern for the natural environment providing good potential for increased bus usage across the UK.  Furthermore, our business is well positioned to outperform the market with its low fares, high customer satisfaction and continued investment.

 

 

UK Bus (London)

 

Financial performance

 

The financial performance of the UK Bus (London) division for the six months ended 31 October 2013 is summarised below:

 

Six months to 31 October

2013

£m

2012

(restated)

£m

Change

%

Revenue and like-for-like revenue

 

115.4

 

116.4

 

(0.9)%

Operating profit

9.6

8.3

15.7%

Operating margin

8.3%

7.1%

120bp

 

From 1 October 2013, the business no longer receives BSOG but this is offset by a corresponding uplift in the contract prices paid to the business by Transport for London.  The impact of this change (all other things being equal) will be an increase in both our reported revenues and costs, and a decline in profit margin but no overall change to profit.  Excluding the effect of this change, revenue declined by 1.6%.  The reduction in revenue during the period includes the effect of non-recurring revenue related to the London Olympic and Paralympic Games, and is in line with our expectations. It is anticipated to reverse in the second half of the financial year as we benefit from the nine new contracts won last financial year.

 

The improvement in operating margin was built up as follows:

 

Operating margin - 2012 (restated)

7.1%

Change in:


Staff costs - Olympics payments

0.7%

Staff costs - Other

2.1%

Bus Service Operators' Grant

(1.0)%

Fuel costs

0.5%

Lease costs

(0.6)%

Other

(0.5)%

Operating margin - 2013

8.3%

 

The results for the six months ended 31 October 2012 included a net cost of £0.8m as a result of the agreement reached between London bus operators, Transport for London and trade unions to pay additional amounts to bus operators' employees in connection with the 2012 London Olympics.  This payment did not recur in the current financial year contributing to the improved operating margin shown above.  In addition, other staff costs continue to reduce as a proportion of revenue reflecting the steps previously taken to reduce unit costs to ensure that the business can compete effectively for new contracts.

 

Fuel costs, excluding BSOG, have reduced year-on-year reflecting the phasing of our fuel hedging programme but we would expect this saving to reverse in the second half of the financial year.  Lease costs continue to rise as an increasing proportion of our London bus fleet is leased.

 

Our UK Bus (London) division has continued to perform well, as we remain focused on keeping tight control of costs to ensure we can compete effectively for contracts.  Over the last year, we have retained all of the existing routes we operate that have been retendered as well as winning contracts to operate some routes previously operated by others.  

 

The current, contracted, annualised revenue base (excluding contingent quality incentive income and any miscellaneous income) of the Group's London bus operations is estimated at £246.4m (which compares to £113.2m of such revenue for the six months ended 31 October 2013) and can be analysed by contract expiry date as follows:

 

Earliest date of contract expiry

Annualised revenue

£m

Year ending 30 April 2014

0.8

Year ending 30 April 2015

36.5

Year ending 30 April 2016

83.3

Year ending 30 April 2017

59.9

Year ending 30 April 2018

22.5

Year ending 30 April 2019

43.4


246.4

 

Improvements in operational performance

 

Transport for London closely monitors the operational performance of those that operate bus services on its behalf.  Operational performance is measured across a number of performance indicators.  Since we acquired the UK Bus (London) division in 2010, we have made steady progress in improving its operational performance and this has resulted in an improvement in the standing of the business in Transport for London's league tables of operators' performance.

 

Outlook

 

The operating profit margin now enjoyed by the UK Bus (London) division exceeds the margin that we aspired to when we acquired the business in 2010.  The market to operate buses on behalf of Transport for London, in which the division operates, remains competitive and we do not anticipate further significant increases in the division's operating profit margin.  Our strategy in this market is to keep tight control of costs so that we can continue to compete to retain and win contracts that provide an acceptable rate of return, and as a consequence, grow revenue and absolute operating profit.


North America

 

Financial performance

 

The financial performance of the North America division for the six months ended 31 October 2013 is summarised below:

 

Six months to 31 October

2013

US$m

2012

(restated)

US$m

Change

    %

Revenue

370.9

316.4

17.2%

Like-for-like revenue

288.4

268.4

7.5%

Operating profit

30.6

21.8

40.4%

Operating margin

8.3%

6.9%

140bp

 

Like-for-like revenue was built up as follows:

 

Six months to 31 October

2013

US$m

2012

US$m

Change

        %

Megabus

90.8

73.9

22.9%

Scheduled service and commuter

 

110.1

 

108.0

 

1.9%

Charter

45.2

46.2

(2.2)%

Sightseeing and tour

17.7

16.5

7.3%

School bus and contract

24.6

23.8

3.4%

Like-for-like revenue

288.4

268.4

7.5%

 

Growth in our North America division is continuing to be driven by our inter-city megabus.com services. Overall, the North American business remains on track to deliver a significant increase in its operating profit in 2013/14 when compared to 2012/13.

 

megabus.com North America has increased revenue by 22.9% in the six months ended 31 October 2013. This reflects further growth in existing services, as well as contributions from our Texas and California networks launched during 2012/13. In July 2013, we relaunched daily services between Cleveland and eight cities. The additional services are provided by Lakefront Lines, which was among the businesses the Group purchased from Coach America in July 2012. In September 2013, we added routes between Baton Rouge and Houston and New Orleans. We are continuing to expand our megabus.com business, and intend to add significant new operating mileage over the next 12 months.

 

We have further improved the megabus.com website to better provide customer alerts and exchange of trips during periods of weather disruption.  We will shortly be releasing further enhancements to improve customer information and order management to save customers time in obtaining the information they require.

 

The increase in the operating margin of the North America division was built up as follows:

 

Operating margin - 2012

6.9%

Change in:


Staff costs

0.4%

Fuel costs

0.8%

Insurance and claims costs

(1.5)%

Sub-contracted services

1.5%

Other

0.2%

Operating margin - 2013

8.3%

 



The North America division has delivered a significant year-on-year increase in operating profit in the six months ended 31 October 2013.  The increase reflects improved profitability at the megabus.com inter-city bus operations and a full six months of profit from the businesses acquired from Coach America in July 2012. 

The improved profitability at megabus.com reflects reduced start up losses from new services due to the lower rate of new mileage added in the period relative to the prior year and less challenging weather and operating conditions.  In other businesses, we continue to sense significant geographical variations in the US macroeconomy.  Our Shortline business, for example, which includes commuter bus services to and from New York City, continues to perform strongly whereas our airport services between Indiana and the Chicago airports is experiencing challenging trading conditions.  Overall, the financial performance of the non-megabus businesses remains satisfactory.

 

The changes in operating margin partly reflect the shift in the mix of business with a full six months of the businesses acquired in 2012 and as megabus.com continues to grow at faster rate than the other businesses.  Additional claims costs were recorded in the six months ended 31 October 2013 to reflect our latest assessment of the required provision for claims on major incidents.  Less megabus.com work has been sub-contracted to third parties resulting in lower sub-contracting costs.

 

Investment

 

The North America division continues to invest in new vehicles and other improvements in customer service.  In California, we have recently trialled the Green Road technology used in the UK Bus division and are now looking to introduce this technology more widely across the North American business.  The technology enhances safe and efficient vehicle operation by providing information to drivers and managers on a range of measures such as vehicle speed, acceleration rate, deceleration rate and turning.

 

Disposals

 

In October 2013, we completed two small disposals of businesses as part of our strategic focus on commercial intercity, commuter and scheduled services. RAZ was purchased by DMC Transport, LLC for US$0.8m. The business, located in the North West of the United States, provided charter services and operating contracts for the transportation of construction workers to and from work sites. In Canada, we sold several small operations to Pacific Western Transportation Ltd for C$4.6m. This included the last of our remaining school bus operations, based in Peterborough and Whitby, a local transit contract business, and services providing transport to and from Pearson International Airport in Toronto.

 

Outlook

 

Revenue growth in North America remains the highest of any of our divisions.  We expect this to continue with the further expansion of the megabus.com inter-city services together with further like-for-like revenue growth from our other businesses.   Our experience of adding new vehicle mileage to megabus.com is that the new services are typically loss making for a period of time but in most cases proceed to earn good financial returns as the customer base is established.  Therefore, while we remain on track to deliver a significant increase in operating profit in the North America division in 2013/14, we would not expect to see such a significant increase in 2014/15 as we absorb the operating losses associated with the additional vehicle miles recently added and the further new mileage that we plan to add over the next twelve months.  We are confident in the sustainability of the megabus.com business model and the investment in new mileage should add to the long-term value of the business.

 

UK Rail

 

Financial performance

 

The financial performance of the UK Rail division for the six months ended 31 October 2013 is summarised below:

 

Six months to 31 October

2013

£m

2012

(restated)

£m

Change

        %

Revenue and like-for-like revenue

619.5

599.9

3.3%

Operating profit

18.0

18.5

(2.7)%

Operating margin

2.9%

3.1%

(20)bp

 

The revenue growth rate of 3.3% during the period is partly depressed by (a) non-recurring revenue in 2012 related to the London Olympic and Paralympic Games and (b) current year resignalling work in the Nottingham area.

 

The reduction in operating margin was built up as follows:

 

Operating margin - 2012 (restated)

3.1%

Change in:


Amounts paid to/from DfT

2.2%

Staff costs

(0.6)%

Other operating income

0.5%

Fuel and electricity costs

(0.6)%

Network Rail charges

(1.3)%

Other

(0.4)%

Operating margin - 2013

2.9%

 

The financial performance of our rail businesses is in line with our expectations and there is continuing good passenger revenue growth at our South Western and East Midlands rail franchises.  Consistent with the Office of the Rail Regulator's determination, Network Rail charges increased in the period but were offset by an adjustment to the amounts payable to the DfT.

 

Franchise negotiations and opportunities

 

We are pleased that the rail franchising programme is again moving. There are several opportunities ahead and we will bid for franchises where we believe we can improve services for passengers and add value to our shareholders. The Group continues to discuss with the Department for Transport ("DfT") the planned extensions to our South Western and East Midlands rail franchises.  The DfT has previously announced that it plans to extend the South Western rail franchise from February 2017 to April 2019, the end of Network Rail's regulatory Control Period 5. The East Midlands rail franchise, scheduled to run until April 2015, is planned to be extended to October 2017.



We are encouraged that the Government has endorsed the recommendations of the Brown review of UK rail franchising and the emerging franchise model has a more appropriate allocation of risk between the taxpayer and operators. This model and the competition between operators bidding for franchises will result in a better return to taxpayers than other alternative approaches. It will also allow train companies to build on the record passenger volume growth and huge investment in trains and stations in recent years.

 

The Group submitted its bid for the Docklands Light Railway franchise to Transport for London in September 2013 and we are now one of three bidders. We also continue to progress our bid for the Thameslink Southern Great Northern rail franchise. The announcements of the winning bidders for those franchises are expected in spring 2014.  We have also applied to bid for the new East Coast rail franchise in conjunction with Virgin, our joint venture partner on the current West Coast franchise.

 

Our Alliance between South West Trains and Network Rail is helping deliver a better railway for passengers and a more efficient railway for taxpayers. We believe our hard work over the past 18 months has given us an invaluable insight, which we can leverage as part of our franchising strategy.

 

Operational performance and passenger satisfaction

 

Strong operational performance has been underpinned by consistently high levels of customer satisfaction across our UK rail division.  East Midlands Trains has been the most punctual long-distance rail operator in the UK for more than four years. Performance at South West Trains is also above the National Rail average.  The National Passenger Survey, carried out in spring 2013, shows overall satisfaction with East Midlands Trains is 88% - higher than the average for long distance train operators - while 81% of passengers using South West Trains were satisfied with their service.

 

Investment in trains, stations and customer service

 

Passengers continue to benefit from multi-million pound investment to deliver improvements to our train services and stations. Expanding capacity is a key priority, particularly on busy commuter services into London. Plans are in place to introduce more than 100 extra train carriages on South West Trains by the end of 2014, delivering thousands of extra key peak-time seats for passengers. Work has already taken place to lengthen platforms at over 60 stations to enable longer trains to operate on key routes.  Work has also started to procure a further 135 carriages as part of our joint proposals with Network Rail to the DfT for the network through to 2019.   This proposal includes key infrastructure improvements around London Waterloo station as well as bringing platforms at the Waterloo International Terminal back into use. Platform 20 is already in use for contingencies during disruption and it will be used for regular timetabled train services from spring 2014.

 

A £20m scheme is underway to improve accessibility at eight stations across the South West Trains network. Passengers at East Midlands Trains are benefitting from a £10m station improvement scheme and work has already been completed at the key Derby and Leicester transport hubs. We are expanding availability of WiFi at our stations and on trains. East Midlands Trains is rolling out free WiFi to 30 stations on the network, while South West Trains mainline services to London will shortly be fitted with complimentary on board WiFi.

 

Customer communication remains one of our top priorities. South West Trains, which has won a national "Putting Passengers First" award for keeping customers informed, has launched a new Passenger Forum. East Midlands Trains has also launched a new customer contact centre with extended opening hours. 

 

We worked in partnership with Network Rail over the summer to deliver a successful £100m resignalling improvement scheme in the Nottingham area.  It included one of the largest bus rail replacement operations and we offered affected passengers a 15% discount on rail fares during the works.

 

Light rail

 

The Sheffield Supertram network is benefitting from a five-year multi-million-pound track improvement project, which will safeguard the future of Sheffield's tram network for the long-term. This summer, we launched a commercial smart ticketing scheme, which allows customers to store their tickets electronically on a StagecoachSmart travel card. It means passengers can access integrated smart ticketing across Stagecoach's bus and tram operations in Sheffield.

 

Outlook

 

Our two wholly owned rail franchises are operated by East Midlands Trains and South West Trains and excluding any extension periods, expire in 2015 and 2017 respectively.  Consistent with our expectations and the terms of the relevant franchise agreements, the premia amounts payable to the DfT in respect of those two rail franchises further increase over the remaining franchise periods and we continue to look to control costs and grow revenue to offset those increased payments to the extent practical.  Of course, the potential value of the rail business lies in the range of franchise opportunities that we are currently pursuing.  As well as the opportunities to secure the extensions to the three franchises that we are currently involved with, we are participating in bids for three new rail franchises.  This gives us a range of opportunities to pursue in UK rail and we believe we can offer improvements for customers as well as value for money to taxpayers and a satisfactory financial return for our shareholders.

 

Group overheads

 

Group overhead costs decreased from £8.2m in the six months ended 31 October 2012 (restated for IAS 19 revised) to £7.0m in the six months ended 31 October 2013, principally due to higher expenses in the prior year period related to the effect of the increase in the Group's share price on the charge for share based incentive schemes.

 



Virgin Rail Group

 

Financial performance

 

The financial performance of the Group's Virgin Rail joint venture for the six months ended 31 October 2013 is summarised below:

 

Six months to 31 October

49% share:

2013

£m

2012

(restated)

£m

Change

        %

Revenue and like-for-like revenue

233.6

220.2

6.1%

Operating profit

1.4

6.9

(79.7)%

Net finance income

0.2

0.3

(33.3)%

Taxation

(0.5)

(1.7)

(70.6)%

Profit after tax

1.1

5.5

(80.0)%

Operating margin

0.6%

3.1%

(250)bp

 

Until December 2012, Virgin Rail Group ("VRG") operated the West Coast rail franchise under a commercial agreement where it was at risk for variations in revenue and cost, and earned a commensurate return.  To ensure the continued operation of the franchise following the DfT's failure to properly conclude its re-letting of the franchise during 2012, a temporary commercial arrangement was entered into in December 2012.  Since then, VRG has earned a pre-tax profit equivalent to 1% of revenue from the West Coast rail franchise with the DfT taking the risk that revenue and/or costs differ from those expected. This is the principal reason for the fall in profits shown above.  The profit before tax shown above does not equate to exactly 1% of the revenue shown.  This is principally because the 1% pre-tax profit is determined based on VRG's financial statements reported in accordance with UK Generally Accepted Accounting Principles and when these financial statements are restated for the Group's purposes to comply with International Financial Reporting Standards, the reported profit is reduced albeit the cash flows are unaffected.  

 

VRG and the DfT are discussing revised commercial terms that could see VRG take greater revenue and cost risk through to April 2017 for a commensurate financial return. The DfT has now refunded the costs VRG incurred in bidding for the long-term West Coast rail franchise that was due to begin in December 2012.  VRG has also recovered the legal costs that it incurred in challenging the Department's initial decision on the award of the franchise. 

 

Business developments

 

VRG introduced a new timetable in December 2013 following investment in four new 11-car Pendolino trains and 62 extra standard train carriages, which has delivered significant extra capacity. The new timetable provides new through journey opportunities between the Midlands, North West England and Scotland. Network Rail is delivering a £7.6m investment in improvements to overhead power lines on the busiest section of the West Coast Main Line between London and Rugby. The work, due to be completed by March 2014, is designed to improve operational performance and reduce delays for passengers. 

 

Customer service remains a key element of VRG's success. Passenger satisfaction is 92% and remains the highest of any long distance franchise operator.  

Twin America

 

Financial performance

 

The financial performance of the Group's Twin America joint venture for the six months ended 31 October 2013 is summarised below:

 

Six months to 31 October

60% share:

2013

US$m

2012

US$m

Change

        %

Revenue

54.0

57.9

(6.7)%

Operating profit

12.7

16.2

(21.6)%

Taxation

(0.4)

(0.5)

20.0%

Profit after tax

12.3

15.7

(21.7)%

Operating margin

23.5%

28.0%

(450)bp

 

Revenue at our Twin America joint venture has reduced year-on-year in an increasingly competitive New York sightseeing market. Twin America's share of the hop-on, hop-off sightseeing bus tour market has fallen as new companies have launched competing services. This has resulted in a reduction in operating profit. As previously reported, we are continuing to engage with the Department of Justice and the New York Attorney General's office to seek a resolution to the current litigation involving Twin America - further information on this is provided in note 19(iii) to the condensed interim financial information. 

 

 

Scottish Citylink

 

Our Scottish Citylink joint venture with Comfort DelGro is the leading inter-city coach operator in Scotland. The megabusGold and sleepercoach services have performed well in the first half of the year and we recently launched a dedicated website to market these services.  The fleet of high-specification double-decker coaches offers premium travel during the day with at-seat service. Seats are then converted to lie-flat beds for our overnight sleeper services linking London with 11 locations in Scotland. We have demonstrated there is a clear market for premium travel products and we believe this has exciting potential for markets in other countries.

 

Depreciation and intangible asset expenses

 

Earnings before interest, taxation, depreciation, intangible asset expenses and exceptional items (pre-exceptional EBITDA) amounted to £185.7m (2012 as restated: £179.4m).  Pre-exceptional EBITDA can be reconciled to the financial statements as follows:

 

 

 

Six months to 31 October

 

 

2013

£m

 

2012

(restated)

£m

12 months to 31 Oct 2013

(restated)

£m

Total operating profit before intangible asset expenses and exceptional items

 

 

 

126.5

 

 

 

125.1

 

 

 

222.1

Depreciation

58.3

52.3

116.0

Add back joint venture finance income & tax

 

0.9

 

2.0

 

2.1

Pre-exceptional EBITDA

185.7

179.4

340.2

 



The income statement charge for intangible assets, increased from £5.6m to £7.2m, principally due to the full six months' amortisation of the intangible assets acquired with the businesses bought from Coach America in July 2012.

 

Exceptional items

 

A pre-tax exceptional gain of £0.3m was recognised in the six months ended 31 October 2013, which related to the following items:

 

·      Virgin Rail Group received a further £2.0m from the DfT during the six months ended 31 October 2013 in respect of the refund of bid and related legal costs incurred on the West Coast rail franchise.  The Group's £1.0m share of this is included within the share of profit of joint ventures as is the related £0.2m tax charge in respect of the refund.

·      A loss of £0.5m in respect of property disposals is recognised within non-operating exceptional items.

·      A net loss of £0.2m in respect of the disposal of certain North American businesses is recognised within non-operating exceptional items.

 

Finance costs

 

Net finance costs for the six months ended 31 October 2013 were £20.9m (2012 as restated: £20.7m) and can be further analysed as follows:

 

Six months to 31 October

2013

£m

2012

(restated)

£m

Finance costs



Interest payable and other facility costs on bank loans, overdrafts and trade finance

 

 

3.1

 

 

3.7

Hire purchase and finance lease interest payable

 

2.0

 

2.7

Interest payable and other finance costs on bonds

 

14.2

 

11.9

Unwinding of discount on provisions

2.0

2.0

Interest charge on defined benefit pension schemes

2.3

2.4


23.6

22.7

Finance income



Interest receivable on cash

(1.8)

(1.3)

Effect of interest rate swaps

(0.9)

(0.7)


(2.7)

(2.0)

Net finance costs

20.9

20.7

 

Taxation

 

The effective tax rate for the six months ended 31 October 2013, excluding exceptional items, was 20.8% (2012 as restated: 23.7%).  This is around 2.5% higher than our expected rate for the full year ending 30 April 2014 due to the seasonality of taxable profits in different tax territories. 


The tax charge can be analysed as follows:

 

 

Six months to 31 October 2013

Pre-tax profit

£m

 

Tax

£m

 

Rate

%

Excluding intangible asset expenses and exceptional items

106.7

(23.1)

21.6%

Intangible asset expenses

(7.2)

2.4

33.3%


99.5

(20.7)

20.8%

Exceptional items

0.3

(0.2)



99.8

(20.9)

20.9%

Reclassify joint venture taxation for reporting purposes

 

 

(1.3)

 

 

1.3


Reported in income statement

98.5

(19.6)

19.9%

 

Fuel costs

 

The Group's operations as at 31 October 2013 consume approximately 398.6m litres of diesel fuel per annum.  As a result, the Group's profit is exposed to movements in the underlying price of fuel.  The Group's fuel costs include the costs of delivery and duty as well as the costs of the underlying product.  Accordingly, not all of the cost varies with movements in oil prices.

 

The proportion of the Group's projected fuel usage that is now hedged using fuel swaps is as follows:

 

Year ending 30 April

2014

2015

2016

2017

Total Group

82%

69%

10%

1%

The Group has no fuel hedges in place for periods beyond 30 April 2017.

 

Cash flows

 

Net cash from operating activities before tax for the six months ended 31 October 2013 was £154.3m (2012: £192.5m) and can be further analysed as follows:

 

Six months to 31 October

2013

£m

2012

(restated)

£m

EBITDA of Group companies before exceptional items

 

174.8

 

161.1

Loss on disposal of plant and equipment

 

0.7

 

0.6

Equity-settled share based payment expense

 

1.2

 

1.1

Working capital movements

(22.1)

26.0

Net interest paid

(6.3)

(5.7)

Dividends from joint ventures

5.1

8.7

Pension current service costs in excess of pension contributions

 

0.9

 

0.7

Net cash flows from operating activities before taxation

 

154.3

 

192.5

 

The working capital outflow of £22.1m arose principally as a result of an increase in VAT receivable arising from the timing of VAT recoveries from the tax authorities. 



Net cash from operating activities before tax was £154.3m (2012: £192.5m) and after tax was £141.9m (2012: £191.3m).  Net cash outflows from investing activities were £63.7m (2012: £170.4m), which included £0.2m (2012: £86.2m) in relation to acquisitions and net cash outflow from financing activities was £56.0m (2012: inflow £8.7m).

 

Net debt

 

Net debt (as analysed in note 18 to the condensed financial statements) decreased from £538.0m at 30 April 2013 to £494.6m at 31 October 2013, primarily due to strong operating cashflows.  The Group's net debt at 31 October 2013 is further analysed below:

 

 

 

Fixed rate

£m

Floating rate

£m

 

Total

£m

Unrestricted cash

-

62.0

62.0

Cash held within train operating companies

-

202.6

202.6

Restricted cash

-

19.0

19.0

Total cash and cash equivalents

-

283.6

283.6

Sterling bond

(399.2)

-

(399.2)

US Notes

-

(93.0)

(93.0)

Sterling hire purchase and finance leases

 

(5.6)

 

(75.6)

 

(81.2)

US dollar hire purchase and finance leases

 

(49.9)

 

-

 

(49.9)

Loan notes

-

(20.1)

(20.1)

Bank loans

-

(134.8)

(134.8)

Net debt

(454.7)

(39.9)

(494.6)

 

The split between fixed and floating rate debt shown above takes account of the effect of interest rate swaps in place as at 31 October 2013.

 

The net impact of purchases of property, plant and equipment for the six months on net debt was £86.1m (2012: £133.6m).  This primarily related to expenditure on passenger service vehicles, and comprised cash outflows of £83.1m (2012: £119.5m) and new hire purchase and finance lease debt of £3.0m (2012: £14.1m).  In addition, £19.5m (2012: £36.2m) cash was received from disposals of property, plant and equipment.

 

Liquidity and bank re-financing

 

The Group's financial position remains strong and is evidenced by:

·     The ratio of net debt at 31 October 2013 to pre-exceptional EBITDA for the twelve months ended 31 October 2013 was 1.5 times (2012 as restated: 1.6 times). 

·     Pre-exceptional EBITDA for the six months ended 31 October 2013 was 9.0 times (2012 as restated: 8.8 times) net finance charges (including joint venture net finance income).

·     Undrawn, committed bank facilities of £289.9m at 31 October 2013 (30 April 2013: £303.8m) were available to be drawn as bank loans with further amounts available only for non-cash utilisation. In addition, the Group continues to have available asset finance lines.

·     The three main credit rating agencies continue to assign investment grade credit ratings to the Group.

The Group's main bank facilities are committed through to 2016. 

 

Capital expenditure

 

Additions to property, plant and equipment for the six-month period were:

 

Six months to 31 October

2013

£m

2012

£m

UK Bus (regional operations)

50.5

47.0

UK Bus (London)

0.9

11.9

North America

14.1

52.5

UK Rail

16.4

15.7


81.9

127.1

 

The differences between the amounts shown above and the impact of capital expenditure on net debt arose from movements in fixed asset receivables, prepayments and payables.

 

Business combinations and disposals

 

The Group completed two disposals of small North American businesses in the six months ended 31 October 2013, as explained in the "North America" section of this report.

 

Net assets

 

Net assets at 31 October 2013 were £49.7m (30 April 2013 as restated: £16.3m) with the increase in net assets primarily reflecting the strong results for the six months.

 

Retirement benefit obligations

 

The reported net assets of £49.7m (30 April 2013 as restated: £16.3m), that are shown on the consolidated balance sheet are after taking account of net pre-tax retirement benefit liabilities of £119.6m (30 April 2013 as restated: £109.6m), and associated deferred tax assets of £23.9m (30 April 2013 as restated: £25.2m).

 

The Group recognised pre-tax actuarial losses of £6.9m in the six months ended 31 October 2013 (2012 as restated: £39.5m) on Group defined benefit schemes. 

 

Related parties

 

Details of significant transactions and events in relation to related parties are given in note 20 to the condensed financial statements.



Principal risks and uncertainties

 

Like most businesses, there is a range of risks and uncertainties facing the Group.  A brief summary is given below of those specific risks and uncertainties that the Directors believe could have the most significant impact on the Group's performance.  These principal risks and uncertainties have not changed since the publication of the Group's 2013 Annual Report, where a more detailed explanation of the risks and uncertainties  and how the Group manages these can be found on pages 8 to 12. These matters are not intended to be an exhaustive list of all possible risks and uncertainties.  In assessing the Group's likely financial performance for the second half of the current financial year, these risks and uncertainties should be considered in addition to the matters referred to regarding seasonality in note 3 to the condensed financial statements, and the comments made later under the heading "current trading and outlook".

 

·      Catastrophic events- there is a risk that the Group is involved (directly or indirectly) in a major operational incident.

·      Terrorism - there is a risk that the demand for the Group's services could be adversely affected by a significant terrorist incident.

·      Economy - the economic environment in the geographic areas in which the Group operates affects the demand for the Group's bus and rail services. 

·      Rail cost base- a substantial element of the cost base of the UK Rail division is essentially fixed as under its UK rail franchise agreements, the Group is obliged to provide a minimum level of train services and is less able to flex supply in response to changes in demand.

·      Sustainability of rail profit - there is a risk that the Group's revenue and profit could be significantly affected (either positively or negatively) as a result of the Group winning new UK rail franchises or failing to retain its existing franchises.

·      Breach of franchise- if the Group fails to comply with certain conditions as part of its rail franchise agreements it may be liable to penalties including potential termination of one or more of the rail franchise agreements.

·      Pension scheme funding - the Group participates in a number of defined benefit pension schemes, and there is a risk that the cash contributions required increase or decrease due to changes in factors such as investment performance, discount rates and life expectancies.

·      Insurance and claims environment - there is a risk that the cost to the Group of settling claims against it is significantly higher or lower than expected.

·      Regulatory changes and availability of public funding - there is a risk that changes to the regulatory environment or changes to the availability of public funding could affect the Group's prospects.

·      Management and board succession - there is a risk that the Group does not recruit and retain sufficient directors and managers with the skills important to the operation of the business.

·      Disease - there is a risk that demand for the Group's services could be adversely affected by a significant outbreak of disease.

·      Information technology- there is a risk that the Group's capability to make Internet sales or other technology on which it relies either fails or cannot meet levels of demand.

·      Treasury risks- the Group is affected by changes in fuel prices, interest rates and exchange rates.

 

Going concern

 

On the basis of current financial projections and the facilities available, the Directors are satisfied that the Group has adequate resources to continue for the foreseeable future and, accordingly, consider it appropriate to adopt the going concern basis in preparing the condensed financial statements for the six months ended 31 October 2013.

 

Current trading and outlook

 

The Group has made a good start to its financial year ending 30 April 2014 and overall trading for the financial year to date is in line with our expectations. 

 

We continue to see positive long-term prospects for public transport in the markets in which we operate. There is a large market opportunity for modal shift in both the UK and North America to capitalise on rising road congestion, higher car operating costs and increasing environmental awareness. Our successful strategy of offering good value travel, investment and high levels of operational performance and customer service means we are well placed to achieve further sustainable growth in the UK and North America. There are also several opportunities ahead to expand our rail portfolio and we are focused on developing bids which will meet customer and Government aspirations. We believe our track record of innovation and partnership working can benefit passengers, deliver value to taxpayers and give us a competitive advantage which can generate good returns for our shareholders.

 

 

 

 

 

Martin Griffiths

Chief Executive

11 December 2013

 

 


 

 


Responsibility Statement

 

We confirm that to the best of our knowledge:

 

(a)       the condensed consolidated interim financial information contained in this document has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting" as adopted by the European Union;

 

(b)       the Chairman's statement and the interim management report contained in this document together include a fair review of the information required by the Financial Conduct Authority's Disclosure and Transparency Rules ("DTR") 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

 

(c)       this document includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).

 

By order of and on behalf of the Board

 

 

 

 

Martin Griffiths                                                                                      Ross Paterson

Chief Executive                                                                                    Finance Director

11 December 2013                                                                             11 December 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cautionary statement

 

The preceding interim management report and Chairman's statement have been prepared for the shareholders of the Company, as a body, and no other persons.  Their purpose is to assist shareholders of the Company to assess the strategies adopted by the Company and the potential for those strategies to succeed and for no other purpose.  The interim management report and Chairman's statement contain forward-looking statements that are subject to risk factors associated with, amongst other things, the economic and business circumstances occurring from time to time in the countries, sectors and markets in which the Group operates.  It is believed that the expectations reflected in these statements are reasonable but they may be affected by a wide range of variables that could cause actual results to differ materially from those currently anticipated.  No assurances can be given that the forward-looking statements will be realised.  The forward-looking statements reflect the knowledge and information available at the date of preparation.  Nothing in the Chairman's statement or in the interim management report should be considered or construed as a profit forecast for the Group.  Except as required by law, the Group has no obligation to update forward-looking statements or to correct any inaccuracies therein.

 


CONDENSED FINANCIAL STATEMENTS

 

CONSOLIDATED INCOME STATEMENT

 



Unaudited

Unaudited




6 months to 31 October 2013

6 months to 31 October 2012 (restated)




Performance pre intangibles and exceptional items

Intangibles and exceptional items

(note 5)

Results for the period

Performance pre intangibles and exceptional items

Intangibles and exceptional items

(note 5)

Results for the period



 









Notes

£m

£m

£m

£m

£m

£m


Revenue

4(a)

1,473.9

-

1,473.9

1,403.3

-

1,403.3


Operating costs and other operating income


(1,357.4)

(7.2)

(1,364.6)

(1,294.5)

(4.7)

(1,299.2)


Operating profit of Group companies

4(b)

116.5

(7.2)

109.3

108.8

(4.7)

104.1


Share of profit of joint ventures after finance income and taxation

4(c)

10.0

0.8

10.8

16.3

(0.9)

15.4


Total operating profit: Group operating profit and share of joint ventures' profit after taxation

4(b)

126.5

(6.4)

120.1

125.1

(5.6)

119.5


Non-operating exceptional items

5

-

(0.7)

(0.7)

-

(2.0)

(2.0)


Profit before interest and taxation


126.5

(7.1)

119.4

125.1

(7.6)

117.5


Finance costs


(23.6)

-

(23.6)

(22.7)

-

(22.7)


Finance income


2.7

-

2.7

2.0

-

2.0


Profit before taxation


105.6

(7.1)

98.5

104.4

(7.6)

96.8


Taxation


(22.0)

2.4

(19.6)

(23.1)

1.4

(21.7)


Profit from continuing operations and profit after taxation for the period attributable to equity shareholders of the parent


83.6

(4.7)

78.9

81.3

(6.2)

75.1


 

Earnings per share from continuing and total operations









   -  Adjusted basic/Basic


14.6p


13.7p

14.2p


13.1p


   -  Adjusted diluted/Diluted


14.4p


13.6p

13.9p


12.8p


 

 

The accompanying notes form an integral part of this consolidated income statement.

 


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 


Unaudited

Unaudited


6 months to

31 October

2013

6 months to

31 October

2012 (restated)

£m

£m




Profit for the period attributable to equity shareholders of the parent

78.9

75.1

Items that may be reclassified to profit or loss



Cash flow hedges:



- Net fair value gains/(losses) on cash flow hedges

7.2

(11.9)

- Reclassified and reported in profit for the period

(0.3)

(7.8)

- Share of other comprehensive expense on joint ventures' cash flow hedges

-

(0.1)

- Tax effect of cash flow hedges

(1.6)

4.7

Foreign exchange differences on translation of foreign operations (net of hedging)

 

(6.6)

 

(1.6)

Total items that may be reclassified to profit or loss

(1.3)

(16.7)

Items that will not be reclassified to profit or loss



Actuarial losses on Group defined benefit pension schemes

(6.9)

(39.5)

Tax effect of actuarial losses on Group defined benefit pension schemes

(1.8)

9.2

Share of actuarial gains on joint ventures' defined benefit schemes

-

0.9

Tax effect of actuarial gains on joint ventures' defined benefit pension schemes

-

(0.2)

Total items that will not be reclassified to profit or loss

(8.7)

(29.6)

Other comprehensive expense for the period

(10.0)

(46.3)

Total comprehensive income for the period attributable to equity shareholders of the parent

68.9

28.8

 



 

 

CONSOLIDATED BALANCE SHEET (STATEMENT OF FINANCIAL POSITION)

 



Unaudited

Audited  


 

 

Notes


As at

31 October 2013

£m

As at

30 April 2013 (restated)

£m

ASSETS





Non-current assets





Goodwill

8


125.3

127.8

Other intangible assets

9


24.2

29.6

Property, plant and equipment

10


1,054.0

1,063.1

Interests in joint ventures

11


57.7

53.3

Available for sale and other investments



0.3

0.3

Derivative instruments at fair value



0.6

0.4

Retirement benefit asset

14


10.7

15.6

Other receivables



16.9

18.2

 



1,289.7

1,308.3

Current assets





Inventories



21.8

21.1

Trade and other receivables



293.8

239.7

Derivative instruments at fair value



1.7

2.2

Foreign tax recoverable



0.7

1.1

Cash and cash equivalents



283.6

262.2

 



601.6

526.3

Total assets

4(d)


1,891.3

1,834.6

LIABILITIES





Current liabilities





Trade and other payables



620.3

594.1

Current tax liabilities



46.3

40.0

Foreign tax liabilities



0.3

-

Borrowings



57.6

63.7

Derivative instruments at fair value



2.1

9.9

Provisions



57.1

59.1

 



783.7

766.8

Non-current liabilities





Other payables



24.8

21.2

Borrowings



742.0

747.9

Derivative instruments at fair value



3.9

3.2

Deferred tax liabilities



39.2

35.5

Provisions



117.7

118.5

Retirement benefit obligations

14


130.3

125.2

 



1,057.9

1,051.5

Total liabilities

4(d)


1,841.6

1,818.3

Net assets

4(d)


49.7

16.3

EQUITY





Ordinary share capital

15


3.2

3.2

Share premium account



8.4

8.4

Retained earnings



(354.0)

(391.0)

Capital redemption reserve



422.8

422.8

Own shares



(25.7)

(23.4)

Translation reserve



(1.8)

4.8

Cash flow hedging reserve



(3.2)

(8.5)

Total equity



49.7

16.3

 

 

The accompanying notes form an integral part of this consolidated balance sheet.

 


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 


 

Ordinary share capital

£m

Share premium

account

£m

 

Retained earnings

£m

Capital redemption reserve

£m

 

 

Own shares

£m

 

Translation reserve

£m

Cash flow hedging reserve

£m

 

Total

equity

£m

Balance at 30 April 2013 and 1 May 2013 (restated)

3.2

8.4

(391.0)

422.8

(23.4)

4.8

(8.5)

16.3

Profit for the period

-

-

78.9

-

-

-

-

78.9

Other comprehensive income/(expense) net of tax

-

-

(8.7)

-

-

(6.6)

5.3

(10.0)

Total comprehensive income/(expense)

-

-

70.2

-

-

(6.6)

5.3

68.9

Own ordinary shares purchased

-

-

-

-

(2.3)

-

-

(2.3)

Credit in relation to equity-settled share based payments

-

-

1.2

-

-

-

-

1.2

Dividend paid on ordinary shares

-

-

(34.4)

-

-

-

-

(34.4)

Balance at 31 October 2013

3.2

8.4

(354.0)

422.8

(25.7)

(1.8)

(3.2)

49.7

 









 

 

Balance at 30 April 2012 and 1 May 2012 (as previously reported)

3.2

8.4

(489.7)

422.8

(18.2)

2.1

14.1

(57.3)

Impact of IAS 19R restatement (see note 1)

-

-

34.8

-

-

-

-

34.8

Balance at 30 April 2012 and 1 May 2012 (restated)

3.2

8.4

(454.9)

422.8

(18.2)

2.1

14.1

(22.5)

Profit for the period (restated)

-

-

75.1

-

-

-

-

75.1

Other comprehensive income/(expense) net of tax (restated)

-

-

(29.7)

-

-

(1.6)

(15.0)

(46.3)

Total comprehensive income/(expense)

-

-

45.4

-

-

(1.6)

(15.0)

28.8

Own ordinary shares purchased

-

-

-

-

(2.3)

-

-

(2.3)

Own ordinary shares sold

-

-

-

-

1.0

-

-

1.0

Credit in relation to equity-settled share based payments

-

-

1.1

-

-

-

-

1.1

Dividend paid on ordinary shares

-

-

(31.0)

-

-

-

-

(31.0)

Balance at 31 October 2012 (restated)

3.2

8.4

(439.4)

422.8

(19.5)

0.5

(0.9)

(24.9)

 

The accompanying notes form an integral part of this consolidated statement of changes in equity.

 


CONSOLIDATED STATEMENT OF CASH FLOWS

 


 

Unaudited

Unaudited



6 months to

31 October

2013

6 months to

31 October

2012


Notes

£m

£m

Cash flows from operating activities




Cash generated by operations

16

155.5

189.5

Interest paid


(8.4)

(7.3)

Interest received


2.1

1.6

Dividends received from joint ventures


5.1

8.7

Net cash flows from operating activities


154.3

192.5

Tax paid


(12.4)

(1.2)

Net cash from operating activities after tax


141.9

191.3

Cash flows from investing activities




Acquisition of subsidiaries, net of cash acquired


(0.2)

(86.2)

Disposals and closures of subsidiaries and other businesses, net of cash disposed of

12

 

2.5

 

-

Purchase of property, plant and equipment


(83.1)

(119.5)

Disposal of property, plant and equipment


19.5

36.2

Purchase of intangible assets


(2.4)

(0.7)

Purchase of other investments


-

(0.2)

Net cash outflow from investing activities


(63.7)

(170.4)

Cash flows from financing activities




Investment in own ordinary shares by employee share ownership trusts


 

(2.3)

 

(2.3)

Sale of own ordinary shares by employee share ownership trusts


-

1.0

Repayments of hire purchase and lease finance


(33.7)

(26.2)

US$150m bonds issued


-

93.1

Drawdown of other borrowings


60.0

172.0

Repayment of other borrowings


(45.3)

(197.6)

Dividends paid on ordinary shares

6

(34.4)

(31.0)

Sale of tokens


0.3

0.2

Redemption of tokens


(0.6)

(0.5)

Net cash from financing activities


(56.0)

8.7

Net increase in cash and cash equivalents


22.2

29.6

Cash and cash equivalents at the beginning of the period


262.2

241.0

Exchange rate effects


(0.8)

(1.2)

Cash and cash equivalents at the end of the period


283.6

269.4

 

Cash and cash equivalents for the purposes of the consolidated cash flow statement comprise cash at bank and in hand, overdrafts and other short-term highly liquid investments with maturities at the balance sheet date of twelve months or less.

 

The accompanying notes form an integral part of this consolidated statement of cash flows.


NOTES

 

1

BASIS OF PREPARATION

 

The condensed consolidated interim financial information for the six months ended 31 October 2013 has been prepared in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority and International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.  The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 30 April 2013, which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union.  Except to the extent described below, the accounting policies and methods of computation applied in the consolidated interim financial information are consistent with those of the annual financial statements for the year ended 30 April 2013, as described on pages 59 to 66 of the Group's 2013 Annual Report which can be found on the Stagecoach Group website at http://www.stagecoach.com/investors/financial-analysis/reports/

 

This condensed consolidated interim financial information for the six months ended 31 October 2013 has not been audited, nor has the comparative financial information for the six months ended 31 October 2012 but they have both been reviewed by the auditors.  The comparative financial information presented in this announcement for the year ended 30 April 2013 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006 and does not reflect all of the information contained in the Company's annual financial statements.  The annual financial statements for the year ended 30 April 2013, which were approved by the Board of Directors on 26 June 2013, received an unqualified audit report, did not contain an emphasis of matter paragraph, did not contain a statement under section 498(2) or (3) of the Companies Act 2006 and have been filed with the Registrar of Companies. 

 

The Board of Directors approved this announcement, including the condensed consolidated interim financial information, on 11 December 2013.  This announcement will shortly be available on the Group's website at http://www.stagecoach.com/investors/financial-analysis/reports/.

 

New standards, amendments to standards and interpretations that are mandatory for the first time for the financial year beginning 1 May 2013 do not have any significant effect on the consolidated financial statements of the Group, with the exception of changes following adoption of the following standards/amendments:

 

IAS 19 (revised 2011) 'Employee Benefits'

As explained in the Group's 2013 Annual Report, the Group is required to apply the new version of International Accounting Standard 19 ("IAS 19"), "Employee Benefits", to its financial statements for the year ending 30 April 2014 and re-state comparative amounts accordingly.  The condensed consolidated interim financial information for the six months ended 31 October 2013 and the comparative information presented in this document is in accordance with the new version of IAS 19.  The IAS 19 change that has the most significant effect on the Group's reported profit is that the Group's annual expense for defined benefit pension schemes is required to include net interest expense or income calculated by applying the discount rate to the net defined benefit asset or liability. The net interest expense or income replaces the finance charge on scheme liabilities and the expected return on scheme assets and results in a higher annual expense. The effect of the new IAS 19 on the restatement of the consolidated income statement for the six months ended 31 October 2012 is shown below. The revenue and the consolidated statement of cash flows are unaffected by the restatement.

 


Unaudited

 


As previously reported

Effect of

applying

new IAS 19

Restated

including

new IAS 19

 


£m

£m

£m

 

Operating profit




UK Bus (regional operations)

87.2

(10.4)

76.8

UK Bus (London)

9.6

(1.3)

8.3

North America

13.7

0.1

13.8

Total bus operations

110.5

(11.6)

98.9

UK Rail

22.7

(4.2)

18.5


133.2

(15.8)

117.4

Group overheads

(7.8)

(0.4)

(8.2)

Intangible asset expenses

(4.7)

-

(4.7)

Restructuring costs

(0.4)

-

(0.4)

Total operating profit of Group companies

120.3

(16.2)

104.1

Share of joint ventures' profit after finance income and taxation

16.1

(0.7)

15.4

Total operating profit: Group operating profit and share of joint ventures' profit after taxation

 

136.4

 

(16.9)

 

119.5

Non-operating exceptional items

(2.0)

-

(2.0)

Profit before interest and taxation

134.4

(16.9)

117.5

Finance charges (net)

(18.3)

(2.4)

(20.7)

Profit before taxation

116.1

(19.3)

96.8

Taxation

(26.0)

4.3

(21.7)

Profit after taxation

90.1

(15.0)

75.1

Adjusted earnings per share (pence)

16.8

(2.6)

14.2

1

BASIS OF PREPARATION (CONTINUED)

 

 

The restated profit shown above reflects:

 

·      The inclusion of the pensions current service cost within the operating profit of each division in the consolidated income statement.

·      The inclusion of investment administration costs and taxes, such as amounts levied by the UK Pension Protection Fund, in the actual return on investment, with the difference between the actual return on investment and the discount rate applied to the scheme assets being reflected in other comprehensive income.

·      The inclusion of net interest expense on the net defined benefit liability within finance charges (net) in the consolidated income statement.

 

As explained in the 2013 Annual Report, the Group had not previously expected the new version of IAS 19 to affect the consolidated balance sheet but following further review and advice, it was concluded that the implementation of the new standard affects the consolidated balance sheet. The liability (or asset) recognised for the relevant sections of the Railways Pension Scheme reflects that part of the net deficit (or surplus) of each section that the employer is expected to fund (or expected to recover) over the life of the franchise to which the section relates.  The determination of those amounts includes considering the expected return on assets in the relevant sections over the life of the related franchises.  The new version of IAS 19 in effect applies a lower expected return on assets and so results in a change in the liability recognised for the relevant sections of the Railways Pension Scheme.  The consolidated balance sheets as at 30 April 2012, 31 October 2012 and 30 April 2013 are affected as follows:

 


Unaudited

As at 30 April 2012

Previously reported net liabilities

Effect of

applying

new IAS 19

Restated

net liabilities including

new IAS 19

 


£m

£m

£m

 





Interests in joint ventures

56.6

1.2

57.8

Net retirement benefit liability

(122.1)

45.3

(76.8)

Deferred tax liabilities

(40.0)

(11.7)

(51.7)

Other net assets

48.2

-

48.2

Net liabilities

(57.3)

34.8

(22.5)

 


Unaudited

As at 31 October 2012

Previously reported net liabilities

Effect of

applying

new IAS 19

Restated

net liabilities including

new IAS 19

 


£m

£m

£m

 





Interests in joint ventures

64.2

1.2

65.4

Net retirement benefit liability

(163.1)

41.7

(121.4)

Deferred tax liabilities

(26.8)

(9.6)

(36.4)

Other net assets

67.5

-

67.5

Net liabilities

(58.2)

33.3

(24.9)

 


Audited

As at 30 April 2013

Previously reported net liabilities

Effect of

applying

new IAS 19

Restated

net assets including

new IAS 19

 


£m

£m

£m

 





Interests in joint ventures

50.3

3.0

53.3

Net retirement benefit liability

(157.8)

48.2

(109.6)

Deferred tax liabilities

(24.4)

(11.1)

(35.5)

Other net assets

108.1

-

108.1

Net (liabilities)/assets

(23.8)

40.1

16.3

 

 

 

 

 



 

1

BASIS OF PREPARATION (CONTINUED)

 

 

IFRS 13 "Fair Value Measurement"

The Group adopted IFRS 13 "Fair Value Measurement", consistent with the standard's effective date, and has applied it prospectively in accordance with transition provisions.  The objective of the standard is to define the term "fair value" and to establish guidance and disclosure requirements for fair value measurement that should be applied across standards.  Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between independent market participants at the measurement date.  For non-financial assets, the fair value is determined based on the highest and best use of the asset as determined by a market participant. The application of IFRS 13 has not materially impacted the fair value measurements carried out by the Group.  IFRS 13 also requires specific disclosures on fair values, some of which replace existing disclosure requirements in other standards, including IFRS 7 Financial Instruments: Disclosures.  The relevant disclosures as required in interim financial statements are presented in note 13.

 

Amendments to IAS 1, "Presentation of Financial Statements"

The Group adopted the amendments to IAS 1, "Presentation of Financial Statements" ("IAS 1"), consistent with the standard's effective date. The changes require that individual components of other comprehensive income shall be presented according to whether they will be recycled into the income statement at a later date or not.  Other than presentational changes to the consolidated statement of comprehensive income, there has been no impact on the consolidated financial statements of applying the amendments to IAS 1.

 

 

2

FOREIGN CURRENCIES

 

The principal rates of exchange used to translate the results of foreign operations are as follows:

 


6 months to

31 October

2013

6 months to

31 October

2012

Year to

30 April

2013

US Dollar:




Period end rate

1.6066

1.6111

1.5564

Average rate

1.5566

1.5834

1.5748

Canadian Dollar:




Period end rate

1.6755

1.6103

1.5655

Average rate

1.6097

1.5852

1.5796

 

 

3

SEASONALITY

 

The Group's North American bus operations and the Twin America joint venture typically earn higher operating profit for the first half of the financial year (i.e. the six months ended 31 October) than for the second half.  This is because leisure customers generate an element of the revenue with demand being at its strongest in the summer months. 

 

In the previous financial year to 30 April 2013, the revenue and operating profit that the UK Bus (regional operations) earned from the contracts related to the 2012 Olympic and Paralympic Games all fell within the first half of the financial year.  Also, the current West Coast rail franchise operated by Virgin Rail Group ended on 8 December 2012 and under the new contract for the period from 9 December 2012, Virgin Rail Group initially earns a pre-tax profit equivalent to 1% of revenue with the DfT taking the risk that revenue and/or costs differ from those expected.  These factors affected the seasonality of UK Bus (regional operations) and Virgin Rail Group's profits in the year ended 30 April 2013.

 

 

 



 

4

SEGMENTAL ANALYSIS

 

The Group is managed, and reports internally, on a basis consistent with its four continuing operating segments, being UK Bus (regional operations), UK Bus (London), North America and UK Rail.  The Group's IFRS accounting policies are applied consistently, where appropriate, to each segment.


The segmental information provided in this note is on the basis of four operating segments as follows:

 

Segment name

Service operated

Countries of operation

UK Bus (regional operations)

Coach and bus operations

United Kingdom (and immaterial operations in mainland Europe)

UK Bus (London)

Bus operations

United Kingdom

North America

Coach and bus operations

USA and Canada

UK Rail

Rail operations

United Kingdom

 

The basis of segmentation is consistent with the Group's last annual financial statements for the year ended 30 April 2013.

 

The Group has interests in three joint ventures: Virgin Rail Group that operates in UK Rail, Citylink that operates in UK Bus (regional operations) and Twin America that operates in North America.  The results of these joint ventures are shown separately in note 4(c). 

 

(a)

Revenue

 

Due to the nature of the Group's business, the origin and destination of revenue is the same in all cases except in respect of an immaterial amount of revenue for services operated by UK Bus (regional operations) between the UK and mainland Europe.  As the Group sells bus and rail services to individuals, it has few customers that are individually "major".  Its major customers are typically public bodies that subsidise or procure transport services - such customers include local authorities, transport authorities and the UK Department for Transport.

 

Revenue split by segment was as follows:

 


Unaudited

Unaudited


6 months to

31 October

2013

6 months to

31 October

2012


£m

£m

Continuing operations



UK Bus (regional operations)

504.3

488.3

UK Bus (London)

115.4

116.4

North America

238.3

199.8

Total bus operations

858.0

804.5

UK Rail

619.5

599.9

Total Group revenue

1,477.5

1,404.4

Intra-Group revenue - UK Bus (regional operations)

(3.6)

(1.1)

Reported Group revenue

1,473.9

1,403.3

 



 

4

SEGMENTAL ANALYSIS (CONTINUED)

 

(b)

Operating profit

 

Operating profit split by segment was as follows:

 



Unaudited

Unaudited



6 months to 31 October 2013

6 months to 31 October 2012 (restated)



Performance pre intangibles and exceptional items

Intangibles and exceptional items

(note 5)

Results for the period

Performance pre intangibles and exceptional items

Intangibles and exceptional items

(note 5)

Results for the period


 








 

£m

£m

£m

£m

£m

£m

Continuing operations








UK Bus (regional operations)


76.9

-

76.9

76.8

-

76.8

UK Bus (London)


9.6

-

9.6

8.3

-

8.3

North America


19.6

-

19.6

13.8

-

13.8

Total bus operations


106.1

-

106.1

98.9

-

98.9

UK Rail


18.0

-

18.0

18.5

-

18.5



124.1

-

124.1

117.4

-

117.4

Group overheads


(7.0)

-

(7.0)

(8.2)

-

(8.2)

Intangible asset expenses


-

(7.2)

(7.2)

-

(4.7)

(4.7)

Restructuring costs


(0.6)

-

(0.6)

(0.4)

-

(0.4)

Total operating profit of Group companies


116.5

(7.2)

109.3

108.8

(4.7)

104.1

Share of joint ventures' profit after finance income and taxation


 

10.0

 

0.8

 

10.8

 

16.3

 

(0.9)

 

15.4

Total operating profit:

Group operating profit and share of joint ventures' profit after taxation


126.5

(6.4)

120.1

125.1

(5.6)

119.5

 

 

(c)

Joint ventures

 

The share of profit from joint ventures was further split as follows:

 



Unaudited

Unaudited



6 months to 31 October 2013

6 months to 31 October 2012 (restated)



Performance pre intangibles and exceptional items

Intangibles and exceptional items

(note 5)

Results for the period

Performance pre intangibles and exceptional items

Intangibles and exceptional items

(note 5)

Results for the period


 








 

£m

£m

£m

£m

£m

£m

Virgin Rail Group (UK Rail)








Operating profit


1.4

1.0

2.4

6.9

-

6.9

Finance income (net)


0.2

-

0.2

0.3

-

0.3

Taxation


(0.5)

(0.2)

(0.7)

(1.7)

-

(1.7)



1.1

0.8

1.9

5.5

-

5.5

Goodwill charged on investment in continuing joint ventures


-

-

-

-

(0.9)

(0.9)



1.1

0.8

1.9

5.5

(0.9)

4.6

Citylink (UK Bus, regional operations)








Operating profit


1.3

-

1.3

1.2

-

1.2

Taxation


(0.3)

-

(0.3)

(0.3)

-

(0.3)



1.0

-

1.0

0.9

-

0.9

Twin America (North America)








Operating profit


8.2

-

8.2

10.2

-

10.2

Taxation


(0.3)

-

(0.3)

(0.3)

-

(0.3)



7.9

-

7.9

9.9

-

9.9

Share of profit of joint ventures after finance income and taxation


 

10.0

 

0.8

 

10.8

 

16.3

 

(0.9)

 

15.4



 

4

SEGMENTAL ANALYSIS (CONTINUED)

 

(d)

Gross assets and liabilities

 

Assets and liabilities split by segment were as follows:

 


Unaudited

Unaudited


As at 31 October 2013

As at 30 April 2013 (restated)


Gross assets

Gross liabilities

Net

assets/

(liabilities)

Gross assets

Gross liabilities

Net

assets/

 (liabilities)


£m

£m

£m

£m

£m

£m

Continuing operations







UK Bus (regional operations)

809.4

(240.5)

568.9

772.7

(278.8)

493.9

UK Bus (London)

88.0

(116.0)

(28.0)

89.0

(93.1)

(4.1)

North America

379.8

(107.6)

272.2

397.0

(110.9)

286.1

UK Rail

232.1

(457.6)

(225.5)

236.2

(410.3)

(174.1)


1,509.3

(921.7)

587.6

1,494.9

(893.1)

601.8

Central functions

40.0

(34.5)

5.5

23.1

(38.1)

(15.0)

Joint ventures

57.7

-

57.7

53.3

-

53.3

Borrowings and cash

283.6

(799.6)

(516.0)

262.2

(811.6)

(549.4)

Taxation

0.7

(85.8)

(85.1)

1.1

(75.5)

(74.4)

Total

1,891.3

(1,841.6)

49.7

1,834.6

(1,818.3)

16.3

 

 

5

EXCEPTIONAL ITEMS AND INTANGIBLE ASSET EXPENSES

 

The Group separately highlights intangible asset expenses and exceptional items.  Exceptional items are defined in note 22.

 

The items shown in the column headed "Intangibles and exceptional items" on the face of the consolidated income statement for the six months ended 31 October 2013 and six months ended 31 October 2012 can be further analysed as follows:

 


Unaudited

Unaudited


6 months to 31 October 2013

6 months to 31 October 2012


Exceptional items

Intangible asset expenses

Intangibles and exceptional items

Exceptional items

Intangible asset expenses

Intangibles and exceptional items


£m

£m

£m

£m

£m

£m

Operating costs







Intangible asset expenses

-

(7.2)

(7.2)

-

(4.7)

(4.7)

Share of profit of joint ventures







Refund of franchise bid costs

 - related tax

Goodwill charged on investment in joint ventures

1.0

(0.2)

-

-

-

-

1.0

(0.2)

-

-

-

-

-

-

(0.9)

-

-

(0.9)


0.8

-

0.8

-

(0.9)

(0.9)

Non-operating exceptional items







Loss on disposal of properties

(0.5)

-

(0.5)

(0.1)

-

(0.1)

Net loss on disposal of businesses

(0.2)

-

(0.2)

-

-

-

Adjustments to assets and liabilities relating to previous acquisitions and disposals

 

-

 

-

 

-

 

(0.5)

 

-

 

(0.5)

Expenses incurred in relation to acquisitions

-

-

-

(1.4)

-

(1.4)

Non-operating exceptional items

(0.7)

-

(0.7)

(2.0)

-

(2.0)

Intangible asset expenses and exceptional items

0.1

(7.2)

(7.1)

(2.0)

(5.6)

(7.6)

Tax effect

-

2.4

2.4

-

1.4

1.4

Intangible asset expenses and exceptional items after taxation

 

0.1

 

(4.8)

 

(4.7)

 

(2.0)

 

(4.2)

 

(6.2)



 

6

DIVIDENDS

 

Dividends on ordinary shares are shown below.

 


Unaudited

Unaudited

Audited

Unaudited

Unaudited

Audited


6 months to 31 October 2013

6 months to 31 October 2012

Year to

30 April 2013

6 months to 31 October 2013

6 months to 31 October 2012

Year to

30 April 2013


pence per share

pence per share

pence per share

£m

£m

£m

Amounts recognised as distributions in the period







Dividends on ordinary shares:







Final dividend in respect of the previous period

6.0

5.4

5.4

34.4

31.0

31.0

Interim dividend in respect of the current period

-

-

2.6

-

-

14.9

Amounts recognised as distributions to equity holders in the period

6.0

5.4

8.0

34.4

31.0

45.9

Dividends declared or proposed but neither paid nor included as liabilities in the financial statements







Dividends on ordinary shares:







Final dividend in respect of the current period

-

-

6.0

-

-

34.4

Interim dividend in respect of the current period

2.9

2.6

-

16.6

14.9

-


2.9

2.6

6.0

16.6

14.9

34.4

 

The interim ordinary dividend of 2.9p per ordinary share was declared by the Board of Directors on 11 December 2013 and has not been included as a liability as at 31 October 2013.  It is payable on 5 March 2014 to shareholders on the register at close of business on 7 February 2014.

 

 

7

EARNINGS PER SHARE

 

Basic earnings per share ("EPS") have been calculated by dividing the profit attributable to equity shareholders by the weighted average number of ordinary shares in issue during the period, excluding any ordinary shares held in treasury or by employee share ownership trusts.

 

The diluted earnings per share was calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares in relation to share based payment arrangements and long-term incentive plans. 

 


 

Unaudited

Unaudited



6 months to

31 October

2013

6 months to

31 October

2012



No. of shares

million

No. of shares

million

Basic weighted average number of ordinary shares


574.1

573.7

Dilutive ordinary shares




   - Long Term Incentive Plan


3.4

7.9

   - Executive Participation Plan


2.7

3.8

Diluted weighted average number of ordinary shares


580.2

585.4

 


 

Unaudited

Unaudited



6 months to

31 October

2013

6 months to

31 October

2012 (restated)


Notes

£m

£m

Profit after taxation (for basic EPS calculation)


78.9

75.1

Intangible asset expenses

5

7.2

5.6

Exceptional items before tax

5

(0.1)

2.0

Tax effect of intangible asset expenses and exceptional items

5

(2.4)

(1.4)

Profit for adjusted EPS calculation


83.6

81.3

 

Earnings per share before intangible asset expenses and exceptional items is calculated after adding back intangible asset expenses and exceptional items after taking account of taxation, as shown on the consolidated income statement.  This has been presented to allow shareholders to gain a clearer understanding of underlying performance. 



 

8

GOODWILL

 

The movements in goodwill were as follows:

 


Unaudited

Unaudited

Audited


6 months to

31 October

2013

6 months to

31 October

2012

Year to

30 April

2013


£m

£m

£m

Net book value at beginning of period

127.8

91.4

91.4

Acquired through business combinations

-

19.0

33.7

Disposals

(0.1)

-

-

Foreign exchange movements

(2.4)

0.1

2.7

At end of period

125.3

110.5

127.8

 

 

 

9

OTHER INTANGIBLE ASSETS

 

The movements in other intangible assets were as follows:

 


Unaudited

Unaudited

Audited


6 months to

31 October

2013

6 months to

31 October

2012

Year to

30 April

2013


£m

£m

£m

Cost at beginning of period

100.2

72.7

72.7

Additions

2.4

0.7

5.9

Acquired through business combinations

-

19.5

21.1

Disposals

(26.5)

-

-

Foreign exchange movements

(1.0)

0.1

0.5

Cost at end of period

75.1

93.0

100.2

Accumulated amortisation at beginning of period

(70.6)

(55.2)

(55.2)

Amortisation charged to income statement

(7.2)

(4.7)

(15.1)

Disposals

26.3

-

-

Foreign exchange movements

0.6

-

(0.3)

Accumulated amortisation at end of period

(50.9)

(59.9)

(70.6)

Net book value at beginning of period

29.6

17.5

17.5

Net book value at end of period

24.2

33.1

29.6

 

 



 

10

PROPERTY, PLANT AND EQUIPMENT

 

The movements in property, plant and equipment were as follows:

 


Unaudited

Unaudited

Audited


6 months to

31 October

2013

6 months to

31 October

2012

Year to

30 April

2013


£m

£m

£m

Cost at beginning of period

1,771.8

1,610.5

1,610.5

Additions

81.9

127.1

205.7

Acquired through business combinations

-

47.7

53.5

Disposal of subsidiaries

(8.7)

-

-

Disposals

(31.4)

(63.6)

(112.2)

Foreign exchange movements

(16.3)

0.2

14.3

Reclassification

15.4

-

-

Cost at end of period

1,812.7

1,721.9

1,771.8

Depreciation at beginning of period

(708.7)

(648.9)

(648.9)

Depreciation charged to income statement

(58.3)

(52.3)

(110.0)

Disposal of subsidiaries

6.2

-

-

Disposals

10.6

22.8

56.9

Foreign exchange movements

6.9

(0.8)

(6.7)

Reclassification

(15.4)

-

-

Depreciation at end of period

(758.7)

(679.2)

(708.7)

Net book value at beginning of period

1,063.1

961.6

961.6

Net book value at end of period

1,054.0

1,042.7

1,063.1

 

 

11

INTERESTS IN JOINT VENTURES

 

The movements in the carrying values of interests in joint ventures were as follows:

 


Unaudited

Unaudited

Audited


6 months to

31 October

2013

6 months to

31 October

2012 (restated)

Year to

30 April

2013 (restated)


£m

£m

£m

Cost at beginning of period

110.8

114.3

114.3

Share of recognised profit

10.8

16.3

16.5

Share of actuarial gains on defined benefit pension schemes, net of tax

-

0.7

3.3

Share of other comprehensive expense on cash flow hedges, net of tax

-

(0.1)

(0.1)

Dividends received in cash

(5.1)

(8.7)

(24.9)

Foreign exchange movements

(1.3)

0.3

1.7

Cost at end of period

115.2

122.8

110.8

Amounts written off at beginning of period

(57.5)

(56.5)

(56.5)

Goodwill charged to income statement

-

(0.9)

(1.0)

Amounts written off at end of period

(57.5)

(57.4)

(57.5)

Net book value at beginning of period

53.3

57.8

57.8

Net book value at end of period

57.7

65.4

53.3

 

A loan payable to a joint venture, Scottish Citylink Coaches Limited, of £1.7m (30 April 2013: £1.7m) is included within current liabilities under the caption "Trade and other payables".

 

 

12

BUSINESS COMBINATIONS AND DISPOSALS

 

Two small North American businesses were disposed in the six months ended 31 October 2013. A £0.2m loss on disposal has been reported within exceptional items.

 

Details of acquisitions and disposals completed in earlier periods are given in the Group's annual reports for the relevant periods.

 



 

13

FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT

 

The Group is exposed to a variety of financial risks: market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk.

 

These condensed financial statements do not include all financial risk management information and disclosures required in the annual financial statements.  They should be read in conjunction with the Group's consolidated financial statements for the year ended 30 April 2013.  There have been no material changes in any of the Group's significant risk management policies since 30 April 2013.

 

Liquidity risk

 

There have been no material changes since 30 April 2013 in the contractual undiscounted cash out flows for financial liabilities.

 

Fair value estimation

 

Financial instruments that are measured in the balance sheet at fair value are disclosed by level of the following fair value measurement hierarchy.

 

Level 1       Quoted price (unadjusted) in active markets for identical assets or liabilities

Level 2       Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly (that is, as prices) or indirectly (that is, derived from prices)

Level 3       Inputs for the assets or liability that are not based on observable market data (that is, unobservable inputs)

 

For recurring fair value measurements using significant unobservable inputs (Level 3), there was no impact of the measurements on profit or loss or other comprehensive income for the six months ended 31 October 2013.

 

The following table represents the Group's financial assets and liabilities that are measured at fair value within the hierarchy at 31 October 2013.

 


Level 2

Level 3

Total


£m

£m

£m

Assets




Derivatives used for hedging

2.3

-

2.3

Available for sale financial assets




- Equity securities

-

0.3

0.3

Total assets

2.3

0.3

2.6

Liabilities




Derivatives used for hedging

(6.0)

-

(6.0)

 

The following table presents the Group's financial assets and liabilities that are measured at fair value within the hierarchy at 30 April 2013.

 


Level 2

Level 3

Total


£m

£m

£m

Assets




Derivatives used for hedging

2.6

-

2.6

Available for sale financial assets




- Equity securities

-

0.3

0.3

Total assets

2.6

0.3

2.9

Liabilities




Derivatives used for hedging

(13.1)

-

(13.1)

 



 

13

FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)

 

There were no transfers between levels during the six months ended 31 October 2013.

 

The "Level 3" financial assets of £0.3m (30 April 2013: £0.3m) shown above represent investments in securities that do not trade on a recognised market, such as investments in unlisted companies.  The Group does not intend to dispose of these assets in the foreseeable future.  These assets are measured at cost because their fair value cannot be measured reliably.  The value of the assets is not material to the Group and therefore changes in valuations would not have a material effect on the financial statements.

 

The table below provides a comparison of carrying amounts and fair values of all of the Group's financial instruments.

 


Carrying value

Fair Value

Carrying value

Fair value


31 October 2013

31 October 2013

30 April 2013

30 April 2013


£m

£m

£m

£m






Financial assets at fair value through profit or loss

-

-

-

-






Held-to-maturity investments

-

-

-

-






Loans and receivables





- Non-current assets          -   Other receivables

0.2

0.2

0.7

0.7






- Current assets                  -   Accrued income

50.4

50.4

43.7

43.7

                                            -   Trade receivables, net of impairment

138.1

138.1

121.8

121.8

                                            -   Other receivables

27.0

27.0

21.1

21.1

                                            -   Cash and cash equivalents

283.6

283.6

262.2

262.2

Available for sale financial assets





- Non-current assets





Available for sale and other investments

0.3

0.3

0.3

0.3

Total financial assets

499.6

499.6

449.8

449.8






Financial liabilities at fair value through profit or loss

-

-

-

-






Financial liabilities measured at amortised cost





- Non-current liabilities        -   Accruals

(10.6)

(10.6)

(10.1)

(10.1)

                                            -   Other payables

(0.1)

(0.1)

(0.1)

(0.1)

                                            -   Borrowings

(742.0)

(785.2)

(747.9)

(797.0)






- Current liabilities                -   Trade payables

(152.7)

(152.7)

(170.3)

(170.3)

                                            -   Accruals

(313.2)

(313.2)

(283.6)

(283.6)

                                            -   Loans from joint ventures

(1.7)

(1.7)

(1.7)

(1.7)

                                            -   Borrowings

(57.6)

(57.6)

(63.7)

(63.7)

Total financial liabilities

(1,277.9)

(1,321.1)

(1,277.4)

(1,326.5)






Net financial liabilities

(778.3)

(821.5)

(827.6)

(876.7)

 

Derivatives that are designated as effective hedging instruments are not shown in the above table.



 

13

FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)

 

The fair values of financial assets and financial liabilities shown in the table are determined as follows:

 

·      The carrying value of cash and cash equivalents, accrued income, trade receivables and other receivables is considered to be a reasonable approximation of fair value.  Given the short average time to maturity, no specific assumptions on discount rates have been made.  The effect of credit losses not already reflected in the carrying value as impairment losses is assumed to be immaterial.

 

·      £0.3m (30 April 2013: £0.3m) of available for sale financial assets for which market prices are not available are measured at cost because their fair value cannot be measured reliably - the fair value of these assets is shown in the above table as being equal to their carrying value.

 

·      The carrying value of trade payables, other payables, accruals and loans from joint ventures is considered to be a reasonable approximation of fair value.  Given the relatively short average time to maturity, no specific assumptions on discount rates have been made.

 

·      The fair value of fixed-rate notes (included in borrowings) that are quoted on a recognised stock exchange is determined with reference to the "bid" price at the balance sheet date.

 

·      The carrying value of fixed-rate notes that are not quoted on a recognised stock exchange and fixed-rate hire purchase and finance lease liabilities (included in borrowings) is considered to be a reasonable approximation of fair value taking account of the amounts involved in the context of total financial liabilities and the fixed interest rates relative to market interest rates at the balance sheet date.

 

·      The fair value of other borrowings on which interest is payable at floating rates is not considered to be materially different from the carrying value.

 



 

14

RETIREMENT BENEFITS

 

The Group contributes to a number of pension schemes.  The principal defined benefit occupational benefit schemes are as follows:

 

·

Stagecoach Pension Schemes ("SPS") comprising the Stagecoach Group Pension Scheme and the East London and Selkent Pension Scheme;

·

The South West Trains section of the Railways Pension Scheme ("RPS");

·

The Island Line section of the Railways Pension Scheme ("RPS");

·

The East Midlands Trains section of the Railways Pension Scheme ("RPS"); and

·

A number of UK Local Government Pension Schemes ("LGPS");

 

The Directors believe that separate consideration should be given to RPS as the Group has no rights or obligations in respect of sections of the scheme following expiry of the related franchises. In addition, under the terms of RPS, any fund deficit or surplus is shared by the employer (60%) and the employees (40%) in accordance with the shared cost nature of RPS. The employees' share of the deficit (or surplus) is reflected as an adjustment to the RPS liabilities (or assets). Therefore the liability (or asset) recognised for the relevant sections of RPS reflects that part of the net deficit (or surplus) of each section that the employer is obliged to fund (or expected to recover) over the life of the franchise to which the section relates. The "franchise adjustment" is the portion of the deficit (or surplus) that is expected to exist at the end of the franchise and for which the Group will not be obliged to fund (or entitled to recover).

 

In addition, the Group contributes to a number of defined contribution schemes covering UK and non-UK employees.

 

The movements for the six months ended 31 October 2013 in the net pre-tax liabilities recognised in the balance sheet were as follows:

 


SPS

£m

RPS

£m

LGPS

£m

Other

£m

Unfunded plans

£m

Total

£m

Liability/(asset) at beginning of period (restated)

106.0

(9.8)

7.6

1.6

4.2

109.6

Current service cost

10.9

17.1

0.7

0.3

-

29.0

Interest cost

2.3

4.0

0.1

0.1

-

6.5

Unwinding of franchise adjustment

-

(4.2)

-

-

-

(4.2)

Employers' contributions

(10.3)

(15.2)

(2.4)

(0.1)

(0.1)

(28.1)

Actuarial losses/(gains)

6.5

3.3

(2.6)

-

(0.3)

6.9

Foreign exchange movements

-

-

-

(0.1)

-

(0.1)

Liability at end of period

115.4

(4.8)

3.4

1.8

3.8

119.6

 

The net liability at 31 October 2013 shown above is presented in the consolidated balance sheet as:

 


Total

£m

Retirement benefit asset

(10.7)

Retirement benefit obligations

130.3

Net retirement benefit liability

119.6

 



 

15

ORDINARY SHARE CAPITAL

 

At 31 October 2013, there were 576,099,960 ordinary shares in issue (30 April 2013: 576,099,960). This figure includes 724,693 ordinary shares held in treasury (30 April 2013: Nil).

 

The balance on the share capital account represents the aggregate nominal value of all ordinary shares in issue.

 

The Group operates two Employee Share Ownership Trusts: the Stagecoach Group Qualifying Employee Share Ownership Trust ("QUEST") and the Stagecoach Group Employee Benefit Trust ("EBT").  Shares held by these trusts are treated as a deduction from equity in the Group's financial statements.  Other assets and liabilities of the trusts are consolidated in the Group's financial statements as if they were assets and liabilities of the Group.  As at 31 October 2013, the QUEST held 300,634 (30 April 2013: 300,634) ordinary shares in the Company and the EBT held 725,738 (30 April 2013: 2,030,824) ordinary shares in the Company.  The trusts have waived dividends on the shares they hold.

 

 

16

RECONCILIATION OF OPERATING PROFIT TO CASH GENERATED BY OPERATIONS

 

The operating profit of Group companies reconciles to cash generated by operations as follows:

 


Unaudited

Unaudited


6 months to

31 October

2013

6 months to

31 October

2012 (restated)


£m

£m

Operating profit of Group companies

109.3

104.1

Depreciation

58.3

52.3

Loss on disposal of plant and equipment

0.7

0.6

Intangible asset expenses

7.2

4.7

Equity-settled share based payment expense

1.2

1.1

Operating cashflows before working capital movements

176.7

162.8

(Increase)/decrease in inventories

(0.9)

1.7

Increase in receivables

(51.3)

(0.6)

Increase in payables

33.2

27.7

Decrease in provisions

(3.1)

(2.8)

Differences between employer contributions and pension current service costs recognised in the income statement

 

0.9

 

0.7

Cash generated by operations

155.5

189.5

 

During the period, the Group entered into hire purchase and finance lease arrangements in respect of new assets with a total capital value at inception of the contracts of £3.0m (2012: £14.9m).  After taking account of deposits paid up-front, new hire purchase and finance lease liabilities of £3.0m (2012: £14.1m) were recognised.

 

17

RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT

 

The movement in cash reconciles to the movement in net debt as follows:

 


 

Unaudited

Unaudited



6 months to

31 October

2013

6 months to

31 October

2012


Notes

£m

£m

Increase in cash


22.2

29.6

Cash flow from movement in borrowings


19.0

(41.3)



41.2

(11.7)

Debt assumed in business combinations


-

(1.0)

New hire purchase and finance leases


(3.0)

(14.1)

Foreign exchange movements


5.5

(1.1)

Other movements


(0.3)

(0.3)

Decrease/(increase) in net debt


43.4

(28.2)

Opening net debt

18

(538.0)

(523.8)

Closing net debt

18

(494.6)

(552.0)

 



 

18

ANALYSIS OF NET DEBT

 

IFRS does not explicitly define "net debt".  The analysis provided below therefore shows the analysis of net debt as defined in note 22.  The analysis below further shows the other items classified as net borrowings in the consolidated balance sheet.

 


Opening

£m

Cashflows

£m

New hire purchase and finance leases

£m

Foreign exchange movements

£m

Charged to income statement/

Other

£m

Closing

£m

Cash and cash equivalents

243.0

22.3

-

(0.7)

-

264.6

Cash collateral

19.2

(0.1)


(0.1)

-

19.0

Hire purchase and finance lease obligations

 

(163.4)

 

33.7

 

(3.0)

 

1.6

 

-

 

(131.1)

Bank loans and loan stock

(141.9)

(14.7)

-

1.7

-

(154.9)

Bonds

(494.9)

-

-

3.0

(0.3)

(492.2)

Net debt

(538.0)

41.2

(3.0)

5.5

(0.3)

(494.6)

Accrued interest on bonds

(8.8)

2.1

-

-

(13.4)

(20.1)

Effect of fair value hedges on carrying value of borrowings

(0.4)

-

-

-

0.6

0.2

Unamortised gain on early settlement of interest rate swaps

 

(2.2)

 

-

 

    -

 

-

 

0.7

 

(1.5)

Net borrowings (IFRS)

(549.4)

43.3

(3.0)

5.5

(12.4)

(516.0)

 

The cash collateral balance as at 31 October 2013 of £19.0m (30 April 2013: £19.2m) comprises balances held in trust in respect of loan notes of £18.5m (30 April 2013: £18.5m) and North America restricted cash balances of £0.5m (30 April 2013: £0.7m).  In addition, cash includes train operating company cash of £202.6m (30 April 2013: £196.6m).  Under the terms of the franchise agreements, other than with the Department for Transport's consent, train operating companies can only distribute cash out of retained earnings and only to the extent they do not breach any franchise liquidity ratios.

 

19

COMMITMENTS AND CONTINGENCIES

 

(i)

Capital commitments

Capital commitments at 31 October 2013 for the acquisition of property, plant and equipment were £41.4m (30 April 2013: £44.2m).

 

(ii)

Performance and season ticket bonds

At 31 October 2013, the Group has provided performance bonds backed by bank facilities or insurance arrangements of £52.3m (30 April 2013: £52.3m) and season ticket bonds backed by bank facilities or insurance arrangements of £56.8m (30 April 2013: £56.9m) to the Department for Transport in relation to the Group's rail franchise operations.

 

(iii)

Twin America LLC

In December 2012, the United States Department of Justice ("DoJ") and the Attorney General of the State of New York ("NYAG") initiated legal proceedings against Twin America, Stagecoach subsidiaries and others alleging that the formation of Twin America in 2009 was anticompetitive.  We fundamentally disagree with their allegations and their assessment of the joint venture.  Several private actions have also been filed in relation to this matter. We remain in dialogue with the DoJ and the NYAG regarding the Twin America joint venture and we are exploring whether a settlement of the matters raised can be reached. 

 

Any settlement or adverse court judgement could involve one or both of (a) Twin America, a Stagecoach subsidiary and/or the other joint venture partner being required to make monetary and/or "in kind" payments (b) a structural change in the joint venture such as the joint venture being dissolved and split into two parts, with each part being separately owned by each of the joint venture partners, or a disposal of certain assets by the joint venture.

 

(iv)

Legal actions

The Group and the Company are from time to time party to other legal actions arising in the ordinary course of business.  Liabilities have been recognised in the financial statements for the best estimate of the expenditure required to settle obligations arising under such legal actions.  As at 31 October 2013, the accruals in the consolidated financial statements for such claims total £1.8m (30 April 2013: £1.9m).  In addition, certain of the claims intended to be covered by insurance provisions are subject to or might become subject to litigation against the Group and/or the Company.

 

 



 

20

RELATED PARTY TRANSACTIONS

 

Details of major related party transactions during the six months ended 31 October 2013 are provided below, except for those relating to the remuneration of the Directors and management.

 

(i)

Virgin Rail Group Holdings Limited - Non-Executive Directors

Two of the Group's directors are non-executive directors of the Group's joint venture, Virgin Rail Group Holdings Limited.  During the six months ended 31 October 2013, the Group earned fees of £30,000 (six months ended 31 October 2012: £30,000) from Virgin Rail Group Holdings Limited in this regard.

 

(ii)

West Coast Trains Limited

West Coast Trains Limited is a subsidiary of Virgin Rail Group Holdings Limited.  In the six months to 31 October 2013, East Midlands Trains Limited (an indirect subsidiary of the company) had purchases totalling £0.1m (six months ended 31 October 2012: £0.1m) from West Coast Trains Limited.

 

 (iii)

Noble Grossart Limited

Ewan Brown (Non-Executive Director) is a former executive director and current non-executive director of Noble Grossart Limited that provided advisory services to the Group. At 31 October 2013, Noble Grossart Investments Limited, a subsidiary of Noble Grossart Limited, held 3,267,999 (30 April 2013: 3,267,999) ordinary shares in the Company, representing 0.6% (30 April 2013: 0.6%) of the Company's issued ordinary share capital. 

 

 (iv)

Alexander Dennis Limited

Sir Brian Souter (Chairman) and Ann Gloag (Non-Executive Director) collectively hold 46.8% (30 April 2013: 46.8%) of the shares and voting rights in Alexander Dennis Limited.  Noble Grossart Investments Limited (see (iii) above) controls a further 35.1% (30 April 2013: 35.1%) of the shares and voting rights of Alexander Dennis Limited. None of Sir Brian Souter, Ann Gloag or Ewan Brown is a director of Alexander Dennis Limited nor do they have any involvement in the management of Alexander Dennis Limited. Furthermore, they do not participate in deciding on and negotiating the terms and conditions of transactions between the Group and Alexander Dennis Limited. 

 

For the six months ended 31 October 2013, the Group purchased £32.7m (six months ended 31 October 2012: £45.4m) of vehicles from Alexander Dennis Limited and £4.4m (six months ended 31 October 2012: £5.7m) of spare parts and other services.  As at 31 October 2013, the Group had £2.1m (30 April 2013: £1.3m) payable to Alexander Dennis Limited along with outstanding orders of £6.8m (30 April 2013: £Nil).

 

(v)

Pension Schemes

Details of contributions made to pension schemes are contained in note 14.

 

(vi)

Scottish Citylink Coaches Limited

A non interest bearing loan of £1.7m (30 April 2013: £1.7m) was due to the Group's joint venture, Scottish Citylink Coaches Limited, as at 31 October 2013.  The Group received £11.6m in the six months ended 31 October 2013 in respect of the operation of services subcontracted by Scottish Citylink Coaches Limited (six months ended 31 October 2012: £10.0m).  As at 31 October 2013, the Group had a net £0.2m (30 April 2013: £1.2m) receivable from Scottish Citylink Coaches Limited, excluding the loan referred to above.

 

(vii)

Argent Energy Group Limited

Sir Brian Souter (Chairman) and Ann Gloag (Non-Executive Director) collectively held 39.3% (30 April 2013: 39.3%) of the shares and voting rights in Argent Energy Group Limited, until its sale to John Swire & Sons (Green Investments) Ltd on 23 July 2013.  Neither Sir Brian Souter nor Ann Gloag was a director of Argent Energy Group Limited nor did they have any involvement in the management of Argent Energy Group.  Furthermore, they did not participate in deciding on and negotiating the terms and conditions of transactions between the Group and Argent Energy Group.

 

For the period from 1 May 2013 to 23 July 2013, the Group purchased £2.9m (six months ended 31 October 2012: £5.0m) of biofuel from Argent Energy Group.  At 23 July 2013, the Group had £0.4m (30 April 2013: £0.2m) payable to Argent Energy Group along with outstanding orders of £0.3m (30 April 2013: £0.3m).

 

(viii)

Twin America LLC

In the six months ended 31 October 2013, the Group received £2.0m (six months ended 31 October 2012: £1.8m) from its joint venture, Twin America LLC, in respect of ticket sales made by Twin America LLC for tour services provided by Group subsidiaries.  As at 31 October 2013, the Group had £0.4m (30 April 2013: £0.4m) receivable from Twin America LLC.   



 

21

POST BALANCE SHEET EVENTS

 

Details of the interim dividend declared are given in note 6.

 

 

22

DEFINITIONS

 

The following definitions are used in this document:

·              Adjusted earnings per share is calculated by dividing profit after taxation, excluding intangible asset expenses and exceptional items, by the basic weighted average number of shares in issue in the period.

·              Like-for-like amounts are derived, on a constant currency basis, by comparing the relevant year-to-date amount with the equivalent prior year period for those businesses and individual operating units that have been part of the Group throughout both periods.

·              Operating profit for a particular business unit or division within the Group refers to profit before net finance income/charges, taxation, intangible asset expenses, exceptional items and restructuring costs.

·              Operating margin for a particular business unit or division within the Group means operating profit as a percentage of revenue.

·              Exceptional items means items which individually or, if of a similar type, in aggregate need to be disclosed by virtue of their nature, size or incidence in order to allow a proper understanding of the underlying financial performance of the Group.

·              Gross debt is borrowings as reported on the consolidated balance sheet, adjusted to exclude accrued interest, the effect of fair value hedges on the carrying value of borrowings and unamortised gains on the early settlement of interest rate swaps.

·              Net debt (or net funds) is the net of cash and gross debt.

 



Independent review report to Stagecoach Group plc

 

 


Introduction

We have been engaged by the Company to review the condensed consolidated interim financial information in the half-yearly financial report for the six months ended 31 October 2013, which comprises the consolidated income statement, consolidated statement of comprehensive income, consolidated balance sheet, consolidated statement of changes in equity, consolidated statement of cash flows and related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated set of financial statements.

 

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

As disclosed in note 1 to the condensed consolidated financial statements, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed consolidated financial statements included in this half-yearly financial report have been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

 

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed consolidated financial statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of the Disclosure and Transparency Rules of the Financial Conduct Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

 


Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated financial statements in the half-yearly financial report for the six months ended 31 October 2013 are not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

 

 

 

 

 

 

 

PricewaterhouseCoopers LLP

Chartered Accountants

Glasgow

 

 

 

11 December 2013

 


 

 

 

 

 

 

Notes:

(a)   The maintenance and integrity of the Stagecoach Group plc website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

 

(b)   Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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