22nd Jun 2005 07:00
Stagecoach Group PLC22 June 2005 22 June 2005 Stagecoach Group plc - Preliminary results for the year ended 30 April 2005 Highlights • Strong year of organic growth in bus and rail operations in UK and overseas• Further growth in UK Bus division •Turnover up 10.8% •Kick Start and telemarketing initiatives successfully introduced •Investment in fleet, new product development and online sales •Passenger volumes+ up 1.5% in non-London operations; turnover up 7.1% •Turnover in London bus business up 21.0% •Operating margin* maintained at 11.5%, despite significant increases in fuel and other costs• Excellent performance by UK Rail division •Turnover up 9.2% •South West Trains passenger volumes increased 4.8% •Significant improvement in punctuality •First London operator to complete replacement of slam-door trains• Shortlisted for Greater Western, Thameslink/Great Northern and Integrated Kent rail franchises• Strong growth in North American operations •US$ turnover growth of 12.7% from continuing operations •Operating margin* up from 4.4% to 6.7% €28.6% more tickets sold at New York Sightseeing• Market-leading position maintained in New Zealand, despite competition and cost pressures• Management team strengthened with appointment of Ian Dobbs as Chief Executive of Rail division * excluding restructuring costs, goodwill amortisation and exceptional items+ excluding megabus.com Financial Highlights • Turnover from continuing operations £1,787.6m (2004: £1,641.1m)• Total operating profit** £156.7m (2004: £147.5m)• Operating profit £132.8m (2004: £129.7m)• Profit before tax** £136.8m (2004: £120.2m)• Profit before tax £108.3m (2004: £95.8m)• Earnings per share** 9.0p, up 34.3% from 6.7p• Full year dividend up 13.8% to 3.3p (2004: 2.9p)• Free cash flow £173.6m (2004: £209.5m)• £241.3m of capital returned to shareholders ** excluding goodwill amortisation and exceptional items Commenting on the results, Chief Executive, Brian Souter said: "We have achievedstrong organic growth in our bus and rail operations in the UK and overseas,delivering on our strategic objectives for the Group. This excellent performancehas been driven by increased investment, innovation, targeted marketing and aclear focus on first-class service delivery. "Our Rail division has performed particularly well, benefiting from theintroduction of new trains and a significantly improved operational performance.We have delivered impressive growth in the UK in both our provincial and Londonbus operations as a result of our Kick Start initiatives, sector-leadingtelemarketing campaigns and online sales. A focus on our core markets, supportedby complementary bolt-on acquisitions, has resulted in further revenue growth inNorth America. In New Zealand, where we are the largest bus operator, we haveperformed well in a difficult market. "These strong results have been achieved despite significant cost pressures inthe transport sector, particularly on fuel prices. We are well placed to benefitfrom new rail franchising opportunities in the UK and I am confident ourcash-generative portfolio will produce further significant growth." Enquiries to: Martin Griffiths, Stagecoach Group +44 (0) 1738 442111Steven Stewart, Stagecoach Group +44 (0) 1738 442111 or +44 (0) 7764 774680John Kiely, Smithfield Financial +44 (0) 20 7360 4900 Note to Editors:High resolution images are available to the media free of charge atwww.newscast.co.uk (telephone +44 (0) 207 608 1000). Chairman's Statement I am pleased to report that Stagecoach Group has had a strong year, deliveringon our strategy for organic growth in our bus and rail operations in the UK andoverseas. The Group has achieved excellent financial and operationalperformance, despite the substantial fuel and other cost pressures. Stagecoach is continuing to lead the way in developing new ideas, innovativeproducts and highly effective marketing to attract new passengers to publictransport. By following this approach, combined with strong operationalmanagement and cost-control, we have driven up both passenger volumes andrevenues across our business. Our business is underpinned by a commitment to excellent customer service and astrong focus on the safety and security of our passengers and our people. Wecontinue to have a proactive culture across the Group that puts safety at thetop of our agenda. The successes we have achieved are flowing through strongly to our shareholders,who benefited from the £241.3m return of capital programme during the year andalso from increased dividends. Total turnover for the year ended 30 April 2005 was £1,794.7m (2004: £1,792.3m).Operating profit before goodwill amortisation and exceptional items was £156.7m(2004: £147.5m). Earnings per share before goodwill amortisation and exceptionalitems were up 34.3% at 9.0p (2004: 6.7p). Net debt increased by £147.0m from £67.6m at 30 April 2004 to £214.6m at 30April 2005. Excluding the £265.0m of cash outflows relating to dividends andcapital paid to shareholders, net debt fell by £118.0m as the Group continues togenerate significant cash from its operations. Given the Directors' confidence in the future prospects of the Group, as well asits financial strength, we are proposing a final dividend of 2.3p per share(2004: 2.0p), giving a total dividend for the year of 3.3p (2004: 2.9p). This isan increase of 13.8% and (based on continued strong cash flows and profits) wewill look to continue with a policy of growing the dividends progressively. Theproposed final dividend is payable to shareholders on the register at 2September 2005 and will be paid on 5 October 2005. We have strengthened our senior management team with the appointment of IanDobbs as Chief Executive of the Group's Rail Division. Ian has 28 years'experience in the rail industry in the UK and overseas. A former DivisionalDirector of British Rail, he was more recently Chief Executive Officer of theVictoria Public Transport Corporation in Australia, where he was responsible forthe rail, tram and bus services. He will join the Group in July 2005. Ian has a strong track record and we are confident he will drive forwardStagecoach's reputation as a first-class rail operator delivering high-qualityservices to passengers, value-for-money to taxpayers and an appropriate returnto shareholders. He will have operational responsibility for all of the Group'srail interests, and will initially report to Graham Eccles, Stagecoach GroupExecutive Director - Rail, who has indicated that he intends to retire and stepdown from the Board in April 2006. We have made a promising start to the new financial year and despite someindustrial action in New Zealand in the early part of May, overall trading is inline with our expectations. I am pleased that the hard work of our employees has been rewarded with anotheryear of achievement across the Group. We believe there are significantopportunities for organic growth and the expansion of our rail portfolio, bothof which can deliver increased value to our shareholders. Robert SpeirsChairman Chief Executive's Operating and Financial Review Organic growth across our business has driven Stagecoach's strong performanceduring the year. Overview of Financial Results Total turnover for the year was £1,794.7m compared to £1,792.3m in the prioryear. Turnover from continuing operations at constant exchange rates increased9.9%, reflecting excellent underlying growth. Turnover by division is summarisedbelow: TURNOVER 2005 2004 Currency 2005 2004 Growth £m £m Local Local % Currency Currency (m) (m)ContinuingoperationsUK Bus 720.3 650.2 £ 720.3 650.2 10.8North America 213.7 205.3 US$ 396.0 351.3 12.7New Zealand 59.0 58.3 NZ$ 160.6 160.9 (0.2)Rail 479.4 438.9 £ 479.4 438.9 9.2Virgin Rail Group 315.2 288.4 £ 315.2 288.4 9.3(49% share) ------- ------- ------- ------- ------- ------- 1,787.6 1,641.1 ------- -------DiscontinuedoperationsNorth America 7.1 131.5 US$ 13.1 225.1 (94.2)Citybus (Hong Kong) Nil 17.8 HK$ Nil 227.8 (100.0)Trainline Nil 1.9 £ Nil 1.9 (100.0) ------- ------- ------- ------- ------- ------- 7.1 151.2 ------- -------Total turnover 1,794.7 1,792.3 ======= ======= Operating profit* from our continuing businesses increased from £141.9m to£156.7m. Operating profit is summarised below: OPERATING 2005 % of 2004 % of Currency 2005 2004PROFIT £m turnover £m turnover Local Local Currency Currency (m) (m)ContinuingoperationsUK Bus 82.5 11.5% 74.8 11.5% £ 82.5 74.8North 14.8 6.7% 14.8 4.4% US$ 27.4 25.4AmericaNew Zealand 8.7 14.7% 10.7 18.4% NZ$ 23.7 29.5Rail 48.6 10.1% 44.1 10.0% £ 48.6 44.1Virgin RailGroup (49%share) 12.7 4.0% 13.5 4.7% £ 12.7 13.5Others (0.4) - (0.4) - £ (0.4) (0.4)Group (8.8) - (8.4) - £ (8.8) (8.4)overheadsRestructuringcosts (1.4) - (7.2) - £ (1.4) (7.2) ------ ------- 156.7 141.9DiscontinuedoperationsCitybus (HongKong) Nil - 1.0 5.6% HK$ Nil 12.8Trainline Nil (2.4)Road King Nil 7.0 ------ ------- 156.7 147.5Goodwillamortisation (22.5) (17.8)Exceptionalitems (1.4) Nil ------ -------Totaloperating 132.8 129.7profit ====== ======= UK Bus UK Bus has had an excellent year and this is reflected in the strong financialperformance. Turnover in our UK Bus division has increased by 10.8% to £720.3m(2004: £650.2m). Operating profit was up 10.3% to £82.5m, compared to £74.8m inthe previous year. We are particularly pleased to report a continued strongoperating margin, maintained at 11.5%, despite higher fuel costs, an increaseduse of operating leases to finance new vehicles and costs associated with thedevelopment of new products, such as megabus.com. Excluding the impact ofadditional operating leases and losses relating to the development ofmegabus.com, UK Bus operating margin was 12.6% versus 12.2% in 2004. We have built on our excellent track record in achieving growth in our UK busoperations as a result of our innovation, targeted marketing and consistentservice delivery. Our new telemarketing unit has been attracting thousands ofnew bus users and we expect our two-year campaign focusing on a new locationevery six-weeks to generate further organic growth in our provincial busoperations. megabus.com, the Group's low-cost inter-city bus service, has nowexpanded to cover over 30 towns and cities in the UK and we expect furthergrowth in megabus.com's revenue during the year to 30 April 2006. We have alsoexpanded our use of online sales to increase our share in other express coachmarkets, such as our premier London - Oxford service. We continue to develop positive partnerships with local authorities wherepro-bus policies coupled with our operational and marketing expertise areproducing strong revenue and passenger volume growth in our non-Londoncompanies. Several of our initial Government-funded Kick Start schemes arealready generating significant passenger volume growth after just six months andwe have again significantly increased turnover at our regulated bus operationsin London. North America North American trading has been very encouraging. Excluding discontinuedoperations, turnover increased 12.7% from US$351.3m to US$396.0m. Includingdiscontinued operations, turnover at our North American operations was US$409.1mcompared to US$576.4m in the previous year. Operating profit was US$27.4m (2004:US$25.4m), representing an improvement in operating margin from 4.4% to 6.7%.Converted to sterling, turnover was £220.8m (2004: £336.8m) and operating profitwas £14.8m (2004: £14.8m). We have significantly reduced our ongoing exposure to leisure markets throughour restructuring programme and the leisure-related businesses we have retainedare now benefiting from a more stable US economy and from the recovery incharter and sightseeing markets. US$ turnover in the sightseeing and tour partsof our continuing businesses is up 26.4% over the prior year. To stimulatefurther growth we have recently launched a new website for our North Americanoperations, which incorporates online sales as part of our revenue developmentstrategy. The non-leisure parts of our continuing North American businesses have also seengood growth, with US$ turnover from scheduled services and commuter services up7.8% on the prior year. In addition, we have continued to win and retain schoolbus and other contracts resulting in US$ turnover growth of 6.2% over the prioryear. New Zealand Turnover and operating profit from our New Zealand businesses were in line withour expectations. Turnover was similar to last year at NZ$160.6m (2004:NZ$160.9m). Operating profit was NZ$23.7m (2004: NZ$29.5m). The operating marginof 14.7% (2004: 18.4%) remains satisfactory but does reflect ongoing costpressures and increased competition from railways in the Auckland market.Converted to sterling, turnover was £59.0m (2004: £58.3m) and operating profitwas £8.7m (2004: £10.7m). Rail Our UK Rail division has had an excellent year. We are extremely pleased withthe strong growth in turnover and passenger volumes at South West Trains, whichhas been stimulated by improvements for customers centred on punctuality and thequality of the travelling environment. Therefore, we are well placed to continueto operate services beyond the end of the existing South West Trains franchisein February 2007. Turnover for our wholly-owned rail subsidiaries in the year was £479.4m (2004:£438.9m), with passenger volumes at South West Trains up 4.8% on the prior year.Operating profit was up 10.2% to £48.6m (2004: £44.1m), representing anoperating margin of 10.1% (2004: 10.0%). This includes liquidated damages of£2.6m in relation to late delivery of new Desiro trains and reliability of class458 trains. Customers have experienced a significantly improved service following theintroduction of the new timetable at South West Trains in December 2004, withmore frequent departures from the busiest stations. Train punctuality hasprogressively increased, with over 90% of trains now arriving on time (measuredon the basis of the Strategic Rail Authority's Public Performance Measure), andwe are confident that this new improved timetable and its inherent reliabilitywill stimulate further passenger volume growth. We have almost completed the UK's biggest introduction of new rolling stock atSouth West Trains with the minimum of delays for passengers. South West Trainshas replaced its old slam-door rolling stock earlier than any other Londonoperator, as part of the project to introduce 155 state-of-the art Desiro unitswith a total value of around £1 billion. Our strong performance at South West Trains has also benefited the taxpayer,with £46.0m (2004: £27.9m) in revenue and profit sharing payments being payableto the SRA in respect of the financial year ended 30 April 2005. Island Line, the Isle of Wight's rail franchise, is operating on a three-yearfranchise that runs concurrently with the South West Trains contract until 2007.Island Line remains Britain's best performing railway in terms of punctualityand reliability. Within the SRA's community rail framework, we are working withlocal stakeholders to find a suitable solution for the long-term future ofpublic transport on the Island. Sheffield Supertram, Britain's first state-of-the-art tramway, has achievedfurther passenger volume growth during the year. The network has carried arecord 12.8m passengers during the year and has delivered further growth inprofits. Stagecoach Group has a significant share of the UK passenger rail market and akey strategic priority is to maximise the current significant opportunities togrow our franchise portfolio. We have been shortlisted for the Greater Westernand Thameslink/Great Northern franchises. We are also working hard with ourpartners, Danish State Railways, to win the new Integrated Kent franchise. We are pleased to have been involved in helping to shape the future direction ofthe railways during the Government's recent review. A number of Stagecoachproposals, including better integration on the network, have been put in placeand the results are helping to reduce delays and improve network management. Virgin Rail Group At the two Virgin Rail Group ("VRG") franchises, West Coast and CrossCountry, weare particularly pleased at the improving reliability for passengers and thestep-change in the travelling environment that has been delivered with theintroduction of new trains. Our share of Virgin Rail Group's turnover for the year amounted to £315.2m(2004: £288.4m) and our share of operating profit was £12.7m (2004: £13.5m). Passenger volumes on the West Coast mainline have risen approximately 20% in theperiod since 18 September 2004 in response to the introduction of new fasterPendolino trains. Journey times on the key London-Manchester route have beenreduced by more than half an hour, while the frequency of services between thetwo cities has been doubled, attracting many airline passengers to rail travel.These results are extremely encouraging and many more people can be attractedback to the railways if this uplift in quality of service is matched by furtherand sustained progress in infrastructure provision by Network Rail. Both VRG's franchises operate on the basis of a Letter Agreement signed with theSRA in July 2002. Negotiations will re-commence on the West Coast franchise inSeptember 2005 with a view to agreeing revised commercial terms for thefranchise through to 2012. The SRA has terminated negotiations on theCrossCountry franchise and has the right to re-tender this franchise, althoughit is required to give at least 12 months' notice to VRG if it intends toterminate the existing franchise. We are awaiting the SRA's decision on thefuture of the franchise. If the SRA decides to put the franchise out to opencompetition, we are confident that VRG, as the incumbent operator with anexcellent track record, will be in a strong position to win the franchise. Under the Letter Agreement, the SRA sets an annual budget, including the levelof financial support, for each franchise. The SRA has set challenging budgetsfor VRG's financial year to 4 March 2006. In particular, discussions arecontinuing with the SRA regarding CrossCountry's requirement for additional cashfunding from July 2005. Joint ventures and associates Our share of joint venture and associates' operating profits (before goodwillamortisation) was £12.3m compared to £17.7m in the prior year. This includes£12.7m (2004: £13.5m) in respect of the Group's share of operating profits inVirgin Rail Group, as referred to earlier in this report. £0.4m (2004: £0.4m) oflosses arose from other smaller joint ventures and associates. The prior year'sresults included our share of trainline's operating losses which, up to the dateof disposal, was £2.4m, and our share of profits in Road King, up to the date ofdisposal, of £7.0m. Depreciation and amortisation Earnings before interest, taxation, depreciation, goodwill amortisation andexceptional items (pre-exceptional EBITDA) amounted to £224.4m (2004: £214.7m).Total depreciation for the year was £67.7m (2004: £67.2m). The annual goodwillamortisation charge was £22.5m compared to £17.8m in 2004. Total goodwillamortisation has increased by £4.7m, with the principal movement being a £6.5mincrease in the amortisation of goodwill related to the Group's investment inVirgin Rail Group. The Directors reviewed the period over which the goodwill inrespect of Virgin Rail Group was being amortised, in light of the status of thenegotiations on Virgin Rail Group's franchises and the possibility that the SRAcould terminate the CrossCountry franchise with 12 months' notice. As a result,the amortisation of goodwill in respect of Virgin Rail Group has beenaccelerated, resulting in an increased charge. Restructuring costs Non-exceptional restructuring costs included within operating profit amounted to£1.4m (2004: £7.2m). The prior year figure included £5.7m relating to therestructuring at North America. The restructuring costs at North America for theyear ended 30 April 2005 were £0.1m as the restructuring programme was largelycompleted in the prior year. Exceptional Items Net exceptional charges before tax of £6.0m (2004: £6.6m) were recorded of which£1.4m (2004: £Nil) is included within operating profit: £0.8m (2004: £Nil)relating to flooding at the UK Bus Division's Carlisle depot, £0.3m (2004: £Nil)relating to costs associated with the return of capital and £0.3m (2004: £Nil)relating to the write-down of an investment. Non-operating exceptional chargescomprised a loss of £5.9m (2004: £7.1m) on the disposals and closures ofbusinesses and a net gain of £1.3m (2004: £0.5m) on the sale of properties. A tax credit of £1.6m (2004: charge of £0.2m) was recognised in respect ofexceptional items resulting in net exceptional charges after tax of £4.4m (2004:£6.8m). Finance charges Net finance charges decreased from £27.3m to £19.9m as a result of a loweraverage net debt during the year and favourable foreign exchange rate movements.The ratio of pre-exceptional EBITDA to net finance charges was 11.3 timescompared to 7.9 times in 2004, reflecting the reduced finance charges. To provide some certainty as to the level of interest cost, it is our policy tomanage interest rate exposure through the use of fixed and floating rate debt.Derivative instruments are also used where appropriate to generate the desiredinterest rate profile. At 30 April 2005, 63% (30 April 2004: 49%) of the Group'sgross borrowings were fixed or capped. Taxation Profit before tax for the year was £108.3m. The Group's tax charge of £29.5mrepresents an effective rate of 27.2% on this profit (2004: 33.6% excludingimpact of exceptional tax credit of £41.0m). Earnings and dividends Earnings per share before goodwill amortisation and exceptional items were 9.0pence, compared to 6.7 pence in 2004, reflecting the strong performance at eachof our core divisions. Basic earnings per share (taking account of allexceptional items and goodwill amortisation) were 6.8 pence (2004: 7.9 pence):the prior year amount of 7.9 pence included 3.1 pence in respect of theexceptional tax credit. The total proposed dividend in respect of ordinary shares for the year is 3.3pence (2004: 2.9 pence). This represents dividend cover (before goodwillamortisation and exceptional items) of 2.9 times (2004: 2.3 times). £0.4m (2004:£Nil) of dividends on 'B' shares have been recognised in the year. Shares in issue The weighted average number of ordinary shares during the year used to calculatebasic earnings per share was 1,154.5m (2004: 1,321.7m). Following the return ofcapital in September 2004 and the related 19 for 24 consolidation of ordinaryshares, the number of shares ranking for dividend at 30 April 2005 was 1,063.0m,with a further 6.5m of ordinary shares held by employee trusts and not rankingfor dividend. The Group has authority to repurchase a further 134,073,290 ordinary shares.This authority expires at the 2005 AGM and we will seek to renew the generalauthority to repurchase up to 10% of the issued share capital. Net assets Net assets at 30 April 2005 were £219.0m (2004: £390.0m) with the decreaseprincipally reflecting the return of capital and dividends during the year,partly offset by the strong reported profits. Net debt During the year, we returned £241.3m of capital to shareholders by issuing newredeemable 'B' shares. Of the £241.3m shares issued, £227.4m have been redeemedfor cash during the year and are included in the increase in net debt which hasincreased from £67.6m to £214.6m. £13.9m of the 'B' shares have yet to beredeemed and are therefore not included in the net debt of £214.6m as at 30April 2005. Excluding the impact of the redeemed 'B' shares of £227.4m, net debt reduced by£80.4m. This includes the benefit of ongoing cash generation from our coreoperations, £30.2m received in respect of joint ventures and £14.7m receivedfrom the disposal of businesses including a negotiated early settlement of thedeferred consideration from the prior year disposal of Coach USA's West andSouth Central Regions. The strong cash generative nature of the Group is once again highlighted by freecash flow of £173.6m (2004: £209.5m). Free cash flow per share decreased from15.9 pence to 15.0 pence. The prior year free cash flows included one-off taxrefunds of £25.6m and £23.6m of one-off cash inflows arising from the close outof fixed to floating interest rate swaps. The impact of capital expenditure for the year on net debt was £100.0m (2004:£83.0m), partly offset by proceeds from the sale of tangible fixed assets of£7.1m (2004: £4.2m). This primarily related to expenditure on passenger servicevehicles, and comprised cash outflows of £73.8m (2004: £56.0m) and new hirepurchase debt of £26.2m (2004: £27.0m) Capital Expenditure Additions to tangible fixed assets for the year were: 2005 2004 £m £m -------- --------UK Bus 51.4 50.5North America 33.8 23.1New Zealand 10.8 7.0Citybus (Hong Kong) Nil 3.0UK Rail 7.8 3.2 -------- --------Total 103.8 86.8 -------- -------- The differences between the amounts shown above and the impact of capitalexpenditure on net debt arose from movements in fixed asset deposits andcreditors. Acquisitions and disposals Cash of £4.8m was paid on new acquisitions in the year, and £1.1m was paid inrespect of deferred consideration on acquisitions completed in previous years. Cash of £14.7m was received during the year in respect of disposals, whichincluded the negotiated early settlement of deferred consideration on disposalscompleted during last financial year. Return of Capital Following the passing of a special resolution at the 2004 AGM, we havesuccessfully completed the return of £241.3m of capital to shareholders, with77.2m 'B' shares (£13.9m) still to be redeemed. Having taken account of the cashflow generation of the Group and the potentialbonding requirements on current rail franchise bids, the Board is nowcomfortable with the Group's current capital structure. The Board will, however,continue to keep the Group's capital structure under review. Fuel hedging We currently use the equivalent of 1.8m to 1.9m barrels per annum of diesel fuelin our bus operations. As a result, we are exposed to the movement in theunderlying price of crude oil, which is the major driver of diesel prices. Wemanage the year on year volatility in our fuel costs by maintaining an ongoingfuel hedging programme where we use derivatives to effectively fix or cap thevariable unit cost of a percentage of our current and future diesel volumes. Ifwe had no hedging in place a US$10 a barrel movement in the underlying priceswould affect our fuel costs by US$18m-US$19m per annum. For the financial year to 30 April 2006, we have fixed or capped approximately85% of our variable fuel costs at an equivalent crude oil price of US$48 abarrel. If crude oil prices remain at around US$55 a barrel, fuel costs for theyear ending 30 April 2006 could increase by a further £15m to £20m, whencompared to 2004/5. We continue to manage fuel costs as part of our overall cost base, and our totalcosts of operation are taken into account when setting fares and contractprices. Liquidity and funding Our policy is to finance the Group through a mixture of bank and hire purchasedebt, capital markets issues and retained earnings. As at 30 April 2005, theGroup's committed credit facilities were £688.8m (2004: £430.1m), £327.4m (2004:£310.5m) of which were utilised, including bank guarantees. Pensions The Group continues to account for pensions on the basis of SSAP 24,''Accounting for pension costs''. Under SSAP 24, total pension costs in the yearended 30 April 2005 were £38.6m (2004: £32.9m). The charge for the year includesadditional costs relating to the funding of past service deficits, and issimilar to the cash contributions paid by the Group in the year that amounted to£38.0m. Under the transitional arrangements of FRS 17, "Retirement Benefits", the Groupcontinues to account for pensions in accordance with SSAP 24 as explained aboveand also provides the additional disclosures required by FRS 17. The Groupcontributes to a number of defined benefit pension schemes for its bus and headoffice employees, and also to the relevant sections of the Railway PensionScheme ("RPS"). Under both FRS 17 and International Financial ReportingStandards, we would expect to recognise only that part of the RPS deficit (orsurplus) that the Group is expected to fund over the life of the franchise, ascalculated by independent actuaries. This revised basis of estimate isconsidered by the Directors to best reflect the Group's obligations. The Groupis continuing to discuss the calculation and reporting of RPS arrangements withits advisors. Excluding any adjustments required to reflect the revised basis ofestimate for RPS, the post-tax deficit on our defined benefit schemes, measuredin accordance with FRS 17, was £177.7m at 30 April 2005, up from £130.0m at 30April 2004. The deficit has increased primarily because FRS 17 requiresliabilities to be discounted using the yield on AA-rated bonds of similarmaturity. Bond yields are now close to record lows and the reduction on bondyields results in an increase in FRS 17 liabilities. Under FRS 17, the definedbenefit pension schemes in respect of the Group's UK Bus and head officeemployees showed a net liability at 30 April 2005 of £148.0m (2004: £115.8m)after taking account of deferred tax. In addition, the defined benefit pensionschemes in respect of the Group's Rail employees showed a net liability of£29.7m (2004: £14.2m) after deferred tax. International Financial Reporting Standards The Group will be required to produce consolidated financial statements andannual reports in line with International Financial Reporting Standards(''IFRS''), also known as International Accounting Standards (''IAS''). TheGroup's first full set of IFRS accounts, including comparatives, will beprepared for the year ending 30 April 2006. Interim IFRS accounts, includingcomparatives, will be prepared for the six months to 31 October 2005. Our steering committee, set up to oversee the convergence to IFRS, hasidentified the main differences between IFRS and the current Group UK GAAPpolicies and has established the accounting policies or changes required. Theadjustments required to reconcile our UK GAAP numbers to those that will bereported under IFRS as at 1 May 2004 and for the six months to 31 October 2004have been calculated. The Group has chosen not to re-state its results for the year ended 30 April2005 for financial instruments. The figures for the year ended 30 April 2005will therefore not fully reflect the requirements of IAS 32, "FinancialInstruments : Disclosure and Presentation" and IAS 39, "Financial Instruments :Recognition and Measurement". The Group will apply IAS 32 and IAS 39 with effectfrom 1 May 2005. The most significant areas of difference affecting net assets and EPS areexpected to be in respect of pensions, goodwill, share based payment, dividends,and from 1 May 2005, 'B' shares and other financial instruments. We expect to publish our results for the year ended 30 April 2005, re-stated toIFRS, prior to the next half year-end at 31 October 2005. Current trading and outlook While still early in the new financial year we have made a promising start and,despite some industrial action in New Zealand in the early part of May, overalltrading is in line with our expectations. There are a number of exciting new opportunities across the Group that we arepursuing this year and this, combined with our focus on innovation in ourexisting businesses and our strong cash generation, means there is realpotential to deliver further growth and shareholder value. Our people None of this could have been achieved without the tremendous commitment from ourpeople, who have ensured the Group has delivered on its strategy. We have anexcellent team of senior managers across the Group and I believe we are wellplaced to deliver further growth in the coming year. Brian SouterChief Executive Consolidated Profit and Loss Account Audited Audited Year ended 30 April 2005 Year ended 30 April 2004 Performance Goodwill Results Performance Goodwill Results pre goodwill and for pre goodwill and for and exceptional the year and exceptional the year exceptionals items exceptionals items Notes £m £m £m £m £m £m ------- ------- ------- ------- ------- -------Turnover:Group andshare ofjoint ventures 1 1,794.7 Nil 1,794.7 1,792.3 Nil 1,792.3Less: Shareofjointventures' turnover (315.2) Nil (315.2) (290.3) Nil (290.3) ------- ------- ------- ------- ------- -------Group turnover 1 1,479.5 Nil 1,479.5 1,502.0 Nil 1,502.0 ------- ------- ------- ------- ------- -------Represented Nilby:ContinuingGroupoperations 1,472.4 Nil 1,472.4 1,352.7 Nil 1,352.7Discontinuedoperations 1 7.1 Nil 7.1 149.3 Nil 149.3 ------- ------- ------- ------- ------- ------- 1,479.5 Nil 1,479.5 1,502.0 Nil 1,502.0Operatingcosts (1,509.0) (8.1) (1,517.1) (1,501.3) (8.8) (1,510.1)Otheroperatingincome 173.9 (0.6) 173.3 129.1 Nil 129.1 ------- ------- ------- ------- ------- -------Operatingprofit ofGroupcompanies 1 144.4 (8.7) 135.7 129.8 (8.8) 121.0Share ofoperating(loss)/profitof joint ventures 12.7 (14.9) (2.2) 10.7 (8.7) 2.0Share ofoperating(loss)/profit frominterestinassociates (0.4) (0.3) (0.7) 7.0 (0.3) 6.7 ------- ------- ------- ------- ------- -------Totaloperatingprofit:Group and shareof jointventures and associates 1 156.7 (23.9) 132.8 147.5 (17.8) 129.7 ------- ------- ------- ------- ------- -------Representedby:ContinuingGroupoperations 144.4 (8.7) 135.7 128.8 (7.8) 121.0Continuingjointventures and associates 12.3 (15.2) (2.9) 13.1 (9.0) 4.1 ------- ------- ------- ------- ------- ------- 156.7 (23.9) 132.8 141.9 (16.8) 125.1DiscontinuedGroupoperations Nil Nil Nil 1.0 (1.0) NilDiscontinuedjointventures and associates Nil Nil Nil 4.6 Nil 4.6 ------- ------- ------- ------- ------- -------Totaloperatingprofit:Group and shareof jointventures andassociates 156.7 (23.9) 132.8 147.5 (17.8) 129.7Profit onsale ofproperties 3 Nil 1.3 1.3 Nil 0.5 0.5Loss ondisposal ofoperations 3 Nil (5.9) (5.9) Nil (7.1) (7.1) ------- ------- ------- ------- ------- -------Profit onordinaryactivitiesbefore interest andtaxation 156.7 (28.5) 128.2 147.5 (24.4) 123.1Financecharges (net) (19.9) Nil (19.9) (27.3) Nil (27.3) ------- ------- ------- ------- ------- -------Profit onordinaryactivitiesbeforetaxation 136.8 (28.5) 108.3 120.2 (24.4) 95.8Taxation onprofit onordinaryactivities 4 (32.2) 2.7 (29.5) (32.3) 41.1 8.8 ------- ------- ------- ------- ------- -------Profit onordinaryactivitiesafter taxation 104.6 (25.8) 78.8 87.9 16.7 104.6Equitydividends 8 (35.1) Nil (35.1) (38.4) Nil (38.4)Non-equitydividends (0.4) Nil (0.4) Nil Nil Nil ------- ------- ------- ------- ------- -------Retainedprofit forthe year 69.1 (25.8) 43.3 49.5 16.7 66.2 ------- ------- ------- ------- ------- ------- Earnings pershare:- Adjusted/Basic 2 9.0p 6.8p 6.7p 7.9p ------- ------- ------- ------- ------- -------- Diluted 2 8.8p 6.6p 6.5p 7.8p ------- ------- ------- ------- ------- ------- The accompanying notes form an integral part of this consolidated profit andloss account. Consolidated Balance Sheet Audited Audited As at As at 30 April 2005 30 April 2004 Notes £m £m ----------- -----------Fixed assetsIntangible assets 89.5 103.5Tangible assets 640.2 618.0Investments- Investment in joint ventures 5 Goodwill 42.8 57.5 Share of gross assets 131.3 98.8 Share of gross liabilities (106.2) (59.8) Shareholder loan notes 3.3 10.0 ----------- -----------Total investment in joint ventures 71.2 106.5 ----------- ----------- - Investment in associates 0.7 1.4- Other investments 1.7 2.3 ----------- ----------- 803.3 831.7 ----------- -----------Current assetsStocks 12.5 13.4Debtors and prepaid charges - due withinone year 174.1 169.2- due after more than one year 48.7 58.0Cash at bank and in hand 140.0 476.5 ----------- ----------- 375.3 717.1 Creditors: Amounts falling due withinone year (541.8) (674.6) ----------- -----------Net current (liabilities)/ assets (166.5) 42.5 ----------- -----------Total assets less current liabilities 636.8 874.2Creditors: Amounts falling due aftermore than one year (236.2) (292.2) Provisions for liabilities and charges- Joint ventureGoodwill Nil 0.3Share of gross liabilities Nil (1.7)Shareholder loan notes Nil 0.4- Other provisions (181.6) (191.0) ----------- -----------Net assets 219.0 390.0 ----------- -----------Capital and reservesEquity share capital 6.8 6.7Redeemable 'B' preference shares 13.9 NilShare premium account 163.4 392.4Profit and loss account (187.4)* (6.9)Capital redemption reserve 229.1 1.7Own shares (6.8) (3.9) ----------- -----------Shareholders' funds 6 219.0 390.0 ----------- -----------Analysis of shareholders' fundsEquity 205.1 390.0Non-equity 13.9 Nil ----------- ----------- 219.0 390.0 ----------- ----------- The accompanying notes form an integral part of this consolidated balance sheet. * The profit and loss reserve deficit of £187.4m (2004: £6.9m) is theconsolidated position after taking account of cumulative goodwill of £113.8m(2004: £113.8m) that was written off against reserves in periods prior to theadoption of FRS 10, "Goodwill and Intangible Assets". The holding company'sdistributable reserves as at 30 April 2005 were £281.6m (2004: £374.6m). Consolidated Cash Flow Statement Audited Audited Year ended Year ended 30 April 30 April 2005 2004 Notes £m £m --------- ----------- Net cash inflow from operating activities 7 198.5 214.3Dividends from joint ventures andassociates 23.5 4.1 --------- -----------Returns on investments and servicing offinanceInterest paid (26.2) (37.9)Interest element of hire purchase and leasefinance (8.3) (5.8)Interest received 13.6 44.2Non-equity dividends paid (0.4) Nil --------- -----------Net cash (outflow)/inflow from returns oninvestments and servicing of finance (21.3) 0.5 --------- -----------Taxation (27.1) (9.4) --------- -----------Capital expenditure and financialinvestmentPurchase of tangible fixed assets (73.8) (56.0)Sale of tangible fixed assets 7.1 4.2 --------- -----------Net cash outflow from capital expenditureand financial investment (66.7) (51.8) --------- -----------Acquisitions and disposalsAcquisition of subsidiaries (5.9) (7.4)Purchase of other investments (0.2) NilMovements in loans to joint ventures 6.7 NilCash of disposed subsidiaries Nil (4.3)Disposal of subsidiaries and otherbusinesses 14.7 263.7Disposal of investments in joint venturesand associates Nil 64.9Disposal of other investments 0.6 Nil --------- -----------Net cash inflow from acquisitions anddisposals 15.9 316.9 --------- -----------Equity dividends paid (37.2) (35.6) --------- -----------Net cash inflow before financing 85.6 439.0 --------- -----------FinancingSale of tokens 10.2 13.5Redemption of tokens (10.9) (11.9)Issue of ordinary share capital for cash 5.3 6.4Redemption of 'B' shares (227.4) NilExpenses on issue of 'B' shares (0.4) NilRepurchase of 'B' shares by employee shareownership trusts 1.7 NilInvestment in own ordinary shares byemployee share ownership trusts (1.9) (3.9)Sale of own ordinary shares by employeeshare ownership trusts 4.8 NilDecrease in collateral balances 3.0 37.3Decrease in borrowings (110.1) (158.4)Repayments of hire purchase and leasefinance (92.5) (60.3)Cash inflows from lease finance Nil 85.7 --------- -----------Net cash outflow from financing (418.2) (91.6) --------- -----------(Decrease)/increase in cash during the year 7 (332.6) 347.4 --------- -----------Free cash flow 173.6 209.5 --------- -----------Free cash flow per share 15.0p 15.9p --------- ----------- Free cash flow comprises net cash inflow from operating activities, dividendsfrom joint ventures and associates, net cash (outflow)/inflow from returns oninvestments and servicing of finance, and taxation. The accompanying notes form an integral part of this consolidated cash flowstatement. Consolidated Statement of Total Recognised Gains and Losses Audited Audited Year ended Year ended 30 April 2005 30 April 2004 £m £m ----------- ----------- Profit for the financial year 78.8 104.6Translation differences on foreign currencynet investments, net of hedging 3.6 (0.4)Tax effect of translation differences onforeign currency net investments Nil 4.8Share of other recognised gains and losses ofassociates Nil (0.2) ----------- -----------Total recognised gains and losses relating tothe year 82.4 108.8 ----------- ----------- There are no recognised gains and losses of joint ventures other than theGroup's share of their profits or losses for each financial year. Notes to the Preliminary Statement 1 Segmental Analysis (a) Turnover Audited Audited Year ended Year ended 30 April 2005 30 April 2004 £m £m ----------- ----------- Continuing operationsUK Bus 720.3 650.2North America 213.7 205.3New Zealand 59.0 58.3 ----------- -----------Total bus continuing operations 993.0 913.8 UK Rail 479.4 438.9 ----------- ----------- Total continuing operations 1,472.4 1,352.7 ----------- -----------Discontinued operationsNorth America 7.1 131.5Citybus Nil 17.8 ----------- -----------Total discontinued operations 7.1 149.3 ----------- -----------Group turnover 1,479.5 1,502.0Share of joint ventures' turnoverContinuing- Virgin Rail Group 315.2 288.4Discontinued- thetrainline Nil 8.1Elimination of inter-segment turnover Nil (6.2) ----------- -----------Group turnover and share of joint ventures'turnover 1,794.7 1,792.3 ----------- ----------- Due to the nature of the Group's business, the origin and destination ofturnover is the same in all cases. 1 Segmental Analysis (continued) (b) Operating profit Audited Audited Year ended 30 April 2005 Year ended 30 April 2004 Performance Goodwill Results Performance Goodwill Results pre goodwill and for pre goodwill and for and exceptional the and exceptional the exceptionals items year exceptionals items year £m £m £m £m £m £m ------- ------- ------- ------- ------- -------ContinuingoperationsUK Bus 82.5 (0.8) 81.7 74.8 Nil 74.8North America 14.8 Nil 14.8 14.8 Nil 14.8New Zealand 8.7 Nil 8.7 10.7 Nil 10.7 ------- ------- ------- ------- ------- -------Total buscontinuingoperations 106.0 (0.8) 105.2 100.3 Nil 100.3UK Rail 48.6 Nil 48.6 44.1 Nil 44.1 ------- ------- ------- ------- ------- -------Totalcontinuingoperations 154.6 (0.8) 153.8 144.4 Nil 144.4 Groupoverheads (8.8) (0.6) (9.4) (8.4) Nil (8.4)Goodwillamortisation Nil (7.3) (7.3) Nil (7.8) (7.8)Redundancy/restructuringcosts (1.4) Nil (1.4) (7.2) Nil (7.2) ------- ------- ------- ------- ------- -------Totaloperatingprofit ofcontinuing 144.4 (8.7) 135.7 128.8 (7.8) 121.0Groupoperations ------- ------- ------- ------- ------- -------Discontinuedoperations- Citybus Nil Nil Nil 1.0 Nil 1.0- Goodwillamortisation Nil Nil Nil Nil (1.0) (1.0) ------- ------- ------- ------- ------- -------Totaloperatingprofit ofdiscontinued Nil Nil Nil 1.0 (1.0) NilGroupoperations ------- ------- ------- ------- ------- -------Totaloperatingprofit ofGroupcompanies 144.4 (8.7) 135.7 129.8 (8.8) 121.0Share ofoperatingprofit/(loss)of jointventuresContinuing- Virgin RailGroup 12.7 Nil 12.7 13.5 Nil 13.5- other Nil Nil Nil (0.4) Nil (0.4)Discontinued- thetrainline Nil Nil Nil (2.4) Nil (2.4)Goodwillamortised oninvestment incontinuing Nil (14.9) (14.9) Nil (8.7) (8.7)jointventuresShare ofoperating(loss)/profitofassociatesContinuing- other (0.4) Nil (0.4) Nil Nil NilDiscontinued- Road King Nil Nil Nil 7.0 Nil 7.0Goodwillamortised oninvestment in Nil (0.3) (0.3) Nil (0.3) (0.3)continuingassociates ------- ------- ------- ------- ------- -------Totaloperatingprofit: Groupand share 156.7 (23.9) 132.8 147.5 (17.8) 129.7of jointventures and ------- ------- ------- ------- ------- -------associates The operating profit from discontinued Group operations includes Citybus. Theoperating profit from the discontinued element of North America is notseparately shown because it is not clearly distinguishable due to certain"shared" costs that relate to North America as a whole. However, thediscontinued element of North America's operating profit is not believed to bematerial in the context of the Group's annual operating profit as a whole, forneither the year ended 30 April 2005 nor the year ended 30 April 2004. Goodwill amortisation on continuing operations of £7.3m (2004: £7.8m) isanalysed as UK Bus £0.7m (2004: £0.6m), New Zealand £1.2m (2004: £1.2m) andNorth America £5.4m (2004: £6.0m).Related Shares:
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