16th May 2007 07:01
Embargoed until 07:00hrs on Wednesday 16 May 2007
FIRSTGROUP PLC PRELIMINARY RESULTS FOR THE YEAR TO 31 MARCH 2007SUMMARY 2006/07 * EXCELLENT PERFORMANCE - CLEAR STRATEGY DELIVERING RESULTS * + Excellent results despite ‚£37.1m fuel cost increase + Revenue up by 22.4% and adjusted operating profit up 12.8% + Adjusted EBITDA - ‚£398.9m up 13.4% + Adjusted basic EPS - 33.7p up 9.1% + Dividend growth - 10% for the 3rd consecutive year * UK RAIL - STRONG PERFORMANCE REVENUE INCREASED BY 56.6% * + Investment delivering passenger growth and improved performance + Integrated enlarged First Great Western and First Capital Connect - already delivering improvements in fleet, capacity and services + First TransPennine Express, First ScotRail and Hull Trains - strong passenger growth and excellent operational performance
+ Pre-qualified for 3 new franchises - East Midlands, New Cross Country
and InterCity East Coast * UK BUS - STRONG TRADING DESPITE INCREASED FUEL COSTS * + Profit growth and improved margin despite ‚£28.2m fuel costs + Continued revenue growth and increased passenger journeys + Further year of improvement in operational performance + Successful voluntary partnerships signed in major cities
* NORTH AMERICA - EXCITING GROWTH OPPORTUNITIES IN LARGE, FRAGMENTED MARKET
* + First Student - margin improved and >95% contract retention
+ First Transit - margin growth and successful cost efficiency programme
+ First Services - new business and retention of 10-yr federal contract
* ACQUISITION OF LAIDLAW INTERNATIONAL, INC. * + Transformational deal - significant value opportunity + Both sets of shareholders approved transaction in April + Working with Dept. of Justice on regulatory approval process + Integration planning well underway - focus on synergies
FINANCIAL SUMMARY 2006/07
* Revenue ‚£3,708.8m (2006: ‚£3,030.9m) * Adjusted operating profit1 ‚£259.2m (2006: ‚£229.7m) * Operating profit ‚£203.6m (2006: ‚£210.7m) * Adjusted EBITDA2 ‚£398.9m (2006: ‚£351.7m) * Adjusted profit before tax1 ‚£195.8m (2006: ‚£176.4m) * Profit before tax ‚£140.2m (2006: ‚£157.4m) * Adjusted basic earnings per share1 33.7p (2006: 30.9p) * Basic earnings per share 23.1p (2006: 27.4p) * Interest cover3 6.3x (2006: 6.6x) * Dividend per share 15.5p (2006: 14.1p) * Net debt at 31 March 2007 ‚£516.2m (2006: ‚£704.4m)
1Before intangible asset amortisation, non-recurring bid costs, other non-recurring items and (loss)/profit on disposal of fixed assets, as shown in the consolidated income statement on page 22.
2Adjusted operating profit as defined plus depreciation.
3Calculated as adjusted EBITDA divided by the net of finance costs and investment income.
Commenting, FirstGroup's Chief Executive, Moir Lockhead said:
"I am pleased to report a highly successful year for the Group. The strength ofour businesses is demonstrated by these robust results despite absorbing ‚£37.1mas a result of increased fuel costs. Our business is highly cash generative andwe have achieved record adjusted EBITDA of ‚£398.9m enabling us to invest forgrowth in the business and return cash to shareholders by increasing thedividend by 10% for the third consecutive year. Adjusted basic earnings pershare increased by 9.1% to 33.7p."We announced in February our proposed acquisition of Laidlaw International,Inc. This transformational deal is an exciting opportunity to generateincreased value and returns for shareholders and create a strong and robustbusiness in a highly fragmented market. We will be able to leverage valuethrough scale and secure future growth and returns for shareholders throughimproved operating efficiencies and the delivery of substantial synergies. Oncompletion of the acquisition, in excess of 50% of the Group's revenues andearnings will be generated in North America."All of our businesses have delivered a very strong performance. Our UK Raildivision continues to go from strength to strength. This year we commencedoperation of two new enlarged franchises. We have made significant investmentacross all of our rail businesses to deliver improvements in rolling stock,capacity and services for passengers. Demand for our services continues toaccelerate with passenger and income growth across all of our rail operations.We are delighted to pre-qualify for a further three franchises: East Midlands,New Cross Country and InterCity East Coast and await the outcome later thisyear. I am pleased with the strong trading result from our UK Bus divisiondespite absorbing additional fuel costs of ‚£28.2m. We have delivered improvedoperating performance and volume growth. Increased passenger journeys, togetherwith our initiatives to grow revenue and bear down on costs, have resulted in astrong performance. We continue to promote a partnership approach to deliveringa comprehensive and sustainable bus network in the towns and cities where weoperate and have seen encouraging growth as a result. Our North Americanbusiness has enjoyed high contract retention and margin improvement. We areseeing the positive impact of our strategy to mitigate fuel cost pressuresthrough the contract renewal process. The Board is pleased with the consistentreturns generated from this business since we entered the market in 1999 andremains confident that North America offers further exciting growth prospectsfor the Group."Our strategy is focused on delivering value for shareholders from furthergrowth within our core businesses and exploring opportunities to develop in newmarkets. For the third year running we have increased the dividend by 10%reflecting the Board's confidence in the Group's future prospects and abilityto continue to generate strong cash flows. We are committed to this level ofannual dividend growth for the foreseeable future, at least for the next threeyears. I am pleased to report that trading in the new financial year hasstarted well and is in line with our expectations."
Enquiries FirstGroup plc :
Moir Lockhead, Chief Executive Tel: 020 7291 0512
Dean Finch, Finance Director Tel: 020 7291 0512
Rachael Borthwick, Corporate Communications Director Tel: 020 7291 0508
PHOTOGRAPHS FOR THE MEDIA ARE AVAILABLE AT WWW.NEWSCAST.CO.UK
NOTES TO EDITORS:
FirstGroup plc is a UK based international transport company with revenues ofover ‚£3.7 billion a year. We employ over 74,000 staff throughout the UK andNorth America and move more than 2 billion passengers a year.
* The Group is Britain's largest bus operator running more than one in five
of all local bus services. A fleet of nearly 9,000 buses carries some 2.9
million passengers a day in more than 40 major towns and cities.
* The Group is the UK's largest rail operator with four passenger franchises
- First Great Western, First Capital Connect, First TransPennine Express
and First ScotRail - and one open access operator, Hull Trains.
* The Group operates one quarter of the UK passenger rail network, with a
balanced portfolio of intercity, commuter and regional services, carrying
almost 260m passengers per annum. * The Group is shortlisted for the East Midlands, New Cross Country and InterCity East Coast franchises. * The Group operates freight services through GB Railfreight.
* The Group operates Croydon Tramlink network which carries over 24 million
passengers a year.
* In North America the Group has three operating divisions: Yellow School
Buses (First Student), Transit Contracting and Management Services (First
Transit) and Vehicle Fleet Maintenance and Support Services (First
Services). Headquartered in Cincinnati the businesses operate across the US
and Canada.
* First Student is the second largest provider of student transportation in
North America with a fleet of approximately 22,000 yellow school buses, carrying nearly 2 million students every day across the US and Canada. * First Transit is one of the largest private sector providers of transit
management and contracting, managing public transport systems on behalf of
transit authorities in cities such as Los Angeles, Houston and Denver. It
is one of the largest providers of airport shuttle bus services in the US,
serving airports in cities such as Baltimore, Philadelphia and Miami. It
also manages call centres, paratransit operations and other light transit
activities. * First Services is the largest private sector provider of vehicle maintenance and ancillary support services in the US. It provides fleet maintenance for public sector customers such as the Federal Government,
cities and fire and police departments. It also provides a range of support
services including vehicle maintenance, logistics support and facilities
management to public and private sector clients including the US Navy and
US Air Force. * On 9 February the Group announced the proposed acquisition of Laidlaw International, Inc. the leading operator of school and intercity bus
transportation and a supplier of public transit services in North America
for a consideration of US$3.6 billion (‚£1.9 billion). The acquisition
remains conditional on the receipt of necessary antitrust approvals in the
US and Canada. At this time the Board has no further update on the likely
completion date.
* Laidlaw International, Inc. has some 62,500 employees and operates three
main business segments: * Laidlaw Education Services which operates approximately 40,000 yellow school buses in 37 states in the US and six provinces in Canada. * Greyhound is the only national provider of scheduled intercity bus
transportation services in the US and Canada. Greyhound provided scheduled
passenger services to approximately 2,400 destinations throughout the US
and Canada carrying approximately 24 million passengers annually.
* Laidlaw Transit Services provides municipal public transportation services
in North America specialising in paratransit and fixed route contract
services in approximately 23 states in the US.
Chairman's statement
I am delighted to report a very successful year for the Group delivering on ourclear strategy to profitably grow in our core markets and create further valuefor shareholders. Our focus is on delivering safe, high quality and reliableservices throughout our business. The safety of our passengers and employees isour highest priority and we strive to lead the industry in this area andachieve the highest possible standards across the Group.This has been a year of excellent progress across our business. We achieved arecord set of results with revenue increased to ‚£3,708.8m (2006: ‚£3,030.9m) andadjusted profit before tax (before intangible asset amortisation, non-recurringbid costs, other non-recurring items and loss on disposal of fixed assets)increased to ‚£195.8m (2006: ‚£176.4m). Profit before tax was ‚£140.2m (2006: ‚£157.4m) reflecting higher one-off costs primarily as a result of non-recurringrail franchise mobilisation costs and lower property results. I am very pleasedthat the Group has delivered this strong performance despite the additionalfuel cost increase during the year which impacted Group operating profit by ‚£37.1m. EBITDA (Group operating profit* plus depreciation) increased to a record‚£398.9m (2006: ‚£351.7m) and cash generation has been excellent. Adjusted basicearnings per share increased by 9.1% to 33.7p (2006: 30.9p). The Board hasproposed a final dividend, subject to approval by shareholders, of 10.5p makinga full year payment of 15.5p, an increase of 10%. The dividend is covered 2.2times, before intangible asset amortisation, non-recurring bid costs, othernon-recurring items and loss on disposal of fixed assets. It will be paid on 24August 2007 to shareholders on the register on 20 July 2007. The Board'scommitment to increase dividends by 10% for the foreseeable future, at leastfor a further three years, reflects our confidence in the Group's strong cashgeneration and prospects for further growth.On 9 February we were delighted to announce the proposed acquisition of LaidlawInternational, Inc. the leading provider of school and intercity bustransportation and a supplier of public transit services in North America.Following the approval for this transaction from both our shareholders andLaidlaw stockholders on 20 April we now only await the necessary antitrustregulatory approvals in the US and Canada for completion. We believe thistransformational acquisition will significantly enhance shareholder value andunderpins future growth. The integration of Laidlaw with FirstGroup gives us aunique opportunity to become the leading operator in the large, fragmentedNorth American transport market and leverage value through scale. We have anexcellent track record of successfully acquiring and integrating businesses andwe are excited by the opportunities this acquisition will bring to increase theservice offering to customers.We recognise that our staff are our greatest asset. On behalf of the Board Iwould like to take this opportunity to thank all of our staff for theircontinued hard work and commitment in delivering another excellent year for theGroup. I would also like to welcome new employees who have joined ourbusinesses in the UK and US during the period.I am very pleased with the progress achieved by the Group this year building onour position as a leading transport provider. We are delivering on our clearstrategy to create shareholder value by sustainable growth in our corebusinesses and exploring opportunities to develop in new markets. We have madesignificant investment in our business to ensure that we offer the highestlevel of service to our customers and we remain committed to increasing thedividend by 10% per annum for the foreseeable future. This is an exciting timefor the Group as we consolidate our position in the highly attractive NorthAmerican market and continue to deliver improved operating performance andrevenue growth in our UK businesses. The Board is optimistic about theopportunities for the business and looks forward to the future with confidence.Martin GilbertChairman
*Operating profit referred to throughout this document refers to operating profit before intangible asset amortisation, non-recurring bid costs, other non-recurring items and (loss)/profit on disposal of fixed assets.
Chief Executive's operating review
OVERVIEW
Safety
The safety and security of our passengers and staff is fundamental toeverything that we do. We continually seek to improve the safety culturethroughout our business and apply a `zero tolerance' approach to unsafe actsand practices. Over the past few years we have made great strides in improvingour working practices and procedures and in monitoring our performance in thisarea. We are never complacent and continually strive to meet the highestpossible standards of safety for our passengers and staff. For example, ourInjury Prevention Programme (IPP) is not only innovative but unprecedented inour industry. I am pleased to report that IPP has been rolled out across all ofour operations and is designed to engage all our staff and encourage goodsafety practices to embed the safety culture in all of our operations.
Results
I am delighted with the excellent performance of the Group which has delivereda record year of growth. Group revenue increased by 22.4% to ‚£3,708.8m (2006: ‚£3,030.9m). Adjusted operating profit was ‚£259.2m (2006: ‚£229.7m). This strongperformance is all the more notable as we have faced strong headwinds duringthe year, primarily the significant rise in fuel costs. In these resultsoperating profit was impacted by ‚£37.1m by additional fuel costs. Foreignexchange translation on North American results reduced sterling earnings yearon year by ‚£3.8m - the average rate for 2006/07 was $1.89 compared to $1.79 for2005/06. Profit before tax was ‚£140.2m (2006: ‚£157.4m) reflecting higherone-off costs primarily as a result of non-recurring rail franchisemobilisation costs and lower property results. Strong cash generation is afeature of this business and I am pleased to report that the Group generatedrecord EBITDA (adjusted operating profit plus depreciation) of ‚£398.9m (2006: ‚£351.7m) an increase of 13.4%, enabling us to continue to invest in the businessas well as increasing the dividend by 10% for the third consecutive year.
UK RAIL
The UK Rail division operates passenger and freight services in the UK. We havea strong, balanced portfolio of intercity, regional and commuter franchises.Passenger rail franchises consist of First Great Western, First CapitalConnect, First TransPennine Express and First ScotRail. We also operate HullTrains, a non-franchised open access intercity passenger train operator, and weprovide rail freight services through GB Railfreight. We are the UK's largestrail operator carrying almost 260 million passengers per annum.
Results
Our successful rail division has delivered its best ever year of growth. We arecommitted to the long-term development of railways in the UK and are investingto deliver improved services for passengers. We are the only operator to runevery type of overground rail service in the UK, from high speed intercitytrains and overnight sleepers to local branch lines, regional and commuterservices and open access, light rail and freight operations. We will continueto build on our reputation of investment, innovation and customer service.Revenue in the Group's rail division increased by 56.6% to ‚£1,824.1m (2006: ‚£1,164.9m) and operating profit increased by 36.7% to ‚£108.8m (2006: ‚£79.6m)reflecting a full year contribution from the new and enlarged rail franchisestogether with strong volume growth across our network. Across all of our railoperations we have experienced good growth in passenger volumes.
First Great Western
At First Great Western we are working hard to ensure that we deliver ourfranchise plans and we are investing ‚£200m to improve the services we offer ourcustomers. Since we commenced operation of the new enlarged franchise(combining First Great Western, First Great Western Link and Wessex Trains) wehave integrated three diverse railway businesses into one operation. FirstGreat Western operates more high speed trains into London than any otheroperator and provides train services for 1.5 million passengers each week.During the past 12 months we have consolidated depots, introduced a newmanagement structure and common systems, brought together 4,400 staff,introduced new amalgamated timetables, commenced a substantial fleetrefurbishment programme and started the many major improvements which wecommitted to as part of our franchise. Despite our best efforts to ensure aseamless transition we faced some operational challenges principally as aresult of changing the rolling stock maintenance depot and the introduction ofa new consolidated timetable. We made great efforts to swiftly rectify thoseissues, the majority of which we have now overcome. The new timetables whichwill be introduced in May and December this year will further improve services.As part of our ‚£145m investment to completely overhaul the High Speed Train(HST) fleet, we have commenced the installation of new more reliable,environmentally friendly engines. We have already fitted 42 new engines whichhave improved operating performance, doubled reliability, cut CO2 emissions by64% and smoke emissions by 42%. The remainder of these new engines will be inplace by the end of this year. We are also making good progress on our fleetrefurbishment programme. A new stylish and contemporary interior for the HSTswill offer a step change in quality for rail passengers and provide anadditional 3 million seats for passengers per annum. The first of these newdesigned carriages are now in service and we are on track to complete therefurbishment of more than 405 carriages by the end of the financial year. Weare also spending ‚£4m on an interior refresh of our fleet of regional trains.The new platform at Bristol Parkway opened this month and will ease congestionof trains into and departing from the station and reduce delays for passengerstravelling to London, Wales, Birmingham and the South West. We are working withNetwork Rail to upgrade the majority of the Reading to London relief line to90mph by mid-2008 creating greater capacity, reliability and improved journeytimes for commuters in the Thames Valley. We have progressed our plans todeliver a range of improvements across the franchise area including theinstallation of automatic ticket gates at Exeter St Davids, Plymouth andSwindon, reducing both ticket fraud and crime on the railways. We have alsoinvested in station improvements such as the installation of more than 120additional ticket vending machines, increased car parking at stations,refurbished facilities and waiting areas at a number of stations across ournetwork. We have simplified our fares structure and now offer some 100,000significantly discounted tickets each week for advance purchases and off peaktravel. `Firstminutefares' enables our customers to save up to 80% on regularfares when booking early. This has been very popular and already more than 2.2million tickets have been sold saving customers a total of ‚£28m compared to theequivalent walk-up fare. First Great Western faces major challenges from ageinginfrastructure and the effect this has on performance. We are working closelywith Network Rail, the infrastructure provider, to tackle the deep-rootedperformance issues on the network and overcome the recurring infrastructureproblems on our main line. A number of initiatives have been designed toimprove performance and we are committed to working in partnership to deliverimproved infrastructure and services across our network.
First Capital Connect
First Capital Connect, which operates across London and the South East, had anequally busy first twelve months of operation and made an overall improvementin operational performance. PPM, the industry measurement of punctuality andreliability, improved to over 88% and we were particularly pleased to achievethe highest ever recorded PPM of over 95% on the Great Northern part of thenetwork. We are investing ‚£55.0m, the majority in the first three years of thefranchise term, to improve the service we offer our customers. During the yearwe commenced the refurbishment of waiting rooms and facilities at a number ofour stations across the network. In addition we embarked on a programme torefresh the interiors of our class 319 fleet. Eight units have already beencompleted and we will continue to roll this out to the remaining units in duecourse. In December 2006 we announced a further investment of ‚£2m, over andabove our franchise commitment, to improve the interiors of the trains thatoperate on the Great Northern route. This additional work, which will improveon-board comfort for passengers, commenced in March and will be completed bythe end of this year. During this period we also brought the engineering of ourfleet in house which delivered greater service quality and cost efficiency. InApril we welcomed the announcement by the Department for Transport that theremaining twelve class 319 trains will be transferred to First Capital Connectfrom Southern Railway. These trains will provide up to 8,000 extra seats perday during the peak periods and help to ease crowding on our very busyThameslink route. In addition improvements to be introduced in the Maytimetable will also increase capacity at peak times, providing more seats forcustomers in the morning and evening peak with additional services and anincreased number of carriages on some of our busy routes. One of our keypriorities is to improve security on the network and reduce ticket fraudthrough improved revenue protection. We have provided customers with improvedticketing facilities and have already reduced revenue leakage through theintroduction of additional staff to carry out further ticket checks and theinstallation of automatic ticket gates at a number of stations across thenetwork including Blackfriars, City Thameslink and Stevenage. Further automaticticket gates will be installed at key stations across the network in the comingmonths. We have also invested over ‚£1m to provide additional Police CommunitySupport Officers and British Transport Police to serve our network. Theseinitiatives are proven to improve security, reduce ticketless travel and lessenvandalism.First ScotRailWe are proud to operate Scotland's train services through our First ScotRailoperation. Since we took over the franchise in October 2004 we have establisheda successful record of delivering improved services for passengers togetherwith a strong focus on operating performance and service quality. We havereduced operator delays, for which we are responsible, by some 39%, over andabove our franchise commitment of 2% per annum. Performance has continued toimprove over the year and we are now regularly running services at more than90% punctuality. We were pleased to record the highest PPM performance in 7years for the last period. In addition customer satisfaction has been recordedat its highest level and outperformed the average for regional train operators.During the year we continued to invest in fleet reliability and passengercomfort and also provided additional services to meet demand such as increasedlate night services on 18 routes out of Glasgow Central on Fridays. Increasedsecurity and revenue protection is a key priority and we have installedautomatic ticket gates at stations including Aberdeen, Ayr, Dundee andStirling. Security is further enhanced by the installation of CCTV on almostthe entire First ScotRail fleet and we are continuing our investment programmeto roll out CCTV, customer information systems, induction loops and help pointsat stations across the country. Over the last year a number of investments havebeen made to improve the level and availability of facilities at stations inScotland. In February 2007, an extension to Haymarket Depot in Edinburgh wasopened. This extension of two maintenance facilities will assist in furtherimproving the reliability of the Class 170 and Class 158 fleets, by providingthe opportunity for more trains to be maintained more quickly.
First TransPennine Express
First TransPennine Express had another successful year with excellentoperational performance coupled with strong revenue and volume growthreflecting the high demand for its services in the region. Passenger journeysincreased by 7.3% to 18.5 million during the year. Our focus on performance hasensured that PPM is consistently over 90% and overall customer satisfaction hasexceeded the national average for all train operators. Since we commencedoperation of the franchise two years ago we have introduced an entire fleet ofbrand new 100mph Siemens trains which have a range of new, high qualityfeatures such as improved seating, air conditioning, on-board security camerasand easier access for all passengers. We continued our station investmentprogramme during the year and spent ‚£2.0m refurbishing waiting areas andcustomer and staff facilities. We secured additional funding from theDepartment for Transport to provide accessibility improvements such asautomatic doors, disabled facilities and ticket counters at stations across ournetwork. During the year we successfully managed the integration of theManchester Airport to Blackpool routes which we took over in June last year. Wehave demonstrated our competence in delivering the process both smoothly andcost efficiently. From December 2007 we will further extend our TransPenninenetwork to operate the Manchester Airport to Glasgow and Edinburgh services. Weare very proud of our achievements at First TransPennine Express and weredelighted that our efforts were recognised by the industry when we were awardedan unprecedented four national awards, including `Rail Business of the Year' atthe HSBC Rail Business Awards 2006.
Hull Trains
Hull Trains, our non-franchised, open access intercity train company operatingbetween London Kings Cross and Hull, performed well during the year with strongpassenger volume growth which increased by 30%. In December we were pleased tobe awarded an additional train path by the Office of Rail Regulation bringingour number of weekday services to seven in each direction. This clear responseto passenger demand ensures that we can offer our customers a greater choiceand level of service. Our focus on operational performance has ensured that weare once again ranked as the most reliable long distance operator on the EastCoast Mainline with performance figures that exceed the industry average forlong distance operators.GB RailfreightWe are pleased with the progress of GB Railfreight (GBRf), our innovative anddemand responsive freight company. GBRf enjoyed another successful year winningfurther contracts worth some ‚£45.0m to provide rail freight services around theUK for customers such as Drax Power, EDF Energy, Mendip Rail and Serco. Inaddition we were pleased that Royal Mail extended a contract for GBRf to movemail by rail demonstrating the success of the operation and the serviceprovided. In August we successfully commenced a significant contract totransport infrastructure materials for Metronet as part of the renewalprogramme on the London Underground. In March 2007 we were pleased to run thefirst freight train transporting coal between the Port of Tyne directly intoDrax Power Station in North Yorkshire. We have invested in a number of freightlocomotives and wagons in order to support the new contracts and the ongoingdevelopment of the business. GBRf has delivered further growth and contractwins through the development of its innovative and customer focused businessmodel and we are optimistic about the future prospects for this business.
New franchises
This has been a busy year for the Group as we commenced operation of our twofranchises First Great Western and First Capital Connect and integrated the newareas with existing operations. We are committed to a long term future in theUK's railways and are delighted to be shortlisted for three further franchises:East Midlands, New Cross Country and InterCity East Coast. We have animpressive and unrivalled track record of integrating services and deliveringon large investment programmes. Our bid team is highly experienced andcommitted to delivering plans that meet the needs of passengers by bringing newinvestment and improved services that are cost efficient.
NORTH AMERICA
In North America the Group is currently the second largest provider of studenttransportation with approximately 22,000 yellow school buses operating everyday across the US and Canada. We operate a transit contracting and managementbusiness in North America and we have a services division providing fleetmaintenance and ancillary services to public and private sector clients.
Our North American business has delivered solid and consistent returns for shareholders since we entered the market in 1999. During that time we have generated $1,335.8m of EBITDA. This division is cash generative after self-financing maintenance capital expenditure, organic growth within existing contracts and the acquisition of small in-fill businesses.
Our successful growth in North America confirms our view that this is a highly attractive market which offers significant growth opportunities for our business. We have built up significant experience and expertise in this marketplace and believe that it offers opportunities to deliver further attractive earnings growth and value for shareholders.
Results
I am pleased with the performance of our North American division whichdelivered margin improvement during the year. Revenue from our three businesseswas ‚£802.9m or $1,522.4m (2006: ‚£826.3m or $1,476.0m). Revenue in these resultsis ‚£45.8m lower than the prior year due to foreign exchange movements.Operating profit increased to ‚£68.2m or $130.5m (2006: ‚£67.1m or $120.2m)despite absorbing additional fuel costs of $11.2m or ‚£5.9m.
First Student
We have had a successful year within our school bus business despite continuedfuel cost pressure. US dollar revenue increased by 5.4% and operating profitrose by 14.7%. During the year we have worked hard to mitigate the impact ofcost pressures through the contract renewal cycle and have won or renewedbusiness on terms which reflect the increased costs that we face. Marginenhancement has been a priority for us this year and through contract bidding,tight management of controllable costs and a strong focus on productivity wehave improved margins to 10.9% (2006: 10.0%). We enjoyed a good bidding seasonwith contract retention, which is a key feature of this business, at over 95%.We continued to grow our share of this large, fragmented market through amixture of new contract wins, organic growth and in-fill acquisitions. Duringthe year we expanded into Sedona, Arizona and we won a significant contract inSavannah, Georgia. In addition we completed five tuck-in acquisitions in NewJersey, Connecticut, New York and Illinois that either complement our existingoperations or enable us to enter new markets. We were pleased to retain almost100% of our business in Canada which remains an attractive market for FirstStudent in which we aim to grow further.Looking forward we had a successful bidding season and continue to focus onprofitable growth and margin enhancement. Our strategy is to continue toimprove our product offering and closely manage our cost base in order to offera compelling service to our customers, parents and students. This year sees thefurther rollout of new technology such as GPS and Zonar equipment whichprovides us with detailed and accurate information which will enable us toschedule services and labour more efficiently as well as provide our customerswith real time information about services.
First Transit
First Transit had a successful year with US Dollar revenue increased by 1.7%and operating profit by 15.6%. Our strategy to improve the margin and implementa significant cost control and efficiencies programme throughout the divisionhas delivered good results with margin increased to 4.9% (2006: 4.3%).During the year we continued to grow the business with the award of newbusiness including paratransit contracts in California and Ohio. We alsocontinued to grow our share of the outsourced call centre market with a newcontract in Oregon. This is in line with our strategy to further penetrate thefaster growing light transit markets in North America. We now operate 10 callcentres in cities such as Chicago, Denver, Hartford, New York and Portland.We were also awarded new transit management business through contracts won inIowa, Ohio, Texas and Virginia. We were pleased to win the contract to operatemore than 170 buses in El Paso, Texas and renew a contract in Minnesota for anadditional five years. The private shuttle bus market is an area of growth forFirst Transit and during the year we acquired Cognisa. This in-fill acquisitionfurther strengthened our presence in the US private shuttle bus market with 19customer contracts located across 7 states. First Transit is one of the leadingproviders of shuttle bus services with contracts to serve airports in citiessuch as Cincinnati, Houston, Miami, Philadelphia, Portland and Las Vegas. I ampleased with the progress made at First Transit this year. This business, whichrequires little or no capital expenditure, has improved its margin andcontinues to deliver returns. We continue to grow our expertise in this marketand develop potential for future profitable growth.
First Services
This year First Services, which provides a range of outsourced vehiclemaintenance, operations and support services in the private and public sectors,renewed a significant contract within the large, federal market. US Dollarrevenue was, as anticipated, down by 1.9% reflecting the renewal, at a lowermargin, of a substantial contract to provide land-based support services to theUS Navy. This important contract with revenues of over $450m over the term wasre-awarded to First Services for 10 years in July. Our strategy is to achieveorganic growth within the existing contract through the provision of additionaladd-on services. We also won new business in the large federal market throughthe award of a contract to provide support services to the Defense LogisticsAgency in San Joaquin, California. We expanded our fleet maintenance businesswith new business wins for the City of Newport, Rhode Island and OceanTownship, New Jersey and with customers such as Eastman Chemical, AlleghenyPower and Motiva Shell. Looking ahead our focus is to achieve organic growthwithin the large federal contracts and continue to use our expertise and strongtrack record of customer service to grow in these areas.
Proposed acquisition of Laidlaw International, Inc
On 9 February the Group announced the proposed acquisition of LaidlawInternational, Inc. the leading operator of school and intercity bustransportation and a supplier of public transit services in North America for aconsideration of US$3.6 billion. We have received approval from both FirstGroupand Laidlaw shareholders, and the acquisition now remains conditional on thereceipt of necessary antitrust approvals in the US and Canada. We are workingwith the relevant antitrust authorities to provide the necessary information,including the Department of Justice to comply with their second requestprocess.This is a transformational deal with considerable prospects for value creation.This is a unique opportunity to establish the leading position in the NorthAmerican transportation market, generate significant value and returns forshareholders. In bringing together FirstGroup America and Laidlaw we believe wecan create a stronger, more robust business in a highly fragmented market. Weaim to leverage value through scale and grow earnings through improvedoperating efficiencies and extraction of substantial synergies. Thisacquisition will provide a strong platform for us to improve our offering tocustomers bringing further operational and cost efficiencies, economies ofscale and a greater product range of services. Since the announcement we havemade good progress on a number of plans for the integration of the businesses.
Laidlaw International, Inc. has some 62,500 employees and operates three main business segments in the US and Canada:
Laidlaw Education Services which operates approximately 40,000 yellow school buses in 37 states in the US and six provinces in Canada.
Greyhound is the only national provider of scheduled intercity bustransportation services in the US and Canada. Greyhound provided scheduledpassenger services to approximately 2,400 destinations throughout the US andCanada carrying approximately 24 million passengers annually. We considerGreyhound to be an attractive business with exciting growth prospects and havecommitted to carry out a strategic review of the business.Laidlaw Transit Services provides municipal public transportation services inNorth America specialising in paratransit and fixed route contract services inapproximately 23 states in the US.
UK BUS
The Group is the largest bus operator in the UK with a fleet of nearly 9,000 buses, and a market share of approximately 23%. We carry over 2.9 million passengers every day.
Results
I am pleased to report another year of strong trading performance from our UKBus division. Revenue increased to ‚£1,073.7m (2006: ‚£1,031.2m) as a result ofrevenue and passenger growth initiatives and increased journeys includingconcessions and pricing. Operating profit was ‚£103.0m (2006: ‚£98.4m). This is aparticularly notable achievement as operating profit was adversely impacted by‚£28.2m as a result of increased fuel costs.We continue to deliver improvements in operational performance and efficiencywithin the business. Targeting improvements in quality, allied to initiativesto tightly control our costs, continues to underpin our strategy of marginenhancement. Depot and route optimisation, a focus on headway managementtogether with revenue and passenger growth initiatives, contributed to aturnaround in profitability and service quality of operations. We are alsoimplementing a programme to target a consistent level of fleet cleanliness andappearance. I am pleased to report that the significant investment in ourmaintenance and engineering functions in recent years, and the implementationof initiatives to improve engineering efficiency and planning and tostandardise our processes, has continued to reduce our lost mileage this year.In London we have focused on operational performance and cost efficiencies andare pleased to report that our overall punctuality and reliability has improvedagain this year. Our operations in the West of London are currently top of theTransport for London (TfL) league tables. In preparation for the westernextension of the Congestion Charge, TfL increased the frequency of a number ofour services to provide additional passenger capacity.We welcome the Government's commitment to buses and its recognition that busesare a crucial part of our transport system, set out in "Putting PassengersFirst". We believe that the industry has demonstrated that the most effectiveway to deliver better services to passengers is through voluntary partnershipagreements. Working in partnership with local authorities to deliver improvedbus services for passengers continues to deliver encouraging results in ourbusiness. Passenger numbers are increasing throughout our operations, supportedby growing numbers of concessionary fares passengers benefiting from theGovernment's introduction of a new scheme in April 2006. We are seeingparticularly strong growth in passenger numbers where, working in partnershipwith local authorities, we are delivering measures to improve the punctualityand reliability of our services.We are pleased to report the commitment of local authorities across the UK todelivering improved bus services for passengers through partnerships. InNovember we signed a `Stability and Growth Pact' with Glasgow City Council andStrathclyde Partnership for Transport. The pact will bring major improvementsto Glasgow's bus services including an annual Route Development Plan, a JointPerformance Improvement Plan to make significant improvements in punctualityand reliability and sustained growth in bus passenger numbers with a commitmentfor reasonable fares. The pact builds on the city's award-winning ‚£30mStreamline Partnership between First and Glasgow City Council, StrathclydePassenger Transport and the Scottish Executive last year.At the start of May we signed `The Sheffield Bus Agreement', a VoluntaryQuality Partnership (VQP) Agreement with Sheffield City Council and SouthYorkshire Passenger Transport Authority. We believe that this agreement is themost comprehensive VQP ever agreed. The agreement will give customers a morestable network and improve the reliability of bus services by deliveringsignificant financial investment and improvements to the city's businfrastructure. Over the next two years we will invest ‚£10m in new vehicles,extra CCTV cameras on buses and training programmes for staff. The TransportExecutive and the City Council have invested ‚£4.4m during the year and haveagreed to invest ‚£2.5m in the coming year which will be used to fundinfrastructure improvements.We are working in partnership with the four Unitary Authorities in the GreaterBristol area to deliver improved bus services in the region. The authoritieshave submitted final plans to the Department for Transport for ten `Showcase'routes as part of the Greater Bristol Bus Network. The network will see a majorinvestment of some ‚£49m in new infrastructure, including bus lanes, roadwidening, improved bus stops, enhanced traffic controls and Real Time PassengerInformation as well as some ‚£20m in new buses. This demonstrates the strongworking relationship which delivered the first Showcase route in Bristol, nowoperating very successfully, and a second Showcase route due for completionlater this year.All of our operating companies are working on plans to improve the punctualityof our bus services on a route-by-route basis. We are the first of the majoroperators to publish punctuality and reliability data by operating company andare working with local authorities in all of our operating areas to developPunctuality Improvement Partnerships (PIPs). We developed our first PIP withGreater Manchester Passenger Transport Executive and now have a number of PIPsin progress to deliver improved bus services for passengers. We continue toaddress issues within our direct control, for example, by introducing newtimetables to improve the punctuality of our services. The PIP process hashighlighted that, in order to achieve improvements in service performance insome cases, highway alterations and other infrastructure works are required.Some of these are already being addressed by our partners.In January this year we started our second ftr service in Leeds. ftr was firstlaunched in York in May last year and uses state-of-the-art articulatedtram-like vehicles . We have seen passenger growth of 28% on the York ftrservice and continue to be encouraged by positive feedback from our customers,local authorities from across the UK and from wider stakeholders. Independentcustomer research showed an 87% satisfaction rating amongst passengers usingthe ftr service. We continue to develop plans for further ftr services and ourscheme in Swansea will start next year.We are pleased with the continued development of Aircoach, which operatesexpress coaches between Dublin city centre and the airport and contractedservices for airport car parks. The company continued to perform well duringthe year and significant passenger growth at Dublin Airport has benefited bothour scheduled and our contracted car park services. We are using the Aircoachmodel to introduce new services in the UK and recently launched York AirCoach afrequent, express, direct coach service between York rail station and LeedsBradford International Airport.We welcome the Government's announcement encouraging local initiatives insupport of improved school transport services. We pioneered the introduction ofAmerican style yellow school buses into the UK and one of our first pilotschemes in West Yorkshire was the precursor to Metro's MyBus initiative, whichhas successfully reduced congestion at the school gates by giving parents ahigh quality alternative to using their cars for the school run.Capital expenditure was focused in areas with potential for high passengergrowth. Towns and cities including Aberdeen, Bradford, Bristol, Glasgow, Leedsand Manchester were among those who benefited from our ‚£57.0m spend on new lowfloor, easy access buses this year.We were delighted that our commitment to investing in our people at all levelswas recognised at the Business in the Community Awards 2006. The `RentokilInitial Skills for Life' award, supported by the Department for Education andSkills and in association with Investors in People, recognised our jointstrategy, with the Transport & General Workers' Union, to improve recruitment,retention and motivation. Our learning and development initiatives, togetherwith improvements to our recruitment and training programmes and our Europeanrecruitment programme, has reduced driver turnover to an all time low.
Europe
We continue to invest in European bidding activity. We have submitted bids forConnexxion in the Netherlands and also, with our partner DSB, for the ƒËœresundrail franchise which links Denmark and Sweden. While North America remains ourprimary market for growth and international expansion we continue to exploreopportunities in new markets. We recently made a modest investment in Germanyof 130 buses in the Rhein-Neckar region. This small entry into Germany enablesus to build a greater understanding of the market as it continues toliberalise.
Group outlook
All of our businesses have delivered a very strong performance. Our UK Raildivision continues to go from strength to strength. This year we commencedoperation of two new enlarged franchises. We have made significant investmentacross all of our rail businesses to deliver improvements in rolling stock,capacity and services for passengers. Demand for our services continues toaccelerate with passenger and income growth across all of our rail operations.We are delighted to pre-qualify for a further three franchises: East Midlands,New Cross Country and InterCity East Coast and await the outcome later thisyear. I am pleased with the strong trading result from our UK Bus divisiondespite absorbing additional fuel costs of ‚£28.2m. We have delivered improvedoperating performance and volume growth. Increased passenger journeys, togetherwith our initiatives to grow revenue and bear down on costs, have resulted in astrong performance. We continue to promote a partnership approach to deliveringa comprehensive and sustainable bus network in the towns and cities where weoperate and have seen encouraging growth as a result. Our North Americanbusiness has enjoyed high contract retention and margin improvement. We areseeing the positive impact of our strategy to mitigate fuel cost pressuresthrough the contract renewal process. The Board is pleased with the consistentreturns generated from this business since we entered the market in 1999 andremains confident that North America offers further exciting growth prospectsfor the Group.Our strategy is focused on delivering value for shareholders from furthergrowth within our core businesses and exploring opportunities to develop in newmarkets. For the third year running we have increased the dividend by 10%reflecting the Board's confidence in the Group's future prospects and abilityto continue to generate strong cash flows. We are committed to this level ofannual dividend growth for the foreseeable future, at least for the next threeyears. I am pleased to report that trading in the new financial year hasstarted well and is in line with our expectations
Corporate Social Responsibility (CSR)
CSR is at the core of our business. We believe that in order to deliversustainable growth CSR must be embedded in the vision and values of a business.Our aim is to transform the way people travel and how they feel about publictransport. Our management of key issues such as safety, environment, ourrelationships with customers and our employees is at the heart of our strategyand key to achieving our vision.
This year we reviewed the content of our Code of Business Ethics and Group Equal Opportunities Policy as part of our ongoing efforts to implement best practice in these areas. After consultation with independent CSR auditors, corporate governance professionals and our shareholders we decided to incorporate all of our existing policies into one Group CSR Policy.
Safety is our highest priority. We are continuously developing and improvingour processes to ensure that a `Safety First' culture is embedded throughoutthe Group. We strive to ensure that our services are as safe as possible forour passengers and our staff. Over the last year we have worked very hard toimprove our safety culture and performance. We have accomplished significantimprovements including significant reductions in employee injuries, collisionsand passenger injuries. We have pioneered and rolled out safety standards overand above the requirements of the safety regulators. Our Injury PreventionProgramme (IPP), which has been rolled out throughout the Group, is innovativeand designed to engage all our staff in safety. The aim of IPP is to ensurethat action is taken to report any matters of safety and to resolve thempromptly in order to prevent any harm from occurring to anyone. Lost timeinjuries across the Group have reduced by 24% this year. However, we are nevercomplacent and strive to ensure that we continuously improve our performance inthis critical area.Our people are often the first point of contact between our customers and ourbusiness and are central to our success. Their commitment, dedication andeffort are crucial if we are to meet our customers' expectations and ensurethat we are the leader in safe, innovative, reliable, sustainable transportservices. We want to be the employer of choice in our industry, offering ourstaff opportunities to develop and grow to reach their full potential. Wecontinue to invest in the training and development of our employees across theGroup. We have ongoing programmes for employees working towards recognisedtraining in the form of vocational qualifications. In UK Bus our successfulpartnership with the Transport and General Workers' Union to expand ourworkplace learning provision continues and we are sponsoring the Business inthe Community Skills for Life award this year to encourage other employers tofollow our lead. In North America all of our technicians can now participate inthe Automotive Service Excellence Programme designed to train and testtechnicians and First Student continues to promote the `Smith System ofDefensive Driving' to further improve our safety performance and to furtherreduce the likelihood of incidents likely to lead to passenger or employeeinjuries or collisions.We continue to receive recognition for improving our environmental performance.At the Green Apple Awards we were presented with a gold award in the Transport,Freight and Highways category. We also received the Continuing EnvironmentalExcellence Award at the Network Rail Environment Awards and were runners up inthe National Business Awards for Scotland 2006 in the Scottish PowerEnvironmental Awareness Awards. We are pleased that our commitment tointegrating corporate social responsibility into our business and to managing,measuring and reporting our key social and environmental impacts resulted in animproved score in the Business in the Community Corporate Responsibility Index2006. We also participate in the FTSE4Good Index and the Dow JonesSustainability Index.Our CSR policy, together with our Corporate Social Responsibility Report, whichgives further details of our activities and progress during the year, can befound at www.firstgroup.comMoir LockheadChief ExecutiveFinance Director's reviewOverview
2006/07 was a year of significant achievements in terms of the results withGroup revenue exceeding ‚£3.7 billion and adjusted operating profit exceeding ‚£250 million for the first time. Our UK Rail and North American businesses havereported record earnings and adjusted basic EPS and EBITDA are the highest wehave ever achieved, up 9.1% and 13.4% respectively on last year.The Group is now the UK's largest passenger rail operator. At the start of theyear we added First Capital Connect and the enlarged First Great Western to ourportfolio of rail franchises. Passenger revenue growth across all TrainOperating Companies (TOCs) has been very strong and profits have grown by morethan a third. UK Rail generated over 40% of Group profits.In February 2007 we announced the acquisition of Laidlaw subject to shareholderapproval and antitrust clearances. When completed, in excess of 50% of theGroup's revenue and adjusted operating profit will come from North America. Theprospects for value creation are considerable. In addition to the significantsynergies to be achieved by combining our current North American operationswith Laidlaw, we will have the scale and expertise to become our customers'first choice for safety and service quality.The net pension deficit has been eliminated and we now have a net surplus whenmeasured on an IAS 19 basis. This has mainly been achieved through additionalcash payments into the schemes during the year, further recovery in equitymarkets and by limiting future increases in pension costs.
One-off costs of ‚£21.3m for rolling stock refurbishment, redundancy and other mobilisation costs were incurred on the start up of the two new rail franchises. These costs relate entirely to the mobilisation and will not be repeated in 2007/08.
We have continued to invest heavily in new buses during the year in both the UKand North America. In addition we have invested ‚£110.0m in our UK Railfranchises to improve capacity, performance and customer service. Thissignificant investment is likely to be repeated in 2007/08 but thereafter willfall to maintenance requirements only.
Results
Revenue was ‚£3,708.8m (2006: ‚£3,030.9m), an increase of 22.4%. Adjustedoperating profit was ‚£259.2m (2006: ‚£229.7m), an increase of 12.8%. Adjustedoperating profits were higher at each division and margin improvements weremade both in North America and UK Bus, despite an additional ‚£37.1m of fuelcosts year on year. Year to Year to 31 March 2007 31 March 2006 Divisional Revenue Adjusted Operating Revenue Adjusted Operatingresults ‚£m operating margin * ‚£m operating margin * profit * % profit * % ‚£m ‚£m UK Bus 1,073.7 103.0 9.6 1,031.2 98.4 9.5 UK Rail 1,824.1 108.8 6.0 1,164.9 79.6 6.8 North America 802.9 68.2 8.5 826.3 67.1 8.1 Other ** 8.1 (20.8) - 8.5 (15.4) - Total Group 3,708.8 259.2 7.0 3,030.9 229.7 7.6
* Before intangible asset amortisation, non-recurring bid costs, other non-recurring items and (loss)/profit on disposal of fixed assets
** Tram operations, central management, Group information technology and other items
Throughout the financial review, operating profit, operating margin and EBITDAare defined as being before intangible asset amortisation, non-recurring bidcosts, other non-recurring items and (loss)/profit on disposal of fixed assetsUK Bus revenue was ‚£1,073.7m (2006: ‚£1,031.2m), an increase of 4.1% or anincrease of 6.0% when adjusted for last year's additional days. Operatingprofit was ‚£103.0m (2006: ‚£98.4m), an increase of 4.7%. Results were driven bystrong volume growth, with passenger volumes outside of London increasing byover 2%. A focus on improving operational performance and initiatives totightly manage controllable costs led to a margin improvement of 0.1% despite ‚£28.2m of additional fuel costs year on year. The new English concessionaryschemes for OAPs that commenced at the beginning of the year stimulated most ofthe growth in passenger numbers. However, better operational performance alsocontributed to passenger growth. During the year a number of bus operatingleases were restructured as finance leases. This has resulted in a decrease inthe charge for the financing element of leases and an increase in thedepreciation charge, both of which go through the "operating cost" line and anincrease in the charge for finance lease interest which goes through the"finance cost" line.UK Rail had an exceptional year with strong revenue growth across all TOCscombined with the two new franchises. Revenue was ‚£1,824.1m (2006: ‚£1,164.9m),an increase of 56.6%. Operating profit was ‚£108.8m (2006: ‚£79.6m), an increaseof 36.7%. Whilst favourable economic growth contributed to these results, sotoo did the considerable investment that we are making to improve services.Both First TransPennine Express and First ScotRail are delivering significantlybetter punctuality and record customer satisfaction ratings. Both First CapitalConnect and First Great Western are investing in significant fleet upgradesthat will enhance performance, capacity and customer satisfaction. We have beenshortlisted for three further franchises (InterCity East Coast, New CrossCountry and East Midlands) and await the outcome of all three.North American revenue was ‚£802.9m (2006: ‚£826.3m). Although lower in Sterling,at constant exchange rates, this result represents an increase of 3.1%.Operating profit was ‚£68.2m (2006: ‚£67.1m). In US Dollar terms this representsan increase of 8.6%. Overall the North American US Dollar margin improved by0.5% to 8.6% despite higher fuel costs. All three operating divisions enjoyedstrong contract retention over the course of 2006/07. Earnings growth wasparticularly strong in Student and Transit. Services profits and margins felldue to the re-tendering of a significant contract.
Central costs were higher than last year reflecting the growth in the business as well as an unusually high level of corporate activity.
Property
Property losses of ‚£3.7m (2006: profits of ‚£14.0m) were incurred during theyear. There were no significant properties disposed of during the year and theloss incurred was largely due to abortive costs in relation to the Aberdeendepot relocation.
Intangible asset amortisation
The intangible asset amortisation charge was ‚£10.3m (2006: ‚£4.5m). This increase is mostly explained by higher pension intangible charges on the new First Capital Connect and First Great Western franchises.
Non-recurring bid costs and other non-recurring items
Bid costs of ‚£19.3m (2006: ‚£28.5m) were incurred during the year. Of this amount UK Rail bids for South Western, New Cross County and InterCity East Coast franchises accounted for ‚£14.5m. Non-rail bid costs of ‚£4.8m (2006: ‚£ 2.4m) were incurred principally on European bid activities.
UK Rail transition costs of ‚£21.3m (2006: ‚£nil) were incurred in mobilising theFirst Capital Connect and First Great Western franchises including subsequentobligations to refurbish trains on both franchises. These costs will not recurin 2007/08.
Interest payable and similar charges
The net interest charge was ‚£63.4m (2006: ‚£53.3m) with the increase of ‚£10.1mexplained by higher lease finance debt, higher bank debt and higher US interestrates. The net interest charge is covered 6.3 times (2006: 6.6 times) byearnings before interest, taxation, depreciation and amortisation (EBITDA).
Taxation
The taxation charge on profit before intangible amortisation, non-recurring bidcosts and other non-recurring items was ‚£51.1m (2006: ‚£45.3m) representing aneffective rate of 26.1% (2006: 25.7%). Tax relief on US intangibleamortisation, non-recurring bid costs and other non-recurring items, partlyoffset by deferred tax on property gains, reduced the tax charge to ‚£38.1m(2006: ‚£40.0m) representing a rate of 27.2% (2006: 25.4%).The actual cash effect of taxation to the group was a charge of ‚£5.5m (2006: acredit of ‚£3.3m). The UK cash cost of taxation was low due to increased pensionpayments and by favourable UK tax settlements achieved during the year. It isanticipated that the tax to be paid for 2007/08 will remain low. The group paysa minimal amount of tax on its profits in the US due to tax losses carriedforward and we believe that the level of the cash tax in the US will remain
lowfor the medium term.DividendsThe final dividend of 10.5 pence (2006: 9.55 pence) per ordinary share togetherwith the interim dividend of 5.0 pence (2006: 4.55 pence) per ordinary share,gives a full year dividend of 15.5 pence (2006: 14.1 pence), an increase of10.0%. In accordance with IFRS the final dividend has not been provided for inthe 2007 balance sheet. The final dividend will be paid on 24 August 2007 toshareholders on the register of members at the close of business on 20 July2007.
EPS
Adjusted basic EPS, before intangible asset amortisation, non-recurring bid costs, other non-recurring items and (loss)/profit on disposal of fixed assets, was 33.7 pence (2006: 30.9 pence), an increase of 9.1%. Basic EPS was 23.1 pence (2006: 27.4 pence).
EBITDA
The Group's businesses continue to generate strong operating profits which areconverted into cash. EBITDA for the year was ‚£398.9m (2006: ‚£351.7m) up 13.4%.EBITDA from North American operations was up 4.0% in US Dollar terms. EBITDA bydivision is set out below: Year to Year to 31 March 2007 31 March 2006 Revenue EBITDA EBITDA Revenue EBITDA EBITDA ‚£m ‚£m % ‚£m ‚£m % UK Bus 1,073.7 173.6 16.2 1,031.2 157.3 15.3 UK Rail 1,824.1 122.4 6.7 1,164.9 84.9 7.3 North America 802.9 119.2 14.8 826.3 122.0 14.8 Other 8.1 (16.3) - 8.5 (12.5) - Total Group 3,708.8 398.9 10.8 3,030.9 351.7 11.6 Cash flow
Cash generated by operations increased to ‚£367.9m from ‚£300.7m last year as aresult of improved profitability, better management of working capital and cashinflows in connection with the commencement of the First Capital Connectfranchise. The working capital inflow of ‚£5.5m (2006: outflow of ‚£27.1m) wasmainly due to positive working capital movements on the new rail franchisespartly offset by additional cash pension contributions.
Capital expenditure and acquisitions
Capital expenditure, as set out in note 6, was ‚£321.6m (2006: ‚£209.1m). Capitalexpenditure was predominantly in North American operations of ‚£48.1m (2006: ‚£65.6m), UK Bus operations of ‚£141.9m (2006: ‚£102.4m) including ‚£84.0m of leaserestructuring, UK Rail ‚£110.0m (2006: ‚£16.9m) and UK Bus properties of ‚£19.8m(2006: ‚£15.4m).The acquisitions made in 2006/07 were five small yellow school bus operationsin North America and one Transit shuttle bus operation. The total considerationfor all acquisitions made during the year was ‚£17.9m and provisional goodwillarising on all acquisitions amounted to ‚£9.1m.
Funding and risk management
At the year end, total bank borrowing facilities amounted to ‚£596m of which ‚£520m is committed. Of these committed facilities, ‚£318.7m were utilised at 31March 2007 leaving committed headroom of ‚£201.3m.
The maturity profile of committed banking facilities is regularly reviewed and well in advance of their expiry such facilities are extended or replaced.
At 31 March 2007 the Group's average debt maturity was 6.4 years (2006: 7.8 years).
As the Group is a net borrower, it minimises cash and bank deposits, which arise principally in the Rail companies. The Group can only withdraw cash and bank deposits from the Rail companies on a permanent basis to the lower of retained profits or the amount determined by prescribed liquidity ratios.
The Group does not enter into speculative financial transactions and uses financial instruments for certain risk management purposes only.
Interest rate risk
With regard to net interest rate risk, the Group reduces exposure by using a combination of fixed rate debt and interest rate derivatives to achieve an overall hedged position over the medium term of between 75% to 100%.
Commodity price risk
In the UK the cost of fuel increased from $38 per barrel in 2005/06 to $67 perbarrel in 2006/07, an overall cost increase of ‚£28.2m in UK Bus and ‚£3.0m in UKRail. Looking ahead, we now have 100% coverage of our UK requirements for 2007/08 (total annual usage 2.7 million barrels) at an average rate of $67 perbarrel. In North America (total annual usage 0.7 million barrels) for 2007/08we have 27% coverage on crude oil price risk at an average price of $55 perbarrel (2006/07: average of $53 per barrel).
Foreign currency risk
Group policies on currency risk affecting cash flow and profits are maintainedto minimise exposures to the Group by using a combination of hedge positionsand derivative instruments where appropriate.
With regard to balance sheet translation risk, the Group hedges part of its exposure to the impact of exchange rate movements on translation of foreign currency net assets by holding currency swaps and net borrowings in foreign currencies. At 31 March 2007 33% (2006: 34%) of foreign currency net assets were hedged.
Net debt
Net debt decreased over the year by ‚£188.2m. This reduction is mainly explained by the share placement in February 2007, associated with the planned acquisition of Laidlaw, which raised ‚£216.9m net of expenses.
The Group's net debt at 31 March 2007 was ‚£516.2m and was comprised as follows:Analysis of net debt Fixed Variable Total ‚£m ‚£m ‚£m Cash - 59.1 59.1 Share placement proceeds deposited * - 212.5
212.5
Rail ring-fenced cash and deposits - 139.6
139.6
Sterling bond (2013 6.875%) ** (296.3) - (296.3) Bond (2019 6.125%) *** (221.1) - (221.1) Sterling bank loans and overdrafts - (264.4)
(264.4)
US dollar bank and other loans and overdrafts (0.3) (0.9) (1.2)
Canadian dollar bank and other loans and (2.2) (35.1) (37.3)overdrafts Euro bank loans and overdrafts - (9.4) (9.4) HP and finance leases (3.7) (78.2) (81.9) Loan notes (8.7) (7.1) (15.8) Interest rate swaps,net (57.0) 57.0 - Total (589.3) 73.1 (516.2)
* Net proceeds of ‚£216.9m less ‚£4.4m of acquisition costs not related to the equity placement
** Excludes accrued interest
*** Stated excluding accrued interest and adjusted for currency and coupon swaps
Balance sheet and net assets
Net assets increased by ‚£275.4m over the year reflecting the net outcome of theshare placing of ‚£211.0m (net proceeds of ‚£216.9m less ‚£5.9m of additionalanticipated costs relating to equity placing), retained earnings (after thepayment of ‚£57.1m of dividends) for the year of ‚£34.6m, actuarial gains ondefined benefit pension arrangements (net of tax) of ‚£81.9m, an increase in thehedging reserve of ‚£24.8m and a net movement in own shares held of ‚£9.2m. Thesepositive movements were partly offset by a reduction in the translation reserveof ‚£85.5m.Shares in issue
In 2006/07 3.3m treasury shares were used to either satisfy the exercise ofSave As You Earn (SAYE) options on the maturity of the 2003 SAYE scheme or weretransferred to the Employee Benefit Trust to satisfy the exercise of ExecutiveShare Options and Deferred Bonus Shares. On 14 February 2007 39.5m shares wereplaced at 559 pence per share, a discount of 1 pence on the market rate at thetime. As at 31 March 2007 there were 434.0m (2006: 392.0m) shares in issue,excluding treasury shares and 3.3m shares (2006: 6.6m shares) were held astreasury shares at year end. The weighted average number of shares in issue forthe purpose of EPS calculations (excluding own shares held in trust foremployees and treasury shares) was 397.9m (2006: 392.6m).
Foreign exchange
The results of the North American businesses have been translated at an averagerate of ‚£1:$1.89 (2006: ‚£1:$1.79). The period end rate was ‚£1:$1.96 (2006: ‚£1:$1.74).PensionsThe combined rail schemes and UK Bus occupational scheme are still in deficitbut these were more than offset by the surplus across the Local Government BusSchemes. The cash payments in 2007/08 into all the schemes are unaffected bythese changes.
The aggregate pensions deficit of ‚£132m at the start of the year is now an aggregate surplus of ‚£24m as at 31 March 2007 as measured on an IAS 19 basis.
The movement in the pension position had three main elements being theadditional cash contributions being paid into the UK Bus and UK Rail schemes,the continued recovery of equities and certain measures that limit pension costincreases going forward.Dean FinchFinance DirectorConsolidated income statementYear ended 31 March 2007 Notes Before Amortisation Total Before Amortisation Total amortisation charges, 2007 amortisation charges 2006 charges, non-recurring ‚£m charges and ‚£m bid costs non-recurring non-recurring and bid costs and other non-recurring bid costs and other non-recurring bid costs 2006 non-recurring items 2006 ‚£m items 2007 ‚£m 2007 ‚£m ‚£m Revenue Continuing operations 3,708.8 - 3,708.8 3,030.9 - 3,030.9 Operating costs before (loss)/profit on disposal of fixed assets Continuing operations (3,449.6) (51.9) (3,501.5)
(2,801.2) (33.0) (2,834.2)
Operating profit before (loss)/profit on disposal of fixed assets Continuing operations 259.2 (51.9) 207.3 229.7 (33.0) 196.7 Operating profit before 259.2 - 259.2 229.7 - 229.7amortisation charges, non-recurring bid costs and other non-recurring items Amortisation charges - (10.3) (10.3) - (4.5) (4.5) Non-recurring bid costs - (19.3) (19.3) - (28.5) (28.5) Other non-recurring items - (22.3) (22.3) - - - Operating profit before 259.2 (51.9) 207.3 229.7 (33.0) 196.7
(loss)/profit on disposal of fixed assets (Loss)/profit on disposal - (3.7) (3.7)
- 14.0 14.0of fixed assets Operating profit 259.2 (55.6) 203.6 229.7 (19.0) 210.7 Investment income 9.4 - 9.4 8.5 - 8.5 Finance costs (72.8) - (72.8) (61.8) - (61.8) Profit before tax 195.8 (55.6) 140.2 176.4 (19.0) 157.4 Tax (51.1) 13.0 (38.1) (45.3) 5.3 (40.0)
Profit for the year from 144.7 (42.6) 102.1
131.1 (13.7) 117.4continuing operations Attributable to: Equity holders of the 134.1 (42.4) 91.7 121.5 (14.0) 107.5parent Minority interest 10.6 (0.2) 10.4 9.6 0.3 9.9 144.7 (42.6) 102.1 131.1 (13.7) 117.4
Basic earnings per share 3 23.1p 27.4p Diluted earnings per share 3 22.8p 27.1p
Dividends of ‚£57.1m (2006: ‚£52.0m) were paid during the year. Dividends of ‚£ 45.6m (2006: ‚£37.4m) were proposed for approval in respect of the year.
Consolidated balance sheetAs at 31 March Notes 2007 2006 ‚£m ‚£m Non-current assets Goodwill 4 468.8 503.1 Other intangible assets 5 60.8 30.0 Property, plant and equipment 6 1,059.7
926.5
Financial assets - derivative financial 13 27.7
8.5instruments 1,617.0 1,468.1 Current assets Inventories 7 64.6 54.2 Trade and other receivables 8 377.3
373.1
Financial assets - cash and cash equivalents 411.2
174.4
- derivative financial instruments 13 8.3 14.1 861.4 615.8
Non-current assets classified as held for sale 7.5
6.6 Retirement benefit surplus 57.1 - Total assets 2,543.0 2,090.5 Current liabilities Trade and other payables 9 695.1 545.1 Tax liabilities 49.7 47.8 Financial liabilities - bank overdrafts and 10 1.8 30.9loans - bonds 10 23.1 23.1 - loan notes 12 5.2 2.8
- obligations under finance leases 11 11.5
2.3
- derivative financial instruments 13 5.0
1.8 791.4 653.8 Net current assets/(liabilities) 70.0 (38.0) Non-current liabilities Financial liabilities - bank loans 10 310.5 268.8 - bonds 10 539.3 553.2 - loan notes 12 10.6 17.7 - obligations under finance leases 11 70.4
10.1
- derivative financial instruments 13 4.3
0.8
Retirement benefit obligation 33.3 132.0 Deferred tax liabilities 14 142.7 84.6 Long-term provisions 15 33.2 37.6 1,144.3 1,104.8 Total liabilities 1,935.7 1,758.6 Net assets 607.3 331.9 Equity Share capital 16 21.9 19.9 Share premium account 17 447.8 238.8 Hedging reserves 17 26.7 1.9 Other reserves 17 4.6 4.6 Own shares 17 (17.4) (26.6) Translation reserves 18 (57.8) 27.7 Retained earnings 17 170.4 52.9 Equity attributable to equity holders of the 596.2 319.2parent Minority interests 11.1 12.7 Total equity 607.3 331.9
Consolidated cash flow statement
Year ended 31 March 2007 Notes 2007 2006 ‚£m ‚£m Net cash from operating activities 19 295.5 235.0 Investing activities Interest received 9.4 5.9
Proceeds of disposal of property, plant and 18.3
27.3equipment Purchases of property, plant and equipment (251.2) (196.2) Grants received 29.1 - Acquisition of businesses (17.9) (12.4) Net cash used in investing activities (212.3) (175.4) Financing activities Repurchase of ordinary share capital -
(23.0)
Share purchased by Employee Benefit Trust -
(1.4)
Monies received on exercise of options 2.8
8.4 Dividends paid (57.1) (52.0) Dividends paid to minority shareholders (11.3)
(7.2)
Repayment of obligations under finance leases (14.4) (11.8) Repayment of loan notes (4.8) (0.5) Payment of new bank facility issue costs - (1.0) Proceeds on issue of shares 216.9 - New bank loans raised 22.4 55.7 Net cash from financing activities 154.5
(32.8)
Net increase in cash and cash equivalents 237.7
26.8
before foreign exchange movements Cash and cash equivalents at beginning of 169.9 145.9year Effect of foreign exchange rate changes 2.7
(2.8)
Cash and cash equivalents at end of year 410.3
169.9
Cash and cash equivalents for cash flow 2007
2006
statement purposes comprises:
‚£m ‚£m Cash and cash equivalents per balance sheet 411.2 174.4 Overdrafts (0.9) (4.5) 410.3 169.9Note to the consolidated cash flow statement - reconciliation of net cash flowsto movement in net debtYear ended 31 March 2007 2007 2006 ‚£m ‚£m Increase in cash and cash equivalents in year before 237.7 26.8foreign exchange movements Increase in debt and finance lease financing (3.2)
(43.4)
Inception of new finance leases (84.0)
-
Lease and hire purchase contracts acquired with - (0.7)business/franchise
Fees on issue of new loan facility -
1.0
Other non-cash movements in relation to financial (0.8) (1.9)instruments Foreign exchange differences 38.5
(23.1)
Movement in net debt in year 188.2
(41.3)
Net debt at beginning of year (704.4) (663.1) Net debt at end of year (516.2) (704.4)General informationThe financial information set out above does not constitute the company'sStatutory Accounts for the years ended 31 March 2007 or 2006, but is derivedfrom those accounts. Statutory Accounts for 2006 have been delivered to theRegistrar of Companies and those for 2007 will be delivered following thecompany's Annual General Meeting. The auditors have reported on both sets ofaccounts; their reports were unqualified and did not contain statements unders. 237(2) or (3) of the Companies Act 1985.Whilst the financial information included in this preliminary announcement hasbeen computed in accordance with International Financial Reporting Standards(IFRSs), this announcement does not itself contain sufficient information tocomply with IFRSs. The company expects to publish full financial statementsthat comply with IFRSs. The financial information has been prepared on thebasis of the accounting policies as set out in the Statutory Accounts for 2006.
Copies of the Statutory Accounts for the year ended 31 March 2007 will be sent to all shareholders by early June and will be available thereafter at the Registered Office of the Company at 395 King Street, Aberdeen, AB24 5RP.
2. Business segments
The segment results for the year to 31 March 2007 are as follows:
UK Bus UK Rail North Group Total America items ‚£m ‚£m ‚£m ‚£m ‚£m Revenue 1,073.7 1,824.1 802.9 8.1 3,708.8 Segment results * 103.0 108.8 68.2 (20.8) 259.2 Amortisation of intangible - (8.1) (2.2) - (10.3)assets Non-recurring bid costs - (14.5) - (4.8) (19.3) Other non-recurring items - (21.3) (1.0) - (22.3) Loss on disposal of fixed (3.7) - - - (3.7)assets Operating profit 99.3 64.9 65.0 (25.6) 203.6 Investment income 9.4 Finance costs (72.8) Profit before tax 140.2 Tax (38.1) Profit for the year 102.1
2. Business segments (continued)
The segment results for the year to 31 March 2006 are as follows:
UK Bus UK Rail North Group Total America items ‚£m ‚£m ‚£m ‚£m ‚£m Revenue 1,031.2 1,164.9 826.3 8.5 3,030.9 Segment results * 98.4 79.6 67.1 (15.4) 229.7 Amortisation of intangible - (2.9) (1.6) - (4.5)assets Non-recurring bid costs - (26.1) - (2.4) (28.5) Profit on disposal of fixed 14.0 - - - 14.0assets Operating profit 112.4 50.6 65.5 (17.8) 210.7 Investment income 8.5 Finance costs (61.8) Profit before tax 157.4 Tax (40.0) Profit for the year 117.4
* Before amortisation of intangible assets, non-recurring bid costs, other non-recurring items and (loss)/profit on disposal of fixed assets.
3. Earnings per share (EPS)
Basic EPS is calculated by dividing the profit attributable to equity shareholders of ‚£91.7m (2006: ‚£107.5m) by the weighted average number of ordinary shares of 397.9m
(2006: 392.6m).
Diluted EPS is calculated by dividing the profit attributable to equityshareholders of ‚£91.7m (2006: 107.5m) by the weighted average number ofordinary shares of 402.0m (2006: 396.5m). The difference in the number ofshares between the basic calculation and the diluted calculation represents theweighted average number of potentially dilutive ordinary shares. Areconciliation of the number of shares used in the basic and diluted measuresis set out below: 2007 2006 No. No. m m Weighted average number of shares used in basic 397.9 392.6calculation SAYE share options 2.5 3.0 Executive share options 1.6 0.9 402.0 396.5
3. Earnings per share (EPS) (continued)
The adjusted basic EPS and adjusted cash EPS are intended to demonstraterecurring elements of the results of the Group before amortisation ofintangible assets, non-recurring bid costs, other non-recurring items and loss/profit on disposal of fixed assets. A reconciliation of the earnings used inthe bases is set out below: 2007 2006 ‚£m Earnings ‚£m Earnings per share per share (p) (p)
Profit for basic EPS calculation 91.7 23.1 107.5
27.4
Amortisation of intangible assets * 10.1 2.5 4.3 1.1 Non-recurring bid costs 19.3 4.9 28.5 7.2 Other non-recurring items 22.3 5.6 - - Loss/(profit) on disposal of fixed 3.7 0.9 (13.5) (3.4)assets ** Taxation effect of adjustments (13.0) (3.3) (5.3)
(1.4)
Profit for adjusted basic EPS 134.1 33.7 121.5
30.9calculation Depreciation *** 138.8 34.9 121.6 31.0
Profit for adjusted cash EPS 272.9 68.6 243.1
61.9
calculation ****
* Amortisation charge of ‚£10.3m per note 5 less ‚£0.2m (2006: ‚£4.5m less ‚£0.2m) attributable to equity minority interests.
** Loss on disposal of fixed assets of ‚£3.7m less ‚£nil (2006: profit of ‚£14.0m less ‚£0.5m) attributable to equity minority interests.
*** Depreciation charge of ‚£139.7m (2006: ‚£122.0m) per note 6 less ‚£0.9m (2006: ‚£0.4m) attributable to equity minority interests.
**** Excludes working capital movements.
4. Goodwill 2007 2006 ‚£m ‚£m Cost At 1 April 503.1 465.8 Additions 9.1 10.3 Exchange rate differences (43.4) 27.0 At 31 March 468.8 503.1
Accumulated impairment losses
At 31 March - - Carrying amount At 31 March 468.8 503.15. Other intangible assets Contracts Franchise Total acquired agreements ‚£m ‚£m ‚£m Cost At 1 April 2006 15.7 21.0 36.7 Additions 7.1 35.3 42.4 Exchange rate differences (1.6) - (1.6) At 31 March 2007 21.2 56.3 77.5 Amortisation At 1 April 2006 2.2 4.5 6.7 Charge for year 2.1 8.2 10.3 Exchange rate differences (0.3) - (0.3) At 31 March 2007 4.0 12.7 16.7 Carrying amount At 31 March 2007 17.2 43.6 60.8 Contracts Franchise Total acquired agreements ‚£m ‚£m ‚£m Cost At 1 April 2005 10.6 21.0 31.6 Additions 4.3 - 4.3 Exchange rate differences 0.8 - 0.8 At 31 March 2006 15.7 21.0 36.7 Amortisation At 1 April 2005 0.6 1.6 2.2 Charge for year 1.6 2.9 4.5 Exchange rate differences - - - At 31 March 2006 2.2 4.5 6.7 Carrying amount At 31 March 2006 13.5 16.5 30.0
6. Property, plant and equipment
Land and Passenger Other Total buildings carrying plant and ‚£m ‚£m vehicle equipment fleet ‚£m ‚£m Cost At 1 April 2006 157.0 1,331.9 203.7 1,692.6 Subsidiary undertakings and - 5.0 - 5.0businesses acquired Additions 28.6 178.8 114.2 321.6 Disposals (5.1) (43.1) (22.8) (71.0) Reclassifications 4.1 - (4.1) - Reclassified as held for - (24.5) - (24.5)sale Exchange rate differences (2.9) (58.2) (5.0) (66.1) At 31 March 2007 181.7 1,389.9 286.0 1,857.6 Accumulated depreciation and impairment At 1 April 2006 22.1 621.1 122.9 766.1 Charge for year 5.2 107.7 26.8 139.7 Disposals (0.9) (38.7) (19.8) (59.4) Reclassified as held for - (18.1) - (18.1)sale Exchange rate differences (0.8) (26.5) (3.1) (30.4) At 31 March 2007 25.6 645.5 126.8 797.9 Carrying amount At 31 March 2007 156.1 744.4 159.2 1,059.7 Land and Passenger Other Total buildings carrying plant and ‚£m ‚£m vehicle equipment fleet ‚£m ‚£m Cost At 1 April 2005 149.1 1,228.7 161.4 1,539.2 Subsidiary undertakings and - 4.0 - 4.0businesses acquired Additions 16.2 155.5 37.4 209.1 Disposals (5.1) (64.2) (2.9) (72.2) Reclassifications (5.1) - 5.1 - Reclassified as held for - (27.3) - (27.3)sale Exchange rate differences 1.9 35.2 2.7 39.8 At 31 March 2006 157.0 1,331.9 203.7 1,692.6 Accumulated depreciation and impairment At 1 April 2005 23.7 581.2 99.3 704.2 Charge for year 3.6 99.0 19.4 122.0 Disposals (0.6) (52.1) (2.3) (55.0) Reclassifications (5.1) - 5.1 - Reclassified as held for - (21.5) - (21.5)sale Exchange rate differences 0.5 14.5 1.4 16.4 At 31 March 2006 22.1 621.1 122.9 766.1 Carrying amount At 31 March 2006 134.9 710.8 80.8 926.57. Inventories 2007 2006 ‚£m ‚£m Spare parts and consumables 48.1 41.7
Property development work in progress 16.5
12.5 64.6 54.2
8. Trade and other receivables 2007
2006 ‚£m ‚£m Amounts due within one year Trade debtors 262.7 279.3 Other debtors 61.8 38.8
Other prepayments and accrued income 52.8
55.0 377.3 373.19. Trade and other payables 2007 2006 ‚£m ‚£m
Amounts falling due within one year
Trade creditors 194.5 129.7 Other creditors 104.7 106.5 Accruals and deferred income 346.4
294.9
Season ticket deferred income 49.5
14.0 695.1 545.1
10. Financial liabilities - borrowings
2007 2006 ‚£m ‚£m
Current financial liabilities
Short-term bank loans 0.9 26.4 Bank overdrafts 0.9 4.5 1.8 30.9 Finance leases (note 11) 11.5 2.3 Loan notes (note 12) 5.2 2.8
Bond 6.875% (repayable 2013) - accrued interest 20.1
20.1
Bond 6.125% (repayable 2019) - accrued interest 3.0
3.0 23.1 23.1
Total current financial liabilities 41.6
59.1
Non-current financial liabilities Syndicated unsecured bank loans 308.2 264.9 Other loans 2.3 3.9 310.5 268.8 Finance leases (note 11) 70.4 10.1 Loan notes (note 12) 10.6 17.7 Bond 6.875% (repayable 2013) 296.3 295.9 Bond 6.125% (repayable 2019) 243.0 257.3 539.3 553.2 Total non-current financial liabilities 930.8 849.8 Total financial liabilities 972.4 908.9
Gross borrowings repayment profile
Within one year or on demand 41.6 59.1 Between one and two years 24.5 21.1 Between two and five years 351.1 271.7 Over five years 555.2 557.0 972.4 908.911. Finance leasesThe Group had the following obligations under finance leases as at the balancesheet dates: 2007 2006 ‚£m ‚£m
Due in less than one year 11.5
2.3
Due in more than one year but not more than two years 12.9 2.2
Due in more than two years but not more than five 41.7
4.6years Due in more than five years 15.8 3.3 Total 81.9 12.412. Loan notesThe Group had the following loan notes issued as at the balance sheet dates: 2007 2006 ‚£m ‚£m Due in less than one year 5.2
2.8
Due in more than one year but not more than two 10.6 17.7years Total 15.8 20.5
13. Derivative financial instruments
2007 2006 ‚£m ‚£m Non-current assets
Cross currency swaps (net investment hedge) 24.9 - Coupon swaps (fair value hedge) -
8.1
Interest rate collars (cash flow hedge) -
0.4
Fuel derivatives (cash flow hedge) 2.8
- 27.7 8.5 Current assets
Cross currency swaps (net investment hedge) 2.9 - Coupon swaps (fair value hedge) 1.2
3.3
Fuel derivatives (cash flow hedge) 4.2 10.8 8.3 14.1 Total assets 36.0 22.6 Current liabilities Interest rate swaps (cash flow hedge) 0.3
0.9
Cross currency swaps (net investment hedge) -
0.9
Fuel derivatives (cash flow hedge) 1.4 - Currency forwards (cash flow hedge) 3.3
- 5.0 1.8 Non-current liabilities Interest rate swaps (cash flow hedge) -
0.4
Cross currency swaps (net investment hedge) -
0.4
Coupon swaps (fair value hedge) 4.1 - Interest rate collars (cash flow hedge) 0.2
- 4.3 0.8 Total liabilities 9.3 2.614. Deferred taxThe following are the major deferred tax liabilities and assets recognised bythe Group and movements thereon during the current and prior reporting periods.(Assets)/liabilities Accelerated Other Tax Total temporary tax differences losses ‚£m depreciation ‚£m ‚£m ‚£m At 1 April 2005 134.3 (53.1) (40.5) 40.7 Charge/(credit) to income 32.9 32.0 (21.6) 43.3 Charge to equity - 2.6 - 2.6 Acquisition of subsidiary - (3.6) - (3.6) Exchange differences 4.9 (0.3) (3.0) 1.6 At 31 March 2006 172.1 (22.4) (65.1) 84.6 Charge to income 4.0 20.7 7.9 32.6 Charge to equity - 30.4 - 30.4 Exchange differences (11.0) (1.1) 7.2 (4.9) As 31 March 2007 165.1 27.6 (50.0) 142.7 15. Provisions Insurance Pensions Total claims * ‚£m ‚£m ‚£m At 1 April 2006 30.7 6.9 37.6 Provided in the year 32.4 - 32.4 Utilised in the year (39.2) (0.6) (39.8) Notional interest 6.9 - 6.9 Exchange rate differences (3.9) - (3.9) At 31 March 2007 26.9 6.3 33.2* Insurance claims accruals due within one year at 31 March 2007 amounted to ‚£44.0m (2006: ‚£50.0m) and are included in "accruals and deferred income" withinnote 9. The amount included within provisions above represents the estimate ofamounts due after more than one year.16. Called up share capital 2007 2006 ‚£m ‚£m Authorised: 600.0m ordinary shares of 5p each * 30.0
30.0
Allotted, called up and fully paid: 438.3m (2006: 398.8m) ordinary shares of 5p each 21.9 19.9 No. ‚£m m At 1 April 2006 398.8 19.9 Equity share placing 39.5 2.0 At 31 March 2007 438.3 21.9
* Subsequent to year-end the authorised share capital was increased to 4,600m shares of 5p each or ‚£230.0m.
In February 2007 the Group issued 39.5m shares for gross proceeds of ‚£221.4m. 3,334,407 (2006: 6,630,500) shares were being held as treasury shares at 31 March 2007.
The Company has one class of ordinary shares which carry no right to fixed income.
17. Statement of changes in equity Hedging Share Own Retained shares earnings reserve premium ‚£m ‚£m ‚£m account ‚£m At 1 April 2005 37.0 238.8 (18.9) (25.3) Retained profit for the financial year - - - 107.5 Dividends paid - - - (52.0) Movement in EBT, QUEST and treasury - - (7.7) (8.3)shares during the year
Current tax on share-based payments - - -
1.8
Actuarial gains on defined benefit - - -
36.7pension schemes Deferred tax on actuarial gains - - -
(11.0)
Derivative hedging instrument movements (43.2) - -
-
Deferred tax on derivative hedging 8.1 - -
-instrument movements
Share-based payments provision - - -
3.2
Deferred tax on share-based payments - - -
0.3 At 31 March 2006 1.9 238.8 (26.6) 52.9
Retained profit for the financial year - - -
91.7 Dividends paid - - - (57.1)
Premium arising on issue of equity shares - 219.4 -
-
Expenses on issue of equity shares - (10.4) -
-
Movement in EBT, QUEST and treasury - - 9.2 (6.3)shares during the year
Current tax on share-based payments - - -
1.5
Actuarial gain on defined benefit pension - - - 116.9schemes Deferred tax on actuarial gains on - - -
(35.0)
defined benefit pension schemes
Derivative hedging instrument movements 22.8 - -
-
Deferred tax on derivative hedging 2.0 - -
-instrument movements
Share-based payments provision - - -
3.2
Deferred tax on share-based payments - - -
2.6 At 31 March 2007 26.7 447.8 (17.4) 170.4 Capital Capital Total other redemption reserve reserves reserve ‚£m ‚£m ‚£m
At 31 March 2007 and 31 March 2006 1.9 2.7
4.618. Translation reserves ‚£m At 1 April 2005 (14.2)
Reclassify to hedging reserve on financial instrument recognition (7.7)
Movement for the financial year
49.6 At 31 March 2006 27.7 Movement for the financial year (85.5) At 31 March 2007 (57.8)
19. Notes to the consolidated cash flow statement 2007
2006 ‚£m ‚£m Operating profit 207.3 196.7 Adjustments for: Depreciation charges 139.7 122.0
Amortisation of intangible assets 10.3
4.5 Share-based payments 3.2 3.2
Loss on disposal of plant and equipment 1.9
1.4
Operating cash flows before working capital 362.4 327.8 Increase in inventories (8.8) (9.6)
(Increase)/decrease in receivables (25.8)
3.9
Increase/(decrease) in payables 40.1 (21.4) Cash generated by operations 367.9 300.7 Corporation tax paid (5.5) (3.5) Interest paid (62.3) (61.3) Interest element of finance lease payments (4.6)
(0.9)
Net cash from operating activities 295.5
235.0
FIRSTGROUP PLCRelated Shares:
Firstgroup