5th Nov 2008 07:00
Embargoed until 07:00hrs on Wednesday 5 November 2008
FIRSTGROUP PLC HALF-YEARLY RESULTS FOR THE SIX MONTHS TO 30 SEPTEMBER 2008 * EXCELLENT FIRST HALF OF THE YEAR - UNDERPINNED BY STRONG, BALANCED PORTFOLIO OF OPERATIONS * + Group revenue up by 56.5% and adjusted operating profit up 75.8% + Group operating margin1 increased by 70bps + Strong EBITDA2 growth of ‚£306m up 79.1% + Adjusted basic EPS 15.6p up 40.5% * NORTH AMERICA - 12 MONTHS SINCE LAIDLAW ACQUISITION * + Synergy outperformance - reached $150m run rate ahead of plan
+ First Student - contract retention >93%, margin increased, developing
pipeline of conversion opportunities * First Transit - continued profitable expansion and margin improvement * Greyhound - delivering revenue growth of 5% and improved operating performance up 10% * UK BUS - PASSENGER REVENUE AND VOLUME GROWTH * + Signs of modal shift towards the bus + Strong passenger revenue growth up 7.7% with volumes increasing c.2% + Further margin improvement + Improved quality through investment in people and vehicles * UK RAIL - GOOD GROWTH ACROSS RAIL DIVISION * + Strong passenger revenue growth up 9.8% and volumes up 5.9% + Delivering improved performance across all our franchises + Investment in customer service and performance + Balanced portfolio of rail operations * BALANCE SHEET AND CASH GENERATION * + Refinancing now largely complete + Refinanced $1.95bn of $2.25bn acquisition bridge term loan + ‚£505m revolving credit facility extended to February 2012 + Low refinancing requirements to December 2011 + Free cash flow generation targeted for further debt reduction
FINANCIAL SUMMARY
* Revenue ‚£2,768.5m (2007: ‚£1,768.9m) * Adjusted operating profit1 ‚£181.2m (2007: ‚£103.1m) * Operating profit ‚£128.5m (2007: ‚£99.9m) * Adjusted EBITDA2 ‚£306.0m (2007: ‚£170.9m) * Adjusted profit before taxation1 ‚£107.1m (2007: ‚£74.5m) * Profit before taxation ‚£54.4m (2007: ‚£71.3m) * Adjusted basic earnings per share 15.6p (2007: 11.1p) * Basic earnings per share 5.0p (2007: 12.9p) * Adjusted EBITDA: interest cover3 4.4x (2007: 7.0x) * Interim dividend per share up 10% to 6.05p (2007: 5.5p)
1Before amortisation charges, non-recurring bid costs, other non-recurring items and (loss)/profit on disposal of properties, as shown in the consolidated income statement on page 20.
2Adjusted operating profit plus depreciation.
3 Adjusted EBITDA divided by the net of finance costs and investment income calculated on an annualised basis.
Results for the six months to 30 September 2008 include the contribution from Laidlaw International, Inc. acquired on 1 October 2007
Commenting on the results for the six months to 30 September 2008, FirstGroup's Chief Executive, Sir Moir Lockhead said:
"I am delighted to report another set of record results. The Group has delivered a robust performance in the first half of the year. Across all of our businesses trading has been good and we have achieved strong revenue growth underpinned by our investment in operational performance and customer service.
"It is now 12 months since we acquired Laidlaw and firmly established the Groupas the market leader in North America. The integration of the two businesseshas been a substantial task and I am delighted with the excellent progress wehave made. We have successfully achieved our key objectives to consolidateoperations, maintain our strong contract retention record, improve operatingefficiencies and deliver substantial synergies from the combined operations.Since we announced the acquisition in February 2007 we have more than doubledour original synergy target and I am pleased to report that we have nowachieved a synergy run rate of $150m per annum, significantly ahead of ourplan."Across our UK businesses we are seeing the results of our investment incustomer service, quality and operational performance. In UK Bus we haveachieved 7.7% passenger revenue growth and further increased the operatingmargin. Bus passenger volumes increased by approximately 2% and we areencouraged by the growing number of people switching to public transport fromother modes of travel. We are committed to promoting bus travel through thedevelopment of quality partnerships backed by investment in service quality,people and new vehicles to support passenger growth. In UK Rail we haveachieved a further period of good passenger revenue growth of 9.8%. Overallstrong passenger volume growth of 5.9% was achieved during the period. Acrossour UK Rail division a relentless focus on operating performance has deliveredimproved results for all of our rail franchises. Our North American business isuniquely positioned to offer unrivalled value and quality. The extent of ouroperations enables us to share scale benefits with our customers and wecontinue to pursue the opportunities that the current economic climate in theUS presents for us to expand our business. At Greyhound we have delivered astep change in the performance of the business. The historic declining revenueand performance trends have been reversed to achieve 5% revenue growth and a10% increase in On Time Performance, a measure of operating efficiency."I am pleased to report that the refinancing of the shorter-dated Laidlawacquisition debt is largely complete. We have now repaid $1.95bn of the $2.25bnLaidlaw acquisition term loan from the proceeds of new equity raised, mediumterm bank facilities, a 10-year bond issue and medium term finance leasessuccessfully completed. Free cash flow generation will support growth andfurther debt reduction."These results demonstrate the strength and resilience of the Group despite theuncertain economic environment. With strong operating cash flows andopportunities for future growth across all divisions, the Board is confident ofthe Group's prospects. Looking ahead, we will continue to bear down on costsand deliver further efficiencies across our business where necessary. While theGroup is not wholly immune to macroeconomic developments, it has established astrong balanced portfolio of businesses with approximately 50% of Grouprevenues secured under medium term contracts with Government agencies and otherlarge organisations in the UK and North America. Trading in the second half ofthe year has started well and is in line with our expectations."
Enquiries FirstGroup plc :
Sir Moir Lockhead, Chief Executive Tel: 020 7291 0512
Nick Chevis, Acting Finance Director Tel: 020 7291 0512
Rachael Borthwick, Corporate Communications Director Tel: 020 7291 0508
A CONFERENCE CALL OF THE PRESENTATION TO ANALYSTS WILL BE HELD AT 9:00AM FOR
DETAILS PLEASE CONTACT FIRSTGROUP TEL: 020 7291 0507
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NOTES TO EDITORS:
FirstGroup plc is the world's leading transport company with annualised revenues of over ‚£5 billion a year. We employ approximately 137,000 staff throughout the UK and North America and transport some 2.5 billion passengers a year.
UK Bus
* 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
approximately 3 million passengers a day in more than 40 major towns and
cities. UK Rail
* The Group operates one quarter of the UK passenger rail network, with a
balanced portfolio of intercity, commuter and regional services, carrying
over 280 million passengers per annum.
* The Group is the UK's largest rail operator with four passenger franchises
- First Capital Connect, First Great Western, First ScotRail and First
TransPennine Express - and one open access operator, Hull Trains.
* The Group operates rail freight services through First GBRf and operates
the Croydon Tramlink network on behalf of Transport for London carrying
over 26 million passengers a year.
North America
* In North America the Group has four operating divisions: Yellow School
Buses (First Student), Transit Contracting and Management Services (First
Transit), Vehicle Fleet Maintenance and Support Services (First Services)
and intercity coach services (Greyhound). Headquartered in Cincinnati,
FirstGroup America Inc. operates across the US and Canada.
* First Student is the largest provider of student transportation in North
America with a fleet of approximately 60,000 yellow school buses, carrying
nearly 4 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
city transit authorities. It is one of the largest providers of airport
shuttle bus services in the US and 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. Providing fleet
maintenance for public sector customers such as the Federal Government and
fire and police departments it also provides support services such as
vehicle maintenance, logistics support and facilities management to public
and private sector clients including the US Navy and Air Force. * Greyhound is the only national provider of scheduled intercity coach services in the US and Canada. Based in Dallas, Greyhound provides
scheduled passenger services to approximately 3,100 destinations throughout
the US and Canada carrying approximately 25 million passengers annually.
In mainland Europe we operate some 150 buses in south west Germany and, fromJanuary 2009, we will operate, with our partner DSB, the ƒËœresund rail franchisewhich includes routes in and between Denmark and Sweden.
Chairman's statement
I am delighted with the Group's performance in delivering excellent results inthe first half of this financial year. We continue to create value forshareholders through our strategy to provide safe, high quality and reliableservices and through profitable growth in our core markets. The safety andsecurity of our passengers and employees is at the heart of everything we doand I am proud that we continue to lead the industry with pioneeringinitiatives in this key area.Across the Group strong trading together with a constant focus on quality,service provision and cost control has produced an excellent set of financialresults for the first half of this year. Adjusted basic earnings per shareincreased by 40.5% to 15.6p (2007: 11.1p). The Board has proposed an interimdividend of 6.05p (2007: 5.5p) an increase of 10%. It will be paid on 4February 2009 to shareholders on the register on 9 January 2009. The Board'scommitment to increase dividends is underpinned by our confidence in theGroup's prospects.I am pleased to report the significant progress we have made in replacingshorter-dated Laidlaw acquisition debt as part of our refinancing strategy. Wehave now repaid $1.95bn of the $2.25bn Laidlaw acquisition term loan from theproceeds of new equity raised, medium term bank facilities, a 10 year bondissue and medium term finance leases successfully completed. Free cash flowgeneration will support growth and further debt reduction.It is now just over 12 months since we acquired Laidlaw and firmly establishedFirstGroup as the market leader in North America. The integration of the twobusinesses has been a substantial task and I am very pleased with the excellentprogress we have made since the acquisition. We have successfully achieved ourinitial objectives to consolidate the businesses, maintain our excellent recordof contract retention, improve operating efficiencies and to extractsubstantial synergies from the combined operations. Since we announced theacquisition in February 2007 we have more than doubled our original synergytarget to $150m per annum.In the UK we have focused on developing strong partnerships and have investedto deliver an improved network of services, greater reliability and to promotepassenger growth. Across the industry there are signs of modal shift and we areencouraged by growing numbers of passengers switching from the private car topublic transport as consumers experience rising costs of living coupled with agreater awareness of the environmental benefits of public transport.The continued success of the Group is a credit to the hard work and dedicationof our 137,000 employees. On behalf of the Board I would like to thank all ofour staff across the Group for their continued commitment to providing safe,high quality and reliable services and in delivering another period ofprofitable growth.The strength of our Group is demonstrated by our continued growth across ourcore markets. As the market leader in the UK and North America the Group iswell positioned to benefit from continued modal shift towards public transport.We remain committed to investing to promote growth and to improve services forpassengers and will continue to rigorously manage costs and develop ways toincrease efficiency and productivity. While the Group is not wholly immune tomacroeconomic developments we have established a resilient and balancedportfolio of operations, with approximately 50% of the Group's revenues securedunder medium-term contracts with Government agencies and other largeorganisations. While we continue to closely monitor economic developments,there are good prospects for growth in all of our markets and the outlookremains positive.Martin GilbertChairman
*Operating profit referred to throughout this document refers to operating profit before amortisation charges, non-recurring bid costs, other non-recurring items and (loss)/profit on disposal of properties. EBITDA is adjusted operating profit plus depreciation.
Chief Executive's operating review
OVERVIEW
Safety
The safety and security of our passengers and staff is at the heart of ourbusiness and underpins everything that we do. We have made good progress duringthe period in progressing our clear aim to embed a culture of safety throughoutthe entire Group and we continue to rigorously apply a zero tolerance approachto unsafe acts and practices. We are committed to ensuring safety is thehighest priority at every level in our organisation. I am delighted thatFirstGroup America has been awarded the 2009 Green Cross Safety Medal Awardfrom the National Safety Council in the US in recognition of our commitment toimproving safety and health in the workplace. I am also very pleased that ourUK Bus division has won an award at this year's European Commission Excellencein Road Safety Awards. We continue to lead the industry with our safetyinitiatives, however, we cannot afford to be complacent and will continuallyseek to find ways to improve our practices and provide the safest possibleservices for passengers and staff.
Results
I am pleased to report another period of record performance by the Group, whichincludes a full six month contribution from our enlarged North Americanbusiness following the completion of our Laidlaw acquisition in October 2007.Group revenue increased by 56.5% to ‚£2,768.5m (2007: ‚£1,768.9m). Adjustedoperating profit was ‚£181.2m (2007: ‚£103.1m) an increase of 75.8% and the Groupoperating margin rose to 6.5% (2007: 5.8%). Profit before tax was ‚£54.4m (2007:‚£71.3m) a reduction of ‚£16.9m mainly due to higher non-recurring items inrelation to the integration of the Laidlaw acquisition. Strong cash generationis a feature of our businesses and I am pleased to report EBITDA growth of79.1% to ‚£306.0m (2007: ‚£170.9m), enabling us to continue to invest in thebusiness for growth and to increase the interim dividend by 10%.
NORTH AMERICA
The Group is now the leading provider of transportation services in NorthAmerica. First Student is the largest provider of student transportation withapproximately 60,000 yellow school buses operating every day across the US andCanada. We operate a transit contracting and management business in NorthAmerica, a vehicle fleet maintenance and support services division. Greyhoundis the only national provider of scheduled intercity coach services in the USand Canada. With scheduled services to approximately 3,100 destinations itcarries over 25 million passengers per annum.
Results
Revenue from our four businesses comprising Student, Transit, Services andGreyhound increased by 229% in US Dollar terms to $2,363.0m or ‚£1,221.9m (2007:$717.2m or ‚£358.5m) reflecting a half-year contribution from our acquisition ofLaidlaw. Revenue, on a proforma basis including Laidlaw businesses for thecomparable period in 2007, increased by 5.2%. Operating profit was $165.0m or ‚£86.0m (2007: $34.1m or ‚£17.2m) an increase of 384% at constant exchange rates.Operating profit, on a proforma basis including Laidlaw businesses for thecomparable period in 2007, increased by 45%. EBITDA increased by 314% to$297.8m (2007: $71.9m) enabling us to invest to deliver future growth in ourNorth American operations.During the first half of this new financial year we have continued oursuccessful integration of Laidlaw operations into our business. I am delightedwith the progress made in achieving our integration plans and in securing thesynergies from the combined operations. We have already reached our target$150m per annum run rate earlier than anticipated.I am pleased to report that we are seeing the positive effects of our focus oncustomer service, quality and operational performance. Our businesses in NorthAmerica are in a strong position to continue to grow by offering unrivalledquality, a greater range of products and significant scale efficiencies.
First Student
US Dollar revenue increased by 222.8%, operating profit increased by 326.5% and the operating margin improved by 130bps despite additional fuel costs.
A key focus for the business, during this period of integration, has been tocontinue our excellent customer retention record and I am pleased to reportthat First Student retained over 93% of contracts that came up for renewal. InAugust and September we delivered a successful start up of new and retainedcontracts for the new school year.We are experiencing a marked increase in the number of `expressions ofinterest' received from school boards in respect of outsourcing schooltransportation. Our scale and expertise enables us to offer enhanced qualityand value to customers and we are pursuing the opportunities that the currenteconomic climate in the US presents for us to expand our business and productoffering. We have a strong, experienced team heading our business developmentactivities who have established a platform to proactively develop this pipelineof opportunities as well as seeking further opportunities. During the period wewere delighted to win contracts for 360 new school buses that were previouslyoperated within the public sector.We continue to create opportunities to expand our range of services. The USschool bus charter market is estimated to be worth some $700m. Yellow schoolbuses are hired for `charter trips' such as after school activities, day tripsand for social groups. As part of our plans to further develop our presence inthis market we are rolling out a number of `Charter Centres' and have launcheda new website where customers can request a charter trip quote online which isautomatically forwarded to the appropriate First Student location forfulfilment.The extent of our school transportation business enables us to leverage ourscale and share the benefits with our customers and stakeholders. In May wesigned a $750m agreement with Navistar IC Bus to purchase 13,000 new yellowschool buses over the next three years. All of the buses will be built tocustomer specifications and equipped with safety enhancements including frontsafety crossing gates to prevent children stepping out directly in front of thevehicle, electronic child check reminder systems and GPS technology to meet
oursafety requirements.First Transit
Our Transit business has delivered another successful period of growth with USDollar revenue increased by 76.4%, operating profit increased by 115.4% and afurther improvement in the operating margin.The integration of Laidlaw Transit Services into First Transit operations wassuccessfully achieved while at the same time continuing to grow our share ofthe transit market in the US and Canada. I am pleased to report that during theperiod we continued to expand our business with a number of transit contractingand transit management contract wins in states including California, Louisiana,Maryland, Massachusetts, New Jersey, New York, North Carolina and Pennsylvania.I am pleased that our relentless focus on customer service was recognised withseveral accolades during the period including awards for `OutstandingMetropolitan System' for one of our transit operations in Texas and another inIndiana.
The enlarged Transit business is well placed to offer greater value and expertise to new and existing customers and continue to grow its presence in the higher margin shuttle and paratransit markets.
First Services
Revenue in our Services business grew by 17.4% in US Dollar terms. Operatingprofit was impacted by the loss of a legal dispute and additional costsincurred in respect of a small number of contracts which expire during thisfinancial year. Our vehicle fleet maintenance business continued to win newcontracts with private corporations and with public sector agencies includingthe City of Irving in Texas where we now maintain their police vehicle fleet.We have restructured this business and implemented a number of managementchanges. First Services is now incorporated within our First Transit managementstructure.Greyhound
Greyhound had an excellent first half with revenue of $632.9m and operatingprofit of $81.1m. The business is highly seasonal with a greater proportion ofits revenue and earnings being achieved during the busy summer months. I amdelighted with the progress we have made in strengthening this business. Whenwe acquired Greyhound, as part of Laidlaw in October 2007, revenue trends weredeclining. As a result of our initiatives we have achieved revenue growth of5%. We continue to believe that there is a substantial opportunity to generatefurther revenue growth at Greyhound and are very encouraged by the response tothe early actions we have taken.BoltBus, our low cost, high quality intercity coach service operating betweenkey city pairs on the East Coast, has proved extremely popular with customersand a great success. We launched BoltBus in March this year and are delightedto report that the service is already achieving revenues of over $1m per month.A strong demand for BoltBus services has resulted in high load factors, whichcontinued to increase throughout the summer months. We are introducing a newschedule for the autumn including additional services between New York andBoston to accommodate the increasing demand. A further six buses will be addedto the BoltBus fleet to increase capacity.A key priority is to improve the operational performance of Greyhound which hadbeen declining over several years. We have taken a number of actions to improveproductivity and scheduling and have introduced more frequent and closermonitoring and reporting of On Time Performance. I am pleased to report thatduring the period Greyhound's On Time Performance has improved by 10% to over80% and we continue to target further improvement.We are progressing our plans to improve the quality and performance of thefleet and have placed an order for 140 new vehicles. This much neededinvestment will substantially improve the on-board environment for passengerswith benefits including increased leg room, three point seat belt system, Wi-Fiand power plug provision.UK BUS
The Group is the largest bus operator in the UK with a market share of approximately 23%. Our fleet of almost 9,000 buses carries 3 million passengers every day.
ResultsI am delighted to report that our UK Bus division has delivered another verystrong performance during the period. Total revenue rose by 7.1% to ‚£578.6m(2007: ‚£540.1m) as a result of volume growth, including concessions, andpricing. Passenger revenue rose by 7.7% with increased passenger volumes asgrowing numbers of people chose to take the bus. Revenue growth was achievedacross the division with the strongest performance in our high density networksin towns and city centres. Operating profit increased by 26.1% to ‚£60.0m (2007:‚£47.6m). Strong EBITDA growth to ‚£96.1m (2007: ‚£83.5m) was achieved during theperiod.We continue to promote bus travel and are pleased that growing numbers ofpeople are switching to the bus from other modes of transport. We continue toinvest in service quality, our people and new vehicles to support passengergrowth. Our commitment to managing our controllable costs across the division,our revenue growth initiatives and the continued improvement of our operatingcompanies in rural areas has improved profitability. I am pleased to reportthat our operating margin has increased to 10.4% (2007: 8.8%) despite higherfuel costs in the period.InvestmentOur continued strong performance enables us to invest in our people, our fleetand our infrastructure. We have focused our capital expenditure on the majortowns and cities where we are delivering passenger growth. During the period,we invested ‚£70.6m in our UK Bus division including new, environmentallyfriendly buses for our operating companies in Bradford, Bristol, Leeds,Manchester and South Yorkshire. Our investment included 17 new vehicles for theCity of York Park & Ride contract which we successfully retained in July. Weare pleased to report an increase in the number of Park & Ride servicesoperated across our UK Bus division with the addition of two new five-yearcontracts in Doncaster and Ipswich.I am pleased to report that driver turnover has reduced to less than 22% as aresult of our investment in programmes and initiatives to encourage recruitmentand greater retention and to promote greater engagement with our employees.
Marketing
This summer we launched our "Fuel for Thought" campaign to highlight thecompetitive advantage of bus travel compared to the cost of fuelling a car. Wealso launched our FuelBuster ticket, a new product allowing our customers tofix their travel costs for a six month period. We continue to promote buses asa more environmentally friendly way to travel and are marketing our newenvironmentally friendly vehicles to non-bus users. We believe there is growingacknowledgement that achieving modal shift from cars to buses will reducecongestion and contribute to lowering greenhouse gas emissions that contributeto climate change.PartnershipsThe Sheffield Bus Agreement, our Voluntary Quality Partnership agreement withSouth Yorkshire Passenger Transport Executive and Sheffield City Council,celebrated its first anniversary in May. The Agreement has delivered impressivegrowth in the number of people travelling on buses in Sheffield. Infrastructureimprovements, better enforcement of bus lanes and customer service initiativeshas reduced journey times, increased customer satisfaction and attracted newpassengers to the network. We continue to work closely with our local authoritypartners and are investing ‚£9m in 58 new vehicles for the city to supportgrowth.Yorcard, a new smartcard being piloted for public transport users in Yorkshire,has now been introduced on selected First bus services in Sheffield. Yorcardfollows a similar concept to London's Oyster card. The pilot is being led bySouth Yorkshire Passenger Transport Executive, in partnership with Metro, andwill continue into 2009. Yorcard could be rolled-out across all forms of publictransport throughout Yorkshire and Humberside.Our partnership with Metro and Leeds City Council continues to deliver benefitsfor passengers. In September the partners relaunched the Scott Hall Road guidedbusway ten years after its completion. Metro has invested in the shelters alongthe route fitting the `yournextbus' real time passenger information system andLeeds City Council is planning to improve bus priority along the route whichwill see further reductions in journey time. We are investing ‚£3m in new busesfor services operating on the busway. Our joint ftr initiative introduced inJune 2007 has increased passenger numbers on the route by 15% and improvedcustomer satisfaction. We are delighted that our operating company in Leeds washighly commended in the Public Transport Operator of the Year award at theNational Transport Awards.In July we published our second Route Development Plan (RDP) for bus servicesin Greater Glasgow. The RDP is one of a number of commitments in the Stabilityand Growth Pact we signed with Glasgow City Council and Strathclyde Partnershipfor Transport last year and outlines the key changes proposed for the Glasgowroute network. The RDP builds on our achievements over the period which includethe provision of increased capacity across many routes, success in new marketsand ongoing improvements in reliability and punctuality, all of which havecontributed to an increase in patronage and the creation of more than 100 newjobs.Our Joint Investment Plan with Norwich City Council and Norfolk County Councilis delivering new vehicles to support passenger growth and resulted in doublingthe frequency of our flagship X1 route. We are delighted that Leon Wells fromour operation in Ipswich won the prestigious Bus Driver of the Yearcompetition.In April we relaunched our bus network in Plymouth. `ugobus' offers simplifiedtimetables and fare structures, supported by a local branding campaign, and hasdelivered a 7% increase in passenger numbers.
Policy
The Local Transport Bill has now completed its remaining stages in the House ofCommons. While we support the Government's objective of increasing buspatronage through more effective voluntary quality partnerships we aredisappointed by the Department for Transport's decision, at this late stage inthe legislative process, to amend the Bill by replacing approvals boards forquality contract schemes with "QCS boards". The QCS board's role would beadvisory rather than its opinion being binding on the local authority. Webelieve this amendment could weaken the independent scrutiny of local authorityproposals for quality contract schemes.We welcomed the report of the Yellow School Bus Commission, chaired by the Rt.Hon. David Blunkett MP. We believe the recommendations set out in theauthoritative report would reduce congestion caused by the school run and leadto an overall increase in the number of children walking, cycling and takingthe bus to school.UK RAILOur UK Rail division operates passenger and freight services. Passenger railfranchises consist of First Capital Connect, First Great Western, FirstScotRail and First TransPennine Express. We also operate Hull Trains, anon-franchised open access intercity passenger train operator, and we providerail freight services through First GBRf. We are the UK's largest rail operatorcarrying over 280 million passengers per annum.
Results
I am pleased by the continued strong performance of our UK Rail division in thefirst six months of the year. Revenue increased by 11.2% to ‚£960.6m (2007: ‚£863.6m) reflecting good growth across all of our rail businesses. During theperiod demand for services remained strong with passenger volumes increased by5.9%. Operating profit was ‚£48.3m (2007: ‚£48.2m). All of our rail franchiseshave improved their operating performance year on year with each franchisedelivering a Public Performance Measure (PPM) score of over 90% in the lastperiod. We continue to invest in our rail businesses to build on thisimprovement and to drive passenger growth. Overall passenger growth supportsthe industry view that customers are being attracted to the railway as a resultof the increasing costs of motoring and as a more environmentally friendly modeof travel. Across our rail division we have established a diverse range offranchises including London commuter, intercity and regional, providing abalanced mix of operations and mitigating reliance on any specific market.
First ScotRail
We are delighted that the Scottish Government has extended our successful FirstScotRail franchise for a further three years to November 2014. Operationalperformance continues to be strong with a record high PPM in April of over 94%and since the start of the franchise we have reduced delays caused by FirstScotRail by some 50%. We were pleased to record an overall satisfaction scoreof 88% in the National Passenger Survey, up five percentage points year onyear. Our continued commitment to improving performance and customer service,together with the re-opening of the Stirling-Alloa-Kincardine line in May, hascontributed to passenger growth of more than 4% and over 20% since the start ofthe franchise in October 2004.In July Transport Scotland announced a ‚£200m investment in 38 Class 380 trainsfor routes in Ayrshire and Inverclyde in 2010, including the new GlasgowAirport Rail Link. The new trains will release rolling stock for the newAirdrie-Bathgate line which will open in 2010. We were delighted to achieveInvestors in People accreditation this year and are one of the largest privatesector organisations in Scotland to attain the standard. We invest more than ‚£1m a year in training and development across the company to ensure our staffare fully equipped to do their jobs and are opening a second training academy.In September ScotRail celebrated its 25th anniversary and the TransportMinister announced a package of new services and reduced journey times whichwill be implemented in December. We are very proud of our track record ofoperating Scotland's railway and were delighted to receive the unanimousdecision of the judges at this year's National Rail Awards in achieving theaccolade of Passenger Operator of the Year.
First TransPennine Express
We are pleased that the Department for Transport (DfT) confirmed in its HighLevel Output Statement update that First TransPennine Express is included inthe first phase of the 1,300 additional rail vehicles required to accommodateexpected demand across the UK's rail network. We have entered into discussionswith the DfT to add capacity to the TransPennine network.This summer operational performance at First TransPennine Express was affectedby an unprecedented series of thefts of lineside cabling. The British TransportPolice has set up a dedicated national squad working closely with civil policeforces and Network Rail to minimise the opportunities for theft.
We are pleased with the success of our Manchester Airport to Glasgow and Edinburgh services. Since we began operating the services last December passenger journeys increased 23%. We are introducing two additional return services per day in December 2008, bringing the total to 18 services per day.
We are committed to reducing our impact on the environment and are pleased withthe response of our staff to initiatives such as driver training. We are alsoworking with Siemens, the manufacturer of our Pennine Class 185 fleet oftrains, to reduce our fuel usage and carbon dioxide emissions. We were pleasedto achieve ISO14001, the international accreditation for environmentalmanagement standards, for our environmental programme which includes recyclingon trains, at stations and in our depots and offices.Our ‚£12m station investment programme is nearing completion with Cleethorpesand Hull the most recent stations to benefit. We were pleased thatGrange-over-Sands won the Best Small Station of the Year at the National RailAwards. Our new timetable in December will benefit passengers on theBlackpool-Manchester Airport route by providing faster journey times andadditional capacity into Manchester in the morning peak.
First Great Western
First Great Western's operational performance has substantially improved sincelast year and we are currently achieving a consistent PPM of around 90%. Asignificant contributing factor in this pattern of improving performance hasbeen the recruitment of new drivers, guards and technicians who have now becomeproductive having completed the necessary training.We continue to work closely with Network Rail to address the challenges posedby the ageing infrastructure on the route. The upgrading of the majority of theReading-London Paddington relief line to 90mph was completed in August,creating greater capacity, punctuality and improved journey times forpassengers in the Thames Valley area and long distance high speed services. Weare also working closely with Network Rail on the ‚£350m Reading remodellingproject. The work will address a major bottleneck and the single biggestchallenge to performance on the Western route.In May we increased capacity on Cardiff-Portsmouth services to three cars onvirtually every train and Devon branch lines have also seen capacity increases,particularly around the Exeter area.We are investing more than ‚£6m in refreshing our Turbo fleet, which serves theLondon and Thames Valley area. First Great Western will acquire an additionalHigh Speed Train (HST) in November, which will be ready for service by March2009. In the interim, three Class 180 Adelante trains have been retained toimprove performance on Oxford and Cotswold services. Our Sleeper fleet has beenrefreshed and we are on course to complete our West fleet refresh early nextyear.We are making good progress with our ‚£40m investment programme to enhancestation environments for customers. We are also investing ‚£15m in a new stationinformation and security system and Network Rail has committed a further ‚£15mto support this upgrade. The system will be operational at Slough and Oxfordstations by the end of 2008 and progressively rolled out to the 210 stationsmanaged by First Great Western.Over the next two years, all our front line staff will complete our `PuttingCustomers First' development programme, designed to raise customer satisfactionlevels. We are delighted that Bristol Temple Meads was awarded Major Station ofthe Year in the National Rail Awards in September, in recognition of the waythe station is presented and the helpfulness of the station team. The Tauntonstation team and our ‚£200m HST refresh were also highly commended.
First Capital Connect
We are pleased by the continued progress of our First Capital Connectfranchise. During August and September the company recorded its best ever PPMscore of 94%. We were pleased with the improvement in First Capital Connect'sNational Passenger Survey results with overall customer satisfaction increasedby 6% to 77%. However, there is more to do and, in particular, overcrowdingcontinues to be a challenge for First Capital Connect.We are working closely with the DfT and Network Rail to implement the Cambridgeand Peterborough Capacity Study that will increase peak capacity by 15% andmore efficiently match supply to demand across our routes. The studyrecommended the introduction of a new timetable, upgraded infrastructureincluding lengthened platforms and the introduction of additional traincarriages. We are working with our industry partners to complete the necessaryinfrastructure enhancements and rolling stock plans so we can deliver thecapacity increase in May 2009.The Thameslink Programme will provide additional capacity and preparatory workis underway. Bombardier is currently building 23 four carriage Class 377 unitsthat First Capital Connect will progressively roll out on the Thameslink routein 2009. Overall, the Thameslink Programme will deliver longer trains and ahigher frequency during the morning and evening peaks, longer platforms,improved station facilities and more destinations by 2015.We were delighted that our "keeping you safe with us" campaign to reduce crimeand anti-social behaviour, in partnership with the British Transport Police,won the `London Team of the Year' at the National Rail Awards in September.
Hull Trains
Hull Trains, our non-franchised, open access intercity train operating companybetween London Kings Cross and Hull has acquired four Class 180 trains tooperate existing services and respond to new opportunities. We have identifiedan opportunity to significantly grow the rail market through the establishmentof direct services between Harrogate and London. In May we applied to theOffice of Rail Regulation to establish a new route between Harrogate andLondon, providing four direct services every day in each direction.
First GBRf
I am pleased that First GBRf won the `Freight Achievement of the Year' award atthe National Rail Awards. First GBRf has increased its share of the rail bornecoal market to 12% from a standing start and continues to win new contracts. InAugust we were awarded a contract for the movement and service of newlymanufactured rail vehicles for Bombardier. In September First GBRf secured asix-year contract with Railcare Ltd in Scotland for the movement of rail unitsto Glasgow for maintenance exams. The contract marks First GBRf's entry intothe Scottish rail freight market.
Group outlook
Across all of our businesses trading has been good and we have achieved strongrevenue growth underpinned by our investment in operational performance andcustomer service. With strong operating cash flows and opportunities for futuregrowth across all divisions, the Board is confident of the Group's prospects.Looking ahead, we will continue to bear down on costs and deliver furtherefficiencies across our business where necessary. While the Group is not whollyimmune to macroeconomic developments, it has established a strong balancedportfolio of businesses with approximately 50% of Group revenues secured undermedium term contracts with Government agencies and other large organisations inthe UK and North America. Trading in the second half of the year has startedwell and is in line with our expectations.Sir Moir LockheadChief Executive4 November 2008Finance Director's reviewOverviewWe are pleased to report another record set of results and are encouraged bythe Group's continued strong trading performance despite challenging economicconditions in both the UK and North America. Adjusted basic EPS of 15.6 penceis an increase of 40.5% over last year. This is after consolidation of thesecond six months of the Laidlaw business.UK Bus like-for-like passenger revenues grew by 7.7% benefiting from continuedimprovements in quality and service delivery as well as modal shift driven bychanging customer attitudes and high fuel prices.
Across all of our UK Rail franchises operating performance improved and revenues remained strong. Over the period like-for-like passenger revenue growth averaged 9.8%.
In North America we reached our $150m synergy run rate earlier than expected,and the turnaround of the Greyhound business continued, reporting a 5% increasein passenger revenues.The refinancing of the Laidlaw acquisition debt due February 2010 is almostcomplete despite difficult market conditions through a combination of equityand longer dated debt. The remaining balance is now $300m, reduced from $2.25bnat March 2008. Over the period we have increased the average debt maturity to4.9 years (March 2008: 3.5 years). Our remaining total refinancing commitmentsup until September 2011 are relatively light at ‚£329m.We remain committed to maintaining an investment grade rating. Our businessescontinue to generate strong cash flows which will support growth and furtherdebt reduction.
While the economic outlook remains uncertain and challenging, and we are not wholly immune to the effects, we are however, well positioned with the defensive characteristics of our businesses. Over 50% of Group revenues are contract backed with government and large organisations.
Both our UK Bus and Greyhound businesses have highly flexible business modelsand are both benefiting from improvements in operating performance and changesin attitude to public transport. Within UK Rail we have a diverse mix offranchises and `cap and collar' profit and revenue regimes, which significantlyde-risk the franchises.
Our First Student and Transit businesses in North America benefit from revenues secured under medium term contracts predominantly with Government agencies.
Results
Group revenue rose to ‚£2,768.5m (2007: ‚£1,768.9m), an increase of 56.5%.Adjusted operating profit was ‚£181.2m (2007: ‚£103.1m), an increase of 75.8%.Profit before taxation was ‚£54.4m (2007: ‚£71.3m), a reduction of ‚£16.9mprincipally due to non-recurring Laidlaw integration costs and an increase inthe `non-cash' amortisation charges post the Laidlaw acquisition. Adjustedbasic EPS was 15.6 pence (2007: 11.1 pence), an increase of 40.5%. Earningsbefore interest, taxation, depreciation and amortisation (EBITDA) was ‚£306.0m(2007: ‚£170.9m), an increase of 79.1%. 6 months to 6 months to Year to 30 September 2008 30 September 2007 31 March 2008 Divisional Revenue Operating Operating Revenue Operating Operating Revenue Operating Operatingresults ‚£m Profit1 margin1 ‚£m profit1 margin1 ‚£m profit1 margin1 ‚£m % ‚£m % ‚£m % UK Bus 578.6 60.0 10.4 540.1 47.6 8.8 1,104.9 122.0 11.0 UK Rail 960.6 48.3 5.0 863.6 48.2 5.6 1,937.0 120.0 6.2 North America 895.9 44.4 5.0 358.5 17.2 4.8 1,370.3 130.7 9.5 Greyhound 326.0 41.6 12.8 - - - 280.8 8.8 3.1 Group2 7.4 (13.1) - 6.7 (9.9) - 14.6 (21.4) -
Total Group 2,768.5 181.2 6.5 1,768.9 103.1 5.8 4,707.6 360.1 7.6
1Before amortisation charges, non-recurring bid costs, other non-recurring items and (loss)/profit on disposal of properties.
2Tram operations, German Bus, central management and other items.
UK Bus had a particularly strong period. Revenue was ‚£578.6m (2007: ‚£540.1m),an increase of 7.1%. Operating profit was ‚£60.0m (2007: ‚£47.6m), an increase of26.1%. Like-for-like passenger revenues grew by 7.7% and passenger volumesincreased by approximately 2% as growing numbers of passengers switched to thebus from other modes of transport. The revenue growth, combined with costreduction and efficiency initiatives, led to a further increase in margin to10.4% from 8.8% in the first half of last year. London revenues were up by 5.9%on a like-for-like basis. There was a continued focus on service, quality andoperational performance and we are pleased to report further improvements, withlost mileage remaining below 1% and driver turnover dropping below 22%. Ourstrategy remains to encourage growth and to support partnerships with localauthorities throughout the UK with targeted investments in new vehicles.UK Rail revenue was ‚£960.6m (2007: ‚£863.6m), an increase of 11.2%. Operatingprofit was ‚£48.3m (2007: ‚£48.2m). Across all the franchises we operate,passenger revenue growth remained strong during the period, achieving anincrease of 9.8% on a like-for-like basis with volume growing by almost 6%. AtFirst Capital Connect, which has a high proportion of central London commuters,the rate of strong growth slowed marginally in the final month of the period,delivering revenue growth of over 8%. Public Performance Measures (PPM) at allour TOCs showed a significant improvement when compared to the previous year.First Capital Connect, First ScotRail and First TransPennine Express allreported a moving annual average PPM of 91% or above. The strengthenedmanagement team and investments at First Great Western have started to produceresults. The moving annual average PPM has increased by 4% over last year, withthe average period performance over the last six months running at over 90%. Inthe current uncertain economic environment we continue to closely monitor theperformance of our rail businesses for changing patterns of customer behaviour.North American revenue was ‚£895.9m (2007: ‚£358.5m), an increase of 141% in USDollars, due to a full six months' contribution from the former Laidlawbusinesses. Operating profit was ‚£44.4m (2007: ‚£17.2m). We are pleased with thecontinued success of our enlarged businesses and, in First Student, enjoyed asuccessful start up of new and retained business for the new school year whichcommenced in August and September retaining over 93% of contract rebids. In theperiod we achieved our increased synergy target of $150m on an annual run ratebasis ahead of forecast. These synergies are principally in the areas ofcorporate costs, administration costs and salaries, branch and facilitiesconsolidation, insurance and procurement initiatives and, when combined withthe cash tax and capital expenditure synergies, means we have now extracted acash synergies run rate of over $200m. The calculations of these savings arebased on comparing the budgeted costs in our legacy FirstGroup business and theindependently prepared Laidlaw budget, before the combination of thebusinesses, to the costs in the enlarged Group. The successful integration ofthe Laidlaw business has resulted in a platform that will enable us to use ourscale to offer enhanced quality and value to customers. The current economicclimate in North America presents opportunities for us to expand our businessand product offerings, as authorities and other bodies look to save money byoutsourcing certain functions.First Student revenue was $1,176.9m (2007: $364.6m) and operating profit was$66.1m (2007: $15.5m). First Student margin increased by 1.3% to 5.6% despitehigher fuel costs. We are pleased that our contract renewal rate was back toour typically high levels and that there was no overhang from the US Departmentof Justice review of the Laidlaw acquisition. The high level of outsourcingenquiries received from School Boards presents an opportunity which we areaddressing with a strong and experienced development team.
First Transit revenue was $416.2m (2007: $235.9m) and operating profit was $26.5m (2007: $12.3m). First Transit margin increased by 1.2% to 6.4%. There were new contract wins in both contracting and management.
First Services revenue was $137.0m (2007: $116.7m) and operating loss was $8.7m(2007: operating profit of $6.3m). Results were impacted by the settlement of alarge legal claim and operational issues on a small number of contracts,nearing the end of their respective terms, which have now been rectified. Wehave now brought First Services under the same management structure as FirstTransit.Greyhound revenue was ‚£326.0m (2007: ‚£nil) and operating profit was ‚£41.6m(2007: ‚£nil). During the period the Greyhound team have achieved a great dealand the transformation of this business has continued to exceed expectations.Operating performance is up over 10% and they have continued to implementfurther cost and revenue initiatives. This has resulted in like-for-likerevenue growth of 5%. These measures, coupled with the seasonal profile of theGreyhound business, resulted in a six monthly operating margin of 12.8%.BoltBus, our new low-cost service operating key city pairs on the East Coast,exceeded expectations and reached profitability well ahead of plan.
Non-recurring items and amortisation charges
Six months Six months Year to to 30 to 30 September September 31 March 2008 2007 2008 ‚£m ‚£m ‚£m
North American integration costs 34.5 -
55.5 UK Rail - - 16.8 European bid costs 1.5 1.7 3.7 UK Rail bid costs - 3.5 3.5 Other non-recurring costs 0.4 - - Loss/(profit) on disposal of properties 2.8 (6.9)
(5.8)
Non-recurring bank facility costs - -
4.5 Total non-recurring items 39.2 (1.7) 78.2 Amortisation charges 13.5 4.9 18.9 Total 52.7 3.2 97.1
North American Integration costs
These costs reflect costs directly attributable to the integration of Laidlaw and include severance, IT expenses, location closure costs and rebranding.
European bid costs
Bid costs of ‚£1.5m (2007: ‚£1.7m) were incurred during the period principally on further potential opportunities in Germany and Scandinavia.
Property
Losses on disposals of ‚£2.8m (2007: profit on disposal of ‚£6.9m) were incurred during the period and relate to minor property disposals in both the UK and North America.
Amortisation charges
Amortisation charges were ‚£13.5m (2007: ‚£4.9m) with the increase mainly due to the customer contracts and trade-name intangibles purchased as part of the Laidlaw acquisition.
Finance costs and investment income
The net finance cost was ‚£74.1m (2007: ‚£28.6m) with the increase due to higherdebt levels following the Laidlaw acquisition partly mitigated by lowerinterest rates on US Dollar denominated debt and the proceeds from the equityplacement in May 2008. Net finance cost is covered 4.4 times (2007: 7.0 times)by EBITDA, calculated on an annualised basis.
Taxation
The taxation charge, on adjusted profit before tax, for the period was ‚£26.0m(2007: ‚£20.3m) and is based on the estimated effective rate for the full yearof 24.3% (2007: 27.2%). Amortisation charges, non-recurring bid costs, othernon-recurring items and (loss)/profit on disposal of properties amounting to ‚£52.7m generated a tax credit of ‚£18.1m that, after offset with a one-off chargeof ‚£15.2m for deferred tax, reduced the tax charge to ‚£23.1m (2007: ‚£9.4m). Theone-off deferred tax charge is due to an increase in the UK deferred taxliability arising on the abolition of Industrial Buildings Allowances.The actual tax paid during the period was ‚£6.6m (2007: ‚£4.4m). North Americancash tax remains low due to tax losses brought forward and tax depreciation inexcess of book depreciation. We believe this will remain low for the mediumterm. The UK cash cost of taxation remains low due to pension paymentsexceeding pension charges and interest paid on increased debt levels.
Dividends
The interim dividend of 6.05 pence (2007: 5.5 pence) per ordinary sharerepresents an increase of 10%. The interim dividend will be paid on 4 February2009 to shareholders on the register of members at the close of business on 9January 2009. In accordance with IFRS and in line with the prior period, thisinterim dividend has not been provided in the accounts as at 30 September 2008.
EPS
The adjusted basic EPS, before amortisation charges, non-recurring bid costs,other non-recurring items and (loss)/profit on disposal of properties was 15.6pence (2007: 11.1 pence), an increase of 40.5%. Basic EPS was 5.0 pence (2007:12.9 pence). The reduction in basic EPS was mainly due to the North Americanintegration costs incurred.EBITDA
The Group continues to generate strong operating results that are converted into cash. EBITDA was ‚£306.0m (2007: ‚£170.9m).
EBITDA by division is set out below:
6 months to 6 months to Year to 30 September 2008 30 September 2007 31 March 2008 Revenue EBITDA1 EBITDA1 Revenue EBITDA1 EBITDA1 Revenue EBITDA1 EBITDA1 ‚£m ‚£m % ‚£m ‚£m % ‚£m ‚£m % UK Bus 578.6 96.1 16.6 540.1 83.5 15.5 1,104.9 193.5 17.5 UK Rail 960.6 66.3 6.9 863.6 59.4 6.9 1,937.0 148.7 7.7 North 895.9 100.7 11.2 358.5 36.0 10.0 1,370.3 213.6 15.6America Greyhound 326.0 53.9 16.5 - - - 280.8 22.6 8.0 Group 7.4 (11.0) - 6.7 (8.0) - 14.6 (17.6) - Total Group 2,768.5 306.0 11.1 1,768.9 170.9 9.7 4,707.6 560.8 11.9
1Operating profit before amortisation charges, non-recurring bid costs, other non-recurring items and (loss)/profit on disposal of properties plus depreciation.
Operating Cash flow
Cash generated by operations was ‚£175.7m (2007: ‚£102.6m) with the increaseprincipally due to the contribution from the acquired Laidlaw businesses.Included in operating cash flows were outflows on working capital of ‚£75.2m(2007: ‚£40.2m) and an amount of ‚£27.1m for defined benefit pension payments, inexcess of the income statement charge. The increase in the working capitaloutflow largely relates to the timing of certain UK Rail payments. It isanticipated that the majority of this working capital outflow will reverse inthe second half of the year.
Capital expenditure and acquisitions
Capital expenditure, as set out in note 9 to the half-yearly financial reportwas ‚£188.1m (2007: ‚£160.2m). The divisional split of capital expenditure was ‚£77.8m (2007: ‚£60.5m) in North America, ‚£70.6m (2007: ‚£29.0m) in UK Bus and ‚£39.7m (2007: ‚£70.6m) in UK Rail.
During the period the Group acquired a small UK based bus operator for ‚£2.4m. Provisional goodwill arising on this acquisition amounted to ‚£1.9m.
Fair values of assets and liabilities on the Laidlaw acquisition were finalisedduring the period as set out in note 15. As a result the provisional goodwillon this acquisition has been increased by ‚£28.8m ($57.5m).
Net debt
The Group's net debt at 30 September 2008 was ‚£2,195.1m and was comprised asfollows:Analysis of net debt Fixed Variable Total ‚£m ‚£m ‚£m Cash - 62.9 62.9 UK Rail ring-fenced cash and deposits - 151.6
151.6
Other ring-fenced cash and deposits - 13.2 13.2 Sterling bond (2013)1 (297.1) - (297.1) Sterling bond (2018)2 (280.4) - (280.4) Sterling bond (2019)2 (234.8) - (234.8) Sterling bank loans and overdrafts - (141.4)
(141.4)
US Dollar bank loans and overdrafts - (1,229.8)
(1,229.8)
Canadian Dollar bank loans and overdrafts (5.2) (104.6)
(109.8)
Euro and other bank loans and overdrafts - (21.4) (21.4) HP and finance leases (32.4) (65.2) (97.6) Loan notes (8.7) (1.8) (10.5) Interest rate swaps (1,222.7) 1,222.7 - Total (2,081.3) (113.8) (2,195.1)1excludes accrued interest
2stated excluding accrued interest, swapped to US Dollars less gains on associated derivatives
The $2.25bn Laidlaw acquisition bridge term loan due 2010 has beensubstantially refinanced by new equity and longer-term debt. During the period43.8m shares were issued for gross proceeds of approximately ‚£236m. A ‚£300mten-year bond was issued with the proceeds swapped into fixed rate US dollarsat 6.9% and two new medium-term bank facilities for a total of $450m wereentered into. From these sources we repaid $1.45bn of the acquisition term loanby the end of September 2008. Since the period end we have obtained UK and USfinance leasing and committed medium term unsecured bank facilities. As aresult, we have now successfully refinanced $1.95bn of the $2.25bn acquisitionterm loan.
We also extended ‚£505m of our committed revolver facility from March 2010 to February 2012.
Average debt maturity at the end of the period was 4.9 years compared with 3.5years at the beginning of the period. As a result of our refinancing activitiessince March 2008, the total debt falling due for repayment over the next threeyears to September 2011, including the remaining balance of the term loan, is ‚£329m. Headroom under committed revolver facilities (which expire in February2012) at 30 September 2008 was ‚£474m.We remain focused on continuing to reduce our leverage. Net debt to EBITDAstood at 3.1 times at September 2008 compared to a pro forma ratio of 3.5 timesat the beginning of October 2007 immediately post the acquisition. Free cashflow generated going forward will be applied for growth and debt reduction.
Shares in issue
Following the equity placing described above, as at the period end there were480.8m (2007: 434.5m; full year 2008: 436.6m) shares in issue, excludingtreasury shares and shares held in trust for employees. The weighted averagenumber of shares in issue for the purpose of EPS calculations (excludingtreasury shares and shares held in trust for employees) was 468.9m (2007:434.3m; full year 2008: 434.8m).
Balance sheet and net assets
Net assets have increased by ‚£172.8m since the start of the period. The principal reasons for this are an increase of ‚£228.6m in the share premium account as a result of the equity placing, favourable translation reserve movements of ‚£56.8m and retained profits of ‚£31.3m partly offset by net actuarial losses on defined benefit pension schemes of ‚£97.4m and dividends paid of ‚£55.5m.
Foreign exchangeThe operating results of the North American businesses have been translated atan average rate of ‚£1:$1.94 (2007: ‚£1:$2.00; full year 2008: ‚£1:$2.01). Theperiod end rate used for balance sheet translation was ‚£1:$1.84 (2007: ‚£1:$2.03; full year 2008: ‚£1:$2.00). Changes in the US Dollar/Sterling exchangerate currently have a minimal effect on adjusted EPS due to the US Dollarearnings being broadly offset by Dollar denominated fuel purchases for our UKbusinesses and interest on our US Dollar denominated debt.
Fuel hedging
In the UK, 100% of the Group's current year exposure to crude oil prices (2.7m barrels p.a.) is hedged at $76 per barrel. In North America 100% of current year "at risk" volumes (2.4m barrels p.a.) are hedged at $84 per barrel. In North America the Group's exposure relates only to those requirements not covered by pass through or escalation clauses in contracts.
For 2009/10 in the UK, 100% of the Group's exposure is hedged at $111 per barrel and 100% of North American "at risk" volumes are hedged at $116 per barrel.
Pensions
As a result of significant fluctuations in financial markets, in particularequities in both the UK and North America, the Group has updated the pensionassumptions as at 30 September 2008 for the defined benefit schemes in the UKand North America. As a result, the net pension surplus of ‚£89m at thebeginning of the period has moved to a net pension deficit of ‚£25m at the endof the period principally due to falls in equity markets being partly offset byan increase in the discount rate used.
The main factors that influence the balance sheet position for pensions and the sensitivities to their movement are set out below:
Movement ‚£m Discount rate +/- 0.1% 23 Inflation +/- 0.1% 14 Salary growth +/- 0.1% 2SeasonalityThe First Student business generates lower revenues and profits in the firsthalf of the year than in the second half of the year as the school summerholidays fall into the first half. Greyhound operating profits are typicallyhigher in the first half of the year due to demand being strongest in thesummer months.
Principal risks and uncertainties for the remaining six months of the financial year
There are a number of risks and uncertainties facing the Group in the remaining six months of the financial year. These are considered to be the same as disclosed in the 2008 Annual Report. The principal risks and uncertainties, which are set out in detail on pages 34 and 35 of the Annual Report and Accounts 2008, are:
* Economy in the UK and North America * Competitive pressures * Rail franchise agreements * Legislation and regulation * Labour costs * Fuel costs * Insurance costs * Terrorism * Retention of key management * Customer service and contract retention
Responsibility statement
We confirm that to the best of our knowledge:
* the condensed set of financial statements has been prepared in accordance
with IAS 34 "Interim Financial Reporting";
* the interim management report includes a fair review of the information
required by DTR 4.2.7R (indication of important events during the first six
months and description of principal risks and uncertainties for the remaining six months of the year); and * the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein). Nick ChevisActing Finance Director4 November 2008
Consolidated income statement
Notes Adjusted Adjustments2 Unaudited Adjusted
Adjustments2 Unaudited Audited
results1 6 months to Total results1 6 months to Total Total 6 months 30 September 6 months 6 months 30 September 6 months year to to to to to 2008 2007 31 March 30 30 30 30 September ‚£m September September ‚£m September 2008 2008 2008 2007 2007 ‚£m ‚£m ‚£m ‚£m ‚£m Revenue Continuing operations 2 2,768.5 - 2,768.5 1,768.9
- 1,768.9 4,707.6
Operating costs before (loss)/profit on disposal of properties Continuing operations (2,587.3) (49.9) (2,637.2) (1,665.8)
(10.1) (1,675.9) (4,445.9)
Operating profit before (loss)/profit on disposal of properties Continuing operations 181.2 (49.9) 131.3 103.1 (10.1) 93.0 261.7 Operating profit 181.2 - 181.2 103.1 - 103.1 360.1before amortisation charges, non-recurring bid costs and other non-recurring items Amortisation charges - (13.5) (13.5) - (4.9) (4.9) (18.9) Non-recurring bid - (1.5) (1.5) - (5.2) (5.2) (7.2)costs Other non-recurring - (34.9) (34.9) - - - (72.3)items Operating profit 181.2 (49.9) 131.3 103.1 (10.1) 93.0 261.7before (loss)/profit on disposal of properties (Loss)/profit on - (2.8) (2.8) - 6.9 6.9 5.8disposal of properties Operating profit 181.2 (52.7) 128.5 103.1 (3.2) 99.9 267.5 Investment income 3 3.8 - 3.8 8.8 - 8.8 14.9 Finance costs 3 (77.9) - (77.9) (37.4) - (37.4) (130.5) Profit before tax 107.1 (52.7) 54.4 74.5 (3.2) 71.3 151.9 Tax 4 (26.0) 2.9 (23.1) (20.3) 10.9 (9.4) (18.6)
Profit for the period 81.1 (49.8) 31.3 54.2 7.7 61.9 133.3from continuing operations Attributable to: Equity holders of the 73.1 (49.7) 23.4 48.3
7.8 56.1 120.4parent Minority interest 8.0 (0.1) 7.9 5.9 (0.1) 5.8 12.9 81.1 (49.8) 31.3 54.2 7.7 61.9 133.3 Basic earnings per 6 5.0p 12.9p 27.7pshare Diluted earnings per 6 4.9p 12.8p 27.4pshare Dividends of ‚£55.5m were paid during the period (2007: ‚£45.6m). Dividends of ‚£29.1m were proposed for approval during the period (2007: ‚£23.9m; full year2008: ‚£55.5m).
1Adjusted trading results before items noted in 2 below.
2Amortisation charges, non-recurring bid costs, other non-recurring items and (loss)/profit on disposal of properties.
Consolidated balance sheet Notes Unaudited Unaudited Audited 30 30 31 March September September 2008 2008 2007 restated1 ‚£m ‚£m ‚£m Non-current assets Goodwill 7 1,416.9 464.7 1,310.1 Other intangible assets 8 381.4 55.5 367.5 Property, plant and equipment 9 2,062.2 1,135.7
1,919.8
Financial assets - derivative financial 13 46.1 38.2 45.4instruments Investments 4.3 - 4.0 3,910.9 1,694.1 3,646.8 Current assets Inventories 87.1 77.4 82.7 Trade and other receivables 10 654.0 414.8
590.2
Financial assets - cash and cash 227.6 379.6 242.3equivalents - derivative financial instruments 13 69.1 26.2 78.1 1,037.8 898.0 993.3
Non-current assets classified as held 11 5.6 8.3
10.2for sale Retirement benefit surplus 21 114.3 81.0 186.2 Total assets 5,068.6 2,681.4 4,836.5 Current liabilities Trade and other payables 12 1,011.5 707.6 1,035.8 Tax liabilities 57.9 60.8 46.8
Financial liabilities - obligations 26.7 13.1
32.4under finance leases - bank overdrafts and loans 30.4 18.9 26.4 - loan notes - 5.1 4.6 - derivative financial instruments 13 39.4 5.9 36.9 - bonds 20.7 20.1 23.2 1,186.6 831.5 1,206.1 Net current (liabilities)/assets (148.8) 66.5 (212.8) Non-current liabilities
Financial liabilities - obligations 71.0 65.0
70.8under finance leases - bank loans 1,471.8 407.1 1,745.1 - loan notes 10.5 10.5 10.5 - derivative financial instruments 13 37.5 17.3 27.8 - bonds 840.8 537.2 545.9
Retirement benefit obligation 21 139.7 31.7
97.2 Deferred tax liabilities 130.3 143.3 159.9 Long-term provisions 14 302.8 33.3 268.4 3,004.4 1,245.4 2,925.6 Total liabilities 4,191.0 2,076.9 4,131.7 Net assets 877.6 604.5 704.8 Equity Share capital 16 24.1 21.9 21.9 Share premium account 17 676.4 447.8 447.8 Hedging reserve 17 55.9 35.3 49.7 Other reserves 17 4.6 4.6 4.6 Own shares 17 (5.7) (15.2) (7.6) Translation reserves 18 (13.5) (83.8) (70.3) Retained earnings 17 116.3 180.7 245.5 Equity attributable to equity holders of 858.1 591.3 691.6the parent Minority interests 19.5 13.2 13.2 Total equity 877.6 604.5 704.8
1 restated for fair value adjustments as set out in note 15.
Consolidated cash flow statement
Note Unaudited Unaudited Audited 6 months to 6 months Year to to 30 31 March September 30 2008 September 2008 ‚£m 2007 ‚£m ‚£m Net cash from operating activities 19 93.2 55.3 365.8 Investing activities Interest received 4.6 8.9 14.0
Proceeds from disposal of property, 2.8 12.5
32.5plant and equipment Purchases of property, plant and (176.2) (149.0) (302.6)equipment Investment in joint venture - - (1.2) Acquisition of businesses (2.4) (7.2) (1,464.1) Net cash used in investing activities (171.2) (134.8) (1,721.4) Financing activities Dividends paid (55.5) (45.6) (69.5) Dividends paid to minority shareholders (2.6) (4.0) (11.1) Proceeds from bond issue 300.0 - - Proceeds from new bank borrowings 225.5 -
1,514.5
Proceeds from existing bank borrowings 126.0 110.1
-
Repayment of existing bank borrowings (724.9) -
(335.8)
Repayment of obligations under finance (17.9) (3.8) (17.5)leases Repayment of loan notes (4.6) (0.1) (0.7) Payment of new bank facility and Bond (5.7) (0.7) (9.6)issue costs
Gross proceeds on issue of shares 236.5 -
- Costs of issue of shares (5.7) - - Release of insurance captive assets - -
115.7
Monies received on exercise of options 0.5 0.2
5.5
Net cash from financing activities 71.6 56.1 1,191.5 Net decrease in cash and cash (6.4) (23.4) (164.1)
equivalents before foreign exchange
movements Cash and cash equivalents at beginning 239.7 410.3 410.3of period Effect of foreign exchange rate changes (5.7) (8.1)
(6.5)
Cash and cash equivalents at end of 227.6 378.8
239.7
period Cash and cash equivalents for cash flow 30 30 31
March
statement purposes comprise: September September
2008 2008 2007 ‚£m ‚£m ‚£m Cash and cash equivalents per balance sheet 227.6 379.6 242.3 Overdrafts - (0.8) (2.6) 227.6 378.8 239.7
Cash and cash equivalents for the purposes of the cash flow statement comprise cash at bank and in hand, overdrafts and other short-term highly liquid investments with a maturity of three months or less.
Consolidated statement of recognised income and expense
Unaudited Unaudited Audited 6 months 6 months Year to to to 31 March 30 30 September September 2008 2008 2007 ‚£m ‚£m ‚£m
Derivative hedging instrument movements (1.2) 8.7
33.2
Deferred tax on derivative hedging instrument 7.4 (0.1) (10.2)movements Exchange differences on translation of foreign 56.8 (26.0) (12.5)operations
Unrealised (losses)/gains on executive (1.4) -
1.2deferred compensation plans Actuarial (losses)/gains on defined benefit (120.7) - 61.0pension schemes Movement in irrecoverable surplus on defined (20.4) - (23.9)benefit pension schemes Deferred tax on movements in defined benefit 43.7 - (10.4)schemes
Net income recognised directly in equity (35.8) (17.4)
38.4 Profit for the period 31.3 61.9 133.3 Total recognised income and expense for the (4.5) 44.5 171.7period Attributable to: Equity holders of the parent (12.4) 38.7 158.8 Minority interests 7.9 5.8 12.9 (4.5) 44.5 171.7
Notes to the half-yearly financial statements
1 Basis of preparation
This half-yearly financial report does not constitute statutory accounts withinthe meaning of section 240 of the Companies Act 1985. The statutory accountsfor the year ended 31 March 2008 have been delivered to the Registrar ofCompanies. The report of the auditors was not qualified and did not contain astatement under section 237 (2) or (3) of the Companies Act 1985.The figures for the six months to 30 September 2008 include the results of therail businesses for the period ended 13 September 2008 and the results for theother businesses for the 26 weeks ended 27 September 2008.The accounting policies used in the half-yearly financial statements areconsistent with International Financial Reporting Standards and those followedin the preparation of the Group's annual financial statements for the yearended 31 March 2008. The condensed set of financial statements included in thishalf-yearly financial report have been prepared in accordance withInternational Accounting Standard 34, "Interim Financial Reporting", as adoptedby the European Union.These results are unaudited but have been reviewed by the auditors. Thecomparative figures for the six months to 30 September 2007 are unaudited andare derived from the half-yearly financial report for the six months ended 30September 2007, which was also reviewed by the auditors.
This half-yearly financial report will be sent to all shareholders in November 2008 and will be available to the public at the Registered Office of the Company, 395 King Street Aberdeen AB24 5RP.
This half-yearly financial report was approved by the Board on 4 November 2008.
2 Segment information
For management purposes, the Group is currently organised into four operatingdivisions - UK Bus, UK Rail, North America and Greyhound. These divisions arethe basis on which the Group reports its primary segment information. Theprincipal activities of these divisions are set out in the Chief Executive'soperating review.The segment results for the six months to 30 September 2008 are as follows:
UK Bus UK Rail North Grey- Group Total America items ‚£m ‚£m hound ‚£m ‚£m ‚£m ‚£m Revenue 578.6 960.6 895.9 326.0 7.4 2,768.5 Adjusted operating profit1 60.0 48.3 44.4 41.6 (13.1) 181.2 Amortisation charges - (3.2) (9.1) (1.2) - (13.5) Non-recurring bid costs - - - - (1.5) (1.5) Other non-recurring items - - (33.3) (1.2) (0.4) (34.9) Loss on disposal of (1.8) - (1.0) - - (2.8)properties Operating profit 58.2 45.1 1.0 39.2 (15.0) 128.5 Investment income 3.8 Finance costs (77.9) Profit before tax 54.4 Tax (23.1) Profit for the period 31.3
The segment results for the six months to 30 September 2007 are as follows:
UK Bus UK Rail North Group Total America items ‚£m ‚£m ‚£m ‚£m ‚£m Revenue 540.1 863.6 358.5 6.7 1,768.9 Adjusted operating profit1 47.6 48.2 17.2 (9.9) 103.1 Amortisation charges - (3.8) (1.1) - (4.9) Non-recurring bid costs - (3.5) - (1.7) (5.2) Profit on disposal of 6.9 - - - 6.9properties Operating profit 54.5 40.9 16.1 (11.6) 99.9 Investment income 8.8 Finance costs (37.4) Profit before tax 71.3 Tax (9.4) Profit for the period 61.9
1operating profit before amortisation charges, non-recurring bid costs, other non-recurring items and loss/profit on disposal of properties.
2 Segment information (continued)
The segment results for the year to 31 March 2008 are as follows:
UK Bus UK Rail North Grey- Group Total America items ‚£m ‚£m hound ‚£m ‚£m ‚£m ‚£m Revenue 1,104.9 1,937.0 1,370.3 280.8 14.6 4,707.6 Adjusted operating profit1 122.0 120.0 130.7 8.8 (21.4) 360.1 Amortisation charges - (8.2) (9.5) (1.2) - (18.9) Non-recurring bid costs - (3.5) - - (3.7) (7.2) Other non-recurring items - (16.8) (52.2) (3.3) - (72.3) Profit on disposal of 5.8 - - - - 5.8properties Operating profit 127.8 91.5 69.0 4.3 (25.1) 267.5 Investment income 14.9 Finance costs (126.0) One-off finance cost (4.5) Profit before tax 151.9 Tax (18.6) Profit for the period 133.3
1operating profit before amortisation charges, non-recurring bid costs, other non-recurring items and profit on disposal of properties.
3 Investment income and finance costs
6 months to 6 months to Year to 30 September 30 31 March 2008 September 2007 2008 ‚£m ‚£m ‚£m Investment income 3.8 8.8 14.9 Bonds, bank loans and overdrafts (65.2) (30.8) (107.3) Loan notes (0.6) (0.7) (1.5) Finance charges payable in respect of (3.2) (2.4) (5.9)finance leases
Notional interest on long-term provisions (8.9) (3.5) (11.3)
Total finance costs before non-recurring (77.9) (37.4) (126.0)items Short term bank facility costs - - (4.5) (77.9) (37.4) (130.5) Net finance costs (74.1) (28.6) (115.6)4 Tax 6 months to 6 months to Year to 30 30 31 March September September 2008 2008 2007 ‚£m ‚£m ‚£m Corporation tax 6.1 6.2 9.4 Deferred tax 1.8 12.1 17.8
Non-recurring deferred tax charge/(credit) 15.2 (8.9) (8.6)
Tax on profit on ordinary activities 23.1 9.4
18.65 Dividends paid and proposed 6 months 6 months Year to to to 31 30 30 March September September 2008 2008 2007 ‚£m ‚£m ‚£m
Final dividend paid for the year ended 31 March 55.5 45.6 45.6 2008 of 11.55p (2007: 10.5p) per share
Interim dividend paid for the year ended 31 March - - 23.9 2008 of 5.5p (2007: 5.0p) per share
Amounts recognised as distributions to equity 55.5 45.6
69.5holders in the period
Proposed interim dividend for the year ended 31 29.1 23.9
-
March 2009 of 6.05p (2008: 5.5p) per share
The proposed interim dividend will be paid on 4 February 2009 to shareholders on the register of members at the close of business on 9 January 2009. The proposed interim dividend has not been included as a liability as at 30 September 2008.
6 Earnings per share (EPS)
Basic EPS is based on earnings of ‚£23.4m (2007: ‚£56.1m; full year 2008: ‚£ 120.4m) and on a weighted average number of ordinary shares (excluding own shares held in trust for employees and treasury shares) of 468.9m (2007: 434.3m; full year 2008: 434.8m) in issue.
The adjusted basic EPS and adjusted cash EPS as set out below are intended to demonstrate recurring elements of the results of the Group and as such are calculated before amortisation charges, non-recurring bid costs, other non-recurring items and (loss)/profit on disposal of properties. A reconciliation of the earnings used in the bases is set out below:
6 months to 30 September 2008 ‚£m Earnings per share (p) Profit for EPS calculation 23.4 5.0 Amortisation charges1 13.4 2.9 Non-recurring items 36.4 7.8 Loss on disposal of properties 2.8 0.6 Taxation effect of above adjustments (18.1) (3.9) Non-recurring deferred tax charge on 15.2 3.2abolition of Industrial Buildings Allowances Profit for adjusted EPS calculation 73.1 15.6 Depreciation2 124.4 26.5 Profit for adjusted cash EPS calculation 197.5 42.1
1Amortisation of ‚£13.5m per note 2 less ‚£0.1m attributable to
equity minority interests.
2Depreciation charge of ‚£124.8m per note 9 less ‚£0.4m of
depreciation attributable to equity minority interests.
6 Earnings per share (EPS) (continued)
6 months to 30 September 2007 ‚£m Earnings per share (p) Profit for EPS calculation 56.1 12.9 Amortisation charges1 4.8 1.1 Non-recurring bid costs 5.2 1.2 Profit on disposal of properties (6.9) (1.6) Taxation effect of above adjustments (2.0) (0.5) Non-recurring deferred tax credit on change (8.9) (2.0)in UK corporation tax rate Profit for adjusted EPS calculation 48.3 11.1 Depreciation2 67.4 15.5 Profit for adjusted cash EPS calculation 115.7 26.6
1Amortisation of ‚£4.9m per note 2 less ‚£0.1m attributable to
equity minority interests.
2Depreciation charge of ‚£67.8m less ‚£0.4m of
depreciation attributable to equity minority interests.
Year to 31 March 2008 ‚£m Earnings per share (p) Profit for EPS calculation 120.4 27.7 Amortisation charges1 18.7 4.3 Non-recurring bid costs 7.2 1.6 Other non-recurring items 76.8 17.7 Profit on disposal of properties (5.8) (1.3) Taxation effect of above adjustments (31.0) (7.1) Non-recurring deferred tax credit on change (8.6) (2.0)in UK corporation tax rate Profit for adjusted EPS calculation 177.7 40.9 Depreciation2 199.8 45.9 Profit for adjusted cash EPS calculation 377.5 86.8
1Amortisation charge of ‚£18.9m per note 2 less ‚£0.2m attributable
to equity minority interests.
2Depreciation charge of ‚£200.7m less ‚£0.9m of
depreciation attributable to equity minority interests.
Diluted EPS is based on the same earnings and on the weighted average number of ordinary shares of 473.0m (2007: 439.0m; full year 2008: 439.8m). The difference in the number of shares between the basic calculation and the diluted calculation represents the weighted average number of potentially dilutive ordinary shares from share options.
Diluted EPS 6 months 6 months Year to to to 31 March 30 30 September September 2008 2008 2007 Pence Pence Pence Diluted basic EPS 4.9 12.8 27.4 Diluted adjusted basic EPS 15.5 11.0 40.47 Goodwill ‚£m Cost At 1 April 2008 as previously reported
1,281.3
Fair value adjustments (note 15)
28.8 At 1 April 2008 as restated 1,310.1 Additions 1.9 Exchange rate movements 104.9 At 30 September 2008 1,416.9 Accumulated impairment losses
At 1 April 2008 and 30 September 2008
- Carrying amount At 30 September 2008 1,416.9 At 31 March 2008 as restated 1,310.1 At 30 September 2007 464.78 Other intangible assets Customer Greyhound UK Rail Total contracts brand and franchise ‚£m ‚£m trade name agreements ‚£m ‚£m Cost At 1 April 2008 297.4 49.2 56.3 402.9 Exchange rate movements 24.8 4.3 - 29.1 At 30 September 2008 322.2 53.5 56.3 432.0 Amortisation At 1 April 2008 13.3 1.2 20.9 35.4 Charge for period 9.1 1.2 3.2 13.5 Exchange rate movements 1.5 0.2 - 1.7 At 30 September 2008 23.9 2.6 24.1 50.6 Carrying amount At 30 September 2008 298.3 50.9 32.2 381.4 At 31 March 2008 284.1 48.0 35.4 367.5 At 30 September 2007 15.7 - 39.8 55.5
Contracts acquired through the purchases of businesses and subsidiary undertakings, are amortised on a straight-line basis over their useful lives which are between nine and twenty years.
The rail franchise agreements intangible asset represents the part of theeconomic benefit derived from the rail franchise agreements that is realised asa result of recognising our share of the rail pension deficit and is amortisedon a straight-line basis over the term of the franchise, which is on average,seven years.9 Property, plant and Land and Passenger Other Totalequipment buildings carrying plant and ‚£m ‚£m vehicle equipment fleet ‚£m ‚£m Cost At 1 April 2008 as 417.9 1,981.7 416.9 2,816.5previously reported Fair value adjustments (note - - (3.9) (3.9)15)
At 1 April 2008 as restated 417.9 1,981.7 413.0 2,812.6
Subsidiary undertakings and - 2.5 0.1
2.6businesses acquired Additions 29.2 112.3 46.6 188.1 Disposals (3.1) (41.4) (2.4) (46.9) Reclassified as held for - 14.9 - 14.9sale Exchange rate movements 19.1 88.7 7.4 115.2 At 30 September 2008 463.1 2,158.7 464.7 3,086.5 Depreciation At 1 April 2008 35.3 700.8 156.7 892.8 Charge for period 6.1 91.0 27.7 124.8 Disposals (0.3) (33.0) (2.2) (35.5) Reclassified as held for - 9.5 - 9.5sale Exchange rate movements 1.0 28.0 3.7 32.7 At 30 September 2008 42.1 796.3 185.9 1,024.3 Carrying amount At 30 September 2008 421.0 1,362.4 278.8 2,062.2 At 31 March 2008 as restated 382.6 1,280.9 256.3 1,919.8 At 30 September 2007 157.1 764.6 214.0 1,135.710 Trade and other receivables 30 September 30 September 31 March 2008 2007 2008 ‚£m ‚£m restated ‚£m Amounts due within one year Trade receivables 459.6 272.8 424.8 Other receivables 98.2 69.9 95.1 Prepayments and accrued income 96.2 72.1 70.3 654.0 414.8 590.2
11 Non-current assets classified as held for sale
Non-current assets held for sale comprise First Student buses which are surplusto requirement and are being actively marketed on the Internet. Gains or lossesarising on the disposal of such assets are included in arriving at operatingprofit in the income statement.12 Trade and other payables 30 September 30 September 31 March 2008 2007 2008 ‚£m ‚£m restated ‚£m
Amounts falling due within one year
Trade payables 261.3 194.1 247.6 Other payables 118.7 115.3 115.7 Accruals and deferred income 577.2 348.7
616.3
Season ticket deferred income 54.3 49.5 56.2 1,011.5 707.6 1,035.813 Derivative financial instruments 30 September 30 September 31 March 2008 2007 2008 ‚£m ‚£m ‚£m Non-current assets
Interest rate and foreign exchange 21.9 31.3
25.4derivatives Fuel derivatives 24.2 6.9 20.0 46.1 38.2 45.4 Current assets
Interest rate and foreign exchange 14.4 13.0
10.5derivatives Fuel derivatives 54.7 13.2 67.6 69.1 26.2 78.1 Total assets 115.2 64.4 123.5 Current liabilities
Interest rate and foreign exchange 16.3 5.9
36.9derivatives Fuel derivatives 23.1 - - 39.4 5.9 36.9 Non-current liabilities
Interest rate and foreign exchange 19.7 17.3
27.8derivatives Fuel derivatives 17.8 - - 37.5 17.3 27.8 Total liabilities 76.9 23.2 64.714 Long-term provisions Insurance Legal and Pensions Total other Claims1 ‚£m ‚£m ‚£m ‚£m At 1 April 2008 as previously 201.7 42.3 5.9 249.9reported
Fair value adjustments (note 15) 6.4 12.1 -
18.5
As 1 April 2008 as restated 208.1 54.4 5.9 268.4 Provided in the period 65.8 1.2 - 67.0 Utilised in the period (58.7) (3.9) (0.1) (62.7)
Notional interest on long-term 8.9 - -
8.9provisions Exchange rate movements 17.0 4.2 - 21.2 At 30 September 2008 241.1 55.9 5.8 302.8 At 30 September 2007 27.2 - 6.1 33.31Insurance claims accruals due within one year at 30 September 2008 amounted to‚£110.5m (2007: ‚£42.1m; full year 2008: ‚£108.6m) and are included in "accrualsand deferred income" in note 12.15 Business combinations 30 September 30 31 March 2008 September 2007 2008 ‚£m ‚£m ‚£m
Provisional fair values of net assets
acquired: Property, plant and equipment 2.4 5.0 792.9 Intangible assets - 0.2 325.4 Other current assets 0.8 2.3 354.9 Cash at bank and in hand - 0.2 0.2 Bank loans and overdrafts - (1.6) (300.1) Finance Leases (1.3) - - Other creditors (1.4) (4.8) (200.9) Pension deficit - - (23.0) Provision for liabilities and charges - - (273.5) Deferred tax - - (1.1) 0.5 1.3 674.8 Goodwill (note 7) 1.9 5.9 800.2 Satisfied by cash paid and payable 2.4 7.2
1,475.0
On 8 April 2008 the Group acquired 100% of the voting equity instruments of Truronian Limited.
Acquisition of Laidlaw International, Inc
In the year ending 31 March 2008, the Group acquired Laidlaw International, Inc. Following reassessment of fair values on acquisition the following adjustments have been made:
Provisional Final Acquired fair value as previously fair value value reported adjustments $m $m $m Property, plant and a 1,592.2 (7.7) 1,584.5equipment Intangible assets 660.1 - 660.1 Current assets b 717.8 (9.3) 708.5 Current liabilities c (487.0) (51.7) (538.7) Insurance provision d (463.6) (12.0) (475.6) Pension deficit (46.7) - (46.7) Deferred tax e (1.0) 34.6 33.6 Income taxes recoverable 1.3 - 1.3 Net debt (606.0) - (606.0) Net assets 1,367.1 (46.1) 1,321.0 Total cost of acquisition 2,941.5 11.4 2,952.9(excluding acquired debt) Net assets acquired (1,367.1) 46.1 (1,321.0) Goodwill on acquisition 1,574.4 57.5 1,631.9
The adjustments represent:
(a) Property, plant and equipment was valued at market value by third party specialists at date of acquisition. These have been further adjusted to write down certain assets and certain classes of asset to fair value.
(b) Certain receivables and inventories have been written down to fair value.
(c) Current liabilities represent additional liability for change of controlpayments arising on acquisition, environmental reserves, legal reserves,provision for safety related items and provision for loss making contracts.Following reassessments of these, further provision was made for certainexisting legal claims, loss making contracts, safety repairs net of downwardassessment of environmental liabilities acquired.
(d) Reassessment of insurance liabilities required in light of updated actuarial estimates.
(e) Deferred tax adjustment on the items noted above.
In accordance with IFRS 3 the Group balance sheet as at 31 March 2008 has been restated to reflect the fair value adjustments set out above:
As reported Final Restated 31 March fair value 31 March 2008 adjustments 2008 ‚£m ‚£m ‚£m Non-current assets Goodwill 1,281.3 28.8 1,310.1 Other intangible assets 367.5 - 367.5 Property, plant and equipment 1,923.7 (3.9)
1,919.8
Financial assets - derivative financial 45.4 -
45.4instruments Investments 4.0 - 4.0 3,621.9 24.9 3,646.8 Current assets Inventories 83.6 (0.9) 82.7 Trade and other receivables 594.0 (3.8)
590.2
Financial assets - cash and cash equivalents 242.3 -
242.3
- derivative financial instruments 78.1 -
78.1 998.0 (4.7) 993.3
Non-current assets classified as held for 10.2 -
10.2sale Retirement benefit surplus 186.2 - 186.2 Total assets 4,816.3 20.2 4,836.5 Current liabilities Trade and other payables 1,016.8 19.0 1,035.8 Tax liabilities 46.8 - 46.8
Financial liabilities - obligations under 32.4 -
32.4finance leases - bank overdrafts and loans 26.4 - 26.4 - loan notes 4.6 - 4.6
- derivative financial instruments 36.9 -
36.9 - bonds 23.2 - 23.2 1,187.1 19.0 1,206.1 Net current liabilities (189.1) (23.7) (212.8) Non-current liabilities
Financial liabilities - obligations under 70.8 -
70.8finance leases - bank loans 1,745.1 - 1,745.1 - loan notes 10.5 - 10.5
- derivative financial instruments 27.8 -
27.8 - bonds 545.9 - 545.9
Retirement benefit obligation 97.2 -
97.2 Deferred tax liabilities 177.2 (17.3) 159.9 Long-term provisions 249.9 18.5 268.4 2,924.4 1.2 2,925.6 Total liabilities 4,111.5 20.2 4,131.7 Net assets 704.8 - 704.8 Equity Share capital 21.9 - 21.9 Share premium account 447.8 - 447.8 Hedging reserve 49.7 - 49.7 Other reserves 4.6 - 4.6 Own shares (7.6) - (7.6) Translation reserves (70.3) - (70.3) Retained earnings 245.5 - 245.5 Equity attributable to equity holders of the 691.6 - 691.6parent Minority interests 13.2 - 13.2 Total equity 704.8 - 704.816 Share capital 30 September 30 31 March September 2008 2008 2007 ‚£m ‚£m ‚£m Authorised: Ordinary shares of 5p each 32.5 230.0 230.0
Allotted, called up and fully paid
Ordinary shares of 5p each 24.1 21.9 21.9The number of ordinary shares of 5p each in issue, excluding treasury sharesand shares held in trust for employees, at the end of the period was 480.8m(2007: 434.5m; full year 2008: 436.6m). At the end of the period 0.3m shares(2007: 3.3m shares; full year 2008: 0.5m shares) were being held as treasuryshares and 1.0m (2007: 0.5m; full year 2008: 1.2m) were being held in trust tosatisfy the exercise of employee share options.17 Statement of changes in equity Hedging Share Own Retained reserve shares earnings premium ‚£m ‚£m ‚£m account ‚£m At 1 April 2008 49.7 447.8 (7.6) 245.5 Retained profit for the financial - - - 23.4period Dividends paid - - - (55.5)
Premium arising on issue of equity - 228.6 -
-shares1 Actuarial loss on defined benefit - - - (141.1)schemes Deferred tax on actuarial loss on - - - 43.7defined benefit schemes Unrealised losses on Executive - - - (1.4)Deferred Compensation Plans Movement in EBT, QUEST and treasury - - 1.9 (1.5)shares during the period Derivative hedging instrument (1.2) - - -movements
Deferred taxation on derivative 7.4 - -
-hedging instrument movements Share-based payments - - - 3.1
Current tax on share-based payments - - -
0.1 At 30 September 2008 55.9 676.4 (5.7) 116.3 At 30 September 2007 35.3 447.8 (15.2) 180.71On 18 May 2008 43.8m shares were issued at 540 pence per share for grossproceeds of ‚£236.5m. The movement in the share premium account reflects thesegross proceeds less the par value of the shares of ‚£2.2m and direct costs
of ‚£5.7m. Capital Capital Total other redemption reserve reserves reserve ‚£m ‚£m ‚£m
At 1 April 2008 and 30 September 2008 1.9 2.7
4.6 At 30 September 2007 1.9 2.7 4.618 Translation reserves ‚£m At 1 April 2008 (70.3)
Movement for the financial period
56.8 At 30 September 2008 (13.5) At 30 September 2007 (83.8)The translation reserve represents the retranslation of net assets denominatedin foreign currencies. The movement for the financial period reflects the factthat the US Dollar exchange rate moved from $2.00:‚£1 at 1 April 2008 to $1.84:‚£1 at 30 September 2008.19 Notes to the consolidated cash flow 6 months to 6 months to Year tostatement 30 September 30 31 March 2008 September 2008 ‚£m 2007 ‚£m ‚£m Operating profit before (loss)/profit on 131.3 93.0 261.7disposal of properties Adjustments for: Depreciation charges 124.8 67.8 200.7 Impairment of fixed assets - - 5.4 Amortisation charges 13.5 4.9 18.9 Share-based payments 3.1 2.1 4.2
Loss on disposal of property, plant and 5.3 0.5
1.4equipment Operating cash flows before working capital 278.0 168.3 492.3 Increase in inventories (5.7) (4.6) (7.7)
(Increase)/decrease in receivables (38.3) (34.8)
6.2
(Decrease)/increase in payables (31.2) (0.8)
31.3
Defined benefit pension payments in excess (27.1) (25.5) (51.3)of income statement charge Cash generated by operations 175.7 102.6 470.8 Corporation tax paid (6.6) (4.4) (6.7) Interest paid (72.2) (41.2) (93.9)
Interest element of finance lease payments (3.7) (1.7) (4.4)
Net cash from operating activities 93.2 55.3
365.8
20 Reconciliation of net cash flows 6 months to 6 months Year toto movement in net debt to 30 September 31 March 2008 30 September 2008 ‚£m 2007 ‚£m ‚£m Decrease in cash and cash (6.4) (23.4) (164.1)equivalents in period Decrease/(increase) in debt and 95.9 (105.5) (1,160.5)finance lease financing
Inception of new finance leases (12.7) -
-
Debt acquired on acquisition of (1.3) (1.0) (300.1)businesses
Fees on issue of new loan facility 5.7 -
9.6 Foreign exchange movements (110.4) (3.4) (27.6) Other non-cash movements in (4.9) (0.5) (2.1)
relation to financial instruments Movement in net debt in period (34.1) (133.8)
(1,644.8)
Net debt at beginning of period (2,161.0) (516.2) (516.2) Net debt at end of period (2,195.1) (650.0) (2,161.0)
Net debt includes the value of derivatives in connection with the bonds maturing in 2018 and 2019 and excludes all accrued interest. These bonds are included in non-current liabilities in the consolidated balance sheet.
21 Retirement benefit schemes
Defined benefit schemes
The Group operates or participates in a number of pension schemes which coverthe majority of UK employees and certain North American employees. The schemedetails are described in page 84 of the Annual Report for the year end 31 March2008.The market value of the assets at 30 September 2008 for all defined benefitschemes totalled ‚£2,744m (full year 2008: ‚£2,911m). The Group has elected toupdate these valuations in the half-yearly report for the first time due to thecurrent fluctuations in financial markets. Comparative half-year figures aretherefore not shown.
Contributions are paid to all defined benefit schemes in accordance with rates recommended by the schemes' actuaries. The valuations are made using the Projected Unit Credit Method.
The key assumptions were as follows:
UK North UK North 31 31 31 America America 30 31 March March March 30 31 September September March 2007 2006 2005 March 2008 2008 2008 2008 % % % % % % % Discount rate 7.2 6.4 6.85 6.0 5.45 5.0 5.5 Expected return on scheme 7.85 7.5 7.85 7.5 7.5 7.3 7.6assets Expected rate of salary 4.8 3.75 4.8 3.5 4.3 4.1 4.1increases Inflation 3.3 2.5 3.3 2.5 2.8 2.6 2.6 Future pension increases 3.3 - 3.3 - 2.8 2.6 2.6Amounts recognised in the income statement in respect of these defined benefitschemes are as follows: 30 31 31 31 31 March March September March March 2006 2005 2008 2008 2007 ‚£m ‚£m ‚£m ‚£m ‚£m Current service cost 34.2 74.9 75.2 53.4 46.1 Interest cost 77.8 125.4 102.0 89.0 80.0
Expected return on scheme assets (96.5) (174.4) (140.5) (107.6)
(87.9)
Interest on franchise adjustment 0.4 (0.1) (1.0) (2.3)
(1.5) Past service cost - (1.7) (13.2) (16.6) - 15.9 24.1 22.5 15.9 36.7
Actuarial gains and losses have been reported in the statement of recognised income and expense.
The amount included in the balance sheet arising from the Group's obligations in respect of its defined benefit pension schemes is as follows:
30 31 March 31 31 31 September 2008 March March March 2008 2007 2006 2005 ‚£m ‚£m ‚£m ‚£m ‚£m Fair value of schemes' assets 2,743.6 2,911.4 2,506.7 1,992.6 1,578.4 Present value of defined benefit (2,760.4) (2,788.3) (2,488.5) (2,193.8) (1,881.8)obligations
Rail franchise adjustment (60%) 14.1 (13.8) 2.2 38.3
41.7 Irrecoverable surplus1 (51.1) (30.7) (6.8) - -
Adjustment for employee share of 28.4 10.4 10.2 30.9
40.6
Rail Pension Schemes' deficits
(40%)
(Deficits)/surplus in schemes (25.4) 89.0 23.8 (132.0) (221.1)
This amount is presented in the
balance sheet as follows: Non-current assets 114.3 186.2 57.1 - - Non-current liabilities (139.7) (97.2) (33.3) (132.0) (221.1)
(Liabilities)/assets recognised (25.4) 89.0 23.8 (132.0) (221.1) in the balance sheet
1 The irrecoverable surplus represents the amount of the surplus that the Groupcould not recover through reducing future company contributions to UK Bus LocalGovernment Pension Schemes and the UK Bus Scheme. This is in accordance withIFRIC 14 "IAS 19 - The Limit on a Defined Benefit pension Asset, MinimumFunding Requirements and their Interaction".
22 Subsequent events
Subsequent to the balance sheet date, the Group entered into three new termloan facilities of $175m US Dollars, ¢â€š¬100m Euros and $72m Canadian Dollarsrespectively. The earliest point at which any of these can mature is October2011. These facilities have been used to further repay the $2.25bn US Dollarterm loan due February 2010, thus continuing to improve the Group's debtmaturity profile.
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