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Interim Results 7 December 2005

Interim Results 7 December 2005. Robert Speirs Chairman. Highlights. Strong set of results for 6 months ended 31 October 2005 Increased operating profits* at continuing UK Bus, despite ongoing cost pressures Growth in operating margins in North American bus

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Interim Results 7 December 2005

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  1. Interim Results7 December 2005

  2. Robert SpeirsChairman

  3. Highlights • Strong set of results for 6 months ended 31 October 2005 • Increased operating profits* at continuing UK Bus, despite ongoing cost pressures • Growth in operating margins in North American bus • Revenue growth at South West Trains, despite London terrorist attacks • Interim dividend up 10% to 1.1p per share (2004: 1.0p) • Disposal of New Zealand in November 2005 for NZ$250.5m * References to the operating profit (or operating margin) of a particular business throughout this presentation mean operating profit (or operating margin) before intangible asset amortisation, exceptional items and restructuring costs.

  4. Martin GriffithsFinance Director

  5. Financial Highlights • Revenue+ from continuing businesses up 7.8% • £786.2m (2004: £729.1m) • Up 7.1% at constant exchange rates • Operating profit pre intangibles and exceptionals £82.7m (2004: £80.7m) • EBITDA (pre exceptionals and JVs) up 3.9% at £112.5m • Adjusted EPS up 28.6% to 5.4p + excluding acquisition of Glenvale and disposed operations

  6. Financial Summary October 2005 £m October 2004 £m Revenue - continuing operations, excluding Glenvale Total operating profit* - pre intangibles & exceptionals Profit before tax - pre intangibles & exceptionals Net cash from operating activities Adjusted earnings per share Dividend per share 793.0 786.2 69.5 82.7 54.9 72.1 106.2 5.4p 1.1p 735.7 729.1 74.1 80.7 59.3 70.6 128.8 4.2p 1.0p * After restructuring costs of £0.7m (2004: £0.3m)

  7. EBITDA October 2005 £m October 2004 £m UK Bus - excluding Glenvale - Glenvale North America New Zealand Rail Group overheads & restructuring costs EBITDA from Group companies before exceptionals Virgin Rail Group Other joint ventures and associates Total EBITDA before exceptionals 62.2 (0.5) 23.5 6.0 27.0 (5.7) 112.5 4.5 Nil 117.0 61.5 Nil 21.7 5.9 23.8 (4.6) 108.3 4.1 (0.2) 112.2

  8. Movement in Net Debt October 2005 £m Net cash inflow from operating activities Net interest paid Taxation Net cash from operating activities Net capital expenditure including new hire purchase finance Acquisitions of businesses and other investments Sale of businesses and other investments Token sales and redemptions Foreign exchange Reduction in net debt before cashflows with shareholders Repurchase of ‘B’ shares Equity dividends Other share capital movements Reduction in net debt Opening net debt Closing net debt 132.7 (12.5) (14.0) 106.2 (42.0) (13.9) 4.6 (3.6) (11.1) 40.2 (13.9) (24.6) 4.0 5.7 (214.6) (208.9)

  9. UK Bus Trading Results • Revenue growth 10.5% to £387.9m (2004: £351.1m) • revenue growth 8.5%, excluding acquisition of Glenvale • Strong contribution from London companies • revenue growth 9.7% • Underlying passenger growth of 1.5% outside London • revenue growth 8.1%, excluding acquisition of Glenvale • Operating margin 10.8% (2004: 11.5%), excluding acquisition of Glenvale

  10. UK Bus Revenue Development London £m % Outwith London £m % UK Bus £m % 2004 Revenue Glenvale Passenger volumes Tender wins/ contract amendments Fare increases megabus.com 2005 Revenue 101.2 Nil Nil 5.9 3.5 0.4 111.0 n/a n/a 5.8% 3.5% 0.4% 9.7% 249.9 6.8 3.7 3.0 12.0 1.5 276.9 2.7% 1.5% 1.2% 4.8% 0.6% 10.8% 351.1 6.8 3.7 8.9 15.5 1.9 387.9 1.9% 1.1% 2.5% 4.4% 0.5% 10.5%

  11. North America Trading Results • Revenue £130.8m (2004: £123.6m) • 11.0% increase in US$ revenue from continuing operations • Operating margin up from 11.8% to 12.0% • Operating profit £15.7m (2004: £14.6m) • US$28.3m (2004: US$26.5m) • excellent revenue growth • strict cost control • overhead reduction: consolidation of US regions

  12. North America Continuing Revenue BreakdownBy Product October 2005 US$m October 2004 US$m % Growth Scheduled service/Line run/Commuter Charter Sightseeing & Tour School Bus & Contract Total 89.0 55.7 55.0 35.7 235.4 82.4 50.6 47.6 31.5 212.1 8.0% 10.1% 15.5% 13.3% 11.0%

  13. New Zealand Trading Results • Revenue £28.7m (2004: £26.2m) • Underlying revenue similar to last year (excluding currency movements) • Operating profit £3.5m (2004: £3.9m) • NZ$9.1m (2004: NZ$10.9m) • Operating margin 12.2% (2004: 14.9%) • Disposal completed at NZ$250.5m enterprise value

  14. Rail Trading Results Rail Subsidiaries • Revenue £245.6m (2004: £234.8m), up 4.6% • Operating profit £24.4m (2004: £22.5m) • Passenger volumes up 0.8% at SWT, adversely affected by terrorist attacks • Revenue and profit share to SRA £27.8m (2004: £20.5m)

  15. Virgin Rail Group • Share of profit after tax £4.5m (2004: £4.1m) • New long-term commercial arrangements on West Coast – discussions with DfT ongoing • CrossCountry – current franchise terminates on 10 November 2007 • Share of operating profit includes £29.8m for additional subsidy claims

  16. Taxation October 2005 Pre-tax £m Tax £m % Pre intangibles and exceptionals* Exceptional items Intangible asset amortisation Result for the period* Cash tax paid (net) 74.5 (4.0) (13.2) 57.3 (16.5) 1.7 1.1 (13.7) 14.0 22.1% 42.5% 8.3% 23.9% * Adjusted for our share of VRG’s tax, classified within operating profit under IFRS

  17. Balance Sheet & Financing • Net debt+ £208.9m (2004: £214.6m) • EBITDA*/Interest cover 11.0 times • Further debt reduction from New Zealand disposal • Progressive dividend policy • + UK GAAP definition • * Before exceptional items

  18. Brian Souter Chief Executive

  19. Group Strategy Quality operations driving strong results Excellent operational performance • Bus operator of the Year • Train operator of the Year • South West Trains punctuality now over 90% • Improved punctuality at Virgin Rail Group • UK Bus reliability 99.3% ↓ Strong financial results • Adjusted EPS up 28.6% • Revenue from continuing operations up 7.8% • Absorbing increased fuel costs • UK Bus margins bucking peer group trend • Dividend up 10.0%

  20. Group Strategy – UK Bus • Kickstart wins • Stagecoach schemes secured £8.1m of DfT funding for 2005/06 out of total awards budget of £19.9m • Organic growth in Southern companies • Business Development opportunities • megabus.com/Citylink joint venture in Scotland • megabus.com

  21. Group Strategy UK Bus Passenger Growth Passenger growth by operating company – excluding London October 2005 v October 2004 Overall passenger growth 1.5% 3% + 0-3% <0%

  22. Group Strategy – Rail • Good results and management credentials • Awaiting DfT decisions on Greater Western and Thameslink/Great Northern • Strong and experienced bid team focused on South Western franchise • Renegotiation of West Coast Mainline franchise • New franchise opportunities in next 18 months • East Midlands • West Midlands • CrossCountry

  23. Group Strategy – North America • Revenue and margin growth • Contract wins in Canada • Strong leisure bounce-back continues • Charter: revenue up 10.1% • Sightseeing & tour: revenue up 15.5% • Steady growth in line run and contract • Underpins North American business • Park and ride in New York

  24. Current Trading and Outlook • Current trading in line with our expectations • Continued focus on organic growth and bolt-on acquisitions • Good potential for further growth

  25. Interim Results7 December 2005

  26. Appendices

  27. North America Revenue Development Continuing US$m Discontinued US$m Total US$m 2004 Revenue Impact of disposals and other movements on discontinued turnover US$/C$ currency impact Underlying growth 2005 Revenue 212.1 Nil 2.9 20.4 235.4 12.0 (12.0) Nil Nil Nil 224.1 (12.0) 2.9 20.4 235.4

  28. Rail Revenue Development £m % 2004 Revenue SWT Passenger volumes SWT Fares/yield SWT Other Island Line/Supertram 2005 Revenue 234.8 1.9 10.0 (1.3) 0.2 245.6 0.8% 4.3% (0.6)% 0.1% 4.6%

  29. Finance charges ratios October 2005 £m October 2004 £m Finance charges (net) EBITDA pre-exceptionals EBITDA pre-exceptionals/finance charges 10.6 117.0 11.0 times 10.1 112.2 11.1 times

  30. Finance Charges Average balance* £m Finance charges £m Annual Effective rate % Gross debt & related derivatives Interest bearing cash balances Non-utilisation/commitment fees Amortisation of bond issue costs/bank charges Insurance letters of credit Discount on insurance provisions Other 363.0 118.0 11.3 (2.7) 8.6 0.5 0.2 0.4 1.5 (0.6) 10.6 6.2% 4.6% *Average of month end debt and cash balances

  31. Fuel Hedging Actual 2004/05 Forecast 2005/06 Forecast 2006/07 % of Group fuel hedged/capped at present Average hedge price US$/barrel Average US$/£ rate Average unhedged crude price US$/barrel Crude oil fuel costs of continuing businesses (total volume times crude price) Total fuel cost (includes cap premiums/diesel margin/ tax/delivery) 97% US$35 1.85 US$50 £35m £72m 89% US$48 1.75 US$60 £52m £91m 15% US$57 1.75 US$57 £60m £99m Continuing bus divisions use 1.8m barrels of fuel a year (276m litres) Each US$10 per barrel movement in crude oil price impacts variable fuel costs by approximately US$18m if no hedging in place

  32. Fuel Usage and Impact of Crude Price Annual Usage litres Annual Usage Barrels (m) US$ variable costs based on $57 a barrel UK Bus North America 200m 76m 276m 1.30 0.45 1.75 $80m $25m $105m

  33. Capital Expenditure Capex on new hire purchase £m Impact of capex on net debt £m Disposal proceeds* £m Net £m Cash spent on capex £m UK Bus North America New Zealand Rail 5.7 Nil Nil Nil 5.7 34.1 4.4 3.3 3.0 44.8 (2.4) (0.2) (0.2) Nil (2.8) 31.7 4.2 3.1 3.0 42.0 28.4 4.4 3.3 3.0 39.1 *Excludes proceeds from selling businesses Note: No new vehicles were acquired by UK Bus during the six months on operating leases (2004:capital value of £23.5m).

  34. Exchange Rates October 2005 October 2004 Closing rate Average rate Closing rate Average rate US$ NZ$ C$ 1.7703 2.5295 2.0881 1.7989 2.5706 2.1836 1.8323 2.6784 2.2350 1.8131 2.7985 2.4114

  35. Interim Results7 December 2005

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