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Annual Highlights 2004: Financial Success and Growth Strategies

Detailed financial report showcasing strong growth, operational achievements and reduced debt in diverse sectors like UK bus services, North America operations, and strategic restructuring developments.

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Annual Highlights 2004: Financial Success and Growth Strategies

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  1. Annual Results23rd June 2004

  2. Robert SpeirsChairman

  3. Highlights • Strong year of growth and delivery of strategic objectives • Turnover from continuing operations up 4.9% • Strong financial and operational performances at UK Bus and South West Trains • Restructuring of North American business successfully delivered • Net debt reduced to £67.6m from £560.0m last year • Final dividend of 2.0p per share (giving full year dividend of 2.9p (2003 - 2.6p)) – up 11.5% • Return of capital to shareholders – 18p per share

  4. Martin GriffithsFinance Director

  5. Financial Highlights • Turnover from continuing businesses up 4.9% • £1,659.4m (2003 - £1,581.4m) • Up 5.9% at constant exchange rates • Operating margin enhancement in continuing divisions* 2004 2003 % % Before goodwill amortisation and restructuring costs 8.4% 6.6% Including goodwill amortisation and restructuring costs 7.0% 4.7% * Excluding disposed Citybus, Road King and Trainline businesses but including all of North America; before exceptional items

  6. Financial Summary 2004 £m 2003 £m Turnover Total operating profit/(loss)* - pre goodwill & exceptionals* (after restructuring costs) Profit/(loss) before tax - pre goodwill & exceptionals Free cash flow** Adjusted earnings per share Dividend per share 1,792.3 129.7 147.5 95.8 120.2 209.5 6.7p 2.9p 2,076.6 (466.2) 146.4 (500.2) 112.9 217.8 6.4p 2.6p * After restructuring costs of £7.2m (2003 - £6.3m) ** Free cash flow comprises net cash inflow from operating activities, dividends from joint ventures and associates, net cash inflow/(outflow) from returns on investments and servicing of finance, and taxation.

  7. Profit Reconciliation Pre goodwill & exceptionals £m Exceptionals & Goodwill £m Reported £m 2002/2003 Profit before tax Operating profit of retained businesses: • UK Bus • New Zealand • North America • Rail – underlying • Virgin Rail Group • Other JVs and associates • Overheads • Reduction in underlying finance charges • Exceptionals & goodwill • Rail – non-recurring liquidated damages • Citybus (disposed) • Road King (disposed) • Trainline (disposed) • Restructuring costs • 2002/2003 gain on repurchase of bonds • 2003/2004 Profit before tax (613.1) - - - - - - - - 582.1 (31.0) - 6.6 - - - - (24.4) 112.9 7.8 (0.5) 0.8 14.4 6.3 0.4 1.0 21.3 - 164.4 (8.5) (18.1) (3.5) 1.9 (0.9) (15.1) 120.2 (500.2) 7.8 (0.5) 0.8 14.4 6.3 0.4 1.0 21.3 582.1 133.4 (8.5) (11.5) (3.5) 1.9 (0.9) (15.1) 95.8

  8. EBITDA 2003 £m 2004 £m UK Bus North America (Coach USA) Overseas Bus Rail Virgin Rail Group thetrainline Road King Others Overheads & restructuring EBITDA before exceptionals 117.6 30.1 18.3 46.4 13.5 (2.4) 7.0 (0.4) 230.1 (15.4) 214.7 112.0 49.5 51.8 40.9 7.2 (4.3) 10.5 (0.8) 266.8 (15.1) 251.7

  9. Movement in Net Debt £m Opening net debt Cash flows from operations Road King dividends Net interest received Tax paid Dividends paid Net capital expenditure and new hire purchase finance Acquisitions/disposals Foreign exchange and other movements Closing net debt (560.0) 214.3 4.1 0.5 (9.4) (35.6) (78.8) 364.2 33.1 (67.6)

  10. UK Bus Trading Results • Turnover growth 8.7% to £650.2m • Underlying passenger growth 1.4% outside London • Strong contribution from London companies • 19.1% turnover growth • Improved operating margin • 11.5% versus 11.2% in 2003 • 12.2% versus 11.3% excluding operating lease impact and business development costs

  11. UK Bus Profit Analysis 30 April 2004 £m 30 April 2003 £m 650.2 79.6 12.2% (5.0) 2.0 76.6 11.8% (1.8) 74.8* 11.5% 598.4 67.6 11.3% (1.1) 0.5 67.0 11.2% - 67.0 11.2% Turnover Underlying profit Margin Deduct increased operating lease costs Add saving in depreciation arising from operating leases Margin Deduct Megabus & Taxibus start-ups Operating profit as reported Margin as reported *After £9.9m increase in pensions/NI costs

  12. North America Trading Results • Turnover £336.8m (2003 - £603.0m) • 5.1% like for like turnover increase in second half* • 0.3% like for like turnover increase for year* • Operating profit** £14.8m (2003 - £14.0m) • US$25.4m (2003 – US$21.8m) • strict cost control • overhead reduction * Like for like turnover increase is measured as the change in turnover from residual businesses excluding the impact of foreign exchange movements ** Pre restructuring costs, exceptional items and goodwill amortisation

  13. North America Turnover Breakdown 30 April 2004 Turnover $m 30 April 2003 Turnover $m Residual businesses • North East • North Central • Canada • Residual taxi businesses to be disposed of • Discontinued • Total • £ equivalent 213.9 109.6 41.8 365.3 17.3 193.8 576.4 £m 336.8 211.7 110.2 38.4 360.3 17.0 561.7 939.0 £m 603.0

  14. New Zealand Trading Results • Turnover £58.3m (2003 - £51.0m) • 1.6% turnover growth (excluding currency movements) • 2003 revenue base includes impact of America’s Cup • Operating profit £10.7m (2003 - £11.2m) • NZ$29.5m (2003 – NZ$34.8m) • Operating margin 18.4% (2003 – 22.0%)

  15. Rail Trading Results Rail Subsidiaries • Turnover £438.9m (2003 - £413.6m) • Operating profit £44.1m (2003 - £38.2m*) • Passenger volumes up 3.2% at SWT • Operating profit stated after franchise bid costs *Included £8.5m of non-recurring liquidated damages

  16. Rail Profit Analysis 30 April 2004 £m SWT operating profit per bid Passenger income Net Sch 7/Sch 8 performance payments Electric current for trains Staff costs Other Costs Revenue/Profit share to the SRA Actual SWT operating profit Other Total Rail operating profit 25.2 15.3 4.7 5.9 2.5 18.5 (27.6) 44.5 (0.4) 44.1

  17. Joint Ventures and Associates Virgin Rail Group • Share of turnover £288.4m (2003 - £276.1m) • Share of operating profit £13.5m (2003 - £7.2m) • Out-performed budget set by SRA Trainline • Disposed February 2004 • Share of turnover £8.1m (2003 - £11.0m) • Share of operating loss £2.4m (2003 – loss of £4.3m) Road King • Disposed January/February 2004 • Share of operating profit £7.0m (2003 - £10.5m)

  18. Taxation 2004 Pre-tax £m Tax £m % Pre goodwill and exceptionals Exceptional items Goodwill amortisation Result for the year One-off exceptional tax credit Cash tax paid (net) 120.2 (6.6) (17.8) 95.8 - 95.8 (32.3) (0.2) 0.3 (32.2) 41.0 8.8 9.4 26.9% 3.0% 1.7% 33.6% N/A (9.2)%

  19. Fuel Hedging 2003/04 2004/05 2005/06 2006/07 % of group fuel hedged Average hedge price $/barrel Average US$/£ rate Average unhedged floating price $/barrel Variable fuel costs of continuing businesses 100% $24 1.7115 $32 £31m 40% $24 1.84 $38 £37m 4% $24 1.84 $38 £42m 0% N/A 1.84 $38 £43m Continuing businesses use 1.81m barrels of fuel a year (288m litres) Each $5 per barrel movement in crude oil price impacts variable fuel costs by approximately £5m if no hedging in place

  20. Pensions • Increased employer and employee contributions • £32.9m total pension costs (2003 - £31.2m) • £36.2m cash paid (2003 - £26.9m) • FRS17 post-tax deficit of £115.8m for UK Bus/Group • Down £40.4m from £156.2m • Financial support in new SWT franchise allows for cost of funding the deficit for SWT • Managed as part of overall cost base

  21. Balance Sheet & Financing • Net debt down to £67.6m (2003 - £560.0m) • EBITDA*/Interest cover 7.9 times • Net Debt/EBITDA* 0.3 times • Progressive dividend policy • Evaluation completed of optimum balance sheet structure • Return of capital of approximately £250m • Investment grade rating confirmed after return of capital • New £440m 5 year bank facilities * Before exceptional items

  22. Proposed Return of Capital • “B” Share Scheme • Shareholders receive for every 24 ordinary shares: • 19 consolidated ordinary shares • 24 “B” shares redeemable at 18p each • All shareholders treated equally • 2004 final dividend payable per existing ordinary share • Approval at AGM – 27 August 2004 • “B” shares issued – September 2004 • Total return of approximately £250m

  23. Return of Capital - Example • Shareholder “A” holds 1,000 ordinary shares • Share price 87p 1,000 existing ordinary shares (share price 87p) VALUE = £870 791 ordinary shares (share price 87p) VALUE = £868 1,000 “B” shares redeemable at 18p each Redeemed for cash of £180 • % shareholding unchanged

  24. Current Trading & Outlook • Group trading in line with our expectations • Expected revenue and profit growth in UK Bus and North America • SWT trading under the terms of the new three year franchise • New Zealand trading in line with expectations • Virgin Rail Group • SRA budget 2004/05 • Franchise negotiations progressing well

  25. Brian SouterChief Executive

  26. Group Strategy (1) UK Bus – Margin Development Programme • Solid foundations • Kickstart • Commercial • Government assisted • New Products • Megabus • Oxford Tube re-launch • Envirox fuel additive • Electric bus • What next? • Commercial Park and Ride • Optical Guidance

  27. Group Strategy (2) North America • Restructured business – robust business model with more predictable earnings • Small add-on acquisitions • Leisure upturn $939m $365m Year ended 30 April 2003 Residual businesses 2004

  28. Group Strategy (3) UK Rail • Return to high volume growth • Maximise potential from VRG • Five year extension at SWT • New franchise opportunities • Commuter • Inter-city

  29. Summary • Strong trading performance across the Group with focused management • Strengthened balance sheet allowing return of capital and dividend growth • Current trading in line with our expectations

  30. Annual Results23rd June 2004

  31. Appendices

  32. UK Bus Revenue Development London £m % Outwith London £m % UK Bus £m % 2002/03 turnover Passenger volumes Tender wins/ contract amendments Fare increases 2003/04 turnover 144.2 - 24.3 3.2 171.7 16.9% 2.2% 19.1% 454.2 6.4 - 17.9 478.5 1.4% - 3.9% 5.4% 598.4 6.4 24.3 21.1 650.2 1.1% 4.1% 3.5% 8.7%

  33. UK Bus - London/Other 2004 Operating Operating Turnover Profit Margin £m £m % 2003 Operating Operating Turnover Profit Margin £m £m % London Other 171.7 478.5 650.2 16.7 58.1 74.8 9.7% 12.1% 11.5% 144.2 454.2 598.4 15.1 51.9 67.0 10.5% 11.4% 11.2%

  34. Overseas Bus Revenue Development Citybus £m New Zealand £m Australia £m Total £m 2002/03 Turnover Disposal of Citybus and Australia Currency movements Volumes Fares/Business mix 2003/04 Turnover 132.3 (107.5) (4.5) (2.5) - 17.8 51.0 - 6.4 1.6 (0.7) 58.3 0.4 (0.4) - - - - 183.7 (107.9) 1.9 (0.9) (0.7) 76.1

  35. Overseas BusSegmental results 2004 Operating Operating Turnover Profit Margin £m £m % 2003 Operating Operating Turnover Profit Margin £m £m % Citybus New Zealand Australia Total 17.8 58.3 - 76.1 1.0 10.7 - 11.7 5.6% 18.4% - 15.4% 132.3 51.0 0.4 183.7 19.1 11.2 - 30.3 14.4% 22.0% - 16.5%

  36. North AmericaRevenue Development Core continuing* US$m Other US$m Total US$m 2002/03 Turnover Underlying growth – second half Underlying decline – first half US$/C$ currency impact Impact of disposals and other movements on non-core 2003/04 Turnover 360.3 8.2 (7.0) 3.8 - 365.3 578.7 - - - (367.6) 211.1 939.0 8.2 (7.0) 3.8 (367.6) 576.4 * North East, North Central & Canada

  37. Turnover of residual North American business North East $m North Central $m Canada $m Total $m Scheduled service/Line run/Commuter Charter School Bus & Contract Sightseeing & Tours (incl New York) 2003/04 Turnover 126.1 21.1 24.1 42.6 213.9 18.3 35.4 40.5 15.4 109.6 19.4 18.2 2.7 1.5 41.8 163.8 74.7 67.3 59.5 365.3

  38. Rail Revenue Development £m % 2002/03 Turnover SWT Passenger volumes SWT Fares Passenger Charter Other 2003/04 Turnover 413.6 12.9 13.5 (2.5) 1.4 438.9 3.1% 3.3% (0.6)% 0.3% 6.1%

  39. Interest/Debt Ratios 2004 £m 2003 £m Finance charges* (net) EBITDA pre-exceptionals EBITDA pre-exceptionals/Finance charges Net Debt/EBITDA 27.3 214.7 7.9 times 0.3 times 33.5 251.7 7.5 times 2.2 times * 2003 includes £15.1m net gain on early redemption of bonds

  40. Finance Charges Average balance* £m Finance charges £m Annual Effective rate % 584 (301) 283 36.8 (10.6) 26.2 (1.2) 0.4 0.6 1.3 2.8 (2.1) (0.7) 27.3 6.3% 3.5% 9.3% Gross debt & related derivatives Cash on deposit Joint ventures & associates Non-utilisation/commitment fees Amortisation of bond issue costs/bank charges Insurance letters of credit Discount on insurance provisions Interest received on Corporation Tax refund Other *Average of month end debt/interest earning £ and $ cash balances

  41. 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 Discontinued - Citybus Rail 27.0 - - - - 27.0 45.3 23.1 6.9 4.4 3.3 83.0 (2.7) (0.9) (0.6) - - (4.2) 42.6 22.2 6.3 4.4 3.3 78.8 18.3 23.1 6.9 4.4 3.3 56.0 *Excludes proceeds from selling businesses Note: In addition to the above, vehicles with a capital value of £16.6m were acquired by UK Bus during the year on operating leases (2003 - £19.6m)

  42. Fuel Usage and Impact of Crude Price Usage litres Usage barrels US$ variable costs based on $38 a barrel UK Bus North America New Zealand 190m 76m 22m 288m 1.2m 0.47m 0.14m 1.81m $45.6m $17.9m $5.3m $68.8m Each $5 per barrel movement in oil price impacts fuel cost by approximately $9m

  43. Exchange Rates April 2004 April 2003 Closing rate Average rate Closing rate Average rate US$ HK$* NZ$ C$ 1.7734 13.8317 2.8350 2.4388 1.7115 13.3188 2.7600 2.2985 1.5982 12.4648 2.8573 2.2929 1.5574 12.1464 3.1031 2.3985 * Average rate used for Citybus up to date of disposal – 12.7803

  44. Annual Results23rd June 2004

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