TIDMSGC
RNS Number : 4929J
Stagecoach Group PLC
05 December 2018
5 December 2018
Stagecoach Group plc - Interim results for the half-year ended
27 October 2018
Financial highlights
-- Adjusted earnings ahead of expectations, principally reflecting:
o Positive resolution of contractual matters for the former
South West Trains franchise
o Strong profitability at Virgin Rail Group
-- Adjusted earnings per share 12.9 pence (H1 2018: 13.6 pence)
o Prior year includes strong contribution from the South West
Trains franchise that ended in August 2017
-- Statutory loss per share 5.5 pence (H1 2018: earnings per share 13.6 pence)
o GBP85.4m non-cash exceptional impairment charge in respect of
North America goodwill
-- Interim dividend maintained at 3.8 pence per share
-- Full-year adjusted earnings will reflect the rail
out-performance in the first half of the year
Operational highlights
-- Continuing innovation and leadership
o Trial of autonomous buses carrying passengers between
Edinburgh and Fife, with GBP4.35m Innovate UK funding
o Second largest "contactless transit merchant" in Europe, after
Transport for London
o New initiatives on enhanced use of data and demand responsive
transport
-- Encouraging performance from UK Bus (regional operations)
o Commercial initiatives delivering passenger revenue growth
o Like-for-like revenue per vehicle mile up 4.4%
-- Good profitability and further opportunities in UK rail
o Involved in shortlisted bids for three new franchises
o Good progress on negotiation of new Direct Award franchise at
East Midlands Trains through to at least August 2019
-- North America strategic review
o First half performance in North America in line with revised
expectations
o No significant change since September trading update in
expected 2018/19 profit, but GBP85.4m non-cash goodwill impairment
recorded to reflect a revised view on long-term profitability
o Reviewing strategic options and in discussions regarding a
possible sale of all or part of the business
o Focus on growing scheduled service (including megabus.com) and
contract parts of business
Financial summary
"Adjusted" results "Statutory" results
(Results excluding
intangible asset amortisation
(exc. software) and
exceptional items(*)
)
H1 2019 H1 2018 H1 2019 H1 2018
(Restated**) (Restated**)
------------------------------- ------------ ------------------- -------- --------------
Revenue (GBPm) 1,230.8 1,794.0 1,230.8 1,794.0
------------------------------- ------------ ------------------- -------- --------------
Total operating profit/(loss)
(GBPm) 103.4 114.8 (6.2) 114.8
Net finance charges (GBPm) (16.4) (18.1) (16.4) (18.1)
------------------------------- ------------ ------------------- -------- --------------
Profit/(loss) before taxation
(GBPm) 87.0 96.7 (22.6) 96.7
Earnings per share (pence) 12.9p 13.6p (5.5)p 13.6p
Interim dividend per share
(pence) 3.8p 3.8p 3.8p 3.8p
------------------------------- ------------ ------------------- -------- --------------
* see definitions in note 23 to the condensed financial statements
** see note 1 for details of the restatement of revenue and
operating costs arising from implementing IFRS 15
Chief Executive, Martin Griffiths, said:
"I am pleased to report positive half-year financial results,
ahead of expectations.
"Our strategy is designed to grow our core business, to support
innovation, and to position the Group to benefit from future
opportunities.
"We have delivered encouraging results at our UK regional bus
business, where we continue to deliver high customer satisfaction.
Targeted fleet and technology investment is helping to enhance
operational delivery and improve cost efficiency. We continue to
innovate across a range of areas including autonomous buses,
contactless payment, data analytics and demand responsive
transport.
"We are well positioned in UK rail, with three live contract
bids and more than 20 years' experience of delivering innovation
and investment for customers. We welcome the UK Government's rail
review as an opportunity to deliver better value and day-to-day
performance for passengers, a partnership structure and contracting
system which is sustainable for the long-term, and reform of
outdated regulations which are holding back customer-focused
improvements.
"While we recognise the competitive challenges in some of our
markets in the UK and North America, we are confident that public
transport will be central to delivering Government priorities to
grow the economy, connect people and communities, reduce road
congestion and improve air quality. We are reviewing strategic
options for the North America Division and that includes ongoing
discussions regarding a possible sale of all or part of the
business.
"The Group is focused on making further progress in the second
half of the year and we have increased our expectation of full-year
adjusted earnings per share to reflect the above-forecast rail
earnings in the first half of the year."
Copies of this announcement are available on the Stagecoach
Group website at
http://www.stagecoach.com/investors/financial-analysis/reports/2018.aspx
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulation ("MAR"). Upon the publication of this
announcement via a Regulatory Information Service ("RIS"), this
inside information is now considered to be in the public
domain.
The person responsible for arranging the release of this
announcement on behalf of Stagecoach Group plc is Mike Vaux,
Company Secretary.
For further information, please contact:
Stagecoach Group plc www.stagecoach.com
Investors and analysts
Ross Paterson, Finance Director 01738 442111
Bruce Dingwall, Group Financial Controller 01738 442111
Media
Steven Stewart, Director of Communications 01738 442111 or 07764 774680
John Kiely, Smithfield Consultants 020 3047 2476
Notes to editors
Stagecoach Group
-- Stagecoach Group is a leading international public
transportation group, with extensive operations in the UK, the
United States and Canada. The Group employs around 31,000
people.
-- Stagecoach is one of the UK's biggest bus and coach operators
with over 8,000 buses and coaches on a network stretching from
south-west England to the Highlands and Islands of Scotland.
Low-cost coach service, megabus.com, operates a network of
inter-city services across the UK.
-- Stagecoach is a major UK rail operator, running the East
Midlands Trains network and holding a 49% shareholding in Virgin
Rail Group, which operates the West Coast rail franchise.
-- Stagecoach operates the Supertram light rail network in Sheffield.
-- In North America, Stagecoach operates around 2,100 buses and
coaches in the United States and Canada. megabus.com operates a
network of inter-city coach services in North America. Stagecoach
is also involved in operating commuter, transit, contracted,
charter, airport shuttle and sightseeing services.
Interim management report
The Directors of Stagecoach Group plc are pleased to present
their report on the Group for the half-year ended 27 October
2018.
Description of the business
Stagecoach Group plc is a public limited company that is
incorporated, domiciled and has its registered office in Scotland.
Its ordinary shares are publicly traded and it is not under the
control of any single shareholder. The Company has its primary
listing on the London Stock Exchange. Throughout this document,
Stagecoach Group plc is referred to as "the Company" and the group
headed by it is referred to as "Stagecoach" or "the Group".
The Group is a leading international public transport group,
with operations in the UK, the United States and Canada. A
description of each of the Group's operating divisions is given on
pages 5 to 7 of its 2018 Annual Report.
Overview
We are pleased to report financial results for the half-year
ended 27 October 2018 ahead of expectations. The Group's strategic
focus on providing safe, reliable, good quality transport services
is reflected in the high levels of customer satisfaction we are
delivering. We continue to innovate as we look to drive future
growth and value, and later in this report, we set out a number of
examples of that innovation.
Adjusted earnings for the half-year ended 27 October 2018 are
ahead of expectations, principally reflecting the positive
resolution of contractual matters for the former South West Trains
franchise and strong profitability at our Virgin Rail Group joint
venture. Revenue for the period was GBP1,230.8m (H1 2018 restated:
GBP1,794.0m), which is lower than the prior year period principally
due to our South West Trains franchise ending in August 2017 and
our Virgin Trains East Coast franchise ending in June 2018. Total
operating profit, before exceptional items, reduced to GBP103.4m
(H1 2018: GBP114.8m) with the reduction reflecting the strong prior
year contribution from the now expired South West Trains franchise.
The unadjusted total operating loss for the half-year was GBP6.2m
(H1 2018: GBP114.8m profit), mainly reflecting the impact of a
GBP85.4m non-cash impairment of North America goodwill. Earnings
per share before exceptional items were 12.9p (H1 2018: 13.6p). The
basic, unadjusted loss per share was 5.5p (H1 2018: earnings of
13.6p).
We have maintained the interim dividend at 3.8p per share, the
same rate as the prior year consistent with guidance in June 2018.
The 3.8p dividend is payable to shareholders on the register at 25
January 2019 and will be paid on 6 March 2019. Shareholders who
wish to participate in the dividend re-investment plan for this
dividend should elect to do so by sending their requests to the
Company's registrars to arrive by 13 February 2019.
We are actively working to shape the future of travel and have
joined the UK's Intelligent Mobility Accelerator as part of our
drive to spark further innovation within the transport industry.
This gives the Group access to partner with emerging innovative
mobility start ups. In addition, we are currently investigating
locations for new pilot demand responsive transport services in the
UK. We have also joined forces with car hire company, Enterprise
Holdings, to establish the Urban Mobility Partnership. This is
focused on engaging a range of stakeholders to develop practical
multi-modal policy solutions and we believe mass transit will be
central to the future of urban mobility.
In the UK bus market, we have delivered an encouraging
performance at our regional bus operations in the first half of the
year. We are making progress on a range of commercial initiatives
around marketing, ticketing, new revenue streams and on pricing. We
remain proud that independent research confirms we are viewed by
customers as the best value major bus operator in Britain, with
discounted ticketing initiatives to help young people, students and
jobseekers.
While we have achieved tendered revenue growth in the regions,
the competitive environment in the franchised London bus market is
challenging. Nevertheless, we continue to see positive
opportunities to improve the revenue and profitability of the
Division over the longer term. We will maintain our discipline in
bidding for new contracts as well as focusing on strong operational
delivery and further cost efficiencies.
Our North America Division remains profitable and our
expectation of its 2018/19 operating profit has not significantly
changed since the time of our September trading update. However, as
noted in that trading update, like-for-like revenue has declined.
Year-to-date profit has been below our internal budget, reflecting
a number of factors including increased competition in some of the
markets in which we operate. In light of that, we have revised our
short-term and medium-term financial forecasts for the Division, as
well as our view on the Division's long-term growth rate. As a
result, we have recorded an GBP85.4m non-cash impairment of
goodwill. After taking account of the goodwill impairment, the net
assets of the North America business (excluding cash, debt, tax and
inter-company balances) at 27 October 2018 were US$249.0m
(GBP194.2m).
We are reviewing strategic options for the North America
Division and while that includes ongoing discussions regarding a
possible sale of all or part of the business, there is no certainty
of a sale at this time. In the meantime, the divisional
management's focus is on growing the scheduled service (including
megabus.com) and contract parts of the business. We have made some
management changes to support our growth plans in these areas. We
have invested in resource to build our contract business and we are
hopeful that will boost future profits through new contract wins.
Demand for megabus.com and other scheduled services should benefit
from further, planned investment in technology to support growth in
these businesses.
The Group is well-positioned in UK rail, with involvement in
three live bids for new franchises covering the South Eastern, East
Midlands and West Coast Partnership networks. Decisions on those
opportunities are expected during the first half of 2019. We have
also submitted proposals at the request of the Department for
Transport which would see us continue to operate the East Midlands
network under a Direct Award franchise through to at least August
2019.
We welcome the rail review announced by the UK Government
earlier this year. Private sector innovation and investment has
helped transform Britain's railway for customers, taxpayers,
communities and our economy. However, we believe the review
presents a clear opportunity to deliver a more customer-focused and
partnership driven railway, which addresses the strains in the
system, unlocks innovation and is sustainable for the
long-term.
The rail out-performance in the first half of the year is
expected to flow through to full-year adjusted earnings.
During the first half of the 2018/19 financial year, Julie
Southern stepped down from the Board to take up an appointment as a
non-executive director of easyJet plc. We are currently looking to
add another non-executive director to our Board.
As a major international public transport group, we are proud of
the role of our employees across the Group in providing excellent
services for our customers, supporting our communities and helping
our business grow. From a transport start-up with family origins,
we have grown to become a major British company on an international
stage. Over the past four decades, we have challenged convention,
championed new ideas, built strong partnerships, and given our
people the freedom to innovate and take appropriate risks.
Looking ahead, we believe that approach will serve the Group
well and we believe the outlook is positive for mass transit. We
are harnessing our talent and developing new ideas to shape and
transform the future of travel for everyone, as well as offering
solutions to the challenges of climate change, road congestion and
declining air quality.
Summary of financial results
Revenue by division is summarised below:
REVENUE H1 2018 H1 2018
H1 2019 (Restated) H1 2019 (Restated) Growth
-----------
Functional Functional currency
GBPm GBPm currency (m) %
-------- ------------ ----------- ----------------------------- --------
Continuing Group operations
UK Bus (regional operations) 527.1 512.4 GBP 527.1 512.4 2.9%
UK Bus (London) 128.6 128.4 GBP 128.6 128.4 0.2%
North America 245.7 256.3 US$ 323.3 333.9 (3.2)%
UK Rail 335.1 899.2 GBP 335.1 899.2 (62.7)%
Intra-Group revenue (5.7) (2.3) GBP (5.7) (2.3)
-------- ------------ ----------- ----------- ---------------- --------
Group revenue 1,230.8 1,794.0
-------- ------------
Operating profit by division is summarised below:
OPERATING PROFIT H1 2019 H1 2018 H1 2019 H1 2018
-----------
Functional Functional currency
GBPm % margin GBPm % margin currency (m)
-------- --------- ------ --------- ----------- ----------------------
Continuing Group operations
UK Bus (regional operations) 65.2 12.4% 61.6 12.0% GBP 65.2 61.6
UK Bus (London) 6.1 4.7% 6.5 5.1% GBP 6.1 6.5
North America 16.1 6.6% 21.2 8.3% US$ 21.2 27.6
UK Rail 11.5 3.4% 21.7 2.4% GBP 11.5 21.7
Group overheads (8.1) (7.9)
Restructuring costs (0.2) (1.2)
-------- --------- ------
90.6 101.9
Joint ventures - share
of profit after tax
Virgin Rail Group 11.4 12.1
Citylink 1.4 0.8
Total operating profit
before exceptional items 103.4 114.8
Exceptional items (109.6) -
Total operating (loss)/profit:
Group operating (loss)/profit
and share of joint ventures'
profit after taxation (6.2) 114.8
-------- --------- ------
UK Bus (regional operations)
Summary
* Encouraging financial performance: growth in revenue,
operating profit and operating margin
* Like-for-like revenue up 3.4%
* Revenue per vehicle mile up 4.4%
Financial performance
The financial performance of the UK Bus (regional operations)
Division for the half-year ended 27 October 2018 is summarised
below, with operating profit 5.8% ahead of last year:
H1 2019 H1 2018
GBPm GBPm Change
--------------- -------- -------- -------
Revenue 527.1 512.4 2.9%
Like-for-like
revenue 526.1 508.6 3.4%
Operating
profit* 65.2 61.6 5.8%
--------------- -------- -------- -------
Operating
margin* 12.4% 12.0% 40bp
--------------- -------- -------- -------
Our UK Bus (regional operations) Division has performed well
during the first half of the year, reflecting a range of management
initiatives to deliver sustainable growth and enhance the
experience for our customers. The Division has also benefitted from
the favourable summer weather throughout the country and rail
replacement work undertaken in relation to the recent resignalling
work at Derby railway station. Our expectation is that revenue
growth will moderate over the remainder of the year, reflecting
these one-off benefits in the first half of the year.
Like-for-like vehicle miles operated in the first half of the
year were 0.9% lower than in the equivalent period last year.
Like-for-like revenue per vehicle mile grew 4.4% and like-for-like
revenue per journey increased 4.3%.
Like-for-like revenue was built up as follows:
H1 2019 H1 2018 Change
GBPm GBPm %
------------------ -------- -------- --------
Commercial
on and off
bus revenue
- megabus.com 13.9 11.2 24.1%
- other 314.8 306.0 2.9%
Concessionary
revenue 126.1 124.9 1.0%
------------------ -------- -------- --------
Commercial
& concessionary
revenue 454.8 442.1 2.9%
Tendered and
school revenue 48.5 46.8 3.6%
Contract and
other revenue 22.8 19.7 15.7%
Like-for-like
revenue 526.1 508.6 3.4%
------------------ -------- -------- --------
Commercial revenue growth has been encouraging, reflecting the
progress on management's various growth initiatives. Our yield per
journey has continued to improve, which is partially due to the
favourable summer weather, and we continue to adjust our bus
networks to best match customer demand.
Our megabus.com business in the UK has continued its good
performance from the second half of the prior year, growing revenue
and profit by capitalising on the network changes made and
marketing enhancements.
Although concessionary revenue continues to be adversely
impacted by the effects of government changes in the age of
eligibility for free bus travel by older people, passenger journeys
were stronger than expected over the summer months, due to the
favourable weather conditions.
The increase in tender revenue reflects our growth in market
share as some smaller operators have exited the market. We continue
to work with local authorities to maximise the value for local
communities from the financial support councils can provide for
socially desirable transport services.
Higher contract and other revenue include the effects of rail
replacement work associated with the Derby railway station
resignalling work, in addition to year-on-year changes in the
amount and timing of other one-off contract and events work.
The movement in operating margin was built up as follows:
Operating margin - H1
2018 12.0%
Change in:
Sub-contract costs (0.8)%
Staff costs 0.3%
Fuel costs 1.8%
Materials and consumables
costs (0.4)%
Other (0.5)%
Operating margin - H1
2019 12.4%
---------------------------- -------
The main changes in the operating margin shown above are:
-- As mentioned earlier, the Division undertook work in the
half-year in relation to a railway resignalling project at Derby.
Some of this work was sub-contracted and resulted in sub-contractor
costs that did not occur in the prior year period. That also meant
that less of our own employees' time was involved in generating the
revenue and contributed to a year-on-year fall in staff costs as a
percentage of revenue. Despite the increase in auto-enrolment
pension costs, overall staff costs have increased broadly in line
with revenue. Staff retention rates and wage awards remain stable
and well-controlled.
-- Fuel costs have reduced, reflecting our fuel hedging programme.
-- Materials and consumables costs have increased year-on-year
as a result of some price increases and additional maintenance work
at certain locations.
-- Other costs have increased, including higher IT and digital
costs as we advance our investment in technology enhancements.
Health and safety
Across the whole Group, safety is and always will be our first
concern, and we take our responsibilities extremely seriously. For
that reason, we deeply regret and will never forget the tragic
events involving one of our bus companies in Coventry in 2015 in
which two people lost their lives. The court case related to the
accident concluded in November and the thoughts of everyone at
Stagecoach remain with those affected, their families, friends and
colleagues. We have made it our continuing priority to work closely
with the authorities to help fully understand and learn detailed
lessons from what has happened, both for our own company and the
wider bus industry.
Innovation and investment
The Group and its employees won 13 accolades at the 2018 UK Bus
Awards, more than any other group.
Later in this report under the heading, "Innovation", we report
on how we are continuing to innovate and position the Group in a
changing landscape. In addition to the range of technology-based
initiatives set out there, a number of pilot initiatives are being
trialled in different locations in the coming months to explore the
benefits of simplifying our commercial ticket range. We are also
exploring a number of potential new income streams incremental to
the existing UK Bus business, including B2B/corporate sales
opportunities, as well as partnerships with airports, festivals and
events around the UK. Stagecoach provided all transport for the
athletes at the Special Olympics GB Anniversary Games in Stirling
over the summer, building on our experience in delivering transport
for other major sporting events.
In addition, a study is underway into future growth potential
for inter-urban bus services. We have also tested the potential for
coach/taxi through ticketing as part of a partnership initiative in
the south-west of England.
Earlier this year, Stagecoach London and megabus.com partnered
to launch our megasightseeing.com product in London. It offers
tickets from GBP1 for a two-hour non-stop tour of around 50 London
tourist landmarks. After a successful first summer season, the
product is to run over the winter and into next summer.
Outlook
We are pleased with the performance of our UK Bus (regional
operations) Division in the first half of the year, and our
expectation of the Division's operating profit for the year ending
27 April 2019 is unchanged.
We welcome measures announced in the recent UK Budget to help
rejuvenate high streets, including funding to improve transport
links. Healthy high streets and vibrant bus networks are closely
related, with around 30% of retail spend in city centres by bus
passengers. However, we believe more fundamental action is required
by local and national government to address road congestion, which
is damaging regional economies, undermining bus networks and
causing serious health problems linked to poor air quality.
UK Bus (London)
Summary
* Tender results disappointing
* Good progress on delivering further cost efficiency
* Reviewing opportunities to improve competitiveness
* Longer term prospects remain positive
Financial performance
The financial performance of the UK Bus (London) Division for
the half-year ended 27 October 2018 is summarised below:
H1 2019 H1 2018
GBPm GBPm Change
------------------ -------- -------- ---------
Revenue and
like-for-like
revenue 128.6 128.4 0.2%
Operating profit 6.1 6.5 (6.2)%
------------------ -------- -------- ---------
Operating margin 4.7% 5.1% (40)bp
------------------ -------- -------- ---------
The lack of growth in like-for-like revenue is disappointing,
and reflects the strong competition in the markets we operate in,
contributing to the lower operating profit in the first half of the
year.
The decrease in operating margin was built up as follows:
Operating margin - H1 2018 5.1%
Change in:
Insurance and claims costs 1.1%
Staff costs (0.8)%
Operating lease costs (0.5)%
Depreciation 0.2%
Fuel costs (0.4)%
Operating margin - H1 2019 4.7%
----------------------------- -------
The main changes in the operating margin shown above are:
-- Insurance and claims costs have reduced due to lower costs on
the self-insured portion of claims. Our strong focus on safety and
claims management continues.
-- Staff costs rose by more than revenue, reflecting higher
pension costs and the impact of contracts lost in the prior
year.
-- The rise in lease costs reflects more vehicles held on
operating lease. This was partly offset by lower depreciation
costs.
-- Fuel costs have increased as a proportion of revenue, due to
higher hedged prices and the lag in fuel price rises being
reflected in contract revenue.
Outlook
Although our financial performance is disappointing and margin
pressure is expected to continue in the short-term, we continue to
see positive opportunities to improve the revenue and profitability
of the Division over the longer term and we will maintain our
discipline in bidding for new contracts as well as focusing on
strong operational delivery.
Bus use in London has now fallen around 8% to 10% between its
quarterly peak in January-March 2014 and mid-2018. Since 2016,
cycling has been prioritised in central London, removing
significant bus capacity from key bus routes. In addition, other
factors have contributed to increased central London road
congestion. Transport for London is planning significant cuts in
bus services reflecting the changes in bus use and budgetary
pressures. While it is clear that presents short-term risks to our
London bus business, we see market opportunities in the medium to
long-term.
In 2019/20, around 14% (by peak vehicle requirement) of our
existing London bus services are due for re-tender. We will work
hard to retain these services on acceptable terms and we also
expect to tender for a significant number of services that we do
not currently operate. We are undertaking a detailed re-evaluation
of our bid models, financial forecasts, contract pricing and cost
efficiency to identify opportunities to improve the competitiveness
of our contract bids.
Significant housing developments are planned in and around
London in the coming years and a considerable proportion of them
will be in or adjacent to areas in which our UK Bus (London)
Division currently operates. We expect new housing developments to
result in new bus services and Transport for London is also
examining the potential for bus transit schemes. We continue to
monitor our depot capacity balancing such future growth potential
with possible opportunities to release capital.
North America
Summary
* Strategic review underway
* No significant change since September trading update
in our expected 2018/19 operating profit
* Year-to-date profit below internal budget
* GBP85.4m non-cash impairment of goodwill, reflecting
a revised view of medium and long-term prospects
* Continued focus on scheduled service growth and new
contract wins
Financial performance
The financial performance of the North America Division for the
half-year ended 27 October 2018 is summarised below:
H1 2019 H1 2018
US$m US$m Change
--------------- -------- -------- --------
Revenue 323.3 333.9 (3.2)%
Like-for-like
revenue 323.9 333.9 (3.0)%
Operating
profit 21.2 27.6 (23.2)%
--------------- -------- -------- --------
Operating
margin 6.6% 8.3% (170)bp
--------------- -------- -------- --------
The rate of reduction in like-for-like revenue is disappointing,
and includes the effects of strong competition in certain of the
markets we operate in, contributing to the lower operating profit
in the first half of the year.
Like-for-like revenue was built up as follows:
H1 2019 H1 2018
US$m US$m Change
------------------- -------- -------- --------
Megabus.com 95.5 97.2 (1.7)%
Scheduled
service
- Commercial
revenue 80.1 81.5 (1.7)%
- Support
from local
authorities 6.9 6.1 13.1%
Charter 64.9 61.2 6.0%
Contract services 62.9 72.0 (12.6)%
Sightseeing
and tour 13.6 15.9 (14.5)%
------------------- -------- -------- --------
Like-for-like
revenue 323.9 333.9 (3.0)%
------------------- -------- -------- --------
The like-for-like revenue decline of 3.0% for the Division
includes 1.7% decline for megabus.com North America. megabus.com
revenue per mile for the period was up 0.2%. Like-for-like revenue
at the other businesses decreased by 3.5%, partly reflecting the
benefit in the equivalent period last year from rail replacement
contracts linked to train disruptions on New Jersey Transit and
Long Island Rail Road.
Recognising the increasingly competitive market environment, and
the associated financial impact, we consider it appropriate to
revise our view on the long-term profitability of the Division. As
a result, we have recorded a GBP85.4m non-cash impairment of the
Division's goodwill, which we have presented as an exceptional
charge. We have not significantly changed our forecast of 2018/19
profitability, and will continue to focus on growing the scheduled
service (including megabus.com) and contract parts of the business,
while also reviewing strategic options for the Division that
include a possible sale of all or part of the business.
The movement in the operating margin of the North America
Division was built up as follows:
Operating margin - H1
2018 8.3%
Change in:
Insurance and claims costs 1.5%
Fuel costs (1.1)%
Staff costs (0.4)%
Depreciation (0.4)%
Other (1.3)%
----------------------------- -------
Operating margin - H1
2019 6.6%
----------------------------- -------
The main changes in the operating margin shown above are:
-- We have seen positive progress on claims costs, reflecting
the benefits of our continued investment in training and leading
edge safety technology.
-- Fuel costs have increased reflecting market fuel prices and our fuel hedging programme.
-- Staff costs, as anticipated, have continued to rise, and not
all headcount varies with vehicle miles.
-- Depreciation costs have increased as a proportion of revenue
as expected, given we have largely maintained the size of our
fleet, while moderating mileage in response to market
conditions.
-- Other costs have generally increased below or in line with
inflation, but have risen as a proportion of our lower revenue
base.
Business Development
Our North America business continues to pursue a range of
actions to grow, including new opportunities to enhance our current
portfolio of services and to extend or expand existing contracts.
We continue to see the benefits of our focus on safety and
investment in safety enhancing technology. Our innovative driver
recruitment initiatives and comprehensive driver training
programmes have helped ensure the business is in a better position
than other companies being affected by the national shortage of
drivers in the bus and trucking sector. Competition in the
inter-city bus market remains robust and, while our megabus.com
brand has strong customer recognition, competition is particularly
intense in the North-East corridor of the United States and on the
West Coast.
Outlook
Although we have revised our view on the business' long-term
profitability, our expectation of the Division's operating profit
for the year ending 27 April 2019 has not significantly
changed.
We continue to see growth opportunities from the Division in new
contract wins but will remain disciplined in ensuring that we bid
for contract opportunities at prices consistent with delivering
appropriate rates of return.
UK Rail
Summary
* Operating profit ahead of expectations, principally
reflecting positive resolution of contractual matters
for the former South West Trains franchise
* Strong operational and financial performance at East
Midlands Trains
* Good progress in negotiating new Direct Award
franchise for East Midlands Trains
* Involved in three active bids for new franchises
Financial performance
The financial performance of the UK Rail Division for the
half-year ended 27 October 2018 is summarised below:
H1 2018
H1 2019 (Restated)
GBPm GBPm Change
--------------- --------- ------------ --------
Revenue 335.1 899.2 (62.7)%
Like-for-like
revenue 202.1 201.3 0.4%
Operating
profit 11.5 21.7 (47.0)%
--------------- --------- ------------ --------
Operating
margin 3.4% 2.4% 100bp
--------------- --------- ------------ --------
The reported revenue for the prior year period includes revenue
at the South West Trains franchise which expired in August 2017 and
the Virgin Trains East Coast franchise which ended in June 2018.
The substantial fall in reported revenue reflects the end of these
franchises.
The like-for-like revenue includes the ongoing East Midlands
Trains and Sheffield Supertram businesses.
As expected, like-for-like revenue growth has been suppressed
during the period, due to the effects on the East Midlands Trains
franchise of both the revised timetable necessary to accommodate
changes to the Thameslink network effective May 2018 and the
current year resignalling programme at Derby railway station. While
these changes have adversely affected East Midlands Trains'
revenue, the contractual arrangements in place mean that they have
had no significant negative impact on profit.
The operating profit for the half-year to 27 October 2018
reflects continued good profitability at East Midlands Trains, in
addition to favourable outcomes from concluding industry charges
and contractual matters associated with the South West Trains
franchise. The year-on-year reduction in operating profit
principally reflects the expiry of the South West Trains franchise
referred to above.
The UK Rail Division's reported profit reflects the utilisation
of the onerous contract provision in respect of the Virgin Trains
East Coast franchise. In the period up to the transfer of train
services on 24 June 2018, the franchise continued to incur trading
losses, which have been applied against the onerous contract
provision.
East Midlands Trains
Strong operational performance and high levels of customer
satisfaction continue to underpin our success at East Midlands
Trains, which has maintained its position as the most punctual long
distance UK rail operator for more than nine years. This has been
maintained during a period following the introduction of a major
new timetable in May 2018 in support of the industry's wider
Thameslink programme and the extensive resignalling work at Derby
railway station.
East Midlands Trains has worked closely with Network Rail and
other partners on the delivery of these projects. The May timetable
change required different departure times, quicker journey times
for some routes and extended times for others. Linked to the
changes, an additional three High Speed Trains were refurbished in
Derby.
We recognise that timely, accurate information on our services
is crucial for our customers. In a world first for the rail
industry, we have launched a trial of communicating tailored
service information through Facebook Messenger. East Midlands
Trains has also worked to offer more sustainable integrated
journeys by supporting the largest electric bike scheme in the UK
with new e-bike docks at Derby station.
Sheffield Supertram
We have worked with Network Rail and the Department for
Transport to pioneer the UK's first Tram Train service at
Stagecoach Supertram. Launched in October 2018, these services
operate with special vehicles that can run on both Sheffield's
existing tram lines and a section of railway for passengers
travelling into Rotherham.
Rail contract market and Williams review
Stagecoach has been a key and innovative partner in the
development of the UK rail market for more than two decades.
Private sector innovation and investment has helped transform
Britain's railway for customers, taxpayers, communities and the
economy. Both individually and with our rail partners we have been
instrumental in delivering some of the biggest investments in new
trains, a better journey experience for customers, a more joined up
railway, and initiatives to help deliver better value for
passengers and taxpayers.
We are pleased to be part of shortlisted bids for the new South
Eastern, East Midlands and West Coast Partnership franchises and we
expect to hear a decision from the Department for Transport on the
successful bidder for each of these during the first half of 2019.
At the Department for Transport's request, we have also submitted
plans for a further Direct Award franchise at East Midlands Trains.
We expect a decision on these plans shortly, which would continue
our operation of the network until at least August 2019.
We welcome the Government's rail review led by Keith Williams.
Despite the significant improvements to the UK railway over the
past two decades and delivering the safest major network in Europe,
we believe the time is right for a wide-ranging review to address
the short-term fixes and strains in the system that have built up
over many years so we deliver a railway that is fit for the future.
There needs to be evidence-based decisions which best serve the
interests of the customers and communities which depend on the
railway. At the same time, we need a system that ensures that the
sector is financially sustainable and can thrive.
We have played a leading role in arguing the case for urgent and
radical reform of the rail fares system and are supporting the Rail
Delivery Group's fares reform consultation. We are also working
with other train companies to deliver the new 26-30 railcard and we
are planning to test innovations in the near future which will
offer better value travel for millions of rail customers across the
UK.
Outlook
We have increased our expected 2018/19 UK Rail operating profit
to take account of the performance in the first half of the year.
We expect the Division to remain profitable in the second half of
the year with continuing good profitability at East Midlands
Trains.
We will continue to consider other rail opportunities where we
believe we can deliver benefits to passengers and add value for our
investors.
Virgin Rail Group
Summary
* Continuing good financial performance
* Customer improvement initiatives
Financial performance
The financial performance of the Group's Virgin Rail joint
venture for the half-year ended 27 October 2018 is summarised
below:
49% share: H1 2019 H1 2018
GBPm GBPm
--------------------------- -------- --------
Revenue and like-for-like
revenue 303.2 288.5
--------------------------- -------- --------
Operating profit 13.7 14.8
Net finance income 0.4 0.2
Taxation (2.7) (2.9)
--------------------------- -------- --------
Profit after tax 11.4 12.1
--------------------------- -------- --------
Operating margin 4.5% 5.1%
--------------------------- -------- --------
Virgin Rail Group's West Coast rail franchise is continuing to
deliver strong profitability with revenue up 5.1% in the half-year.
While, as expected, the level of profitability has fallen
year-on-year as a result of the business moving onto new
contractual terms, the operating margin remains good. The current
franchise runs to at least March 2019, with the option for an up to
one-year extension at the discretion of the Department for
Transport. The successor West Coast Partnership franchise is
currently scheduled to begin in September 2019 and so an extension
of the current franchise until at least then is likely. The strong
performance is supported by the continuing focus on innovations to
make travel easier for customers. During the summer, Virgin Rail
Group became the first train operator to introduce digital season
tickets for use on mobile devices, as well as offering a print at
home facility. It is also the first travel company in the world to
sell tickets through the Amazon Alexa platform.
In addition, Virgin Rail Group has led the rail industry in
permanently removing all peak-hour restrictions on its trains that
travel on Friday afternoons from London Euston station. The move,
which has been widely welcomed, helps customers save money and
eases overcrowding on services to destinations such as Birmingham,
Manchester and Liverpool.
Pre-exceptional EBITDA, depreciation and intangible asset
amortisation
Earnings before interest, taxation, depreciation, intangible
asset amortisation and exceptional items (pre-exceptional EBITDA)
amounted to GBP176.2m (H1 2018: GBP189.9m). Pre-exceptional EBITDA
can be reconciled to the financial statements as follows:
Year
H1 H1 to
2019 2018 27 Oct
GBPm GBPm 2018
GBPm
------------------- ------- ------- --------
Total operating
(loss)/profit (6.2) 114.8 11.1
Exceptional items 109.6 - 157.4
Intangible asset
amortisation 4.4 5.5 11.6
Depreciation 65.5 66.7 131.7
Non-exceptional
impairment 0.3 - 4.8
Add back joint
venture finance
income & tax 2.6 2.9 4.1
------------------- ------- ------- --------
Pre-exceptional
EBITDA 176.2 189.9 320.7
------------------- ------- ------- --------
Intangible asset amortisation reduced from GBP5.5m to GBP4.4m,
reflecting the end of our Virgin Trains East Coast rail franchise
in June 2018.
Depreciation reduced from the previous year reflecting the end
of our South Western and Virgin Trains East Coast rail
franchises.
Exceptional items
North America goodwill impairment
As explained in the North America section, a non-cash,
exceptional pre-tax expense of GBP85.4m has been recorded as an
impairment of goodwill in the half-year ended 27 October 2018.
Guaranteed minimum pension equalisation
A pre-tax exceptional expense of GBP24.2m has been recorded in
the half-year ended 27 October 2018 as a past service cost in
respect of the equalisation of guaranteed minimum pension ("GMP")
benefits.
On 26 October 2018, the High Court handed down a judgement
involving Lloyds Banking Group defined benefit pension schemes. The
judgement concluded that the schemes should equalise pension
benefits for men and women in relation to GMP benefits. The
judgement has implications for many defined benefit schemes,
including those in which the Stagecoach Group participates. We have
worked with our actuarial advisors to understand the implications
of the judgement for the schemes in which the Group participates
and the GBP24.2m pre-tax exceptional expense reflects our best
estimate of the effect on our reported pension liabilities.
Net finance costs
Net finance costs for the half-year ended 27 October 2018 were
GBP16.4m (H1 2018: GBP18.1m) and are further analysed below. The
decrease in net finance costs is principally due to lower interest
expense on defined benefit pension schemes arising from changes in
market-driven assumptions used to determine pension amounts.
H1 2019 H1 2018
GBPm GBPm
---------------------------- -------- --------
Finance costs
Interest payable
and facility costs
on bank loans, overdrafts
and trade finance 1.9 1.9
Hire purchase and
finance lease interest
payable 0.7 0.8
Interest payable
and other finance
costs on bonds 11.0 10.9
Unwinding of discount
on provisions 1.8 1.8
Interest expense
on defined benefit
pension schemes 1.8 3.4
---------------------------- -------- --------
17.2 18.8
---------------------------- -------- --------
Finance income
Interest receivable
on cash (0.6) (0.3)
Effect of interest
rate swaps (0.2) (0.4)
---------------------------- -------- --------
(0.8) (0.7)
---------------------------- -------- --------
Net finance costs 16.4 18.1
---------------------------- -------- --------
Taxation
The effective tax rate for the half-year ended 27 October 2018,
excluding exceptional items, was 18.0% (H1 2018: 21.7%). The tax
charge can be analysed as follows:
Pre-tax
Half-year to profit/ Tax Rate
27 October 2018 (loss) GBPm %
GBPm
----------------------- --------- ------- -------
Excluding exceptional
items 90.0 (16.2) 18.0%
Exceptional items (109.6) 4.1 -
With joint venture
taxation gross (19.6) (12.1)
Reclassify joint
venture taxation
for reporting
purposes (3.0) 3.0
----------------------- --------- ------- -------
Reported in income
statement (22.6) (9.1)
----------------------- --------- ------- -------
Fuel costs
The Group's operations as at 27 October 2018 consume
approximately 346m litres of diesel fuel per annum. As a result,
the Group's profit is exposed to movements in the underlying price
of fuel. The Group's fuel costs include the costs of delivery and
duty as well as the costs of the underlying product. Accordingly,
not all of the cost varies with movements in oil prices.
The proportion of the Group's projected fuel usage that is now
hedged using fuel swaps is as follows:
Year ending 2019 2020 2021 2022
April
------------- ----- ----- ----- -----
Total Group 86% 75% 48% 15%
------------- ----- ----- ----- -----
The Group has no fuel hedges in place for periods beyond April
2022.
Cash flows and net debt
Consolidated net debt has, as expected, increased from 28 April
2018, reflecting the transfer of cash following the expiry of the
Virgin Trains East Coast franchise, additional capital investment,
the timing of interest payments associated with our 4.00% bonds,
partly offset by continued cash generation from other
operations.
Net cash from operating activities before tax for the half-year
ended 27 October 2018 was GBP2.7m (H1 2018: GBP44.2m) and can be
further analysed as follows:
H1 2019 H1 2018
GBPm GBPm
--------------------------- -------- --------
EBITDA of Group companies
before exceptional
items 160.8 174.1
Loss/(gain) on disposal
of property, plant
and equipment 0.7 (0.4)
Equity-settled share
based payment expense 0.4 0.3
Working capital movements (145.2) (112.9)
Net interest paid (20.0) (20.3)
Dividends from joint
ventures 6.0 3.4
Net cash flows from
operating activities
before taxation 2.7 44.2
--------------------------- -------- --------
Net debt (as analysed in note 18 to the condensed financial
statements) increased from GBP395.8m at 28 April 2018 to GBP461.2m
at 27 October 2018. The movement in net debt, showing train
operating companies separately, was:
Half-year to Train
27 October 2018 operating
companies* Other Total
GBPm GBPm GBPm
------------------------ ------------ -------- --------
EBITDA of Group
companies before
exceptional
items 16.2 144.6 160.8
Loss/(gain)
on disposal
of property,
plant and equipment 0.8 (0.1) 0.7
Equity-settled
share based
payment expense - 0.4 0.4
Working capital
movements (89.4) (55.8) (145.2)
Net interest
paid 0.3 (20.3) (20.0)
Dividends from
joint ventures - 6.0 6.0
Net cash flows
from operating
activities before
taxation (72.1) 74.8 2.7
Inter-company
movements (5.9) 5.9 -
Tax paid (2.5) (14.3) (16.8)
Investing activities 41.6 (59.5) (17.9)
Financing activities - (22.5) (22.5)
Foreign exchange/other - (10.9) (10.9)
------------------------ ------------ -------- --------
Movement in
net debt (38.9) (26.5) (65.4)
Opening net
debt 171.2 (567.0) (395.8)
------------------------ ------------ -------- --------
Closing net
debt 132.3 (593.5) (461.2)
------------------------ ------------ -------- --------
* East Midlands Trains and Virgin Trains East Coast
The movement in net debt shown for train operating companies is
principally in relation to Virgin Trains East Coast, with the
closing cash balances at East Midlands Trains broadly in line with
the opening position.
The expiry of the Virgin Trains East Coast franchise has
increased our net debt in the period by around GBP40m. We would
anticipate a further net cash outflow in this respect of around
GBP45m as we conclude open matters. That is consistent with the
guidance on Virgin Trains East Coast cash flows previously given in
our 2018 Annual Report.
The GBP26.5m increase in other net debt includes working capital
outflows of approximately GBP5m for rail bids costs accrued last
financial year but settled in this financial year, GBP19m for the
net payment by the Group in respect of the Virgin Trains East Coast
performance bond and of approximately GBP10m relating to a double
up of VAT receivables due to the timing of VAT settlements relative
to the balance sheet date. We expect that GBP10m outflow to reverse
in the second half of the year to April 2019. The GBP26.5m also
includes approximately GBP10m of net outflows for the settlement of
assets and liabilities relating to our former South West Trains
franchise.
The impact of purchases of property, plant and equipment for the
half-year on net debt was GBP74.8m (H1 2018: GBP89.5m). This
primarily related to expenditure on passenger service vehicles, and
comprised cash outflows of GBP65.3m (H1 2018: GBP60.8m) and new
hire purchase and finance lease debt of GBP9.5m (H1 2018:
GBP28.7m). In addition, GBP30.6m (H1 2018: GBP30.7m) of cash was
received from disposals of property, plant and equipment.
The net impact on net debt of purchases and disposals of
property, plant and equipment, split by division, was:
H1 2019 H1 2018
GBPm GBPm
------------------ -------- --------
UK Bus (regional
operations) 38.9 31.4
megabus Europe - (1.7)
UK Bus (London) 11.0 0.7
North America 9.2 34.9
UK Rail (14.9) (6.5)
44.2 58.8
------------------ -------- --------
In addition to the amounts shown in the table above, the impact
of purchases of intangible assets and other investments was GBP1.8m
(H1 2018: GBP10.9m). In addition, GBP28.1m (H1 2018: GBP2.7m) of
cash was received from disposals of intangible assets, principally
relating to the end of the Virgin Trains East Coast franchise, and
which is included in the overall approximately GBP40m net cash
outflow referred to above in respect of the franchise.
Financial position and liquidity
The Group maintains a solid financial position with investment
grade credit ratings and appropriate headroom under its debt
facilities.
The Group continues to have an appropriate mix of long-term debt
enabling it to plan and invest with some certainty.
The Group's financial position remains strong and is evidenced
by:
-- The ratio of net debt at 27 October 2018 to pre-exceptional
EBITDA for the year ended 27 October 2018 was 1.4 times (year ended
28 October 2017: 1.4 times).
-- Pre-exceptional EBITDA for the half-year ended 27 October
2018 was 11.0 times (H1 2018: 10.6 times) net finance charges
(including joint venture net finance income).
-- Undrawn, committed bank facilities of GBP430.3m at 27 October
2018 (28 April 2018: GBP433.4m) were available to be drawn as bank
loans with further amounts available only for non-cash utilisation.
In addition, the Group has available asset finance lines.
-- The three main credit rating agencies continue to assign
investment grade credit ratings to the Group.
Net assets
Net assets at 27 October 2018 were GBP179.3m (28 April 2018:
GBP181.7m). The decrease in the net assets reflects the loss for
the half-year ended 27 October 2018 and dividends paid, partly
offset by actuarial gains on defined benefit pension schemes and
fair value gains on cash flow hedges.
Retirement benefits
The reported net assets of GBP179.3m (28 April 2018: GBP181.7m),
that are shown on the consolidated balance sheet are after taking
account of net pre-tax retirement benefit liabilities of GBP151.5m
(28 April 2018: GBP142.2m), and associated deferred tax assets of
GBP26.0m (28 April 2018: GBP24.9m). The increase reflects the
GBP24.2m exceptional pre-tax expense referred to earlier in respect
of the equalisation of Guaranteed Minimum Pensions ("GMP").
We are pleased that, excluding the change in respect of GMP
equalisation, our net retirement benefit obligations would have
reduced in the half-year, reflecting good investment returns on
pension scheme assets. The Group recognised pre-tax actuarial gains
of GBP15.2m in the half-year ended 27 October 2018 (H1 2018:
pre-tax actuarial gains of GBP184.6m) on Group defined benefit
schemes.
Innovation
As mentioned earlier, our strategy is designed to grow our core
business, to support innovation and to position the Group to
benefit from future opportunities. Below we give some examples of
how we are continuing to innovate and positioning the Group in a
changing landscape.
UK Bus investment in customer facing technology
In our regional UK Bus businesses, we continue to make targeted
investment in fleet and technology enhancements which will make
travel easier and help attract more people to bus travel. All our
buses in Scotland, England and Wales now accept contactless card
payments, the UK bus industry's biggest deployment of contactless
ticketing. Contactless now accounts for around 20% of our regional
on-bus sales and continues to grow in popularity.
A key focus has been digital retail and the functionality and
customer experience of our websites and smartphone apps. In
addition to our existing mobile ticketing offer, we are planning to
introduce mobile ticketing on bus through QR codes in the first
half of 2019. A major redesign of the website for Oxford Tube,
Europe's most frequent express coach service, is also due for
completion before summer 2019.
Enhanced use of data
Across the Group, we are exploring how we can enhance our use of
data to improve our customers' experience, drive cost efficiencies
and grow our businesses.
For example, we have partnered with Irish start-up, City
Swifter, to use predictive demand analytics to adjust bus schedules
to better respond to customer demand, improve punctuality and
deliver cost efficiencies. We are working with City Swifter to
trial this on four major bus corridors in Oxford where we
introduced new bus schedules in September. The initial focus on the
trial routes is to deliver improved punctuality.
Work is underway to consolidate our in-house data for our bus
and coach operations, initially concentrating on e-commerce data,
in order to improve the ease with which we can access and analyse
data to support the business.
Using data, we now have improved segmentation and understanding
of our bus and coach customers in the UK and North America, and we
are using that to, among other things, communicate with our
customers in a more tailored way.
Demand responsive transport
Working with Prospective Labs (an organisation founded by
researchers from University College London, Cambridge University
and the Alan Turing Institute), we have identified four locations
in our English bus networks where we see opportunities for
commercially viable demand responsive transport. Existing bus
services are being redesigned to generate increased demand for our
transport services. An initial pilot area has been selected and to
progress this further, we have agreed commercial terms for a
strategic relationship with a technology provider.
Hindsight rail app
The Group is a 20% shareholder in Global Travel Ventures, which
is testing a retrospective pricing app in the UK rail market. The
app, which will be free of charge for customers to use, allows
customers to retrospectively pay for the journeys they take over
the course of a week rather than having to assess in advance what
journeys they think they will make in order to select the best
value fare. The website for the app is at
https://gethindsight.com/
Autonomous and other new vehicle technology
We have partnered with bus manufacturer, Alexander Dennis
Limited, and technology company, Fusion Processing, to trial the
UK's first full-sized single deck autonomous bus within a depot
environment, to carry out movements such as parking and moving into
the fuelling station and bus wash.
We are delighted that our proposal for a self-driving passenger
bus trial is set to go ahead in Scotland and take passengers across
the Forth Road Bridge. The UK Government-funded trial will see five
autonomous single-deck vehicles running between Edinburgh and Fife
but regulations mean a driver will remain on board during all
journeys. Work on the project is expected to get underway during
the second quarter of 2019, with services operating from 2020.
We have also announced an ambitious GBP56m proposal to deliver
Europe's largest single investment in electric buses, which would
see more than 100 vehicles delivered in Greater Manchester through
joint funding from Stagecoach and the Government's Ultra-Low
Emission Bus Scheme.
Future mobility opportunities
We are working with leading tech and digital companies to
develop new products and improve existing services to respond to
changing consumer priorities. We have joined the Intelligent
Mobility Accelerator in Milton Keynes, which attracts disruptive
start-ups with high-growth potential into the UK transport
industry.
We are also working with other transport partners to influence
future mobility policy. Along with car rental provider, Enterprise
Holdings, we have founded the Urban Mobility Partnership, which
will work with key stakeholders to promote practical local and
national policy solutions around urban mobility. We believe this
initiative will support the transition away from car ownership to a
multimodal transport future in UK cities where mass transit is
central to people's travel choices.
Investment in people
To support our ongoing innovation, we have been investing in our
people. During 2018, we have appointed experienced professionals
from outside the Group to the roles of Group Chief Information
Officer, Group Delivery & Change Director and Group Service
Delivery Director. These appointments to senior roles in our
Technology & Change team have been supplemented by new
appointments in supporting roles. Recognising the need to maintain
strong controls around information security as we continue to
develop new ideas and systems, we have also recently appointed a
new Group Chief Information Security Officer and re-shaped our
information security team with a number of other new
appointments.
In addition to strengthening our Technology & Change team,
we have also strengthened our divisional teams, most notably adding
commercial capability in a number of areas of our UK Bus
business.
Joint venture innovation
Our Virgin Rail Group joint venture continues to lead the UK
rail industry with its innovation, reflecting the entrepreneurial
heritage of both of its shareholders. Current and recent examples
include:
-- It is implementing a digitally enabled change of journey
function on its app to allow customers to more easily amend their
tickets. It is also removing the fee that normally applies to
changing rail tickets.
-- It continues to use digital innovations to increase digital
ticket adoption and encourage customers to move away from the
traditional "orange tickets". Such initiatives include industry
firsts like selling tickets via Amazon Alexa and advance
texting.
-- On train wi-fi on the West Coast Trains services is being
upgraded and the first upgraded wi-fi train is now in service, with
the wi-fi performing even better than expected.
-- Virgin Rail Group is also exploring the potential for a
simple cheap single price for travel in certain hours of the day
and how best to enable all customers to reserve seats
digitally.
Related parties
Details of significant transactions with related parties are
given in note 21 to the condensed financial statements.
Principal risks and uncertainties
Like most businesses, there is a range of risks and
uncertainties facing the Group. A brief summary is given below of
those specific risks and uncertainties that the Directors believe
could have the most significant impact on the Group's financial
position and/or future financial performance. Pages 9 to 13 of the
Group's 2018 Annual Report set out specific risks and uncertainties
in more detail.
The matters summarised below are not intended to represent an
exhaustive list of all possible risks and uncertainties. The focus
below is on those specific risks and uncertainties that the
Directors believe could have the most significant impact on the
Group's position or performance. In assessing the Group's likely
financial performance for the second half of the current financial
year, these risks and uncertainties should be considered in
addition to the matters referred to regarding seasonality in note 3
to the condensed financial statements, and the comments made later
under the heading "Outlook".
-- Catastrophic events - there is a risk that the Group is
involved (directly or indirectly) in a major operational
incident.
-- Terrorism - there is a risk that the demand for the Group's
services could be adversely affected by a significant terrorist
incident.
-- Economy - the economic environment in the geographic areas in
which the Group operates affects the demand for the Group's bus and
rail services. The ongoing negotiation of the terms of the UK
leaving the European Union may lead to economic, consumer and
political uncertainty. That may in turn affect asset values and
foreign exchange rates, which have a bearing on the amounts of our
pensions, financial instruments and other balances. UK policy
following the UK leaving the European Union may affect the UK
economy, including the availability and cost of staff.
-- Rail cost base - a substantial element of the cost base of
the UK Rail Division is essentially fixed as under its UK rail
franchise agreements, the Group is obliged to provide a minimum
level of train services and is less able to flex supply in response
to changes in demand.
-- Sustainability of rail profit - there is a risk that the
Group's revenue and profit could be significantly affected (either
positively or negatively) as a result of the Group winning UK rail
franchises or failing to retain its existing franchises.
-- Breach of franchise - if the Group fails to comply with
certain conditions as part of its rail franchise agreements it may
be liable to penalties including potential termination of one or
more of the rail franchise agreements.
-- Changing customer habits - There is a risk that changes in
people's working patterns, shopping habits and/or other preferences
affect demand for the Group's transport services, which could in
turn affect the Group's financial performance and/or financial
position.
-- Pension scheme funding - the Group participates in a number
of defined benefit pension schemes, and there is a risk that the
cash contributions required increase or decrease due to changes in
factors such as investment performance, discount rates and life
expectancies.
-- Insurance and claims environment - there is a risk that the
cost to the Group of settling claims against it is significantly
higher or lower than expected.
-- Regulatory changes and availability of public funding - there
is a risk that changes to the regulatory environment or changes to
the availability of public funding could affect the Group's
prospects. New legislation introduced and planned in the UK could
see the introduction of franchised bus networks in some areas,
which could affect our bus operations.
-- Management and Board succession - there is a risk that the
Group does not recruit and retain sufficient directors and managers
with the skills important to the operation of the business.
-- Disease - there is a risk that demand for the Group's
services could be adversely affected by a significant outbreak of
disease.
-- Information security - there is a risk that potential
malicious attacks on our systems lead to a loss of data or
disruption to operations.
-- Information technology - there is a risk that the Group's
capability to make sales digitally either fails or cannot meet
levels of demand.
-- Competition - in certain of the markets we operate in, there
is a risk of increased competitive pressures from existing
competitors and new entrants.
-- Treasury risks - the Group is affected by changes in fuel
prices, interest rates and exchange rates.
Use of non-GAAP measures
Our reported interim financial information is prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union and applied in accordance with the
provisions of the Companies Act 2006. In measuring our financial
performance and position, the financial measures that we use
include those which have been derived from our reported results in
order to eliminate factors which distort period-on-period
comparisons and/or provide useful information to stakeholders.
These are considered non-GAAP financial measures, and include
measures such as like-for-like revenue, pre-exceptional EBITDA and
net debt. We believe this information, along with comparable GAAP
measurements, is useful to shareholders and analysts in providing a
basis for measuring our financial performance and position. Note 23
to the condensed financial statements provides further information
on these non-GAAP financial measures.
Going concern
On the basis of current financial projections and the facilities
available, the Directors are satisfied that the Group has adequate
resources to continue for the foreseeable future and, accordingly,
consider it appropriate to adopt the going concern basis in
preparing the condensed financial statements for the half-year
ended 27 October 2018.
Outlook
The rail out-performance in the first half of the year is
expected to flow through to full-year adjusted earnings for the
year ending 27 April 2019.
We continue to see positive long-term prospects for public
transport. There is a large market opportunity for modal shift from
cars to public transport against a backdrop of technological
advancements, rising road congestion and increasing environmental
awareness.
Martin Griffiths
Chief Executive
5 December 2018
Responsibility Statement
We confirm that to the best of our knowledge:
(a) the condensed consolidated interim financial information
contained in this document has been prepared in accordance with
International Accounting Standard 34, "Interim Financial Reporting"
as adopted by the European Union;
(b) the interim management report contained in this document
includes a fair review of the information required by the Financial
Conduct Authority's Disclosure and Transparency Rules ("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
(c) this document includes a fair review of the information
required by DTR 4.2.8R (disclosure of related party transactions
and changes therein).
By order of and on behalf of the Board
Martin Griffiths Ross Paterson
Chief Executive Finance Director
5 December 2018 5 December 2018
Cautionary statement
The preceding interim management report has been prepared for
the shareholders of the Company, as a body, and for no other
persons. Its purpose is to assist shareholders of the Company to
assess the strategies adopted by the Company and the potential for
those strategies to succeed and for no other purpose. The interim
management report contains forward-looking statements that are
subject to risk factors associated with, amongst other things, the
economic, regulatory and business circumstances occurring from time
to time in the countries, sectors and markets in which the Group
operates. It is believed that the expectations reflected in these
statements are reasonable but they may be affected by a wide range
of variables that could cause actual results to differ materially
from those currently anticipated. No assurances can be given that
the forward-looking statements will be realised. The
forward-looking statements reflect the knowledge and information
available at the date of preparation. Nothing in the interim
management report should be considered or construed as a profit
forecast for the Group. Except as required by law, the Group has no
obligation to update forward-looking statements or to correct any
inaccuracies therein.
CONDENSED FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT
Unaudited Unaudited
---------------------------------------- -----------------------------------------
Half-year to 27 October Half-year to 28 October
2018 2017
(Restated)
Performance Intangibles Performance Intangibles
pre (exc pre (exc
intangibles software) intangibles software)
(exc and (exc and
software) exceptional Results software) exceptional Results
and items for and items for
exceptional (note the exceptional (note the
items 5) period items 5) period
(Restated) (Restated)
Notes GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ------ ------------- ------------- ---------- ------------- ------------- -----------
Revenue 4(a) 1,230.8 - 1,230.8 1,794.0 - 1,794.0
Operating costs and
other
operating income (1,140.2) (109.6) (1,249.8) (1,692.1) - (1,692.1)
Operating profit/(loss)
of Group companies 4(b) 90.6 (109.6) (19.0) 101.9 - 101.9
Share of profit of joint
ventures after net
finance
income and taxation 4(c) 12.8 - 12.8 12.9 - 12.9
------------------------- ------ ------------- ------------- ---------- ------------- ------------- -----------
Total operating
profit/(loss):
Group operating
profit/(loss)
and share of joint
ventures'
profit after taxation 4(b) 103.4 (109.6) (6.2) 114.8 - 114.8
Finance costs (17.2) - (17.2) (18.8) - (18.8)
Finance income 0.8 - 0.8 0.7 - 0.7
------------------------- ------ ------------- ------------- ---------- ------------- ------------- -----------
Profit/(loss) before
taxation 87.0 (109.6) (22.6) 96.7 - 96.7
Taxation (13.2) 4.1 (9.1) (18.6) - (18.6)
------------------------- ------ ------------- ------------- ---------- ------------- ------------- -----------
Profit/(loss) from
continuing
operations and profit
after taxation for the
period 73.8 (105.5) (31.7) 78.1 - 78.1
------------------------- ------ ------------- ------------- ---------- ------------- ------------- -----------
Attributable to:
Equity holders of the
parent 73.8 (105.5) (31.7) 78.2 - 78.2
Non-controlling
interests - - - (0.1) - (0.1)
73.8 (105.5) (31.7) 78.1 - 78.1
Earnings per share from
continuing and total
operations
- Adjusted basic/Basic 7 12.9p (5.5)p 13.6p 13.6p
- Adjusted
diluted/Diluted 7 12.8p (5.5)p 13.6p 13.6p
------------------------- ------ ------------- ------------- ---------- ------------- ------------- -----------
The accompanying notes form an integral part of this
consolidated income statement.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited
============ ============
Half-year Half-year
to to
27 October 28 October
2018 2017
GBPm GBPm
----------------------------------------------------------- ------------ ------------
(Loss)/profit for the period (31.7) 78.1
----------------------------------------------------------- ------------ ------------
Items that may be reclassified to profit or
loss
Cash flow hedges:
* Net fair value gains on cash flow hedges 37.3 21.2
* Reclassified and reported in (loss)/profit for the
period (19.7) 3.6
* Share of other comprehensive expense on joint
ventures' cash flow hedges (0.2) (0.1)
* Tax effect of cash flow hedges (3.4) (4.7)
Foreign exchange differences on translation
of foreign operations (net of hedging) 5.7 (0.9)
Total items that may be reclassified to profit
or loss 19.7 19.1
----------------------------------------------------------- ------------ ------------
Items that will not be reclassified to profit
or loss
Actuarial gains on Group defined benefit pension
schemes 15.2 184.6
Tax effect of actuarial gains on Group defined
benefit pension schemes (2.6) (31.1)
Share of actuarial losses on joint ventures' (0.1) -
defined benefit schemes
Total items that will not be reclassified
to profit or loss 12.5 153.5
----------------------------------------------------------- ------------ ------------
Other comprehensive income for the period 32.2 172.6
----------------------------------------------------------- ------------ ------------
Total comprehensive income for the period 0.5 250.7
----------------------------------------------------------- ------------ ------------
Attributable to:
Equity holders of the parent 0.5 250.8
Non-controlling interests - (0.1)
0.5 250.7
----------------------------------------------------------- ------------ ------------
CONSOLIDATED BALANCE SHEET (STATEMENT OF FINANCIAL POSITION)
Unaudited Audited
------------ ---------------
As at As at
27 October 28 April 2018
Notes 2018 GBPm
GBPm
-------------------------------- -------- ------------ ---------------
ASSETS
Non-current assets
Goodwill 8 61.3 142.1
Other intangible assets 9 13.7 44.4
Property, plant and equipment 10 1,125.0 1,137.1
Interests in joint ventures 11 31.7 25.2
Investments 2.7 2.7
Derivative instruments at fair
value 27.8 30.0
Retirement benefit assets 14 2.0 4.6
Other receivables 5.1 3.8
-------------------------------- -------- ------------ ---------------
1,269.3 1,389.9
-------------------------------- -------- ------------ ---------------
Current assets
Inventories 19.3 22.9
Trade and other receivables 186.0 235.3
Derivative instruments at fair
value 31.6 11.4
Cash and cash equivalents 193.1 238.2
-------------------------------- -------- ------------ ---------------
430.0 507.8
-------------------------------- -------- ------------ ---------------
Total assets 4(d) 1,699.3 1,897.7
-------------------------------- -------- ------------ ---------------
LIABILITIES
Current liabilities
Trade and other payables 439.6 614.6
Current tax liabilities 36.7 41.2
Foreign tax liabilities 0.7 0.6
Borrowings 37.9 36.9
Derivative instruments at fair
value 0.2 0.4
Provisions 19 75.7 117.7
-------------------------------- -------- ------------ ---------------
590.8 811.4
-------------------------------- -------- ------------ ---------------
Non-current liabilities
Other payables 23.2 20.4
Borrowings 618.1 606.9
Derivative instruments at fair
value 0.3 0.1
Deferred tax liabilities 27.9 25.2
Provisions 19 106.2 105.2
Retirement benefit obligations 14 153.5 146.8
-------------------------------- -------- ------------ ---------------
929.2 904.6
-------------------------------- -------- ------------ ---------------
Total liabilities 4(d) 1,520.0 1,716.0
-------------------------------- -------- ------------ ---------------
Net assets 4(d) 179.3 181.7
-------------------------------- -------- ------------ ---------------
EQUITY
Ordinary share capital 15 3.2 3.2
Share premium account 8.4 8.4
Retained earnings (270.0) (228.6)
Capital redemption reserve 422.8 422.8
Own shares (38.0) (38.0)
Translation reserve 8.6 2.9
Cash flow hedging reserve 44.3 30.1
-------------------------------- -------- ------------ ---------------
Total equity attributable to
the parent 179.3 200.8
Non-controlling interests - (19.1)
-------------------------------- -------- ------------ ---------------
Total equity 179.3 181.7
-------------------------------- -------- ------------ ---------------
The accompanying notes form an integral part of this
consolidated balance sheet.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Capital Cash Total Non-controlling
Notes Ordinary premium Retained redemption Translation flow equity interest Total
share account earnings reserve Own reserve hedging attributable GBPm equity
capital GBPm GBPm GBPm shares GBPm reserve to the GBPm
GBPm GBPm GBPm parent
GBPm
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ----------------
Balance at 28
April 2018 and
29 April 2018 3.2 8.4 (228.6) 422.8 (38.0) 2.9 30.1 200.8 (19.1) 181.7
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Loss for the
period - - (31.7) - - - - (31.7) - (31.7)
Other
comprehensive
income
net of tax - - 12.3 - - 5.7 14.2 32.2 - 32.2
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Total
comprehensive
(expense)/income - - (19.4) - - 5.7 14.2 0.5 - 0.5
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Credit in
relation to
equity-settled
share based
payments - - 0.4 - - - - 0.4 - 0.4
Shareholder
transactions
with
non-controlling
interest 21(vi) - - - - - - - - 19.1 19.1
Dividends paid on
ordinary
shares 6 - - (22.4) - - - - (22.4) - (22.4)
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Balance at 27
October 2018 3.2 8.4 (270.0) 422.8 (38.0) 8.6 44.3 179.3 - 179.3
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Balance at 29
April 2017 and
30 April 2017 3.2 8.4 (320.4) 422.8 (37.0) 10.2 (9.0) 78.2 (9.7) 68.5
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Profit for the
period - - 78.2 - - - - 78.2 (0.1) 78.1
Other
comprehensive
income/(expense)
net of tax - - 153.4 - - (0.9) 20.1 172.6 - 172.6
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Total
comprehensive
income/(expense) - - 231.6 - - (0.9) 20.1 250.8 (0.1) 250.7
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Own ordinary
shares purchased - - - - (1.0) - - (1.0) - (1.0)
Credit in
relation to
equity-settled
share based
payments - - 0.3 - - - - 0.3 - 0.3
Dividends paid on
ordinary
shares 6 - - (46.5) - - - - (46.5) - (46.5)
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
Balance at 28
October 2017 3.2 8.4 (135.0) 422.8 (38.0) 9.3 11.1 281.8 (9.8) 272.0
------------------ ------- ---------- -------- ---------- ----------- -------- ------------- -------- ------------- ---------------- --------
The accompanying notes form an integral part of this
consolidated statement of changes in equity.
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited
------------ ------------
Half-year Half-year
to to
27 October 28 October
2018 2017
Notes GBPm GBPm
-------------------------------------------- ------ ------------ ------------
Cash flows from operating activities
Cash generated by operations 16 16.7 61.1
Interest paid (22.4) (22.4)
Interest received 2.4 2.1
Dividends received from joint ventures 6.0 3.4
-------------------------------------------- ------ ------------ ------------
Net cash flows from operating activities 2.7 44.2
Tax paid (16.8) (5.0)
-------------------------------------------- ------ ------------ ------------
Net cash from operating activities after
tax (14.1) 39.2
-------------------------------------------- ------ ------------ ------------
Cash flows from investing activities
Purchase of property, plant and equipment (65.3) (60.8)
Disposal of property, plant and equipment 30.6 30.7
Purchase of intangible assets and other
investments (1.8) (10.9)
Disposal of intangible assets 28.1 2.7
Net cash outflow from investing activities (8.4) (38.3)
-------------------------------------------- ------ ------------ ------------
Cash flows from financing activities
Purchase of treasury shares - (1.0)
Repayments of hire purchase and lease
finance debt (11.2) (14.2)
Drawdown of other borrowings 109.0 100.0
Repayment of other borrowings (100.0) (136.8)
Dividends paid on ordinary shares 6 (22.4) (46.5)
Sale of tokens - 0.1
Redemption of tokens (0.1) (0.2)
-------------------------------------------- ------ ------------ ------------
Net cash used in financing activities (24.7) (98.6)
-------------------------------------------- ------ ------------ ------------
Net decrease in cash and cash equivalents (47.2) (97.7)
Cash and cash equivalents at beginning
of period 238.2 313.3
Exchange rate effects 2.1 -
-------------------------------------------- ------ ------------ ------------
Cash and cash equivalents at end of
period 193.1 215.6
-------------------------------------------- ------ ------------ ------------
Cash and cash equivalents for the purposes of the consolidated
statement of cash flows comprise cash at bank and in hand,
overdrafts and other short-term highly liquid investments with
maturities at the balance sheet date of twelve months or less.
The accompanying notes form an integral part of this
consolidated statement of cash flows.
NOTES
1 BASIS OF PREPARATION
The condensed consolidated interim financial information for the
half-year ended 27 October 2018 has been prepared in accordance
with the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority and International Accounting Standard
34, "Interim Financial Reporting", as adopted by the European
Union. The condensed consolidated interim financial information
should be read in conjunction with the annual financial statements
for the year ended 28 April 2018, which have been prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union. Except to the extent described
below, the accounting policies and methods of computation applied
in the consolidated interim financial information are otherwise the
same as those of the annual financial statements for the year ended
28 April 2018, as described on pages 81 to 90 of the Group's 2018
Annual Report which can be found on the Stagecoach Group website at
http://www.stagecoach.com/investors/financial-analysis/reports/.
The figures for this half-year include the results for all
divisions for the 26 weeks to 27 October 2018. The comparative
figures for the half-year ended 28 October 2017 include the results
for all divisions for the 26 weeks ended 28 October 2017.
This condensed consolidated interim financial information for
the half-year ended 27 October 2018 has not been audited, nor has
the comparative financial information for the half-year ended 28
October 2017 but they have both been reviewed by the auditors. The
comparative financial information presented in this announcement
for the year ended 28 April 2018 does not constitute statutory
accounts as defined in section 434 of the Companies Act 2006 and
does not reflect all of the information contained in the Company's
annual financial statements. The annual financial statements for
the year ended 28 April 2018 were approved by the Board of
Directors on 28 June 2018, were reported on by the auditors under
sections 495 and 496 of the Companies Act 2006, received an
unqualified audit report, did not contain an emphasis of matter
paragraph, did not contain a statement under section 498(2) or (3)
of the Companies Act 2006 and have been filed with the Registrar of
Companies.
The Board of Directors approved this announcement, including the
condensed consolidated interim financial information, on 5 December
2018. This announcement will be available on the Group's website at
http://www.stagecoach.com/investors/financial-analysis/reports/.
New accounting standards adopted during the period
IFRS 15, Revenue from Contracts with Customers
The Group has adopted IFRS 15, "Revenue from Contracts with
Customers" from 30 April 2017, applying the full retrospective
approach. The core principle of IFRS 15 is that an entity will
recognise revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration
(payment) to which the entity expects to be entitled in exchange
for those goods or services. In both our rail and bus divisions,
performance obligations are clear and transaction prices are even
over the period to which they relate and are time apportioned.
There have been no judgements taken in the implementation of IFRS
15 which significantly affect the amount or timing of the
recognition of revenue.
Implementing IFRS 15 has not had a material impact on the
consolidated financial statements, with the exception of the
reclassification of certain customer compensation amounts which
were previously treated as operating costs. Under IFRS 15, customer
compensation is treated as a reduction in revenue, and for the
half-year ended 28 October 2017, retrospectively applying IFRS 15
has resulted in a decrease in revenue of GBP6.4m, offset by an
equivalent reduction in operating costs. For the half-year ended 27
October 2018, customer compensation of GBP4.0m has been treated as
a reduction in revenue, with an equivalent reduction in operating
costs. As there is no net impact on the income statement from
implementing IFRS 15, there is no adjustment to prior year opening
retained earnings.
ln the UK, the Group receives concessionary revenue from public
bodies, such as local authorities, for transporting disabled and
older people free of charge to the passenger. Although the revenue
is received from a party other than the person receiving the
service, the Group accounts for such revenue in accordance with
IFRS 15 with the performance obligation being the provision of the
free travel to those eligible.
Note 4 sets out a disaggregation of revenue in accordance with
the disclosure requirements of the new standard, with an
explanation of the types of revenue included in the note set out
below:
Passenger revenues
Passenger revenues primarily relate to ticket sales through UK
Bus (regional operations), UK Rail and North America. Passenger
revenue is recognised in the income statement in the period in
which the related travel occurs. This can involve some estimation -
for example, revenue from the sale of season tickets and
travelcards, that entitle individuals to use certain of our
services during a specified period of time, is deferred within
liabilities and recognised in the income statement over the period
covered.
1 BASIS OF PREPARATION (CONTINUED)
Contract revenues
Contract revenues mainly relate to UK Bus (London) contracts
with Transport for London and contracts with customers in North
America. Revenue receivable from government bodies and others as
payment to us for operating transport services under contract is
recognised in the income statement in the period that the
contracted services relate to. In general, the revenue in respect
of any particular period can be clearly determined from the
contract. Where there is a contingent element to contract revenue
(for example, where additional amounts are payable or receivable
based on the punctuality of transport services and/or other
operational measures), revenue is recognised based on the
applicable operational measures when the amount of revenue can be
reliably estimated and it is highly probable that the economic
benefits will flow to the Group.
IFRS 9, Financial Instruments
The Group has adopted IFRS 9, "Financial Instruments",
prospectively from 29 April 2018. The standard includes
requirements for recognition and measurement, impairment,
derecognition and general hedge accounting. There have been no
significant changes to the classification and measurement of
financial assets and liabilities and no changes were required to
the hedge accounting applied as a result of IFRS 9.
IFRS 9 requires a new impairment model with impairment
provisions based on expected credit losses rather than incurred
credit losses under IAS 39. For trade and other receivables, we
have applied the simplified approach under the standard and
determined expected credit losses for significant portfolios of
receivables. The transitional increase in the impairment allowance
as a result of adopting this policy is immaterial.
Under IFRS 9, the Group has elected to recognise its
investments, previously classified as available for sale, at fair
value through other comprehensive income (with no recycling). At 27
October 2018, the carrying value of those investments was GBP2.7m
(28 April 2018: GBP2.7m).
New accounting standards not yet applied
IFRS 16, Leases
The Group will adopt IFRS 16, "Leases", on 28 April 2019, which
replaces IAS 17, and establishes principles for the recognition,
measurement, presentation and disclosure of leases. IFRS 16
eliminates the classification of leases as either operating leases
or finance leases and, instead, introduces a single lessee
accounting model. Applying that model, a lessee is required to
recognise: assets and liabilities for all leases with a term of
more than 12 months, unless the underlying asset is of low value;
and depreciation of lease assets separately from interest.
The Directors expect the application of IFRS 16 to have a
material effect on the consolidated financial statements. In
particular, the accounting for the Group's railway rolling stock
operating lease commitments will be affected by the application of
the new standard.
On adopting IFRS 16, the Group expects to recognise substantial
new assets and new liabilities in respect of those leases currently
classified as operating leases. The Group intends to apply the
modified retrospective approach to transition.
The Group's assessment of the impact of this standard is
ongoing, and therefore it is not possible to disclose the value of
right of use assets and liabilities that will be recognised on
adoption of the standard. However, the standard will affect
primarily the accounting for operating leases. As at 28 April 2018,
the total minimum contractual lease payments were GBP1,595.2m. Of
that, GBP1,433.2m related to Virgin Trains East Coast under its
original franchise agreement, which was scheduled to run until at
least March 2023 but ended in June 2018 and the Group was released
from those lease commitments around that time. The Group's non-rail
operations had total minimum contractual lease payments at 28 April
2018 of GBP128.5m, primarily relating to properties and
vehicles.
Other new standards, amendments to standards and interpretations
that are mandatory for the first time for the financial year
beginning 29 April 2018, do not have any significant effect on the
consolidated financial statements of the Group.
2 FOREIGN CURRENCIES
The principal rates of exchange used to translate the results of
foreign operations are as follows:
Half-year Half-year Year to
to to 28 April
27 October 28 October 2018
2018 2017
------------------ ------------ ------------ ----------
US Dollar:
Period end rate 1.2820 1.3110 1.3797
Average rate 1.3158 1.3029 1.3380
Canadian Dollar:
Period end rate 1.6814 1.6899 1.7745
Average rate 1.7144 1.6748 1.7072
3 SEASONALITY
The Group's North American bus operations typically earn higher
operating profit for the first half of the financial year (i.e. the
half-year to the end of October) than for the second half. This is
because leisure customers generate an element of the revenue with
demand being at its strongest in the summer months.
4 SEGMENTAL ANALYSIS
The Group is managed, and reports internally, on a basis
consistent with its four operating segments, being UK Bus (regional
operations), UK Bus (London), North America and UK Rail. The
Group's accounting policies are applied consistently, where
appropriate, to each segment.
The segmental information provided in this note is on the basis
of four operating segments as follows:
Segment name Service operated Countries of operation
UK Bus (regional operations) Coach and bus operations United Kingdom
UK Bus (London) Bus operations United Kingdom
North America Coach and bus operations USA and Canada
UK Rail Rail operations United Kingdom
The basis of segmentation and the basis on which segment profit
is measured are consistent with the Group's last annual financial
statements for the year ended 28 April 2018.
The Group has interests in two material joint ventures: Virgin
Rail Group that operates in UK Rail and Citylink that operates in
UK Bus (regional operations). The results of these joint ventures
are shown separately in note 4(c).
(a) Revenue
Due to the nature of the Group's business, the origin and
destination of revenue (i.e. United Kingdom or North America) is
the same in almost all cases. As the Group sells bus and rail
services to individuals, it has few customers that are individually
"major". Its major customers are typically public bodies that
subsidise or procure transport services - such customers include
local authorities, transport authorities and the UK Department for
Transport.
Revenue split by class and segment was as follows:
Unaudited
---------------------------------
Half-year to 27 October 2018
---------------------------------
Passenger Contract
revenue revenue Total
GBPm GBPm GBPm
---------------------------------------- ----------- ---------- --------
UK Bus (regional operations) 504.3 22.8 527.1
UK Bus (London) 0.2 128.4 128.6
North America 197.9 47.8 245.7
---------------------------------------- ----------- ---------- --------
Total bus operations 702.4 199.0 901.4
UK Rail 335.1 - 335.1
---------------------------------------- ----------- ---------- --------
Total Group revenue 1,037.5 199.0 1,236.5
Intra-Group revenue - UK Bus (regional
operations) - (5.7) (5.7)
---------------------------------------- ----------- ---------- --------
Reported Group revenue 1,037.5 193.3 1,230.8
---------------------------------------- ----------- ---------- --------
Unaudited
--------------------------------------------
Half-year to 28 October 2017 (restated)
--------------------------------------------
Passenger Contract
revenue revenue Total
GBPm GBPm GBPm
---------------------------------------- --------------- -------------- -----------
UK Bus (regional operations) 492.7 19.7 512.4
UK Bus (London) 0.1 128.3 128.4
North America 201.0 55.3 256.3
---------------------------------------- --------------- -------------- -----------
Total bus operations 693.8 203.3 897.1
UK Rail 899.2 - 899.2
---------------------------------------- --------------- -------------- -----------
Total Group revenue 1,593.0 203.3 1,796.3
Intra-Group revenue - UK Bus (regional
operations) - (2.3) (2.3)
---------------------------------------- --------------- -------------- -----------
Reported Group revenue 1,593.0 201.0 1,794.0
---------------------------------------- --------------- -------------- -----------
4 SEGMENTAL ANALYSIS (CONTINUED)
(b) Operating profit
Operating profit split by segment was as follows:
Unaudited Unaudited
-------------------------------------------- ---------------------------------------------
Half-year to 27 October Half-year to 28 October
2018 2017
Performance
pre Intangibles Intangibles
intangibles (exc Performance (exc
(exc software) pre intangibles software)
software) and exceptional (exc and exceptional
and items Results software) items Results
exceptional (note for the and exceptional (note for the
items 5) period items 5) period
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- --------------- ---------------- --------- ---------------- ---------------- ---------
UK Bus (regional
operations) 65.2 (18.2) 47.0 61.6 - 61.6
UK Bus (London) 6.1 (5.0) 1.1 6.5 - 6.5
North America 16.1 (85.4) (69.3) 21.2 - 21.2
----------------------- --------------- ---------------- --------- ---------------- ---------------- ---------
Total bus operations 87.4 (108.6) (21.2) 89.3 - 89.3
UK Rail 11.5 (0.4) 11.1 21.7 - 21.7
----------------------- --------------- ---------------- --------- ---------------- ---------------- ---------
98.9 (109.0) (10.1) 111.0 - 111.0
Group overheads (8.1) (0.6) (8.7) (7.9) - (7.9)
Restructuring costs (0.2) - (0.2) (1.2) - (1.2)
----------------------- --------------- ---------------- --------- ---------------- ---------------- ---------
Total operating
profit/(loss)
of Group companies 90.6 (109.6) (19.0) 101.9 - 101.9
Share of joint
ventures'
profit after net
finance
income and taxation 12.8 - 12.8 12.9 - 12.9
----------------------- --------------- ---------------- --------- ---------------- ---------------- ---------
Total operating
profit/(loss):
Group operating
profit/(loss)
and share of joint
ventures'
profit after taxation 103.4 (109.6) (6.2) 114.8 - 114.8
----------------------- --------------- ---------------- --------- ---------------- ---------------- ---------
(c) Joint ventures
The share of profit from joint ventures was further split as
follows:
Unaudited Unaudited
----------------- -----------------
Half-year to Half-year to
27 October 2018 28 October 2017
GBPm GBPm
---------------------------------------- ----------------- -----------------
Virgin Rail Group (UK Rail)
Operating profit 13.7 14.8
Finance income (net) 0.4 0.2
Taxation (2.7) (2.9)
11.4 12.1
Citylink (UK Bus, regional operations)
Operating profit 1.7 1.0
Taxation (0.3) (0.2)
----------------------------------------- ----------------- -----------------
1.4 0.8
---------------------------------------- ----------------- -----------------
Share of profit of joint ventures
after net finance income and taxation 12.8 12.9
----------------------------------------- ----------------- -----------------
4 SEGMENTAL ANALYSIS (CONTINUED)
(d) Gross assets and liabilities
Assets and liabilities split by segment were as follows:
Unaudited Audited
--------------------------------------------- ----------------------------------------------
As at 27 October 2018 As at 28 April 2018
Net Net
Gross assets/ Gross assets/
Gross assets liabilities (liabilities) Gross assets liabilities (liabilities)
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- ------------- -------------- -------------- ------------- -------------- ---------------
UK Bus (regional
operations) and
megabus Europe 965.7 (272.6) 693.1 945.2 (271.4) 673.8
UK Bus (London) 76.1 (134.1) (58.0) 68.5 (117.3) (48.8)
North America 344.5 (150.3) 194.2 404.9 (143.9) 261.0
UK Rail 60.9 (213.7) (152.8) 192.8 (427.4) (234.6)
----------------------- ------------- -------------- -------------- ------------- -------------- ---------------
1,447.2 (770.7) 676.5 1,611.4 (960.0) 651.4
Central functions 27.3 (28.0) (0.7) 22.9 (45.2) (22.3)
Joint ventures 31.7 - 31.7 25.2 - 25.2
Borrowings and cash 193.1 (656.0) (462.9) 238.2 (643.8) (405.6)
Taxation - (65.3) (65.3) - (67.0) (67.0)
----------------------- ------------- -------------- -------------- ------------- -------------- ---------------
Total 1,699.3 (1,520.0) 179.3 1,897.7 (1,716.0) 181.7
----------------------- ------------- -------------- -------------- ------------- -------------- ---------------
Central assets and liabilities include interest payable and
receivable and other net assets of the holding company and other
head office companies. Segment assets and liabilities are
determined by identifying the assets and liabilities that relate to
the business of each segment but excluding intra-Group balances,
cash, borrowings, taxation, interest payable and interest
receivable.
5 EXCEPTIONAL ITEMS AND INTANGIBLE ASSET AMORTISATION
The Group separately highlights non-software intangible asset
amortisation and exceptional items. Exceptional items are defined
in note 23.
(a) Summary of exceptional items
The exceptional items recognised in the half-year ended 27
October 2018 were as follows:
Unaudited
-----------------
Half-year to
27 October 2018
GBPm
-------------------------------------------- -----------------
Impairment of North America goodwill (85.4)
Equalisation of guaranteed minimum pension
benefits (24.2)
Exceptional items before taxation (109.6)
Tax effect of exceptional items 4.1
-------------------------------------------- -----------------
Exceptional items after taxation (105.5)
-------------------------------------------- -----------------
(b) Impairment of North America goodwill
The estimated value in use of the North America cash generating
unit reported in the Group's consolidated financial statements as
at 28 April 2018 was GBP499.4m (US$689.0m). That estimate has been
revised to GBP289.5m (US$371.1m) as at 27 October 2018 to take
account of financial performance in the intervening period and
changes in forecast financial performance. This change in estimate
has resulted in a GBP85.4m impairment of goodwill being reported in
the half-year ended 27 October 2018.
The non-current assets of cash generating units to which
goodwill has been allocated are tested for impairment annually, or
more frequently when there is an indication that the carrying value
of such assets may be impaired. If the recoverable amount of the
non-current assets is less than their carrying amount, then the
impairment loss is allocated first to reduce the carrying amount of
any goodwill allocated to the unit and then to the other assets of
the unit pro-rata on the basis of the carrying amount of each asset
in the unit. The recoverable amount is the higher of fair value
less costs to sell and value in use. In assessing value in use, the
estimated future pre-tax cash flows are discounted to their present
value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to
the cash generating unit. Any impairment of goodwill is recognised
immediately in the income statement.
The carrying values of the non-current assets of cash generating
units to which goodwill has been allocated as at 28 April 2018 were
reviewed for impairment in accordance with our accounting policy
and as set out in the Group's consolidated financial statements for
the year then ended.
5 EXCEPTIONAL ITEMS AND INTANGIBLE ASSET AMORTISATION (CONTINUED)
(b) Impairment of North America goodwill (continued)
Since those reviews, we have seen indications of potential
impairment of assets at the North America cash generating unit.
Year-to-date profit at the North America Division has been below
its internal budget and like-for-like revenue has declined.
Like-for-like revenue fell 3.0% in the half-year ended 27 October
2018, when compared to the equivalent prior year period. Trading
has been adversely affected by a number of factors, including
increased competition in certain of the markets in which the
Division operates. Accordingly, a further review for impairment of
the carrying values of that cash generating unit's assets has been
carried out based on the assets' carrying values as at 27 October
2018.
The North America business operates a variety of different types
of transportation services over a wide area of North America. Its
financial performance is influenced by various different factors,
many of which are specific to the individual markets and locations
in which it operates. Among the factors that can affect financial
performance are changes in local economies, local competition, fuel
prices, working patterns, shopping patterns, traffic conditions,
cost pressures including the availability of sufficient suitable
staff, and regulatory change. Any forecast of financial performance
is therefore subjective.
Taking account of available updated information, including
year-to-date performance, expected continuation of the increased
competition and a recent fall in fuel prices, the forecast for the
North America Division for the year ending 27 April 2019 has been
revised resulting in a reduction in forecast profit relative to the
forecast forming part of the review of asset carrying values as at
28 April 2018. For the half-year ended 27 October 2018, North
America revenue was US$11.0m (3.3%) below that forecast, operating
expenses were US$2.9m (1.0%) below that forecast, resulting in
operating profit US$8.1m (27.6%) below that forecast. The current
year under-performance versus budget also led the Directors to
review the forecast revenue growth rates and profit margins over
the medium-term, and these were revised down relative to the
assumptions applied to the review of asset carrying values as at 28
April 2018. The long-term growth rate used to extrapolate forecast
cash flows beyond the period of the management plan was also
reviewed in light of the
under-performance and was revised down from 3.9% per annum to
2.2% per annum. The discount rate was reviewed and increased from
the pre-tax discount rate of 9.4% applied in the previous
impairment review to 10.4%.
As a result of the revised forecasts and assumptions explained
above, an GBP85.4m impairment of North America goodwill has been
reflected in the results for the half-year ended 27 October 2018.
That impairment has been calculated to reduce the carrying value of
the relevant assets to the estimated value in use of the cash
generating unit, noting that the Directors do not consider fair
value less costs to sell of the assets to be greater than the
estimate of value in use. After this impairment, the carrying value
of North America non-current assets at 27 October 2018 is GBP289.5m
(US$371.1m), of which GBP10.2m (US$13.1m) relates to goodwill.
The most critical estimates in assessing the value in use of the
North America cash generating unit are:
-- The forecast growth in the Division's earnings before
interest, tax, depreciation and amortisation ("EBITDA") over the
next few years, which in turn reflects assumptions on the forecast
changes in revenue and costs for the various operations in North
America. Over the period of the four-year management plan to April
2022, the forecast rate of compound annual revenue growth has been
revised down from 4.3% to 1.3% and the forecast rate of compound
annual cost growth has been revised down from 3.5% to 0.9%.
-- The discount rate, which has increased from 9.4% to 10.4%.
-- The long-term growth in the Division's net cash flows, which
has been revised down from 3.9% per annum to 2.2% per annum.
Applying alternative assumptions would result in a different
amount of value in use and impairment loss at 27 October 2018,
albeit bearing in mind the fair value less cost to sell of the
assets may limit the extent of any increase in the impairment loss.
The effect of changes in assumptions on the value in use as at 27
October 2018 is illustrated below:
Illustrative change in assumption Decrease
in value
in use
as at 27
October
2018
US$m
---------------------------------------------------------- ----------
A 20 basis points decrease in the assumed annual revenue
growth in the period from May 2019 to April 2022, with
no offsetting reduction in forecast costs 39.3
A 20 basis points increase in the assumed cost growth
in the period from May 2019 to April 2022, with no
offsetting increase in forecast revenue 37.3
A 100 basis points increase in the pre-tax discount
rate from 10.4% to 11.4% 39.0
A 100 basis points decrease in the long-term growth
rate from 2.2% per annum to 1.2% 29.8
---------------------------------------------------------- ----------
5 EXCEPTIONAL ITEMS AND INTANGIBLE ASSET AMORTISATION (CONTINUED)
(c) Guaranteed minimum pension equalisation
On 26 October 2018, the High Court handed down a judgement
involving Lloyds Banking Group defined benefit pension schemes. The
judgement concluded that the schemes should equalise pension
benefits for men and women in relation to guaranteed minimum
pension ("GMP") benefits. The judgement has implications for many
defined benefit schemes, including those in which the Stagecoach
Group participates.
We have worked with our actuarial advisors to understand the
implications of the High Court judgement for the schemes in which
the Group participates and have recorded a GBP24.2m pre-tax
exceptional expense to reflect our best estimate of the effect on
our reported pension liabilities.
The change in pension liabilities recognised in relation to GMP
equalisation involves estimation uncertainty. It is expected that
there will be follow-on court hearings to further clarify the
application of GMP equalisation in practice. Also, it is not yet
known whether Lloyds Banking Group will appeal the High Court
judgement. The judgement was made one day prior to the Group's
balance sheet date of 27 October 2018 and the Group is one of the
first companies to publish financial statements with a balance
sheet date after the date of the judgement. Accordingly, the
Directors have had limited time to consider the full implications
of the judgement and while the financial statements reflect the
best estimate of the impact on pension liabilities, that estimate
reflects a number of assumptions. As the outcome of future court
hearings cannot be reliably predicted, it is not practical to
quantify the extent of the estimation uncertainty but the best
estimate reflects the information currently available. The
Directors will continue to monitor any further clarifications or
court hearings arising from the Lloyds case and consider the impact
on pension liabilities accordingly.
The Directors have made the judgement that the estimated effect
of GMP equalisation on the Group's pension liabilities is a past
service cost that should be reflected through the consolidated
income statement and that any subsequent change in the estimate of
that should be recognised in other comprehensive income. The
judgement is based on the fact that the reported pension
liabilities for the Stagecoach Group Pension Scheme as at 28 April
2018 did not include any amount in respect of GMP equalisation.
6 DIVIDS
Dividends on ordinary shares are shown below.
Unaudited Unaudited Audited Unaudited Unaudited Audited
--------------- --------------- --------------- --------------- --------------- ---------------
Half-year to Half-year to Half-year to Half-year to
27 October 28 October Year to 27 October 28 October Year to
2018 2017 28 April 2018 2018 2017 28 April 2018
pence per pence per pence per
share share share GBPm GBPm GBPm
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Amounts
recognised as
distributions
Dividends on
ordinary
shares:
Final dividend
in respect of
the previous
year 3.9 8.1 8.1 22.4 46.5 46.5
Interim
dividend in
respect of the
current year - - 3.8 - - 21.8
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Amounts
recognised as
distributions
to equity
holders 3.9 8.1 11.9 22.4 46.5 68.3
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Dividends
declared or
proposed but
neither paid
nor included as
liabilities in
the financial
statements
Dividends on
ordinary
shares:
Final dividend
in respect of
the current
year - - 3.9 - - 22.4
Interim
dividend in
respect of the
current year 3.8 3.8 - 21.8 21.8 -
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
3.8 3.8 3.9 21.8 21.8 22.4
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
The interim ordinary dividend of 3.8p per ordinary share was
declared by the Board of Directors on 5 December 2018 and has not
been included as a liability as at 27 October 2018. It is payable
on 6 March 2019 to shareholders on the register at close of
business on 25 January 2019.
7 EARNINGS PER SHARE
Basic earnings per share ("EPS") have been calculated by
dividing the profit attributable to equity shareholders by the
weighted average number of ordinary shares in issue during the
period, excluding any ordinary shares held in treasury and by
employee share ownership trusts.
The diluted earnings per share was calculated by adjusting the
weighted average number of ordinary shares outstanding to assume
conversion of all dilutive potential ordinary shares in relation to
executive share plans and long-term incentive plans.
Unaudited Unaudited
-------------- --------------
Half-year to Half-year to
27 October 28 October
2018 2017
No. of shares No. of shares
Million Million
------------------------------------ -------------- --------------
Basic weighted average number of
ordinary shares 573.4 573.4
Dilutive ordinary shares
- Executive Participation Plan 2.4 2.7
------------------------------------- -------------- --------------
Diluted weighted average number of
ordinary shares 575.8 576.1
------------------------------------- -------------- --------------
Adjusted earnings per share is calculated after adding back
non-software intangible asset amortisation and exceptional items
(after taking account of taxation and the non-controlling interest)
as shown on the consolidated income statement. This has been
presented to allow shareholders to gain a further understanding of
underlying performance. The reconciliation of net (loss)/profit for
the basic EPS calculation to net profit for the adjusted EPS
calculation is shown below.
Unaudited Unaudited
------------- -------------
Half-year to Half-year to
27 October 28 October
2018 2017
Notes GBPm GBPm
------------------------------------- ------ ------------- -------------
Net (loss)/profit attributable to
equity holders of the parent (for
basic EPS calculation) (31.7) 78.2
Exceptional items before taxation 5 109.6 -
Tax effect of exceptional items (4.1) -
Net profit attributable to equity
holders of the parent for adjusted
EPS calculation 73.8 78.2
------------------------------------- ------ ------------- -------------
8 GOODWILL
The movements in goodwill were as follows:
Unaudited Unaudited Audited
------------ ------------ ----------
Half-year Half-year Year to
to to 28 April
27 October 28 October 2018
2018 2017
GBPm GBPm GBPm
---------------------------------------- ------------ ------------ ----------
Net book value at beginning of period 142.1 148.2 148.2
Impairment charged to income statement (85.4) - -
(see note 5)
Foreign exchange movements 4.6 (1.3) (6.1)
---------------------------------------- ------------ ------------ ----------
Net book value at end of period 61.3 146.9 142.1
---------------------------------------- ------------ ------------ ----------
9 OTHER INTANGIBLE ASSETS
The movements in other intangible assets were as follows:
Unaudited Unaudited Audited
------------ ------------ ----------
Half-year Half-year Year to
to to 28 April
27 October 28 October 2018
2018 2017
GBPm GBPm GBPm
------------------------------------------- ------------ ------------ ----------
Cost at beginning of period 136.6 163.1 163.1
Additions 1.8 8.2 16.0
Disposals (96.6) (6.4) (41.5)
Foreign exchange movements 0.6 (0.3) (1.0)
Cost at end of period 42.4 164.6 136.6
------------------------------------------- ------------ ----------
Accumulated amortisation at beginning
of period (92.2) (118.1) (118.1)
Amortisation charged to income statement (4.4) (5.5) (12.7)
Impairment charged to income statement - - (0.8)
Disposals 68.4 3.8 38.4
Foreign exchange movements (0.5) 0.3 1.0
Accumulated amortisation at end of period (28.7) (119.5) (92.2)
------------------------------------------- ------------ ----------
Net book value at beginning of period 44.4 45.0 45.0
------------------------------------------- ------------ ------------ ----------
Net book value at end of period 13.7 45.1 44.4
------------------------------------------- ------------ ------------ ----------
10 PROPERTY, PLANT AND EQUIPMENT
The movements in property, plant and equipment were as
follows:
Unaudited Unaudited Audited
------------ ------------ ----------
Half-year Half-year Year to
to to 28 April
27 October 28 October 2018
2018 2017
GBPm GBPm GBPm
------------------------------------------ ------------ ------------ ----------
Cost at beginning of period 2,143.5 2,178.2 2,178.2
Additions 65.8 69.3 135.5
Disposals (76.5) (114.2) (136.8)
Foreign exchange movements 40.3 (4.8) (33.4)
Cost at end of period 2,173.1 2,128.5 2,143.5
------------------------------------------ ------------ ----------
Depreciation at beginning of period (1,006.4) (987.9) (987.9)
Depreciation charged to income statement (65.5) (66.7) (132.9)
Impairment charged to income statement (0.3) - (3.7)
Disposals 47.0 83.7 101.3
Foreign exchange movements (22.9) 2.3 16.8
Depreciation at end of period (1,048.1) (968.6) (1,006.4)
------------------------------------------ ------------ ----------
Net book value at beginning of period 1,137.1 1,190.3 1,190.3
------------------------------------------ ------------ ------------ ----------
Net book value at end of period 1,125.0 1,159.9 1,137.1
------------------------------------------ ------------ ------------ ----------
11 INTERESTS IN JOINT VENTURES
The movements in the carrying values of interests in joint
ventures were as follows:
Unaudited Unaudited Audited
------------ ------------ ----------
Half-year Half-year Year to
to to 28 April
27 October 28 October 2018
2018 2017
GBPm GBPm GBPm
----------------------------------------------- ------------ ------------ ----------
Net book value at beginning of period 25.2 25.7 25.7
Share of recognised profit 12.8 12.9 27.1
Share of actuarial losses on defined
benefit pension schemes, net of tax (0.1) - (0.6)
Share of other comprehensive (expense)/income
on cash flow hedges, net of tax (0.2) (0.1) 0.2
Dividends received in cash (6.0) (3.4) (27.2)
Net book value at end of period 31.7 35.1 25.2
----------------------------------------------- ------------ ----------
A loan payable to Scottish Citylink Coaches Limited of GBP1.7m
(28 April 2018: GBP1.7m) is included within current liabilities
under the caption "Trade and other payables".
12 BUSINESS COMBINATIONS AND DISPOSALS
The Group completed no material business combinations or
business disposals in the half-year to 27 October 2018, or since
then.
Details of acquisitions and disposals completed in earlier
periods are given in the Group's annual reports for the relevant
periods.
13 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
The Group is exposed to a variety of financial risks: market
risk (including currency risk, interest rate risk and price risk),
credit risk and liquidity risk.
These condensed financial statements do not include all
financial risk management information and disclosures required in
the annual financial statements. They should be read in conjunction
with the Group's consolidated financial statements for the year
ended 28 April 2018. There have been no material changes in any of
the Group's significant financial risk management policies since 28
April 2018.
Liquidity risk
There have been no material changes since 28 April 2018 in the
contractual undiscounted cash outflows for financial
liabilities.
Fair value estimation
Financial instruments that are measured in the balance sheet at
fair value are disclosed by level of the following fair value
measurement hierarchy.
Level 1 Quoted price (unadjusted) in active markets for identical assets or liabilities
Level 2 Inputs other than quoted prices included within Level 1
that are observable for the asset or liability either directly
(that is, as prices) or indirectly (that is, derived from
prices)
Level 3 Inputs for the assets or liabilities that are not based
on observable market data (that is, unobservable inputs)
13 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)
The following table represents the Group's financial assets and
liabilities that are measured at fair value within the hierarchy at
27 October 2018.
Unaudited
-------- ---------- ------
Level 2 Level 3 Total
GBPm GBPm GBPm
--------------------------------- -------- ---------- ------
Assets
Derivatives used for hedging 59.4 - 59.4
Investments - equity securities - 2.7 2.7
Total assets 59.4 2.7 62.1
Liabilities
Derivatives used for hedging (0.5) - (0.5)
--------------------------------- -------- ---------- ------
The following table represents the Group's financial assets and
liabilities that are measured at fair value within the hierarchy at
28 April 2018.
Audited
-------- -------- ------
Level 2 Level 3 Total
GBPm GBPm GBPm
--------------------------------- -------- -------- ------
Assets
Derivatives used for hedging 41.4 - 41.4
Investments - equity securities - 2.7 2.7
Total assets 41.4 2.7 44.1
Liabilities
Derivatives used for hedging (0.5) - (0.5)
--------------------------------- -------- -------- ------
There were no transfers between levels during the half-year
ended 27 October 2018.
The table below provides a comparison of carrying amounts and
fair values of the Group's financial instruments.
Unaudited Audited
------------------------ -----------------------
Carrying Carrying
value Fair Value value Fair value
----------- ----------- ---------- -----------
27 October 27 October 28 April 28 April
2018 2018 2018 2018
GBPm GBPm GBPm GBPm
------------------------------------------------------------------- ----------- ----------- ---------- -----------
Investments 2.7 2.7 2.7 2.7
Loans and receivables
* Non-current assets - Other receivables 0.3 0.3 0.2 0.2
* Current assets - Accrued income 41.7 41.7 45.4 45.4
- Trade receivables, net of
impairment 76.1 76.1 105.2 105.2
- Other receivables 5.0 5.0 12.0 12.0
- Cash and cash equivalents 193.1 193.1 238.2 238.2
Total financial assets 318.9 318.9 403.7 403.7
----------- ---------- -----------
Financial liabilities measured
at amortised cost
* Non-current liabilities - Borrowings (618.1) (638.9) (606.9) (636.6)
* Current liabilities - Trade payables (59.2) (59.2) (129.7) (129.7)
- Accruals (271.4) (271.4) (340.8) (340.3)
- Loans from joint ventures (1.7) (1.7) (1.7) (1.7)
- Loan from non-controlling
interest - - (16.5) -
- Borrowings (37.9) (37.9) (36.9) (36.9)
----------- ----------- ---------- -----------
Total financial liabilities (988.3) (1,009.1) (1,132.5) (1,145.2)
----------- ----------- ---------- -----------
Net financial liabilities (669.4) (690.2) (728.8) (741.5)
----------- ----------- ---------- -----------
13 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)
Derivatives that are designated as effective hedging instruments
are not shown in the above table.
The fair values of financial assets and financial liabilities
shown in the table are determined as follows:
-- The carrying value of GBP2.7m (28 April 2018: GBP2.7m) of an
investment is measured at cost, which based on recent transactions
is considered to be a reasonable approximation of fair value.
-- The carrying value of cash and cash equivalents, accrued
income, trade receivables, and other receivables is considered to
be a reasonable approximation of fair value. Given the short
average time to maturity, no specific assumptions on discount rates
have been made. The effect of credit losses not already reflected
in the carrying value as impairment losses is assumed to be
immaterial. Other receivables include interest-bearing loans of
GBP1.6m (28 April 2018: GBPNil) to other companies.
-- The carrying value of trade payables, accruals and loans from
joint ventures is considered to be a reasonable approximation of
fair value. Given the relatively short average time to maturity, no
specific assumptions on discount rates have been made.
-- During the half-year ended 27 October 2018, any loan amounts
owed by the Group to the non-controlling interest have been
released as described in note 21(vi).
-- The fair value of fixed-rate notes (included in borrowings)
that are quoted on a recognised stock exchange is determined with
reference to the "bid" price at the balance sheet date.
-- The carrying value of fixed-rate notes that are not quoted on
a recognised stock exchange and fixed-rate hire purchase and
finance lease liabilities (included in borrowings) is considered to
be a reasonable approximation of fair value taking account of the
amounts involved in the context of total financial liabilities and
the fixed interest rates relative to market interest rates at the
balance sheet date.
-- The fair value of other borrowings on which interest is
payable at floating rates is not considered to be materially
different from the carrying value.
14 RETIREMENT BENEFITS
(a) Overview
The Group contributes to a number of pension schemes. The
principal defined benefit schemes are as follows:
-- The Stagecoach Group Pension Scheme ("SPS");
-- The South West Trains section of the Railways Pension Scheme
("RPS"), although the Group's participation in that ceased
in August 2017;
-- The Island Line section of the Railways Pension Scheme ("RPS"),
where the Group's participation also ceased in August 2017;
-- The East Midlands Trains section of the Railways Pension Scheme
("RPS");
-- The East Coast Main Line section of the Railways Pension Scheme
("RPS"), although the Group's participation in that ceased
in June 2018; and
-- A number of UK Local Government Pension Schemes ("LGPS");
The Directors believe that separate consideration should be
given to the RPS as the Group has no rights or obligations in
respect of sections of the scheme following expiry of the related
rail franchises. In addition, under the terms of the RPS, any fund
deficit or surplus is shared by the employer (60%) and the
employees (40%) in accordance with the shared cost nature of the
RPS. The employees' share of the deficit (or surplus) is reflected
as an adjustment to the RPS liabilities (or assets). Therefore the
liability (or asset) recognised for the relevant sections of the
RPS reflects that part of the net deficit (or surplus) of each
section that the employer is expected to fund (or expected to
recover) over the life of the franchise to which the section
relates. The "franchise adjustment" is the portion of the deficit
(or surplus) that is expected to exist at the end of the franchise
and which the Group would not be obliged to fund (or entitled to
recover).
In addition, the Group contributes to a number of defined
contribution schemes.
14 RETIREMENT BENEFITS (CONTINUED)
(b) Movements in net pre-tax retirement benefit liabilities
The movements for the half-year ended 27 October 2018 in the net
pre-tax retirement benefit liabilities recognised in the balance
sheet were as follows:
SPS RPS LGPS Other Unfunded plans Total
Unaudited GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------------ ------- ------ ------ ------ --------------- -------
Liability/(asset) at beginning of period 125.6 (4.2) 12.0 4.8 4.0 142.2
Current service cost 2.0 6.3 0.5 0.7 - 9.5
Past service cost (note 5) 24.2 - - - - 24.2
Administration costs 0.4 0.1 - - - 0.5
Net Interest expense 1.5 0.8 0.1 0.1 0.1 2.6
Unwinding of franchise adjustment - (0.8) - - - (0.8)
Employers' contributions (3.2) (4.0) (3.8) (0.5) (0.1) (11.6)
Actuarial (gains)/losses (13.0) 0.2 (0.7) (1.7) - (15.2)
Foreign exchange movements - - - 0.1 - 0.1
Liability/(asset) at end of period 137.5 (1.6) 8.1 3.5 4.0 151.5
------------------------------------------ ------- ------ ------ ------ --------------- -------
The net liability shown above is presented in the consolidated
balance sheet as:
Unaudited Audited
---------------------- --------------------
As at 27 October 2018 As at 28 April 2018
GBPm GBPm
---------------------------------- ---------------------- --------------------
Retirement benefit assets 2.0 4.6
Retirement benefit obligations (153.5) (146.8)
---------------------------------- ---------------------- --------------------
Net retirement benefit liability (151.5) (142.2)
---------------------------------- ---------------------- --------------------
15 ORDINARY SHARE CAPITAL
At 27 October 2018, there were 576,099,960 ordinary shares in
issue (28 April 2018: 576,099,960). This figure includes 2,706,528
(28 April 2018: 2,756,662) ordinary shares held in treasury, which
are treated as a deduction from equity in the Group's financial
statements. The shares held in treasury do not qualify for
dividends.
16 RECONCILIATION OF OPERATING (LOSS)/PROFIT TO CASH GENERATED
BY OPERATIONS
The operating (loss)/profit of Group companies reconciles to
cash generated by operations as follows:
Unaudited Unaudited
------------ ------------
Half-year Half-year
to to
27 October 28 October
2018 2017
GBPm GBPm
--------------------------------------------------- ------------ ------------
Operating (loss)/profit of Group companies (19.0) 101.9
Depreciation 65.5 66.7
Intangible asset amortisation 4.4 5.5
Non-exceptional impairment of property, plant 0.3 -
and equipment
Exceptional items 109.6 -
--------------------------------------------------- ------------ ------------
EBITDA of Group companies before exceptional
items 160.8 174.1
Loss/(gain) on disposal of property, plant
and equipment 0.7 (0.4)
Equity-settled share based payment expense 0.4 0.3
--------------------------------------------------- ------------ ------------
Operating cashflows before working capital
movements 161.9 174.0
Decrease in inventories 3.7 1.3
Decrease in receivables 50.6 96.7
Decrease in payables (150.1) (172.4)
Decrease in provisions (47.8) (45.0)
Differences between employer contributions
and pre-exceptional pension expense in operating
profit (1.6) 6.5
--------------------------------------------------- ------------ ------------
Cash generated by operations 16.7 61.1
--------------------------------------------------- ------------ ------------
17 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
The movement in cash and cash equivalents reconciles to the
movement in net debt as follows:
Unaudited Unaudited
------------- -------------
Half-year to Half-year to
27 October 28 October
2018 2017
Notes GBPm GBPm
--------------------------------------- ------ ------------- -------------
Decrease in cash and cash equivalents (47.2) (97.7)
Cash flow from movement in borrowings 2.2 51.0
--------------------------------------- ------ ------------- -------------
(45.0) (46.7)
New hire purchase and finance leases (9.5) (28.7)
Foreign exchange movements (10.5) 2.3
Other movements (0.4) (0.3)
--------------------------------------- ------ ------------- -------------
Increase in net debt (65.4) (73.4)
Net debt at beginning of period 18 (395.8) (409.4)
--------------------------------------- ------ ------------- -------------
Net debt at end of period 18 (461.2) (482.8)
--------------------------------------- ------ ------------- -------------
During the period, the Group entered into hire purchase and
finance lease arrangements in respect of assets with a total
capital value at inception of the contracts of GBP9.5m (H1 2018:
GBP28.7m). After taking account of deposits paid up-front, new hire
purchase and finance lease liabilities of GBP9.5m (H1 2018:
GBP28.7m) were recognised.
18 ANALYSIS OF NET DEBT
The analysis provided below shows the analysis of net debt as
defined in note 23. The analysis below further shows the other
items classified as net borrowings in the consolidated balance
sheet.
Charged to income
New hire purchase Foreign exchange statement/
Opening Cashflows and finance leases movements other Closing
Unaudited GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- -------- ---------- -------------------- -------------------- -------------------- --------
Cash and cash
equivalents 219.7 (47.1) - 1.9 - 174.5
Cash collateral 18.5 (0.1) - 0.2 - 18.6
Hire purchase and
finance lease
obligations (71.7) 11.2 (9.5) (4.3) - (74.3)
Bank loans and loan
notes (58.4) (9.0) - - - (67.4)
Bonds and notes (503.9) - - (8.3) (0.4) (512.6)
Net debt (395.8) (45.0) (9.5) (10.5) (0.4) (461.2)
Accrued interest on
bonds (9.5) 18.5 - (0.1) (10.5) (1.6)
Effect of fair
value hedges (0.3) - - - 0.2 (0.1)
Net borrowings
(IFRS) (405.6) (26.5) (9.5) (10.6) (10.7) (462.9)
-------------------- -------- ---------- -------------------- -------------------- -------------------- --------
The cash collateral balance as at 27 October 2018 of GBP18.6m
(28 April 2018: GBP18.5m) comprises balances held in respect of
loan notes of GBP18.1m (28 April 2018: GBP18.1m) and North America
restricted cash balances of GBP0.5m (28 April 2018: GBP0.4m). In
addition, cash includes train operating company cash of GBP132.3m
(28 April 2018: GBP171.2m). Under the terms of the franchise
agreements, other than with the UK Department for Transport's
consent, train operating companies can only distribute cash out of
retained earnings and only to the extent they do not breach the
financial covenants specified in applicable contracts.
19 PROVISIONS
The Group's provisions principally relate to insurance
provisions on incurred accidents where claims have not been fully
settled, and onerous contracts where the costs of fulfilling the
contract outweigh the economic benefits to be received.
(a) Insurance
The total provision for uninsured claims of GBP157.0m (28 April
2018: GBP153.8m) has increased during the half-year, reflecting
both our latest assessment of the required provision for claims on
major incidents and foreign exchange movements. The Group engages
with third party actuarial professionals to assist in the
calculation of these provisions.
19 PROVISIONS (CONTINUED)
(b) Onerous contract
The onerous contract provision has reduced from GBP61.2m at 28
April 2018 to GBP18.4m at 27 October 2018. Of that, GBP16.2m (28
April 2018: GBP59.1m) relates to East Coast Main Line Company
Limited, a subsidiary of the Company which traded as Virgin Trains
East Coast and until June 2018, operated InterCity East Coast train
services under a franchise agreement with the UK Department for
Transport.
As set out in the Group's 2018 Annual Report, the Secretary of
State for Transport announced his decision on 16 May 2018 to
transfer responsibility for operating the InterCity East Coast
train services from Virgin Trains East Coast to a public sector
company. The Virgin Trains East Coast rail franchise agreement was
terminated on 24 June 2018 and its business, together with certain
assets and liabilities, were transferred to the public sector
company.
The GBP59.1m onerous contract provision as at 28 April 2018 was
determined based on the amount by which the forecast unavoidable
costs from 29 April 2018 of meeting the obligations under the
contracts (i.e. the Virgin Trains East Coast franchise agreement
and related contracts) exceeded the expected economic benefits to
be received. The Department for Transport notified Virgin Trains
East Coast prior to 28 April 2018 that it was in default of its
franchise agreement. Accordingly, the onerous contract provision of
GBP59.1m as at 28 April 2018 included an amount of GBP21.0m that
the Group expected to pay in respect of the Virgin Trains East
Coast performance bond.
The reduction in the onerous contract provision from GBP59.1m as
at 28 April 2018 to GBP16.2m as at 27 October 2018 reflects the
payment of the amount due in respect of the performance bond and
losses arising in the half-year that have been applied against the
provision. The amount of the provision remaining at 27 October 2018
reflects the amount the Directors expect will be payable to the
Department for Transport taking account of the Group's contractual
obligations.
Some but not all of the assets and liabilities of East Coast
Main Line Company Limited were transferred to the public sector
company. The Group reviewed the carrying values of Virgin Trains
East Coast's other assets and liabilities as at 28 April 2018 and
has updated the review as at 27 October 2018. The amounts of those
assets and liabilities have reduced significantly in the half-year
ended 27 October 2018 as assets have been recovered and liabilities
settled. There has been no significant effect on the Group's
consolidated income statement or consolidated net assets as a
result of updating that review.
Estimating the amount of the onerous contract provision, and the
carrying values of assets and liabilities, involves some judgement.
However, based on its agreements with the Department for Transport
and the new operator, the Group does not currently expect a
material change to arise in respect of that in the second half of
the year ending 27 April 2019.
20 COMMITMENTS AND CONTINGENCIES
(i) Capital commitments
Capital commitments contracted but not provided for at 27 October
2018 were GBP10.3m (28 April 2018: GBP61.2m).
(ii) Rail bonds
At 27 October 2018, the Group has provided performance bonds
backed by bank facilities or insurance arrangements of GBP15.0m
(28 April 2018: GBP15.0m) and season ticket bonds backed by
bank facilities or insurance arrangements of GBP7.3m (28 April
2018: GBP12.3m) to the Department for Transport in relation
to the Group's rail franchise operations and for which liabilities
have not been recognised in the consolidated balance sheet.
Liabilities for deferred season ticket income, which the season
ticket bonds are intended to cover, are reflected in the consolidated
balance sheet. In addition, as explained in note 19(b), provision
was made in the consolidated balance sheet as at 28 April 2018
in respect of the Virgin Trains East Coast performance bond.
(iii) Legal actions
The Group and the Company are from time to time party to legal
actions arising in the ordinary course of business. Liabilities
have been recognised in the financial statements for the best
estimate of the expenditure required to settle obligations
arising under such legal actions. As at 27 October 2018, the
accruals in the consolidated financial statements for such
claims total GBP3.6m (28 April 2018: GBP2.7m).
21 RELATED PARTY TRANSACTIONS
Details of major related party transactions during the half-year
ended 27 October 2018 are provided below, except for those relating
to the remuneration of the Directors and management.
(i) Virgin Rail Group Holdings Limited - Non-Executive Directors
Two of the Group's directors are non-executive directors of
the Group's joint venture, Virgin Rail Group Holdings Limited.
During the half-year ended 27 October 2018, the Group earned
fees of GBP30,000 (half-year ended 28 October 2017: GBP30,000)
from Virgin Rail Group Holdings Limited in this regard. As
at 27 October 2018, the Group had GBP30,000 (28 April 2018:
GBP60,000) receivable from Virgin Rail Group Holdings Limited
in respect of this. In addition, the Group net purchased GBP1.7m
(half-year ended 28 October 2017: GBP0.3m) from the group
headed by Virgin Rail Group Holdings Limited and as at 27
October 2018 had GBP0.9m (28 April 2018: immaterial) payable
in this respect.
21 RELATED PARTY TRANSACTIONS (CONTINUED)
(ii) West Coast Trains Limited
West Coast Trains Limited is a subsidiary of Virgin Rail Group
Holdings Limited (see above). In the half-year ended 27 October
2018, East Midlands Trains Limited (a subsidiary of the Company)
had purchases totalling GBP0.1m (half-year ended 28 October
2017: GBP0.1m) from West Coast Trains Limited. The outstanding
amounts payable as at 27 October 2018 and 28 April 2018 were
immaterial.
During the half-year ended 27 October 2018, Stagecoach South
West Trains Limited (a subsidiary of the Group) sold services
of GBPNil (half-year ended 28 October 2017: GBP0.1m) to West
Coast Trains Limited.
(iii) Alexander Dennis Limited
Sir Brian Souter (Chairman) and Ann Gloag (Non-Executive Director)
collectively hold, via companies that they control, 55.1%
(28 April 2018: 55.1%) of the shares and voting rights in
Alexander Dennis Limited. Noble Grossart Investments Limited
(of which, Sir Ewan Brown (Non-Executive Director) is a director
of its holding company) controls a further 33.2% (28 April
2018: 33.2%) of the shares and voting rights of Alexander
Dennis Limited. None of Sir Brian Souter, Ann Gloag or Sir
Ewan Brown is a director of Alexander Dennis Limited nor do
they have any involvement in the management of Alexander Dennis
Limited. Furthermore, they do not participate in deciding
on and negotiating the terms and conditions of transactions
between the Group and Alexander Dennis Limited.
For the half-year ended 27 October 2018, the Group purchased
GBP32.8m (half-year ended 28 October 2017: GBP26.4m) of vehicles
from Alexander Dennis Limited and GBP4.7m (half-year ended
28 October 2017: GBP6.3m) of spare parts and other services.
As at 27 October 2018, the Group had GBP1.7m (28 April 2018:
GBP0.5m) payable to Alexander Dennis Limited, along with outstanding
orders of GBP4.9m (28 April 2018: GBP28.9m).
(iv) Pension Schemes
Details of contributions made to pension schemes are contained
in note 14.
(v) Scottish Citylink Coaches Limited
A non interest bearing loan of GBP1.7m (28 April 2018: GBP1.7m)
was due to the Group's joint venture, Scottish Citylink Coaches
Limited, as at 27 October 2018. The Group earned GBP10.7m
in the half-year ended 27 October 2018 in respect of the operation
of services subcontracted by Scottish Citylink Coaches Limited
(half-year ended 28 October 2017: GBP9.1m). The Group also
collected revenue of GBP8.5m on behalf of Scottish Citylink
Coaches Limited in the half-year ended 27 October 2018 (half-year
ended 28 October 2017: GBP7.9m). As at 27 October 2018, the
Group had a net GBP0.7m receivable (28 April 2018: GBP0.4m)
from Scottish Citylink Coaches Limited, excluding the loan
referred to above.
(vi) East Coast Main Line Company Limited
The Group owns 90% and Virgin Holdings Limited owns 10% of
the ordinary shares in Inter City Railways Limited. East Coast
Main Line Company Limited is 100% owned by Inter City Railways
Limited and entered into various arm's length transactions
with other Group companies. In the half-year ended 27 October
2018, other Group companies earned GBP2.8m from East Coast
Main Line Company Limited in respect of the provision of certain
services including train maintenance and rail replacement bus
services (half-year ended 28 October 2017: GBP8.6m). Other
Group companies had a net payable balance of GBP0.4m to East
Coast Main Line Company Limited as at 27 October 2018 (28 April
2018: GBP1.5m net receivable).
As previously reported, an inter-company loan was provided
by Stagecoach Group plc to East Coast Main Line Company Limited
but as at 28 April 2018, the loan was not expected to be recovered
by Stagecoach Group plc and provision was made against the
full receivable in the separate financial statements of the
parent company. A loan from Virgin Holdings Limited to Stagecoach
Group plc, and the related accrued interest, was only repayable
by Stagecoach Group plc to the extent of 10% of any amounts
recovered by Stagecoach Group plc of its loan to East Coast
Main Line Company Limited. During the half year ended 27 October
2018, Stagecoach Group plc settled its loan amount due to Virgin
Holdings Limited through the assignment of 10% of its receivable
due from East Coast Main Line Company Limited. As East Coast
Main Line Company Limited was unable to settle any of the loans,
all amounts were treated as irrecoverable and released on cessation
of the Virgin Trains East Coast franchise. Furthermore, Stagecoach
Group plc paid GBP21m to the Department of Transport in respect
of the Virgin Trains East Coast performance bond, of which
GBP2.1m was funded by a payment to Stagecoach Group plc from
Virgin Holdings Limited in respect of its 10% share. The GBP19.1m
effect of the payment from Virgin Holdings Limited in respect
of the bond and the release of its loan to East Coast Main
Line Company Limited is shown in the Consolidated Statement
of Changes in Equity as shareholder transactions with non-controlling
interest. Stagecoach Group plc had an outstanding receivable
of GBPNil as at 27 October 2018 in respect of its loan to East
Coast Main Line Company Limited (28 April 2018: GBP165.0m).
The interest receivable on the loan for the half-year ended
27 October 2018 was GBPNil (half-year ended 28 October 2017:
GBP1.0m) and the accrued interest outstanding at 27 October
2018 was GBPNil (28 April 2018: GBP4.9m). Related to that,
the Group had an outstanding payable for GBPNil as at 27 October
2018 in respect of the loan from Virgin Holdings Limited (28
April 2018: GBP16.5m) and the accrued interest outstanding
at 27 October 2018 was GBPNil (28 April 2018: GBP0.5m).
22 POST BALANCE SHEET EVENTS
Details of the interim dividend declared are given in note
6.
23 DEFINITIONS
(a) Alternative performance measures
The Group uses a number of alternative performance measures in
this document to help explain the financial performance and
financial position of the Group. More information on the definition
of these alternative performance measures and how they are
calculated is provided below. All of the alternative performance
measures explained below have been calculated consistently for the
half-year ended 27 October 2018 and for comparative amounts shown
in this document for prior periods.
Adjusted earnings per share
Adjusted earnings per share is calculated by dividing profit
attributable to equity holders of the parent, excluding
non-software intangible asset amortisation and exceptional items,
by the basic weighted average number of shares in issue in the
period.
For the half-year ended 27 October 2018 and the comparative
prior year period, the numerators for the calculations (i.e. the
adjusted profit) are shown clearly on the face of the consolidated
income statement in the columns headed "performance pre intangibles
(exc software) and exceptional items". The denominators for the
calculations (i.e. the weighted average number of shares in issue)
and further details of the calculations are shown in note 7 to the
condensed financial statements.
Like-for-like amounts
Like-for-like amounts are derived, on a constant currency basis,
by comparing the relevant year-to-date amount with the equivalent
prior year period for those businesses and individual operating
units that have been part of the Group throughout both periods.
Like-for-like revenue growth for the half-year ended 27 October
2018 is calculated by comparing the revenue for the current and
comparative periods, each adjusted as described above. The revenue
of each segment is shown in note 4(a) to the condensed financial
statements. The reconciliation to the adjusted revenue figures for
the purposes of calculating like-for-like revenue growth is shown
below:
Unaudited
-------------------------------------------------------------------
Half-year to 27 October 2018
Exclude effect Exclude Exclude effect
Reported of business expired rail of foreign Like-for-like
revenue closed franchises exchange revenue
UK Bus (regional
operations) GBPm 527.1 (1.0) - - 526.1
UK Bus (London) GBPm 128.6 - - - 128.6
North America US$m 323.3 - - 0.6 323.9
UK Rail GBPm 335.1 - (133.0) - 202.1
----------------------- ------ ---------------- --------------- --------------- --------------- ----------------
Unaudited
------------------------------------------------------------------
Half-year to 28 October 2017
Reported revenue Exclude effect of Exclude expired rail Like-for-like
(restated) business closed franchises revenue
UK Bus (regional
operations) GBPm 512.4 (3.8) - 508.6
UK Bus (London) GBPm 128.4 - - 128.4
North America US$m 333.9 - - 333.9
UK Rail GBPm 899.2 - (697.9) 201.3
----------------------- ------ ----------------- -------------------- --------------------- ---------------------
Operating profit
Operating profit for the Group as a whole is profit before
non-operating exceptional items, finance costs, finance income,
taxation and non-controlling interests. Operating profit of Group
companies is operating profit on that basis, excluding the Group's
share of joint ventures' profit/loss after taxation. Both total
operating profit and operating profit from Group companies are
shown on the face of the consolidated income statement.
Operating profit (or loss) for a particular business unit or
division within the Group refers to profit (or loss) before net
finance income/charges, taxation, non-controlling interests,
non-software intangible asset amortisation, exceptional items and
restructuring costs. The operating profit (or loss) for each
segment is directly identifiable from the financial statements -
see note 4(b) to the condensed financial statements.
23 DEFINITIONS (CONTINUED)
Operating margin
Operating margin for a particular business unit or division
within the Group means operating profit (or loss) as a percentage
of revenue. The revenue and operating profit (or loss) for each
segment is directly identifiable from the financial statements -
see notes 4(a) and 4(b) to the condensed financial statements. The
revenue, operating profit (or loss) and operating margin for each
segment are also shown on page 5 of this document.
Pre-exceptional EBITDA
Pre-exceptional EBITDA is earnings before interest, taxation,
depreciation, intangible asset amortisation and exceptional
items.
A reconciliation of pre-exceptional EBITDA for the half-year
ended 27 October 2018, and the comparative prior year period, to
the financial statements is shown on page 10 of this document.
EBITDA from Group companies before exceptional items
EBITDA from Group companies before exceptional items is earnings
before interest, taxation, depreciation, intangible asset
amortisation and exceptional items from Group companies (i.e. the
parent company and all of its subsidiaries consolidated but
excluding share of profit from joint ventures).
EBITDA from Group companies before exceptional items is directly
identifiable from the financial statements - see note 16 to the
condensed financial statements.
Net finance charges
Net finance charges are finance costs less finance income, each
as shown on the face of the consolidated income statement.
Gross debt
Gross debt is borrowings as reported on the consolidated balance
sheet, adjusted to exclude accrued interest and the effect of fair
value hedges on the carrying value of borrowings.
The components of gross debt are shown in note 18 to the
condensed financial statements, which also reconciles net debt to
the net borrowings (cash less borrowings) shown on the face of the
consolidated balance sheet.
Net debt
Net debt (or net funds) is the net of cash/cash equivalents and
gross debt (see above).
The components of net debt are shown in note 18 to the condensed
financial statements, which also reconciles net debt to the net
borrowings (cash less borrowings) shown on the face of the
consolidated balance sheet.
Net capital expenditure
Net capital expenditure is the impact of purchases and sales of
property, plant and equipment on net debt. Its reconciliation to
the consolidated financial statements is explained on page 12 of
this document.
(b) Other definition
The following other definition is also used in this
document:
Exceptional items
Exceptional items means items which individually or, if of a
similar type, in aggregate need to be separately disclosed by
virtue of their nature, size or incidence in order to allow a
proper understanding of the underlying financial performance of the
Group.
Independent review report to Stagecoach Group plc
Introduction
We have been engaged by the Company to review the condensed
consolidated interim financial statements in the half-yearly
financial report for the half-year ended 27 October 2018 which
comprises:
-- The Consolidated Income Statement for the half-year ended 27 October 2018;
-- The Consolidated Statement of Comprehensive Income for the half-year ended 27 October 2018;
-- The Consolidated Balance Sheet as at 27 October 2018;
-- The Consolidated Statement of Changes in Equity for the half-year ended 27 October 2018;
-- The Consolidated Statement of Cash Flows for the half-year ended 27 October 2018;
-- The related explanatory notes.
We have read the other information contained in the half-yearly
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed consolidated interim financial statements.
This report is made solely to the Company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
Company, for our work, for this report, or for the conclusions we
have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union. The
condensed consolidated interim financial statements included in
this half-yearly financial report have been prepared in accordance
with International Accounting Standard 34, "Interim Financial
Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed consolidated interim financial statements in the
half-yearly financial report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed consolidated interim
financial statements in the half-yearly financial report for the
half-year ended 27 October 2018 is not prepared, in all material
respects, in accordance with International Accounting Standard 34
as adopted by the European Union and the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
Ernst & Young LLP
Glasgow
5 December 2018
Notes:
(a) The maintenance and integrity of the Stagecoach Group plc
website is the responsibility of the Directors; the work carried
out by the auditors does not involve consideration of these matters
and, accordingly, the auditors accept no responsibility for any
changes that may have occurred to the interim financial statements
since they were initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR UGGACPUPRUQA
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