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Interim Results For the six months ended 31 October 2008 3 December 2008

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Title: Interim Results For the six months ended 31 October 2008 3 December 2008


1
Interim ResultsFor the six months ended 31
October 20083 December 2008

2
Definitions
  • 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.
  • Operating profit for a particular business unit
    or division within the Group refers to profit
    before net finance income/charges, taxation,
    intangible asset expenses, exceptional items and
    restructuring costs.
  • Operating margin for a particular business unit
    or division within the Group means operating
    profit as a percentage of revenue.
  • Exceptional items means items which individually
    or, if of a similar type, in aggregate need to be
    disclosed by virtue of their nature, size or
    incidence in order to allow a proper
    understanding of the underlying financial
    performance of the Group.
  • Net debt (or net funds) is the net of cash and
    borrowings as reported on the consolidated
    balance sheet, adjusted to exclude any accrued
    interest and deferred gains on derivatives.

3
Robert SpeirsChairman
4
Highlights
  • Good underlying revenue growth in all core
    divisions
  • Interim dividend of 1.8p, up 33.3
  • Adjusted earnings per ordinary share up 28.7
  • Challenging short-term outlook in UK Rail
    decisive management action in anticipation of this

5
Martin GriffithsFinance Director
6
Financial summary
31 Oct 08
31 Oct 07
Change
Revenue - continuing operations Operating profit
- continuing operations Adjusted earnings per
ordinary share Basic earnings per ordinary
share Net debt Dividend per ordinary share
1,045.0m 119.8m 12.1p 9.7p (370.2)m 1.8p
820.8m 100.0m 9.4p 9.0p (494.7)m 1.35p
27.3 19.8 28.7 7.8 25.2 33.3
Excluding exceptional items and intangible
asset expenses
7
Summary income statement
31 Oct 08 m
31 Oct 07 m
Change m
UK Bus operating profit North America operating
profit excl megabus megabus North America
operating loss UK Rail operating profit Share of
joint ventures profit after tax Restructuring
and group overheads Finance charges
(net) Tax Profit excluding intangibles and
exceptionals Intangibles and exceptionals, net of
tax Reported profit from continuing operations
60.9 20.2 (0.4) 31.7 15.6 (8.2) (14.6) (18
.9) 86.3 (16.9) 69.4
52.5 18.0 (1.1) 25.3 13.2 (7.9) (15.4) (15
.7) 68.9 (3.1) 65.8
8.4 2.2 0.7 6.4 2.4 (0.3) 0.8 (3.2) 17.4
(13.8) 3.6
8
UK Bus
31 Oct 08
31 Oct 07
Change
Revenue (m) Like-for-like revenue (m) Operating
profit (m) Operating margin Estimated
like-for-like passenger journeys
(m) Like-for-like vehicle miles operated (m)
410.4 395.0 60.9 14.8 325.2 157.4
367.1 361.6 52.5 14.3 312.4 154.4
11.8 9.2 16.0 0.5 4.1 2.0
  • Revenue and journeys benefiting from marketing
    campaigns, investment in fleet, excellent value
    fares and concessionary fare schemes
  • Acquisitions of small, complementary businesses
  • Continued underlying revenue and volume growth

9
North America (excluding megabus)
31 Oct 08
31 Oct 07
Change
Revenue (USm) Like-for-like revenue
(USm) Operating profit (USm) Operating margin
267.7 267.9 38.0 14.2
258.9 257.0 36.2 14.0
3.4 4.2 5.0 0.2
  • Further margin improvement
  • Further expansion of megabus.com

10
UK Rail (wholly-owned)
31 Oct 08
31 Oct 07
Change
Revenue (m) Like-for-like revenue (m) Operating
profit (m) Operating margin South Western
Trains estimated passenger miles (millions)
486.4 345.0 31.7 6.5 1,675.6
322.7 318.8 25.3 7.8 1,619.0
50.7 8.2 25.3 (1.3) 3.5
  • Continued like-for-like revenue growth and good
    profitability
  • Risk and opportunities
  • Challenging economic environment
  • New timetable at East Midlands Trains
  • Two new stations at East Midlands Trains
  • Automatic ticket gates at London Waterloo and
    four major East Midlands Trains stations
  • East Midlands revenue up 14.1 compared to
    equivalent predecessor businesses in prior year

11
Virgin Rail Group
31 Oct 08
31 Oct 07
Change
  • Revenue - 49 share (m)
  • West Coast
  • West Coast like-for-like
  • Operating profit - 49 share (m)
  • Operating margin
  • Dividends received (m)
  • Estimated Passenger miles (millions) - West Coast

159.3 159.2 149.1 19.4 12.2 19.4 1,378.0
225.8 149.1 149.1 16.3 7.2 11.0 1,284.7

(29.5) 6.8 0.0 19.0 5.0 76.4 7.3
  • 2007 includes CrossCountry franchise that ended
    November 2007
  • Plans to increase number of services by
    approximately one-third starting December 2008
  • Recent performance and revenue adversely affected
    by infrastructure work, however overall
    profitability not adversely affected

12
Miscellaneous income statement items
31 Oct 08
31 Oct 07
Change
Citylink joint venture (m) Splash Tours joint
venture (m) Intangible asset expenses (m) Group
overheads (m) Restructuring costs (m) Post-tax
exceptional items (m)
0.7 (0.2) (6.5) (7.2) (1.0) (11.5)
0.6 (0.3) (6.2) (6.2) (1.7) 2.0
16.7 33.3 (4.8) (16.1) 41.2 (675.0)
  • Increased group overheads includes higher share
    based payment expenses
  • Exceptional items include
  • 13.5m exceptional tax charge in relation to the
    abolition of UK Industrial Buildings Allowances
  • a gain of 2.2m in relation to resolution of
    acquisition disposal liabilities

13
Finance charges and credit ratios
31 Oct 08
31 Oct 07
Change
  • Net Group finance charges (m)
  • Net finance charges, including net finance income
    from joint ventures (m)
  • EBITDA from continuing operations and joint
    ventures (m)
  • last six months
  • last twelve months
  • Period-end net debt (m)
  • Net Debt/EBITDA (12 months)
  • EBITDA/Net finance charges (including net
    finance income from joint ventures)

(14.6) (13.0) 156.2 302.7 370.2 1.2x
12.0x
(15.4) (13.6) 135.1 250.5 494.7 2.0x 9
.9x
5.2 4.4 15.6 20.8 25.2 (0.8)x 2.
1x
excluding exceptional items
14
Liquidity interest rate risk
  • Excellent liquidity
  • c.500m of undrawn committed bank facilities
  • Sufficient bank facilities to refinance US bond
    in November 2009
  • Key refinancing required by 2012
  • Other undrawn available credit lines e.g. asset
    finance
  • Operating well within bank covenants
  • Cash generative
  • Upward pressure on debt pricing
  • Significantly higher margins for new UK asset
    finance
  • Likely step up in bank margins for refinancing

15
Taxation
31 Oct 2008
Pre-tax Profit m
Tax m
Rate
  • Excluding intangible asset expenses and
    exceptional items
  • - Before joint ventures
  • - Joint ventures
  • Intangible asset expenses
  • Exceptional items
  • Reclassify joint venture taxation for reporting
    purposes
  • Reported in income statement
  • Cash tax paid (net)

89.6 21.6 (6.5) 104.7 2.0 106.7 (6.0) 10
0.7
(18.9) (6.0) 1.1 (23.8) (13.5) (37.3)
6.0 (31.3) 0.7
21.1 27.8 16.9 22.7 35.0 31.1
16
Movement in net debt
31 Oct 08 m
EBITDA from Group companies before exceptionals
Loss on disposal of plant and equipment Equity-se
ttled share based payment Dividends from joint
ventures Movement in retirement benefit
obligations Working capital movements Net
interest paid Tax paid Net cash from operating
activities Net capital expenditure including new
hire purchase and finance leases Acquisitions of
businesses, intangibles and investments Disposals
of businesses and investments Movement in loans
to joint ventures Token sales and
redemptions Foreign exchange/other Increase in
net debt before cash flows with
shareholders Equity dividends Share capital
movements Increase in net debt Opening net
debt Closing net debt
136.2 0.6 1.2 19.4 (15.5) (19.6) (14.5) (0.
7) 107.1 (79.1) (9.6) 0.3 (0.1) (1.8) (38.7
) (21.9) (28.9) 0.3 (50.5) (319.7) (370.2)
17
Capital expenditure
New hire purchase and finance leases m
Impact of capex on net debt m
Disposal proceeds m
Net m
Cash spent on capex m
28.2 7.7 Nil 35.9
54.2 13.1 15.9 83.2
(3.5) (0.5) (0.1) (4.1)
50.7 12.6 15.8 79.1
26.0 5.4 15.9 47.3
  • UK Bus
  • North America
  • UK Rail
  • Significant capital expenditure planned for
    second half of year to 30 April 2009

Excludes capitalised intangible assets of
3.1m (2007 1.1m) and assets acquired through
business combinations Excludes proceeds from
selling businesses
18
Fuel Hedging
UK Bus
North America
UK Rail
2007/8 - average effective price (per
litre) 2008/9 - of forecast consumption
hedged - average hedge price (per
litre) 2009/10 - of forecast consumption
hedged - average hedge price (per
litre) 2010/11 - of forecast consumption
hedged - average hedge price (per litre) Market
price (per litre)
26.5p 91.6 33.6p 78.3 49.2p 6.0
41.9p 31.6p
56.3 cents 75.7 61.5 cents 63.3 90.8
cents 4.7 67.9 cents 45.9 cents
30.7p 76.1 31.6p 74.7 31.6p 74.7 31.6
p 30.7p
Market prices are as at 26 November 2008 Prices
exclude premia payable on fuel caps, delivery
margins, duty, taxes and Bus Services Operators
Grant
19
Fuel costsLatest forecasts
Fuel costs
Volumes
2008/09 Forecast m
2009/10 Forecast m
2010/11 Forecast m
2007/08 Actual m
2008/9 Forecast Litres m
(167.1) 73.7 (93.4) (33.6) (6.7) (133.7)
(4.5) (20.6) (158.8)
(183.6) 73.8 (109.8) (43.4) (5.4) (158.6)
(5.8) (22.0) (186.4)
(158.5) 73.8 (84.7) (30.1) (5.4) (120.2)
(5.1) (22.0) (147.3)
  • UK Bus, excluding BSOG
  • UK Bus, BSOG
  • UK Bus, including BSOG
  • North America
  • South Western Trains
  • 2008/9 UK Bus Acquisitions (Bullocks, Highland)
  • East Midlands Trains
  • Total

(150.1) 68.5 (81.6) (25.1) (5.3) (112.0)
- (10.9) (122.9)
189.8 - 189.8 74.8 12.0 276.6 5.5 50.5
332.6
Market prices are as at 26 November 2008, when
Brent Crude was US50 per barrel Forecast costs
for the unhedged element of fuel are based on 26
November 2008 spot prices Above costs include
delivery margins, duty and taxes (duty forecast
at current levels) Bus Services Operators Grant
(BSOG) represents a rebate of an element of
fuel duty costs in respect of certain UK Bus
Services
20
Brian SouterChief Executive
21
Overview
  • Good growth in bus and rail services
  • Consumer demand for good value products and
    services
  • Planning for challenging economic conditions in
    2009/10
  • Decisive management action now in UK Rail

22
UK Bus
  • Excellent performance like-for-like revenue up
    9.2
  • Further increase in like-for-like passenger
    volumes 4.1
  • Consumer demand for good value transport options
  • Successful discount ticketing strategy
  • Resilient and flexible business model


23
UK Rail
  • Growing commuter and inter-city
  • Strong operational performance and delivery on
    franchise commitments
  • Planning for significant drop in Central London
    Employment
  • Decisive management action plan to minimise risk
    and maximise opportunities
  • Cost reduction programme
  • Revenue generation new timetables, new stations,
    gating, off-peak travel

24
UK Rail/Virgin Rail GroupManagement action plan
  • Critical review of cost base
  • Emphasis on sustainable savings at South Western
    Trains West Coast Trains
  • Headcount reductions
  • Reduction in management and staff headcount and
    overhead costs
  • Significant improvement in staff productivity and
    ongoing investment in technology driven savings
  • Focus on maximising revenue generation from new
    initiatives e.g. gates

25
London Employment and Peak Arrivals Rail Trends
1988-1997Passenger Volumes
Sources Central London employment Greater
London Authority South West peak arrivals
South Western Trains National Rail peak arrivals
National Rail Trends
26
North America
  • Solid growth across diverse portfolio
  • Commuter services benefiting from modal shift
  • Successful contract renewal season
  • Weaker leisure demand in United States
  • megabus.com ahead of expectations
  • Increased product investment
  • Expansion to new locations
  • Attractive recession product

27
Current trading and outlook
  • Current trading in line with management
    expectations
  • Further growth expected in UK Bus and American
    businesses
  • Challenging environment for UK Rail 2009/10
  • BUT management action plan to address cost base
    and maximise revenue opportunities
  • Robust and diverse portfolio of businesses with
    strong cash generation

28
Interim ResultsFor the six months ended 31
October 20083 December 2008

29
Appendices
30
UK Bus Revenue
Change
31 Oct 2008 m
31 Oct 2007 m
Like-for-like Acquisitions Highland excluding
Inverness (acquired 16 May 2008) Fens (acquired
28 March 2008) Rennies (acquired 14 March
2008) Bullocks (acquired 10 August
2008) Stagecoach in Inverness Disposals Darlin
gton (disposed August 2007) Huddersfield
(disposed April 2008) Start-ups Rail
replacement (started May 2008) Total reported
9.2
11.8
395.0 3.6 2.6 1.3 0.3 5.3
Nil Nil 2.3 410.4
361.6 Nil Nil Nil
Nil 3.0 0.9 1.6
Nil 367.1
Existing Inverness operations integrated with
and now not distinguishable from Highland so
Inverness excluded from like-for-like comparison
31
North America
Operating Profit
Revenue
31 Oct 2008 USm
31 Oct 2007 USm
31 Oct 2008 USm
31 Oct 2007 USm
  • Excluding megabus
  • megabus
  • Midwest
  • California
  • North East

38.0 1.8 Nil (2.6) 37.2
36.2 (0.5) (1.7) Nil 34.0
267.7 9.4 0.4 5.6 283.1
258.9 4.4 0.4 Nil 263.7
32
North America revenue breakdown
31 Oct 08 USm
31 Oct 07 USm
Growth
103.7 60.8 57.9 45.5 267.9 (0.2) 267.7 15.
4 283.1
100.3 60.8 54.9 41.0 257.0 1.9 258.9 4.8
263.7
3.4 Nil 5.5 11.0 4.2
n/a 3.4 220.8 7.4
Scheduled service/line run/commuter Sightseeing
tour Charter School bus contract Like-for-like
revenue excl megabus Closed operations and
foreign exchange movements Total North America
excl megabus megabus Total North America
33
Divisional income statements Six months ended 31
October 2008
UK Rail m
UK Bus m
North America m
VRG (100) m
486.4 70.3 31.7 (133.2) (15.1) (2.6) (0.8)
(86.2) (3.6) (207.6) (14.4) (15.0) (78.2)
31.7
410.4 Nil 6.4 (206.4) (53.7) (13
.9) (22.5) Nil (4.3)
Nil Nil (17.3) (37.8) 60.9
150.5 Nil 1.9 (60.6) (18.6) (9.
0) (8.7) Nil (2.2)
Nil Nil (11.1) (22.4) 19.8
325.0 152.4 61.7 (69.8) (1.5) (1.9) (0.2)
(106.0) Nil (242.7) (10.0)
Nil (67.4) 39.6
Revenue Rail franchise support Other operating
income Staff costs Fuel costs (i.e.
diesel) Insurance and claims costs Depreciation Ro
lling stock costs lease maintenance Other
operating leases Network Rail Electricity for
trains Material consumables Other
costs Operating profit
34
Rail subsidy/(premium) profiles
South Western m
East Midlands m
West Coast m
Year to 31 March
2009 2010 2011 2012 2013 2014 2015 2016 2017
20.9 (42.4) (89.6) (149.7) (224.8) (294.6)
(358.1) (425.1) (419.0)
117.4 89.2 54.7 12.8 (18.6) (38.3) (93.3)
n/a n/a
291.6 264.4 226.0 195.0 n/a
n/a n/a n/a n/a
The above amounts are subject to adjustment for
(1) various inflation measures (2) risks borne by
the Department for Transport (3) called options
and (4) changes in Regulated Network Rail
charges. The amounts shown above are based on
estimated inflation and options called to date.
35
Exchange rates
October 2007
October 2008
Closing rate
Average rate
Closing rate
Average rate
US C
2.0774 1.9731
2.0133 2.1034
1.6158 1.9645
1.8811 1.9767
36
Interim ResultsFor the six months ended 31
October 20083 December 2008
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