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10 December2003
Stagecoach Group plc - Interimresults for the six months ended 31 October 2003
Highlights
Strong half-year with UK Bus, Rail,Coach USA and New Zealand
operatingprofits all up on the same period last year
Substantial growth in London busbusiness with revenue up 19.8%
Passenger numbers at UK Bus up 1.3%outside London
Innovative growth ideas introduced in UKbus operations
New South West Trains and Island Linefranchises agreed
South West Trains passenger volumes up 3.1%
Coach USA restructuring largelycompleted
Continued revenue and passenger growthin New Zealand
Disposal of Citybus
Financial Highlights
Turnover 963.8m (2002 - 1,067.7m)
Total operating profit* 76.9m (2002 -86.9m)
- 75.9m (2002 - 74.3m), excluding disposedCitybus business
Profit before tax 44.8m (2002 loss of524.1m)
Profit before tax* 60.3m (2002 -75.2m**)
Earnings per share* 3.2p, down from 4.4p
Free cash flow 100.3m (2002 - 100.2m)
Net debt down 62.3% from 560.0m to210.9m
Interim dividend up 12.5% to 0.9p (2002- 0.8p)
* excluding goodwill amortisation andexceptional items
** prior year included 15.0m of non-recurring gains on repurchase ofbonds and 7.2m non-recurring liquidated damages at South West Trains
Commenting on the results, Stagecoach Chief Executive, BrianSouter said: These are a strongset of results and reflect the further significant progress we have made acrossthe Group in the past six months in delivering on our strategy.
Our growth prospectsare good and our innovative approach to attracting passengers to publictransport is beginning to deliver good results.
The restructuring ofour Coach USA operations is nearing completion and we are very focused ondelivering value from the strong businesses we have retained in the North Eastand North Central regions of the United States, and in Canada
We now have a strongportfolio of cash-generative businesses and good potential for further growth.
Enquiries to:Martin Griffiths, Stagecoach Group - 01738 442111
StevenStewart, Stagecoach Group - 01738 442111 or 07764 774680
John Kiely,Smithfield Financial - 020 7360 4900
Noteto Editors:
Highresolution photographs are available to the media free of charge at www.newscast.co.uk (telephone +44 (0) 207608 1000).
Chairmans statement
Stagecoach Group hasenjoyed a strong trading performance in the first six months of the year. Operating profit at each of UK Bus, Rail,Coach USA and New Zealand is up on the same period last year and we areencouraged by the particularly strong growth in our UK bus and rail businesses.Across the Group, we have a strong portfolio of profitable and cash generativebusinesses.
We have continued toreduce our net debt from a combination of cash flows generated by ouroperations and business disposals. Thiswill bring long-term benefits to the business. Net debt reduced by 62.3% in the six months ended 31 October2003, down from 560.0m to 210.9m.
Total turnover forthe six months was 963.8m (2002 - 1,067.7m).Total operating profit (before goodwill amortisation and exceptionalitems) was 76.9m (2002 -86.9m). The fall in operating profitslargely reflects the disposal of Citybus.Excluding Citybus, operating profit on an equivalent basis was up from74.3m to 75.9m.
The Directors havedeclared an interim dividend of 0.9p pershare (2002 0.8p) and this reflects the Boards confidence in the prospectsfor the Group. The interim dividend ispayable to shareholders on the register at 13 February 2004 and will be paid on 10 March 2004. Based on continued strong and stable cash flows and profitswithin the business, we will look to progressively grow the dividend.
Stagecoach is leadingthe way in the UK bus industry with new ideas and new products. We have launched two UK firsts in the pastsix months Megabus.com, the countrys first Internet-only inter-city busservice, and Yellow Taxibus, an innovative demand responsive service thatcombines the benefits of a fixed bus route with the flexibility of a taxi. Our UK Bus operations have achieved strongrevenue growth, and will be boosted by investment in new buses during thisfinancial year.
Stagecoach NewZealand has also delivered further passenger and revenue growth over the pastsix months, continuing a consistent trend over more than a decade.
Revenues andpassenger volumes have grown strongly in our UK Rail operations, and wecontinue to seek to improve our service to customers. South West Trains has achieved a significant reduction in delayminutes under its control, and the first of our new Desiro trains, part of a1billion investment in new rolling stock, has now entered service.
At Virgin Rail Group,management is continuing to progress negotiations with the Strategic RailAuthority (SRA) regarding the longer-term commercial arrangements for theCrossCountry and West Coast franchises.
This time last year,we had just completed a business review of our North American operations. One year on, we are now in the final phaseof our Coach USA restructuring programme.We have made a number of targeted disposals in recent months and havedemonstrated an ability to deliver our strategy as planned. I believe that our businesses in the NorthEast, North Central, and Canada provide a strong platform for future growth.
We have made anencouraging start to the second half of the year and I am pleased to reportthat the current trading of the Group remains in line with the expectations setout in the Company Statement of 21 October 2003. I believe that the Groups portfolio of businesses offers goodprospects for further growth and increased shareholder value.
Robert Speirs
Chairman 10December 2003
Chief Executives operating review
Overview
We have madesignificant progress across the Group in the past six months and are wellpositioned to deliver enhanced value from our core businesses.
Our growth prospectsare good and our innovative approach to attracting passengers to publictransport is beginning to deliver good results.
Our restructuring atCoach USA is nearing completion and we are focusing on delivering value fromthe strong businesses we have retained in the North East and North Centralregions of the United States, and in Canada.
UK Bus
Turnover from our UKBus operations was up 8.2% to 317.9m, compared to 293.8m in the prioryear. Operating profits* were 34.3m(2002 31.1m). Operating margins were10.8%, compared to 10.6% in2002. The reported profits include theeffects of an increasing use of operating leases to fund new vehicles. Excluding the impact of this change infinancing, operating margins increased from 10.7% to 11.3%. This is a very encouraging performance andthe reported profits have been achieved after taking account of increasedNational Insurance and pension costs.
UK Bus has also seenpassenger growth in the first half of the year. Growth is continuing in our strong provincial bus networks acrossthe UK and passenger volumes outside London have increased by approximately1.3%. We are greatly encouraged by thisvolume growth which has been achieved even after taking account of nine days ofindustrial action in our Devon operations.
We have achievedfurther success in London, where we operate buses on behalf of Transport forLondon. We have introduced new vehiclesand revenue is up 19.8% compared to the same period last year. This growth is partly a result of theintroduction of congestion charging in February 2003.
We are leading theway with a range of new products that we believe have significant potential toattract new users to public transport.
Megabus.com, the UKsfirst Internet-only bus operation, has only been in operation for four months,and we are encouraged by the growth we have seen on existing routes. We have adapted the revenue yield managementtechniques of other industries to buses and we are now considering extendingthe product to other locations.
We are also using theInternet with success to target the significant student market in key locationsaround the country, including Aberdeen, Glasgow, Manchester and Newcastle. A new improved e-commerce site has beendeveloped to encourage students to take up our Unirider term and year tickets,which promote increased customer loyalty.
Our phone and goYellow Taxibus operation in Fife, Scotland, which was launched in the summer,is the first commercially run service of its kind in the country. It is an innovative idea that combines thebenefits of a fixed bus route with the flexibility of a taxi, allowingpre-booked pick-ups. We believe itoffers a new public transport alternative for commuters who travel on theheavily congested route from Fife into Edinburgh.
Both the Departmentfor Transport and the Scottish Executive are taking forward our Kick Start proposal for targeted fundingto support the introduction of new services and reinvigorate the UK Busnetwork. We are also planningadditional schemes of our own following the success of a pilot project in Perth,Scotland, over the past three years.
We are seeking toimprove the environmental and operational performance of our bus fleet. Stagecoach has signed an agreement withCerulean International Ltd, the Oxford-based subsidiary of the nanomaterialscompany Oxonica Ltd, to trial a fueladditive product in up to 1,000 buses across the country. Initial trials of the product in Hong Kongdelivered a significant cut in engine carbon deposits and lower vehicleemissions and a 10% fuel consumption reduction. We believe this new product has huge potential for the whole UKbus industry and, if the commercial evaluation is successful, we plan to adoptthe technology across our 7,000-vehicle UK Bus fleet.
Rail
We operate two whollyowned UK heavy rail franchises South West Trains and Island Line - andSheffield Supertram.
Turnover from our UKRail subsidiaries for the six months to 31 October 2003 was 216.7m (2002 - 206.0m). Overall passenger volumes at South WestTrains increased by 3.1% over the equivalent six-month period last year. Operating profit was 21.5m (2002 - 18.9m), with an operatingmargin of 9.9% (2002 9.2%). Theprior year figure of 18.9m included non-recurring liquidated damages of7.2m.
The first of our newstate-of-the-art Desiro Class 450 trains, manufactured by Siemens, went intoservice in October, providing passengers with an improved travellingenvironment. Proposals have been agreedwith the SRA for extensive refurbishment of our inner suburban train fleet toprovide better passenger comfort and improved reliability.
Our investment inTravelSafe officers has made a significant impact on customer confidence with a10% reduction in crime. Theground-breaking security and anti-crime initiative was one of several South WestTrains successes at the National Rail Awards.In May, we introduced a new station at Chandlers Ford in Hampshire, thefirst station to be opened on the South West Trains network since privatisationand the fruit of an innovative partnership with Hampshire County Council, theSRA and Network Rail.
At South West Trains,we have concentrated closely on driving up operational performance and during2003 the business has delivered significant improvement in delay minutes underits control. A major project is wellunderway to bring together South West Trains and Network Rail in one integratedcontrol centre. The initiative aims toimprove performance and the ability to recover more quickly from operationalincidents.
Stagecoachhas taken a lead role as the representative for the rail industry in helpingNetwork Rail improve train service delivery.Graham Eccles, our Executive Director - Rail, has been appointed as apart-time advisor to Network Rail and will help the infrastructure operatordevelop its operational structure and procedures following its decision to takeall maintenance in-house. Thisappointment is recognition of Grahams vast experience in the industry and theneed for close working between Network Rail and train operators to improve punctuality.
South West Trains isoperating under a one-year extension to the existing franchise and the newthree-year franchise will come into effect on 1 February 2004. A similar three-year franchise to run toFebruary 2007 has been finalised for Island Line, which brings stability to thelocal transport service for the eastern side of the Isle of Wight.
Wecontinue to evaluate targeted opportunities in the rail market and we haveexpressed interest in the new Integrated Kent Franchise. The franchise is expected to include routeson the national rail network throughout Kent, parts of Sussex and South EastLondon, as well as domestic services on the Channel Tunnel Rail Link. The SRA has indicated that an operator isexpected to run the franchise from early 2005 and we believe it would be anexcellent fit with our successful South West Trains high-volume commuternetwork.
Virgin Rail Group
Our joint venturewith Virgin Management Group, Virgin Rail Group, in which Stagecoach has a 49%share, operates the West Coast and CrossCountry franchises. Our share of Virgin Rail Groups turnoverfor the period amounted to 149.5m (2002- 140.6m) and our share of operating profits was 5.0m (2002 - 7.7m).
Negotiations with theSRA regarding the arrangements for the West Coast and CrossCountry franchisesfrom March 2004 are progressing well.Both franchises are currently operating on a budget determined by theSRA in accordance with the agreement reached between Virgin Rail Group and theSRA in July 2002.
The introduction ofnew Voyager trains on the CrossCountry franchise has been completed with yearon year passenger growth of 22.6% experienced in the six months to 31 October2003, while new Pendolino trains will be operating 40% of West Coast services from15 December 2003.
Coach USA
Trading at Coach USAis in line with our expectations.Turnover for the six months to 31 October 2003 was 234.0m (2002 - 334.2m). The fall in revenue largely reflectsbusiness disposals in the period.Overall, like for like revenues are 3.1% below prior year levels,reflecting a continued weakness in the leisure-related markets. We have, of course, reduced our ongoingexposure to these markets through our restructuring of Coach USA.
Operating profit forthe six months was 15.9m (2002 - 15.8m), giving an operating margin of 6.8%,up from 4.7%.
We have madeexcellent progress with the restructuring of Coach USA over the past six monthsand we are now in the final phase of the programme. Since 30 April 2003, we have completed the sale of our NewEngland, Transit, West, South Central and South East regions, as well as thedisposal of a number of our taxi businesses, including the substantial Texastaxi operations.
Negotiations for thesale of our remaining taxi businesses are at an advanced stage. Consistent withour strategy, the Group is reducing overheads in line with the businessrestructuring and sales programme. Thisincludes the phased closure of the Coach USA corporate office in Houston.
We are focusing ourinvestment and service development in the North East (covering the states ofNew York and New Jersey) and North Central (covering the states of Illinois,Wisconsin and Pennsylvania) regions, and Canada.
These residualbusinesses are far more robust, with approximately 60% of the revenue base being traditional bus servicesand contract work, which is more predictable.We have, however, retained some charter, tour and sightseeingbusinesses, which have good potential to grow as the US economy recovers and theleisure market expands.
In the North East, weare benefiting from the development of Jersey City, which is thriving as majorcorporations open offices in the area.Commuter travel to and from New York City by express coach remainsstrong. We continue to look foropportunities for targeted bolt-on acquisitions.
Ourpopular New York sightseeing product, which has performed extremely well overthe last two years, continues to have a leading market share and hasexperienced further passenger growth as new routes and vehicles are added. We have a similar sightseeing operation inChicago and the introduction of new double decker vehicles has seen furtherrevenue growth.
Within our NorthCentral region, we have a significant and growing school bus business inWisconsin, which now accounts for around 8% of the revenue base of our retainedoperations in North America. This is anexcellent, predictable business, which provides strong cashflow over the wintermonths, and we are very focused on winning new contracts.
Overseas Bus
(i) New Zealand
Stagecoach NewZealand, which operates around 1,000 buses in Auckland and Wellington, thecountrys largest metropolitan areas, continues to perform strongly.
Turnover from our NewZealand businesses has increased from 21.5m to 26.4m, while operating profitsare up from 4.4m to 4.9m. Thisrepresents an operating margin of 18.6% (2002 - 20.5%). The strong performance reflects the organicgrowth achieved together with the ongoing focus on cost control.
The Flyer premium express service has recently been extended and nowlinks Wellington International Airport, Wellington Central Business District,Lower Hutt City, and Upper Hutt City, using distinctively branded buses withupgraded seating and specially chosen drivers.Year on year patronage on this service has grown by 15% and revenue isup 20% since the route was extended, with the service now approaching capacityat peak times.
Stagecoach New Zealand has played a leading role in setting upintegrated ticketing companies in both Auckland and Wellington. Owned by consortia of local operators, thesecompanies provide clearing house services and marketing for a range ofmulti-modal and multi-operator passes, which are currently being rolled out inAuckland and Wellington.
(ii) Citybus
Citybus, which wasdisposed of in June 2003, contributed 17.8m (2002 - 70.3m) to turnover in thesix-month period and 1.0m (2002 - 12.6m) to operating profit.
thetrainline
thetrainline, ourjoint venture with Virgin, is the market leader in direct rail retailing in theUK, and offers considerable scope for future growth through Internet andtelephone based sales.
Our share ofthetrainlines operating losses was 1.7m (2002 - 1.4m). We are currently working on opportunities tomaximise value from our investment in thetrainline.
Road King Infrastructure
Our investment inRoad King Infrastructure continues to generate acceptable returns and cashdividends. Our share of operatingprofits for the half-year was 5.0m (2002- 5.8m), reflecting Road Kings results for the six months ended 30 June2003. Traffic and toll revenue growthfor the six months were 1.9% and 10.3% respectively, excluding the impact ofthe disposal of Road Kings interest in two projects. Our investment in Road King Infrastructure remains a non-corepart of our portfolio.
Group Strategy and Outlook
Stagecoach Group is aleading international transport operator with interests in the UK, NorthAmerica and New Zealand. We willcontinue to seek to maximise shareholder returns from our existing operations.
Our challenge is toachieve organic growth from our core UK bus business by developing new productsand reinvigorating existing networks.
With a significantshare of the UK rail market, we will also look to maximise value from ourexisting rail franchises, whilst pursuing new opportunities in the commuterrail, inter-city rail and light rail arenas.
Our completion of therestructuring programme at Coach USA will result in a smaller, but still significantNorth American business. It will haveover US$300m of revenue per annum and, importantly, a more predictable incomestream. We believe the US$22m operatingprofit achieved in the year ended 30 April 2003 can be sustained and growndespite the lower revenue base. Inaddition, we will explore organic growth opportunities and the potential forsmall bolt on acquisitions.
Stagecoach NewZealand is a core part of the Group and we believe there are continued growthcharacteristics in that business.
Iam confident in the prospects for the Group, which has a strong portfolio ofcash-generative businesses and good potential for further growth.
Brian Souter
Chief Executive 10December 2003
Finance Directors review
Overall Review
We have seen a strongtrading performance in the six months ended 31 October 2003 with operatingprofit growth in each of our four key continuing divisions. In the period, net debt reduced by 349.1mto 210.9m. The results are aconfirmation of the Groups strategy, and reflect our increased financialstrength.
Turnover for the sixmonths ended 31 October 2003 was 963.8m (2002 - 1,067.7m). Total operating profit (before goodwill amortisationand exceptional items) was 76.9m compared to 86.9m in the prior year. The decrease in operating profit reflectsthe impact of the Citybus disposal which was completed in June 2003. Excluding the effect of this disposal,operating profit (before goodwill amortisation and exceptional items) increasedfrom 74.3m to 75.9m for the six months.
The divisionalresults are summarised below:
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Six months ended 31 October 2003 |
Six months ended 31 October 2002 |
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Turnover m |
Operating Profit m |
Operating Margin % |
Turnover m |
Operating Profit m |
Operating Margin % |
|
UK Bus |
317.9 |
34.3 |
10.8% |
293.8 |
31.1 |
10.6% |
|
Coach USA |
234.0 |
15.9 |
6.8% |
334.2 |
15.8 |
4.7% |
|
Overseas Bus |
|
|
|
|
|
|
|
- New Zealand |
26.4 |
4.9 |
18.6% |
21.5 |
4.4 |
20.5% |
|
- Discontinued |
17.8 |
1.0 |
5.6% |
70.8 |
12.6 |
17.8% |
|
Rail |
216.7 |
21.5 |
9.9% |
206.0 |
18.9 |
9.2% |
|
Virgin Rail |
149.5 |
5.0 |
3.3% |
140.6 |
7.7 |
5.5% |
|
Road King |
- |
5.0 |
|
- |
5.8 |
|
|
Group overheads |
- |
(4.2) |
|
- |
(4.5) |
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|
Other* |
1.5 |
(6.5) |
|
0.8 |
(4.9) |
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|
963.8 |
76.9 |
|
1,067.7 |
86.9 |
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Exceptionals |
- |
- |
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- |
(575.0) |
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|
Goodwill |
- |
(9.6) |
|
- |
(24.3) |
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|
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|
|
|
|
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963.8 |
67.3 |
|
1,067.7 |
(512.4) |
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* includesrestructuring costs and strategic investments including thetrainline
Earnings beforeinterest, taxation, depreciation, goodwill amortisation and exceptional items(pre-exceptional EBITDA) amounted to 111.4m (2002 - 138.5m). Depreciation for the period decreased from51.6m to 34.5m. Goodwill amortisationfell from 24.3m to 9.6m. Thesedecreases in goodwill amortisation and depreciation reflect the disposalscompleted in the six months ended 31 October 2003 and the Coach USA impairment losses recognised in the yearended 30 April 2003.
Net exceptionalcharges before tax of 5.9m (2002 575.0m) were reported. The exceptional charges comprise a loss onthe sale of our Citybus operations and Chongqing investment of 0.8m and a losson sale of 5.1m on the disposals at Coach USA.
Non-exceptionalrestructuring costs included within operating profit amounted to 4.1m (2002 -2.9m), of which 3.5m (2002 - 0.9m) relates to the restructuring at Coach USAand 0.6m (2002 - 2.0m) relates to redundancy costs incurred in our other divisions.
Overall, earnings pershare before goodwill amortisation and exceptional items decreased to 3.2p,compared to 4.4p in the prior year reflecting the disposals completed in thesix months. Prior year earnings per sharebenefited from non-recurring gains on the repurchase of bonds and non-recurringliquidated damages at South West Trains, which before tax together amounted to22.2m (15.5m after tax).
Acquisitions and Disposals
In June 2003, weannounced the disposal of Citybus. Theconsideration amounted to HK$2,200m.The net cash received was HK$1,646m, which represented the grossconsideration less the amount of net third party debt as at 30 April 2003. Further details on the disposal were given in the Groupsannouncement on 9 June 2003. The saleof our Citybus operations realised again on sale of 0.3m and we recorded a loss on sale of 1.1m on ourinvestments in associated companies operating in the Chinese city of Chongqing.
As part of theGroups restructuring of Coach USA, we completed the disposal of certain of ourUS divisions in the six months. The netloss on these disposals amounted to 5.1m.
The overall effect ofthe disposals in the six months ended 31 October 2003 was to reduce net debt by305.7m.
Net debt increased by6.5m in the six months from cash spent on acquisitions, comprising smallacquisitions in the period and payment of deferred consideration in respect ofacquisitions made in previous years.
Shares in Issue
The weighted averagenumber of shares for the six months ended 31 October 2003 was 1,318.1m. The number of shares ranking for dividend at31 October 2003 was 1,323.1m.
Operating Cash Flows and Capital Expenditure
The strong cashgenerative nature of the Group is once again highlighted by free cash flow forthe six months of 100.3m (2002 - 100.2m).This, combined with the significant cash generated from disposals ofbusinesses in both America and Hong Kong, saw the Group achieve a recent creditrating upgrade to investment grade status giving the Group added financialflexibility.
Capital expenditurefor the six months was 39.2m (2002 - 33.4m).This primarily related to expenditure on passenger service vehicles.
Net Assets and Net Debt
Net assets at 31October 2003 were 336.6m (30 April 2003 - 317.1m).
Net debt decreasedfrom 560.0m at 30 April 2003 to 210.9m at 31 October 2003. This mainly reflects the cash received indisposal proceeds, the cash generation of our continuing businesses and a17.5m reduction in net debt arising from the re-translation of balancesdenominated in foreign currencies.
Interest
Net finance chargesincreased from 11.7m to 16.6m. Theratio of pre-exceptional EBITDA to net finance charges was 6.7 for the sixmonths ended 31 October 2003 (2002 11.8).The finance charges of 11.7m for the comparative period last yearincluded non-recurring gains of 15.0m on the buyout of our bonds. The reduction of 10.1m in underlyingfinance charges is as a result of our reduced net debt levels.
At 31 October 2003,53% (30 April 2003 41%) of the Groups gross borrowings were covered by fixedand capped/floored interest rates.
Taxation
Our effective taxrate for the interim period is 33.7% (2002 31.4% excluding exceptionalwrite-offs of 575.0m at Coach USA) and the effective tax rate before goodwillamortisation and all exceptional items is 29.7% (2002 23.8%). The increased rates reflect the change inthe mix of pre-tax profits by division and the differences in the corporate taxrates applying to each division.
Fuel Hedging
We have hedgingarrangements in place to cover all of our expected fuel consumption until 30April 2004 at the current time at a hedge price below the current market leveland our hedging position is under constant review.
Accounting Policies
There have been nochanges to our accounting policies during the six months ended 31 October2003. Our policies have been reviewedagainst recent accounting pronouncements and no significant changes areexpected in the current financial year.
Martin A Griffiths 10December 2003
Finance Director