Firstbus PLC - Interim Results - Part 1
17 November 1997 - 8:32AM
UK Regulatory
RNS No 4764v
FIRSTBUS PLC
17th November 1997
PART 1
Highlights of the interim results of FirstBus plc, one of the UK's leading
passenger transport operators, for the six months to 30 September 1997 are as
follows:
- Turnover of #363.4 million up 47%
- Profit before tax of #32.5 million* up 35%
- Adjusted basic earnings per share of 7.9p up 30%
- Net dividend up 22% at 2.2p per share
- Capital expenditure of #39.8 million
- Cash generation up 27% at #56.6 million**
- Proposed name change to FirstGroup plc
- "Trading in second half has started well"
* Before restructuring and other exceptional items
** Operating profit, before ESOP and restructuring and other exceptional
costs, plus depreciation
Enquiries:
Trevor Smallwood, Executive Chairman
Moir Lockhead, Group Chief Executive
Tony Osbaldiston, Group Finance Director
Christopher Ashton-Jones
Telephone: 0171 796 4133 on Monday 17 November, thereafter 0171 291 0500
Chairman's statement
FirstBus has had a successful first half to the 1997/98 financial year. Profit
before tax for the six months ended 30 September 1997, before restructuring
costs of #2.5 million, was #32.5 million, 35 per cent ahead of the previous
year. Adjusted basic earnings per share rose to 7.9p per share, an increase of
30 per cent.
Your board has declared an interim dividend of 2.2p net per share, an increase
of 22 per cent over 1996/97. This will be paid on 18 February 1998 to
shareholders on the register on 9 January 1998.
Highlights
The integration of our latest acquisitions, CentreWest in London, Southampton
Citybus and Great Eastern Railway is proceeding well and trading by each is
ahead of expectations. Great Western Holdings, in which we own 24.5 per cent,
is making good progress with the development of North Western Trains,
following the award of the franchise in March.
Whilst we continue to seek fresh opportunities for adding to our businesses in
the UK and internationally, we have also been considering a number of other
situations closely associated with passenger transport where we believe that
our management and commercial skills would add relevant and significant value.
The UK has a number of regional airports which we believe offer great
potential and we were delighted to hear on 10 November that we had been
awarded preferred bidder status for the sale of 51 per cent of Bristol
International Airport. We anticipate the acquisition of the interest being
completed very shortly. This business will form the basis of a new division at
FirstBus, which we intend to develop using the same disciplines we have
adopted with our bus and rail interests.
Bus division
The bus division has reported a 22 per cent growth in both turnover and
operating profit. Our programmes for margin improvement continue unabated with
positive effects. Overall bus operating margin was 14.0 per cent in the first
half of the year which traditionally has the lower seasonal performance. Our
Manchester bus interests have continued to recover well after the effects of
the terrorist bomb last year and the new premium "Gold Service" routes show
healthy growth. Encouraged by the success of our innovative schemes such as
the Guided Busways in Leeds and Ipswich, we are actively pursuing other
opportunities for a "corridor approach" in partnership with a number of other
local authorities. CentreWest should benefit from the UK's first motorway bus
lane which has just been opened on the M4 spur road to Heathrow Airport. It
has also been allotted a new operation from Slough to the airport, with the
support of the British Airports Authority. In Strathclyde the increased
competition in the region has enabled us, with the support of the management
and workforce, to focus on more steps to enhance the company's
competitiveness.
FirstBus is proud of its record in improving public transport infrastructure.
A measure of this ongoing commitment is that, in a period when profit after
tax was #23.0 million, we have invested #39.8 million in new vehicles and
related facilities. We introduced 360 new generation vehicles during the six
months at a cost of #33.5 million. By the end of our year, we expect to have
introduced a total of 910 vehicles at a cost of #84.5 million, which will
bring the average age of our fleet down to almost 8 years. As with vehicles,
our investment in depots continues; the relocation of Bradford to a new site
occurred during the period.
We have recently decided to adopt a higher standard of bus stop information
which is more easily understood. We will be rolling out this product across
the country in the coming months. In August, we commissioned an ongoing and
extensive customer satisfaction survey "Customer First". Whilst early results
show generally that customers believe we provide a good service, we intend to
use future results to target aspects where specific improvements can be
implemented.
Rail division
Great Eastern Railway made an operating profit for the half year of #0.9
million. As a result of improved services revenue during the period was well
in advance of our forecasts and running at some 7 per cent ahead of that last
year. Our #9.2 million programme of capital expenditure in train
refurbishment, station maintenance, car parking extension and customer service
and information enhancement is on target. Service reliability and punctuality
during the summer months have been running at record levels. Costs continue to
be kept well within budget. We have carried out a major restructuring of most
aspects of the company's operations which, for example, has allowed us, with
trades union agreement, to reduce staff levels by 10 per cent. Great Eastern
has a marked seasonality in its revenue flow with the second stronger than the
first half.
Our share of the pre-tax profits from our associate company Great Western
Holdings was #2.1 million, compared with #0.5 million previously. In October,
OPRAF announced that the Great Western Trains franchise had been extended by a
further three years to February 2006.
Group name
In the light of the Group's expanding activities in rail and new interest in
airports your board believes it would be appropriate to adopt a name more
relevant to a broadly based passenger transport group. Accordingly,
shareholders approval will be sought at an Extraordinary General Meeting to
change our company name to FirstGroup plc.
Outlook
Our strategy concentrates on continuing to improve the efficiency and
profitability of our existing business and, by offering reliable good quality
services, further tempt people out of their cars and on to our buses and
trains. The Government is planning to publish a White Paper on transport in
the Spring and it has been important to ensure that our voice has been heard
during the consultative process.
Trading in the second half of our financial year has started well and, because
of seasonality effects on revenue, will once again be the stronger period.
We have every confidence that we can continue to deliver improving value for
our shareholders.
Trevor Smallwood
Executive Chairman
14 November 1997
Financial review
Overall
Turnover increased to #363.4 million from #246.8 million for the first half of
last year. Of this #116.6 million increase, #108.4 million is attributable to
the effect of the acquisitions. Operating profit before ESOP and one-off
restructuring costs was #39.5 million, an increase of #8.0 million over last
year, of which #5.2 million was due to acquisitions.
The overall Group operating margin after central costs was 10.9 per cent.
This is not comparable to prior periods as a much larger proportion of our
turnover comes from Great Eastern Railway, where margins are much lower than
the bus division. The bus division margin was 14.0 per cent exactly in line
with last year, whilst at Great Eastern it was 1.5 per cent.
Overall our operating margin in the first half has been in line with our
expectations. The seasonality of our businesses, particularly rail, favours
the second half. This factor should raise turnover and operating margins in
the final six months.
Divisional results
6 months to 6 months to Year to
30 September 1997 30 September 1996 31 March 1997
Turnover Op. Op. Turnover Op. Op. Turnover Op. Op.
profit* margin profit* margin profit* margin
# m # m % # m # m % # m # m %
Bus companies 301.0 42.2 14.0 245.9 34.5 14.0 515.8 78.2 15.2
Great Eastern 61.5 0.9 1.5 - - - 34.1 1.8 5.3
Railway**
Other*** 0.9 (3.6) 0.9 (3.0) 1.6 (6.3)
----- ---- ---- ----- ---- ---- ---- ---- ----
Total 363.4 39.5 10.9 246.8 31.5 12.8 551.5 73.7 13.4
* Before ESOP and restructuring and other exceptional costs
** After OPRAF subsidy of #13.2 million (year to 31 March 1997: #5.8
million)
*** Central management, Group information, technology and other Group items
The bus companies increased operating profit by #7.7 million to #42.2 million,
a growth of 22 per cent.
At Strathclyde our team has developed further its plans to rectify the backlog
of investment and maintenance that arose prior to its acquisition. The
increased competition we have experienced has helped to hasten the necessary
actions. This will lead to an increase in one-off restructuring costs, which
is addressed below.
Further progress has been made elsewhere in enhancing margins. In particular
CentreWest, Greater Manchester, Yorkshire division and Great Eastern Railway
substantially outperformed their results in the corresponding period last
year.
Great Eastern Railway traded above our expectations in both meeting
performance targets and achieving revenue gains. The first half results for
Great Eastern are disproportionately affected not only by seasonality but also
only include 24 weeks' trading, as they are tied in to the OPRAF reporting
cycles which are not co-terminous with the Group. The margin for the year to
31 March 1997 was flattered by the timing of favourable receipts under the
performance regime, as noted at the time.
In the bus division improving passenger trends were obscured by events in
Scotland. Strathclyde has been adversely affected by shadow competition and,
along with Midland Bluebird, by the hiatus awaiting the outcome of our appeal
of the disposal order following the MMC inquiry into our acquisition of
Strathclyde Buses. Excluding these two subsidiaries, the Group showed a 1 per
cent volume increase over the comparative period. This is encouraging, as it
is a feature of the cost structure of FirstBus that relatively small volume
gains yield disproportionately larger increases in operating profits.
In June 1997 the TAS Partnership Limited published an independent survey of
the level of bus fares in the UK. Prior to this survey, there had been an
unacceptable amount of uninformed and misleading comment on this subject. The
subject is not simple, involving for example different bands for journeys of
different distances. However, in summary the survey showed that the average
fare levied by FirstBus was very close to the overall average of all fares
charged in the UK, and was cheaper than those charged by some of the major
groups. FirstBus is therefore in an equivalent, if not, advantageous position
regarding its fare levels.
The costs of the bus division were affected by several factors outside our
control, which are noted below. Overall we have maintained bus margins
despite these pressures, primarily by achieving efficiencies and savings
elsewhere.
The unexpectedly large increase in fuel duty in the last budget and its early
introduction will cost an additional #2.6 million in the full year to March
1998 and an ongoing cost of #6.8 million for future years. Our Group has
taken action to offset this increase in both the current and subsequent years.
The November 1996 budget announced the phased withdrawal of the tax benefits
of Profit Related Pay. FirstBus had introduced these schemes extensively
throughout its businesses. The estimated loss of this benefit will impact the
Group by approximately #9 million per annum. This cost increase will be
phased in increments over the 3 years beginning April 1998, as follows:
Year to 31 March #m
1998 Nil
1999 2
2000 3
2001 4
Once again our objective is to seek to offset these increases with savings
elsewhere. We are confident that this will be achieved.
Finally, an interim review has been undertaken to consider the potential
implications of the July 1997 budget, which removed the benefit of ACT credits
from pension funds' UK equity income. The board, in conjunction with the
Group's actuary, believe that the present level of pension fund provisioning,
established in line with SSAP 24, remains appropriate. This is after taking
into account the relevant material factors affecting the funding of the
pension liabilities. The next full triennial valuation of the majority of the
pension schemes operated by the Group will be undertaken during the next
financial year.
Associates
The Group share of Great Western Holdings, contributed #2.1 million of profit
before tax in the first half, an increase of #1.6 million over the first half
of last year.
Restructuring costs
Restructuring and other exceptional costs of #2.5 million were incurred in the
half year. This comprised #1.5 million for the ongoing bus company margin
improvement programme and #1.0 million for the implementation of restructuring
at Great Eastern Railway. Including the increased restructuring at
Strathclyde, it is estimated that restructuring costs of between #8 to #9
million will be incurred in the second half of the year.
Taxation
The taxation charge for the half year has been based on the estimated likely
effective rate for the full year. This is in line with the recently issued
Accounting Standards Board statement on Interim Reports. The low effective
rate of 23.3 per cent reflects the anticipated high level of capital
expenditure being incurred this year.
Cash flow and investment in the business
Cash generation (operating profit, before ESOP and one off costs, plus
depreciation) continues to be strong, reaching #56.6 million. Capital
expenditure for the period amounted to #39.8 million. This included #33.5
million for 360 new vehicles, with a further #51 million (550 new vehicles)
committed for the second half of the year. The new Bradford depot was
completed at a total cost of #4.0 million.
Net interest and debt
Net interest payable was #7.5 million. The increase from #6.8 million in the
comparable period reflects the expansion of the Group. Cash generated by
operations covered interest 7.5 times against 6.6 times in the first half of
last year.
The increase in net debt to #201.2 million reflected the high level of capital
expenditure and seasonal working capital payments as well as #8.2 million of
debt arising from the acquisition of Southampton. The Group continues to have
substantial headroom under its banking covenants.
At 30 September 1997, the total net debt amounted to #201.2 million, with 76
per cent at fixed and semi-variable interest rates. The high proportion of
debt which has been fixed protects the Group against rises in interest rates.
Currently a 1 per cent rise in interest rates would increase the Group's
annual interest charge by approximately #0.5 million.
FixedSemi-variable Variable Total
# m # m # m # m
Net cash at bank - - 7.0 7.0
Train season ticket bonded cash - - 24.0 24.0
Bank loans - - (68.4) (68.4)
HP and finance leases (57.2) - (65.0) (122.2)
Loan notes (8.8) (11.3) (21.5) (41.6)
Interest rate cap (50.0) - 50.0 -
Interest rate swap (25.0) - 25.0 -
------ ----- ----- ------
Total (141.0) (11.3) (48.9) (201.2)
Acquisitions
On 31 July 1997 we completed the acquisition of Southampton Citybus. In the
year to 31 December 1996 it made a pre-tax profit of #0.6 million on turnover
of #11.7 million. FirstBus paid #6.4 million for the equity and took on net
debt of #5.4 million. Southampton contributed an operating profit of #0.3
million in the period on turnover of #1.7 million. This purchase was
satisfied by an issue of FirstBus shares to the amount of #3.2 million with
the balance being funded from our existing bank facilities.
On 10 November 1997, Bristol City Council announced that FirstBus was the
preferred bidder for 51 per cent of Bristol International Airport. We are
advised that this transaction will not require a circular or shareholder
approval. It is our intention upon completion to fund this transaction from
our existing bank facilities.
Balance sheet and net assets
Net assets increased to #69.9 million. This is stated after writing off some
#289 million of goodwill arising on acquisitions and is therefore an
inappropriate number to use to calculate gearing as a measure of the Group's
indebtedness.
Shares in issue
The total number of shares in issue increased by 2.4 million to 315.7 million,
principally due to the shares issued to acquire Southampton. The average
number of shares in issue for the period was 314.4 million and the current
forecast for the financial year is 315.1 million.
Dividend
The interim dividend is 2.2p for ordinary shares against 1.8p last year, an
increase of 22 per cent, which is covered 3.3 times.
Tony Osbaldiston
Group Finance Director
14 November 1997
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