Annual Results Annual Results 23 rd June 2004
Annual Results Robert Speirs Chairman
Annual Results Highlights Strong year of growth and delivery of strategic objectives Turnover from continuing operations up 4.9% Strong financial and operational performances at UK Bus and South West Trains Restructuring of North American business successfully delivered Net debt reduced to £67.6m from £560.0m last year Final dividend of 2.0p per share (giving full year dividend of 2.9p ( p)) – up 11.5% Return of capital to shareholders – 18p per share
Annual Results Martin Griffiths Finance Director
Annual Results Financial Highlights Turnover from continuing businesses up 4.9% £1,659.4m ( £1,581.4m) Up 5.9% at constant exchange rates Operating margin enhancement in continuing divisions* % Before goodwill amortisation and restructuring costs8.4%6.6% Including goodwill amortisation and restructuring costs7.0%4.7% * Excluding disposed Citybus, Road King and Trainline businesses but including all of North America; before exceptional items
Annual Results Turnover Total operating profit/(loss)* - pre goodwill & exceptionals* (after restructuring costs) Profit/(loss) before tax - pre goodwill & exceptionals Free cash flow** Adjusted earnings per share Dividend per share 2004 £m 2003 £m 1, p 2.9p 2,076.6 (466.2) (500.2) p 2.6p Financial Summary * After restructuring costs of £7.2m ( £6.3m) ** Free cash flow comprises net cash inflow from operating activities, dividends from joint ventures and associates, net cash inflow/(outflow) from returns on investments and servicing of finance, and taxation.
Annual Results /2003 Profit before tax Operating profit of retained businesses: - UK Bus - New Zealand - North America - Rail – underlying - Virgin Rail Group - Other JVs and associates Overheads Reduction in underlying finance charges Exceptionals & goodwill Rail – non-recurring liquidated damages Citybus (disposed) Road King (disposed) Trainline (disposed) Restructuring costs 2002/2003 gain on repurchase of bonds 2003/2004 Profit before tax Profit Reconciliation (613.1) (31.0) (24.4) (500.2) 7.8 (0.5) (8.5) (11.5) (3.5) 1.9 (0.9) (15.1) (0.5) (8.5) (18.1) (3.5) 1.9 (0.9) (15.1) Reported £m Exceptionals & Goodwill £m Pre goodwill & exceptionals £m
Annual Results EBITDA UK Bus North America (Coach USA) Overseas Bus Rail Virgin Rail Group thetrainline Road King Others Overheads & restructuring EBITDA before exceptionals 2004 £m 2003 £m (2.4) 7.0 (0.4) (15.4) (4.3) 10.5 (0.8) (15.1) 251.7
Annual Results Opening net debt Cash flows from operations Road King dividends Net interest received Tax paid Dividends paid Net capital expenditure and new hire purchase finance Acquisitions/disposals Foreign exchange and other movements Closing net debt £m (560.0) (9.4) (35.6) (78.8) (67.6) Movement in Net Debt
Annual Results UK Bus Trading Results Turnover growth 8.7% to £650.2m Underlying passenger growth 1.4% outside London Strong contribution from London companies 19.1% turnover growth Improved operating margin 11.5% versus 11.2% in 2003 12.2% versus 11.3% excluding operating lease impact and business development costs
Annual Results UK Bus Profit Analysis Turnover Underlying profit Margin Deduct increased operating lease costs Add saving in depreciation arising from operating leases Margin Deduct Megabus & Taxibus start-ups Operating profit as reported Margin as reported 30 April 2003 £m % (5.0) % (1.8) 74.8* 11.5% % (1.1) % % 30 April 2004 £m *After £9.9m increase in pensions/NI costs
Annual Results North America Trading Results Turnover £336.8m ( £603.0m) 5.1% like for like turnover increase in second half* 0.3% like for like turnover increase for year* Operating profit** £14.8m ( £14.0m) US$25.4m (2003 – US$21.8m) strict cost control overhead reduction *Like for like turnover increase is measured as the change in turnover from residual businesses excluding the impact of foreign exchange movements ** Pre restructuring costs, exceptional items and goodwill amortisation
Annual Results North America Turnover Breakdown Residual businesses - North East - North Central - Canada Residual taxi businesses to be disposed of Discontinued Total £ equivalent £m April 2004 Turnover $m £m April 2003 Turnover $m
Annual Results New Zealand Trading Results Turnover £58.3m ( £51.0m) 1.6% turnover growth (excluding currency movements) 2003 revenue base includes impact of America’s Cup Operating profit £10.7m ( £11.2m) NZ$29.5m (2003 – NZ$34.8m) Operating margin 18.4% (2003 – 22.0%)
Annual Results Rail Trading Results Rail Subsidiaries Turnover £438.9m ( £413.6m) Operating profit £44.1m ( £38.2m*) Passenger volumes up 3.2% at SWT Operating profit stated after franchise bid costs *Included £8.5m of non-recurring liquidated damages
Annual Results Rail Profit Analysis SWT operating profit per bid Passenger income Net Sch 7/Sch 8 performance payments Electric current for trains Staff costs Other Costs Revenue/Profit share to the SRA Actual SWT operating profit Other Total Rail operating profit 30 April 2004 £m (27.6) 44.5 (0.4) 44.1
Annual Results Joint Ventures and Associates Virgin Rail Group Share of turnover £288.4m ( £276.1m) Share of operating profit £13.5m ( £7.2m) Out-performed budget set by SRA Trainline Disposed February 2004 Share of turnover £8.1m ( £11.0m) Share of operating loss £2.4m (2003 – loss of £4.3m) Road King Disposed January/February 2004 Share of operating profit £7.0m ( £10.5m)
Annual Results Taxation Pre goodwill and exceptionals Exceptional items Goodwill amortisation Result for the year One-off exceptional tax credit Cash tax paid (net) Pre-tax £m Tax £m (6.6) (17.8) (32.3) (0.2) 0.3 (32.2) % 26.9% 3.0% 1.7% 33.6% N/A (9.2)% 2004
Annual Results Fuel Hedging % of group fuel hedged Average hedge price $/barrel Average US$/£ rate Average unhedged floating price $/barrel Variable fuel costs of continuing businesses 2003/042004/05 100% $ $32 £31m 40% $ $38 £37m 2005/06 4% $ $38 £42m Continuing businesses use 1.81m barrels of fuel a year (288m litres) Each $5 per barrel movement in crude oil price impacts variable fuel costs by approximately £5m if no hedging in place 2006/07 0% N/A 1.84 $38 £43m
Annual Results Pensions Increased employer and employee contributions £32.9m total pension costs ( £31.2m) £36.2m cash paid ( £26.9m) FRS17 post-tax deficit of £115.8m for UK Bus/Group Down £40.4m from £156.2m Financial support in new SWT franchise allows for cost of funding the deficit for SWT Managed as part of overall cost base
Annual Results Balance Sheet & Financing Net debt down to £67.6m ( £560.0m) EBITDA*/Interest cover 7.9 times Net Debt/EBITDA* 0.3 times Progressive dividend policy Evaluation completed of optimum balance sheet structure Return of capital of approximately £250m Investment grade rating confirmed after return of capital New £440m 5 year bank facilities * Before exceptional items
Annual Results Proposed Return of Capital “B” Share Scheme Shareholders receive for every 24 ordinary shares: 19 consolidated ordinary shares 24 “B” shares redeemable at 18p each All shareholders treated equally 2004 final dividend payable per existing ordinary share Approval at AGM – 27 August 2004 “B” shares issued – September 2004 Total return of approximately £250m
Annual Results Return of Capital - Example Shareholder “A” holds 1,000 ordinary shares Share price 87p 1,000 existing ordinary shares (share price 87p) 791 ordinary shares (share price 87p) 1,000 “B” shares redeemable at 18p each Redeemed for cash of £180 % shareholding unchanged VALUE = £870 VALUE = £868
Annual Results Current Trading & Outlook Group trading in line with our expectations Expected revenue and profit growth in UK Bus and North America SWT trading under the terms of the new three year franchise New Zealand trading in line with expectations Virgin Rail Group SRA budget 2004/05 Franchise negotiations progressing well
Annual Results Brian Souter Chief Executive
Annual Results Group Strategy (1) UK Bus – Margin Development Programme Solid foundations Kickstart Commercial Government assisted New Products Megabus Oxford Tube re-launch Envirox fuel additive Electric bus What next? Commercial Park and Ride Optical Guidance
Annual Results Group Strategy (2) North America Restructured business – robust business model with more predictable earnings Small add-on acquisitions Leisure upturn Year ended 30 April 2003Residual businesses 2004 $939m$365m
Annual Results Group Strategy (3) UK Rail Return to high volume growth Maximise potential from VRG Five year extension at SWT New franchise opportunities Commuter Inter-city
Annual Results Summary Strong trading performance across the Group with focused management Strengthened balance sheet allowing return of capital and dividend growth Current trading in line with our expectations
Annual Results Annual Results 23 rd June 2004
Annual Results Appendices
Annual Results UK Bus Revenue Development 2002/03 turnover Passenger volumes Tender wins/ contract amendments Fare increases 2003/04 turnover % 2.2% 19.1% London £m% % - 3.9% 5.4% % 4.1% 3.5% 8.7% Outwith London £m% UK Bus £m%
Annual Results % 12.1% 11.5% % 11.4% 11.2% UK Bus - London/Other 2004 Operating Turnover Profit Margin £m £m % London Other 2003Operating Turnover Profit Margin £m £m %
Annual Results Overseas Bus Revenue Development 2002/03 Turnover Disposal of Citybus and Australia Currency movements Volumes Fares/Business mix 2003/04 Turnover Citybus £m New Zealand £m (107.5) (4.5) (2.5) (0.7) 58.3 Australia £m 0.4 (0.4) - Total £m (107.9) 1.9 (0.9) (0.7) 76.1
Annual Results Overseas Bus Segmental results % 22.0% % % 18.4% % Operating Turnover Profit Margin £m £m % Citybus New Zealand Australia Total 2003 Operating Turnover Profit Margin £m £m %
Annual Results North America Revenue Development 2002/03 Turnover Underlying growth – second half Underlying decline – first half US$/C$ currency impact Impact of disposals and other movements on non-core 2003/04 Turnover (7.0) (367.6) (7.0) 3.8 (367.6) Core continuing* US$m Other US$m Total US$m * North East, North Central & Canada
Annual Results Turnover of residual North American business Scheduled service/Line run/Commuter Charter School Bus & Contract Sightseeing & Tours (incl New York) 2003/04 Turnover North East $m North Central $m Canada $m Total $m
Annual Results Rail Revenue Development 2002/03 Turnover SWT Passenger volumes SWT Fares Passenger Charter Other 2003/04 Turnover £m % (2.5) % 3.3% (0.6)% 0.3% 6.1%
Annual Results Interest/Debt Ratios Finance charges* (net) EBITDA pre-exceptionals EBITDA pre-exceptionals/Finance charges Net Debt/EBITDA 2004 £m 2003 £m times 0.3 times times 2.2 times * 2003 includes £15.1m net gain on early redemption of bonds
Annual Results Gross debt & related derivatives Cash on deposit Joint ventures & associates Non-utilisation/commitment fees Amortisation of bond issue costs/bank charges Insurance letters of credit Discount on insurance provisions Interest received on Corporation Tax refund Other Finance charges £m Annual Effective rate % 36.8 (10.6) 26.2 (1.2) (2.1) (0.7) % 3.5% 9.3% Finance Charges Average balance* £m 584 (301) 283 *Average of month end debt/interest earning £ and $ cash balances
Annual Results (2.7) (0.9) (0.6) - (4.2) Capital Expenditure UK Bus North America New Zealand Discontinued - Citybus Rail Capex on new hire purchase £m Impact of capex on net debt £m Disposal proceeds* £m Net £m Cash spent on capex £m *Excludes proceeds from selling businesses Note: In addition to the above, vehicles with a capital value of £16.6m were acquired by UK Bus during the year on operating leases ( £19.6m)
Annual Results Fuel Usage and Impact of Crude Price UK Bus North America New Zealand Usage litres Usage barrels 190m 76m 22m 288m 1.2m 0.47m 0.14m 1.81m US$ variable costs based on $38 a barrel $45.6m $17.9m $5.3m $68.8m Each $5 per barrel movement in oil price impacts fuel cost by approximately $9m
Annual Results Exchange Rates US$ HK$* NZ$ C$ Closing rateAverage rate April 2003 Closing rateAverage rate April 2004 * Average rate used for Citybus up to date of disposal –
Annual Results Annual Results 23 rd June 2004