Annual Results Year ended 27 April 2019 26 June 2019 2 Cautionary - - PowerPoint PPT Presentation

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26 June 2019

Annual Results

Year ended 27 April 2019

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Cautionary statement

This document is solely for use in connection with a briefing on the group headed by Stagecoach Group plc (“the Group”). This document contains forward-looking statements that are subject to risk factors associated with, amongst other things, the economic 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 which could cause actual results to differ materially from those currently anticipated. No assurances can be given that the forward- looking statements in this presentation will be realised. The forward-looking statements reflect the knowledge and information available at the date of preparation. This document is not a full record of the presentation because it does not include comments made verbally by Stagecoach Group management or by others.

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MARTIN GRIFFITHS CHIEF EXECUTIVE

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Overview

• 2018/19 financial targets achieved

‒ Adjusted earnings per share 22.1p (2018: 22.3p) ‒ Net debt £253.3m (2018: £395.8m) ‒ Non-rail net debt £374.9m (2018: £567.0m)

• Good cash generation
• Solid performance from core UK bus operations
• Continued investment in £80 million of new greener vehicles
• Sale of the North American business
• Good financial position
• Share buyback programme underway
• Full year dividend maintained at 7.7p per share
• Outlook: No change in our expected 2019/20 earnings per share

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ROSS PATERSON FINANCE DIRECTOR

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UK Bus (regional operations)

Driving continued growth and returns through strong customer service

* Excludes inter-city coach services operated as a sub-contractor Year to 27 April 2019 Year to 28 April 2018 (Restated) Change

Revenue (£m) 1,043.3 1,013.8 2.9% Like-for-like revenue (£m) 1,041.7 1,007.1 3.4% Operating profit (£m) 117.0 112.9 3.6% Operating margin (%) 11.2% 11.1% 10bp Estimated like-for-like passenger journeys* (m) 646.6 646.7

• Growth in revenue, profit and margin – revenue per mile up 3.8%; revenue per journey up 3.4%
• Around 10% of sales to fare paying customers were through digital channels
• Customer satisfaction maintained at 90% in England (92% in Scotland)
• 66% response rate (+4%) to second national employee survey
• Plans in place to offset higher fuel costs in 2019/20

‒ selective price increases ‒ tactical marketing plans ‒ commercial initiatives ‒ maintaining control of other costs

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UK Bus (London) Consolidating strategic position in a competitive market

Year to 27 April 2019 Year to 28 April 2018 Change

Revenue and like-for-like revenue (£m) 252.8 251.8 0.4% Operating profit (£m) 10.7 13.3 (19.5)% Operating margin (%) 4.2% 5.3% (110)bp

• Continuing margin pressure in competitive bidding environment
• Reducing costs and improving incentive income
• Maintaining sustainable contract pricing

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North America Sale of business successfully completed

29 April 2018 to Disposal Year to 28 April 2018

Revenue (US$m) 595.7 630.0 Operating profit (US$m) 25.8 28.1 Operating margin (%) 4.3% 4.5%

• Sale of business successfully completed April 2019
• US$65m 5.5 year Deferred Payment Instrument
• Continuation of Stagecoach guarantees

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Year to 27 April 2019 Year to 28 April 2018 Trading to 16 April 2019: Pre- exceptionals Exceptional items Reported Revenue (US$m) 595.7

• 595.7

630.0 Pre-exceptional EBITDA (US$m) 80.9

• 80.9

86.2 Depreciation & amortisation (US$m) (55.1)

• (55.1)

(58.1) Pre-exceptional operating profit before restructuring costs (US$m) 25.8

• 25.8

28.1 Restructuringcosts (US$m) (0.3)

• (0.3)

(1.1) Goodwill impairment (US$m)

• (112.4)

(112.4)

• Reversal of depreciation & amortisation since 19 Dec 18 (US$m)
• 21.4

21.4

• Loss on sale (US$m)
• (31.1)

(31.1)

• Other exceptional items (US$m)
• 1.6

Interest & tax (US$m) (5.3)

• (5.3)

(7.6) Reported discontinuedoperations (US$m) 20.2 (122.1) (101.9) 21.0

• £m

15.5 (93.6) (78.1) 15.7

North America Presentation of results – discontinued operations

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Rail Carefully managing de-mobilisation & unwinding of rail franchises

Year to 27 April 2019 Year to 28 April 2018 (Restated) Change

Revenue (£m) 589.5 1,556.0 (62.1)% Like-for-like revenue (£m) 444.1 434.1 2.3% Operating profit (£m) 26.4 24.9 6.0% Operating margin (%) 4.5% 1.6% 290bp

• Continued strong operational delivery and profitability at East Midlands Trains
• East Midlands franchise expected to end August 2019
• Continued positive resolution of contractual matters for former South West franchise
• Managed unwind of East Coast franchise
• Utilisation of East Coast tax losses - £17.1m exceptional net tax credit recognised
• Legal challenge of 2019 franchise decisions

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Virgin Rail Group (incorporates West Coast franchise) Continued strong financial performance

Year to 27 April 2019 Year to 28 April 2018

Revenue – 49% share (£m) 609.5 574.0 Operating profit – 49% share (£m) 25.7 30.0 Operating margin (%) 4.2% 5.2% Dividends received (£m) 24.3 24.1

• 2018/19 profit at contractual maximum

‒ £37.1m revenue and profit share payable by Virgin Rail Group to DfT for year to 27 April 2019

• West Coast franchise expected to end November 2019

‒ could run until March 2020 under current contract

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Stagecoach Group A strong continuing business

Reported Year to 27 April 2019 Exclude North America Reported continuing

• perations

Interest on net North America cash proceeds Exclude Rail Pro forma UK non-rail Year to 27 April 2019

EBITDA(1)(2) (£m) 327.0 (61.8) 265.2

• (58.5)

206.7 Net finance charges(1)(2) (£m) (31.3) 3.7 (27.6) 4.4(3) (0.5) (23.7) Net debt (£m) (253.3)

• (253.3)
• (121.6)

(374.9) EBITDA(1)(2) /Net finance charges(1)(2) 10.4 9.6 8.7 Net debt/EBITDA(1)(2) 0.8 1.0 1.8

Notes (1) Includes share of joint ventures (2) Excludes exceptional items (3) Estimated effect of applying net cash sales proceeds to reduce debt

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Capital structure

• Dividend maintained at 7.7p

‒ 1.6 times covered by 2018/19 adjusted non-rail UK earnings ‒ 1.2 times covered by 2018/19 non-rail normalised cash flow (see slide 33)

• Share buy backs

‒ Commenced buy backs on 25 April 2019 ‒ £0.2m buy backs in 2018/19 ‒ £9.0m buy backs in 2019/20 to date ‒ Average purchase price 130p ‒ Continuing with programme, up to £60m

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IFRS 16, Leases

• New accounting standard on leases, IFRS 16
• Applying for 2019/20 with no restatement of comparatives
• Will result in a number of leases, previously accounted for as operating leases (rentals

expensed), being capitalised within fixed assets as right of use assets and depreciated

• Increases in lease liability, depreciation charges and finance charges; reduction in
• perating lease expense
• Accounting for current rail leases will not be affected – less than one year to run
• No impact on net cash flow
• No immediate impact on our debt covenants
• No expected impact on our investment grade credit ratings

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Forecast Impact of IFRS 16

Current operating lease accounting £m After application of IFRS 16 £m Net impact £m

Depreciation

• (22.0)

(22.0) 2019/20 Operating lease expense 24.0

• 24.0

Income statement Operating profit 24.0 (22.0) 2.0 Finance charges

• (3.0)

(3.0) Profit before tax 24.0 (25.0) (1.0) Operating profit 24.0 (22.0) 2.0 Depreciation

• 22.0

22.0 2019/20 Net interest

• (3.0)

(3.0) Cash flow Operating cash flow 24.0 (3.0) 21.0 Repayment of lease liabilities

• (21.0)

(21.0) Financing cash flow

• (21.0)

(21.0) Net cash flow 24.0 (24.0)

• Right of use assets
• 85.0

85.0 Balance sheet Lease liabilities

• (85.0)

(85.0) At 28 Apr 19 Equity

• IFRS 16, Leases, is forecast to have the following impact on transition (28 April 2019)

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Summary and outlook

• Good results for 2018/19
• Good financial position
• No change to our expectation of 2019/20 earnings per share

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MARTIN GRIFFITHS CHIEF EXECUTIVE

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Successful delivery of business initiatives in 2018/19 - 1

• Our people: more agile and responsive management structure enabling a ‘one team’

approach

• Stakeholder engagement: proactive programme of national and regional engagement

based on insight from detailed reputation research

• Policy development: Urban Mobility Partnership focus on mobility credits, planning and

grey fleet initiatives to address road congestion and air quality

• Digital technology: completion of roll-out of UK’s biggest bus contactless payment

initiative; harnessing of data to improve bus scheduling

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Successful delivery of business initiatives in 2018/19 - 2

• Commercial development:

‒ Ticket trials

• reduced price 4-week megarider in South East –

revenue up slightly, journeys up 26% in first four weeks

• flat fare trial in Hartlepool – revenue neutral with

significant rise in customer satisfaction

• six other ticketing trials focused on simplification

‒ Timetable and customer information simplification ‒ National student campaign

• Student product sales up 7% year on year

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Successful delivery of business initiatives in 2018/19 - 3

• Mobility innovation: UK's first full-size autonomous bus trials
• Deployment of capital: £80m plus investment in greener buses and coaches for 2019/20

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Successful delivery of business initiatives in 2018/19 - 4

• Customer service: Stagecoach bus satisfaction maintained at 90% in England(1)and up from

90% to 92% in Scotland(1); Supertram satisfaction up from 95% to 97%(2) Bus: England(1) Bus: Scotland(1) Tram(2)

(1) Source: Transport Focus Bus Passenger Survey, Autumn 2018, published March 2019 (2) Source: Transport Focus Tram Passenger Survey, Autumn 2018, published April 2019

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Business strategy

• Focused on driving long-term profit growth from UK bus business

‒ Sale of North America business successfully completed ‒ Expecting involvement in train operations to end by November ‒ Strong team, reshaped management structure, reduced overhead

• No intention to bid for new UK rail franchises on the current risk profile
• Progressing share buyback programme

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Long-term growth prospects - 1

• Market-leading UK bus and coach operator

‒ Cash generative and well invested businesses ‒ Effective and efficient devolved local management ‒ Improved employee engagement, training and development ‒ Good operational performance and high customer satisfaction ‒ Well positioned in markets with clear opportunities

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Long-term growth prospects - 2

• Mass transit key to delivery of central and local government

political priorities ‒ Driver of economic growth, stronger communities and better air quality ‒ UK Government net zero carbon by 2050 target requires transport modal shift ‒ Supportive Government initiatives on Future Mobility Zones and Future High Streets ‒ Sustainable transport key to unlocking jobs, improved productivity and benefits of new housing ‒ Opportunity to benefit from place marketing strategies of towns and cities in UK regions ‒ Discussions on potential for hard shoulder running on urban motorway network in Scotland

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Long-term growth prospects - 3

• Opportunities to leverage innovation and partnership

‒ New Mobility as a Service pilot with Enterprise and Mobilleoin Greater Manchester ‒ Enhanced Stagecoach smartphone app ‒ QR code ticketing pilot

• Positive trends in key demographic

‒ Number of 18 year olds in UK population projected to rise again throughout the 2020s

• Manageable economic backdrop and headwinds

‒ Good track record on managing staff costs (wages and pensions auto-enrolment) ‒ Plans to mitigate fuel costs step up

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Summary

• Good financial performance in 2018/19
• Clear business strategy and reshaped management structure
• Positive outlook for public transport

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ANNUAL RESULTS YEAR ENDED 27 APRIL 2019

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APPENDICES

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Summary income statement

Year to 27 April 2019 £m Year to 28 April 2018 £m Change £m UK Bus (regional operations) operating profit 117.0 112.9 4.1 UK Bus (London) operating profit 10.7 13.3 (2.6) Citylink profit after tax 2.0 1.2 0.8 North America operating profit 19.8 21.0 (1.2) UK Rail operating profit 26.4 24.9 1.5 Virgin Rail Group profit after tax 21.3 25.9 (4.6) Restructuring costs and Group overheads (16.3) (19.3) 3.0 Operating profit 180.9 179.9 1.0 Finance charges (net) (32.1) (35.1) 3.0 Tax (22.4) (17.9) (4.5) Profit excluding non-software intangibles and exceptionals 126.4 126.9 (0.5) Non-software intangibles and exceptionals, net of tax (102.8) (63.1) (39.7) Reported profit from continuing operations 23.6 63.8 (40.2) Adjusted earnings per share (pence) 22.1p 22.3p (0.2)

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UK Bus divisional income statements – Year ended 27 April 2019

UK Bus (regional operations) £m UK Bus (London) £m Revenue 1,043.3 252.8 Other operating income 10.5 2.0 Staff costs (572.7) (154.6) Fuel costs (i.e. Diesel) (97.9) (31.4) Insurance and claims costs (21.7) (3.5) Depreciation, amortisation and impairment (85.1) (5.8) Operating leases (6.2) (21.0) Materials & consumables (41.0) (7.6) Other costs (114.5) (20.2) Gain on land and buildings 2.3

• 117.0

10.7

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UK Bus (regional operations) Growth analysis

Like-for-like growth Year to 27 April 2019 Revenue Journeys Implied yield megabus.com 16.6% 9.0% 7.0% Other commercial 3.0% 0.2% 2.8% Concessionary 1.5% (0.7)% 2.2% Tendered and school 3.9% Contract and other revenue 13.3% Total 3.4%

• 3.4%

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Movement in net debt

Year to 27 April 2019 £m EBITDA from Group companies before exceptional items 298.8 Loss on disposal of property, plant and equipment 0.3 Equity-settled share based payment expense 1.4 Dividends from joint ventures 25.4 Working capital movements (173.4) Net interest paid (27.8) Tax paid (17.8) Net cash from operating activities 106.9 Net capital expenditure including new hire purchase and finance leases (61.6) Acquisitions/disposals of businesses and intangibles 151.9 Token sales and redemptions (0.2) Cash generation 197.0 Foreign exchange, income statement and other movements (9.0) Equity dividends (44.1) Net own shares purchased (1.4) Decrease in net debt 142.5 Opening net debt (395.8) Closing net debt (253.3)

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Pro forma dividend cash cover

Year to 27 April 2019, excluding North America and rail Operating profit £m Depreciation/ amortisation £m £m Pre-exceptional EBITDA:

• UK Bus (regional operations)

117.0 85.1 202.1

• UK Bus (London)

10.7 5.8 16.5

• Group overheads

(13.6)

• (13.6)
• Restructuring costs (excluding rail)

(0.8)

• (0.8)
• Citylink (pre-tax)

2.5

• 2.5

115.8 90.9 206.7 Normalised net capital and intangible asset expenditure at 1.2x depreciation (109.1) Net interest expense (24.5)

(includes estimateof interest earned on N.America proceeds)

Tax (18.2)

Estimate at 20%

54.9 Dividends 44.1 Normalised cash cover 1.24 Normalised working capital movements assumed at zero.

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UK Bus Fuel hedging

UK Bus UK Bus (London) 2018/19

• % of forecast consumption hedged

95% 76%

• average hedge price (per litre)

28.7p 37.5p 2019/20

• % of forecast consumption hedged

91% 49%

• average hedge price (per litre)

33.8p 34.3p 2020/21

• % of forecast consumption hedged

74% 41%

• average hedge price (per litre)

33.8p 36.8p 2021/22

• % of forecast consumption hedged

39% 30%

• average hedge price (per litre)

39.5p 37.9p 2022/23

• % of forecast consumption hedged

8% 22%

• average hedge price (per litre)

38.7p 38.0p 2023/24

• % of forecast consumption hedged
• 1%
• average hedge price (per litre)
• 38.8p

Market price (per litre) 39.2p 39.2p

Market prices are as at 31 May 2019. Prices exclude delivery margins, taxes and Bus Services Operators Grant (“BSOG”).

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Definitions

• Like-for-like amounts are derived, on a constant currency basis, by comparing the relevant

amount with the equivalent prior year amount for those businesses and individual operating units that have been part of the Group throughout both years.

• Operating profit or loss for a particular business unit or division within the Group refers to profit
• r loss before net finance income/costs, taxation, non-controlling interests, non-software

intangible asset amortisation, exceptional items and restructuring costs.

• Operating margin for a particular business unit or division within the Group means operating

profit or loss 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.

• 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.

• Net debt (or net funds) is the net of cash/cash equivalents and gross debt.
• DfT refers to the United Kingdom Department for Transport, a Government department.

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ANNUAL RESULTS YEAR ENDED 27 APRIL 2019