Annual Results Year ended 29 April 2017 28 June 2017 2 Cautionary - - PowerPoint PPT Presentation

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28 June 2017

Annual Results

Year ended 29 April 2017

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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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ROSS PATERSON FINANCE DIRECTOR

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Adjusted earnings per share in line with expectations

• Adjusted EPS 24.4p (2016: 27.7p), in line with our expectations
• Basic EPS of 5.5p (2016: 17.1p) reflect exceptional charges
• Full year dividend per share up 4.4% to 11.9p
• Engaged in discussions with DfT on Virgin Trains East Coast

‒ £84.1m exceptional charge to provide for losses in next two years ‒ Expected to be profitable from 2019

• Further investment in vehicles, technology and other assets

‒ £157.3m net capital expenditure

• New rail franchise opportunities
• Action taken in response to period of subdued revenue
• No significant change to our 2017/18 adjusted EPS expectation

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Virgin Trains East Coast Engaged with DfT

• Making progress towards an agreement with DfT that recognises existing

contractual rights and obligations

• We expect:

‒ to operate franchise until 2023 ‒ franchise to be profitable from 2019

• Now expecting losses for up to two years

‒ £84.1m provided now (pre-tax)

• £44.8m non-cash impairment of intangible asset

‒ acceleration of “middle column” amortisation

• £57.5m drawn of £165m shareholder loan commitment

‒ 10% Virgin

• Continuing to deliver on customer improvements and financial commitments

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Rail New opportunities

Year to 29 April 2017 Year to 30 April 2016 Change

Revenue (£m) 2,160.7 2,129.1 1.5% Like-for-like revenue (£m) 2,160.7 2,118.0 2.0% Operating profit (£m) 31.0 66.7 (53.5)% Operating margin (%) 1.4% 3.1% (170)bp

• Improved revenue trends in second half of 2016/17

‒ Stagecoach UK Rail revenue growth ahead of sector ‒ but growth low versus recent history ‒ growth lowest on London commuter services ‒ weaker revenue trends in recent weeks

• South West Trains franchise ends August 2017

‒ handover planning progressing well ‒ c.£100m net debt increase

• Good profit margin at East Midlands Trains – profit share payments for 2016/17
• Shortlisted for: East Midlands, West Coast Partnership and South Eastern

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UK Rail Trends by franchise

Like-for-like Revenue growth Year to 29 April 2017

South West Trains 0.6% East Midlands Trains 3.3% Virgin Trains East Coast 3.2% Virgin Trains West Coast 6.0%

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Virgin Rail Group (incorporates West Coast franchise) Good growth and profit margin versus rail sector

Year to 29 April 2017 Year to 30 April 2016

Revenue – 49% share (£m) 556.8 525.3 Operating profit – 49% share (£m) 31.5 32.6 Operating margin (%) 5.7% 6.2% Dividends received (£m) 28.1 27.1

• Good revenue growth and profit margin versus rail sector
• Record West Coast punctuality
• Taxpayers benefitting from continued profit share payments
• Direct award opportunity – April 2018 to at least March 2019

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UK Bus (regional operations) High margin business

* Excludes inter-city coach services operated as a sub-contractor Year to 29 April 2017 Year to 30 April 2016 Change

Revenue (£m) 1,015.7 1,032.8 (1.7)% Like-for-like revenue (£m) 1,008.3 1,023.7 (1.5)% Operating profit (£m) 121.1 137.3 (11.8)% Operating margin (%) 11.9% 13.3% (140)bp Estimated like-for-like passenger journeys* (m) 669.1 679.5 (1.5)%

• High margin business – 12% overall; ranging from 8% upwards across our core operating companies
• High customer satisfaction – 86% England; 90% Scotland
• Like-for-like revenue growth ranging from –4% to +4% across our operating companies:

‒ local economies and road congestion having a greater effect than structural changes

• Measured network, pricing and management changes in light of period of subdued revenue
• No change to our expected 2017/18 operating profit

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UK Bus (regional operations) Growth analysis

Like-for-like growth Year to 29 April 2017 Revenue Journeys Implied yield

megabus.com UK (0.8)% 6.7% (7.1)% Other commercial (0.7)% (1.1)% 0.3% Concessionary 0.2% (2.7)% 2.9% Tendered and school (9.4)% Contract revenue (1.3)% Hires and excursions (10.3)% Total (1.5)% (1.5)%

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megabus.com Europe Realising value

Year to 29 April 2017 Year to 30 April 2016 Change

Revenue (£m) 20.2 18.4 9.8% Operating loss (£m) (4.3) (24.1) (82.2)%

• Sale of retail business completed and cash received
• Planned transfer of vehicles largely completed with cash received
• No ongoing operation of inter-city coach services in mainland Europe
• No further losses expected

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UK Bus (London) Significant value delivered since 2010 acquisition

Year to 29 April 2017 Year to 30 April 2016 Change

Revenue (£m) 263.4 267.1 (1.4)% Like-for-like revenue (£m) 263.4 265.6 (0.8)% Operating profit (£m) 18.4 20.2 (8.9)% Operating margin (%) 7.0% 7.6% (60)bp

• Significant value delivered from c.£60m acquisition in 2010
• Lower operating profit expected in short-term
• Driver wage pressure reducing margins on existing contracts
• Strong competition for new contracts in parts of our network

‒ Transport for London five-year plan is for no growth in London bus mileage

• Significant value in freehold property portfolio

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North America Improving trends

Year to 29 April 2017 Year to 30 April 2016 Change

Revenue (US$m) 632.3 647.7 (2.4)% Like-for-like revenue (US$m) 632.6 646.2 (2.1)% Operating profit (US$m) 25.0 28.4 (12.0)% Operating margin (%) 4.0% 4.4% (40)bp

• Improving trends as fuel prices rise
• megabus.com networks adjusted to reflect passenger demand
• New contract wins – e.g. Bechtel
• Low cost digital initiatives
• Targeting profit growth in 2017/18

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Stagecoach Group Good financial position

Year to 29 April 2017 Year to 30 April 2016 Change

Net finance charges* (including share of net finance income of joint ventures) (£m) (33.6) (40.9) 7.3 EBITDA from continuing operations and joint ventures* (£m) 345.4 370.0 (24.6) Closing net debt (£m) (409.4) (399.3) (10.1) Net Debt/EBITDA * 1.2x 1.1x 0.1x EBITDA*/Net finance charges* (including share of net finance income of joint ventures) 10.3x 9.0x 1.3x

* excluding exceptional items

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MARTIN GRIFFITHS CHIEF EXECUTIVE

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Summary

• Diverse Group portfolio
• Short-term macroeconomic challenges/political uncertainty
• But strong business fundamentals:

‒ Operational excellence ‒ Focus on value for money and customer satisfaction ‒ Continued investment through business cycle ‒ Opportunities in each of our markets

• Positive drivers of long-term public transport growth
• Innovation outwith core operating divisions: TravelHero, Global Travel

Ventures

• Near term benefit from political focus on economic growth and

addressing air quality

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Delivering bus growth in UK

Stagecoach expertise Sector opportunities Management actions

• Operational excellence
• Best in class value for money
• Strong stakeholder

partnerships

• Technology and fleet

investment – new app; contactless

• Good profit margins
• Prudent approach to contract

bidding

• Buses key part of solution to

local air quality crisis; significant opportunity from Clean Air Zones

• Public transport seen as

central to economic growth aspirations of regional authorities

• Targeted action on

management, networks and fares

• Digital marketing strategy
• Early engagement with new

metro mayors

• Success in shaping Bus

Services Act 2017

• Piloting new ideas, e.g. Little

& Often

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Managing the cycle in rail

Stagecoach expertise Sector opportunities Management actions

• Good returns over 20+ years
• Operational excellence
• Partnership working with

Network Rail

• High customer satisfaction
• Investing in customer

experience improvement

• Strong returns to taxpayer
• Pipeline of UK franchise
• pportunities
• East Midlands
• West Coast Partnership
• South Eastern
• Planned franchise

extensions/Direct Awards

• Overseas opportunities
• Managing challenging short-

term macroeconomic conditions

• Effective contract

management

• Constructive DfT engagement
• Shaping future franchising

approach

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Positioned for recovery in North America

Stagecoach expertise Sector opportunities Management actions

• Diverse portfolio
• Presence in key population

centres

• Track-record of revitalising

commercial transport markets

• Commuter park and ride

services

• Contract management

expertise in specialist markets

• Federal infrastructure strategy
• upgrade of roads, bridges
• greater role for public-

private partnerships

• more focus on state/local

initiatives

• review of regulation to

speed up initiatives

• Megabus.com: more efficient
• perating bases; matching

services to demand

• Digital investment strategy:
• mobile ticketing
• website refresh programme
• focus on digital marketing
• Contract opportunities to

underpin commercial

• perations
• Sale of stake in Twin America

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Managing short-term challenges, planning for long-term growth

• Full-year adjusted EPS in line with our expectations
• Taking the right decisions for long-term success
• Further opportunities ahead

− Rail: further franchise opportunities − Bus: political drive to tackle air quality and generate economic growth − Commercial and contract markets

• No change to our expected 2017/18 adjusted EPS
• Positive fundamental drivers of long-term public transport growth

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ANNUAL RESULTS YEAR ENDED 29 APRIL 2017

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APPENDICES

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Summary income statement

Year to 29 April 2017 £m Year to 30 April 2016 £m Change £m UK Bus (regional operations) operating profit 121.1 137.3 (16.2) megabus Europe operating loss (4.3) (24.1) 19.8 UK Bus (London) operating profit 18.4 20.2 (1.8) Citylink profit after tax 1.4 1.4

• North America operating profit

19.3 18.9 0.4 Twin America loss after tax

• (0.8)

0.8 UK Rail operating profit 31.0 66.7 (35.7) Virgin Rail Group profit after tax 24.8 24.2 0.6 Restructuring costs, Group overheads and other items (18.9) (15.0) (3.9) Operating profit 192.8 228.8 (36.0) Finance charges (net) (34.1) (41.4) 7.3 Tax (20.7) (26.8) 6.1 Profit excluding intangibles and exceptionals 138.0 160.6 (22.6) Intangibles and exceptionals, net of tax (119.9) (61.6) (58.3) Reported profit from continuing operations 18.1 99.0 (80.9) Adjusted earnings per share (pence) 24.4p 27.7p (3.3)p

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Rail premium profiles

The above amounts are subject to adjustment for: (1) various inflation measures (2) risks borne by the Department for Transport (“DfT”) (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, and exclude revenue support and profit share. 100% of the relevant amounts are shown above irrespective of the Group’s percentage stake in each business.

Year to 31 March: South West £m East Midlands £m East Coast £m West Coast £m 2017 (659.7) (60.0) (276.1) (205.7) 2018 (273.7) (58.8) (339.8) (237.7) 2019

• (351.7)
• 2020
• (319.5)
• 2021
• (416.7)
• 2022
• (507.9)
• 2023
• (584.5)

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Taxation

Year to 29 April 2017 Pre-tax profit £m Tax £m Rate % Excluding intangible asset expenses and exceptional items 166.3 (28.3) 17.0% Intangible asset expenses (16.8) 2.1 12.5% Exceptional items (124.0) 18.8 15.2% 25.5 (7.4) 29.0% Reclassify joint venture taxation for reporting purposes (7.6) 7.6 Reported in income statement 17.9 0.2 (1.1)% Cash tax paid (net) (21.6)

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Movement in net debt

Year to 29 April 2017 £m EBITDA from Group companies before exceptional items 312.1 Cash effect of exceptional items (3.7) (Gain)/Loss on disposal of property, plant and equipment (4.3) Equity-settled share based payment expense 1.9 Dividends from joint ventures 28.1 Working capital movements (53.7) Net interest paid (26.7) Tax paid (21.6) Net cash from operating activities 232.1 Net capital expenditure including new hire purchase and finance leases (157.3) Acquisitions/disposals of businesses and intangibles 8.8 Token sales and redemptions (0.4) Cash generation 83.2 Foreign exchange, income statement and other movements (23.5) Equity dividends (67.1) Net own shares purchased (2.7) Increase in net debt (10.1) Opening net debt (399.3) Closing net debt (409.4)

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Fuel hedging

Market prices are as at 31 May 2017. Prices exclude delivery margins, duty, taxes and Bus Services Operators Grant

UK Bus (regional

• perations)*

UK Bus (London) North America UK Rail 2016/17

• % of forecast consumption hedged

100% 76% 84% 95%

• average hedge price (per litre)

35.3p 34.7p 54.2 cents 28.6p 2017/18

• % of forecast consumption hedged

99% 77% 62% 61%

• average hedge price (per litre)

34.0p 33.6p 44.2 cents 25.6p 2018/19

• % of forecast consumption hedged

96% 39% 38% 48%

• average hedge price (per litre)

28.7p 32.8p 46.0 cents 33.8p 2019/20

• % of forecast consumption hedged

72% 25% 1%

• average hedge price (per litre)

34.0p 31.4p 61.5 cents

• 2020/21
• % of forecast consumption hedged
• 12%
• average hedge price (per litre)
• 33.9p
• Market price (per litre)

29.5p 29.5p 39.6 cents 29.7p

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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

• perating units that have been part of the Group throughout both periods. Where the number of

days differs between the current and prior year periods, the prior year amount is normalised for that when calculating like-for-like amounts.

• 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, intangible asset expenses, 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 29 APRIL 2017