Interim Results Half-year ended 27 October 2018 5 December 2018 2 - - PowerPoint PPT Presentation

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5 December 2018

Interim Results

Half-year ended 27 October 2018

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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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Positioned for growth in bus and rail

Financial

• Adjusted EPS of 12.9p (H1 2018: 13.6p) – ahead of expectations
• Basic EPS of (5.5)p (H1 2018: 13.6p) reflect exceptional charges
• Interim dividend maintained at 3.8 pence per share
• Full-year adjusted earnings will reflect the rail out-performance in the first half of the year

Bus & Coach

• Continuing innovation and leadership
• Encouraging performance from UK Bus (regional operations) – revenue per vehicle mile up 4.4%
• London contract renewal rates disappointing in challenging market
• North America strategic review

‒ Underlying performance in North America in line with revised expectations, but £85.4m non- cash goodwill impairment recorded to reflect revised view of long-term profitability Rail

• Involved in short-listed bids for three new UK franchises
• Good profitability at East Midlands Trains; planned Direct Award through to at least August 2019
• Opportunity for Williams review to deliver more customer-focused and sustainable model

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UK Bus (regional operations)

Encouraging first half performance

* Excludes inter-city coach services operated as a sub-contractor Half-year ended 27 Oct 2018 Half-year ended 28 Oct 2017 Change

Revenue (£m) 527.1 512.4 2.9% Like-for-like revenue (£m) 526.1 508.6 3.4% Operating profit (£m) 65.2 61.6 5.8% Operating margin (%) 12.4% 12.0% 40bp Estimated like-for-like passenger journeys* (m) 325.3 328.1 (0.8)%

• Passenger revenue growth – like-for-like revenue per vehicle mile up 4.4%
• Journey trends in line with change in vehicle miles
• Good first half result boosted by good summer weather
• Contactless payment facilities on all our buses
• Range of initiatives to protect and grow business

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UK Bus (London)

Actions to improve competitiveness and benefit from longer term opportunities

Half-year ended 27 Oct 2018 Half-year ended 28 Oct 2017 Change

Revenue and like-for-like revenue (£m) 128.6 128.4 0.2% Operating profit (£m) 6.1 6.5 (6.2)% Operating margin (%) 4.7% 5.1% (40)bp

• Disappointing tender results in year in increasingly competitive bidding environment
• Holding our nerve – maintaining sustainable contract pricing
• Reviewing bid models, financial forecasts, contract pricing and cost efficiency to identify opportunities to

improve competitiveness

• Good progress on cost reduction programme
• Margin pressure expected to continue in short-term
• Longer term opportunities from planned housing development

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North America Focused on new opportunities

Half-year ended 27 Oct 2018 Half-year ended 28 Oct 2017 Change

Revenue (US$m) 323.3 333.9 (3.2)% Like-for-like revenue (US$m) 323.9 333.9 (3.0)% Operating profit (US$m) 21.2 27.6 (23.2)% Operating margin (%) 6.6% 8.3% (170)bp

• No significant change since September trading update in expected 2018/19 profit
• Focus is on growing scheduled service (including megabus.com) and contract revenue business
• Further reviewing cost base
• Non-cash impairment charge of £85.4m, reflecting revised view of long-term profitability
• Reviewing strategic options – in discussions regarding possible sale

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Rail Good financial performance and new contract opportunities

Half-year ended 27 Oct 2018 Half-year ended 28 Oct 2017 (restated) Change

Revenue (£m) 335.1 899.2 (62.7)% Like-for-like revenue (£m) 202.1 201.3 0.4% Operating profit (£m) 11.5 21.7 (47.0%) Operating margin (%) 3.4% 2.4% 100bp

• Positive resolution of contractual matters for former South West Trains franchise
• Good operational delivery and financial performance at East Midlands Trains
• Reduction in reported revenue and operating profit reflects ends of South West Trains franchise (in August 2017) and

Virgin Trains East Coast franchise (in June 2018)

• Lower than usual like-for-like revenue growth reflects effects of Thameslink timetable changes and Derby re-

signalling work on East Midlands Trains – profit contractually protected from adverse impact

• Involved in short-listed bids for three UK franchises
• Expected short-term East Midlands direct award from March 2019 until at least August 2019

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Virgin Rail Group (incorporates West Coast franchise) Industry-leading innovations and strong financial performance

Half-year ended 27 Oct 2018 Half-year ended 28 Oct 2017 Change

Revenue – 49% share (£m) 303.2 288.5 5.1% Operating profit – 49% share (£m) 13.7 14.8 (7.4)% Operating margin (%) 4.5% 5.1% (60)bp Estimated passenger miles (m) 2,410.3 2,387.4 1.0%

• Continued strong financial performance

‒ margin slightly down reflecting new franchise terms

• Customer-focused innovation – removing Friday peak-hour restrictions from London Euston
• Digital enhancements include selling tickets through Amazon Alexa platform

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Stagecoach Group Good financial position

Half-year ended 27 Oct 2018 Half-year ended 28 Oct 2017 Change

Net finance charges (including share of net finance income of joint ventures) (£m) (16.0) (17.9) 1.9 EBITDA from continuing operations and joint ventures* (£m) 176.2 189.9 (13.7) Closing net debt (£m) (461.2) (482.8) 21.6 Net Debt/trailing 12-month EBITDA* 1.4x 1.4x

• EBITDA*/Net finance charges (including share of net finance

income of joint ventures) 11.0x 10.6x 0.4x

* excluding exceptional items

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MARTIN GRIFFITHS CHIEF EXECUTIVE

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Overview

• Good business fundamentals and strong financial position
• Growth in core regional bus operations and well positioned in de-risked rail

market

• Clear understanding of changing dynamics and trends in our public transport

markets

• Focus on growing demand through data, technology, innovation + better

policy

• Leveraging technology and engaging with our people to make bus and rail

services easier for customers, reduce costs and improve efficiency

• Positive outlook from growing pressure on governments to address road

congestion, air quality and maximise benefit of public transport to economy

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Understanding the dynamics and trends in public transport markets - 1

Compound Annual Growth Rate (“CAGR”) London Metropolitan areas Non-metro areas All England Factors driving bus patronage by 0.3%+ p.a. Population 0.6% 0.7% 1.0% 0.8% Bus journey times (1.0)% (0.6)% (0.2)% (0.7)% Bus fares (0.2)% (0.4)% (0.5)% (0.3)% Factors driving bus patronage by 0.2% p.a. Car ownership/use 0.2% (0.6)% (0.8)% (0.2)% Online services (0.2)% (0.2)% (0.3)% (0.2)% Rounding

• (0.2)%

Sub-total (0.6)% (1.1)% (0.8)% (0.8)% Other factors (0.1)% (0.3)%

• (0.1)%

5-year CAGR (0.7)% (1.4)% (0.8)% (0.9)%

Source: Confederation of Passenger Transport UK; http://www.cpt-uk.org/_uploads/attachment/4639.PDF

Changes in bus patronage in England between 2011/12 and 2016/17

• Stagecoach UK Bus (regional operations) Division delivered like-for-like volume growth CAGR of 0.1% in the five years

from 2011/2012 and 2016/17

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Understanding the dynamics and trends in public transport markets - 2

• Population growth is the biggest positive driver of bus patronage across

England.

• The biggest negative drivers of patronage are factors linked to road

congestion: car ownership, increased bus journey times and higher bus fares

• Public policy decisions have also negatively impacted bus use:

‒ Cuts to local authority supported services have reduced the scope of bus networks ‒ the Government’s decision to reduce the rate of Bus Service Operators Grant (fuel duty rebate) from April 2012 has increased bus operator costs and fares

• Online services (e.g. online shopping and delivery services) have had a lesser

adverse impact on bus use

• The incremental impact from new taxi competition has been relatively modest

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Future bus passenger trends: opportunities and risks

Opportunities for growth

• Measures to tackle road congestion and

air quality, promote public transport

• Stable public policy to minimise bus cost

increases

• Stabilisation/growth in tendered bus

services ex-London

• Further improvements in bus quality
• Benefits of operator use of data to grow

patronage

• Increased car costs (fuel prices,

insurance)

• Creating new reasons to travel,

particularly to town centres

• Population growth and urbanisation

Risks of decline

• Increased taxi competition
• More use of online services
• Greater flexible (and at home) working

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Making our bus services easier for customers

• Growth in new and refreshed inter-urban services by reflecting changing

customer needs/expectations in product offer

• Partnership with Deloitte digital arm to deliver radical simplification of

passenger information, with prioritisation of digital

• Brand strategy review to reconnect with customers and leverage strength of
• ur market leading offer
• Completion of roll-out of Britain’s biggest deployment of contactless

technology on bus, with plans for QR code mobile ticketing on bus in 2019

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Predictive demand analytics

• Partnership with CitySwifter to deliver more

accurate bus schedules, business intelligence, improved reliability and cost efficiencies

• Trial on four major bus corridors into Oxford
• New schedules running since September 2018

focused initially on improving punctuality Demand responsive transport (DRT)

• Detailed analysis of key criteria across global

DRT market initially identified four locations on Stagecoach network in England

• Data used to redesign services to generate

growth from existing and new travel demand

• Commercial terms agreed for a strategic

relationship with a technology provider

Innovation: using data to predict and manage transport demand

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Innovation: understanding customers and developing new tech solutions

Hindsight rail app

• World’s first retrospective pricing app in test

following Stagecoach Group c.20% investment in Global Travel Ventures Limited

• Responds to new agile working environment

by allowing customers to pay for journeys they take over course of a week

• Live test underway on East Midlands Trains

network Customer segmentation and marketing

• In-house data consolidation across Group
• Better segmentation and understanding of

customer behaviour

• Improved and more targeted email

marketing in UK

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Innovation: supporting future travel developments

Autonomous Vehicle (AV) Technology

• Live depot trial in Manchester of full-size

bus in AV mode from January 2019

• World’s largest trial of autonomous buses

from March 2019 between Fife and Edinburgh, backed by £4.35m funding from Innovate UK ‒ Insight into best practice in AV

• perations to position Stagecoach for

future opportunities Intelligent Mobility Accelerator

• Key corporate sponsor of partnership

between Transport Systems Catapult and Wayra UK, the world-leading start-up accelerator

• Opportunity to pilot with innovative start

ups across the mobility spectrum

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Influencing transport policy

Urban Mobility Partnership

• Formed by Stagecoach Group and car

rental group, Enterprise Holdings

• Brings together key stakeholders to

develop practical policy solutions aimed at reducing congestion, improving air quality and making journeys easier in UK towns and cities

• Initial policy proposals focus on mobility

credits, planning and grey fleets

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UK rail market and government policy review

• Group well-positioned in UK rail market

‒ Three live contract bids both individually and with strong partners ‒ Direct Award at East Midlands Trains through to at least August 2019 expected shortly ‒ More than 20 years' experience of delivering benefits for customers, taxpayers, investors

• Williams rail review presents opportunity for a more sustainable franchising

model and a successful railway for customers and taxpayers

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Strong Group financial position and positive outlook

• Disciplined capital investment across the business
• Increase in expected 2018/19 adjusted earnings per share
• Brexit risks evaluated and manageable
• Opportunities from innovation, new initiatives and growing pressure on

government to address congestion and air quality

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INTERIM RESULTS HALF-YEAR ENDED 27 OCTOBER 2018

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APPENDICES

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Summary income statement

Half-year ended 27 Oct 2018 Half-year ended 28 Oct 2017 Change £m UK Bus (regional operations) operating profit 65.2 61.6 3.6 UK Bus (London) operating profit 6.1 6.5 (0.4) Citylink profit after tax 1.4 0.8 0.6 North America operating profit 16.1 21.2 (5.1) UK Rail operating profit 11.5 21.7 (10.2) Virgin Rail Group profit after tax 11.4 12.1 (0.7) Restructuring costs, Group overheads and other items (8.3) (9.1) 0.8 Operating profit 103.4 114.8 (11.4) Finance charges (net) (16.4) (18.1) 1.7 Tax (13.2) (18.6) 5.4 Profit excluding exceptionals 73.8 78.1 (4.3) Exceptionals, net of tax (105.5)

• (105.5)

Reported (loss)/profit (31.7) 78.1 (109.8) Adjusted earnings per share (pence) 12.9 13.6 (0.7)

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UK Bus (regional operations) Growth analysis

Like-for-like growth Half-year to 27 October 2018 Revenue Journeys Implied yield megabus.com UK 24.1% 13.6% 9.3% Other commercial 2.9% (0.4)% 3.2% Concessionary 1.0% (2.2)% 3.3% Tendered and school 3.6% Contract and other revenue 15.7% Total 3.4% (0.8)% 4.3%

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Taxation

Half-year to 27 October 2018 Pre-tax profit/(loss) £m Tax £m Rate % Excluding exceptional items 90.0 (16.2) 18.0% Exceptional items (109.6) 4.1 (19.6) (12.1) Reclassify joint venture taxation for reporting purposes (3.0) 3.0 Reported in income statement (22.6) (9.1) Cash tax paid (net) 16.8

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Movement in net debt

Half-year to 27 Oct 2018 £m EBITDA from Group companies before exceptional items 160.8 Loss on disposal of property, plant and equipment 0.7 Equity-settled share based payment expense 0.4 Dividends from joint ventures 6.0 Working capital movements (145.2) Net interest paid (20.0) Tax paid (16.8) Net cash from operating activities (14.1) Net capital expenditure including new hire purchase and finance leases (44.2) Acquisitions/disposals of businesses and intangibles 26.3 Token sales and redemptions (0.1) Cash generation (32.1) Foreign exchange, income statement and other movements (10.9) Equity dividends (22.4) Increase in net debt 65.4 Opening net debt 395.8 Closing net debt 461.2

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Fuel hedging

UK Bus (regional) UK Bus (London) North America UK Rail 2018/19

• % of forecast consumption hedged

95% 75% 71% 83%

• average hedge price (per litre)

28.7p 37.5p 48.1 cents 33.1p 2019/20

• % of forecast consumption hedged

94% 27% 51%

• average hedge price (per litre)

33.8p 31.4p 52.1 cents

• 2020/21
• % of forecast consumption hedged

70% 14% 13%

• average hedge price (per litre)

33.1p 33.9p 57.7 cents

• 2021/22
• % of forecast consumption hedged

24%

• average hedge price (per litre)

40.2p

• Market price (per litre)

47.4p 47.4p 59.2 cents 47.4p

Market prices are as at 31 October 2018. Prices exclude delivery margins, duty, 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 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, 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.
• TfL refers to Transport for London, a governmental body.

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INTERIM RESULTS HALF-YEAR ENDED 27 OCTOBER 2018