Interim Results Half-year ended 26 October 2019 11 December 2019 2 - - PowerPoint PPT Presentation

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11 December 2019

Interim Results

Half-year ended 26 October 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, regulatory 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

▪ Solid financial results reflecting business initiatives and the reduction in the scale of the Group over the last eighteen months ‒ Adjusted earnings per share 10.0p (H1 2019: 12.9p) ‒ London Bus profit ahead of our start of year expectations and regional bus revenue growth recovering ‒ Net debt £392.6m (27 April 2019: £342.3m including IFRS 16 implementation) ▪ Exit from UK train operations complete ‒ Continuing unwind of contractual positions ▪ Positive outlook supported by political consensus on the need for action on climate change, government pro-bus policy and funding commitments ▪ Updated strategy with re-defined strategic objectives to pursue sustainable growth ▪ Continued investment in new vehicles and other assets ‒ £54.1m net capital expenditure ▪ Interim dividend maintained at 3.8p per share ▪ 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)

Solid performance and positive long-term opportunities

* Excludes inter-city coach services operated as a sub-contractor

Half-year ended 26 Oct 2019 Half-year ended 27 Oct 2018 (restated) Change

Revenue (£m) 535.1 527.7 1.4% Like-for-like revenue (£m) 535.1 526.7 1.6% Operating profit (£m) 57.1 65.2 (12.4)% Operating margin (%) 10.7% 12.4% (170)bp Estimated like-for-like passenger journeys* (m) 321.2 325.9 (1.4)%

▪ Prior year period reflects 2018’s exceptionally good summer weather and revenue from operating bus services related to rail re- signalling work in the Derby area ▪ Revenue per mile up 1.0%; revenue per journey up 3.0% ▪ Sales to fare paying customers through digital channels up 60.6% ▪ Regional variations in growth trends and profitability ▪ Higher revenue growth forecast for second half of year ▪ Major opportunity for modal shift: action on climate change, pro-bus public policy and government funding commitments ▪ Underpinned by high operating performance, strong employee engagement and customer satisfaction (90% England, 92% Scotland)

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UK Bus (London) Better than expected results reflecting actions taken earlier in year

Half-year ended 26 Oct 2019 Half-year ended 27 Oct 2018 Change

Revenue and like-for-like revenue (£m) 120.6 128.6 (6.2)% Operating profit (£m) 5.1 6.1 (16.4)% Operating margin (%) 4.2% 4.7% (50)bp ▪ Higher than anticipated Quality Incentive Contract income reflecting good service performance ▪ Benefit of actions taken to improve efficiency ▪ Encouraging results from contract bids – net 5.3% increase in contracted peak vehicles from tender decisions since May 2019 ▪ Bidding strategy designed to support long-term sustainability of business

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Rail Managed exit from rail franchises progressing well

Half-year ended 26 Oct 2019 Half-year ended 27 Oct 2018 (restated) Change

Revenue (£m) 146.3 359.3 (59.3)% Operating profit (£m) 11.6 11.5 0.9% Operating margin (%) 7.9% 3.2% 470bp

▪ East Midlands franchise ended August 2019: worked collaboratively with new operator to ensure smooth transition ▪ Continuing unwind of South West, Virgin Trains East Coast and East Midlands rail businesses ▪ Sheffield Supertram is only continuing rail operation – concession to 2024 ▪ UK Rail profit includes cost of Commercial & Business Development team ▪ Pursuing claims against Secretary of State for Transport re disqualification of franchise bids ▪ No intention to bid for new UK rail franchises on risk profile currently offered

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Virgin Rail Group (incorporates West Coast franchise) Strong financial performance in final months of franchise

▪ Continued strong financial performance through to end of West Coast rail franchise on 8 December 2019

Half-year ended 26 Oct 2019 Half-year ended 27 Oct 2018 Change

Revenue – 49% share (£m) 316.5 303.2 4.4% Operating profit – 49% share (£m) 13.0 13.7 (5.1)% Operating margin (%) 4.1% 4.5% (40)bp

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Stagecoach Group A well funded continuing business

Reported Year to 26 Oct 2019 Exclude North America Interest on North America cash proceeds(4) Rail net liabilities (excl. cash) Share of Virgin Rail Group net assets Exclude Rail EBITDA & net finance charges Annualise IFRS 16 effect Pro forma UK non- rail Year to 26 Oct 2019

Rolling 12-month EBITDA(1)(2) (£m) 288.2 (24.5)

• (52.8)

13.0 223.9 Net finance charges(1)(2) (£m) (28.0) 1.7 2.0

• (1.1)

(1.3) (26.7) Net debt(3) (£m) (392.6)

• (110.5)

21.6

• (481.5)

EBITDA(1)(2) /Net finance charges(1)(2) 10.3 8.4 Net debt/EBITDA(1)(2) 1.4 2.2

• Excluding IFRS 16

1.1 2.0

Notes (1) Includes share of joint ventures (2) Excludes separately disclosed items (3) Figures reflect adoption of IFRS 16, “Leases”, from 28 April 2019, which added £89.0m to net debt (4) Estimated effect of applying net cash sales proceeds to reduce net debt

▪ Smaller but well funded business ▪ Rated investment grade by two major credit rating agencies ▪ Increase in reported net pension liability due to lower bond yields – managing continuing exposure to pension risks

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Impact of IFRS 16, “Leases”: as at 28 April 2019

▪ New accounting standard on leases, IFRS 16 ▪ Applied 2019/20 with no restatement of comparatives ▪ Results in a number of leases, previously accounted for as operating leases (rentals expensed), being capitalised within fixed assets as right of use assets (£88.1m) and depreciated over term of lease ▪ Increase in lease liability (£89.0m), depreciation charges and finance charges; reduction in operating lease expense. Lease liability decreases as rental payments made ▪ Accounting for rail leases not affected – all material rail leases expire in the current financial year ▪ 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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Impact of IFRS16, “Leases”: half-year ended 26 October 2019

Excluding separately disclosed items Excluding effect

• f IFRS 16

£m Effect of IFRS 16 £m As reported £m Adjusted EBITDA: UK Bus (regional operations) 97.0 3.5 100.5 UK Bus (London) 7.2 9.4 16.6 Other (inc. joint ventures) 20.2 0.1 20.3 124.4 13.0 137.4 Depreciation, amortisation & impairment UK Bus (regional operations) (40.2) (3.2) (43.4) UK Bus (London) (2.5) (9.0) (11.5) Other (inc. joint ventures) (0.4)

• (0.4)

(43.1) (12.2) (55.3) Operating profit 81.3 0.8 82.1 Net finance charges (inc. joint ventures) (11.4) (1.3) (12.7) Tax (inc. joint ventures) (13.5) 0.1 (13.4) Profit after tax 56.4 (0.4) 56.0 Net debt at 26 October 2019 (307.8) (84.8) (392.6)

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MARTIN GRIFFITHS CHIEF EXECUTIVE

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Strategic objectives

We have identified three strategic objectives that will build a sustainable business, diversify our exposure to risk and create value for our stakeholders.

Objectives

Maximise our core business’ potential in a changing market Grow by diversifying to balance the portfolio and open new markets Manage change through our people and technology to make it simpler and better

Outcomes

1. Build a sustainable business 2. Diversify exposure to risk 3. Create value for our stakeholders

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Strategic overview

To support these objectives we have identified 10 activities to deliver the change we are seeking.

Objective 1 Maximise our core business’ potential Objective 2 Manage change through our people and technology Objective 3 Grow by diversifying Modernise retailing & fares to open up new channels to market, increase retention and attract customers Develop sustainable vehicle technology to meet long-term needs Exit UK rail franchising Grow the current UK portfolio Streamline the back office to improve

• ur business

Enter new international markets Implement our marketing & customer strategy to grow revenues Upskill our people to improve service delivery New products & services to fill gaps in the current UK portfolio Manage contractual & political uncertainty

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▪ 4% of distance travelled in 2018 by residents of England was by bus* ‒ versus 77% by car ‒ substantial market for sustainable modal shift from car to bus ▪ Accelerate modal shift from car through targeted corporate sales ▪ Develop multi-journey fares capping to improve value and increase patronage ▪ Implement our marketing and customer strategy to support rebranding and the roll out of commercial initiatives ▪ Expand services with a particular focus on inter-urban and airport bus/coach services

* National Travel Survey: England 2018, Department for Transport

Maximise our core business’ potential Commercial priorities in core UK business

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Tackling the climate crisis and delivering cleaner air

New cleaner buses can dramatically reduce carbon emissions and air pollution

▪ New ultra-low and zero emission bus technology deliver huge environmental improvements ▪ Buses offer up to 20 times the carrying capacity of standard cars ▪ Surface transport is the single largest producer of carbon emissions in the UK ▪ Only sector where Greenhouse Gas (“GHG”) emissions are growing ▪ UK Government “net zero” target for GHG emissions by 2050 ▪ Cities facing legal and political pressure for action

• n air quality with growing

concern over health impacts ▪ £2.45 billion Transforming Cities Fund set up by UK Government to help THE CHALLENGE THE SOLUTION STAGECOACH IMPACT ▪ £1 billion investment in new greener vehicles in a decade ▪ Without Stagecoach bus services, there would be 0.19 million tonnes of extra CO2 a year from passengers using cars and other transport (Source: Centre for

Economics and Business Research)

▪ c.£25m of investments in electric buses for Manchester, South Wales and Guildford combining Stagecoach and public investments ▪ 2% like-for-like reduction in Stagecoach GHG emissions in 2018/19

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Manage change through our people and technology

Navigating a changing market environment through innovation, investment and engagement

Customer Improving customer intimacy and experience, delivering the right products and services at the right place, time and price Business Operations Developing and implementing the right operating models which have the appropriate balance of efficiency and effectiveness Infrastructure Ensuring that “keeping the lights on” projects are delivered within the agreed parameters for scope, quality, time, cost and risk Better customer experience Improved customer satisfaction Positive impact on revenue Safer, more efficient and agile business Business continuity New brand proposition and national marketing activity Digital channels (web, app) Products and ticketing Organisational structure People systems Asset Management Systems Operations changes Regulation Renewals IT Strategy Corporate sales platform Electric and ultra-low emissions vehicles Leadership capability, people development, employee engagement

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Grow by diversifying

Criteria and approach

• Market and contract structure, performance
• Consideration of contracts and potential acquisitions
• Positive national and regional economic outlook
• Supportive socio-economic/demographic factors
• Manageable political and regulatory environments
• Risk profile v potential returns
• Consistent, data driven analysis and evaluation
• 1. Conduct

market assessment

• 2. Identify target

markets

• 3. Assess
• pportunities
• 4. Develop
• pportunities

Identify pipeline of potential opportunities in domestic and overseas markets meeting strict criteria

Stable markets with established public transport operations, acceptable balance of risk and return, and strong potential for profitable growth

Current focus

• Bid for Roslagsbanan commuter rail contract in

Stockholm submitted in November 2019

• Initial emphasis on “bidding” v “buying”

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Summary

▪ Solid start to 2019/20 ▪ Clear strategic objectives ▪ Good financial position ▪ Positive outlook and growth opportunities ‒ Growing pressure to address road congestion, air quality and climate change ‒ Supportive government policy and funding commitments ‒ New commercial initiatives ‒ Diversification into new markets ▪ No change in our expected 2019/20 earnings per share

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INTERIM RESULTS HALF-YEAR ENDED 26 OCTOBER 2019

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APPENDICES

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Summary income statement

Half-year ended 26 Oct 2019 £m Half-year ended 27 Oct 2018 £m Change £m UK Bus (regional operations) operating profit 57.1 65.2 (8.1) UK Bus (London) operating profit 5.1 6.1 (1.0) Citylink profit after tax 1.5 1.4 0.1 North America operating profit

• 16.1

(16.1) UK Rail operating profit 11.6 11.5 0.1 Virgin Rail Group profit after tax 10.8 11.4 (0.6) Restructuring costs and Group overheads (6.5) (8.3) 1.8 Operating profit 79.6 103.4 (23.8) Finance charges (net) (13.0) (16.4) 3.4 Tax (10.6) (13.2) 2.6 Adjusted profit 56.0 73.8 (17.8) Separately disclosed items, net of tax (1.2) (105.5) 104.3 Reported profit/(loss) 54.8 (31.7) 86.5 Adjusted earnings per share (pence) 10.0 12.9 (2.9)

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UK Bus (regional operations) Growth analysis

Like-for-like growth Half-year to 26 October 2019 Revenue Journeys Implied yield Megabus 2.2% (2.7)% 5.0% Other commercial 1.8% (1.0)% 2.8% Concessionary 1.9% (2.4)% 4.4% Tendered and school 3.5% Contract and other revenue (7.7)% Total 1.6% (1.4)% 3.0%

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Movement in net debt

Half-year to 26 Oct 2019 £m EBITDA from Group companies before separately disclosed items 122.6 Cash effect of current period separately disclosed items (2.4) Gain on disposal of property, plant and equipment (1.6) Share based payment movements (0.2) Dividends from joint ventures 9.9 Working capital movements (40.9) Net interest paid (17.5) Tax paid (8.9) Net cash from operating activities 61.0 Net capital expenditure including new hire purchase and leases (54.1) Acquisitions/disposals of businesses and intangibles (4.9) Cash generation 2.0 Charged to Income statement (0.4) Recognition of lease liabilities on adoption of IFRS 16 (89.0) Share buy-backs (30.2) Equity dividends (21.7) Increase in net debt (139.3) Opening net debt (253.3) Closing net debt (392.6)

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Fuel hedging

UK Bus (regional) UK Bus (London) 2019/20

• % of forecast consumption hedged

91% 96%

• average hedge price (per litre)

33.8p 36.4p 2020/21

• % of forecast consumption hedged

88% 55%

• average hedge price (per litre)

34.7p 37.3p 2021/22

• % of forecast consumption hedged

56% 34%

• average hedge price (per litre)

39.2p 38.0p 2022/23

• % of forecast consumption hedged

24% 26%

• average hedge price (per litre)

38.7p 38.2p 2023/24

• % of forecast consumption hedged
• 5%
• average hedge price (per litre)
• 39.1p

2024/25

• % of forecast consumption hedged
• 4%
• average hedge price (per litre)

39.6p Market price (per litre) 37.4p 37.4p

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

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Definitions

▪ Adjusted measures of profit exclude “separately disclosed items” as detailed in the Group’s announcement of its interim results for the half-year ended 26 October 2019. ▪ Like-for-like amounts are derived by comparing the relevant year-to-date amount with the equivalent prior year period for those businesses and individual operating units that have been part of the Group throughout both periods. ▪ Operating profit or loss for a particular business unit or segment within the Group refers to profit

• r loss before net finance income/costs, taxation, non-controlling interests, separately disclosed

items and restructuring costs. ▪ Operating margin for a particular business unit or segment within the Group means operating profit or loss as a percentage of revenue. ▪ Separately disclosed items are defined and set out in the Group’s announcement of its interim results for the half-year ended 26 October 2019. ▪ Gross debt is borrowings as reported on the consolidated balance sheet, adjusted to exclude accrued interest on bonds. ▪ Net debt (or net funds) is the net of cash/cash equivalents and gross debt.

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INTERIM RESULTS HALF-YEAR ENDED 26 OCTOBER 2019