Stagecoach Group plc has published a trading update in advance of a series of meetings with analysts.
Financial performance
The overall profitability of the Group
has remained satisfactory, and there has been no significant change to the expected adjusted earnings per share for the year ending 30 April
2014.
Like-for-like revenue growth for the financial year to date in each of the Group's main businesses is provided below.
UK Bus (regional operations) - forty eight weeks ended 30 March 2014 +4.8%
UK Bus (London) - forty eight weeks ended 30 March 2014 +4.6%
UK Rail - forty eight weeks ended 30 March 2014 +4.5%
North America - eleven months ended 31 March 2014 +4.1%
(including Megabus.com)
Virgin Rail Group - forty eight weeks ended 30 March 2014 +5.9%
UK Bus (regional operations)
UK Bus (regional operations) division
has performed well during the period, with both passenger volumes and
revenue growing year-on-year. Like-for-like passenger volume growth for
the forty-eight week period was 1.5%. An increase in commercial
revenue has contributed most to overall revenue growth, with
concessionary, tendered and school revenue also continuing to grow.
Looking ahead, the company do not expect
significant short-term growth in concessionary and tendered revenue as
local authorities look to minimise concessionary reimbursement amounts
and bus tenders in light of their budget constraints. This is
exemplified by the Welsh Government's planned cuts in concessionary
reimbursement rates for bus operators in Wales. The focus is therefore
to seek to continue to deliver good growth in commercial revenue to
offset inflationary cost pressures.
UK Bus (London)
UK Bus (London) division has
performed strongly in the period, as the company continue to benefit from the new
contracts won last year. From 1 October 2013, the business no longer
receives Bus Service Operators' Grant (a rebate of fuel duty) but this
is offset by a corresponding uplift in the contract prices paid to the
business by Transport for London. Excluding this uplift in contract
prices, revenue has increased by 1.6%.
UK Rail
The financial performance of rail
businesses is in line with expectations, with revenue growth improving
as extreme weather in the south-west of England has subsided in recent
weeks.
The company are pleased that South West Trains and
Network Rail have entered into a new agreement that extends the duration
of their alliance and will build on the successes that the Alliance has
achieved over the last two years. The new agreement contemplates that
the single, joint Alliance management team will continue to have
responsibility for both train and infrastructure operations for the next
five years to April 2019.
Stagecoach continue to discuss with the
Department for Transport ("DfT") the planned extensions to South
West Trains and East Midlands Trains franchises and also look forward
to hearing the results of the tenders for the Docklands Light Railway
and Thameslink franchises for which bids have been submitted.
The company are continuing to work on the bid with
Virgin for the InterCity East Coast rail franchise, but now anticipate
around £2m of the bid costs previously expected to be incurred
in the year ending 30 April 2014 to be deferred until next year.
As previously reported, South West Trains
and East Midlands Trains face further substantial increases in the
amounts they are due to pay to the DfT as franchise premia amounts in
the year ahead . The company remain focussed on growing revenue and controlling
costs to offset these increased premia payments, to the extent possible.
North America
Trading in the North America division has
been satisfactory, despite the prolonged period of adverse weather
across the US. Megabus.com in North America is the fastest-growing part
of the Group, increasing revenue by 16.5% in the eleven months ended 31
March 2014. This reflects further growth in existing services, as well
as the contribution from Texas and California networks launched
during the year ended 30 April 2013. The company are pleased to announce the
expansion of the megabus.com network with the new Florida hub being
launched in May 2014.
Virgin Rail Group
Virgin Rail Group ("VRG") continues to
earn a fee equivalent to 1% of revenue from the West Coast rail
franchise with the DfT taking the risk that revenue and/or costs differ
from those expected. VRG and the DfT are discussing revised commercial
terms that could see VRG take greater revenue and cost risk for the
period from a date to be agreed through to April 2017 for a commensurate
financial return.
Twin America
Progress has been made in resolving the previously reported litigation regarding Twin America.
The US Department of Justice and the New
York Attorney General (together, "the Government plaintiffs") initiated
litigation against Twin America and its joint venture partners ("the
Defendants", which include two Stagecoach US subsidiaries) in 2012. The
litigation alleges that the formation of the Twin America joint venture
in 2009 was anti-competitive. Separately, private plaintiffs brought a
claim based on the same allegations on behalf of a proposed class of
customers.
The Defendants have not admitted any
liability but have agreed a cash settlement of US$19m (c. £11m) with the
private plaintiffs to fully resolve the private litigation. That
settlement will be submitted to the court for preliminary approval.
Assuming the court grants its preliminary approval, final court approval
is anticipated in approximately nine to 12 months following a period
for class notification and claims administration.
The Government action remains pending at
this time. Until the Government action concludes, the total financial
cost of the various actions cannot be determined. The allocation and
funding of any financial settlements amongst the various Defendants is
currently being discussed.
The Group currently anticipates recording
exceptional pre-tax costs of around US$15m (c.£9m) in its consolidated
financial statements for the year ending 30 April 2014 in respect of its
share of financial costs connected with the litigation. The ultimate
cost to the Group may differ from this as it remains dependent on the
outcome of the Government action.
Trading remains challenging for Twin
America as a result of an increasingly competitive New York sightseeing
market, among other factors, and we anticipate that our share of profit
from Twin America will further reduce in the year ending 30 April 2015.
Exceptional items
The Group's treatment of gains and losses
arising on property disposals has been to classify these as exceptional
items. Having reviewed the approach in this area, recognising the
regular occurrence of such items historically and the benefits of
comparability across the sector, these items will generally be included in the measure of pre-exceptional results in the financial statements
for the year ending 30 April 2014 and thereafter.
It is expected that property losses in the UK
Bus (regional operations) division will amount to no more than £2m in
the current year, and that gains and losses in other parts of the Group
will be insignificant.
Financial position
The Group maintains a strong financial
position with investment grade credit ratings and appropriate headroom
under its debt facilities. Consolidated net debt as at 31 March 2014
was at a similar level to that reported as at 31 October 2013 and is
after taking account of the previously announced acquisition of Norfolk
Green and continued investment in the Group's vehicle fleet.
Outlook
Although the company face a number of challenges to growing profit in the year ending 30 April 2015, overall current trading is satisfactory and the prospects for the Group remain positive.
Preliminary results announcement
The Group intends to announce its preliminary results for the year to 30 April 2014 on Wednesday 25 June 2014.
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