Interim results
*6 December 2023*
*Stagecoach Group Limited*
*Interim results for the half-year ended 28 October 2023*
*Financial summary*
*“Adjusted” results*
*Results excluding separately disclosed items** *“Statutory” results* *H1 2024* H1 2023 (restated) *H1 2024* H1 2023 (restated)
Revenue (£m) *773.2* 669.6 *773.2* 669.6
Total operating profit (£m) *43.3* 46.9 *51.1* 33.1
Non-operating separately disclosed items (£m)
*-*
-
*-*
1.5
Net finance costs (£m) *(2.1)* (10.3) *(3.5)* (10.0)
Profit before taxation (£m) *41.2* 36.6 *47.6* 24.6
*See definitions in note 21 to the condensed financial statements
*Strategic and operational highlights*
· Implementation of simpler, leaner organisational structure completed
· Appointment of Claire Miles as Chief Executive Officer effective October 2023
· Growth in regional passenger demand with a 5.3% increase in regional bus passenger journeys in the half-year ended 28 October 2023 compared to the equivalent prior year period
· Supportive government policy continued through the £2 bus fare cap in England underpinning the increase in regional passenger demand
· Recruited and trained more than 2,300 new bus drivers to deliver our services during the half-year ended 28 October 2023
*Financial highlights*
· Good financial results reflecting business initiatives and continued strength of regional bus operations
· Revenue from regional bus operations grew by 15.1% to £584.7m in the half-year ended 28 October 2023 compared to the comparative prior year period
· Net debt increased by £60.4m from £241.1m at 29 April 2023 to £301.5m as at 28 October 2023 reflecting net capital expenditure of £62.3m in the period, supporting the transition of our bus fleet to zero emission vehicles
· No change to our outlook for the year ending 27 April 2024
For further information, please contact:
Stagecoach Group Limited www.stagecoachgroup.com
*Investors and analysts*
Bruce Dingwall, Chief Financial Officer 07917 555293
Notes to editors
*Stagecoach Group*
· Stagecoach is one of Britain’s leading public transport businesses, helping connect communities for over 40 years.
· Stagecoach is Britain's biggest bus and coach operator, and it runs the Supertram light rail network in Sheffield.
· Our team of around 23,000 people and our c.8,300 buses, coaches and trams are part of the fabric of daily life in England, Scotland and Wales.
· We connect people with jobs, skills and training. We bring customers to our high streets, link tourists with visitor attractions, and draw families, friends and communities together.
· Our impact is about far more than transport – we support the economy, help cut congestion on our roads, protect our environment and air quality, boost safety on our roads, and contribute to a healthier nation.
*Interim management report*
The Directors of Stagecoach Group Limited are pleased to present their report on the Company for the half-year ended 28 October 2023.
*Description of the business*
Stagecoach Group Limited is a private limited company, limited by shares. It is incorporated, domiciled and has its registered office in Scotland. The Company is a wholly owned subsidiary of Inframobility UK Bidco Limited, which is indirectly owned by an international infrastructure fund managed and advised by DWS Infrastructure. Throughout this document, we refer to Stagecoach Group Limited as “the Company” and we refer to the group headed by it as “Stagecoach” or “the Group”.
*Overview*
Introduction
We have delivered a positive set of financial results for the half-year ended 28 October 2023 as we work in partnership with national and local government to maximise the opportunities from public transport for consumers and the country while navigating the current economic environment.
There has been a further recovery in demand for our public transport services, with growth in regional bus passenger journeys of 5.3% compared to the equivalent prior year period.
UK Bus (regional operations)
Bus services continue to benefit from a supportive policy environment from national and local government. In England, recovery funding expired at the end of July 2023 and has been replaced by an enhanced operating grant, with forward visibility until the end of March 2025. Further funding has also been allocated to local authorities to support commercial and tendered bus services over the same period. Since its launch in January 2023, the £2 bus fare cap scheme has driven an increase in bus patronage, particularly from existing bus users, and the scheme has now been extended until December 2024. In Scotland, the under-22 concessionary scheme continues to support increased patronage, offsetting suppressed demand within the old age and disabled concessionary scheme. In Wales, emergency COVID support ended in July 2023, with ongoing transitionary funding confirmed in place until March 2024.
The Department of Transport and Scottish Government have allocated significant funding for bus transformation projects in England and Scotland, including the delivery of bus priority schemes. These projects are expected to deliver significant customer benefits in future years through improved punctuality and reliability.
The Department for Transport has launched the second phase of the Zero Emission Bus Regional Areas (“ZEBRA2”) programme in England, with up to £129m of funding available to support the introduction of zero emission buses, and we are supporting local authority bids for this scheme. The Scottish Government launched the second phase of the Scottish Zero Emission Bus Challenge Fund (“ScotZEB2”) earlier this year, and we were disappointed to be recently informed that those bids, in their current form, were unsuccessful.
We are pleased with the professional and constructive manner in which we managed the demobilisation of our Wigan depot prior to the commencement of Transport for Greater Manchester’s new franchising system. Our plans are well advanced for the mobilisation of the services we will operate on behalf of Transport for Greater Manchester from the Middleton, Oldham and Queens Road depots from March 2024.
UK Bus (London)
Similar to the experience of other operators, trading in our London bus operations has been challenging with the losses incurred in the period reflecting the impact of upward wage pressure and elevated levels of staff turnover and staff shortages. The impact of lost mileage has resulted in significant contractual penalties and lost quality incentive income. Road works and traffic congestion are a continuing challenge for operators in the London market, which is adversely affecting service delivery. Engagement is ongoing with Transport for London on these issues. However, we expect profitability to improve as we address labour market challenges, benefit from lagged inflationary increases in contract revenues and seek to re-price contracts as they are tendered.
Macro-economic factors
We are actively managing the current inflationary environment by taking a balanced approach to protecting our customers and employees from the cost-of-living pressures as far as possible, while ensuring we maintain properly funded and sustainable bus networks.
Ensuring we recruit and retain sufficient staff to provide a reliable level of service for customers remains an overriding priority for this business. During the half-year ended 28 October 2023, we have recruited and trained more than 2,300 new bus drivers to deliver our services. The business has delivered a net increase of more than 500 drivers compared to the start of the year. We remain grateful for the huge commitment and professionalism of our people who are delivering services safely in our communities day in, day out.
Operational structure
Following the acquisition of the Group in May 2022, a detailed review of the Group’s structure and operations was undertaken. We have simplified our leadership organisational structure, providing greater clarity on decision-making and more focused support to enhance lines of communication and collaboration. We were delighted to appoint Claire Miles as our Chief Executive Officer effective October 2023.
Financial results
In the half-year to 28 October 2023, revenue grew to £773.2m (H1 2023: £669.6m) and adjusted total operating profit fell slightly to £43.3m (H1 2023: £46.9m). Revenue excludes COVID-19 grant income from government, which is reported as other operating income. The growth in revenue reflects a continuation of recovering passenger demand across our regional bus and tram services, impact of favourable pricing and the effect of the new London businesses acquired in the prior year. The modest reduction in adjusted total operating profit in the period is principally attributable to the higher losses in London, which stem from the elevated levels of staff shortages in that part of the business. Unadjusted operating profit was £51.1m (H1 2023: restated £33.1m), with the increase due to non-recurring separately disclosed gains in the current year and significant transaction costs reported in the prior year period related to the two offers to acquire the Company.
During the half-year, net debt increased from £241.1m to £301.5m, reflecting increased capital investment and loan to shareholders, partly offset by underlying cash generation. We expect our net capital expenditure for the year ending 27 April 2024 to be in excess of £250m, which reflects our continued commitment to invest in the future of the business, supporting the transition of our bus fleet to zero emission vehicles.
Outlook
We remain positive on the long-term outlook for the Group. Public transport delivers the sustainable connectivity people need to access work, education, healthcare, shopping, leisure, and meeting family and friends. As we transition towards a post-pandemic world, we are focused on further rebuilding profitability and adapting our services to meet new and emerging travel patterns.
Whilst the next General Election may lead to some change in the detail of transport policy, there is broad cross-party support for the role that buses play in delivering government objectives on social equity and inclusion, economic development and levelling-up, and in transport decarbonisation. We have worked closely with local and national government in maintaining bus services through the pandemic and into recovery. We anticipate that this close partnership will be a continuing feature of transport policy, including through an expansion of bus service franchising, and we are engaging closely with national and local policy-makers to maximise the opportunities that this will offer.
While there remains some uncertainty around the wider economic environment, there is no change to our expected outlook for the year ending 27 April 2024.
*Summary of financial results*
Revenue, split by segment, is summarised below:
*REVENUE* *H1 2024* H1 2023 Growth *£m* £m %
UK Bus (regional operations) *584.7* 508.1 15.1%
UK Bus (London) *179.8* 154.4 16.5%
UK Rail *8.7* 7.1 22.5%
*Group revenue* *773.2* 669.6
Operating profit, split by segment, is summarised below:
*OPERATING PROFIT* *H1 2024* H1 2023 *£m* % margin £m % margin
UK Bus (regional operations) *52.3* *8.9%* 50.4 9.9%
UK Bus (London) *(5.8)* *(3.2)%* (1.5) (1.0)%
UK Rail *(1.5)* (0.5)
Group overheads *(4.5)* (5.0)
Restructuring costs *-* (0.1)
*Operating profit before joint ventures and separately disclosed items* *40.5* 43.3
*Joint ventures – share of profit after tax*
WCT Group *-* 0.1
Citylink *2.4* 2.9
Crown Sightseeing *0.4* 0.6
*Total operating profit before separately disclosed items* *43.3* 46.9
Separately disclosed items *7.8* (13.8)
*Total operating profit: Group operating profit and share of joint ventures’ profit after taxation* *51.1* 33.1
*Financial Review*
*UK Bus (regional operations)*
Summary
· Good growth in revenue and operating profit reflecting continued recovery in passenger demand
· Supportive government funding to maintain continuing bus services
Financial performance
The financial performance of UK Bus (regional operations) for the half-year ended 28 October 2023 is summarised below:
*H1 2024*
*£m* H1 2023
£m Change
Revenue *584.7* 508.1 15.1%
Like-for-like revenue *584.2* 497.0 17.5%
Operating profit *52.3* 50.4 3.8%
Operating margin *8.9%* 9.9% (100)bp
We have been pleased with the recovery in passenger demand for our services, which has contributed to the rise in operating profit from the prior year. The growth in passenger demand has been underpinned by supportive government initiatives, notably the £2 fare cap schemes and under-22 free bus travel in Scotland. The rise in revenue also reflects the impact of having selectively increased fares to reflect increased staff costs, as we continue to focus on recruiting and retaining sufficient staff to deliver a reliable service across the country.
The operating profit for the year includes £24.2m of COVID-related bus support scheme grant income from governments (H1 2023: £45.9m), reflecting the moderation of the funding of these schemes during the period.
Like-for-like vehicle miles operated in the year were 0.2% lower than the equivalent prior year period, reflecting adjustments to our network to take account of customer demand and staff shortages. Like-for-like revenue per vehicle mile increased 17.8% and like-for-like revenue per journey increased by 11.7%.
Like-for-like revenue was built up as follows:
*H1 2024*
*£m* H1 2023
£m Change
Commercial on and off bus revenue *307.9* 281.1 9.5%
Concessionary revenue *165.5* 121.9 35.8%
Commercial and concessionary revenue *473.4* 403.0 17.5%
Tendered and school revenue *75.3* 56.7 32.8%
Contract and other revenue *35.5* 37.3 (4.8)%
Like-for-like revenue *584.2* 497.0 17.5%
The year-on-year recovery in passenger demand for our bus services is reflected in the growth in commercial revenue.
The vast majority of the rise in concessionary revenue during the period reflects the revenue received from the Department for Transport and combined authorities in respect of £2 fare cap schemes, in addition to the continued growth in the under-22 free bus travel scheme in Scotland, all of which are encouraging more people to travel by bus.
The substantial increase in tendered and school revenue reflects some previously commercial services being converted to tendered services, supported by additional central government funding provided to local authorities for these services.
As expected, contract and other revenue has reduced from the prior year due to the non-recurring work undertaken for the 2022 Commonwealth Games.
Outlook
Although we see ongoing forecasting uncertainty in relation to passenger demand and cost inflation, we currently forecast continued good regional bus profitability for the second half of the year ending 27 April 2024. We are looking forward to commencing the new franchised contracts that we will operate on behalf of Transport for Greater Manchester from the Middleton, Oldham and Queens Road depots from March 2024, with our mobilisation plans well underway.
We continue to see positive long-term prospects for the business, and believe the current economic environment is helping to demonstrate the good value of our public transport services and encourage modal shift away from the car.
*UK Bus (London)*
Summary
· Operationally challenging period with adverse traffic conditions
· Disappointing financial performance arising from continued impact of staff shortages
Financial performance
The financial performance of UK Bus (London) for the half-year ended 28 October 2023 is summarised below:
*H1 2024*
*£m* H1 2023
£m
Change
Revenue *179.8* 154.4 16.5%
Like-for-like revenue *143.5* 137.0 4.7%
Operating loss *(5.8)* (1.5)
Operating margin *(3.2)%* (1.0)% (220)bp
The financial performance of our London business in the period was disappointing. The losses incurred in the period reflect the impact of upward wage pressure and increased staff turnover and staff shortages. The impact of lost mileage has resulted in significant contractual penalties and lost quality incentive income. Road works and traffic congestion are a continuing challenge for operators in the London market, which is adversely affecting service delivery. Engagement is ongoing with Transport for London on these issues. We expect profitability to improve as we address labour market challenges, benefit from lagged inflationary increases in contract revenues and seek to re-price contracts as they are tendered.
We are pleased with our tender results in the period, and we continuously review our bid models, contract pricing and cost efficiency to identify opportunities to further improve our performance on tenders for Transport for London contracts. We plan to continue to bid for new contract opportunities at prices we believe would deliver appropriate rates of return.
Outlook
We currently expect our operating losses to moderate in the second half of the financial year, as we continue to focus our efforts on recruiting and retaining sufficient bus drivers to reliably provide the contracted bus services. We believe the business will recover its profitability over the medium-term, and we see good prospects for growth with our expanded garage footprint following last year’s acquisitions.
*UK Rail*
Summary
· Strong growth in passenger demand and revenue at Sheffield Supertram
Financial performance
The financial performance of UK Rail for the half-year ended 28 October 2023 is summarised below:
*H1 2024*
*£m* H1 2023
£m Change
Revenue *8.7* 7.1 22.5%
Like-for-like revenue *8.7* 6.7 29.9%
Operating loss *(1.5)* (0.5)
The like-for-like revenue is in respect of the ongoing Sheffield Supertram business. We are pleased with the performance of the business during the period, where a continued strong recovery in passenger demand, combined with good cost control, has moderated the underlying trading losses, as we continue to fulfil our obligations under the contract.
Outlook
In October 2022, South Yorkshire Mayoral Combined Authority decided to transition the Supertram system in Sheffield to a publicly owned operator when the Group’s concession ends in 2024. We are proud of the service we have delivered over our period of operation and will continue to work hard to deliver a safe, high quality and professional service to our customers, meet our obligation and ensure a smooth transition to the new operator. We continue to hold an onerous contract provision for the estimated net costs of fulfilling our contractual obligation. The level of provision has reduced from 29 April 2023, reflecting the moderation in operating losses arising from the strong performance in the first half of this year.
*Adjusted EBITDA, depreciation and intangible asset amortisation*
Earnings before interest, taxation, depreciation, software amortisation and separately disclosed items (“adjusted EBITDA”) increased to £97.9m (H1 2023 restated: £100.5m). Adjusted EBITDA can be reconciled to the financial statements as follows:
*H1 2024*
*£m*
H1 2023
£m
Restated Year to
28 Oct 2023
£m
Total operating profit *51.1* 33.1 65.5
Separately disclosed items *(7.8)* 13.8 8.7
Software amortisation *0.5* 0.5 1.0
Depreciation *53.3* 52.3 107.9
Impairment losses *-* - 3.3
Add back joint venture tax *0.8* 0.8 1.3
Adjusted EBITDA *97.9* 100.5 187.7
The year-on-year increase in adjusted EBITDA principally reflects the recovery in passenger demand for public transport in response to the easing of COVID-19 restrictions.
Depreciation and software amortisation of £53.8m is higher than the £52.8m for the equivalent prior year period, and principally reflects our recommencement of capital expenditure following constraint during the COVID-19 pandemic.
*Separately disclosed items*
The Directors believe that there are certain items that we should separately disclose to help explain the consolidated results. We summarise those “separately disclosed items” in note 4 to the condensed financial statements and further explain them below.
Non-software intangible asset amortisation
Non-software intangible asset amortisation of £0.6m (H1 2023: £0.4m) was recorded in the half-year ended 28 October 2023 in relation to intangible assets arising from the two London bus acquisitions made in the year to 29 April 2023.
Reassessment of onerous contract provision
As at 29 April 2023, an onerous contract provision of £8.9m was held in respect of the Sheffield Supertram concession. We have recalculated the onerous contract provision, reflecting our latest forecast for the business, and recorded a separately disclosed credit for Sheffield Supertram of £4.4m (H1 2023: £0.3m charge) in the half-year ended 28 October 2023.
Restructuring and associated costs
Following the acquisition of the Group in the year ended 29 April 2023, a detailed review of the Group’s structure and operations was undertaken. This included the use of an external consultancy agency along with the management experience of the new owner. The Group expects to implement the remaining actions arising from that review during the remainder of this year. In the half-year ended 28 October 2023 the Group incurred redundancy and related costs of £2.3m (H1 2023: £Nil).
Expired rail franchises
As part of concluding matters in relation to its former involvement in the UK train operating market, the Group has recorded a separately disclosed gain of £1.4m (H1 2023: £Nil). The gain is presented as a separately disclosed item as it relates to costs that were previously recorded as separately disclosed items.
Property disposal
Following the demobilisation of our Wigan depot prior to the commencement of Transport for Greater Manchester’s new franchising system the depot was sold generating a gain on its disposal of £4.9m.
Changes in the fair value of Deferred Payment Instrument
We received a Deferred Payment Instrument as deferred consideration for the sale of the North American business. The instrument, which is accounted for at fair value through profit or loss, has a maturity date of October 2024 and due to the credit and other recoverability risks associated with the instrument, it carrying value is at a discount to its face value. The Group’s exposure to the purchaser of the North American business ranks behind the secured lenders. The carrying value of the instrument was £3.5m as at 29 April 2023. We estimated the carrying value of the instrument to be £2.1m as at 28 October 2023, resulting in a loss of £1.4m (H1 2023: gain of £0.3m) recognised in finance costs (H1 2023: finance income) in the half-year ended 28 October 2023.
Tax
The separately disclosed taxation charge of £1.6m (H1 2023: credit of £0.8m) is in relation to the taxation effect of the pre-tax separately disclosed items.
*Net finance costs*
Net finance costs, excluding separately disclosed items, for the half-year ended 28 October 2023 were £2.1m (H1 2023 restated: £10.3m) and are further analysed below. The decrease in net finance costs is principally due to the higher pensions finance income arising from the prior year reduction in the pension deficit, in addition to higher interest received on surplus cash balances.
*H1 2024*
*£m* H1 2023
(restated)
£m
*Finance costs*
Interest payable and facility costs on bank loans, overdrafts and trade finance *0.5* 0.7
Lease interest payable *1.9* 1.7
Interest payable and other finance costs on bonds *8.4* 8.4
Effect of interest rate swaps *2.1* 0.8
Unwinding of discount on provisions *1.1* 0.5 *14.0* 12.1
*Finance income*
Interest receivable on cash and money market deposits *(3.7)* (1.6)
Interest receivable on parent company loans *(0.9)* -
Interest income on defined benefit pension schemes *(7.3)* (0.2) *(11.9)* (1.8)
*Net finance costs, excluding separately disclosed items (“adjusted net finance costs”)* *2.1* 10.3*Taxation*
The tax charge for the half-year to 28 October 2023 has been calculated on the basis of the estimated annual effective rate for the year ending 27 April 2024.
The tax charge on profit can be analysed as follows:
Half-year to 28 October 2023 Pre-tax profit
£m Tax
£m Rate
%
Excluding separately disclosed items 42.0 (9.0) 21.4%
Separately disclosed items 6.4 (1.6)
With joint venture taxation gross 48.4 (10.6)
Reclassify joint venture taxation for reporting purposes (0.8) 0.8
Reported in income statement 47.6 (9.8)
The effective tax rate, excluding separately disclosed items, of 21.4% is lower than the standard rate of tax of 25% for the year to 27 April 2024, principally due to tax relief on additional pension contributions in respect of defined benefit schemes which are in surplus.
The cash tax paid in the half-year ended 28 October 2023 of £Nil (H1 2023: £16.8m) compares to the tax charge for Group companies of £9.8m (H1 2023: £5.1m). The difference reflects the availability of capital allowances (given the high level of capital investment in the year coupled with the availability of full expensing) which impacts cash tax but not effective tax rate.
The separately disclosed tax charge of £1.6m (H1 2023: credit of £0.8m) is explained earlier in the section headed “Separately disclosed items”.
*Cash flows and net debt*
The Group has continued to maintain strong available liquidity. During the half-year ended 28 October 2023, net debt increased by £60.4m from £241.1m to £301.5m and net debt plus net train operating company liabilities increased by £59.9m from £265.8m to £325.7m. We recognise that the increase in net debt largely reflects the loans to shareholders and an increase in capital expenditure that was constrained during the COVID-19 period. Our capital expenditure is weighted to the second half of the year ending 27 April 2024, partly reflecting further investment in the transition to zero-emission vehicles.
By the half-year end date of 29 October 2022, all of the major rail franchises previously operated by Group subsidiaries had ended. However, the settlement of the train operating company assets, liabilities and contractual positions continues for some time following the end of the relevant franchises. As at 28 October 2023, the consolidated net assets included net liabilities (excluding cash) of £24.2m (29 April 2023: £24.7m) in respect of such items. Accordingly, if all items were settled at their 28 October 2023 carrying values, consolidated net debt would increase by that amount. Consolidated net debt plus outstanding train operating company net liabilities as at 28 October 2023 was £325.7m (29 April 2023: £265.8m).
Net cash from operating activities before tax for the half-year ended 28 October 2023 was £62.2m (H1 2023 restated: £103.5m) and can be further analysed as follows:
*H1 2024*
*£m* H1 2023 (restated)
£m
EBITDA of Group companies before separately disclosed items *94.3* 96.1
Cash effect of current period separately disclosed items *4.5* (8.2)
Loss/(gain) on disposal of property, plant and equipment *0.4* (1.0)
Capital grant amortisation *(2.4)* (1.2)
Share based payment movements, excluding separately disclosed items *-* 0.2
Working capital movements *(15.9)* 33.7
Net interest paid *(19.0)* (17.9)
Dividends received from joint ventures *0.3* 1.8
Net cash flows from operating activities before taxation *62.2* 103.5
Net debt (as analysed in note 16 to the condensed financial statements) increased from £241.1m as at 29 April 2023 to £301.5m as at 28 October 2023. The movement in net debt was:
Half-year to 28 October 2023 £m
Net cash flows from operating activities before taxation 62.2
Tax paid -
Investing activities (72.2)
Financing activities (50.0)
Other (0.4)
Movement in net debt in the half-year (60.4)
Opening net debt (241.1)
Closing net debt (301.5)
Net cash flows from operating activities were lower than the equivalent prior period, principally due to a £15.9m working capital outflow in the half-year ended 28 October 2023 relating to a decrease in provisions following the settlement of certain insurance claims and a slight increase in receivables. In comparison, there was a favourable working capital inflow of £33.7m in the half-year ended 29 October 2022 which included inflows of approximately £12.3m in relation to COVID-19 related payments from governments and inflows of approximately £11.1m in relation to a refund from the Teesside Local Government Pension Scheme, following the cessation of the Group’s participation in the prior year. The inflow of COVID-19 related payments was a timing difference which reversed in the second half of the year ended 29 April 2023.
The net impact on net debt of purchases and disposals of property, plant and equipment, split by segment, was:
*H1 2024*
*£m* H1 2023
£m
UK Bus (regional operations) *40.4* 17.7
UK Bus (London) *21.9* 4.4
Net capital expenditure *62.3* 22.1Net capital expenditure reconciles to the condensed financial statements as follows:
*H1 2024*
*£m* H1 2023
£m
Cash flow from:
- Purchase of property, plant and equipment *74.4* 26.5
- Disposal of property, plant and equipment (including separately disclosed items) *(8.6)* (3.5)
- Capital grants received *(12.8)* (6.6)
Decrease in net debt from negotiated early termination of lease *-* (0.3)
Increase in net debt from new leases in period *9.3* 6.0 *62.3* 22.1
In addition to the amounts shown in the table above, the impact of purchases of intangible assets was £0.9m (H1 2023: £1.0m).
*Financial position and liquidity*
The Group maintains a good financial position, as evidenced by:
· We have available liquidity of over £400m.
· We have comfortably complied with all applicable debt covenants for the year ended 28 October 2023.
The ratio of net debt as at 28 October 2023 to adjusted EBITDA for the year ended 28 October 2023 was 1.6 times (year ended 29 October 2022: 1.0 times). Adjusted EBITDA for the half-year ended 28 October 2023 was 46.6 times (H1 2023: restated 9.8 times) adjusted net finance charges. Two major credit rating agencies – S&P and Moody’s – continue to assign investment grade credit ratings to the Group’s £400m bonds.
*Financial position of the Group*
Net assets
Net assets at 28 October 2023 were £519.7m (29 April 2023: £497.8m). The increase in the net assets principally reflects the profit for the half-year ended 28 October 2023.
Retirement benefits
The reported net assets of £519.7m (29 April 2023: £497.8m), that are shown on the consolidated balance sheet are after taking account of net pre-tax retirement benefit assets, net of withholding tax payable on surpluses, of £175.5m (29 April 2023: £195.9m net retirement benefit liabilities) and associated deferred tax assets of £3.2m (29 April 2023: £3.5m).
The Group recognised pre-tax actuarial losses of £30.7m, net of withholding tax, in the half-year ended 28 October 2023 (H1 2023: £191.4m gain) on Group defined benefit schemes.
The discount rate used to determine pension scheme liabilities as at 28 October 2023 was 5.7%, compared to 4.9% as at 29 April 2023.
The Stagecoach Group Pension Scheme is the Group’s largest defined benefit pension scheme exposure. The Scheme’s latest formal valuation was as at 31 October 2022 and showed a surplus on a scheme funding basis of £87.3m. As a result of the improved funding position, the Scheme Trustees and employers agreed amendments to the long term Funding Agreement providing for the employers to make deficit payments to the Scheme of £4.4m spread over 12 months from 1 May 2023. Further to this, the employers have agreed in principle to make payments into an escrow account of £4.1m for each of the years to 3 May 2025 and 2 May 2026, to be used underpin the funding position of the Scheme through to April 2031, when the escrow funds may be released back to the employers or paid into the scheme depending on the funding position of the Scheme.
*Principal risks and uncertainties*
Like most businesses, there is a range of risks and uncertainties facing the Group. A brief summary is given below of those specific risks and uncertainties that the Directors believe could have the most significant impact on the Group’s financial position and/or future financial performance. Pages 9 to 15 of the Group’s 2023 Annual Report set out specific risks and uncertainties in more detail.
The matters summarised below are not intended to represent an exhaustive list of all possible risks and uncertainties. The focus below is on those specific risks and uncertainties that the Directors believe could have the most significant impact on the Group’s position or performance.
· Major event such as a serious accident – there is a risk that the Group is involved (directly or indirectly) in a major operational incident.
· Economy – the economic environment in the geographic areas in which the Group operates affects the demand for the Group’s services, the availability of suitable staff and the Group’s costs. A weaker economy may also increase the risk of the Group’s contingent liabilities, particularly those in relation to its former North American business, crystallising.
· Terrorism – there is a risk that the demand for the Group’s services could be adversely affected by a significant terrorist incident.
· Changing customer habits – There is a risk that changes in people’s working patterns, shopping habits and/or other preferences affect demand for the Group’s transport services, which could in turn affect the Group’s financial performance and/or financial position. We see trends of increased home working, home shopping, telemedicine and home schooling. To the extent the effects of that on travel patterns are not offset by modal shift to bus/tram, there will be a longer term adverse effect on the Group’s revenue and potentially its financial performance and/or financial position.
· Pension scheme funding – the Group participates in a number of defined benefit pension schemes, and there is a risk that the cash contributions required increase or decrease due to changes in factors such as regulatory approach, investment performance, discount rates and life expectancies. There remains a risk of further significant market movements that could result in significant changes in the amount of our net retirement benefit assets reported in the financial statements.
· Insurance and claims environment – there is a risk that the cost to the Group of settling claims against it is significantly higher or lower than expected.
· Climate change – we see public transport as a critical part of the battle against climate change. At the same time, we recognise that climate change presents a number of risks to the Group.
· Regulatory changes and availability of public funding – there is a risk that changes to the regulatory environment or changes to the availability of public funding could affect the Group’s prospects. The extent to which payments from government continue to support public transport services will affect the Group’s future profitability and cash flow.
· People and culture – There is a risk that the Group is unable to attract, develop and retain an appropriately skilled, diverse and responsible workforce and leadership team, and maintain a healthy business culture which encourages and supports ethical behaviours and decision making.
· Disease – there is a risk that demand for the Group’s services could be adversely affected by a significant outbreak of disease. This was identified by the Board as a principal risk some years ago, but the COVID-19 situation is a clear and substantial crystallisation of the risk.
· Information security – there is a risk that potential malicious attacks on our systems lead to a loss of data or disruption to operations.
· Information technology – there is a risk that technology failures or interruptions could adversely affect the Group, including a risk that the Group’s capability to make sales digitally either fails or cannot meet levels of demand.
· Competition – in certain of the markets we operate in, there is a risk of increased competitive pressures from existing competitors and new entrants.
· Treasury risks – the Group is affected by changes in fuel prices, interest rates and exchange rates.
*Use of non-GAAP measures*
Our reported interim financial information is prepared in accordance with UK-adopted International Accounting Standard 34, Interim Financial Reporting. In measuring our financial performance and position, the financial measures that we use include those that we have derived from our reported results in order to eliminate factors that distort period-on-period comparisons and/or provide useful information to stakeholders. These are non-GAAP financial measures and include measures such as like-for-like revenue, adjusted EBITDA and net debt. We believe this information, along with comparable GAAP measurements, is useful to shareholders and analysts in providing a basis for measuring our financial performance and position. Note 21 to the condensed financial statements provides further information on these non-GAAP financial measures.*Going concern*
On the basis of current financial projections and the facilities available, the Directors are satisfied that the Group has adequate resources to continue for the foreseeable future and, accordingly, consider it appropriate to adopt the going concern basis in preparing the condensed financial statements for the half-year ended 28 October 2023. We have not identified a material uncertainty regarding the Group’s ability to continue as a going concern for a period of not less than 12 months. Further detail of our going concern assessment is explained in note 1(c) to the condensed financial statements.
*Ray O’Toole*
*Executive Chairman*
*6 December 2023*
*Responsibility Statement*
We confirm that to the best of our knowledge:
(a) the condensed consolidated interim financial information contained in this document has been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as adopted in the UK;
(b) the interim management report contained in this document includes a fair review of the information required by the Financial Conduct Authority’s Disclosure and Transparency Rules (“DTR”) 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and
(c) as the Company does not issue listed shares, DTR 4.2.8R in respect of related party transactions has not been applied.
By order of and on behalf of the Board
Ray O’Toole Bruce Dingwall
Executive Chairman Chief Financial Officer
6 December 2023 6 December 2023
*Cautionary statement*
The preceding interim management report has been prepared for the shareholder of the Company, as a body, and for no other persons. Its purpose is to assist the shareholder of the Company to assess the strategies adopted by the Company and the potential for those strategies to succeed and for no other purpose. The interim management report contains forward-looking statements that are subject to risk factors associated with, amongst other things, the economic, regulatory policy and business circumstances occurring from time to time in the 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 that could cause actual results to differ materially from those currently anticipated. No assurances can be given that the forward-looking statements will be realised. The forward-looking statements reflect the knowledge and information available at the date of preparation. Nothing in the interim management report should be considered or construed as a profit forecast for the Group. Except as required by law, the Group has no obligation to update forward-looking statements or to correct any inaccuracies therein.
*CONDENSED FINANCIAL STATEMENTS*
*CONSOLIDATED INCOME STATEMENT*
*Unaudited* Unaudited *Half-year to 28 October 2023* Half-year to 29 October 2022 (Restated) Performance excluding separately disclosed items Separately disclosed items
(note 4) Results for the period Performance excluding separately disclosed items Separately disclosed items
(note 4) Results for the period *Notes* £m £m £m £m £m £m
*CONTINUING OPERATIONS*
*Revenue* 3(a) *773.2* *-* *773.2* 669.6 - 669.6
Operating costs and other operating income *(732.7)* *7.8* *(724.9)* (626.3) (13.8) (640.1)
*Operating profit of Group companies* 3(b) *40.5* *7.8* *48.3* 43.3 (13.8) 29.5
Share of profit of joint ventures after taxation 3(c) *2.8* *-* *2.8* 3.6 - 3.6
*Total operating profit: Group operating profit and share of joint ventures’ profit after taxation* 3(b) *43.3* *7.8* *51.1* 46.9 (13.8) 33.1
Non-operating separately disclosed item 4 *-* *-* *-* - 1.5 1.5
*Profit before interest and taxation* *43.3* *7.8* *51.1* 46.9 (12.3) 34.6
Finance costs *(14.0)* *(1.4)* *(15.4)* (12.1) - (12.1)
Finance income *11.9* *-* *11.9* 1.8 0.3 2.1
*Profit before taxation* *41.2* *6.4* *47.6* 36.6 (12.0) 24.6
Taxation *(8.2)* *(1.6)* *(9.8)* (5.9) 0.8 (5.1)
*Profit for the period, all attributable to equity holders of the parent* *33.0* *4.8* *37.8* 30.7 (11.2) 19.5
The accompanying notes form an integral part of this consolidated income statement.
*CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME*
*Unaudited* Unaudited *Half-year to*
*28 October 2023* Half-year to
29 October
2022 (Restated) *£m* £m
*Profit for the period* *37.8* 19.5
*Items that may be reclassified to profit or loss*
Cash flow hedges:
- Net fair value gains on cash flow hedges *33.9* 30.0
- Reclassified and reported in profit for the period *(13.7)* (43.7)
- Tax effect of cash flow hedges *(5.1)* 2.7
*Total items that may be reclassified to profit or loss* *15.1* (11.0)
*Items that will not be reclassified to profit or loss*
Actuarial gains on Group defined benefit pension schemes, excluding withholding tax *(30.7)* 191.4
Tax effect of actuarial gains on Group defined benefit pension schemes *(0.3)* (18.5)
*Total items that will not be reclassified to profit or loss* *(31.0)* 172.9
*Other comprehensive income for the period* *(15.9)* 161.9
*Total comprehensive income for the period, all attributable to equity holders of the parent* *21.9* 181.4
*CONSOLIDATED BALANCE SHEET (STATEMENT OF FINANCIAL POSITION)*
*Unaudited* Audited
Notes *As at *
*28 October 2023*
*£m* As at
29 April 2023
£m
*ASSETS*
*Non-current assets*
Goodwill 7 *92.5* 92.1
Other intangible assets 8 *7.1* 7.1
Property, plant and equipment: 9 *734.2* 711.3
Right-of-use assets 9 *76.3* 80.2
Interests in joint ventures 10 *14.5* 12.0
Derivative instruments at fair value *11.7* 11.5
Retirement benefit assets – net of withholding tax payable 12 *178.8* 199.4
Other receivables *12.7* 15.4 *1,127.8* 1,129.0
*Current assets*
Inventories *14.0* 12.3
Trade and other receivables *193.6* 112.1
Derivative instruments at fair value *22.8* 13.9
Current tax recoverable *-* 0.4
Cash and cash equivalents *180.5* 245.6
Assets classed as held for sale *1.7* 3.4 *412.6* 387.7
*Total assets* 3(d) *1,540.4* 1,516.7
*LIABILITIES*
*Current liabilities*
Trade and other payables *262.9* 248.3
Current tax liabilities *0.5* -
Borrowings:
-* *Lease liabilities *22.1* 25.0
-* *Other borrowings *-* 1.8
Derivative instruments at fair value *0.5* 9.1
Provisions 18 *45.9* 56.4 *331.9* 340.6
*Non-current liabilities*
Other payables *62.0* 51.7
Borrowings:
-* *Lease liabilities *59.9* 60.3
-* *Other borrowings *401.4* 407.1
Derivative instruments at fair value *4.6* 12.4
Deferred tax liabilities *74.9* 59.8
Provisions 18 *82.7* 83.5
Retirement benefit obligations 12 *3.3* 3.5 *688.8* 678.3
*Total liabilities* 3(d) *1,020.7* 1,018.9
*Net assets* 3(d) *519.7* 497.8
*EQUITY*
Ordinary share capital 13 *3.2* 3.2
Share premium account *8.4* 8.4
Retained earnings *133.6* 126.8
Capital redemption reserve *422.8* 422.8
Own shares *(69.6)* (69.6)
Cash flow hedging reserve *21.2* 6.1
*Total equity, all attributable to the parent* *519.6* 497.7
*Non-controlling interest* *0.1* 0.1
*Total equity* *519.7* 497.8
The accompanying notes form an integral part of this consolidated balance sheet.
*CONSOLIDATED STATEMENT OF CHANGES IN EQUITY*
Ordinary share capital
£m Share premium
account
£m Retained earnings
£m Capital redemption reserve
£m Own shares
£m Cash flow hedging reserve
£m *Total*
*Equity attributable to parent*
*£m* *Non-controlling interest*
*£m* *Total equity*
*£m*
*Balance at 29 April 2023* 3.2 8.4 126.8 422.8 (69.6) 6.1 *497.7* *0.1* *497.8*
Profit for the period - - 37.8 - - - *37.8* *-* *37.8*
Other comprehensive income/(loss), net of tax - - (31.0) - - 15.1 *(15.9)* *-* *(15.9)*
*Total comprehensive income* *-* *-* 6.8 *-* *-* 15.1 *21.9* *-* *21.9*
*Balance at 28 October 2023* *3.2* *8.4* 133.6 *422.8* *(69.6)* 21.2 *519.6* *0.1* *519.7*
*Balance at 30 April 2022 (restated)* 3.2 8.4 (38.2) 422.8 (69.6) 75.4 *402.0* *0.1* *402.1*
Profit for the period - - 19.5 - - - *19.5* *-* *19.5*
Other comprehensive income/(loss), net of tax - - 172.9 - - (11.0) *161.9* *-* *161.9*
*Total comprehensive income/(loss)* *-* *-* *192.4* *-* *-* *(11.0)* *181.4* *-* *181.4*
Credit in relation to equity-settled share based payments - - 3.9 - - - *3.9* *-* *3.9*
Effect of tax deduction on share based payments in excess of cumulative income statement expense - - 0.4 - - - *0.4* *-* *0.4*
*Balance at 29 October 2022 (restated)* *3.2* *8.4* *158.5* *422.8* *(69.6)* *64.4* *587.7* *0.1* *587.8*
*CONSOLIDATED STATEMENT OF CASH FLOWS*
*Unaudited* Unaudited *Half-year to*
*28 October*
*2023* Half-year to
29 October
2022 (Restated) Notes *£m* £m
*Cash flows from operating activities*
Cash generated by operations 14 *80.9* 119.5
Interest paid *(23.6)* (19.4)
Interest received *4.6* 1.6
Dividends received from joint ventures *0.3* 1.8
*Net cash flows from operating activities before tax* *62.2* 103.5
Tax paid *-* (16.8)
*Net cash from operating activities after tax* *62.2* 86.7
*Cash flows from investing activities*
Acquisition of subsidiaries 6 *(1.9)* (13.6)
Purchase of property, plant and equipment *(74.4)* (26.5)
Disposal of property, plant and equipment *1.5* 3.5
Receipt of capital grants *12.8* 6.6
Purchase of intangible assets *(0.9)* (1.0)
*Net cash outflow from investing activities* *(62.9)* (31.0)
*Cash flows from financing activities*
Loan to parent company *(50.0)* -
Payments of principal portion of lease liabilities *(12.6)* (14.4)
*Net cash flow from financing activities* *(62.6)* (14.4)
*Net (decrease)/increase in cash and cash equivalents* *(63.3)* 41.3
Cash and cash equivalents at beginning of period *243.8* 248.9
*Cash and cash equivalents at end of period* *180.5* 290.2
The accompanying notes form an integral part of this consolidated statement of cash flows.
*NOTES *
*1* *BASIS OF PREPARATION*
*(a) Basis of preparation*
The condensed consolidated interim financial information for the half-year ended 28 October 2023 has been prepared in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority and UK-adopted International Accounting Standard 34, Interim Financial Reporting. The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 29 April 2023, which have been prepared in accordance with UK-adopted International Accounting Standards. The accounting policies and methods of computation applied in the consolidated interim financial information are the same as those of the annual financial statements for the year ended 29 April 2023, as described on pages 64 to 78 of the Group's 2023 Annual Report which can be found on the Stagecoach Group website at http://www.stagecoachgroup.com/investors/financial-analysis/reports/.
The figures for this half-year include the results for all segments for the 26 weeks to 28 October 2023. The comparative figures for the half-year ended 29 October 2022 include the results for all segments for the 26 weeks ended 29 October 2022.
This condensed consolidated interim financial information for the half-year ended 28 October 2023 has not been audited or reviewed by the auditors. The comparative financial information presented in this announcement for the year ended 29 April 2023 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006 and does not reflect all of the information contained in the Company's annual financial statements. The annual financial statements for the year ended 29 April 2023 were approved by the Board of Directors on 29 June 2023. They received an unqualified audit report from the auditors, did not contain an emphasis of matter paragraph, did not contain a statement under section 498 of the Companies Act 2006 and have been filed with the Registrar of Companies.
The Board of Directors approved this announcement, including the condensed consolidated interim financial information, on 6 December 2023. This announcement will be available on the Group's website at
http://www.stagecoachgroup.com/investors/financial-analysis/reports/.
*Change in the accounting policy for the treatment of Battery Contracts*
As disclosed in the annual report for the year ended 30 April 2022 the Group leases electric buses. In some cases, the Group enters into separate agreements for the provisions of batteries to power the buses (the “Battery Contracts”). Some judgement is involved in determining whether each Battery Contract is, or contains, a lease.
The Battery Contracts are separate legal agreements from any leases of buses and contain separate terms and conditions. In the years ended 1 May 2021 and 30 April 2022, the Directors had formed the view that the Battery Contracts did not meet the IFRS definition of leases as in the Directors’ view the battery provider had control of the battery assets and had substantive rights of substitution for the batteries. This matter was disclosed as a critical accounting judgement in both of those years.
On 29 November 2022, the IFRS Interpretations Committee (“IFRIC”) met and discussed the definition of a lease. Following the publication of the decision of IFRIC, the Group reviewed its accounting treatment of the Battery Contracts. In light of the IFRIC decision, the Group has decided that it would be more appropriate for the Group to treat the Battery Contracts as leases.
The Group has restated its results for the half-year ended 29 October 2022 to reflect this change in accounting policy. A summary of the impact of the change in policy is summarised in the tables on pages 18 and 19.
*Change in accounting for the Group’s participation in Local Government Pension Schemes (“LGPSs”)*
Certain of the Company’s subsidiaries participate in LGPSs, which are all closed to new members from the Group. Where a private sector employer ceases to have any employees who are active members in a LGPS, that automatically triggers the employer’s exit from the LGPS except where the employer agrees alternative arrangements with the relevant LGPS. When an exit from an LGPS is triggered, an amount may be payable or receivable by the employer to or from the administering authority of the relevant scheme.
In prior years, the Group had accounted for its participation in LGPSs in the same way as its other pension arrangements, by:
· measuring the relevant assets in respect of LGPS participations at fair value;
· measuring the obligations to pay pensions through to the expected deaths of the relevant members/their dependents at discounted present value;
· where applicable, restricting the net asset recognised (i.e. the gross assets less the gross obligations) to the present value of economic benefits available in the form of any future refunds from the scheme or reductions in future contributions to the scheme.
In the year ended 30 April 2022, the Directors were of the view, having taken independent expert advice on the accounting, that the Group’s accounting was appropriate and was consistent with other major groups with UK public transport operations that have LGPS participations.
*1* *BASIS OF PREPARATION (CONTINUED)*
The Group’s auditors, Ernst & Young, reached a different conclusion to the Directors on the basis of accounting for the Group’s participation in LGPSs that are closed to new members from the Group. In particular that:
· the measurement of the defined benefit obligation should reflect the expected cash flows payable under the scheme rules through to the expected exit by the employer (for example, on the retirement of the last active member) and including any expected exit payment or credit; and
· there should be no additional IFRIC 14 restriction to the LGPS net asset, given the right of the Group to receive a refund from the scheme is limited only to the extent of the actuarially determined surplus at the point of exit or any discretion applied by the administering authority.
Notwithstanding the different interpretation of the Group’s auditors, the Directors had concluded that the Group’s accounting for its participation in LGPSs remained appropriate and was a reasonable interpretation of the relevant standards. Accordingly, the Group’s auditors qualified their audit opinion in relation to the accounting for the Group’s participation in Local Government Pension Schemes that are closed to new members.
Subsequent to the acquisition of the Group by Inframobility UK Bidco Limited, the Directors have reassessed the Group’s approach to the accounting in this area in the year ended 29 April 2023.
The policy applied by the Group has been revised such that where a section of the LGPS is closed to new members, the defined benefit obligation is calculated taking into consideration the specific rules set out in The Local Government Pension Scheme Regulations 2013 (“the Regulations”) and reflects the estimated cash flows required to eliminate the Company’s obligations from these schemes, including the estimated cash flows arising on an exit. No additional IFRIC 14 restriction is applied to any LGPS net asset, given the right of the Group to receive a refund from the scheme is limited only to the extent of the actuarially determined surplus at the point of exit or any discretion applied by the administering authority.
Comparative amounts have been restated accordingly. The effect of the restatement, together with the effect of the change in policy with respect to the treatment of battery contracts, is set out below.
*Unaudited half-year to 29 October 2022*
*CONSOLIDATED INCOME STATEMENT * As reported Effect of LGPS accounting Effect of battery contracts Restated £m £m £m £m
Operating costs and other operating income excluding separately disclosed items (626.4) - 0.1 (626.3)
*Operating costs and other operating income* (640.2) - 0.1 (640.1)
*Profit before interest and taxation* 34.5 - 0.1 34.6
Finance costs (12.0) - (0.1) (12.1)
Finance income 1.9 0.2 - 2.1
*Profit before taxation* 24.4 0.2 - 24.6
Taxation (5.1) - - (5.1)
*Profit for the period* 19.3 0.2 - 19.5
*CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME*
As reported Effect of LGPS accounting Effect of battery contracts Restated £m £m £m £m
Profit for the year 19.3 0.2 - 19.5
Total items that may be reclassified to profit or loss (11.0) - - (11.0)
Items that will not be reclassified to profit or loss 172.9 - - 172.9
*Total comprehensive income for the period* 181.2 0.2 - 181.4
*CONSOLIDATED STATEMENT OF CASH FLOWS*
As reported Effect of LGPS accounting Effect of battery contracts Restated £m £m £m £m
Cash generated by operations 118.7 - 0.8 119.5
Net cash flows from operating activities before tax – interest paid (19.3) - (0.1) (19.4)
Net cash flows from operating activities before tax 102.8 - 0.7 103.5
Net cash flows from operating activities after tax 86.0 - 0.7 86.7
Cash flows from financing activities – Payments of principal portion of lease liabilities (13.7) - (0.7) (14.4)
Net cash outflow from financing activities (13.7) - (0.7) (14.4)
*1* *BASIS OF PREPARATION (CONTINUED)*
*Audited – as at 30 April 2022*
*CONSOLIDATED BALANCE SHEET * As reported Effect of LGPS accounting Effect of battery contracts Restated £m £m £m £m
Non-current assets
Property, plant and equipment – Right-of-use assets 68.6 - 6.3 74.9
Retirement benefit assets 45.3 10.5 - 55.8
Non-current assets 966.0 10.5 6.3 982.8
Total assets 1,424.3 10.5 6.3 1,441.1
*Current liabilities*
Lease liabilities (22.1) - (1.4) (23.5)
Current liabilities (347.7) - (1.4) (349.1)
*Non-current liabilities*
Lease liabilities (52.3) - (5.1) (57.4)
Retirement benefit obligations (75.1) 0.3 - (74.8)
Non-current liabilities (685.1) 0.3 (5.1) (689.9)
Total liabilities (1,032.8) 0.3 (6.5) (1,039.0)
Net assets 391.5 10.8 (0.2) 402.1
Retained earnings (48.8) 10.8 (0.2) (38.2)
Total equity attributable to parent 391.5 10.8 (0.2) 402.1
*(b) New accounting standards adopted during the period*
From 30 April 2023, the following standards and amendments are effective in the Group’s consolidated financial statements:
· IAS 12 Income Taxes – International Tax Reform – Pillar Two Model Rules
· IFRS 17 Insurance Contracts
· Amendments to IAS 12 Income Taxes – Deferred Tax related to Assets and Liabilities arising from a Single Transaction
· Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 Making Materiality Judgements – Disclosure of Accounting Policies
· Amendments to IAS 8 Accounting Policy, Changes in Accounting Estimates and Errors – Definition of Accounting Estimates
The application of these amendments has not had any material impact on the disclosures or net assets of the Group.
*(c) Going concern*
(i) Going concern assessment
During the half-year ended 28 October 2023, we have delivered another positive set of financial results and made progress on delivering our key objectives. We have seen a continued recovery in passenger demand, as we work in partnership with national and local government to maximise the opportunities from public transport for consumers and the country while navigating the current economic environment.
The Board considered the liquidity position and covenant headroom in the Group’s financial forecasts which cover the period of 12 months from the date of this announcement (“the going concern period”), recognising the challenges around reliably estimating and forecasting the effects of the wider economic environment on our business.
The key areas of forecasting uncertainty include:
· The timing and extent of the recovery in demand for regional bus journeys;
· Availability and cost of staff; and
· The nature and extent of payments from government for continuing regional bus services, including available funding to support the £2 fare cap scheme in England.
Our base case forecast assumes that regional bus commercial revenue returns to 98% of pre-COVID levels for the year ending 3 May 2025, reflecting consistent patronage with that achieved in the year ended 29 April 2023 along with inflationary fare increases already implemented. Concessionary revenue for the year ending 27 April 2024 is forecast at 100% of pre-COVID levels, increasing to 102% pre-COVID levels for the year ending 3 May 2025.
Our base case forecast reflects the two-year funding settlement for bus operators in England, which included £300m of further funding for the wider bus sector to protect bus services until 2025, in addition to further funding for the £2 fare cap to 31 December 2024.*1* *BASIS OF PREPARATION (CONTINUED)*
*(c) Going concern (continued)*
(i) Going concern assessment (continued)
Our severe and plausible downside scenarios contemplate lower regional bus commercial revenue over the forecast period, in addition to more cautious assumptions around our levels of cost increases and government funding support. The downside scenario considered in the going concern period was:
· passenger numbers at 75%-76% of pre-COVID levels in the going concern period;
· commercial revenue at 90%-91% of pre-COVID levels in the going concern period;
· concessionary revenue at 91% of pre-COVID levels for the remainder of the going concern period;
· no additional government funding of zero emission buses, beyond awards already made; and
· failure to win the majority of its bus franchise bids resulting in the loss of services in a number of its depots.
(ii) Mitigating actions
To the extent any severe downside scenarios materialised, we consider that the Group would have sufficient controllable, mitigating actions to avoid a breach of the covenant tests in our committed bank facilities.
Having constrained the Group’s capital expenditure during the period of COVID, our base case forecast assumes we increase our investment in capital expenditure, as we progress our plans to transition to a zero emission bus fleet. Accordingly, reducing or deferring this capital expenditure would be the key mitigation available. In addition, we would be able to further reduce the Group’s cost base, in particular reducing vehicle mileage to better match customer demand, which would result in variable cost savings. These mitigations are within the Group’s control and do not have any associated penalties.
(iii) Covenant headroom
Under the base case and downside scenarios, the Group remains in compliance with the covenant tests in our committed core bank facilities