RNS Number:3607I
Arriva PLC
06 March 2003
6 March 2003
Arriva plc
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2002
* Pre-tax profit, excluding goodwill amortisation and exceptionals, up 11
per cent to #102.1 million
* Earnings per share, on the same basis, up 23 per cent to 36.8 pence
* Operating cash inflow of #224.1 million
* Final dividend up 5 per cent to 12.8 pence
* Share buy-backs returned #17.2 million to shareholders during year
* Substantial growth in mainland Europe
* Motor Retailing disposal realised #33 million to date
* Interim UK rail franchises agreed
* UK Bus operations continue to be a substantial cash generator
Commenting on the results, chief executive Bob Davies said:
"Arriva is clearly focused, with strong positions in both the UK and mainland
European passenger services markets. We have a clear strategy with a good mix of
cash generative and growth businesses underpinned by a strong balance sheet.
This enables us to target acquisitions in our chosen markets and to undertake
share buy-backs whilst offering an attractive dividend yield to shareholders."
Enquiries:
Arriva plc
Bob Davies, Chief Executive On the day: 020 7554 1400
Steve Lonsdale, Group Finance Director Thereafter: 0191 520 4000
Julian Evans, Director of Corporate Communications 0191 520 4090
Gavin Anderson & Company
Deborah Walter or Jo Godfrey 020 7554 1400
Chairman's Statement
I am pleased to report on the Group's further significant progress and strong
financial performance. We have improved earnings per share, excluding goodwill
amortisation and exceptional items, by 32 per cent in the last two years to a
record 36.8 pence. From a strong base in the UK we have developed a unique
position in mainland Europe to benefit from the increasingly liberalised
passenger transport markets. The Group has the financial strength to continue to
capitalise on these opportunities with the focus on growing profits and cash
flow, and delivering substantial value to our shareholders. The key highlights
of 2002 were:
* Pre-tax profit, excluding goodwill amortisation and exceptional items, up by
11 per cent to #102.1 million
* Earnings per share, on the same basis, up by 23 per cent to 36.8 pence
* Operating cash inflow of #224.1 million
* Establishment of further significant market positions in Italy and
Portugal
* Final dividend up by 5 per cent to 12.8 pence.
Pre-tax profit excluding goodwill amortisation and exceptional items was #102.1
million (2001: #92.0 million) with earnings per share on the same basis showing
growth from 30.0 pence to 36.8 pence, an increase of 23 per cent. Profit before
tax for the year was #80.6 million (2001: #76.0 million) and basic earnings per
share was 38.0 pence (2001: 23.1 pence). Total group turnover grew by 4 per cent
to #2,084 million (2001: #1,998 million).
With year end net debt of #310.1 million and EBITDA (earnings before interest,
tax, depreciation and amortisation) increasing by 10 per cent to #209.1 million,
the Group's financial strength is clear. The debt to equity ratio also improved
from 75 per cent to 68 per cent whilst the interest charge for the year was
#17.1 million (2001: #20.0 million) representing an improvement in interest
cover from five and a half to seven times. In October 2002, the Group was in a
position to recommence its share buy-back programme. By the end of the year, 3
per cent of the issued share capital (5.9 million shares) had been purchased for
cancellation, representing a return of value, before stamp duty and expenses, of
#17.2 million.
In October 2002, we announced a formal process for the disposal of the Group's
Motor Retailing operations. We have already realised #33 million from the
disposal of 14 dealerships, realising around book value in the process. The
conclusion, within the next few months, of this disposal programme will mark the
completion of the strategic refocusing of the business.
The Board is recommending a final dividend of 12.8 pence per share, which
together with the interim dividend of 4.4 pence per share paid in October 2002,
makes a total dividend of 17.2 pence per share, an increase of 5 per cent. The
final dividend will be paid on 1 May 2003 to all shareholders on the Register at
the close of business on 4 April 2003.
We announced in January 2003 that the triennial actuarial review of the Group's
defined benefit pension schemes would be completed towards the end of 2003. As
already announced, it is anticipated that the charge to the profit and loss
account in 2003, in respect of Arriva defined benefit schemes, could be in the
order of #20 million, an increase of #12 million over the charge for 2002. This
primarily reflects the deterioration in the performance of the equity markets.
The cash contribution made by the Group to these schemes is expected to increase
from #11 million to #13 million in 2003.
The UK Bus operations continue to be a substantial cash generator for the Group.
The London business is benefiting from the initiatives taken by Transport for
London to increase the number and quality of bus services in the capital as the
new congestion charging scheme is introduced. The market outside London however
is mature and, in common with other operators, insurance costs and wage
inflation have impacted on financial performance. While focusing investment on
increasing patronage through innovative marketing and improved customer
services, the business is tightly managed to eliminate unacceptably low margin
and loss-making operations. Early indications of success in London of congestion
charging are encouraging and it may prompt other areas of the country to adopt
similar schemes that can only be of benefit to our passengers and the industry.
Our two UK rail franchises achieved a significant turnaround during the year.
Arriva Trains Merseyside was rated the best mainland operator in terms of
punctuality and reliability in the latest figures published by the Strategic
Rail Authority (SRA) whilst Arriva Trains Northern has delivered substantial
improvements. When the SRA announced the new franchise agreements commencing in
February 2003, it acknowledged that Arriva had improved performance by
addressing the many fundamental problems that existed in the businesses when we
took them over three years ago. Whilst we were disappointed that our bids for
the new Trans-Pennine Express and the Merseyrail franchises were unsuccessful,
the Board believes that the UK rail sector can provide long-term growth
opportunities for the Group. This is, however, dependent on a structure that
allows the operator to provide robust services for customers whilst at the same
time generating appropriate returns for our shareholders.
Arriva's business in mainland Europe has grown substantially this year and is
now a major contributor to the Group's results. Following two strategically
important acquisitions in Portugal and Italy we now have significant positions
in the Netherlands, Denmark, Portugal and Italy with smaller positions in Spain
and Sweden.
We maintained our strategy of expansion through successful tendering and
acquisitions. In June we announced the acquisition of a 51 per cent interest in
Transportes Sul de Tejo (TST), which increased substantially our previously
modest market position in Portugal.
The Group's first acquisition in Italy was completed in July with the purchase
of SAB Autoservizi S.r.L. (SAB), the country's largest private bus operator. The
passenger transport market in Italy is one of the largest in Europe with both
bus and rail sectors moving rapidly to a competitive tendering environment.
Our businesses in Denmark, the Netherlands and Sweden have continued to win
contracts through local tendering opportunities. In Denmark, Arriva is the first
private company to be awarded passenger rail franchises by the Danish State. The
two franchises serving Jutland commenced in January 2003 for a seven-year
period.
Arriva Vehicle Rental continues to deliver excellent performance. This growing
business has again achieved record profits with its continued focus on high
utilisation of its fleet of around 11,000 vehicles and meeting the needs of its
major corporate and public sector customers.
The Group's strategy is clear. Over the past four years we have refocused the
business on the passenger services sector. In the process, we have realised
some #600 million from the disposal of our Motor Finance and Retail businesses.
These proceeds have been used to strengthen our position in the UK market and to
build a strong business in the growing European passenger transport sector. At
the same time we have halved our debt and bought back shares returning value to
shareholders. The Group is well-positioned with a strong balance sheet and
excellent prospects. Our shares offer an attractive yield backed by a robust
cashflow. Going forward we will continue to target acquisitions in our chosen
markets whilst at the same time delivering further value to shareholders through
our share buy-back programme.
The success of the Group relies on the provision of quality service and value
for money to our customers and I would like to record the Board's appreciation
to all our employees who, individually and collectively, have contributed to the
Group's development.
Gareth Cooper
Chairman
Operating Review
UK Bus
Our UK Bus operations achieved an operating profit of #65.4 million, before
goodwill amortisation, (2001: #68.4 million) on a turnover of #559.8 million
(2001: #548.6 million). The division is a consistent and substantial cash
generator and in 2002 achieved EBITDA of #103.1 million, around 50 per cent of
the total for the Group.
As reported in our Interim Results, the decline in operating profit was a first
half year issue and largely reflected the sale, required by the Office of Fair
Trading following our acquisition of MTL, of the Gilmoss bus depot in Liverpool,
and the impact of increased insurance costs. Encouragingly, trading in the
second half matched the performance in the comparable period in 2001.
Our operations in London, where we are the largest operator, represent over 25
per cent of the division's turnover. In preparation for the congestion charging
scheme, over the past two years Transport for London has driven a major
investment programme to increase the number and quality of bus services in the
capital. As a result, we have seen significant volume growth in this part of our
business. In 2001 we operated some 1,200 buses, and by the end of 2003 our fleet
will have grown to over 1,400 vehicles. In July, we re-opened our Stamford Hill
depot to provide increased garaging, maintenance and engineering facilities and
we have also expanded facilities elsewhere in the capital to accommodate the
growth.
We now employ over 3,000 drivers in our London operations, an increase of some
400 since 2001. This substantial increase, achieved against the background of a
buoyant employment market, reflects the success of a major recruitment programme
combined with actions taken to reduce staff turnover and enhance our training
arrangements.
Clearly, over the past two years the growth achieved in London has not been seen
elsewhere in the country. However, during 2002, often as a result of working in
partnership with local authorities and demographic changes, we have seen strong
growth in some areas. Our focus remains on eliminating low margin and
loss-making operations while retaining the ability to respond quickly to
opportunities. Steps have also been taken to consolidate some of our operations
and management structures have been streamlined. These disciplines will remain
fundamental as increased National Insurance and pension costs will continue to
put pressure on margins.
We continue to work to increase patronage through improvements in service
delivery, information and marketing. During 2002 our marketing campaign 'Going
your way' continued in the North East and was introduced across the North West,
in Leicestershire and parts of Cheshire. At the same time we improved customer
feedback procedures and made all of our timetables available on the web.
A successful pilot exercise in September saw the campaign targeted on specific
corridors in Derby, Luton and Maidstone, and this was followed by a programme
of 26 similar projects across England and Scotland in November. In 2003,
we have extended the campaign with some 2.6 million households, living within a
ten minute walk of 80 of our most heavily used routes and networks, receiving
information about services and discounted travel vouchers this Spring.
The recent evolution of congestion charging may perhaps mark a turning point.
National and local governments can make a significant contribution to resolving
the problems of traffic congestion and pollution. It is imperative that all
parties build on recent developments and work together to deliver on their
commitments.
UK Trains
UK Trains achieved an operating profit of #14.9 million (2001: #11.5 million) on
a turnover of #419.0 million (2001: #425.5 million). A significant improvement
in operational performance at Arriva Trains Merseyside, together with an
improved performance at Arriva Trains Northern, more than offset the financial
impact of industrial action at the Northern franchise.
In February 2003 we reached agreement with the SRA on the level of funding for
interim franchises for the two businesses. The Northern franchise will operate
to September 2004 and Arriva Trains Merseyside to July 2003.
Both franchises achieved improvements in customer service during 2002. At Arriva
Trains Merseyside the introduction of a new timetable, together with better
traincrew management and fleet reliability, has contributed to higher levels of
performance and the increase in employees, including drivers, at Arriva Trains
Northern resulted in a more stable and reliable service. Since we took over
these franchises in 2000 we have made considerable progress in improving overall
performance. Our focus will be to maintain the high level of performance
achieved by the Merseyside franchise and continue to deliver further
improvements in punctuality and reliability at Arriva Trains Northern.
Throughout 2002 we experienced industrial action at Arriva Trains Northern in
respect of pay demands by conductors, station and retail staff, and we regret
the inconvenience caused to our customers. In February 2003, both disputes were
resolved and we will now be working with all of our employees and their
representatives to deliver further improvements for our customers.
We have been shortlisted for the new Wales and Borders franchise and our bid is
due to be submitted shortly. In addition we are seeking to pre-qualify for a
number of other franchises.
The UK rail industry clearly has some considerable challenges, both financial
and operational. We are an established operator and will be seeking to develop
our role in the future of the sector.
International
Our International division achieved an operating profit of #19.0 million, before
goodwill amortisation and exceptional items, (2001: #12.8 million) on a turnover
of #303.5 million (2001: #256.0 million). The previously established businesses
improved operating profit from #12.8 million to #13.5 million whilst the first
time contribution from acquisitions in Portugal, Spain and Italy was #5.5
million. Turnover from the acquisitions was #43.0 million.
In June we announced that we had consolidated our position in Portugal with the
acquisition of a 51 per cent interest in TST from the Barraqueiro Group. TST is
the leading operator of scheduled bus and coach services in the growing commuter
region to the south of Lisbon. TST, together with our operations in the north of
the country, positions Arriva as one of Portugal's leading bus companies with a
fleet of nearly 1,000 vehicles. The Portuguese passenger transport market
provides opportunities for further growth in both bus and rail sectors and we
have a sound base to take full advantage of those opportunities. We have an
option to purchase the remaining 49 per cent of TST at any time up to 31
December 2003.
We completed the acquisition of SAB, Italy's largest private bus company, in
July. Purchased from its parent company Italmobiliare, SAB operates to the east
of Milan principally in the Lombardy Region. The company employs some 1,200
people and operates a fleet of over 900 vehicles, managing a further 400
vehicles and 800 people in associated companies. In a rapidly evolving market
the acquisition of SAB provides an excellent foundation to develop and grow the
business in northern Italy.
In January 2002 we acquired two small bus operators in Majorca, Autocares
Mallorca SL and Donate Amenguel Ramis SL.
The integration of the new businesses has gone according to plan and they will
make a significant contribution to this year's performance.
In Denmark, where Arriva is the major bus operator, our move into the rail
sector commenced in January 2003 when we took over the operation of two
franchises serving Jutland. We have experienced some issues in relation to the
availability of train drivers from the previous operator. However we are
working closely with the transport ministry and others to overcome this
short-term issue. Orders have been placed for 30 new Coradia Lint trains, which
will be delivered in 2004.
Our business in the Netherlands has developed a strong position in the north of
the country. During 2002 the focus was to build on that position and take
advantage of opportunities elsewhere in the country. The business has made good
progress winning two contracts in the Rotterdam region. We have also won a
number of bus tenders in Sweden and Denmark.
Mainland Europe continues to provide profitable opportunities for growth and we
are increasing our involvement with the European Union (EU) institutions and the
governments of member states, in order to play a part in influencing the
development of transport policies. We are one of the largest international
operators in mainland Europe with an annualised turnover approaching #400
million. There remain significant opportunities as the market, which the EU
estimates to be worth #35 billion for buses alone (EU statistics: 1999),
increasingly opens to competitive tendering.
Vehicle Rental
Operating profit from Arriva Vehicle Rental increased by 10 per cent to #11.6
million, before goodwill amortisation (2001: #10.5 million). Net profit, after
financing costs, increased by 25 per cent to #7.4 million. Headline turnover of
#83.1 million (2001: #85.5 million) was down slightly reflecting a lower level
of vehicle disposals in the period. Underlying vehicle rental income was up 6
per cent to #48.7 million.
This business has grown profits organically by 70 per cent over the last four
years and we continue to see significant opportunities for its further
expansion. With a fleet of some 11,000 vehicles and 600 employees it operates
from 42 locations and continues to perform strongly in the growing corporate and
public sector markets. Arriva Vehicle Rental has been trading with six business
brands, however, each business is now migrating to the Arriva brand with an
increasing focus on expanding its range of product and service offerings. The '
Arriva freedom' product, which was launched in 2001, has performed well in 2002
by attracting new corporate customers with its flexibility to provide a range of
new and used vehicles to meet their changing requirements.
The market is expected to grow strongly over the next five years and the
Government's 'Best Value Initiative' is encouraging the public sector to
outsource vehicle fleets which provides the business with opportunities to build
on its relationships with local authorities and other public bodies.
Bus and Coach
Arriva Bus and Coach achieved an operating profit of #3.5 million, before
goodwill amortisation, (2001: #3.6 million) on a reduced turnover of #23.1
million (2001: #25.2 million). The business continues to be impacted by the
weakness in the UK tourism market. Accordingly we have continued to reduce the
size of the rental fleet and the capital employed to reflect market conditions.
It achieved a return on capital of 18 per cent (2001: 13 per cent).
Discontinuing Operations
Our Motor Retailing and Motor Finance businesses achieved a combined operating
profit of #10.7 million (2001: #11.2 million) on a turnover of #695.9 million
(2001: #657.6 million).
We announced a formal process for the disposal of the 35 Motor Retailing
dealerships in October 2002. To date we have realised #33 million from the
disposal of 14 dealerships and progress has been in line with our expectations.
Outlook
Despite the tough economic conditions, we have grown earnings per share,
excluding goodwill amortisation and exceptional items, by 32 per cent over the
past two years to a record 36.8 pence. We have a clear strategy with a good mix
of cash generative and growth businesses underpinned by a strong balance sheet.
This enables us to target acquisitions in our chosen markets and to undertake
share buy-backs whilst offering an attractive dividend yield to shareholders.
Bob Davies
Chief Executive
Financial review
Introduction
The Group's strong cash generation has enabled it to expand its International
division in Europe, take advantage of growth in the London bus market, and
continue its programme of share buy-backs.
The interest in TST was acquired in June 2002 for #32.4 million, including
assumed debt of #8.8 million, with an option to acquire the remaining 49 per
cent by 31 December 2003. Goodwill on acquisition was #31.3 million. The
purchase price for SAB was #37.1 million satisfied in cash out of existing
facilities, with deferred consideration of up to #7 million dependent on the
growth of SAB over the next 24 months. Goodwill on acquisition was #14.8
million, after taking account of net cash of #8.8 million.
In October 2002 the Group announced its decision to seek expressions of interest
in its Motor Retailing operations which together with the sale of the contract
hire division in 1999 and the discontinuance of our Motor Finance operations in
2000, will complete the exit of the Group from its Motor Retailing and Finance
operations. The disposal of the nine motor dealerships sold before the year end,
together with costs incurred in the disposal process, resulted in an exceptional
charge of #2.7 million. We are making good progress in our aim of completing the
disposal at around book value.
More than offsetting the charges in respect of Motor Retailing, there were
positive exceptional items totalling #29.3 million. These comprised #2.8 million
of profits from property disposals, #2.5 million of proceeds from a claim
connected with a business previously sold by the Group and #24.0 million of
recovered corporation tax in respect of the 1999 disposal of our contract hire
business, AAS.
During 2002 the Group bought back 3 per cent (2001: 3 per cent) of its shares at
a cost, including expenses, of #17.4 million (2001: #20.6 million). These
transactions enhance earnings per share and at current levels of interest rates
and share price the ongoing financial cost is less than the dividend yield.
This programme will continue and we will once again seek authority to purchase
up to 15 per cent of the Company's shares at the forthcoming Annual General
Meeting.
The financial position of the Group remains robust. Gearing, the ratio of debt
to equity, is 68 per cent (2001 restated: 75 per cent) with interest cover
(operating profit before goodwill amortisation and exceptional items, as a
multiple of interest costs) of seven times compared to five and a half times
last year.
Financial Reporting
FRS 19 'Deferred Tax' became mandatory for the Group for the year ended 31
December 2002. The Standard requires full provision to be made for deferred tax
where capital allowances exceed depreciation, even when no future cash outflow
is anticipated. This differs significantly to SSAP 15, which only required a
provision to be made where a cash outflow was foreseeable. As required by the
Standard, a prior year adjustment has been made to reflect the impact on earlier
years, and comparative results are restated accordingly. Provisions previously
reported in the 2001 Accounts have been increased by #51.3 million from #10.0
million to #61.3 million, and the tax charge for 2001 is increased from #16.8
million to #27.7 million. Opening shareholders' funds for 2002 are reduced from
#474.5 million as previously reported to #423.2 million as restated.
During 2002 the Accounting Standards Board announced its decision to delay the
full implementation of FRS 17 'Retirement Benefits'. FRS 17 will become
mandatory for the Group's 2005 year end, although the Standard requires a
greater level of disclosure incorporating what would have been shown in the
profit and loss account, the statement of total recognised gains and losses, and
the balance sheet, had the Standard been implemented in full. For the Group's
defined benefit schemes, FRS 17 will require that the schemes' assets, mainly
quoted investments, be calculated at their market value on each balance sheet
date and that accrued pension liabilities be calculated using the projected unit
method, discounted using an AA corporate bond rate. On this basis, at 31
December 2002, the combined schemes' net pension liability was #125.7 million
(2001: #25.7 million), and the pension charge for the year would have been #13.0
million.
FRS 10 'Goodwill and Intangible Assets' requires any goodwill previously written
off to reserves to be charged against the profit and loss account on the
subsequent disposal of the business to which it relates. Goodwill of #13.7
million has been charged to the profit and loss account in relation to the
ongoing disposal of Motor Retailing, with a corresponding increase to profit and
loss account reserves leaving no impact on the Group's net assets.
Arriva continues its preparations for the introduction of International
Accounting Standards, which will become effective for its 2005 year end. As well
as changes in UK financial reporting, we are closely monitoring the developments
in international financial reporting and their potential impact on the financial
position of the Group. At present, with the exception of FRS 17, the Group
foresees no substantial changes to its reported results.
Segmental Analysis
The segmental analysis is prepared on the basis that operating results are
reported before goodwill amortisation and exceptional items. All material
acquisitions relate to the International division and account for #5.5 million
of operating profit, before goodwill amortisation and exceptional items, for the
year.
The results of Motor Retailing for the year, and comparatives, have been
reclassified to discontinuing operations and combined with the results of the
Motor Finance division.
Cash Flows
EBITDA (earnings before interest, tax, depreciation and amortisation of
goodwill) was substantially higher at #209.1 million (2001: #189.9 million)
reflecting the strong cash generation from the Group's operating activities.
The net cash inflow from operating activities for the year was #224.1 million, a
reduction of #4.0 million compared with 2001. The reduction is mainly
attributable to running off the Motor Finance receivables book which contributed
#13.2 million compared with #24.8 million in the previous year, offset by
increased EBITDA and movements in working capital.
Capital expenditure was #150.5 million compared with #168.6 million in the
previous year, including #34.7 million of expenditure on buses in the UK (2001:
#44.7 million). The high level of capital expenditure on new fleet in the UK
over recent years has brought the average age of the fleet down to an optimum
level, and as indicated in last year's report, capital expenditure on buses has
been reduced in the year. Capital expenditure on short-term rental vehicles
increased from #67.5 million in 2001 to #76.4 million last year as the Vehicle
Rental division expanded, and further increases are anticipated this year.
Proceeds from disposal of short-term rental vehicles were #40.7 million (2001:
#45.9 million).
The Group invested #75.1 million (2001: #19.4 million) including debt assumed,
on acquisitions during the year, mainly relating to SAB and TST.
Interest and dividend payments were #51.2 million (2001: #53.0 million), and
there were net tax receipts of #10.2 million, largely as a result of the
repayment of tax of #24.0 million previously paid in respect of the AAS disposal
in 1999 (2001: net payment #12.4 million). Under the share buy-back programme
we acquired 3 per cent of the issued share capital at an average price of 292
pence per share. This utilised funds of #17.4 million, including costs of #0.2
million. There was a small decrease in net debt to #310.1 million (2001: #315.8
million), despite the acquisition activity and share buy-backs.
Capital Structure
Equity shareholders' funds were #464.6 million (2001 restated: #423.2 million)
at the end of the year. Retained profits contributed #43.2 million to
distributable reserves, offset by the utilisation of #17.4 million of reserves
for the share buy-back programme. Gearing at 31 December 2002 was 68 per cent
(2001 restated: 75 per cent). The 2002 interest cover was seven times compared
with five and a half times in 2001.
Arriva remains comfortably within the principal financial covenants set by its
lenders, which require net tangible assets to exceed #140 million and gearing to
remain below 200 per cent. The Group has set a medium-term objective of
maintaining interest cover before goodwill amortisation and exceptional items of
around four times.
At the year end, the ratio of net debt to EBITDA for 2002 was 1.5 times.
Excluding our rail operations, which are on relatively short franchises, the
ratio was 1.8 times, a level consistent with the previous year. The Group
recognises that at debt levels above two times EBITDA, the cost of debt
increases for companies with similar characteristics to Arriva and will
therefore take this into account before allowing net debt to exceed these
levels, other than on a temporary basis.
Borrowing facilities
Long-term finance for the Group is provided by #104 million of debt issued
through a US private placement. #57 million of the debt is due for repayment in
2005, with the balance of #47 million repayable in 2008. A large proportion of
the Group's bus fleet is financed on medium-term fixed rate hire purchase or
finance lease arrangements. The typical duration of these arrangements is three
to five years. As part of the UK rail franchising arrangements the Group has
provided guarantees of #10 million. The rolling stock of the UK rail businesses
is provided through operating leases with annual commitments of approximately
#50 million. All material commitments will cease on expiry of the UK rail
franchises. Our Danish subsidiary has provided #12 million of bonds in respect
of its new rail operations.
The Group's working capital requirements are provided by our principal bankers
and reviewed annually.
Treasury
Major cash flows as well as risks arising from interest rate and foreign
exchange rate fluctuations are managed by the Group's treasury function. This
is achieved through the use of interest rate and exchange rate swaps and
long-term fixed rate finance. In addition, foreign operations are funded in
local currency where possible, or by entering into foreign currency swaps. The
effect of this policy has been to reduce to insignificant levels the foreign
exchange risk when translating overseas assets and liabilities into sterling.
The US private placement is denominated in US dollars. The debt and interest
flows have been hedged by the Group to fix the capital repayment at #104
million, with the interest burden on the debt fixed at 7 per cent.
Arriva's bus fleet is financed through #175.8 million of facilities (2001:
#175.7 million) with fixed interest rates between 3.2 per cent and 7.2 per cent,
with an average cost of 5.8 per cent.
The passenger transport businesses use a fuel hedging strategy to reduce the
impact of any future volatility in fuel prices. The strategy is targeted to fix
the cost of fuel to the Group annually in advance, through a number of part
volume fixed price contracts.
Taxation
Excluding the effect of the corporation tax repayment of #24.0 million, and the
charge to profits of goodwill previously written off to reserves, the tax charge
for the Group was #25.6 million representing an effective rate of tax of 27 per
cent. Of this, around #5 million, or 5 per cent, arises from the implementation
of FRS 19. Due to the increased proportion of Group profits derived from
overseas operations, where standard tax rates are higher, an increase in the
underlying effective rate of tax is anticipated in future.
Equity shareholders' funds
Equity shareholders' funds were #464.6 million (2001 restated: #423.2 million)
at the end of the year representing 233 pence per share (2001 restated: 206
pence per share). The increase is due to retained profits for the year of #43.2
million, goodwill re-circulated through reserves of #13.7 million, offset by the
purchase of own shares of #17.4 million.
Equity shareholders' funds exclude goodwill previously written off to reserves
of #236.3 million (2001: #250.0 million). If this goodwill is capitalised then
the equity shareholders' funds would be #700.9 million representing 351 pence
per share.
Summary
The markets in which we operate provide strong cash flows and general stability
for the Group. To reinforce its strong financial position and defensive
characteristics, the Group maintains a prudent approach towards its capital
structure, and its levels of interest cover and debt. This will enable it to
grow its existing operations and to take advantage of future acquisition
opportunities whilst continuing its share buy-back programme.
Steve Lonsdale
Finance Director
Group Profit and Loss Account
For the year ended 31 December 2002
2001 2001
2002 2002 restated restated
notes #m #m #m #m
Turnover
Continuing operations 2,041.4 1,998.4
Acquisitions 43.0 -
2 2,084.4 1,998.4
Cost of sales (1,813.0) (1,735.9)
Gross profit 271.4 262.5
Net operating expenses before exceptional items (162.6) (159.1)
Exceptional items charged to net operating expenses - (7.0)
Total net operating expenses (162.6) (166.1)
Operating profit
Continuing operations 104.7 96.4
Acquisitions 4.1 -
108.8 96.4
Exceptional items
Deficit on sale of discontinuing operations (2.7) -
Goodwill previously written off to reserves in
discontinuing operations (13.7) -
Loss on sale of discontinuing operations (16.4) -
Profit on sale of discontinued operations 2.5 -
Profit on the disposal of properties in continuing
operations 2.8 0.4
Amounts written off investments in continuing operations - (0.8)
(11.1) (0.4)
Profit on ordinary activities before interest 97.7 96.0
Interest payable and similar charges 3 (17.1) (20.0)
Profit on ordinary activities before taxation 2 80.6 76.0
Tax on profit on ordinary activities 4 (1.6) (27.7)
Profit on ordinary activities after taxation 79.0 48.3
Minority interests (1.2) -
Profit for the financial year 77.8 48.3
Dividends paid and proposed 5 (34.6) (33.8)
Transfer to reserves 8 43.2 14.5
Basic earnings per share 6 38.0p 23.1p
Diluted earnings per share 6 37.5p 22.8p
Basic earnings per share excluding exceptional items and
goodwill amortisation 6 36.8p 30.0p
Group Balance Sheet
At 31 December 2002
2001
2002 restated
notes #m #m
Fixed assets
Goodwill 198.3 152.0
Tangible assets 736.7 691.3
Investments 5.7 3.2
940.7 846.5
Current assets
Stocks 57.3 62.0
Debtors 247.8 237.7
Cash at bank and in hand 65.9 15.9
371.0 315.6
Creditors
Amounts falling due within one year (495.0) (377.4)
Net current liabilities (124.0) (61.8)
Total assets less current liabilities 816.7 784.7
Creditors
Amounts falling due after more than one year (288.9) (300.2)
Provisions for liabilities and charges 7 (69.4) (61.3)
458.4 423.2
Represented by:
Capital and reserves
Called up equity share capital 10.0 10.3
Capital redemption reserve fund 8 1.4 1.1
Share premium account 8 5.6 5.4
Special reserve 8 59.1 59.1
Revaluation reserve 8 8.9 12.4
Profit and loss account 8 379.6 334.9
Equity shareholders' funds 464.6 423.2
Equity minority interests (6.2) -
458.4 423.2
Borrowings (net) 310.1 315.8
Gearing 68% 75%
Group Cash Flow Statement
For the year ended 31 December 2002
2002 2002 2001 2001
notes #m #m #m #m
Net cash inflow from operating activities 9 224.1 228.1
Returns on investments and servicing of finance
Interest and finance charges paid (17.1) (20.0)
Dividends received - 0.3
(17.1) (19.7)
Taxation
Corporation tax received / (paid) 10.2 (12.4)
Capital expenditure and financial investment
Disposal of short-term rental vehicles 40.7 45.9
Disposal of other fixed assets 14.7 18.4
Purchase of short-term rental vehicles (76.4) (67.5)
Purchase of other fixed assets (74.1) (101.1)
Sale of fixed asset investments 3.2 -
(91.9) (104.3)
Acquisitions and disposals
Acquisitions of businesses (68.8) (7.5)
Cash received on acquisitions 6.9 1.1
Disposals of businesses (net of costs) 20.1 -
(41.8) (6.4)
Equity dividends paid (34.1) (33.3)
Cash inflow before use of liquid resources and
financing
49.4 52.0
Financing
Issue of ordinary share capital 0.2 1.2
Loans due within one year 9 0.8 (0.9)
Loans due after one year 9 6.0 (29.6)
Finance lease obligations 9 (6.8) 2.9
Purchase of own shares (17.4) (20.6)
(17.2) (47.0)
Increase in cash for the year 9 32.2 5.0
Reconciliation of Movements in Equity Shareholders' Funds
For the year ended 31 December 2002
2001
2002 restated
#m #m
Profit for the financial year 77.8 48.3
Dividends paid and proposed (34.6) (33.8)
43.2 14.5
New share capital subscribed (net of expenses) 0.2 1.2
Goodwill previously written off to reserves in discontinuing operations 13.7 -
Purchase of own shares (17.4) (20.6)
Currency translation differences on foreign currency net investments 1.7 (0.8)
Net addition to / (reduction in) equity shareholders' funds 41.4 (5.7)
Opening equity shareholders' funds 423.2 428.9
Closing equity shareholders' funds 464.6 423.2
Statement of Total Recognised Gains and Losses
For the year ended 31 December 2002 2001
2002 restated
#m #m
Profit for the financial year 77.8 48.3
Currency translation differences on foreign currency net investments 1.7 (0.8)
Total recognised gains relating to the year 79.5 47.5
Prior year adjustment (51.3)
Total recognised gains since last annual report 28.2
Note of Historical Cost Profits and Losses 2001
For the year ended 31 December 2002 2002 restated
#m #m
Profit on ordinary activities before taxation 80.6 76.0
Difference between historical cost and revalued amount on properties sold 3.4 -
during the year
Difference between historical cost depreciation charge and the actual 0.1 0.1
depreciation charge for the year calculated on the revalued amount
Historical cost profit on ordinary activities before taxation 84.1 76.1
Historical cost profit for the year retained after taxation, minority 46.7 14.6
interests and dividends
Notes
1. Principal accounting policies
The results for the year ended 31 December 2002 have been prepared on the basis
of the Accounting Policies set out on page 40 of the accounts for the year ended
31 December 2001, except as set out below:
FRS 19 'Deferred Tax' has now been adopted. Previously, provision was made for
deferred tax to the extent that there was a reasonable probability that the tax
deferral would crystallise in the foreseeable future. The new accounting policy
is to provide for deferred tax on all timing differences except those arising
from the revaluation of fixed assets for which there is no binding agreement to
sell or on the undistributed profits of overseas subsidiaries. Deferred tax is
calculated at the rates at which it is estimated the tax will arise. The
deferred tax provision is not discounted to net present value.
The impact of this change in accounting policy on the taxation charge for the
year ended 31 December 2001 is an increase of #10.9 million to #27.7 million.
The impact of this change in accounting policy on the balance sheet at 31
December 2001 is to increase the provision for deferred tax by #51.3 million.
2. Segmental results
Year ended 31 December 2002 Year ended 31 December 2001
Operating Operating
Turnover Profit Turnover Profit
#m #m #m #m
Passenger Services
UK Bus 559.8 65.4 548.6 68.4
UK Trains 419.0 14.9 425.5 11.5
International (a) 303.5 19.0 256.0 12.8
Total Passenger Services 1,282.3 99.3 1,230.1 92.7
Vehicle Rental 83.1 11.6 85.5 10.5
Bus & Coach Distribution 23.1 3.5 25.2 3.6
Head Office & Miscellaneous - (5.9) - (6.0)
Continuing operations* (b) 1,388.5 108.5 1,340.8 100.8
Discontinuing operations 695.9 10.7 657.6 11.2
Total operations* 2,084.4 119.2 1,998.4 112.0
Interest payable and similar charges (17.1) (20.0)
Profit on ordinary activities before taxation* 102.1 92.0
Goodwill amortisation (c) (10.4) (8.6)
Exceptional items charged to net operating expenses - (7.0)
Deficit on sale of discontinuing operations (2.7) -
Goodwill previously written off to reserves in
discontinuing operations (13.7) -
Profit on sale of discontinued operations 2.5 -
Profit on disposal of properties in continuing
operations 2.8 0.4
Amounts written off investments in continuing
operations - (0.8)
Profit on ordinary activities before taxation 80.6 76.0
*before goodwill amortisation and exceptional items
(a) During the year ended 31 December 2002, there is #43.0 million of turnover
and #5.5 million of operating profit, before goodwill amortisation
and exceptional items, relating to the acquisitions made by the
International Division during the year.
(b) Continuing operations, for the purpose of the segmental analysis, exclude
the results from the discontinuing Motor Retailing and Motor Finance
businesses.
(c) Goodwill amortisation of #9.4 million arises in the Passenger Services
Division (2001: #7.6 million), #0.3 million within the Vehicle Rental
Division (2001: #0.3 million) and #0.7 million within the Bus & Coach
Distribution Division (2001: #0.7 million).
3. Interest payable and similar charges 2002 2001
#m #m
Cost of funding for finance and rental activities:
Vehicle Rental 4.2 4.6
Bus & Coach Distribution 1.1 1.5
Other continuing operations 11.0 11.9
Discontinuing operations 0.8 2.0
17.1 20.0
Interest payable has been reduced in the year by #2.0 million representing prior
period interest on the over provision for current taxation (note 4).
4. Tax on profit on ordinary activities
2001
2002 restated
#m #m
Tax on profit on ordinary activities comprises the
following:
Corporation tax at 30% (2001: 30%) 14.0 19.1
Over provision of taxation on prior period disposal (24.0) -
Overseas taxation 3.3 (0.9)
Deferred taxation 8.3 9.5
1.6 27.7
The over provision on prior period disposal relates to the disposal of ARRIVA
Automotive Solutions Limited in 1999.
5. Dividends paid and proposed on equity shares 2002 2001
#m #m
Interim dividend paid of 4.4 pence per share (2001: 4.2 9.1 8.8
pence)
Final dividend proposed of 12.8 pence per share (2001: 25.5 25.0
12.2 pence)
34.6 33.8
6. Earnings per share
(a) Basic and diluted earnings per share
Basic earnings per share is based on earnings of #77.8 million (2001 restated:
#48.3 million) and on the weighted average number of ordinary shares of 204.8
million (2001: 209.0 million).
Diluted earnings per share is based on the same earnings for each of the periods
and on the weighted average number of ordinary shares of 207.5 million
(2001: 211.4 million). The difference in the number of shares between the basic
and the diluted calculation represents the weighted average number of dilutive
potential ordinary shares.
2001
2002 restated
(b) Basic earnings per share excluding exceptional items and
goodwill amortisation p p
Basic earnings per share 38.0 23.1
Earnings per share relating to:
Profit on the disposal of properties (1.4) (0.2)
Loss on sale of discontinuing operations 7.9 -
Profit on sale of discontinued operations (0.8) -
Amounts written off investments - 0.4
Exceptional items charged to net operating expenses - 2.6
Goodwill amortisation 4.8 4.1
Overprovision of taxation on prior period disposal (11.7) -
Basic earnings per share excluding exceptional items and goodwill 36.8 30.0
amortisation
Deferred
taxation
#m
7. Provisions for liabilities and charges
At 31 December 2001 as previously reported 10.0
Prior year adjustment 51.3
At 31 December 2001 as restated 61.3
Disposals (0.2)
Provided in the year 8.3
At 31 December 2002 69.4
8. Reserves Capital
redemption Share Profit
reserve premium Special Revaluation and loss
fund account reserve reserve account Total
#m #m #m #m #m #m
At 31 December 2001 as previously reported 1.1 5.4 59.1 12.4 386.2 464.2
Prior year adjustment - - - - (51.3) (51.3)
At 31 December 2001 as restated 1.1 5.4 59.1 12.4 334.9 412.9
Goodwill previously written off - - - - 13.7 13.7
Shares issued in the year - 0.2 - - - 0.2
Purchase of own shares 0.3 - - - (17.4) (17.1)
Retained profit for the year - - - - 43.2 43.2
Currency translation adjustments - - - - 1.7 1.7
Transfers - - - (3.5) 3.5 -
At 31 December 2002 1.4 5.6 59.1 8.9 379.6 454.6
9. Notes to the group cash flow statement 2002 2001
(a) Reconciliation of net debt #m #m
At 1 January 315.8 339.1
Increase in cash (32.2) (5.0)
Increase / (decrease) in loans due within one year 0.8 (0.9)
Increase / (decrease) in loans due after one year 6.0 (29.6)
(Decrease) / increase in finance leases (6.8) 2.9
Loans acquired 2.7 8.2
Finance leases acquired 10.5 4.8
Currency translation adjustments 13.3 (3.7)
At 31 December 310.1 315.8
(b) Reconciliation of operating profit to net cash inflow from operating 2002 2001
activities #m #m
Operating profit 108.8 96.4
Depreciation of tangible fixed assets 89.9 84.9
Amortisation of goodwill 10.4 8.6
Increase in stocks, excluding acquisitions and disposals (2.4) (2.9)
Decrease in debtors, excluding acquisitions and disposals 4.8 18.2
Increase in creditors, excluding acquisitions and disposals 12.6 30.0
Decrease in provisions, excluding acquisitions and disposals - (6.8)
Dividends received - (0.3)
Net cash inflow from operating activities 224.1 228.1
(c) Analysis of net debt
Acquisitions
(excluding cash Currency 31
1 January and translation December
2002 Cash flow overdrafts) adjustments 2002
#m #m #m #m #m
Net cash and overdrafts 9.7 (32.2) - - (22.5)
Loans due within one year 50.1 0.8 2.7 9.0 62.6
Loans due after one year 196.4 6.0 - 1.6 204.0
Finance leases 59.6 (6.8) 10.5 2.7 66.0
315.8 (32.2) 13.2 13.3 310.1
10. Financial information
The unaudited financial information set out above does not constitute the
Group's statutory accounts for the year ended 31 December 2002.
The condensed financial information for the year ended 31 December 2001 is
extracted from the latest statutory accounts which have been delivered to the
Registrar of Companies. The Report of the auditors on those accounts was
unqualified and did not contain a statement under section 237(2) and (3) of the
Companies Act 1985. These comparative figures have been restated in order to
reflect the impact of FRS 19 'Deferred Tax'.
The Preliminary Announcement was approved by the Board of Directors on 5 March
2003.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SSMESISDSEFD