REG - Mobico Group PLC - Full Year Results
22/04/2024 07:00
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RNS Number : 4167L Mobico Group PLC 22 April 2024
Mobico Group PLC ("Mobico" or the "Group"): Results for the Full Year ended 31
December 2023
Continued revenue growth driven by passenger volumes, route recovery and
pricing, with profitability impacted by inflationary pressures, and £105m
reduction in Covid related support
Further benefits to come from pricing and restructuring, alongside continued
volume growth
Review of accounting judgements in relation to German Rail business
completed(2)
FY 24 Adjusted Operating Profit expected to be in the range £185 - £205m
Full Year results, twelve months ended 31 December 2023
FY 2023 FY 2022 (Restated) (2) Change (Reported) Change (Constant FX)
Group Revenue £3.15bn £2.81bn 12.2% 10.9%
Group Adjusted(1) EBITDA £386.0m £418.1m (7.7)% (6.7)%
Group Adjusted(1) Operating Profit £168.6m £197.3m (14.5)% (10.7)%
Group Adjusted(1) Profit Before Tax £92.9m £145.9m (36.3)% (30.6)%
Free cash flow £163.7m £160.5m
Covenant net debt £987.1m £985.8m
Covenant gearing 3.0x 2.8x
Adjusted basic(1) EPS 4.5p 15.0p
Dividend per share 1.7p 5.0p
Return on Capital Employed 7.0% 7.6%
Statutory
Group Operating (Loss) £(21.4)m £(173.5)m
Group (Loss) Before Tax £ (98.3)m £(225.3)m
Group (Loss) After Tax £(162.7)m £(231.2)m
Basic EPS (30.2)p (41.4)p
· Revenue growth of 12.2%, with continued delivery on pricing and
passenger volume increases across the Group, including record year at ALSA and
driver & route recovery in North America School Bus
· Adjusted Operating Profit decreased to £168.6m (FY 22: £197.3m)
as benefits of volume recovery and in-year benefit from pricing and Accelerate
1.0 cost reduction programme were offset by cost inflation, reduction in Covid
subsidies, and lower profitability in Germany
· Statutory Operating Loss of £21.4m (FY 22 restated: £173.5m
Loss, following £260.6m ALSA impairment), impacted by £30m restructuring
costs and £99m charge to the German Rail onerous contract provision
· ALSA delivers record revenues and profits in its centenary year
· New divisional leadership: North America School Bus - strong
school year start-up with continued pricing recoveries and preparations for
disposal on track; UK & Germany - UK restructuring (including NXTS
turnaround) underway
· German contract profitability reduced (and onerous contact
provisions increased) as a result of industry wide labour scarcity, lower
productivity, market volatility in energy prices and persistent high inflation
· Further pricing and restructuring benefits to come with
'Accelerate 1.0' delivering at least £30m annualised savings, and 'Accelerate
2.0' well underway targeting at least £20m annualised savings
· 43 new contracts won, worth over £1bn in total contract value
and c.£126m in annualised revenue, with average ROCE of 23%, in line with
Evolve strategy. Mobilised in new key target cities, including Porto, Seville
and Charleston as well as multi-modal hub expansions in Madrid, Chicago,
Boston, and Geneva
· Covenant net debt of £987.1m (FY 22: £985.8m) with covenant
gearing of 3.0x (FY 22: 2.8x). Compared to a covenant test limit of 3.5x.
· Improved debt maturity and liquidity with £600m RCF refinanced
to 2028, and €500m bond refinanced to 2031.
· FY 24 Adjusted Operating Profit expected to be between £185m and
£205m
Ignacio Garat, Mobico Group Chief Executive, said:
"Our 2023 results are below the expectations we set ourselves at the beginning
of the year.The delays due to the additional work relating to the German
Rail business was regrettable but it is now concluded.(3) Although Group
revenue growth was encouraging, driven by passenger demand and actions taken
to recover inflation, this has not translated into an improvement in reported
profitability."
"I am nevertheless encouraged by the progress we have made in transforming the
business, with the new leadership we have appointed in North America School
Bus and the UK & Germany making a tangible impact and the first phase of
our Accelerate cost efficiency program delivering ahead of expectations."
"Our focus remains on delivering the benefits of our restructuring programs
and in recovering inflationary costs through pricing, while maintaining a
relentless focus on the quality of our offering to support growth.
Opportunities remain to create a more appropriate and sustainable cost
structure and we will not hesitate to take action where there is a clear
strategic and financial benefit."
"I'd like to pay tribute to all of our employees, customers and stakeholders
for their considerable efforts and support as we lead the modal shift from
cars to mass transit, improving social mobility and reducing carbon
emissions."
Notes
This announcement contains forward-looking statements with respect to the
financial condition, results and business of Mobico Group PLC ("Mobico" or the
"Group"). By their nature, forward-looking statements involve risk and
uncertainty and there may be subsequent variations to estimates. Mobico's
actual future results may differ materially from the results expressed or
implied in these forward-looking statements. Unless otherwise required by
applicable law, regulation or accounting standard, Mobico does not undertake
to update or revise any forward-looking statements, whether as a result of new
information, future developments or otherwise. Forward-looking statements can
be made in writing but also may be made verbally by members of the management
of the Group (including without limitation, during management presentations to
financial analysts) in connection with this announcement.
Note 1: The results are presented on an adjusted basis to show the performance
of the business before adjusting items. For the 12 months to 31 December 2023,
these principally comprise; intangible amortisation for acquired businesses,
re-measurement of historic onerous contract provisions and impairments,
re-measurement of the WeDriveU Put Liability, repayment of UK CJRS grant
income ('furlough') and Group wide restructuring and other costs. In addition
to performance measures directly observable in the Group financial statements
(IFRS measures), alternative financial measures are presented that are used
internally by management as key measures to assess performance.
Note 2: 2022 restated in respect of a correction to the German Rail onerous
contract provision. Please see note 1 to the Financial Statements.
Note 3: More detail can be found in the German divisional overview below.
Legal Entity Identifier: 213800A8IQEMY8PA5X34
Classification: 2.2 for the purposes of DTR 6 Annex 1
The information contained within this announcement is deemed by Mobico to
constitute inside information as stipulated under the Market Abuse Regulation
(EU) No.596/2014 as it forms part of domestic law of the United Kingdom by
virtue of the European Union (Withdrawal) Act 2018. By the publication of this
announcement via a Regulatory Information Service, this inside information is
now considered to be in the public domain.
The person responsible for arranging for the release of this announcement on
behalf of Mobico is Simon Callander, General Counsel and Company Secretary.
Enquiries
James Stamp Mobico Group Tel: +44 (0)121 803 2580
John Dean
Stephen Malthouse Headland Tel: +44 (0)7734 956 201
Matt Denham Tel: +44 (0)7551 825 496
A live webcast of the analyst meeting taking place today at 09.00am (BST) will
be available on the investor page of the Group's website: www.mobicogroup.com.
(http://www.mobicogroup.com)
Overview
2023 was a challenging year for Mobico Group. Profitability was affected by
significant cost inflation (especially wage costs) and significantly reduced
Covid subsidies. Structural issues in Germany (labour scarcity and energy
price volatility), reduced expectations around the profitability of the UK
private hire business, lower than expected growth in UK Bus passenger numbers,
and higher driver recruitment costs in North America School Bus have also
created a drag to our recovery in profitability. Decisive action has however
been taken on pricing and restructuring which is expected to provide
significant future benefits. This alongside good top line growth will help
drive our recovery.
Adjusted Statutory
£m FY 2023 FY 2022 Change FY 2023 FY 2022 (Restated)(1) Change
Revenue
ALSA 1,165.4 962.5 21.1% 1,165.4 962.5 21.1%
North America 1,115.6 1,048.2 6.4% 1,115.6 1,048.2 6.4%
UK and Germany 869.9 796.8 9.2% 869.9 796.8 9.2%
Group 3,150.9 2,807.5 12.2 % 3,150.9 2,807.5 12.2%
Operating profit/(loss)
ALSA 136.8 103.9 31.7% 121.0 (170.2) 171.1%
North America 27.1 68.4 (60.4)% (7.1) 12.7 (155.4)%
UK & Germany 23.7 43.2 (45.1)% (98.8) 10.3 (1,059.2)%
Central Functions (19.0) (18.2) (4.4)% (36.5) (26.3) (38.8)%
Group 168.6 197.3 (14.5)% (21.4) (173.5) 87.7%
Operating margin 5.4% 7.0% (1.6)% (0.7)% (6.2)% 5.5%
(1) Restated for a correction to the German Rail onerous contract provision,
see note 1 to the Financial Statements for further information
Mobico Group Revenue grew 12.2% on a reported basis and 10.9% on a constant
currency basis. This reflects: (i) strong underlying growth in those
businesses where revenue is driven by passenger demand and trip volumes; and
(ii) continued recovery in North America School Bus through pricing and route
recovery.
Adjusted Operating Profit decreased 14.5% and Group Adjusted Operating Margin
decreased to 5.4% (FY 22: 7.0%), as the benefits of volume growth (+£88m),
pricing improvements (+£114m) and the in-year impact of our Accelerate 1.0
restructuring initiative (+£15m) were not sufficient to offset:
· the impact of cost increases (£130m) of which approximately 55% was
driver wage inflation, and 30% fuel and insurance costs,
· the lagged benefit from price rises in UK Bus and North America
School Bus,
· a reduction in Covid subsidies of £105m (see strategic review
section for more detail),
· the impact of lower expectations for energy subsidy recovery, higher
costs, and the revised indices from the German Federal Statistical Office on
profitability of our German rail contracts
Decisive action has been taken across the Group with the successful Accelerate
program: Accelerate 1.0 delivered £15m in year savings (at least £30m on an
annualised basis) and we have now launched Accelerate 2.0 (with a target of at
least £20m annualised). Moreover, specific additional actions have been taken
to i) recover cost increases in German Rail through ongoing contract
renegotiation, ii) drive a recovery to profitability in National Express
Transport Solutions (NXTS), and iii) further improve driver recruitment and
training processes in North America School Bus.
ALSA continued to trade well with growth across all lines of business,
delivering Adjusted Operating Profit up 31.7% as a result of strong revenue
growth of 21.1%, with especially strong trading in Long Haul, where the
business acted quickly to capture the benefits of government backed travel
initiatives (multi-voucher travel and 'young-summer' discounts). The profit
impact of pricing increases and volume growth amounted to £111m, more than
offsetting cost increases of £68m.
North America grew revenues by 6.4% as routes were re-instated in North
America School Bus, with pricing recovery on expiring contracts also
contributing positively. Adjusted Operating Profit was down £41.3m (60.4%)
mainly as a result of a reduction in Covid funding of £44m (principally
Covid-related CERTS funding) and the impact of wage costs and investment in
the recruitment process. However, pricing recovery delivered an increased
contribution in the second half of the year. Transit and Shuttle delivered 14
new contract wins worth approximately £54m in annualised revenue, at a ROCE
of 31%.
In the UK and Germany, revenues grew 9.2%, representing strong trading in UK
Coach, and with UK Bus patronage reaching 98% of pre-Covid levels. However,
the fall in Adjusted Operating Profit was principally as a result of the
January 2023 16.2% pay settlement in UK Bus which was effective from January
(the primary driver of a £23m increase in driver costs, with price rises only
effective from July), a reduction in Covid funding of £30m, and lower
profitability in Germany.
In Germany lower expectations for energy subsidy recovery as a result of
volatility in energy markets, higher costs associated with industry-wide
driver shortages and the impact of the revised indices from the German Federal
Statistical Office, reduced the profitability of our contracts:
· For the contracts not covered by the onerous contract provision
(RME and RRX 1) profits reduced by £17m compared to prior year (to £0.2m).
Of this reduction, approximately £10m was due to a reduction in the IFRS15
contract asset (primarily reflecting lower expectations of future
profitability) and £6m of in-year impact of higher penalties associated with
driver scarcity and higher net energy costs.
· The onerous contract provision associated with RRX Lots 2/3
increased from £47m (restated, as of 31 December 2022) to £118m as of 31
December 2023. This liability will unwind over the remaining life of the
contract through to 2033.
A focused action plan - working with our Passenger Transport Authorities
(PTA's) - to recover the profitability of these contracts is underway.(4)
Balance Sheet, debt maturity and interest costs
The Group's covenant gearing ratio at 31 December 2023 was 3.0x, increased
from 2.8x last year-end compared to a covenant test gearing limit of less than
3.5x. Free Cash Flow of £163.7m was slightly ahead of prior year (FY 22:
£160.5m). However, cash outflows in respect of Adjusting Items of £71m
(including cash costs of restructuring programmes and cash outflows relating
to German onerous contracts) and dividend payments to equity shareholders of
£41m (FY 22: £nil) resulted in covenant net debt broadly flat on prior year
at £987.1m (FY 22: £985.8m) alongside slightly lower covenant EBITDA.
As of 31 December 2023, the Group had £2.0bn of cash and committed facilities. During the year, debt maturity and liquidity were improved with the £527m RCF (the majority of which would have matured in 2025) being replaced by a £600m RCF facility to 2028. We also refinanced the 2023 £400m bond with a €500m Eurobond issue maturing in 2031. Both the RCF and Eurobond were secured at competitive rates. As rates stand today, the anticipated net interest charge in FY 24 will be in the region of £85m to £90m (£75m in 2023). Approximately 80% of our debt is fixed, with the 20% that is swapped to floating rate due to revert to fixed in 2025.
Mobico has made clear its objective to reduce gearing. However, the lower than previously expected profits generated in 2023, increased costs associated with restructuring, and the German onerous contract cash costs means the timeline of that plan has been extended with the target range of 1.5x-2.0x now expected to be reached in 2027. The Group announced in October that it would look to accelerate the deleveraging (and reduce future capital intensity) with the potential disposal of NASB. Preparations for a potential sale continue to progress well and a sale at an appropriate valuation would accelerate the deleveraging timetable.
Note 4: opening balance restated £46.9m plus charge of £99m less utilisation to give closing position of £118m.
Dividend
On 12 October, the Board announced the suspension of the 2023 final dividend
when it became clear that covenant gearing would not decrease in the year and
in the light of the weaker than expected macro-economic environment and
trading performance.
The Board will continue to monitor business performance and prospects and the
associated pace of reduction in covenant gearing and will reinstate the
dividend when it considers that sufficient progress is being made, targeting a
2x coverage ratio (EPS to DPS) once reinstated.
Outlook
Based on current market conditions Adjusted Operating Profit for FY 24 is
expected to be within the range of £185m to £205m. Similarly to FY 23, we
expect a greater bias to the second half of the year, given the phasing of
cost reduction programmes and the timing of price increases.
Strategic commentary
2023 has been a year in which important underlying progress has been made in
the context of an evolving market, where Mobico has:
· Adapted to the reality of a post-pandemic world and addressing notable external headwinds;
· Acted decisively to adjust the business model to be 'fit-for-the-future': addressing new patterns of demand, evolving requirements of the cost base, changing methods of delivery, and to capture new opportunities; and
· Positioned to capture future growth opportunities
Adapted to external headwinds
2023 has been a year of continued progress in the face of notable external
headwinds and an evolving market, including:
(i) Reduced government funding
In 2023, we have offset a significant headwind from the £105.4m year-on-year
reduction in Covid funding (FY 23: £26.3m; FY 22 £131.7m) with underlying
improvements in trading.
Covid support (£m) FY 2023 FY 2022
Revenue 13.4 56.7
Cost support 12.9 75.0
Total 26.3 131.7
It is a reality of many public transport systems that, if operated purely on a commercial basis, they would likely involve fewer routes and higher fares. It is therefore important to note that government support for transport services remains strong, and we continue to see evidence that governments around the world are increasingly aligned with our agenda and interested in driving the modal shift from cars to public transport.
(ii) Markets undergoing continued evolution, both structural and cyclical
In ALSA, our Long Haul business grew significantly, despite the impact of high
speed rail competition on some key corridors.
Elsewhere, five-day-a-week commuter travel has fallen as a result of increased
hybrid working. This particularly impacted NXTS where the Private Hire and UK
Holiday markets have also been slower to return to pre-pandemic levels of
activity. The impact of lower commuter activity resulted in the decision to
close two of our depots, with residual operations consolidated into a smaller
depot footprint.
The impact of lower commuter activity on our Shuttle business in North America
has been less pronounced as we are paid on a per-vehicle (rather than
per-passenger) basis.
Acted to become fit-for-future
Throughout 2023 the Group has already taken decisive action to address these
challenges, but also to create a business that is fit-for-future and well
positioned to capitalise on future opportunities. This required change
including:
- a sharper commercial focus of divisional leadership,
- driving further cultural alignment across the Group, and
- refining our business model.
(i) Important leadership changes
In order to drive strong operational focus, the Group changed the leadership of two of the businesses: North America School Bus, with immediate impact (delivering one of the most successful school-year start-ups for several years); and the UK & Germany Division, to bring a sharper commercial focus and a fresh perspective on the operating model.
(ii) Working with government partners to access continued funding
Throughout the year we continued to work with governments (regional and
national) to access funding and create sustainable, long-term partnerships.
Some notable successes in the year included:
· ALSA: integrating multi-voucher ticketing into our booking platform, gaining a significant competitive edge
· North America: accessed funding to purchase 143 fully electric school buses through the EPA Clean School Bus Program
· UK: funding package secured to the end of 2024 to allow the UK Bus business to maintain network coverage, with price rises implemented from 1 July 2023.
· Germany: secured funding to compensate for the impact of the €49 ticket on passenger revenues in our RME contracts (with the funding secured until the end of 2024 when the initiative is due to expire)
(iii) Action to address structural changes
Across the Group we took action to combat structural change;
· ALSA: investment in innovative marketing and service delivery to optimise our proposition against High Speed Rail (HSR) helped to mitigate the impact of significant, discounted capacity on our major corridors.
· North America: in our Transit business we had already exited a number of loss making businesses where we deemed no recovery was possible through contract negotiation. In the remaining portfolio we have renegotiated a number of contracts to rebalance the fixed and variable components of income, and in 2023 we also retained two key contracts (Framingham and Tucson) with significant rate increases to restore profitability in the light of reduced volumes. An action plan is also in place to address remaining under-performance in six Customer Service Centres (CSCs) in Transit & Shuttle. The diversification strategy, taking Shuttle into new sectors and geographies, has delivered important gains for the business.
· UK: in response to the structural impact of increased home-working on our NXTS commuter businesses (Clarkes and Kings Ferry) we took action to close two depots and instigated a review of options across the remaining NXTS business, which is exposed to Private Hire demand.
(iv) Combating the impact of inflation
2022 and H1 of 2023 saw a significant peak in inflation, particularly driver-related costs, which increased 2023 costs by £130m compared with prior year (which includes the impact of the full-year effect of the School Bus pay increase).
Recovering the impact of inflation has been a key priority for the Group and with significant progress having been made (typically with a lag between cost inflation and price rises). However, when inflation is high and persistent there is a need to act further which is why we have taken action on pricing and on the unit costs in the business.
During the year, we continued to make good progress on pricing:
· In School Bus we achieved price increases of 13% on the portfolio of contracts up for renewal at the beginning of School Year 2023/2024. This represented about 40% of our contracts, and comes on the back of the 10% rise achieved on a further 40% of the contracts in the prior year (noting, however, that there will be a lag before the price increases are annualised);
· In UK Bus we agreed a price rise of 12.5%, effective from July 2023; and
· In our Long-Haul Coach businesses we achieved full-year yield increases of 3.7% in the UK and 7.5% in ALSA
However, recognising that there was a need to do more we have continued to address our cost base. We announced our Group-wide restructuring, cost and efficiency programme (Accelerate 1.0) in Q1 of 2023 with the stated aim of achieving £25m of annualised savings. That programme has delivered £15m of savings in FY 23 and is expected to deliver annualised savings in excess of £30m in FY 24. In Q4 2023 we announced a second cost and efficiency initiative (Accelerate 2.0) with a stated aim of unlocking a further £20m of annualised benefits (£10m targeted in FY 24). This programme is focused on fundamental organisational design, so that we have business models (and unit costs) that position the Group to be fit-for-the-future.
(v) Solving driver shortages
Industry-wide driver shortages have been particularly acute in North America School Bus, UK Bus and, more recently, Germany.
In North America School Bus, there was a c.15 % driver shortage at the beginning of School Year 22/23 (i.e. September 2022). By December of 2023, we had reduced this to c.2%. This was achieved by overhauling recruitment processes, with a record net number of 990 drivers hired in the year (compared to 884 in FY 22 and a loss of 569 in FY 21). Although we did incur higher than expected recruitment costs in the second half of 2023 this represented necessary investment. As the pressure has eased, those costs are now significantly lower.
In UK Bus, we exited 2022 with a driver shortage of 11%. As a result of actions taken, this had reduced to 6% by the end of 2023. Actions taken include an overhaul of the candidate attraction process, standardised medical and interview procedures, updated onboarding processes, and improving the time taken to make offers to candidates. This resulted in an increase in offers (from application) from 14% to 17%, a reduction in onboarding "no shows" from 20% to 15% and a significant reduction in the time taken to gain the PCV licence.
In Germany, we have a plan that is well underway to reduce the driver gap including increasing drivers trained from 39 in 2022 to 70 trained in 2023, with this higher level continuing through 2024. We are also working with the PTAs to significantly increase capacity in Government sponsored courses.
Positioned to capture future growth opportunities
Opportunity pipeline remains attractive; conversion is strong; retention is high
Since it was launched in 2021, the Evolve strategy has been crucial in building a robust business model that will capture sustained future growth. For example, we have taken further action in the past year to put the Group on a firm foundation for the future including leadership changes and the launch of our Accelerate restructuring programmes. We have also reinforced Business Development and Sales functions across the Group, While doing so, Mobico's conversion of opportunities has been strong with 43 new contracts won in the year, worth over £1bn in total contract value and c.£126m in annualised revenue, at average ROCE of c.23%. ROCE will improve as we continue to favour Asset-Light opportunities. The new contracts won provide the platform for delivering our revenue growth targets.
Revenue growth has been good and the pipeline of opportunities - both organic and through M&A - remains well populated. That pipeline currently represents c.£2.5bn of annualised revenue (as compared with the equivalent £2.5bn at 31 December 2022). In 2023, we also closed a number of small, but strategically important acquisitions.
Debt reduction remains a priority
The Group enjoys excellent liquidity and very clear sight of interest costs given that circa 80% of such costs are fixed with weighted interest costs on our bonds of 4.0%, and a margin of 0.55% above SONIA on our RCF. Nonetheless, it is clear that the Group's debt (which increased as a consequence of Covid) and gearing is an issue that needs to be addressed. Mobico remains confident that it can reduce leverage through Adjusted EBITDA growth over the medium term. However, reduced expectations about the rate of profit recovery and increased cash costs associated with restructuring and German onerous contracts in the near term have delayed plans for full recovery and debt reduction; we now expect to achieve the target covenant gearing range of 1.5x-2.0x in 2027.
In October 2023, we announced the potential sale of the North America School Bus business on which preparations are progressing well. If a sale at an appropriate valuation is concluded, the proceeds will make a significant contribution to debt-reduction ambitions.
Zero emissions vehicles as a catalyst for change
The Group is moving at pace to evaluate, adopt, and mobilise ZEVs in fleets across our businesses. Mobico has a crucial role to play in planning and facilitating the transition to ZEVs, while remaining vigilant regarding the risks of decarbonisation and the commercial viability of solutions. We have previously set out and now reconfirm zero emission fleet targets, to hit net zero by 2040 (based on Scope 1 and 2 emissions). We continue to make excellent progress on our ZEV transition plan and remain on track to secure (operating and on-order) 1,500 ZEVs by the end of 2024 and 14,500 by 2030.
Updated long-term financial ambitions
In 2021, Mobico published financial ambitions as part of the launch of its Evolve strategy. In light of recent performance and the current trading environment, these have now been updated as follows:
· FY 27 revenue of at least £3.8bn (£1bn above FY 22)
· Sequential growth in Adjusted Operating Profit with FY 27
Adjusted Operating Profit of approximately £300m (c£100m above FY 22)
· Cumulative Free Cash Flow (after growth capex and M&A) for FY
22 to FY 27 of around £300m
· Covenant net debt / covenant EBITDA of between 1.5x to 2.0x by FY
27
· Paying a dividend targeting 2.0x cover (once re-instated)
* NB our definition of Free Cash Flow (now after growth capex and M&A) has
been changed to reflect the ongoing discipline in the re-investment of cash
flow to drive growth in revenue and profitability. Cumulative Free Cash Flow
(prior to growth capex and M&A) and which previously had been guided to be
£1.25bn between FY22 and FY27 would now be over £1bn).
Divisional overview
ALSA
ALSA is the leading company in the Spanish road passenger transport sector. It
has, over a number of years, significantly diversified its portfolio away from
Long Haul to having a multi-modal offering, which today also spans Regional
and Urban Bus and Coach services across Spain, Morocco, Switzerland, Portugal,
France and - since October 2023 - Saudi Arabia (via a 15% minority holding).
FY 2023 FY 2022 Change
m %
Revenue £1,165.4 £962.5 21.1%
Adjusted Operating Profit £136.8 £103.9 31.7%
Statutory Operating Profit/(Loss) £121.0 £(170.2) 171.1%
Revenue €1,340.4 €1,129.3 18.7%
Adjusted Operating Profit €157.4 €121.8 29.2%
Statutory Operating Profit/(Loss) €139.2 €(199.9) 169.6%
Adjusted Operating Margin 11.7% 10.8% 0.9%
Results
In its centenary year, ALSA delivered a record year for revenues which exceeded £1bn for the first time with revenues up 21.1% (18.7% on a constant currency basis) and Adjusted Operating Profit growth of 31.7% (29.2% on a constant currency basis). This was the result of strong passenger growth and significant pricing actions across all of its lines of business, and a diverse, growing portfolio.
Long Haul revenues were up 37.1% driven by passenger volume growth up 27.5%
and yields up 7.5%, compared with 2022. Long Haul Occupancy ratios were 5.5%
better than FY 22. There was continuing growth in Regional and Urban
business with revenues up by 14.9% and 7.3% respectively. Morocco delivered a
robust performance, particularly after taking into account the earthquake in
September, with revenue for 2023 growing 2.1% versus last year. The
International business (including Portugal) delivered strong revenue growth of
61.2%. There were also some modest but strategic acquisitions in Spain in FY
23, providing entry to new targeted markets and further diversification of
business lines, and in early FY 24 ALSA completed the acquisition of
CanaryBus, the leading operator in the Canary Islands, strengthening our
position in this important tourism market.
Statutory Operating Profit of £121.0m represented an increase of £291.2m versus 2022, principally due to the £260.6m non-cash impairment charge taken in 2022.
Highlights
The main highlights of the year included:
- Record Revenue and Adjusted Operating Profit performance in 2023,
driven by highest ever passenger numbers reaching 589m in 2023 (+13% vs 2022)
- Retention of all key material domestic contracts that were bid
including Aragon and Valencia, with total contract value of >£120m, and
the renewal of BBVA, Caixabank, Arcelor and Metro private contracts with £20m
contract value;
- Expansion of our key Madrid multi-modal hub with important contract
wins, including a healthcare transport contract strengthening our position in
this key market (the original platform having been established by the
acquisition of Vitalia - since renamed Sanir).
- Successful mobilisation of three significant international
contracts: Porto (200 buses) and Geneva (35 buses) started in December and
Saudi Arabia (129 coaches) launched in October
- New digital centre of innovation established as digital sales are
now >65% of revenues.
In almost every respect, ALSA has delivered an improved performance over the same period last year. It has also improved its operation and its offering, whether through evolving use of technology or its relentless focus on the customer. It has long been the strategy of ALSA to diversify away from its original Long Haul business, while continuing to grow it. As a result of continuing diversification, including growth in Spain, Urban and Regional, international expansion into Morocco, Portugal and Switzerland, and growth in paratransit, cruise line transfers and other services, Long Haul now represents only 17% of ALSA's revenues from 25% in 2016.
In the Long Haul business, passenger numbers were up 27.5%, average ticket prices were up 7.5% and occupancy was up 5.5% driven by the nine main corridors. Indeed, occupancy levels in these key corridors reached a record in July at 77.1%. Increasingly sophisticated marketing strategies and network management tools contributed to this strong performance and helped capitalise on the positive impact of the Spanish Government's 'young summer' incentive in Long Haul (offering a 90% discount to people aged 18-30), which concluded in September. The scheme yielded good sales results with approximately 1.3m tickets sold for travel between 15 June to 15 September. Since the end of that scheme, ticket sales have stabilised. Nonetheless, it is estimated that approximately one-third of new customers brought into coach travel by the scheme have returned to travel by coach again.
While performing strongly, the Long Haul business faced continuing challenge from High Speed Rail (HSR) train corridors (including Madrid-Murcia, Madrid-Barcelona and Madrid-Alicante). Madrid-Asturias launched a HSR service in November 2023 but ALSA is responding with innovative marketing and revenue management plans as well as being more sophisticated in timing of routes and adapting to offer better origin-destination points for customers. The long-speculated potential change in the Long Haul Coach market, which could involve a change from the current structure, remains a possibility at some point in the future. ALSA's credentials as the best provider in its region, its extensive customer relationships, strategic assets and powerful brand means that it will remain well placed to prosper in any eventuality.
In the portion of the Regional business that is exposed to demand risk (i.e. those with net-cost contracts), passenger numbers were up 28.6%, with average ticket prices up 4.0%, both when compared with FY 22.
In Morocco, after the earthquake of 8 September there was some slowdown in activity, particularly in Marrakech and Agadir, where revenues fell 20% for one week when compared with the prior year. However, in subsequent weeks, business gradually recovered. In response to the tragedy, ALSA donated €1m to the 'Special Fund for Earthquake Management' created by the Kingdom of Morocco to support the reconstruction of the impacted area. The business also offered free travel for a period, to assist the affected communities.
Contract wins, renewals, and mobilisations
ALSA won 12 new contracts in 2023 with an annual contract value of circa £25m and an average ROCE of 46%. The Regional business successfully retained some important contracts in Aragon and Valencia, with total contract value of >£120m. Notable new contract wins included a five-year healthcare transport agreement using 175 vehicles in Madrid, expanding the existing important multi-modal hub in that city. Further, a number of significant contracts were successfully mobilised in the year, including Porto (Urban Bus - 200 buses), Geneva (two new Urban Bus contracts bringing our total operations to over 200 buses in Switzerland), and with our partners in Saudi Arabia (10 year Intercity Coach contract - 129 coaches), strengthening our reputation as the most reliable operator to manage contract transition.
Focus on efficiency and cost of delivery
ALSA has an excellent track record of delivery, established over many years. Nonetheless, it is not exempt from the need to constantly improve, and it has made significant further gains in efficiency through 2023. Examples include: deployment of Accelerate savings initiatives in depots (spare parts, brands and fleet availability optimisation), fleet productivity (maintenance, engine replacement and fuel consumption programmes), staff costs, procurement and digital. This resulted in further improvement in FY 23 with digital sales reaching 65.4% of total sales vs 55.8% in 2022 and fleet activity ratios improving to 76.2%, up 1.8% versus 2022.
Disciplined capital allocation
ALSA continues to deliver a high ROCE of circa 20% and maintains a highly disciplined approach to capital allocation, while also investing both organically and through M&A. ALSA completed four small but strategically important acquisitions in 2023 including Ibercruises (serving the leisure cruise industry), which completed in November. In March 2024 the acquisition of CanaryBus was formally completed significantly increasing our presence in the Canary Islands, which has a significant tourism market. Each acquisition offers access to attractive market adjacencies for ALSA at investment multiples that allow for excellent returns potential.
Evolve outcomes
ALSA continues to focus on the Evolve strategy with progress in the year:
- Safest: FWI (Fatalities Weighted Index) per Million Miles of 0.005 (FY 22: 0.005). New DriveCam IA technology is to be installed across 2,200 buses in 2024.
- Most satisfied customers: Passenger growth of +12.9% vs 2022. Key initiatives in the year included improved passenger information and onboarding, and a B2B CRM Project Sales network 'Transform'. Ratings in December for NPS (Net Promoter Score) were +30% (+46% vs FY 22) representing significant progress against 2022 and 2019
- Employer of choice: eNPS of +24 (+7 on FY 22). As well as a tight control of absenteeism in the year, ALSA also secured Top Employer 2023 certification for ALSA Spain being the first transport company in Spain to achieve it, recognising organisations that stand out for their good practices in people management. Good progress in 2023 on our Diversity & Inclusion policy promoting equality with the creation of global and local committees and with a plan in course and dedicated resources
- Most reliable: OTP (On Time Performance) 94.9% (FY 22: 98.1%) as a result of increased congestion as traffic volumes return. Successful mobilisations in Porto and Geneva.
- Environmental leader: Total ZEVs grew from 128 in service at December 2023 to 224 expected to be in service at December 2024 and are now >3% of the fleet. ALSA has begun operating six new lines on the 'Transports Publics Genevois' (TPG) network in Geneva, Switzerland, with a fleet of 100% electric buses.
North America
The North America business now operates in 33 states and two Canadian
provinces (following the disposal of the Nova Scotia business in August 2023).
School Bus operates through medium-term contracts awarded by local School
Boards. Transit and Shuttle provides fixed route, paratransit (the
transportation of passengers with special needs) and demand-responsive
services on a contracted basis to both public and private entities from a
range of sectors including Technology, Biotechnology, Manufacturing and
Education.
FY 2023 FY 2022 FY Change
m %
Revenue £1,115.6 £1,048.2 6.4%
Adjusted Operating Profit £27.1 £68.4 (60.4)%
Statutory Operating (Loss)/Profit £(7.1) £12.7 (155.4)%
Revenue $1,387.7 $1,296.8 7.0%
Adjusted Operating Profit $33.7 $84.7 (60.2)%
Statutory Operating (Loss)/Profit $(8.8) $15.8 (155.7)%
Adjusted Operating Margin 2.4% 6.5% (4.1)%
Results
Good constant currency growth with revenues up 7.0% on a constant currency
basis (6.4% on a reported basis) and Adjusted Operating Profit of £27.1m. In
School Bus, revenues were up 5.6% vs 2022, driven by price increases and route
reinstatements, after the successful driver recruitment programme in the year
(despite the circa $8-10m higher investment made to achieve that). The
business secured 97% of its maximum number of routes: ahead of what was
expected earlier in the year. 990 net new drivers joined the business,
compared with 884 hires in 2022. In Transit & Shuttle, revenues were up
10% but profits were down 34%, as a result of reduced government funding and
decline in volumes with Technology customers, offset by 14 new contract wins,
worth over £50m of annualised revenue.
Highlights
Following the withdrawal of Covid funding, Operating Profits reduced in the
year. Nonetheless, the main operating highlights of 2023 year included:
- Significant progress with School Bus driver recruitment and
retention resulting in route reinstatement at 97.3% of contractual maximum by
December 2023
- Significant progress with School Bus pricing achieving 13% on the
renewing portfolio
- Building upon the strength of our driver recruitment and active
partnership in staffing routes with our customers, our school start-up in
September was the best for some years
- Early contract wins for school year 24/25 to deliver over 450 new
routes (which means we are well placed to achieve net route growth in the
school year)
- Revenue growth in Transit & Shuttle driven by 14 new contract
wins with circa £54m annualised revenue, partly offsetting a volume reduction
in some large corporate shuttle contracts in the Technology sector
- Retention of key contracts for Transit & Shuttle in the San
Francisco Bay area, expanding the area as a key multi modal transport hub
- Acquired final 20% of WeDriveU on 7 July 2023 for $57m, in-line with
expectations
Mobico's North America businesses entered 2023 facing significant challengers
to recover pricing and routes in School Bus and the impact of job reductions
in the technology sector in Transit & Shuttle. As set out below,
significant progress has been made in the year.
In June 2023 Tim Wertner joined the Group to lead the North American School
Bus business to refocus efforts on driving both operational excellence and
growth. Tim brings more than 30 years of significant and relevant leadership
experience in transport and complex logistics, having served in various senior
roles at FedEx.
School Bus entered the financial year with the legacy from chronic industry shortage of drivers which had caused significant challenges for school year 22/23 (beginning in September 2022). Changes to the recruitment process resulted in a material improvement in the number of drivers hired, and a reduction in the time taken to hire them. Although there were some additional, unforeseen costs involved in some of those improvements, we believe that this will be recovered over time (as the market returns to normal, our recruitment processes are streamlined and pricing recovery is delivered).
The division also demonstrated good pricing power in the market in order to continue to recover the investment in driver wages made in 2022. Prices for contracts due for renewal in the current school year (approximately 40% of the portfolio) have been increased by an average an average increase of 13%. This followed price increases for approximately 40% of contracts of circa 10% in the previous year. There remains a block (circa 20%) to be re-priced in 2024, and we are confident that similar levels of price increase will be delivered. The very successful, dependable 23/24 school year start-up will certainly help support that pricing process. Mobico retained circa 97% of its School Bus customers, in an already highly competitive SY23/24 bid season, and in the context of significant price increases.
In Transit & Shuttle, new contract wins in sectors outside Technology, including in Manufacturing and Education, helped to offset the Technology sector's cyclical weakness. In the meantime, revenue from key Technology sector customers appears to have stabilised. In addition, service levels and passenger volumes continued to increase, when compared with 2022. Services in Transit were up 16% in 2023, while passenger numbers in Shuttle were up 38% in the same period.
Contract wins / renewals and mobilisations
North America School Bus:
• Business retention rate of 97% (excluding exits from loss-making
contracts)
• 12 new contract wins with approximately £46m of annual contract
value included success at West Ada (Idaho) and Duval (Florida) which
represents over 400 new routes for School Year 24/25 on contracts with a five
year base term (with potential five year extension)
Transit & Shuttle:
• 14 new contract wins delivering £54m annualised revenue and 31%
ROCE. The most significant wins included:
• Charleston, South Carolina: Asset light fixed route and
paratransit contract with 133 vehicles for up to 10-year term
• Charlotte, North Carolina: Management contract for fixed route
urban services with >300 buses (3+2-year contract)
• North Cook County, Chicago: Asset light paratransit contract with
92 vehicles for up to 10-year term, expanding existing multi-modal city hub
• University at Buffalo, NY: 10-year university shuttle contract
with 28 vehicles
• New corporate shuttle work, expanding our multi-modal city hubs in
Chicago, Austin and San Francisco
Disciplined capital allocation
In the School Bus 2023 bid season, we won 121 routes from new bids that required no capital as we fully utilised cascaded fleet. Retention bids are all priced centrally with rigorous review aimed at maximising capital efficiency across the portfolio to limit maintenance capex spend, and with a retention rate of 97%. The 2024 bid season wins to date were at returns in excess of our return targets.
In Transit & Shuttle there is continued focus on limiting capital demands by focusing predominantly on a large pipeline of Asset-Light opportunities. In addition, cascading unutilised fleet to serve contract expansions, extending the useful life of assets, and the utilisation of variable leases where appropriate all contributing to more efficient use of capital. In 2023 actual capital expenditure was lower than expected - without sacrificing growth - largely through these measures.
Evolve outcomes
The main objectives of the Evolve strategy remain key business priorities. In each, further progress has been made:
- Safest: FWI per Million Miles was 0.011 in School Bus (FY 22: 0.001) with the deterioration caused by six major injuries in 2023. Transit & Shuttle achieved a FWI of 0.003 (FY 22: 0.001), as a result of one major injury in 2023.
- Most satisfied customers: Average CSAT score of 4.2/5.0 in School
Bus (+0.2 from 2022) driven by improved scores across communication,
responsiveness, and partnerships. Transit 2023 average CSAT was 3.8/5 and NPS
22%,.
- Employer of choice: eNPS of +10 in School Bus (+1 on FY 22), and +8 in Transit & Shuttle (-2 on FY 22). Transit & Shuttle staffing levels increased by 14% and the number of School Bus drivers improved 12% in 2023, helping delivery, retention and morale. The eNPS reduction in Transit & Shuttle is associated with the restructure of that division.
- Most reliable: The new management teams are having a positive impact on reliability. OTP (On-time performance was 92.4% in School Bus (FY 22: 89.9%) with a very successful school year start-up despite the significant operational challenges. Shuttle OTP was 97.4% (FY 22: 97.6%) with H2 OTP at 98.8%.
- Environmental leader: Shuttle operates Princeton University campus' 100% electric fleet, launched during the year, which will save up to 500 metric tons of CO2 emissions per year. School Bus has been awarded a total of $56m through the EPA Clean School Bus Program. The awards will provide 143 fully funded electric school buses to 16 school district customers.
Focus on efficiencies
In School Bus our digital operating platform was rolled-out across a further 34 sites during 2023 for a year-end total of 144 sites. This platform allows the business to control schedule compliance (which is a key driver of labour productivity) and creates a direct link between scheduled activity, payroll, and billings. In addition, we began rolling out the Maximo maintenance management platform across 10 School Bus sites and 2 Transit sites in 2023, with the remaining sites planned to be deployed in 2024. The Maximo maintenance management platform will enhance the effectiveness of our fleet maintenance capabilities through improved asset management and utilisation. In Transit & Shuttle, the combination of the two businesses to improve efficiencies continues to deliver cost benefits. In addition, the operations continue to eliminate loss-making business either by improving contract terms or exiting at routine option dates.
UK & Germany
In the UK Bus sector, Mobico is the market leader in the West Midlands - the
largest UK urban bus market outside London. UK Coach is the largest operator
of scheduled coach services in the UK, and also serves the fragmented,
corporate shuttle, private hire and accessible transport markets.
In Germany, Mobico is the second-largest rail operator in North
Rhine-Westphalia and one of the top five operators in Germany.
UK
FY 2023 FY 2022 Change
m %
Revenue £610.1 £528.3 15.5%
Adjusted Operating Profit £23.5 £25.6 (8.2)%
Statutory Operating Profit £1.3 £18.1 (92.8)%
Adjusted Operating Margin 3.9% 4.8% (0.9)%
Germany
FY 2023 (Restated) Change
FY 2022(1)
m %
Revenue £259.8 £268.5 (3.2)%
Adjusted Operating Profit £0.2 £17.6 (98.9)%
Statutory Operating (Loss) £(100.1) £(7.8) (1,183.3)%
Revenue €298.8 €315.0 (5.1)%
Adjusted Operating Profit €0.2 €20.7 (99.0)%
Statutory Operating (Loss) €(115.2) €(9.1) (1,165.9)%
Adjusted Operating Margin 0.1% 6.6% (6.5)%
(1) 2022 restated in respect of a correction to the German Rail onerous
contract provision. Please see note 1 to the Financial Statements.
Results
Good constant currency growth with Divisional revenues up 8.4% on a constant
currency basis (9.2% on a reported basis) but a decline in Adjusted Operating
Profit of £19.5m (45.1%). In UK Bus, revenues were down 1.7% vs 2022. In UK
Coach, revenues were up 30.5% vs 2022. In Germany, revenues were down 3.2% vs
2022 (5.1% at constant currency), although this mainly reflects lower
"pass-through" costs in our contracts.
Highlights
In July 2023, the UK Bus and Coach businesses were combined into a 'one-UK'
structure to drive efficiencies and best practice across the division. In
September 2023, Alex Jensen was appointed as the new Divisional CEO, together
with a new CFO. As with the North American division, new leadership was deemed
necessary to bring sharper commercial focus to the business. The immediate
focus has been in three areas: (i) driving performance through tighter
operational control, optimising networks and driving volumes and yields; (ii)
transforming the business models to improve the risk and reward balance and
rebase costs; and (iii) building organisational capability and discipline,
including around capital and cost allocation.
Although both UK businesses have delivered good passenger and revenue results,
they share a common challenge in their respective cost bases which have risen
sharply since 2019 on a unit-cost basis relative to unit-revenues (i.e. when
looked at on a per passenger or per mile basis). Work is underway, at pace, to
determine the optimum cost structure.
UK Coach
· Strong growth in UK Coach core scheduled coach revenue resulting
from good passenger recovery (+25.4%) and yields (+3.7%) vs 2022; including an
estimated £15m profit benefit from rail strikes.
· National Express's UK scheduled coach network growth in 2023 has
significantly outpaced our main competitors, with 6.4m seats added over the
year.
· 15% of first-time users on a rail strike day have since used
National Express again
UK Bus
· UK Bus was significantly impacted by the drivers' strike in Q1
and associated wage settlements which added £23.3m of incremental cost. The
cost of the strike itself (from lost revenue net of saved variable costs) was
£2.4m.
· Significant funding from West Midlands Combined Authority to
protect the bus network of £47.0m (FY 2022: £50.7m). While this funding is
important, it is not sufficient to cover the cost increases or deliver an
attractive return, and the team is working to reset this in January 2025 when
the current funding deal ends.
· 12.5% fare increase implemented from July 2023, lagging but
assisting in mitigating cost increases (the pay award was effective 1 January
2023)
· Customer complaints reduced by 28% year on year reflecting an
increased focus on lost mileage, punctuality, driver recruitment &
retention and customer response
· Reduced the driver vacancy gap from 11% to 6%.
German Rail
· Lifetime profitability of contracts adversely impacted by
industry-wide disruption in the train driver market, lower labour
productivity, volatility in energy costs and energy cost recovery indices, and
persistent levels of inflation.
· Increased onerous contract provision for RRX Lots 2&3 to
£118.3m (FY 22 restated: £46.9m)
· Active discussions with PTA to renegotiate contracts and minimize
disruption to passengers.
UK Coach
UK Coach delivered strong passenger growth of 25% in 2023 from a network that
grew by 29%. Yields increased by 3.7%, and occupancy was marginally down at
69.7% as airports built back up.
National Express coaches provided significant support to customers during the
repeated rail strikes through the year, which generated an estimated 615,000
additional passengers, and £17m revenue. Excluding strike impacts in 2022 and
2023, estimated underlying passenger growth in 2023 was 24%.
Overall, the growth in active online customers registered with National
Express was circa 43%. This includes new customers who switched to our
service, due to the disruption caused by continued rail strikes in 2023 and
who we have subsequently retained.
In October, a review of the loss-making NXTS business resulted in a decision
to close two depots (Gillingham and Sydenham) which have been impacted by a
reduction in daily commuter traffic as a result of the working-from-home
trend. The rest of the NXTS business has a significant dependence on the UK
private hire and charter market which has been slow to recover post Covid. All
potential options are being considered, including further rationalisation and
rightsizing.
UK Bus
In FY 23 commercial passenger numbers were up 8.2% and exited the year at 98%
of 2019 levels on a smaller network (at the end of 2023, the network was
operating at 89% of 2019 mileage levels.)
The drivers' strike in Q1 2023 resulted in a wage settlement of 16.2%,
backdated to 1 January 2023 with the total cost of driver pay awards being
£23.3m. The net cost of the strike itself, including lost revenue and other
business interruption costs, but after savings, was £2.4m. While this is
unwelcome, settlements that are above inflation are unsustainable and we have
taken the action necessary to maintain the business on a sustainable and
strong footing. In response to the pay increase, National Express increased
ticket prices in July 2023 by circa 12.5%, with the average day ticket
increasing from £4.00 to £4.50.
During the year, we continued to receive government funding support to deliver
customer growth and to maintain those parts of the bus network that are not
commercially viable (£47.0m of funding was received in FY 23, compared with
£50.7m in FY 22). This contribution reduces to £38.7m in FY 24, after which
time the current agreement ends. The reduction mainly reflects the end of
specific support received for the fare freeze in FY 23 (£3m) and a £5m
reduction in support received under the Bus Recovery Grant. Discussions are
underway to secure further funding, and alternative network cuts (removal of
non-profitable routes) have already been identified which would act to bridge
any remaining funding gap.
Contract wins, renewals and mobilisations
Late in the year, the UK Coach business successfully retained its Luton
Airport contract after a competitive process, extending a very effective and
collaborative partnership exemplified by the response to the major fire at the
airport parking facilities in October 2023. This new contract (five-year plus
two-year extension option) continues a successful partnership that has run
since 2013 serving circa 1.5 million passengers per year.
Our Ireland operations, operating as Dublin Express, continue to grow and
expand. In January 2024, we successfully retained the contract in a
competitive tender process to operate Airport to City services from the
premium departure slots until 2027. We see further growth in this buoyant
market both in terms of ongoing airport growth and expansion of Dublin
Express's reach, starting with launch of an additional service to southern
Dublin in H1 2024. Overall passenger numbers grew from 1.2m in FY 22 to 1.7m
in FY 23 (+48%). This growth was driven by ongoing recovery in Dublin Airport
air passenger numbers, further embedding of the Dublin Express brand in the
Irish market and a focus on partnerships, such as our exclusive ticket sales
arrangement with national rail operator, Irish Rail. To meet this demand, we
increased our overall seat capacity between Dublin and Dublin Airport by 94%
over the course of the year.
In parallel, we launched the Dublin to Belfast route on 18 July 2023.
Comprising 16 round trips per day, this route has already gained a significant
foothold in the market and was profitable after just three months. We have now
carried 150k passengers and believe that this will grow to over 0.5m
passengers per annum over the next two years.
We continue to build our reputation for quality and reliability, enjoying an
NPS on Belfast routes of over 70 (and over 40 on high frequency Airport-Dublin
routes), demonstrating the quality of service being delivered hand in hand
with the significant growth over the period.
Focus on efficiency
Through the year, the UK Coach operated network has grown - with operated
mileage in 2023 at 61.3m miles, 29% higher than in 2022 with seat utilisation
at 70%, 6% above 2019 levels (64%). This growth has been added quickly but in
an efficient and sustainable manner, without sacrificing punctuality or
customer satisfaction. Absolute growth in the National Express network has
significantly exceeded that of our two largest competitors combined.
During 2023, UK Bus placed a strong focus on driver recruitment and retention,
investment in new more reliable fleet, and proactively working with local
authorities to limit highway disruption. The launch of 'Project Clockwork' is
designed to deliver a significant improvement in bus punctuality and further
improvement in lost mileage by the end of 2024.
Disciplined capital allocation
During the year, the business undertook a commercial review of a project to
bring 100 Hydrogen Fuel Cell ZEVs into UK Bus operations, as part of the ZEBRA
(Zero Emission Bus Regional Areas) Government funding scheme. The review drew
on insight gained in running a fleet of 20 buses in Birmingham in partnership
with Birmingham City Council. Given what we learnt from this small trial, we
made the decision to move away from the hydrogen element of the ZEBRA scheme.
We are in discussions with TfWM and DfT about next steps. Hydrogen may become
viable for longer distance Coach operations in the future, and that will be
further evaluated as the technology evolves.
Germany
In Germany we face pressure on profitability of our contracts mainly as a
result of three key structural issues: firstly, costs associated with
industry-wide disruption in the train driver market and lower productivity;
secondly, lower expectations for net energy cost recovery relating to
volatility in energy costs and associated energy cost recovery indices
(including the impact of the revised indices from the German Federal
Statistical Office); and finally, persistent levels of inflation.
Driver scarcity
Driver scarcity in Germany is an industry-wide issue caused by an increasingly
competitive market for driver recruitment. Supply of drivers has traditionally
been dominated by Deutsche Bahn's own workforce planning (and where
state-backed retirement benefits are very attractive to the older members of
the workforce). It is estimated that 40% of drivers will retire by 2027. In
context, a typical driver training program requires 12-18 months to complete.
This scarcity has recently been compounded by three key structural issues:
(i) Continuing pressure on labour productivity by the unions
who are seeking a reduction in productive working hours of 8% (to 35 hours a
week). As a result, the driver establishment in North RhineWestphalia (NRW)
for all train operating companies (TOCs) has increased significantly and it is
expected that there will be a recruiting requirement of nearly 1,000 new
drivers in the region.
(ii) In late Summer and Q4 of 2023, we saw higher than
anticipated resignations as drivers left to join agencies (where they could
be re-employed on significantly higher pay). This has been a significant and
rapid change for the industry. When we mobilised the RRX Lot 1 emergency award
in February 2022 only 20 agency drivers were employed representing 5% of our
driver workforce. By January 2024, in contrast we were running with an agency
driver quota of 12%.
(iii) Significant network upgrade work with almost 1,000
construction projects planned for the NRW region. Major projects include RRX
expansion and the remodelling of the Cologne junction and affects around 30
per cent of daily journeys in NRW, this results in longer journeys and a
higher driver requirement.
As a result of the issues outlined above, at the end of FY 23 we had an
overall driver gap of circa 9%, (after the utilisation of 41 agency
drivers). While a driver gap of 5-10% can be managed in the short term (with
higher penalties and overtime costs), this level of gap is not sustainable
over the medium term, and management have put in place an action plan to
address:
· Agreed mileage reductions with our PTAs to minimize disruption to
passengers and associated penalties (although with a reduction in subsidy)
over the next 12 months
· Increased the number of our own driver training courses from 39
in 2022 to 70 in 2023 and a similar number planned in 2024, in order that we
recover the driver shortage by 2025/26
· Amended our workforce plans to take account of lower productivity
Energy subsidy
Energy subsidies are received to compensate operators for volatility in energy
prices, and are calculated by reference to specific indices published by the
German Federal Statistical Office, DeStatis. The way that indices relevant to
our RME and RRX 2&3 contracts are compiled is not transparent.
However, historically the way in which these indices had behaved was
relatively predictable: tending to increase as wholesale prices increased (and
decrease as market prices fell) but in a less pronounced way. For example,
energy prices for short-dated energy purchases peaked in August 2022 at over
500% of August 2021, the energy compensation index only increased 250%. During
2023 the index started to behave in a different way from this previous
experience giving us a greater exposure.
As a result, we have revised our forecasts for long-term cost recovery under
the contracts.
Revised Indices
In addition to the issues described above, in early March 2024 DeStatis
republished values for the index used in our contracts, replacing previous
data for the 38 months from January 2021 to February 2024. This revision
required us to re-evaluate our forecasts for how the energy subsidy index will
behave relative to our assumptions about the cost of energy.
Financial impact
Although we are involved in constructive ongoing dialogue with our PTAs to
rebalance contracts for the structural issues that are outside of our control,
the impact on our German operations prior to mitigation is as follows:
- Adjusted Operating Profit on our RME and RRX Lot-1 contracts reduced
by £17m (compared to prior year) in 2023 to £0.2m. Of this change,
approximately £10m is due to the IFRS15 contract asset, principally
reflecting lower expectations of future profitability, with the balance of
£6m representing the in-year impact of lower net energy costs, lower subsidy
and the costs associated with driver shortages
- We expect that the RME and RRX Lot-1 contracts will generate future
profits (through Adjusted Operating Profit) of approximately £20m over the
remaining contract lives, but with a loss of approximately £5m in FY 24 as
the driver issues are resolved, and we transition to operating RRX Lot-1 on a
permanent basis (compared to an emergency award basis between February 2022
and December 2023)
- As a result of the issues described above, the onerous contract
provision in respect of our RRX Lots2/3 contracts (which recognises all of the
expected losses on that contract over its contract life) increases to £118.3m
(FY 22 (restated): £46.9m), with an expected cash outflow of approximately
£30m in FY 24, and an average cash outflow of £10m p.a. for the remainder of
the contract lives.
Evolve outcomes
- Safest: UK FWI per Million Miles of 0.001 (FY 22: 0.002) reflecting
the launch of an enhanced suite of 'Golden Safety Rules', expert coaching, and
continued deployment of driver simulator in UK Bus. Germany had an FWI of
0.047 (FY 22: 0.000) as a result of a fatality of a track worker which is
still under investigation.
- Most satisfied customers:
o UK Bus: Passenger volume growth of 8.2%. Punctuality & reliability
complaints, the biggest satisfaction driver for our customers, reduced by 48%
year on year.
o Coach: Passenger volume growth of 25%. Customer satisfaction for National
Express (Coach) remains strong with an NPS of 36.8, flat on 2022, despite the
impact of a significant number of rail strikes resulting in much busier
services and increased traffic congestion.
o German rail: Passenger volume growth of 13% stimulated by subsided fares
in the form of the €49 ticket.
- Employer of choice: UK eNPS of -28, although disappointing,
represents a significant improvement on prior year (+10 on FY 22), which was
impacted by industrial relations issues and management change. In our drive to
become Employer of Choice, we launched our National Express Inclusion Playbook
for managers and colleagues, which is a toolkit for managers and their teams
to navigate and nurture an inclusive culture.
- Most reliable:
o OTP (On Time Performance) of 80.8% (FY 22: 85.6%) in UK Bus, and 86.9% (FY
22: 88.9%) in UK Coach: A key controllable driver of reliability for our
customers is lost mileage (defined as the difference between our scheduled
mileage and operated mileage, reflecting services which have not been
delivered) across both our Bus and Coach operations. In a period of rail
strikes, growing demand for our services and the impact of increased traffic
and roadworks, this metric has improved by circa 35% in both businesses.
Despite this OTP has declined as a result of increased congestion and driver
shortages.
o OTP of 60.9% (FY 22: 64.3%) in German Rail: with the fall due to
significant network infrastructure upgrades and route diversions, compounded
by the scarcity of drivers. As discussed above, we are working with the PTAs
to minimize the impact of disruption to customers.
- Environmental leader: Our UK Bus business now has 159 electric buses
in operation (79 as at December 2022) meaning that 10.1% of our operated
network that is fully electric, with further ZEVs already on order that will
take that proportion significantly higher. In Coventry we are leading the UK's
first 'All Electric Bus City' project, which is on schedule to be completed by
2025.
Appendix - KPIs
ALSA Long Haul (as reported) FY 2023 FY 2022 FY 2019 vs FY 2022 % Vs FY 2019%
PAX total Long Haul (000's) 14,574 11,429 14,480 27.5% 0.6%
PAX (9 main corridors) (000's) 9,905 7,695 9,334 28.7% 6.1%
Yield (9 main corridors) 21.38 20.05 19.40 6.6% 10.2%
Occupancy (9 main corridors) 61% 55% 51% 6%pts 10%pts
ALSA Urban FY 2023 FY 2022 FY 2019 vs FY 2022 % Vs FY 2019%
PAX (000s) 97,674 79,884 69,954 22.3% 39.6%
ALSA Regional Risk & Venture FY 2023 FY 2022 FY 2019 vs FY 2022 % Vs FY 2019%
PAX (000s) 45,098 35,061 30,936 28.6% 45.8%
UK Bus FY 2023 FY 2022 FY 2019 vs FY 2022 % Vs FY 2019%
Commercial and Concessionary PAX (000's) 212,241 198,049 241,765 7.2% (12.2)%
Commercial PAX (000's) 182,037 168,239 197,657 8.2% (7.9)%
UK Coach Core (as reported) FY 2023 FY 2022 FY 2019 vs FY 2022 % Vs FY 2019%
PAX (000's) 19,212 15,316 20,779 25.4% (7.5)%
Yield 13.54 13.06 11.40 3.7% 18.8%
Occupancy 70% 72% 64% -2%pts 6%pts
NA - Transit FY 2023 FY 2022 FY 2019 vs FY 2022 % Vs FY 2019%
Revenue from remaining 2019 Contracts 171,137 150,087 203,751 14.0% (16.0)%
Total Transit revenue $'000s 239,133 205,506 312,977 16.4% (23.6)%
NA - Shuttle FY 2023 FY 2022 FY 2019 vs FY 2022 % Vs FY 2019%
PAX (000's) 8,899 6,458 5,610 37.8% 58.6%
Service Level (avg no. of vehicles through year) 957 925 908 3.5% 5.5%
Group Chief Financial Officer's review
Summary Income Statement
Year ended 31 December
Adjusted result(1) Adjusting items(1) Statutory Total Adjusted result(1) (Restated) Adjusting items(1&2) (Restated) Statutory Total
2023 2023 2023 2022 2022 2022(2)
£m
£m
£m £m £m £m
Revenue 3,150.9 - 3,150.9 2,807.5 - 2,807.5
Operating costs (2,982.3) (190.0) (3,172.3) (2,610.2) (370.8) (2,981.0)
Operating profit/(loss) 168.6 (190.0) (21.4) 197.3 (370.8) (173.5)
Share of results from associates (0.5) - (0.5) (0.4) - (0.4)
Net finance costs (75.2) (1.2) (76.4) (51.0) (0.4) (51.4)
Profit/(loss) before tax 92.9 (191.2) (98.3) 145.9 (371.2) (225.3)
Tax (42.5) (21.9) (64.4) (30.3) 24.4 (5.9)
Profit/(loss) for the year 50.4 (213.1) (162.7) 115.6 (346.8) (231.2)
1: To supplement IFRS reporting, we also present our results on an adjusted
basis to show the performance of the business before adjusting items. These
are detailed in the Notes to the Financial Statements and principally comprise
for the 12 months to 31 December 2023; intangible amortisation for acquired
businesses, re-measurement of historic onerous contract provisions and
impairments, re-measurement of the WeDriveU Put Liability, repayment of UK
CJRS grant income ('furlough') and Group wide restructuring and other costs.
In addition to performance measures directly observable in the Group financial
statements (IFRS measures), alternative financial measures are presented that
are used internally by management as key measures to assess performance.
Further explanation in relation to these measures can be found inj the
Alternative Performance Measures appendix.
2: Restated for a correction to the German Rail onerous contract provision;
please refer to the Notes to the Financial Statements section for more
information
The Group has seen strong passenger growth and demand for its services in the
period resulting in Group revenue increasing by 12.2% to £3,150.9m (FY 22:
£2,807.5m), with topline revenue growth across all operating segments, driven
by overall passenger growth of 9.9%.
The table below illustrates the levels of passenger and revenue growth during
the year in the key parts of the business that are exposed to passenger
volume-related revenues(1)
2023 vs 2022 passenger growth % 2023 vs 2022 revenue growth %
UK Bus commercial 8% 14%
ALSA urban bus 22% 7%
UK scheduled coach 25% 30%
ALSA long haul 28% 37%
(1) We have not included the RME contract in German Rail in the table above as
revenues are covered by subsidies relating to the €49 ticket.
In addition to strong passenger growth, we also delivered good route recovery
in North American School Bus and prices increases in a number of areas,
including:
· The 40% of School Bus contracts that were up for renewal in this
bid season had price increases of 13%, effective September 2023 (beginning of
School Year 23/24);
· Price increases in UK Bus of 12.5% were implemented from 1 July
2023;
· Effective yield management in our UK and Spanish long-haul coach
businesses increased average yields by 3.7% and 7.5% respectively.
These gains offset a £105.4m year on year reduction in Covid-related grants.
Covid-related grants Revenue Support Cost Support Total
£m £m £m
ALSA 11.5 - 11.5
North America - 4.2 4.2
UK 1.9 8.7 10.6
German Rail - - -
Total - Year ended 31 December 2023 13.4 12.9 26.3
Total - Year ended 31 December 2022 56.7 75.0 131.7
However, we also saw significant inflation and increased driver related costs
which were not able to be fully offset in the year. Notwithstading good
progress on Accelerate 1.0, which delivered £15m cost savings during the
year, Group Adjusted Operating Profit fell to £168.6m (FY 22: £197.3m), a
reduction of £28.7m. We expect the impact of run-rate benefits from our cost
saving initiatives; the full year impact of pricing increases implemented
during FY 23; further price increases to be implemented in FY 24; and further
route recovery in North America School Bus to benefit FY 24.
After £190.0m (FY 22 restated: £370.8m) of adjusting items (described in
further detail below) the statutory operating loss was £21.4m (FY 22
restated: £173.5m loss).
Net Finance Costs increased by £25.0m to £76.4m (FY 22 restated: £51.4m)
due to both the refinancing of the £400m bond, which carried a 2.5% interest
rate, with a €500m bond at a 4.875% interest rate; and the impact of higher
interest rates on the Group's floating rate debt.
Adjusted Profit Before Tax was £92.9m (FY 22: £145.9m) and Statutory Loss
Before Tax was £98.3m (FY 22 restated: £225.3m loss).
The Adjusted effective tax rate of 45.7% (FY 22: 20.8%) resulted in an
Adjusted tax charge of £42.5m (FY 22: £30.3m). The effective tax rate has
been impacted by an interest disallowance in the UK due to the Corporate
Interest Restriction Rules (restricting interest deductions to 30% of EBITDA)
and higher interest rates.
The statutory tax charge was £64.4m (FY 22 restated: £5.9m), with an
Adjusting tax charge of £21.9m (FY 22 restated: £24.4m credit). The
adjustment relates to: (i) the write-off of UK and North America deferred tax
assets on tax losses which are either restricted in their use or have expired
of £27.2m; (ii) a further £51.3m write-off of deferred tax assets on tax
losses in Germany; (iii) a £46.2m credit relating to tax on adjusting items;
and (iv) a tax credit of £10.4m on intangible assets.
The Statutory Loss after tax was £162.7m (FY 22 restated: £231.2m loss).
Adjusting items
Adjusting operating items were £190.0m (FY 22 restated: £370.8m), of which
£71.0m (FY 22: £49.3m) resulted in cash outflows in the period.
Adjusting items debit/(credit) Income Statement (Restated) Income Statement Cash Cash
2023 2022(1) 2023 2022
£m
£m
£m
£m
Goodwill impairment of ALSA - 260.6 - -
Intangible amortisation for acquired businesses 35.3 37.2 - -
Re-measurements of onerous contracts and impairments resulting from the 2.1 7.6 7.1 17.0
Covid-19 pandemic
Re-measurement of the Rhine-Ruhr onerous contract provision 99.2 24.3 27.9 9.6
Re-measurement of onerous contract provisions and impairments in respect of 12.0 31.4 9.8 11.7
North America driver shortages
Final re-measurement of WeDriveU put liability 2.4 - -
Repayment of UK Coronavirus Job Retention Scheme grant ('Furlough') 8.9 - -
Restructuring and other costs 30.1 9.7 26.2 11.0
Adjusting operating items 190.0 370.8 71.0 49.3
Unwinding of discount of the Rhine-Ruhr onerous contract provision (c) 1.2 0.4
Total Adjusting items before tax 191.2 371.2
Tax charge/(credit) 21.9 (24.4)
Total Adjusting items after tax 213.1 346.8
(1) Restated for a correction to the German Rail onerous contract provision;
please refer to the Notes to the Financial Statements section for more
information.
Following the impairment of goodwill in ALSA in 2022, no further goodwill
impairment has been recorded.
Consistent with previous periods, the Group classifies £35.3m (FY 22:
£37.2m) amortisation for acquired intangibles as a Adjusting item.
Re-measurements of onerous contracts which arose following the Covid-19
pandemic of £2.1m (FY 22: £7.6m) relates only to re-measurements in respect
of contracts previously classified as onerous, and where we are still
operating the contract. No new contracts became onerous in 2023. The cash
outflow of £7.1m was higher than the income statement charge as it relates to
the utilisation of onerous contract provisions recognised in previous years.
We do not expect further Adjusting items in respect of new onerous contracts
(with any remeasurements only in respect of those contracts previously
recorded as onerous).
The Rhine-Ruhr (RRX) onerous contract (which relates to lots 2&3), and
which runs to 2033, has been re-measured based on the latest forecasts of
losses anticipated under the contract, resulting in a £99.2m charge to the
income statement. The industry-wide disruption in the train driver market,
lower labour productivity, volatility in energy costs and energy cost recovery
indices, and persistent levels of inflation are key contributing factors to a
significant increase to the RRX onerous contract provision as at 31 December
2023 compared to prior year.
The Group undertook a detailed review of the associated critical accounting
judgements made relating to the contracts (and the associated key sources of
estimation uncertainty identified) in relation to its German Rail business.
The review also considered the calculation of the onerous contract provision
as at 31 December 2022 and 31 December 2021 considering information that was
or should have been available at those times following which the Group has
determined that the German onerous contract provision was under-stated at each
of those dates as set out in the notes to the Financial Statements. As a
result the income statement charge for the year ended 31 December 2022 within
adjusting items was restated to £24.3m (previously reported: £9.3m).
The provision at 31 December 2023 is £118.3m for the remainder of the
contract term until 2033, following utilisation during the year of £27.9m and
£1.2m unwinding of discount.
In US School Bus, an additional £12.0m charge was recorded in respect of
onerous contracts and associated impairments which continued to be impacted by
the post-covid market wide issues of driver shortages. This charge relates
only to contracts which were previously considered to be onerous; no further
such contracts have become onerous in 2023.
The WeDriveU put liability charge of £2.4m represents the final true-up
payment in respect of the final 20% tranche of shares purchased and the Group
now owns 100% of that business, with no further adjustments required.
Repayment of the UK Coronavirus Job Retention Scheme grant of £8.9m reflects
the commitment made to voluntarily repay furlough funding at the time a
dividend was paid to shareholders. This was subsequently paid in early 2024.
Restructuring and other costs of £30.1m includes the impact of Group wide
strategic initiatives and restructuring, which includes one-off costs relating
our cost saving programmes, and costs relating to preparation for the
previously announced sale of US School Bus.
The Adjusting tax charge of £21.9m (FY 22 restated: credit £24.4m) is made
up of a tax credit on amortisation of acquired intangible assets £10.4m (FY
22: £9.1m), a tax credit on Adjusting costs of £46.2m (FY 22 restated:
£19.4m) and a deferred tax charge associated with de-recognition of tax
losses of £78.5m (FY 22 restated: £4.1m).
Segmental performance
Year ended 31 December
Adjusted Operating Profit/(Loss) Adjusting items Segment Adjusted Operating (Restated) Adjusting items (Restated) Segment
2023
2023
result
Profit/(Loss)
2022(1)
result
£m
£m
2023
2022
£m
£m
£m 2022(1)
£m
ALSA 136.8 (15.8) 121.0 103.9 (274.1) (170.2)
North America 27.1 (34.2) (7.1) 68.4 (55.7) 12.7
UK 23.5 (22.2) 1.3 25.6 (7.5) 18.1
German Rail 0.2 (100.3) (100.1) 17.6 (25.4) (7.8)
Central functions (19.0) (17.5) (36.5) (18.2) (8.1) (26.3)
Operating profit/(loss) 168.6 (190.0) (21.4) 197.3 (370.8) (173.5)
(1) Restated for a correction to the German Rail onerous contract provision
ALSA Adjusted Operating Profit has increased by £32.9m to £136.8m driven by
robust passenger growth and improved yields compared with FY 22. The Regional
and Urban business has also seen continuing growth boosted by increased
mobility and network increases. The Statutory Profit has increased by £291.2m
to £121.0m, due to the impairment of goodwill in FY 22.
North America Adjusted Operating Profit has decreased by £41.3m to £27.1m,
with revenue growth of 6% as services rebuild, partly offsetting a £51.7m
reduction in Covid-related cost support. While the business has faced higher
operating costs due to driver shortages during the year, there has been
significant progress in School Bus, with driver recruitment and retention
resulting in route reinstatement at near to its contractual maximum, and with
price increases for expiring contracts at 13%.
Revenue growth in Transit and Shuttle has been driven by new contract wins in
the year, offsetting some of the volume decrease that we have seen in some of
our large corporate shuttle contracts.
The statutory operating loss of £7.1m for the North America division as a
whole is £19.8m down on prior year despite a £21.5m reduction in Adjusting
items (as a result of a lower charge associated with the re-measurement of
onerous contracts as the driver-gap and number of onerous contracts has
reduced) because of the reduction in Adjusted Operating Profit noted above.
In the UK, Adjusted Operating Profit reduced by £2.1m to £23.5m. UK Bus
revenues were helped by commercial passenger numbers increasing by 8% versus
2022 and a 12.5% price increase in July 2023. These helped to mitigate the
impact of the drivers' strike in the first quarter of 2023 and the associated
16% wage settlement which was effective from 1 January 2023. During the year
we continued to receive grants and subsidies to operate services. UK Coach
revenues were supported by strong passenger growth of 25%. Passenger revenues
were boosted by rail strikes through the year which generated an estimated
600,000 additional passengers. UK Coach operating profit was impacted by the
continued disappointing performance in NXTS, the private hire and contracts
business. Two loss making depots (Gillingham and Sydenham) were identified for
closure in the year. The increase in Adjusting items of £14.7m reflects the
commitment to repay the UK Coronavirus Job Retention Scheme grant and also
restructuring costs.
German Rail Adjusted Operating Profit is down £17.4m to £0.2m. Of this
reduction, approximately £10m is due to the IFRS15 contract asset adjustments
associated with the RME contract. This movement includes approximately £8m of
adjustments to reflect the impact of lower future profit expectations over the
remaining contract life. The balance of the reduction in profitability
(approximately £6m) was a result of higher penalties (and lower subsidies)
caused by driver shortages, and the in-year impact of lower recovery of energy
costs due to index ineffectiveness and rebasing on RME and RRX1.
RRX Lots 2 and 3 contributed £nil to Adjusted Operating Profit as they are
covered by the onerous contract provision noted above. The segment result was
impacted by a £99.2m charge relating to the increase in the onerous contract
provison reflecting the latest view of profitabiliity of the RRX Lots 2 and 3
contract over the remaining contract life to 2033.
Cash management
Funds flow 2023 2022
£m £m
Adjusted Operating Profit 168.6 197.3
Depreciation and other non-cash items 217.4 220.8
Adjusted EBITDA* 386.0 418.1
Net maintenance capital expenditure** (135.7) (184.5)
Working capital movement 9.1 (1.1)
Pension contributions above normal charge (7.5) (7.4)
Operating cash flow 251.9 225.1
Net interest paid (61.0) (47.0)
Tax paid (27.2) (17.6)
Free cash flow 163.7 160.5
Growth capital expenditure** (17.9) (93.1)
Acquisitions and disposals (net of cash acquired/disposed) (59.6) (29.5)
Adjusting items (71.0) (49.3)
Payment on hybrid instrument (21.3) (21.3)
Dividend (41.1) -
Other, including foreign exchange 53.4 (105.4)
Net funds flow 6.2 (138.1)
Net Debt (1,201.7) (1,207.9)
* Adjusted EBITDA is defined in the Alternative Performance Measures appendix.
** Net maintenance capital expenditure and growth capital expenditure are
defined in the Alternative Performance Measures appendix.
The Group generated Adjusted EBITDA of £386.0m in the period (FY 22:
£418.1m).
Net maintenance capital expenditure of £135.7m is principally related to
asset purchases in North America and ALSA and is £48.8m less than FY 22 as
the Group accelerated capital expenditure in FY 22 to secure production slots,
resulting in a lower cash outflow in FY 23. Working capital was well
controlled with an inflow of £9.1m including the collection of amounts from
public bodies in the UK and Morocco and the adjustment to the RME IFRS15
contract asset discussed above (the reduction in the asset which forms part of
working capital offsets the non-cash charge associated with the reduction
included in Adjusted EBITDA, hence is cash-neutral within FY 23).
Consistent with previous periods, the Group makes use of non-recourse
factoring arrangements.
These take two forms:
a. typical factoring of receivables existing at the balance sheet date
(principally utilised for School Bus in North America and ALSA), for which
there was £74.9m (FY 22: £62.5m) drawn down at year end and which is
recognised as a reduction in receivables and recorded within operating cash
flow; and
b. advance payments for factoring of divisional subsidies, for which £83.8m
(FY 22: £50.2m) was drawn down at the end of the year, of this, £66.4m (FY
22: £50.2m) is in Germany where the cash flow profile of the RME contract is
such that it creates a working capital requirement over the first half of the
15 year contract, and we factor certain of the subsidies due in order to
ensure that the contract has a cash neutral impact on the Group; £17.4m (FY
22: £nil) was also factored in ALSA in relation to urban bus consortium
arrangements. The amounts drawn down on these arrangements are classified as
borrowings.
Net interest paid increased by £14.0m to £61.0m reflecting the increase in
central bank base rates during the year on the floating component of our debt
and the refinancing of the £400m bond, at 2.5% interest rate, with a €500m
bond at a 4.875% interest rate.
Tax paid increased by £9.6m to £27.2m due to higher taxable profits in ALSA,
as well as a temporary rule introduced by the Spanish tax authorities,
limiting the amount of tax losses which can be utilised during the current
year (with the restriction only impacting current year).
Free cash inflow was £163.7m (FY 22: £160.5m), representing strong
conversion of 97% (FY 22: 81%).
Growth capital expenditure of £17.9m in the period (FY 22: £93.1m) primarily
relates to assets purchased for new business in North America and ALSA
partially offset by a funding receipt from the local authority of £11.9m
relating to the new Casablanca fleet. The decrease from 2022 is due to
significant payments for the new fleet in Casablanca and Rabat that were made
in the prior year.
Acquisition costs of £59.6m (FY 22: £29.5m) relate mainly to the £46.1m
purchase of the final 20% share in WeDriveU, which is now a 100% subsidiary; a
£6.1m deposit related to the Canarybus acquisition in ALSA; as well as
several smaller acquisitions in ALSA and earn-out considerations being paid
for previous acquisitions.
A cash outflow of £71.0m was recorded in respect of Adjusting items as
explained above. £21.3m of coupon payments on the hybrid instrument were made
in the period and £41.1m in respect of the 2022 full year and 2023 interim
dividend was paid to shareholders. Other inflows of £53.4m principally
reflect the movement in exchange rates and settlement of foreign exchange
derivatives as a result of our hedging strategy which seeks to protect
covenant gearing from foreign exchange rate volatility.
Net funds inflow for the period of £6.2m (FY 22: £138.1m outflow) resulted
in Net Debt of £1,201.7m (FY 22: £1,207.9m).
Please see the Supporting Reconciliations appendix for a reconciliation to the
statutory cash flow statement.
Dividend
On 12 October, the Board announced the suspension of the 2023 final dividend
when it became clear that covenant gearing would not decrease in the year and
in the light of the weaker than expected macro-economic environment and
trading performance. It is not expected that an interim dividend for FY 24
will be paid.
The Board will continue to monitor business performance and prospects and the
associated pace of reduction in covenant gearing and will reinstate the
dividend when it considers that sufficient progress is being made, targeting a
2x coverage ratio (EPS to DPS) once reinstated.
Treasury management
The Group maintains a disciplined approach to its financing and is committed
to an investment grade credit rating. Our Moody's and Fitch ratings are
Baa2/negative and BBB/stable respectively.
The Group has two key bank covenant tests; being a <3.5x test for gearing
and a >3.5x test for interest cover. At 31 December 2023, covenant gearing
was 3.0x (FY 22: 2.8x) and interest cover was 5.2x (FY 22: 8.6x). The increase
in the covenant gearing ratio is attributable to the reduction in Adjusted
EBITDA, with covenant net debt broadly consistent with FY 22.
At 31 December 2023, the Group had utilised £1.4bn of debt capital and
committed facilities. At 31 December 2023, the Group's RCFs were undrawn and
the Group had available a total of £0.9bn (FY 22: £0.8bn) in cash and
undrawn committed facilities. The table below sets out the composition of
these facilities:
Funding facilities Facility Utilised at 31 December 2023 Headroom at 31 December 2023 Maturity year
£m £m
£m
Core RCFs 600 - 600 2028
2028 bond 232 232 - 2028
2031 bond 428 428 - 2031
Private placement 405 405 - 2027-2032
Divisional bank loans 164 164 - Various
Leases 181 181 - Various
Funding facilities excluding cash 2,010 1,410 600
Net cash and cash equivalents (294) 294
Total 1,116 894
The Group completed two significant refinancing activities successfully during
the year, which has improved the debt maturity and liquidity profile.
In July 2023, the Group completed the refinancing of its Core RCF facility,
with the signing of a new £600m, 5 year committed revolving credit facility,
with options to extend for two further years.
In September 2023, the Group issued a new €500m bond, maturing in 2031 and
with a fixed interest coupon of 4.875%. This refinanced the maturing £400m
bond which was repaid in November 2023.
The result of these two activities is an extension to our average debt
maturity to 5.4 years, up from 3.7 years at FY 22.
To ensure sufficient liquidity, the Board requires the Group to maintain a
minimum of £300m in cash and undrawn committed facilities at all times. This
does not include factoring facilities which allow the without-recourse sale
of receivables. These arrangements provide the Group with more economic
alternatives to early payment discounts for the management of working capital
and, as a result, are not included in (or required for) liquidity forecasts.
At 31 December 2023, the Group had foreign currency debt and swaps held as net
investment hedges. These help mitigate volatility in the foreign currency
translation of our overseas net assets. The Group also hedges its exposure to
interest rate movements to maintain an appropriate balance between fixed and
floating interest rates on borrowings. At 31 December 2023, the proportion of
Group debt at floating rates was 21% (31 December 2022: 19%).
Return on capital employed
ROCE is a key performance measure for the Group, guiding how we deploy capital
resources and as such is a key component of executive incentives. ROCE for the
year was 7.0% (FY 22 restated: 7.6%), as result of the lower EBIT in the year.
Group tax policy
We adopt a prudent approach to our tax affairs, aligned to business
transactions and economic activity. We have a constructive and good working
relationship with the tax authorities in the countries in which we operate and
there are no outstanding tax audits in any of our main three markets of the
UK, Spain and North America. The Group's tax strategy is published on the
Group website in accordance with UK tax law.
Pensions
The Group's principal defined benefit pension scheme is in the UK. The
combined deficit under IAS 19 on 31 December 2023 was £32.6m (FY 22:
£42.1m), with the IAS 19 deficit for the Group main's scheme, West Midlands
Bus being £30.0m (FY 22: £39.7m).
The agreed deficit repayments on the West Midlands Bus plan are £7.5m, £7.7m
and £7.8m per annum for the three years from 1 April 2023.
Fuel costs
Fuel cost represents approximately 9% of revenue (FY 22: 8%). At 31 December
2023 the Group is fully hedged for 2024 at an average price of 51.6p per
litre; around 50% hedged for 2025 at an average price of 51.1p; and around 17%
hedged for 2026 at an average price of 47.8p. This compares to an average
hedged price in 2022 and 2023 of 37.5p and 48.5p respectively. This increase
in hedged rates will add approximately £5m to gross fuel costs by FY24
compared with FY 23.
Going concern
The Financial Statements have been prepared on a going concern basis as the
Directors are satisfied that the Group has adequate resources to continue in
operational existence for a period of not less than 12 months from the date of
approval of the financial statements. Details of the Board's assessment of the
Group's 'base case', 'reasonable worse case', and 'reverse stress tests' are
detailed in of the Notes to the Financial Statements.
Risks and uncertainties
The Board considers the following are the principal risks and uncertainties
facing the business:
· Unprecedented external factors threatening the resilience of the
business: The resilience of the business can be challenged from major
incidents such as a future pandemic, a financial crisis or extreme weather. If
the Group is not able to identify and prepare appropriately, it might lead to
significant financial, operational and reputational damages.
· Adverse economic conditions affecting our speed of recovery:
Declining economic conditions and very high inflation rates can impact demand
for travel.
· Adverse political and policy environment affecting funding:
Political and geopolitical events such as trade tensions and regional
conflicts can bring change. Those changes may impact government policy and
funding for transport, which may impact the Group's operations.
· Regulatory landscape and ability to comply: Changes in current
regulations and newly introduced regulations can impact the cost structure and
operational procedures in our business as we strive to remain compliant.
· Climate changes (physical): We see increased frequency and
intensity of extreme weather events such as hurricanes, floods and heatwaves
that can lead to extensive damage to infrastructure, loss of lives, and
disruptions to communities. The Group can lose key locations or suffer severe
asset damages, or operations can be interrupted and cause revenue loss even if
the Group's assets are undamaged.
· Climate changes (transitional): The transition to zero emissions
mass mobility is driven by regulatory changes, market demands, and Group's
commitment to reducing its carbon footprint. The successful and sustainable
transition poses a number of challenges due to significant changes required to
infrastructure and changes to the risk profile associated with owning and
operating the assets.
· Implications of new technology in our business model (ZEV
transformation): Transition to ZEV means introducing new technology that
involves changes impacting across the business model including financing,
contracting, maintaining and operating of the assets.
· Competition and market dynamics in a digital world: The evolving
digital landscape in the transportation sector brings a number of challenges
and opportunities including: i) shifting consumer preferences towards
digitalisation; ii) alternative revenue structures which may disrupt
traditional fare structures; iii) structural transformation which could cause
unforeseen disruptions or affect productivity.
· Shortages of drivers and frontline employees: A tightening labour
market leads to a combination of higher turnover and lower numbers of new
recruits. A material shortage of drivers, engineering and maintenance
employees impacts our ability to effectively deliver services and impact
profitability, operations and reputation.
· Industrial action: Industrial action can impact the delivery of
service, revenues and damage our brand and reputation, along with employee
engagement and morale.
· Cyber attack: Major IT failure could disrupt operations and lead
to loss of revenue. Data compromise involving a loss of customer information
could result in reputational damage and significant remedial costs.
· Safety incidents, litigation and claims: Major safety-related
incident could impact the Group both financially and reputationally. Higher
than planned claims or cash settlements could adversely affect profit and cash
outflow. Non-compliance with regulations can create legal and financial risk.
A security incident (e.g. terrorism) would have a direct impact through asset
damage, disruption to operations and revenue loss.
· Credit/financing: A material increase in interest rates would
increase the Group's cost of borrowing, albeit around 80% of our debt is now
at fixed rates following refinancing in FY23. Constrained equity and/or debt
markets increase the costs of capital and debt financing. Regulation of debt
providers and macro political and economic events can impact access to and/or
cost of capital.
· Attraction and retention of talent and succession planning: Risk
of not being able to attract or retain talented individuals with key skills
needed to deliver the Evolve strategy.
James Stamp
Group Chief Financial Officer
21 April 2024
Appendix: Alternative performance measures
In the reporting of financial information, the Group has adopted various
Alternative Performance Measures ("APMs"). APMs should be considered in
addition to IFRS measurements. The Directors believe that these APMs assist in
providing useful information on the Adjusted performance of the Group, enhance
the comparability of information between reporting periods, and are used
internally by the Directors to measure the Group's performance. The key APMs
that the Group focuses on are as follows:
Measure Closest IFRS measure Definition and reconciliation Purpose
Adjusted EBITDA Operating profit(1) Adjusted Earnings Before Interest and Tax plus Depreciation and Amortisation. Adjusted EBITDA is used as a key measure to understand profit and cash
It is calculated by taking Adjusted Operating Profit and adding back generation before the impact of investments (such as capital expenditure and
depreciation, fixed asset grant amortisation, and share-based payments. working capital). It is also used to derive the Group's gearing ratio.
Gearing No direct The ratio of Covenant Net Debt to Adjusted EBITDA over the last 12 months, The gearing ratio is considered a key measure of balance sheet strength and
after making the following amendments to Adjusted EBITDA: including any financial stability by which the Group and interested stakeholders assesses
equivalent pre-acquisition Adjusted EBITDA generated in that 12-month period by its financial position.
businesses acquired by the Group during that period; the reversal of IFRS 16
accounting; the exclusion of the profit or loss from associates; the exclusion
of the profit or loss attributable to minority interest; and the add back of
interest costs arising from the unwind of the discount on provisions.
Free cash flow Net cash generated from operating activities The cash flow equivalent of Adjusted Profit After Tax. Free cash flow allows us and external parties to evaluate the cash generated
by the Group's operations and is also a key performance measure for the
A reconciliation of Adjusted Operating Profit and net cash flow from operating Executive Directors' annual bonus structure and management remuneration.
activities to free cash flow is set out in the supporting tables below.
Net maintenance No direct Comprises the purchase of property, plant and equipment and intangible assets, Net maintenance capital expenditure is a measure by which the Group and
capital expenditure
other than growth capital expenditure, less proceeds from their disposal. It interested stakeholders assesses the level of investment in new/existing
equivalent excludes capital expenditure arising from discontinued operations. It includes capital assets to maintain the Group's profit.
the capitalisation of leases initiated in the year in respect of existing
business.
A reconciliation of capital expenditure in the statutory cash flow statement
to net maintenance capital expenditure (as presented in the Group Chief
Financial Officer's Report) is set out in the supporting tables below.
Growth capital expenditure No direct Growth capital expenditure represents the cash investment in new or nascent Growth capital expenditure is a measure by which the Group and interested
parts of the business, including new contracts and concessions, which drive stakeholders assesses the level of capital investment in new capital assets to
equivalent enhanced profit growth. It includes the capitalisation of leases initiated in drive profit growth.
the year in respect of new business.
Net Debt Borrowings less cash and related hedges Cash and cash equivalents (cash overnight deposits, other short-term deposits) Net Debt is the measure by which the Group and interested stakeholders
and other debt receivables, offset by borrowings (loan notes, bank loans and assesses its level of overall indebtedness.
finance lease obligations) and other debt payable (excluding accrued
interest).
Covenant Net Debt Borrowings less cash and related hedges Net Debt adjusted for certain items agreed with the Group's lenders which have Covenant Net Debt is the measure that is applicable in the covenant gearing
been excluded for the purposes of calculating Net Debt for covenant test.
assessment. The adjustments principally comprise the exclusion of IFRS 16
liabilities, the exclusion of amounts owing under arrangements to factor
advance subsidy payments, the add back of trapped cash, and an adjustment to
retranslate any borrowing denominated in foreign currency to the average
foreign currency exchange rates over the preceding 12 months.
Adjusted earnings Profit after tax Adjusted earnings is Profit attributable to equity shareholders for the Adjusted earnings is a key measure used in the calculation of Adjusted
period, excluding Adjusting items (as described below) and can be found on the earnings per share.
face of the Group Income Statement in the first column.
Adjusted earnings Basic earnings per share Adjusted earnings divided by the weighted average number of shares in issue, Adjusted earnings per share is widely used by external stakeholders,
per share excluding those held in the Employee Benefit Trust which are treated as particularly in the investment community.
cancelled.
A reconciliation of statutory profit to Adjusted profit for the purpose of
this calculation is provided within the notes to the financial statements.
Adjusted Operating Profit Operating profit(1) Statutory operating profit excluding Adjusting items (as described below), and Adjusted Operating Profit is a key performance measure for the Executive
can be found on the face of the Group Income Statement in the first column. Directors' annual bonus structure and management remuneration. It also allows
for ongoing trends and performance of the Group to be measured by the
Directors, management and interested stakeholders.
Adjusting Items No direct equivalent Adjusting items are items that are considered significant in nature and value, Treatment as an Adjusting item provides users of the accounts with additional
not in the normal course of business, or are consistent with items that were useful information to assess the year-on-year trading performance of the
treated as Adjusting items in prior periods. Group.
Adjusted Operating Margin Operating profit(1) divided by revenue Adjusted Operating Profit/(Loss) divided by revenue. Adjusted Operating Margin is a measure used to assess and compare
profitability. It also allows for ongoing trends and performance of the Group
to be measured by the Directors, management and interested stakeholders.
Adjusted Profit Before Tax Profit before tax Statutory profit before tax excluding Adjusting Items can be found on the face Adjusted Profit before tax allows a view of the profit before tax after taking
of the Group Income Statement in the first column. account of the Adjusting items.
Return on capital employed (ROCE) Operating profit(1) and net assets Adjusted Operating Profit divided by average capital employed. Capital ROCE gives an indication of the Group's capital efficiency and is a key
employed is net assets excluding Net Debt and derivative financial performance measure for the Executive Directors` remuneration.
instruments, and for the purposes of this calculation is translated using
average exchange rates. The calculation of ROCE is set out in the
reconciliation tables below.
(1 ) Operating profit is presented on the Group income statement. It is not
defined per IFRS, however is a generally accepted profit measure.
( )
Appendix: Supporting reconciliations
Reconciliation of net cash flow from operating activities to free cash flow 2023 2022
£m £m
Net cash flow from operating activities 230.0 221.1
Remove: Cash (receipts)/payments in respect of IFRIC 12 asset purchases (12.0) 59.7
treated as working capital for statutory cash flow*
Remove: Cash expenditure in respect of adjusting items 71.0 49.3
Add: Net maintenance capital expenditure (135.7) (184.5)
Add: Other non-cash movements (2.7) (0.8)
Profit on disposal of fixed assets 13.1 15.7
Free cash flow 163.7 160.5
*During the year the Group received cash in respect of a capital grant
receivable for assets (principally vehicles) acquired in previous years to
fulfil a contract in Morocco that is accounted for under the IFRIC12 financial
asset model and for which the statutory cash flow for these purchases and
grants receivable are accordingly presented as a movement in working capital,
with the assets being recorded as contract assets on the balance sheet rather
than in property, plant and equipment or intangible assets. In order to be
consistent with the treatment of asset purchases on other contracts, these
asset purchases are reclassified to capital expenditure for the purposes of
the "funds flow" presented in the CFO report. The grant receipt has been
included as growth capital expenditure, consistent with the original asset
purchases for new business and consistent with previous years.
Reconciliation of capital expenditure in statutory cash flow to funds flow 2023 2022
£m £m
Purchase of property, plant and equipment (128.2) (169.0)
Proceeds from disposal of property, plant and equipment 33.8 9.3
Payments to acquire intangible assets (12.9) (10.7)
Proceeds from disposal of intangible assets 4.9 5.2
Net capital expenditure in statutory cash flow statement (102.4) (165.2)
Add: Profit on disposal of fixed assets (13.1) (15.7)
Add: capitalisation of leases initiated in the year, less disposals (50.1) (37.0)
Add: re ceipts/(payments) in respect of IFRIC12 asset purchases* 12.0 (59.7)
Net capital expenditure in the funds flow (presented in the Group Chief (153.6) (277.6)
Financial Officer's Report)
Split as:
Net maintenance capital expenditure** (135.7) (184.5)
Growth capital expenditure** (17.9) (93.1)
*See explanation above
**These terms are defined in the glossary of APMs
( )
Reconciliation of ROCE 2023 2022(1)
£m
£m
Statutory operating loss (21.4) (173.5)
Add back: adjusting items 190.0 370.8
Return - Adjusted Group Operating Profit 168.6 197.3
Average net assets 1,220.0 1,424.9
Remove: Average net debt 1,204.8 1,138.8
Remove: Average derivatives, excluding derivatives reported within Net Debt 0.7 (16.8)
Foreign exchange adjustment (11.7) 37.6
Average capital employed 2,413.8 2,584.5
Return on capital employed 7.0% 7.6%
(1)Restated for a correction to the German Rail onerous contract provision,
see the Notes to the Financial Statements for further information
Financial Statements
Group Income Statement
For the year ended 31 December 2023
Note Adjusted Adjusting Total Adjusted (Restated)
result items 2023 result (Restated) Total
2023 (note 4) £m 2022 Adjusting 2022(1)
£m 2023 £m items £m
£m (note 4)
2022(1)
£m
Revenue 3 3,150.9 - 3,150.9 2,807.5 - 2,807.5
Operating costs (2,982.3) (190.0) (3,172.3) (2,610.2) (370.8) (2,981.0)
Group operating profit/(loss) 168.6 (190.0) (21.4) 197.3 (370.8) (173.5)
Share of results from associates and joint ventures (0.5) - (0.5) (0.4) - (0.4)
Finance income 5 4.0 - 4.0 2.2 - 2.2
Finance costs 5 (79.2) (1.2) (80.4) (53.2) (0.4) (53.6)
Profit/(loss) before tax 92.9 (191.2) (98.3) 145.9 (371.2) (225.3)
Tax (charge)/credit 6 (42.5) (21.9) (64.4) (30.3) 24.4 (5.9)
Profit/(loss) for the year 50.4 (213.1) (162.7) 115.6 (346.8) (231.2)
Profit/(loss) attributable to equity shareholders 49.1 (212.9) (163.8) 113.4 (345.7) (232.3)
Profit/(loss) attributable to non-controlling interests 1.3 (0.2) 1.1 2.2 (1.1) 1.1
50.4 (213.1) (162.7) 115.6 (346.8) (231.2)
Earnings per share: 8
- basic earnings per share (30.2)p (41.4)p
- diluted earnings per share (30.2)p (41.4)p
(1) Restated for a correction to the German Rail onerous contract provision,
see note 1 for further information
Details relating to adjusting items are provided in note 4.
Financial Statements
Group Statement of Comprehensive Income
For the year ended 31 December 2023
2023 (Restated)
£m 2022(1)
£m
Loss for the year (162.7) (231.2)
Items that will not be reclassified subsequently to profit or loss:
Actuarial gains on defined benefit pension plans 2.6 53.0
Deferred tax charge on actuarial movements (0.8) (12.7)
(Losses)/gains on financial assets at fair value through Other Comprehensive (1.4) 1.7
Income
0.4 42.0
Items that may be reclassified subsequently to profit or loss:
Exchange differences on retranslation of foreign operations (74.3) 146.3
Exchange differences on retranslation of non-controlling interests (0.9) 3.1
Gains/(losses) on net investment hedges 30.1 (57.6)
(Losses)/gains on cash flow hedges (14.4) 78.6
Cost of hedging 0.6 (0.7)
Hedging gains reclassified to Income Statement (26.9) (77.7)
Deferred tax (charge)/credit on foreign exchange differences (0.8) 1.3
Deferred tax credit on cash flow hedges 3.6 5.2
(83.0) 98.5
Other comprehensive (expense)/income for the year (82.6) 140.5
Total comprehensive expense for the year (245.3) (90.7)
Total comprehensive (expense)/income attributable to:
Equity shareholders (245.5) (94.9)
Non-controlling interests 0.2 4.2
(245.3) (90.7)
(1) Restated for a correction to the German Rail onerous contract provision,
see note 1 for further information
Financial Statements
Group Balance Sheet
At 31 December 2023
2023 (Restated) (Restated)
£m 2022(1) 2021(1)
Note £m £m
Non-current assets
Intangible assets 1,551.8 1,620.9 1,778.5
Property, plant and equipment 1,164.5 1,175.3 1,129.6
Non-current financial assets 15.3 26.9 32.6
Investments accounted for using the equity method 11.1 13.9 13.7
Trade and other receivables 153.8 173.5 147.1
Finance lease receivable 6.5 9.7 12.7
Deferred tax assets 164.4 193.6 162.2
Defined benefit pension assets 12 0.2 0.4 3.8
Total non-current assets 3,067.6 3,214.2 3,280.2
Current assets
Inventories 33.7 32.4 28.8
Trade and other receivables 573.1 560.7 428.3
Finance lease receivable 2.7 4.3 4.1
Derivative financial instruments 11.1 37.7 31.0
Current tax assets 12.4 2.3 3.3
Cash and cash equivalents 11 356.3 291.8 508.4
989.3 929.2 1,003.9
Assets classified as held for sale 10 18.2 18.6 18.6
Total current assets 1,007.5 947.8 1,022.5
Total assets 4,075.1 4,162.0 4,302.7
Non-current liabilities
Borrowings (1,290.6) (886.3) (1,294.3)
Derivative financial instruments (15.3) (22.4) (11.1)
Deferred tax liability (47.1) (26.9) (14.5)
Other non-current liabilities (115.2) (121.2) (123.8)
Defined benefit pension liabilities 12 (32.8) (42.5) (99.2)
Provisions (146.4) (79.3) (76.8)
Total non-current liabilities (1,647.4) (1,178.6) (1,619.7)
Current liabilities
Trade and other payables (960.6) (874.5) (787.7)
Borrowings (271.2) (602.0) (302.3)
Derivative financial instruments (31.6) (41.9) (24.5)
Current tax liabilities - (4.2) (3.0)
Provisions (98.3) (87.0) (89.6)
Total current liabilities (1,361.7) (1,609.6) (1,207.1)
Total liabilities (3,009.1) (2,788.2) (2,826.8)
Net assets 1,066.0 1,373.8 1,475.9
Shareholders' equity
Share capital 30.7 30.7 30.7
Share premium 533.6 533.6 533.6
Own shares (3.6) (3.9) (4.5)
Hybrid reserve 513.0 513.0 513.0
Other reserves 397.6 481.1 384.0
Retained earnings (435.5) (223.7) (22.0)
Total shareholders' equity 1,035.8 1,330.8 1,434.8
Non-controlling interests in equity 30.2 43.0 41.1
Total equity 1,066.0 1,373.8 1,475.9
(1) Restated for a correction to the German Rail onerous contract provision,
see note 1 for further information
J Stamp
I Garat
Group Chief Executive Officer Group Chief Financial Officer
21 April 2024
Financial Statements
Group Statement of Changes in Equity
For the year ended 31 December 2023
Share Share Own Hybrid Other Retained Total Non- Total
capital premium shares reserve reserves earnings £m controlling equity
£m account £m £m £m £m interests £m
£m £m
At 1 January 2023 (Restated)(1) 30.7 533.6 (3.9) 513.0 481.1 (223.7) 1,330.8 43.0 1,373.8
(Loss)/profit for the year - - - - - (163.8) (163.8) 1.1 (162.7)
Other comprehensive (expense)/income for the year - - - - (83.5) 1.8 (81.7) (0.9) (82.6)
Total comprehensive (expense)/income - - - - (83.5) (162.0) (245.5) 0.2 (245.3)
Own shares released to satisfy - - 0.3 - - (0.3) - - -
employee share schemes
Share-based payments - - - - - 1.6 1.6 - 1.6
Deferred tax on share-based payments - - - - - (0.2) (0.2) - (0.2)
Accrued payments on hybrid instrument - - - 21.3 - (21.3) - - -
Payments on hybrid instrument - - - (21.3) - - (21.3) - (21.3)
Deferred tax on hybrid bond payments - - - - - 5.3 5.3 - 5.3
Dividends paid to shareholders of Company - - - - - (41.1) (41.1) - (41.1)
Recognition of liabilities with non-controlling liabilities - - - - - (8.6) (8.6) - (8.6)
Purchase of subsidiary shares from non-controlling interest - - - - - 15.0 15.0 (15.0) -
Non-controlling interest arising from business combinations - - - - - - - 0.9 0.9
Disposal of subsidiary shares from non-controlling interest - - (0.2) (0.2) 0.6 0.4
Contributions from - - - - - - - 0.5 0.5
non-controlling interests
At 31 December 2023 30.7 533.6 (3.6) 513.0 397.6 (435.5) 1,035.8 30.2 1,066.0
(1) Restated for a correction to the German Rail onerous contract provision,
see note 1 for further information
Financial Statements
Group Statement of Changes in Equity
For the year ended 31 December 2023
Share Share premium account Own (Restated) (Restated) Non-controlling interests (Restated)
£m
shares
Hybrid reserve
£m
capital
£m (Restated) Retained earnings(1) Total(1) Total
£m
£m
£m
equity(1)
£m Other reserves(1)
£m
£m
At 1 January 2022 (Restated)(1) 30.7 533.6 (4.5) 513.0 384.0 (22.0) 1,434.8 41.1 1,475.9
(Loss)/profit for the year - - - - - (232.3) (232.3) 1.1 (231.2)
Other comprehensive income for the year - - - - 97.1 40.3 137.4 3.1 140.5
Total comprehensive income/ (expense) - - - - 97.1 (192.0) (94.9) 4.2 (90.7)
Shares purchased - - (0.3) - - - (0.3) - (0.3)
Own shares released to satisfy - - 0.9 - - (0.7) 0.2 - 0.2
employee share schemes
Share-based payments - - - - - 1.2 1.2 - 1.2
Deferred tax on share-based payments - - - - - (0.4) (0.4) - (0.4)
Accrued payments on hybrid instrument - - - 21.3 - (21.3) - - -
Payments on hybrid instrument - - - (21.3) - - (21.3) - (21.3)
Deferred tax on hybrid bond payments - - - - - 5.3 5.3 - 5.3
Purchase of subsidiary shares - - - - - 5.8 5.8 (5.8) -
from non-controlling interest
Disposal of subsidiary shares from non-controlling interest - - - - - 0.4 0.4 0.3 0.7
Other movements with - - - - - - - 3.2 3.2
non-controlling interests
At 31 December 2022 30.7 533.6 (3.9) 513.0 481.1 (223.7) 1,330.8 43.0 1,373.8
(1) Restated for a correction to the German Rail onerous contract provision,
see note 1 for further information
Financial Statements
Group Statement of Cash Flows
For the year ended 31 December 2023
Note 2023 2022
£m £m
Cash generated from operations 13 315.7 284.9
Tax paid (27.3) (17.6)
Interest paid (62.9) (48.6)
Interest received 4.5 2.5
Net cash flow from operating activities 230.0 221.2
Cash flows from investing activities
Payments to acquire businesses, net of cash acquired 10 (9.4) (4.8)
Deferred consideration for businesses acquired 10 (3.6) (3.7)
Purchase of property, plant and equipment (128.2) (169.0)
Proceeds from disposal of property, plant and equipment 33.8 9.3
Payments to acquire intangible assets (12.9) (10.7)
Proceeds from disposal of intangible assets 4.9 5.2
Payments to settle net investment hedge derivative contracts (5.0) (10.5)
Receipts on settlement of net investment hedge derivative contracts 15.8 3.1
Receipts relating to associates and investments 1.5 0.7
Net cash flow from investing activities (103.1) (180.4)
Cash flows from financing activities
Dividends paid to holders of hybrid instrument (21.3) (21.3)
Principal lease payments (57.4) (85.9)
Increase in borrowings 668.9 128.8
Repayment of borrowings (576.6) (169.5)
Transaction costs relating to new borrowings (4.1) -
Payments to settle foreign exchange forward contracts (30.3) (61.7)
Receipts on settlement of foreign exchange forward contracts 44.6 22.3
Purchase of own shares - (0.3)
Acquisition of non-controlling interests(1) (46.1) (19.1)
Contributions from non-controlling interest 0.5 3.2
Disposals of non-controlling interests 0.4 0.6
Dividends paid to shareholders of the Company 7 (41.1) -
Net cash flow from financing activities (62.5) (202.9)
Increase/(decrease) in net cash and cash equivalents 64.4 (162.1)
Opening net cash and cash equivalents 233.1 376.2
Increase/(decrease) in net cash and cash equivalents 64.4 (162.1)
Foreign exchange (3.8) 19.0
Closing net cash and cash equivalents 11 293.7 233.1
(1) Amounts in 2023 include £46.1m (2022: £19.1m) paid on exercise of 20%
(2022: 10%) of the WeDriveU put liability
Financial Statements
Notes to the Consolidated Accounts
For the year ended 31 December 2023
1 Basis of preparation
These results are based on the Group Financial Statements, which have been
prepared in accordance with International Accounting Standards in conformity
with the requirements of the Companies Act 2006 and UK adopted International
Financial Reporting Standards (IFRS).
These results are presented in pounds Sterling and all values are rounded to
the nearest one hundred thousand pounds (£0.1m) except where otherwise
indicated.
Going concern
The financial statements have been prepared on a going concern basis. In
adopting this basis, the Directors have considered the Group's business
activities, principal risks and uncertainties, exposure to macroeconomic
conditions, financial position, covenant compliance, liquidity and borrowing
facilities.
The Group continues to maintain a strong liquidity position, with £0.9bn in
cash and undrawn committed facilities available to it as of 31 December 2023
and total committed facilities of £2.0bn at this date. There is no expiry
of these facilities within the going concern outlook period. During July
2023 the Group re-financed its revolving credit facility, increasing the size
to £600m (from £527m). The new facility is committed for five years (to July
2028), with two annual extension options to July 2030. Covenants and other key
terms are consistent with those of the Group's former RCF. The Group has also
recently refinanced its £400m sterling bond (which was due to mature in
November 2023), replacing it with an eight year, €500m euro-denominated bond
in September 2023. The Group has positive relationships and regular dialogue
with its lenders. Certain of the Group's borrowings are subject to covenant
tests on gearing and interest cover on a bi-annual basis. A gearing covenant
whereby net debt must be no more than 3.5x adjusted EBITDA and an interest
covenant whereby adjusted EBITDA must be at least 3.5x interest expense apply
to the Group. Each input is subject to certain adjustments from reported to
covenant measure as defined in the facility agreements, principally for
presentation on a pre-IFRS 16 basis.
The Group has continued to recover in 2023, growing revenue but falling behind
its expected profit recovery trend due to higher driver recruitment costs in
North America, higher driver pay settlements in UK Bus coupled with lower than
expected passenger recovery and slower recovery of the UK Transport Solutions
business (NXTS). Additionally, higher costs associated with driver shortages
(resulting in more expensive agency labour) and energy costs in Germany have
been incurred in the latter part of 2023, adversely impacting both underlying
profit and cash utilisation. Furthermore, following significant inflationary
pressure on the cost base and a review of unit costs, it has become
increasingly clear that the cost base has reached levels that are not
consistent with the Group's margin and return ambitions. As a result, cost
reduction programmes were launched in 2023, with £15m of savings already
delivered in 2023, which will annualise into 2024; in addition we have
launched a new productivity improvement and cost reduction programme, where we
are targeting at least £20m of annualised savings.
We acknowledge that the Group has remained loss-making on a statutory basis in
2023, however this is not considered representative of the trading prospects
of the Group since i) the statutory result was significantly impacted by the
£99.2m onerous contract remeasurement in German Rail, brought about as a
result of non-recurring, industry-wide factors; and ii) adjusting items also
related to restructuring costs which will enable achievement of significant
cost savings in future, improving both adjusted and statutory profitability.
Despite the prevailing macroeconomic uncertainty, we are confident in the
Group's prospects as a value-for-money provider of essential public services,
and therefore consider the business highly resilient to cost-of-living
pressures. The outlook for 2024 is encouraging and the Directors remain
confident in the longer-term outlook for the Group. This growth ambition is
strengthened by government policy which is highly supportive of public
transport as part of the solution to climate change.
The base case projections, which cover the period to June 2025, assume a
steady continuation of passenger demand increases across the Group, in line
with the trends seen across 2023 and the exit rate into 2024, as well as an
improvement in adjusted operating margin in the UK and North America following
significant cost reduction and pricing actions undertaken in 2023 and similar
actions ongoing into 2024.The key points of note regarding the base case are
as follows:
· In the UK, the Bus business will focus on improving adjusted
profitability, benefitting from price increases (some of which were already
implemented in 2023) and operational cost efficiencies to combat increases in
the cost base. The Coach business will continue to grow patronage and yields,
targeting new areas (such as festivals and events) whilst also controlling the
cost base through further efficiencies. There is assumed to be some benefit
from ongoing rail strikes in 2024, but to a much lesser extent than in 2023.
Additionally there is a strong focus on the turnaround of the NXTS private
hire business in 2024, for which work is already underway with positive early
results. The current funding package for UK Bus is expected not to extend past
December 2024; the base case includes a number of initiatives to replace this
shortfall through further cost efficiencies and commercial revenue growth.
· In ALSA, revenue and profit in Long Haul is expected to reduce
marginally in 2024 as we lap the benefit of the 'Young Summer' government
initiative seen in 2023 and see increased competition from High Speed Rail as
new corridors are launched across Spain. Elsewhere in the business, we will
see increases in demand for Regional, Urban and Discretionary services as well
as ongoing growth in recently expanded areas such as Portugal and Healthcare
transport. We remain protected from significant inflation by CPI-linked
indexation clauses in most of our contracted revenue streams.
· The North American School Bus business has substantially
recovered the cumulative impact of wage inflation, achieving a 13% pricing
uplift on contracts up for renewal in 2023 (creating a significant tailwind
into 2024), with further rate increases anticipated, in the remainder of the
portfolio which has yet to be addressed. Significant progress on route
recovery has been made throughout 2023, with around 97% of contractual maximum
route numbers currently being operated and an expectation that the remaining
3% of routes will be recovered in 2024.
· The North American Shuttle and Transit business will continue to
be impacted by weakness in the Technology sector but will deliver expansion
into new sectors, with many such contracts already secured in 2023. There will
be a continued focus on growth, with active bidding on a large pipeline of
opportunities in strategic target markets. Rate increases and operational
turnarounds have been secured across a number of key locations, providing a
pathway to improved profitability in 2024.
· In Germany, expectations are that 2024 will continue to suffer
from industry-wide driver scarcity and lower levels of energy subsidy than
previously anticipated. A reduced level of adjusted operating profit and
additional cash flows reflecting unwind of the onerous contract provision are
therefore expected in 2024.
· 2024 will benefit from cost reduction programmes that were
launched in 2023, with £15m of savings already delivered in 2023, which will
annualise into 2024; in addition we have launched a new productivity
improvement and cost reduction programme, where we are targeting at least
£20m of annualised savings.
· There is no Covid-related funding assumed in the base case plan
from 2024 onwards. The Group continues to partner with governments and local
authorities in order to encourage the shift to public transport.
· Given the uncertainty on timing of disposal, the base case
assumes that the North America School Bus business remains part of the Group
throughout the going concern assessment period. A disposal of this business
would be highly favourable to covenant gearing and liquidity headroom.
The reasonable worst case ("RWC") is fully aligned with the Viability
Assessment and forms the first 18 months of that assessment (to June 2025).
In summary, the downside risks modelled are all correlated with the Group's
principal risks. These downsides modelled include, but are not limited to:
1. Reduced passenger demand as a result of lower disposable incomes
adversely affecting revenues by up to 3% in those lines of business without
passenger revenue protection, fewer new contract wins and increased
competition from other operators and modes of transport whereby 50% of growth
opportunities are assumed to be lost and a material worsening of the bid
season outcome in School Bus.
2. Higher inflation on the cost base, both for labour (with a 50%
worsening of wage increases in most divisions) and general costs (increased by
up to 2.5% above base case levels), with none of this being able to be passed
on to customers.
3. Price rises from customers are lower than anticipated.
4. A material delay in realising cost savings in the new productivity
improvement and cost reduction programme.
Against this severe but plausible downside scenario, we apply cost saving
mitigations which would be within our control and which could be reasonably
enacted without material short term damage to the business. The quantum and
nature of these mitigations is broadly consistent with those assumed in prior
years' assessments and include but are not limited to:
1. Reduced discretionary spending, with up to £15m per annum of cost
savings across Travel & Accommodation, Advertising & Marketing,
Training & Development and Legal & Professional fees which is more
than achievable as demonstrated during the Covid pandemic.
2. The removal of any planned annual discretionary bonuses.
3. A reduction in the pace of replacement of fleet leading to in year
savings.
Additionally, we assume cash flow mitigations, primarily in the form of
deferral of capital expenditure, consistent with prior assessments.
The Directors have reviewed the base case and RWC projections and in both
scenarios the Group has a strong liquidity position over the going concern
assessment period and would be able to comply with the covenant tests, albeit
under RWC, reliant on the cost saving mitigations discussed above.
In addition to the base case and RWC scenarios, the Directors have reviewed
reverse stress tests, in which the Group has assessed the set of circumstances
that would be necessary for the Group to either breach the limits of its
borrowing facilities or breach any of the covenant tests.
In applying a reverse stress test to liquidity the Directors have concluded
that the set of circumstances required to exhaust it are considered remote. As
ever, covenants that include adjusted EBITDA as a component are more sensitive
to reverse stress testing; the Directors have therefore conducted in-depth
stress testing on all covenant tests at June 2024, December 2024 and June
2025. In doing so, the Directors have considered all cost mitigations that
would be within their control if faced with another short-term material
adjusted EBITDA reduction and no lender support to amend or waive adjusted
EBITDA-related covenants. Taking this into account the Directors concluded
that the probability was remote that circumstances arise that cause covenants
to be breached. Reverse stress tests have been performed against a reduction
in revenue, incremental inflation that cannot be recovered, and an inability
to achieve planned cost savings and in all instances, the likelihood of
circumstances occurring that would result in a breach of covenants was
considered remote.
In any case, should there be a more severe set of circumstances than those
assumed in the reasonable worst case, a number of further mitigating actions
are available to the Group, including: deeper and broader cost cutting
measures, sale and leaseback of vehicles, disposal of properties, delays or
reductions to capital expenditure and disposal of investments or other
assets. The Group could also seek to raise further equity or seek further
amendments or waivers of covenants, as was demonstrated during the Covid
pandemic.
In conclusion, the Directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for a period of at
least 12 months from the date of approval of the Financial Statements. For
this reason, they continue to adopt the going concern basis in preparing the
Financial Statements for the year ended 31 December 2023.
Accounting policies
The accounting policies adopted are consistent with those of the previous
financial year except for changes arising from new standards and amendments to
existing standards that have been adopted in the current year.
The following amendments have been applied for the first time with effect from
1 January 2023:
• International Tax Reform - Pillar Two Model Rules (Amendments to IAS
12)
The amendments to IAS 12 have been introduced in response to the OECD's BEPS
Pillar Two rules and include:
· A mandatory temporary exception to the recognition and disclosure
of deferred taxes arising from the jurisdictional implementation of the Pillar
Two model rules; and
· Disclosure requirements for affected entities to help users of
the financial statements better understand an entity's exposure to Pillar Two
income taxes arising from that legislation, particularly before its effective
date.
The Group is in scope of the enacted or substantively enacted legislation and
has performed an assessment of the Group's potential exposure to Pillar Two
income taxes. The assessment of the potential exposure to Pillar Two income
taxes is based on the 2022 tax filings, country-by-country reporting and
financial statements for the constituent entities in the Group.
Based on the assessment, the Pillar Two effective tax rates in most of the
jurisdictions in which the Group operates are above 15%. However, there are a
limited number of jurisdictions where the transitional safe harbour relief
does not apply, and the Pillar Two effective tax rate is below 15%.
The profits in these countries are not significant however and so the Group
anticipates that the exposure to Pillar Two income taxes in those
jurisdictions to be insignificant.
In addition, the following amendments have been applied for the first time
with effect from 1 January 2023:
• IFRS 17 Insurance Contracts
• Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS
Practice Statement 2)
• Definition of Accounting Estimates (Amendments to IAS 8)
• Deferred Tax Related to Assets and Liabilities Arising from a Single
Transaction - Amendments to IAS 12 Income Taxes
These amendments did not have any impact on the amounts recognised in prior
periods and are not expected to significantly affect the current or future
periods.
Prior year restatement
The industry-wide disruption in the train driver market, lower labour
productivity, volatility in energy costs and energy cost recovery indices, and
persistent levels of inflation are key contributing factors to the significant
increase to the German rail onerous contract provision as at 31 December 2023
compared to prior year. The Group undertook a detailed review of the
associated critical accounting judgements made relating to the contracts (and
the associated key sources of estimation uncertainty identified) in relation
to its German Rail business. The review also considered the calculation of
the onerous contract provision as at 31 December 2022 and 31 December 2021
considering information that was or should have been available at those times
following which the Group has determined that the German onerous contract
provision was under-stated at each of those dates as set out below:
· 31 December 2021 (restated): £29.7m, represents an increase of
£8.6m of the previously reported balance primarily as a result of corrections
to the model in relation to the allocation of central costs and depreciation
of centrally held assets in the German rail business.
· 31 December 2022 (restated): £46.9m, represents an increase of
£25m to the previously reported balance as a result of the matters described
above, corrections to the model for assumptions made about revenue
compensation for government sponsored ticket initiatives, and a change in the
discount rate to reflect the use of the risk-free rate (a company specific
borrowing rate was incorrectly applied in determining the 2022 provision).
Additionally, the implementation of the annual unwind of the discount to
finance costs based on the restated provision values and the updated discount
rate has also been reflected within the restated amounts. The deferred tax
assets have also been restated to reflect the tax effect of the adjustments
made to the onerous contract provision summarised above.
As a result, adjusting items in respect of the German onerous contract
provisions have also changed with the charges for the year ended 31 December
2022 increasing by £24.6m (previously reported for the 2022 year: £9.3m).
Retained earnings for the year ended 31 December 2021 have also decreased by
£5.8m.
This has been corrected by restating the earliest comparative period within
this report, with the Financial Statement line items impacted as follows:
Group Income Statement
Reported Restated
Adjusted result Adjusting items (note 4) Total Adjusted result Adjusting items (note 4) Total
2022 2022 2022 2022 2022 2022
£m £m £m £m £m £m
Operating costs (2,610.2) (355.8) (2,966.0) (2,610.2) (370.8) (2,981.0)
Group operating profit/(loss) 197.3 (355.8) (158.5) 197.3 (370.8) (173.5)
Finance costs (53.2) - (53.2) (53.2) (0.4) (53.6)
Profit/(loss) before tax 145.9 (355.8) (209.9) 145.9 (371.2) (225.3)
Tax (charge)/credit (30.3) 19.5 (10.8) (30.3) 24.4 (5.9)
Profit/(loss) for the year 115.6 (336.3) (220.7) 115.6 (346.8) (231.2)
Basic EPS (39.7)p (41.4)p
Diluted EPS (39.7)p (41.4)p
Group Statement of Comprehensive Income
Reported Adjustment Restated
2022 2022 2022
£m £m £m
Loss for the year (220.7) (10.5) (231.2)
Items that may be reclassified subsequently to profit or loss:
Exchange differences on retranslation of foreign operations 146.9 (0.6) 146.3
Other comprehensive income for the year 141.1 (0.6) 140.5
Total comprehensive expense for the year (79.6) (11.1) (90.7)
Total comprehensive (expense)/income attributable to:
Equity shareholders (83.8) (11.1) (94.9)
Non-controlling interests 4.2 - 4.2
(79.6) (11.1) (90.7)
Group Balance Sheet
Reported Adjustment Restated Reported Adjustment Restated
31 Dec 31 Dec 31 Dec 31 Dec
2022 £m 2022 2021 £m 2021
£m £m £m £m
Deferred tax assets 185.5 8.1 193.6 159.4 2.8 162.2
Total non-current assets 3,206.1 8.1 3,214.2 3,277.4 2.8 3,280.2
Total assets 4,153.9 8.1 4,162.0 4,299.9 2.8 4,302.7
Provisions (65.7) (13.6) (79.3) (68.8) (8.0) (76.8)
Total non-current liabilities (1,165.0) (13.6) (1,178.6) (1,611.7) (8.0) (1,619.7)
Provisions (75.6) (11.4) (87.0) (89.0) (0.6) (89.6)
Total current liabilities (1,598.2) (11.4) (1,609.6) (1,206.5) (0.6) (1,207.1)
Total liabilities (2,763.2) (25.0) (2,788.2) (2,818.2) (8.6) (2,826.8)
Net assets 1,390.7 (16.9) 1,373.8 1,481.7 (5.8) 1,475.9
Other reserves (translation reserve) 481.7 (0.6) 481.1 384.0 - 384.0
Retained earnings (207.4) (16.3) (223.7) (16.2) (5.8) (22.0)
Total shareholders' equity 1,347.7 (16.9) 1,330.8 1,440.6 (5.8) 1,434.8
Total equity 1,390.7 (16.9) 1,373.8 1,481.7 (5.8) 1,475.9
Group Statement of Changes in Equity
Reported(1) Restated
Other reserves Retained earnings Total Total Other reserves Retained earnings Total Total
£m £m £m equity £m £m £m equity
£m £m
At 1 January 2021 373.2 38.4 1,470.0 1,510.2 373.2 38.4 1,470.0 1,510.2
Loss for the year - (80.8) (80.8) (77.1) - (86.6) (86.6) (82.9)
Other comprehensive income for the year 10.8 39.2 50.0 48.7 10.8 39.2 50.0 48.7
Total comprehensive income/(expense) 10.8 (41.6) (30.8) (28.4) 10.8 (47.4) (36.6) (34.2)
At 31 December 2021 384.0 (16.2) 1,440.6 1,481.7 384.0 (22.0) 1,434.8 1,475.9
(1)As reported in the Group's 2022 Annual Report and Accounts
Reported Restated
Other reserves Retained earnings Total Total Other reserves Retained earnings Total Total
£m £m £m equity £m £m £m equity
£m £m
At 1 January 2022 384.0 (16.2) 1,440.6 1,481.7 384.0 (22.0) 1,434.8 1,475.9
Loss for the year - (221.8) (221.8) (220.7) - (232.3) (232.3) (231.2)
Other comprehensive income for the year 97.7 40.3 138.0 141.1 97.1 40.3 137.4 140.5
Total comprehensive income/(expense) 97.7 (181.5) (83.8) (79.6) 97.1 (192.0) (94.9) (90.7)
At 31 December 2022 481.7 (207.4) 1,347.7 1,390.7 481.1 (223.7) 1,330.8 1,373.8
As there was no impact on cash and cash equivalents, the statement of cash
flows has not been re-presented.
Critical accounting judgements and key sources of estimation uncertainty
The preparation of Financial Statements requires the Group to make estimates
and judgements that affect the application of the Group's accounting policies
and reported amounts.
Critical accounting judgements represent key decisions made by management in
the application of the Group accounting policies. Where a significant risk of
materially different outcomes exists due to management assumptions or sources
of estimation uncertainty, this will represent a key source of estimation
uncertainty. Estimates and judgements are continually evaluated and are based
on historical experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances. Actual
results may differ from these estimates.
Management considered, throughout the year, the financial reporting impact
associated with our identified principal risks, which include the effects of
climate change and inflation.
(i) Critical accounting judgements
Recognition of deferred tax assets
The recognition of deferred tax assets in North America and the UK requires
management's assessment of the probability of the recovery of these losses
based on future financial projections. Management's view is that these losses
will be recovered in the future as prior losses have been caused by a one-off
event that was the pandemic from which our recovery has been slower than
anticipated - due to positive revenue growth not being sufficient to offset
inflationary headwinds. Management expect Group profitability will continue to
improve through actions taken on a combination of pricing, and cost management
and restructuring.
New management in North America and the UK has also given the Group confidence
in our financial forecasts and the recovery of these deferred tax assets. We
will continue to assess the recognition of these deferred tax assets at each
reporting date.
We have provided further detail relating to these critical accounting
judgments below:
i) North America
At the 31 December 2023 the Group has a $136.1m (2022: $152.6m) deferred tax
asset in relation to past losses in North America; being $107.8m in relation
to federal losses and $28.3m for state losses. This is calculated as 21%
federal tax and 6.7% state tax, being the substantially enacted rate set by US
Federal governments at the balance sheet date, multiplied by gross US
cumulative historic losses of $513.3m (2022: $536.7m) and $423.9m (2022:
$593.6m) respectively. The majority of these losses may be carried forward
indefinitely under US tax rules. At 31 December 2023, there are also other
deferred tax assets, including surplus restricted interest costs and general
business tax credits, offset by deferred tax liabilities which gives an
overall total net deferred tax asset of $102.2m (2022: $104.4m) at 31 December
2023.
In assessing the probability of recovery of these losses, and the overall
deferred tax asset, management have looked at the last three years' financial
performance as well as future financial projections. While the North America
business as a whole has made additional tax losses in the last three years,
management believe these were attributable to a one-off, non-recurring, event
that was the global Covid pandemic, from which our recovery from has been
slower than anticipated.
As a result of near full route recovery and successful price increases, acting
to mitigate the impact of inflation, we are expecting a return to taxable
profits in North America in the year ended 31 December 2025 and beyond. In
addition, new leadership in North America is making an immediate difference
and has given management additional confidence in the financial forecasts of
the North American business. We have also capitalised intragroup debt into our
North American business which reduces future interest costs in the North
American group and thus increases future taxable profits. As such, our
financial projections based upon our strategic plans indicate that the
deferred tax asset will be recovered by 2030 and therefore the net deferred
tax asset has been recognised on the basis of future taxable profits, in line
with IAS 12. Given the inherently subjective nature of future profits
forecasts, we have also performed a sensitivity analysis which shows that,
even if our North American profits fall by 20% from our financial projections,
the deferred tax assets will still be utilised in full by 2031. During the
period, management have considered the recoverability of the deferred tax
asset in relation to state tax losses and it was assessed that $10m would
expire before utilisation and therefore these amounts have been written off.
ii) UK
At the 31 December 2023 the Group has a £85.5m (2022: £88.8m) deferred tax
asset in relation to past losses in the UK business. This is calculated as
25%, being the substantially enacted tax rate set by the UK government from
April 2023, multiplied by UK cumulative historic losses of £342m (2022:
£356m). These losses are post-2017 tax losses (which can be used against any
future UK profits) and may be carried forward indefinitely under UK tax
rules. The group also has £83.6m of gross pre-April 2017 tax losses, which
are restricted in their use to specific profits in the entity in which they
arose.
In assessing the probability of recovery of the post-2017 losses, in line with
IAS 12 management have looked at the last three years' financial performance
as well as future financial projections, in line with IAS 12. While the UK
business has made additional tax losses in the last three years, management
believe these were attributable to a one-off, non-recurring, event that was
the global Covid pandemic, which our recovery from this has been slower than
anticipated. In 2023, we adopted a new transfer pricing policy that will
generate additional income into the UK and a new leadership team in the UK is
making an immediate difference and has given management additional confidence
in the financial forecasts of the UK business. We are expecting a return to
taxable profits in the year ended 31 December 2025 and onwards.
As such, it is reasonable to rely upon future projections when assessing the
probability of recovery of these losses. Based upon future financial
projections, we estimate post-2017 tax losses in the UK business will be
utilised by 2035. Given the inherently subjective nature of profit forecasts
we have considered sensitivities in the forecast. In particular, potential
changes to the business model in respect of the UK Bus business. The impact of
this shows that the losses will still be utilised by 2037.
In relation to the pre-2017 losses, management assessed that as a result of a
change to the forecasted future taxable profits during the period that it was
not probable that these losses will be utilised and therefore, we have
written-off £21.0m in the period.
Adjusting items
The Group presents results on a statutory and adjusted basis. The alternative
performance measure (APM) 'adjusted profit' represents a change in terminology
from the prior period which separately disclosed certain items to show an
'underlying' profit measure. The change in terminology has been adopted to
reduce any judgement and interpretation of the meaning 'underlying' profit by
users of the Financial Statements. As this is a terminology change only, there
has been no change to how the Group determines items to be adjusting, and
there has been no change to previously reported comparatives. Any previously
'separately disclosed items', continue to meet the definition of 'adjusting
items' following the change in terminology in the current year.
The Directors believe that the profit and earnings per share measures before
adjusting items provide additional useful information to shareholders on the
performance of the Group. These measures are consistent with how business
performance is measured internally by the Board and the Group Executive
Committee. In addition, the lender covenant calculations follow the accounting
recognition for adjusting items and therefore the accounting judgment can also
have an impact on covenant headroom.
The classification of adjusting items requires significant management
judgement after considering the nature, cause of occurrence and the scale of
the impact of that item on reported performance. Note 4 provides further
details on current year adjusting items.
(ii) Key sources of estimation uncertainty
Management have considered the following are key sources of estimation
uncertainty during the year.
ALSA and North America goodwill impairment
Determining whether assets are impaired requires an estimation of the value in
use of the cash-generating units and requires the entity to estimate the
future cash flows expected to arise, the growth rate to extrapolate cash flows
into perpetuity and a suitable discount rate in order to calculate present
value. Cash flow projections involve the use of estimates, notably revenue
levels, operating margins and the proportion of operating profit converted to
cash in each year. Despite an increased level of headroom in the current year
and an impairment of goodwill in ALSA in the prior year, Management still
consider impairment to be a key source of estimation uncertainty with respect
to both our ALSA and North America divisions due to the level of estimation
uncertainty involved. The key assumptions used and their sensitivities are
included in note 9.
Insurance and other claims
The claims provision arises from estimated exposures at the year end for auto
and general liability, workers' compensation and environmental claims, the
majority of which will be utilised in the next five years. The estimation of
the claims provision is based on an assessment of the expected settlement of
known claims together with an estimate of settlements that will be made in
respect of incidents occurring prior to the balance sheet date but for which
claims have not been reported to the Group. The Group makes assumptions
concerning these judgemental matters with the assistance of advice from
independent qualified actuaries. At 31 December 2023 the claims provision was
£78.1m (2022: £77.4m).
In certain limited cases, additional disclosure regarding these claims may
seriously prejudice the Group's position and consequently this disclosure is
not provided. Given the differing types of claims, their size, the range of
possible outcomes and the time involved in settling these claims, there is a
reasonably possible chance that a material adjustment would be required to the
carrying value of the claims provision in the next financial year. These
different factors also make it impracticable to provide sensitivity analysis
on one single measure and its potential impact on the overall claims
provision.
RRX rail contracts
The Group operates the Rhine-Ruhr Lots 1, 2&3 under rail contacts in
Germany, where the Group receives subsidy revenue for operating the contract.
These contracts are gross cost contracts with no exposure to passenger revenue
risk.
Lots 2&3
On the rail contracts for Lots 2 & 3 ('RRX 2&3'), following
mobilisation in 2019 significant cost increases versus the original bid model
(which contained bid errors) were identified, in respect of energy consumption
and personnel costs, leading to the contract being identified as onerous in
2021. When the contract became onerous, related assets on the Balance Sheet
were impaired, and a provision was booked for the anticipated losses expected
to be incurred while operating the contract over the remaining term to 2033.
The provision is re-measured each period end based on the latest estimate of
losses expected to be incurred operating the services under the contract.
The level of uncertainty in the estimate of overall loss over the contract
life has increased during the year, primarily due to the continuing volatility
in energy prices (and, more importantly, a decoupling in the year of the
behaviour of specific indices used in the recovery of costs relative to energy
prices as set out in further detail below), industry-wide driver shortages in
Germany (which exacerbate the issues caused by the bid errors), and persisting
levels of cost inflation.
The provision totals £118.3m at 31 December 2023 (2022 restated: £46.9m),
but in reaching this estimate significant estimation uncertainties has been
identified in respect of future energy costs, the level of energy compensation
to be received from the Public Transport Authority ("PTA") and the impact and
duration of labour shortages. The key assumptions and estimates adopted have
been based on third party information where available, including the forecasts
for energy prices, the compensation for which is based on recent energy index
data published by the German Federal Statistical Agency, updated regression
models which are used to forecast the behaviour of the indices relative to
energy cost assumptions. The revised assumptions about driver availability are
based on our internal manpower planning models and published industry wage
inflation data (noting that our assumption is that the wage inflation index
will track our cost inflation assumptions).
In respect of energy compensation on the RRX 2&3 contract, the assumption
is based on how certain published indices respond to changes in wholesale
prices. The energy index relevant to RRX 2&3 is published monthly by
DeStatis, the German Federal Statistics Agency, and is referred to as Index
625. During 2023, the way that Index 625 has behaved has decoupled from our
previous expectations (which are derived from regression analysis against
wholesale electricity costs), resulting in lower expectations for future
energy recovery.
Negotiations are underway with the PTA to move to a different (and more
representative) index, and the year-end provision assumes based on recent
discussions that the change in index will be made albeit with a conservative
view of how that change might be implemented.
In respect of labour shortages, the driver costs have also been impacted by a
significant investment in driver training and recruiting costs, and
industry-wide driver shortages meaning that agency drivers have had to be
employed, thereby increasing the total cost of employment. Changes to the
terms and conditions of drivers, which have reduced the number of hours
drivers are able to work, as a result of increased union activity in the
sector has also meant that more drivers are required than previously forecast
to be able to run the lines. The industry standard is for it to take 12-18
months to train a driver, therefore the current shortages are anticipated to
persist in the short term and then be alleviated as more drivers enter the
industry. We anticipate that the situation regarding labour shortages, and its
adverse impact on contract profitability will improve substantially throughout
2024, but will not be fully resolved until the end of 2025.
The re-measurement of the provision has been included in adjusting items
consistent with previous years and the Group policy on adjusted profit.
Lot 1
The RRX1 franchise commenced on 10 December 2023, succeeding the Emergency
Award contract that had been in operation from 1 February 2022 to 9 December
2023. This contract does not suffer from the bid-errors that are described
above for RRX 2&3, and its energy recovery is based on an alternative
energy index. However, it is still exposed to the driver shortage issues that
are impacting the industry.
As at 31 December 2023, the RRX1 contract is not assessed as onerous. The
contract is, however, subject to material adverse cost pressures in 2024 and
2025 (predominantly linked to the driver shortage affecting the industry) and
the resulting reduced mileage and penalties that are triggered under the
contract. On the assumption that the driver shortage issues are resolved in
the timeframe expected by management (i.e substantially resolved by the end of
2025), the RRX1 contract is expected to be profitable over the remainder of
its life.
RME rail contract
The Group operates the Rhine-Münster Express (RME) rail contract to 2030,
where the Group receives both passenger revenue and subsidy revenue for
operating the contract. Passenger revenue is recognised when passengers
travel, and the subsidy revenue is recognised over the life of the contract,
by using the input method to measure progress against the performance
obligation. The amount of subsidy revenue recognised in each period is a
proportion of the total subsidy revenue to be earned over the term of the
contract, and is based on a percentage of completion, applying net costs
(passenger revenue less costs) incurred as a proportion of total expected net
costs, which is what the subsidy is intended to compensate for.
At each balance sheet date, the Group reforecasts the contract out-turn and
performs a re-assessment of the subsidy revenue to be recognised by reference
to the stage of completion. This reassessment during the current year resulted
in a decrease in the IFRS 15 contract asset recognised on the balance sheet
under the contract to £48.6m at 31 December 2023 (2022: £53.8m).
The recognition of this contract asset is sensitive to estimates relating to
the future profitability of the rail contract, particularly relating to the
estimate of future passenger revenues over the remainder of the contract and,
to a lesser extent, the level of energy compensation and manpower cost
inflation, including the number of drivers required to run the contracts.
Pensions
The determination of the defined benefit obligation of the UK defined benefit
pension scheme depends on the selection of certain assumptions which include
the discount rate, inflation rate and mortality rates. At 31 December 2023 the
UK defined benefit pension liability was £30.0m (2022: £39.7m). The key
areas of estimation uncertainty are in respect of the discount rate, rate of
inflation, assumptions on post-retirement pension increases, and mortality
rate. While the Board believes that the assumptions are appropriate,
significant differences in actual experience or significant changes in
assumptions may significantly change the pension obligation. The Group makes
assumptions with the assistance of advice from independent qualified
actuaries.
Consideration of climate change
In preparing the Financial Statements we have considered the impact of climate
change. There has not been a material impact on the financial reporting
judgements and estimates arising from our considerations, consistent with the
findings of the climate change risk assessments and scenario analysis
performed by the Group, the details of which will be disclosed in the TCFD
section of the Group's 2023 Annual Report (refer to note 14 for publication
details). We have specifically considered the impact of climate change in our
goodwill impairment assessment (see note 9).
2 Exchange rates
The most significant exchange rates to UK Sterling for the Group are as
follows:
2023 2023 2022 2022
Closing rate
Average rate
Closing rate
Average rate
US Dollar 1.27 1.24 1.21 1.24
Canadian Dollar 1.69 1.68 1.64 1.61
Euro 1.15 1.15 1.13 1.17
Morocco Dirham 12.57 12.60 12.64 12.53
If the results for the year to 31 December 2022 had been retranslated at the
average exchange rates for the year to 31 December 2023, North America would
have achieved adjusted operating profit of £67.9m on revenue of £1,040.1m,
compared with adjusted operating profit of £68.4m on revenue of £1,048.2m as
reported, ALSA would have achieved adjusted operating profit of £105.9m on
revenue of £982.0m, compared with adjusted operating profit of £103.9m on
revenue of £962.5m as reported, and German Rail would have achieved adjusted
operating profit of £18.0m on revenue of £273.9m, compared with adjusted
operating profit of £17.6m on revenue of £268.5m as reported.
3 Revenue and segmental analysis
The Group's reportable segments have been determined based on reports issued
to and reviewed by the Group Executive Committee, and are organised in
accordance with the geographical regions in which they operate and the nature
of services that they provide. Management considers the Group Executive
Committee to be the chief decision-making body for deciding how to allocate
resources and for assessing operating performance.
Segmental performance is evaluated based on operating profit or loss and is
measured consistently with operating profit or loss in the Consolidated
Financial Statements. Group financing activities and income taxes are managed
on a Group basis and are not allocated to reportable segments.
The principal services from which each reportable segment derives its revenues
are as follows:
- UK - bus and coach operations
- German Rail - rail operations
- ALSA (predominantly Spain and Morocco) - bus and coach operations
- North America (USA and Canada) - school bus, transit and shuttle
operations
(a) Revenue
Revenue is disaggregated by reportable segment, class and type of service as
follows:
2023
Analysis by class and reportable segment: Contract Passenger Grants and Private hire Other Total
revenues revenues subsidies £m revenues £m
£m £m £m £m
UK 36.6 479.0 40.8 23.3 30.4 610.1
German Rail - 43.3 216.0 - 0.5 259.8
ALSA 233.7 607.8 188.8 68.0 67.1 1,165.4
North America 1,050.3 - - 60.0 5.3 1,115.6
Total revenue 1,320.6 1,130.1 445.6 151.3 103.3 3,150.9
Analysis by major service type:
Passenger transport 1,320.6 1,130.1 445.6 151.3 19.1 3,066.7
Other products and services - - - - 84.2 84.2
Total revenue 1,320.6 1,130.1 445.6 151.3 103.3 3,150.9
There have been no material amounts of revenue recognised in the year that
relate to performance obligations satisfied or partially satisfied in previous
years, except for Covid funding as described below. Revenue received where the
performance obligation will be fulfilled in the future is classified as
deferred income or contract liabilities.
There are no material inter-segment sales between reportable segments.
Covid funding included in revenue
Included within revenue above is the following covid related funding as
follows:
2023 2022
£m
£m
UK (a) 1.9 19.6
German Rail (b) - 15.1
ALSA (c) 11.5 22.0
Total Covid funding in revenue 13.4 56.7
a) During the year the UK received a final payment under the Covid Bus
Services Support Grant (CBSSG) relating to an earlier period. In the prior
year is £19.6m of grant income recognised in the UK in response to Covid-19,
principally from the Bus Recovery Grant (BRG). Replacing the Covid Bus
Services Support Grant (CBSSG) from 1 September 2021, the BRG intended to
compensate UK bus operators for continuing bus services during the Covid-19
recovery period, and whereby funding has been previously allocated to the
operators according to revenue and mileage operated.
b) The prior year included £15.1m of additional subsidies in Germany in
respect of the Federal Framework Regulation on Aid to Public Transport, an
arrangement for additional subsidies to be claimed by public transport
operators in Germany to compensate for the loss of passenger revenue due to
Covid-19.
c) In ALSA £11.5m (2022: £22.0m) of funding was recognised from Public
Transport Authorities to compensate for revenue shortfalls due to the
Covid-19.
Other UK funding
In 2022, the West Midlands Combined Authority (WMCA), supported by our UK Bus
business (UK Bus) and other regional operators, applied for and was awarded a
grant by the Department for Transport (DfT) under the UK Government's Bus
Improvement Plan (BSIP). A pre-application condition for the BSIP grant set by
the DfT was the existence of an Enhanced Partnership Plan (EPP) and an
Enhanced Partnership Scheme (EPS) between WMCA and regional bus operators.
This was in place for the West Midlands prior to the commencement of the BSIP.
The BSIP was available to WMCA and regional bus operators in return for
delivering certain improvements in bus services in the West Midlands.
In the prior year, a total amount of £12.0m was recognised which represented
the pro-rata element of the total three year (April 2022 - March 2025) grant
funding available in respect of the BSIP that the UK delivered on in 2022,
which totalled £48.0m. This included £4.0m of income recorded in revenue,
representing the portion of the grant income designed to compensate the
business for freezing passenger fares, and a further £8.0m recorded to reduce
expenditure to reflect the elements of the BSIP programme compensating the
business for the costs incurred in maintaining the bus network during that
period.
During the year to 31 December 2023, UK Bus renegotiated the terms of the BSIP
grant with the WMCA resulting in additional funding and releasing the business
from its commitment to freeze passenger fares for the remainder of the grant
period. The grant income relating to freezing fares was applicable up to 30
June 2023 and amounted to £3.2m. No more funding is expected under this
element of the BSIP.
For the portion of the funding available for maintaining the bus network, the
updated agreement confirmed the income to be received until 31 December 2024.
During the year the income has been recognised on a straight-line basis
pro-rata based on the total funding available to the business to the end of
2024. This has resulted in further grant income of £12.2m recorded to reduce
expenditure to reflect the elements of the BSIP programme compensating the
business for the costs incurred in maintaining the bus network during that
period.
In addition, there is now a further £33.0m of BSIP funding relating to the
period 1 January 2023 to 31 December 2024 of which £16.5m has been recognised
on a pro-rata basis against the costs incurred in maintaining network
services.
A total amount of £31.9m (2022: £12.0m) of BSIP funding has been recognised
in the period to 31 December 2023
BSIP funding
2023 2022
£m
£m
Included in revenue 3.2 4.0
Included within operating costs 28.7 8.0
Total BSIP funding 31.9 12.0
Prior year revenue is disaggregated by reportable segment, class and type of
service as follows:
2022
Analysis by class and reportable segment: Contract Passenger Grants and Private hire Other Total
revenues revenues subsidies £m revenues £m
£m £m £m £m
UK 41.6 388.4 65.0 15.8 17.5 528.3
German Rail - 38.3 228.4 - 1.8 268.5
ALSA 175.9 510.1 176.6 51.3 48.6 962.5
North America 988.5 - - 54.1 5.6 1,048.2
Total revenue 1,206.0 936.8 470.0 121.2 73.5 2,807.5
Analysis by major service type:
Passenger transport 1,206.0 936.8 470.0 121.2 13.1 2,747.1
Other products and services - - - - 60.4 60.4
Total revenue 1,206.0 936.8 470.0 121.2 73.5 2,807.5
(b) Operating profit/(loss)
Operating profit/(loss) is analysed by reportable segment as follows:
Adjusted Adjusting Segment Adjusted (Restated) (Restated)
profit/(loss) items result profit/(loss) Adjusted Segment
2023 2023 2023 2022 items result
£m £m £m £m 2022(1) 2022(1)
£m £m
UK 23.5 (22.2) 1.3 25.6 (7.5) 18.1
German Rail 0.2 (100.3) (100.1) 17.6 (25.4) (7.8)
ALSA 136.8 (15.8) 121.0 103.9 (274.1) (170.2)
North America 27.1 (34.2) (7.1) 68.4 (55.7) 12.7
Central functions (19.0) (17.5) (36.5) (18.2) (8.1) (26.3)
Operating profit/(loss) 168.6 (190.0) (21.4) 197.3 (370.8) (173.5)
Share of results from associates and joint ventures (0.5) - (0.5) (0.4) - (0.4)
Net finance costs (75.2) (1.2) (76.4) (51.0) (0.4) (51.4)
Profit/(loss) before tax 92.9 (191.2) (98.3) 145.9 (371.2) (225.3)
Tax charge (64.4) (5.9)
Loss for the year (162.7) (231.2)
(1) Restated for a correction to the German Rail onerous contract provision,
see note 1 for further information
Further information on adjusting items is provided in note 4.
4 Adjusting items
The Group reports adjusted measures because the Directors believe they provide
both management and stakeholders with useful additional information about the
financial performance of the Group's businesses.
Total adjusting items before tax for the year ended 31 December is a net
charge of £191.2m (2022 restated: £371.2m). The items excluded from the
adjusted result are:
2023 (Restated)
£m
2022(1)
£m
Goodwill impairment of ALSA - 260.6
Intangible amortisation for acquired businesses (a) 35.3 37.2
35.3 297.8
Re-measurements of onerous contracts and impairments resulting from the 2.1 7.6
Covid-19 pandemic (b)
Re-measurement of the Rhine-Ruhr onerous contract provision (c) 99.2 24.3
Onerous contract provision charges and impairments in respect of North America 12.0 31.4
driver shortages (d)
Final re-measurement of the WeDriveU put liability (e) 2.4 -
Repayment of UK Coronavirus Job Retention Scheme grant ('Furlough') (f) 8.9 -
Restructuring and other costs (g) 30.1 9.7
154.7 73.0
Total adjusting items in operating costs 190.0 370.8
Unwinding of discount of the Rhine-Ruhr onerous contract provision (c) 1.2 0.4
Total adjusting items before tax 191.2 371.2
Tax charge/(credit) on adjusting items (h) 21.9 (24.4)
Total adjusting items after tax 213.1 346.8
(1) Restated for a correction to the German Rail onerous contract provision,
see note 1 for further information
(a) Intangible amortisation for acquired businesses
Consistent with previous periods, the Group classifies the non-cash
amortisation for acquired intangibles as an adjusting item by virtue of its
size and nature. Its exclusion enables comparison and monitoring of divisional
performance by the Group Executive Committee regardless of whether through
acquisition or organic growth. Equally, it improves comparability of the
Group's results with those of peer companies.
(b) Re-measurement of onerous contracts and impairments resulting directly
from the Covid-19 pandemic
As a result of the Covid-19 pandemic, a number of onerous contract provisions
and impairments were recorded in previous years. For the contracts which the
Group was still operating during the year, or there remains a commitment at
the period end, the onerous contract provision has been re-measured, resulting
in a net cost of £2.1m. On these contracts, £7.3m provision has been
utilised during the year, with a remaining provision of £6.5m at the period
end, of which £2.6m is expected to be utilised within 12 months. No new
onerous contracts were identified in the year.
(c) Rhine-Ruhr Express onerous contract provision
The Rhine-Ruhr (RRX) onerous contract (which relates to lots 2&3), and
which runs to 2033, has been re-measured based on the latest forecasts of
losses anticipated under the contract, resulting in a £99.2m charge to the
income statement. The industry-wide disruption in the train driver market,
lower labour productivity, volatility in energy costs and energy cost recovery
indices, and persistent levels of inflation are key contributing factors to a
significant increase to the RRX onerous contract provision as at 31 December
2023 compared to prior year.
The Group undertook a detailed review of the associated critical accounting
judgements made relating to the contracts (and the associated key sources of
estimation uncertainty identified) in relation to its German Rail business.
The review also considered the calculation of the onerous contract provision
as at 31 December 2022 and 31 December 2021 considering information that was
or should have been available at those times following which the Group has
determined that the German onerous contract provision was under-stated at each
of those dates as set out in note 1. As a result the income statement charge
for the year ended 31 December 2022 within adjusting items was restated to
£24.3m (previously reported: £9.3m).
The provision at 31 December 2023 is £118.3m for the remainder of the
contract term until 2033, following utilisation during the year of £27.9m and
£1.2m unwinding of discount.
(d) Onerous contract provision charges and impairments in respect of North
America driver shortages
During the period, the impact of driver shortages in North America on some of
the contracts previously assessed as onerous has been more significant than
anticipated as it has resulted in further increases in wages (to retain and
recruit) and a slower increase in service levels than expected on those
specific contracts. This has led to both an increase in provision of £12.0m
to cover these additional losses, and an increase in the utilisation of the
provision during the period for losses incurred. This has been partially
offset by a provision release of £2.6m on a number of previously onerous
contracts which have become profitable where the Group has successfully
negotiated price increases for the 2023/24 school year and onwards. The
remaining onerous contract provision of £4.6m relates to one customer
contract which ends in June 2026. No new onerous contracts were identified in
the year. A right-of-use asset for a lease dedicated to an onerous contract
was impaired following lease renewal during the year with a resulting charge
of £0.6m.
In addition, intangible assets have been reassessed for indicators of
impairment, or reversal of impairment. This has resulted in a net impairment
of customer contracts of £2.0m, reflecting the net reduced profitability on
those contracts.
(e) Final re-measurement of the WeDriveU put liability
In conjunction with the acquisition of WeDriveU, Inc. during 2019 the Group
issued put options to the seller for the remaining shares. The options had
three tranches for the remaining 40% of the business (10%, 10%, 20%). The
first two tranches were exercised in 2020, and 2021, with settlement in 2021
and 2022 respectively. At 31 December 2022 the final option to sell the
remaining 20% shares had been exercised by the non-controlling interest.
During the year the put liability for the remaining 20% shareholding in
WeDriveU was re-measured following the final negotiations with the seller.
This re-measurement led to an additional charge of £2.4m. The liability was
cash settled in July for £46.1m.
Gains and losses on re-measurement of the put liability have been recorded as
adjusting items in previous years (2020: £33.9m gain, 2021: £11.5m expense,
2022: £nil), therefore the final re-measurement has also been presented as
adjusting for consistency. As the liability has been extinguished, there will
be no further gains or losses on its re-measurement in future years.
(f) Repayment of Coronavirus Job Retention Scheme grant (CJRS)
('Furlough')
At the end of 2021 the Group announced an intention to voluntarily repay
amounts of CJRS ('furlough') amounts received for that period following the
re-instatement of the dividend to shareholders. During 2023 a dividend was
paid, and a provision has been recognised for the commitment to HMRC for the
CJRS repayment of £8.9m. The original receipt of CJRS was not recorded as an
adjusting item and was included in adjusted profit consistent with the staff
costs which it was designed to compensate. The repayment, however, has been
disclosed as an adjusting item as this is a one-off cost which is historic in
nature (occurring more than two years after initial receipt), a significant
amount, and unlike the original receipt, there are no corresponding staff
costs in the period to be offset against.
(g) Restructuring and other costs
These costs relate to Group-wide strategic initiatives and restructuring,
which includes costs relating cost saving programmes, and costs relating to
our previously announced sale of US School Bus. These are one-off, short-term
initiatives expected to last 1-2 years. They are material in nature and are
not considered to be part of the day-to-day operational costs of the Group and
therefore have been treated as adjusting items. These amount to £30.1m in the
year ending 31 December 2023 compared to £9.7m in the year ending 31 December
2022.
(h) Adjusting tax charge
The tax charge on adjusting items of £21.9m (2022 restated: £24.4m credit)
comprises of £10.4m credit (2022: £9.1m credit) on amortisation of
intangible assets, £46.2m tax credit (2022 restated: £19.4m credit) on tax
deductible expenditure on adjusting costs and £78.5m charge (2022: £4.1m
charge) on derecognition of previously recognised deferred tax assets, which
is considered adjusting as it is material in size and non-recurring in nature.
See note 6 for further details.
5 Net finance costs
2023 (Restated)
£m 2022(1)
£m
Bond and bank interest payable 52.1 35.5
Lease interest payable 8.5 9.4
Other interest payable 11.1 3.0
Unwind of discounting - claims provision 5.7 3.4
Net interest cost on defined benefit pension obligations 1.8 1.9
Finance costs before adjusting items 79.2 53.2
Adjusting items:
Unwind of discounting - onerous contract provisions 1.2 0.4
Total finance costs after adjusting items 80.4 53.6
Lease interest income (0.5) (0.5)
Other financial income (3.5) (1.7)
Total finance income (4.0) (2.2)
Net finance costs after adjusting items 76.4 51.4
Of which, from financial instruments:
Financial assets measured at amortised cost (3.6) (1.6)
Financial liabilities measured at amortised cost 59.7 44.4
Derivatives 10.3 1.9
Loan fee amortisation 1.4 1.1
(1) Restated for a correction to the German Rail onerous contract provision,
see note 1 for further information
6 Taxation
(a) Analysis of taxation charge in the year
2023
£m (Restated)
2022(1)
£m
Current taxation:
UK corporation tax - 1.2
Overseas taxation 11.2 19.3
Current income tax charge 11.2 20.5
Adjustments with respect to prior years - UK and overseas 1.5 (1.0)
Total current income tax charge 12.7 19.5
Deferred taxation:
Origination and reversal of temporary differences (26.5) (11.9)
De-recognition of previously recognised deferred tax assets 78.5 -
Adjustments with respect to prior years - UK and overseas (0.3) (1.7)
Deferred tax charge/(credit) 51.7 (13.6)
Total tax charge for the Group 64.4 5.9
The tax charge for the Group comprises:
Tax charge on profit before adjusting items 42.5 30.3
Tax charge/(credit) on adjusting items 21.9 (24.4)
Total tax charge for the Group 64.4 5.9
(1) Restated for a correction to the German Rail onerous contract provision,
see note 1 for further information
The tax charge on adjusting items of £21.9m (2022 restated: £24.4m credit)
comprises of £10.4m credit (2022: £9.1m credit) on amortisation of
intangible assets, £46.2m tax credit (2022 restated: £19.4m credit) on tax
deductible expenditure on adjusting costs and £78.5m charge (2022: £4.1m
charge) on derecognition of previously recognised deferred tax assets.
The tax relief relating to intangible amortisation is determined by reference
to the tax rates in the jurisdiction to which the intangible amortisation
relates. The effective tax rate relating to intangible amortisation is
significantly higher than the UK tax rate of 23.5% due to the weighting of
intangibles in jurisdictions with higher tax rates than the UK, specifically
the US (26%) and Spain (25%).
(b) Tax on items recognised in Other Comprehensive Income or Equity
2023 2022
£m £m
Deferred taxation:
Deferred tax charge on actuarial gains 0.8 12.7
Deferred tax (credit)/charge on cash flow hedges (3.6) (5.2)
Deferred tax credit on foreign exchange differences 0.8 (1.3)
Deferred tax credit on accrued hybrid instrument payments (5.3) (5.3)
Deferred tax charge/(credit) on share-based payments 0.2 0.4
Total tax (credit)/charge for the Group (7.1) 1.3
7 Dividends paid and proposed
An interim dividend of 1.7 pence per share was declared and paid during the
year (2022: £nil). No final ordinary dividend (2022: 5.0 pence per share) has
been proposed. Total dividends paid during the year were £41.1m (2022: £nil)
relating to the 2023 interim dividend, and the 2022 final dividend.
8 Earnings per share
2023
(Restated)
2022(1)
Basic earnings per share (30.2)p (41.4)p
Adjusted basic earnings per share 4.5p 15.0p
Diluted earnings per share (30.2)p (41.4)p
Adjusted diluted earnings per share 4.5p 15.0p
(1) Restated for a correction to the German Rail onerous contract provision,
see note 1 for further information
Basic EPS is calculated by dividing the earnings attributable to equity
shareholders after adjusting for accrued payments on the hybrid instrument, a
loss of £185.1m (2022 restated: £253.6m loss), by the weighted average
number of ordinary shares in issue during the year, excluding those held by
the Group's Employee Benefit Trust which are treated as cancelled. Earnings
attributable to equity shareholders is inclusive of amounts accruing to the
holders of the hybrid instrument and are calculated as follows:
2023 (Restated)
£m 2022(1)
£m
Loss attributable to equity shareholders (163.8) (232.3)
Accrued payments on hybrid instrument (21.3) (21.3)
Earnings attributable to equity shareholders (185.1) (253.6)
(1) Restated for a correction to the German Rail onerous contract provision,
see note 1 for further information
For diluted EPS, the weighted average number of ordinary shares in issue
during the year is adjusted to include the weighted average number of ordinary
shares that would be issued on the conversion of all the dilutive potential
ordinary shares into ordinary shares. The reconciliation of basic and diluted
weighted average number of ordinary shares is as follows:
2023 2022
Basic weighted average shares 612,919,243 612,772,081
Adjustment for dilutive potential ordinary shares(1) 898,828 339,199
Diluted weighted average shares 613,818,071 613,111,280
(1) Potential ordinary shares have the effect of being anti-dilutive in 2023
and 2022, and have been excluded from the calculation of diluted earnings per
share
( )
The adjusted basic and adjusted diluted earnings per share have been
calculated in addition to the basic and diluted earnings per share required
by IAS 33 since, in the opinion of the Directors, they reflect a key measure
of performance of the business' operations.
The reconciliation of the earnings and earnings per share to their adjusted
equivalent is as follows:
2023 (Restated) 2022(1)
£m Basic EPS Diluted EPS £m Basic EPS Diluted EPS
P P P p
Earnings attributable to equity shareholders (185.1) (30.2) (30.2) (253.6) (41.4) (41.4)
Adjusting items 191.2 31.2 31.2 371.2 60.6 60.6
Adjusting items tax 21.9 3.5 3.5 (24.4) (4.0) (4.0)
Adjusting items non-controlling interests (0.2) - - (1.1) (0.2) (0.2)
Adjusted earnings attributable to equity shareholders(2) 27.8 4.5 4.5 92.1 15.0 15.0
Amounts accruing to the holders of the hybrid instrument 21.3 21.3
Adjusted profit attributable to equity shareholders 49.1 113.4
(1) Restated for a correction to the German Rail onerous contract provision,
see note 1 for further information
(2) After deducting amounts accruing to the holders of the hybrid instrument
9 Goodwill and impairment
Goodwill has been allocated to individual cash-generating units for annual
impairment testing on the basis of the Group's business operations. The
carrying value by cash-generating unit is as follows:
2023 2022
£m £m
UK 52.4 52.4
North America 708.0 743.2
ALSA 550.3 560.6
1,310.7 1,356.2
The calculation of value in use for each group of cash-generating units is
most sensitive to the assumptions over discount rates and the growth rate used
to extrapolate cash flows into perpetuity beyond the five-year period of the
management plan.
The key assumptions used for the cash-generating units are as follows:
Pre-tax discount Growth rate used to
rate applied to extrapolate cash flows
cash flow projections into perpetuity
2023 2022 2023 2022
UK 10.8% 11.2% 2.7% 2.7%
North America 10.0% 10.3% 3.7% 3.4%
ALSA 13.4% 13.9% 3.2% 3.0%
Discount rates have reduced for all divisions, and have been impacted by an
increase in the proportion of debt to equity of the comparator companies used
in the calculation of the weighted average cost of capital (WACC).
The key estimates applied in the impairment review are the forecast level of
revenue, operating margins and the proportion of operating profit converted to
cash in each year. Forecast revenue and operating margins are based on past
performance and management's expectations for the future. A growth rate for
each division has been consistently applied in the impairment review for all
cash-generating units based on respective long-term country-specific GDP
growth rates. The cash flows are discounted using pre-tax rates that are
calculated from country-specific WACC, principally derived from external
sources. Capital expenditure is projected over the first five years using a
detailed forecast of the capital requirements of the Group for new and
replacement vehicles and other assets. In the extrapolation of cash flows into
perpetuity (the "terminal value"), capital expenditure is assumed to be a 1:1
ratio to depreciation. In line with the requirements of IAS 36, only the cost
reductions associated with restructuring programmes already significantly
progressed are included within the cash flow projections. The benefits, and
cost to achieve relating to our newer productivity and cost improvement
programmes have been excluded from the cash flows used in the value in use
calculation on the basis that, at the time of assessment, these programmes
were still in their early planning phase and were not yet sufficiently
advanced. Inclusion of the cost reduction benefits from these programmes would
increase the available headroom for all divisions; as the plans become more
advanced we expect these savings to be incorporated in future assessments.
The value in use of the ALSA division exceeds its carrying amount by £134.9m
(2022: there was a shortfall of £260.6m in the value in use compared to the
carrying value, resulting in a non-cash impairment charge). The increase in
headroom is primarily due to an improvement in the cash flow forecast and
reduction in the discount rate.
The value in use of the North America division exceeds its carrying amount by
£315.4m (2022: £225.9m). The increase is primarily result of the reduction
in the discount rate and increase in the long-term growth rate.
The assumptions behind the cash flow projections also take account of the
climate change risk assessment exercise carried out during the year, from
which the pertinent conclusions are as follows:
· Whilst the global temperature rise above pre-industrial levels
increases the likelihood of extreme weather events, the geographical diversity
of the Group means that the risk to the Group as a whole is unlikely to be
material. We have, nonetheless, factored in an assumption of financial impact
from extreme weather disruption.
· The Group's planning assumption is that input costs will not rise
significantly above inflation on the basis that, for electric vehicles for
example, supply will increase to match demand, and technological advances will
also help decrease manufacture costs. Furthermore the Group assumes, based on
its detailed modelling of electric versus diesel buses in the UK, that the
total cost of ownership of zero emission vehicles will be no worse than their
diesel equivalents. This assessment is inclusive of the cost of new electric
vehicle infrastructure and assumes no government funding. The Group expects to
utilise hydrogen vehicles in the transition to zero emission fleet in long
haul coach services and, whilst hydrogen vehicle technology is not currently
as well developed as electric, the Group assumes that total cost of ownership
for these vehicles will also be no worse than at parity with their diesel
equivalents, albeit may require some level of government subsidies on the
capital cost and/or the hydrogen fuel.
· The Group already has ambitious targets for the transition to
zero emission fleets. These targets are expected to result in the Group having
a zero emission fleet before any potential ban on diesel vehicles is imposed
by governments. The Group has assessed as very low the risk of the current
fleet having a net book value higher than their residual value at the Group's
targeted transition dates and has therefore concluded that no changes to the
useful economic lives of the Group's current fleet are required.
· The opportunity from modal shift from private cars to public
transport is potentially significantly more material than that assumed in the
Group's long-term cash flow projections as central governments, transport
authorities and city councils introduce measures to tackle congestion,
pollution and emissions.
The table below and over the page, summarises the reasonably possible changes
in key assumptions which most impact the value in use of the ALSA and North
America cash-generating units.
ALSA Sensitivity Impact on value in use £m
2023 2022
Pre-tax discount rate(1) Increase of 1.5 percentage points (119.0) (93.7)
Decrease of 1.5 percentage points 159.7 123.8
Perpetual Growth rate Increase of 1.0 percentage points 70.9 54.8
Decrease of 1.0 percentage points (58.3) (45.6)
Adjusted Operating Profit Margin Increase of 1.0 percentage points 115.8 96.3
throughout the assessment period Decrease of 1.0 percentage points (115.8) (96.3)
Free cash flow in the terminal value Increase by 10% 59.4 49.2
Decrease by 10% (59.4) (49.2)
North America Sensitivity Impact on value in use £m
2023 2022
Pre-tax discount rate(1) Increase of 1.5 percentage points (304.8) (286.3)
Decrease of 1.5 percentage points 494.7 446.3
Perpetual Growth rate Increase of 1.0 percentage points 242.4 216.1
Decrease of 1.0 percentage points (176.6) (161.4)
Adjusted Operating Profit Margin Increase of 1.0 percentage points 202.2 174.5
throughout the assessment period Decrease of 1.0 percentage points (202.2) (174.5)
Free cash flow in the terminal value Increase by 10% 122.7 119.6
Decrease by 10% (122.7) (119.6)
Reduction in driver related cost savings(2) Reduction of 50% (72.7) Not applicable
Reduction in price rises for school year 24/25 onwards(3) Price rises are capped at the level of driver wage inflation only (435.9) Not applicable
(1) Sensitivities are applied to post-tax discount rates used to derive the
pre-tax discount rates.
(2) In response to the elevated level of driver training costs seen in FY23
(which are not assumed to repeat in future), a sensitivity has been added to
highlight the impact of an ongoing elevated level of cost in this area. No
prior year sensitivity analysis is presented since this was not considered to
be a key judgement as at 31 December 2022.
(3) The five year plan assumes that in the medium term, School Bus rate
increases slightly ahead of the level of wage inflation will be achieved, to
recoup historic wage investment. This sensitivity illustrates the impact of
only being able to secure inflationary increases for school year 2024/25 and
beyond. No prior year sensitivity analysis is presented since this was not
considered to be a key judgement as at 31 December 2022.
Sensitivity analysis has been conducted to assess the change required in each
of the critical inputs, in order to reduce the value in use to equal the
carrying value.
Change in percentage points required to reduce headroom to nil North America ALSA
2023 2022 2023 2022
Increase in pre-tax discount rate 1.6% 1.1% 1.7% Not applicable
Reduction in long term growth rate 1.6% 1.2% 1.7% Not applicable
Reduction in adjusted operating profit margin 1.6% 1.3% 1.1% Not applicable
Additional cash flow sensitivities
Reduction in free cash flow generation in the terminal value year (£m) (30.3) (23.8) (23.9) Not applicable
No prior year sensitivity analysis is presented for ALSA on the basis that
last year, an impairment was recorded.
The Directors have concluded that there is no risk of impairment for the UK
given the significant level of available headroom, and have not provided
sensitivity disclosure required by IAS 36.
The Directors consider the assumptions used to be consistent with the
historical performance of each cash-generating unit and to be realistically
achievable in light of economic and industry measures and forecasts.
10 Business combinations, disposals and assets held for sale
(a) Acquisitions - ALSA
During the period, the ALSA division acquired control of:
- Tranvias De Sevilla, a regional transport provider in Andalusia,
Spain
- Estebanez, a regional transport provider in Castilla & Leon,
Spain
- RC Travel, a Spanish travel agency
- Ibercruises, a Portuguese travel agency
It also increased its shareholding in both Alsa Buses Extremadura (previously
named ALSA-Mirat) and Aragonesa during the year, resulting in control being
obtained. Both were previously recognised as an associate and accounted for
using the equity method.
The provisional fair values, along with final fair value adjustments in
respect of the acquisition of Vitalia acquired during 2022, are presented in
aggregate below:
£m
Intangibles 4.3
Property, plant and equipment 2.4
Inventory 0.1
Trade and other receivables 2.1
Cash and cash equivalents 2.6
Borrowings (0.4)
Trade and other payables (2.8)
Deferred tax liability (1.1)
Net assets acquired 7.2
Non-controlling interest (0.9)
Fair value of investments previously accounted for using equity method (0.3)
Goodwill 0.7
Total consideration 6.7
Represented by:
Cash consideration 5.9
Deferred consideration 0.8
6.7
As permitted by IFRS 3 Business Combinations, the fair value of acquired
identifiable assets and liabilities have been presented on a provisional
basis. The fair value adjustments will be finalised within 12 months of the
acquisition date, principally in relation to the valuation of intangible
assets and provisions acquired.
Trade and other receivables had a fair value and a gross contracted value of
£2.1m. The best estimate at acquisition date of the contractual cash flows
not to be collected was £nil.
Goodwill of £3.8m arising from the acquisition consists of certain
intangibles that cannot be separately identified and measured due to their
nature. This includes control over the acquired business and increased scale
in our operations in ALSA, along with growth benefits of the regional business
in areas not previously operated. None of the goodwill recognised is expected
to be deductible for income tax purposes.
During the year the fair value adjustments relating to the intangibles
acquired in 2022 as part of the Vitalia acquisition were finalised. This
resulted in an increase in the fair value of separately identifiable
intangibles acquired, a corresponding increase in deferred tax liability, and
a reduction in goodwill of £3.1m.
The acquired businesses contributed £4.8m of revenue and £0.5m statutory
operating profit to the Group's result for the period between acquisition and
the balance sheet date. Had the acquisition been completed on the first day of
the financial year, the Group's revenue would have been £3,156.4m and the
Group's statutory operating loss would have been £21.1m.
(b) Acquisitions - further information
Deferred consideration of £3.1m was paid in the period relating to
acquisitions in ALSA in earlier years. Total cash outflow in the period from
acquisitions in the ALSA division was £9.4m, comprising consideration for
current year acquisitions of £5.9m, less cash acquired in the businesses of
£2.6m, and £6.1m towards a future acquisition. Control of the future
acquisition was not obtained at the balance sheet date and therefore the
results have not been consolidated in the Group's Financial Statements.
In North America deferred consideration of £0.5m was paid in the period
relating to acquisitions in earlier years.
Transaction costs were insignificant in the period to 31 December 2023 (2022:
£0.1m).
During the year to 31 December 2023, the movement in the Group's carrying
value of goodwill principally related to the net impact of the Tranvias De
Sevilla acquisition and the fair value adjustment to Vitalia.
The Group measures deferred contingent consideration at fair value through
profit and loss and by reference to significant unobservable inputs, i.e.
classified as Level 3 in the fair value hierarchy. The significant
unobservable inputs used to determine the fair value of the contingent
purchase consideration are typically forecast earnings or estimating the
likelihood that contracts will be renewed over a fixed period. The fair value
movement in deferred contingent consideration in the year is as follows:
2023 2022
£m £m
Fair value:
At 1 January 11.7 13.4
Additions in the year 0.8 1.6
Payments during the year (3.6) (3.7)
Fair value movement in the year - (0.4)
Foreign exchange (0.2) 0.8
At 31 December 8.7 11.7
The fair value of deferred contingent consideration is not highly sensitive to
changes to significant unobservable inputs and therefore sensitivities to the
valuation have not been disclosed.
(c) Disposals
The group disposed of several subsidiaries during the year, no cash was
received for the disposals of these companies, nor a gain or loss recognised
in the Income Statement.
(d) Assets held for sale
In ALSA, a building with a carrying value of £18.2m (2022: £18.6m) has met
the held for sale IFRS 5 criteria and been recognised within current assets.
11 Cash and cash equivalents
2023 2022
£m £m
Cash at bank and in hand 186.1 171.7
Overnight deposits 0.2 6.6
Other short-term deposits 170.0 113.5
Cash and cash equivalents 356.3 291.8
Included within cash and cash equivalents are certain amounts which are
subject to contractual or regulatory restrictions or withholding tax levied on
repatriation of cash. These amounts held are not readily available for other
purposes within the Group, and if repatriated would result in £2.6m of
withholding tax (2022: £0.6m).
Cash at bank and in hand earns interest at floating rates based on daily bank
deposit rates.
Short-term deposits are made for varying periods of between one day and three
months depending on the immediate cash requirements of the Group and earn
interest at the agreed short-term floating deposit rate. The fair value of
cash and cash equivalents is equal to the carrying value.
For the purposes of the Consolidated Statement of Cash Flows, cash and cash
equivalents and bank overdrafts in notional cash pooling arrangements are
presented net. Bank overdrafts form an integral part of the Group's cash
management strategy as they arise from the Group's cash pooling arrangement
with its bank. Net cash and cash equivalents comprise as follows:
2023 2022
£m £m
Cash and cash equivalents 356.3 291.8
Bank overdrafts (62.6) (58.7)
Net cash and cash equivalents 293.7 233.1
12 Pensions and other post-employment benefits
The UK division (UK) operates defined benefit pension schemes.
The Company has in the past operated a defined benefit scheme. On 23 September
2021, a full buy-out of the defined benefit section was completed, following
which Rothesay Life has become fully and directly responsible for the pension
obligations. On completion of the buy-out, the defined benefit assets
(comprising the Rothesay Life insurance policy) and matching defined benefit
liabilities were derecognised from the Group's Balance Sheet. The buy-out
transaction also triggered the return of surplus assets to the Company
totalling £7.5m, with the remaining assets retained in the scheme to cover
final expenses in completing its wind-up.
The Group also provides certain additional unfunded post-employment benefits
to employees in North America and maintains a small defined benefit scheme for
National Express Services Limited. These post-employment benefits have been
combined into the 'Other' category.
In 2020, the UK division agreed a new six-year annual deficit plan with the
trustees of the West Midlands Integrated Transport Authority Pension Fund,
which continues until March 2026 with an average contribution of £7.6m per
annum. The plan remains open to accrual for existing members only.
The assets of the defined benefit schemes are held separately from those of
the Group and contributions to the schemes are determined by independent
professionally qualified actuaries.
The Group expects to contribute £10.1m into its defined benefit pension plans
in 2024.
The UK, the Company and North America also operate or contribute into a number
of defined contribution schemes.
The total pension cost charged to adjusted operating profit in the year for
the Group was £9.2m (2022: £9.7m), of which £7.5m (2022: £6.2m) relates to
the defined contribution schemes.
The defined benefit pension (liability)/asset included in the Balance Sheet is
as follows:
2023 2022
£m £m
Company - -
Other 0.2 0.4
Pension assets 0.2 0.4
UK (30.0) (39.7)
Other (2.8) (2.8)
Pension liabilities (32.8) (42.5)
Total (32.6) (42.1)
The most recent triennial valuations are then updated by independent
professionally qualified actuaries for financial reporting purposes, in
accordance with IAS 19 The assumptions for the UK scheme are listed below:
UK UK
2023 2022
Rate of increase in salaries 2.5% 2.5%
Rate of increase of pensions in payment 2.5% 2.5%
Discount rate 4.5% 4.8%
Inflation assumption (RPI) 3.1% 3.1%
Inflation assumption (CPI) 2.5% 2.5%
Post-retirement mortality in years:
Current pensioners at 65 - male 18.5 19.5
Future pensioners at 65 - male 19.5 20.9
Current pensioners at 65 - female 21.5 23.0
Future pensioners at 65 - female 23.9 24.5
The Directors regard the assumptions around pensions in payment, discount
rate, inflation and mortality to be the key assumptions in the IAS 19
valuation.
The following table provides an approximate sensitivity analysis of a
reasonably possible change to these assumptions:
(Increase)/decrease in the defined benefit obligation UK UK
2023 2022
£m £m
Effect of a 0.5% increase in pensions in payment (13.7) (17.1)
Effect of a 0.5% decrease in the discount rate (21.8) (24.2)
Effect of a 0.5% increase in inflation (15.1) (19.0)
Effect of a 1-year increase in mortality rates (13.4) (12.6)
The above sensitivity analyses are based on a change in an assumption while
holding all other assumptions constant. Aside from the matching insurance
contracts held in the UK scheme, no allowance has been made for any change in
assets that might arise under any of the scenarios set out above.
13 Cash flow statement
(a) Reconciliation of Group loss before tax to cash generated from operations
2023
£m (Restated)
2022(2)
£m
Loss before tax (98.3) (225.3)
Net finance costs 76.4 51.4
Share of results from associates and joint ventures 0.5 0.4
Depreciation of property, plant and equipment 199.3 203.5
Intangible asset amortisation 53.8 55.5
Amortisation of fixed asset grants (2.0) (2.1)
Gain on disposal of property, plant and equipment (12.7) (10.5)
Gain on disposal of intangible assets (0.4) (5.1)
Share-based payments 1.6 1.2
Increase in inventories (2.4) (1.5)
Decrease/(increase) in receivables 0.8 (118.5)
Increase in payables 27.8 52.5
Receipts on settlement of fuel forward contracts - 26.2
Decrease in provisions (4.0) (23.9)
Decrease in pensions (8.4) (3.2)
Adjusted operating items(1) 154.7 333.6
Cash flows relating to adjusting items (71.0) (49.3)
Cash generated from operations 315.7 284.9
( )
(1) Excludes amortisation from acquired intangibles which is included within
'intangible asset amortisation'
(2) Restated for a correction to the German Rail onerous contract provision,
see note 1 for further information
b) Analysis of changes in net debt
Net debt is an alternative performance measure which is not defined or
specified under the requirements of International Financial Reporting
Standards.
At Cash flow Acquisitions and disposals Exchange differences Other movements At 31 December
1 January
£m
£m
£m
£m
2023
2023
£m
£m
Components of financing activities:
Bank and other loans(1) (194.7) (53.4) (0.4) 6.1 (1.5) (243.9)
Bonds (621.4) (28.5) - 1.1 (10.4) (659.2)
Fair value of interest rate derivatives (26.0) - - - 9.6 (16.4)
Fair value of foreign exchange forward contracts 11.9 (14.3) - 1.2 - (1.2)
Cross currency swaps (6.0) (6.3) - 10.1 - (2.2)
Net lease liabilities(2) (183.7) 57.4 - 4.6 (50.2) (171.9)
Private placements (411.9) - - 7.4 (0.2) (404.7)
Total components of financing activities (1,431.8) (45.1) (0.4) 30.5 (52.7) (1,499.5)
Cash 171.7 16.0 2.0 (3.6) - 186.1
Overnight deposits 6.6 (6.9) 0.6 (0.1) - 0.2
Other short-term deposits 113.5 56.6 - (0.1) - 170.0
Bank overdrafts (58.7) (3.9) - - - (62.6)
Net cash and cash equivalents 233.1 61.8 2.6 (3.8) - 293.7
Other debt receivables 2.7 0.3 - (0.1) - 2.9
Remove: fair value of foreign exchange forward contracts (11.9) 14.3 - (1.2) - 1.2
Net debt(3) (1,207.9) 31.3 2.2 25.4 (52.7) (1,201.7)
( )
(1) Net of arrangement fees totalling £3.3m (2022:
£1.1m) on bank and other loans
(2) Net lease liabilities is inclusive of finance lease
receivables which are reported separately from borrowings on the face of the
Group's Balance Sheet
(3) Excludes accrued interest on long-term borrowings
Short-term deposits relate to term deposits repayable within three months.
Borrowings include non-current interest-bearing borrowings of £1,290.6m
(2022: £886.3m).
Other non-cash movements include lease additions and disposals of £50.2m
(2022: £36.9m), and £2.3m amortisation of loan and bond arrangement fees
(2022: £1.1m). A £9.9m increase in the fair value of the hedging derivatives
is offset by opposite movements in the fair value of the related hedged
borrowings, with £0.3m of ineffectiveness.
Prior year analysis of changes in net debt
At Cash flow Acquisitions and disposals Exchange differences Other movements At 31 December
1 January 2022
£m
£m
£m
£m
2022
£m
£m
Components of financing activities:
Bank and other loans(1) (189.6) 10.7 (1.0) (14.3) (0.5) (194.7)
Bonds (640.9) - - - 19.5 (621.4)
Fair value of interest rate derivatives (6.3) - - - (19.7) (26.0)
Fair value of foreign exchange forward contracts (9.9) 39.4 - (17.6) - 11.9
Cross currency swaps 2.6 28.4 - (37.0) - (6.0)
Net lease liabilities(2) (218.9) 85.9 (0.7) (13.1) (36.9) (183.7)
Private placements (393.9) - - (17.7) (0.3) (411.9)
Total components of financing activities (1,456.9) 164.4 (1.7) (99.7) (37.9) (1,431.8)
Cash 268.1 (115.4) 0.4 18.6 - 171.7
Overnight deposits 0.4 6.0 - 0.2 - 6.6
Other short-term deposits 239.9 (126.6) - 0.2 - 113.5
Bank overdrafts (132.2) 73.5 - - - (58.7)
Net cash and cash equivalents 376.2 (162.5) 0.4 19.0 - 233.1
Other debt receivables 1.0 1.6 - 0.1 - 2.7
Remove: fair value of foreign exchange forward contracts 9.9 (39.4) - 17.6 - (11.9)
Net debt(3) (1,069.8) (35.9) (1.3) (63.0) (37.9) (1,207.9)
( )
(1) Net of arrangement fees totalling £1.1m (2021: £2.4m) on bank and other
loans
(2) Net lease liabilities is inclusive of finance lease receivables which are
reported separately from borrowings on the face of the Group's Balance Sheet
(3) Excludes accrued interest on long-term borrowings
(c) Reconciliation of net cash flow to movement in net debt
2023 2022
£m £m
Increase/(decrease) in net cash and cash equivalents in the year 64.4 (162.1)
Cash inflow from movement in other debt receivables 0.3 1.6
Cash (outflow)/inflow from movement in debt and leases liabilities (31.2) 123.3
Change in net debt resulting from cash flows 33.5 (37.2)
Change in net debt resulting from non-cash movements (27.3) (100.9)
Movement in net debt in the year 6.2 (138.1)
Opening net debt (1,207.9) (1,069.8)
Net debt (1,201.7) (1,207.9)
14 Financial information
The financial information set out above does not constitute the Group's
Financial Statements for the years ended 31 December 2023 or 2022, but is
derived from those Financial Statements. Statutory Financial Statements for
2022 have been delivered to the Registrar of Companies and those for 2023 will
be delivered following the Company's annual general meeting. The auditors have
reported on those Financial Statements; their reports were unqualified, did
not draw attention to any matters by way of emphasis without qualifying their
report and did not contain statements under s498(2) or (3) Companies Act 2006.
The Annual Report will be posted to shareholders on 30 April 2024 and will
also be available from the Company Secretary at National Express House,
Birmingham Coach Station, Mill Lane, Digbeth, Birmingham, B5 6DD. Copies are
also available via www.mobicogroup.com.
15 Post balance sheet events
Put liabilities to Non-controlling interests
The Group has a subsidiary in Morocco with a non-controlling interest. In
January 2024 an arbitrator ruled on a long-standing dispute between the Group
and the non-controlling interest which resulted in the triggering of a put
option for the non-controlling interest to sell their shares to us. As the
arbitration was ongoing at year end, the Directors consider this to be a post
balance sheet adjusting event. A put liability of £8.6m has therefore been
recognised as at 31 December 2023 for the estimated value to purchase the
shares from the non-controlling interest.
Acquisition of Canary Bus
On 1 March 2024 the Group acquired 100% share capital in Canary Bus. Prior to
the year end a deposit for £6.1m was paid. Following receiving permission
from the Spanish Competition Commission, the Group proceeded with the
acquisition, and obtained control of the Canary Bus.
Potential disposal of North America School Bus business
During the year the Group announced that it would start a process for the
potential dispoal of the North America School Bus business. The Directors have
considered whether this would meet the criteria for disclosing as held for
sale at the 31 December 2023 and at the date of these accounts. At the date of
issue of these Financial Statements the Directors believe that the sale plan
is not progressed sufficiently for the Held for Sale criteria to have been
met.
Publication of restated and rebased versions of indices 625 & 626 relating
to German Rail
A number of statistical indices are used in the German transport sector to
determine the level of cost recovery from the public transport authority. In
particular, two indices, Indices 625 & 626, are used by the Group (and
others operating in the German transport sector) to calculate and agree the
recovery of energy costs from relevant passenger transit authorities.
Subsequent to the year end, Destatis, the German Federal Statistical Office,
published restated and rebased versions of Indices 625 & 626 and withdrew
the previous versions of those indices. Those previous versions had originally
been used by the Group in calculating the performance of the German Rail
business for the year. Whilst the Group intends to discuss in due course with
the public transport authority how the impact of the revised indices should be
addressed within the context of that relationship and the underlying
contracts, the full effect of the revised indices was reflected in the
calculation of the performance of each of the contracts within German Rail.
The effect of this in totality was a reduction in expected total cost recovery
over the term of the contracts (to 2032) of £12.3m, with an impact on 2023
adjusted operating profit of £3.1m (of which £2.7m related to subsidy
recovery recognised in 2022).
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