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Current trading and prospects

Update on current trading and prospects and proposed Return of Value to Shareholders 14 March 2007. Current trading and prospects. Overall trading remains strong EPS* for FY07 anticipated to be at upper end of our expectations Prospects for FY08 trading have further improved reflecting:

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Current trading and prospects

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  1. Update on current trading and prospects and proposed Return of Value to Shareholders 14 March 2007

  2. Current trading and prospects • Overall trading remains strong • EPS* for FY07 anticipated to be at upper end of our expectations • Prospects for FY08 trading have further improved reflecting: • continuing strong revenue growth • sustained reduction in fuel prices • Earnings enhancement from: • return on additional contributions to pension schemes • proposed Return of Value • Group’s consolidated net funds expected to be between £130m - £150m at 30 April 2007 * before intangible asset expenses and exceptional items

  3. Drivers of capital structure review • Continually seeking to maximise Shareholder value • Periodic evaluation of the optimal capital structure • Predictable, cash generative nature of Group’s operations has potential to support greater levels of debt • Increased level of debt has potential to reduce the Group’s cost of capital and increase Shareholder returns • Maintain flexibility to invest in operations and bolt-on acquisitions

  4. Why is recommendation increased from £400m? • Further detailed analysis undertaken by the Board and advice taken • Improved visibility of future cash flows: • West Coast renegotiated with strong prospects • Lower fuel prices (further hedging in place) • Continued strong revenue growth in UK Bus and Rail • Appetite from banking market to provide facilities at acceptable pricing • Increasing market acceptance of higher debt levels

  5. Return of Value structure • Mechanism • Return equivalent to 63 pence per Existing Ordinary Share • Issue of redeemable “B” and/or irredeemable “C” Shares • Share Capital Consolidation – ratio to be determined • Why this structure? • Allows all Shareholders to be treated equally • Allows Shareholders choice as to when and in what form they receive their cash • Clarity as to the quantum and financial effect of the Return of Value Impact of share price • Value to Shareholders is not affected by share price or consolidation ratio

  6. Expected timetable • 14 March 2007 • Trading statement • Announcement of Return of Value proposals • Late March/early April 2007 – Circular posted to Shareholders • Late April /early May 2007 – EGM • By 30 June 2007– Return of Value payments to Shareholders

  7. Pensions • Reached agreement with Trustees for additional funding of £50m to Stagecoach Group Pension Scheme (“SGPS”) • £20m of £50m expected to be paid to SGPS by 30 April 2007 • Balance to be paid by 30 June 2007 • Remainder of deficit in SGPS expected to be eliminated in 4 years • Ongoing employer contributions expected to exceed the net pensions charge to the Group’s income statement

  8. Funding • Return of Value to be funded from Group’s available cash balances and bank facilities • Bank facilities of approximately £825m arranged, majority of which mature in 2012 • Appetite from existing and new banks to lend at acceptable rates

  9. Dividend policy • Maintain progressive dividend per share policy • Total dividend reduced due to less shares • Board has option to change dividend policy in future Illustrative example* • 2006/7 market consensus full-year dividend of 4.1 pence • 2.6% yield on 160 pence share price • On existing dividend policy and £700m return • 2007/8 market consensus full-year dividend of 4.4 pence • 2.8% yield on 160 pence share price * NOTE: The dividend and yield figures are for illustration only and have been sourced from the Company’s records of analysts’ forecasts. These figures are neither the Company’s forecast nor a statement of the Company’s intended dividend policy.

  10. Impact on analyst forecasts • Interest charges on approximately £700m Return of Value • 2007/08 (approx 11 months) • 2008/09 (full year) • Interest charges on additional pension contributions • Tax shield on interest • Some one-off implementation costs c.£4m • Reduction in weighted average ordinary shares • Subject to consolidation ratio • Ordinary shares currently in issue 1,100.3m • Pro-forma Ordinary Shares in issue (illustrative based on 13 March 2007 closing share price) 669.1m • Pro-forma 2007/08 weighted average (illustrative based on 13 March 2007 closing share price and mid-May 2007 consolidation date ) 687.0m • Adjust for subsequent share issues

  11. Financial ratios considered • Net Debt/EBITDA • Net Debt/(EBITDA plus dividends from joint ventures) • Impact of working capital cash in rail franchises • EBITDA/Interest

  12. Conclusion • Overall strong trading performance • Return of Value is intended to establish a more appropriate and efficient capital structure • Maintain financial flexibility to continue investing in operations and bolt-on acquisitions • Number of factors led Board to conclude that £700m should be returned to Shareholders before 30 June 2007 • Return of Value is conditional upon Shareholder approval • Further details on Return of Value to be announced within next two weeks

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