Delivery
yervi
ielD
yti
Adaptability
ap
apdA
tab
li
li
ti
tab
dA
ytilib
sinops
sRe
Responsibility
dn arr otsevn i,rr,emots
Meeting customer, investor and
d
su cgnieteM
other stakeholder expectations
p
sniotatecpx e exrr eedlho
s
hoekkeat srr sehto
Opportunities
Opportunities
Opportunities
Opportunities
Opportunities
EULAV
VALUE
GhcaocegatS
Stagecoach Group Annual Report
etat S
and Financial Statements 2014
410 2stmen
alcinain Fdna
Ralunn Apuor G
troep
Stagecoach Group overview
Stagecoach Group is a
leading international public
transport company with
bus and rail operations in
the UK and North America.
We employ around 35,000
people and run around
13,000 buses and trains.
Budget travel
UK Bus (Regions)
UK Bus (London)
UK Rail
North America
19,000
employees
4,000
employees
7,000
employees
7,100
buses and coaches
1,200
buses and coaches
2,200
train services a day
678m
journeys a year
309m
journeys a year
259m
journeys a year
5,000
employees
2,400
buses and coaches
146m
vehicle miles a year
Note: all figures are approximate.
Total megabus.com brand revenues in UK
and North America, 2003-04 to 2013-14
Total megabus.com revenue, 2013-14
2.6%
£m
180,000
120,000
60,000
0
03/04
04/05
05/06
06/07
07/08
08/09
09/10
10/11
11/12
12/13
13/14
The chart includes all revenues from megabus.com branded services in the UK and North America,
including 100% of megabus.com branded services within the Scottish Citylink joint venture.
Operational performance
Customer service
28.2%
69.2%
North America
UK megabus.com
UK megatrain.com
UK rail
punctuality
UK rail customer
satisfaction
UK bus customer
satisfaction
%
5
3
9
.
%
3
2
9
.
%
5
2
9
.
%
6
1
9
.
%
4
1
9
.
%
9
5
8
.
%
9
0
9
.
%
3
1
9
.
%
6
9
8
.
%
9
9
8
.
%
8
5
8
.
%
5
3
8
.
100%
90%
%
1
9
%
8
8
%
7
8
%
2
9
%
0
9
%
7
8
80%
%
3
8
%
3
8
%
2
8
%
1
8
%
2
8
%
9
7
100%
90%
80%
70%
100%
90%
80%
70%
%
0
9
%
6
8
%
6
8
%
6
8
%
6
8
%
5
8
%
1
8
%
8
7
2011-12
2012-13
2013-14
70%
2011-12
2012-13
2013-14
2012-13
2013-14
East Midlands Trains
South West Trains
Virgin Trains
National Rail
East Midlands Trains
South West Trains
Virgin Trains
National Rail
Stagecoach
First
National Express
Arriva
Source: Network Rail, Public Performance Measure,
Moving Annual Average.
Source: National Passenger Survey, Spring Wave,
2012, 2013, 2014.
Source: Bus Passenger Survey, Autumn 2012
and Autumn 2013.
Note: figures used refer to the measure of train punctuality – also known as
PPM (public performance measure) – which is commonly used throughout
Europe. For long distance operators, such as East Midlands Trains and Virgin
Trains, this shows the percentage of trains arriving within 10 minutes of
timetabled arrival at the final destination. London and South East operators
(including South West Trains) and regional operators show the percentage
arriving within five minutes of the timetabled arrival. data covers the period
1 April 2011 to 31 March 2014. National Rail average is for all franchised train
operating companies.
Note: data extracted from National passenger Survey, Spring Wave, 2012,
2013, 2014. Percentages are for overall satisfaction. The National Passenger
Survey (NPS) is conducted twice a year from a representative sample of
passenger journeys across the UK. It surveys passengers’ overall satisfaction
and satisfaction with 30 individual aspects of service for each individual train
operating company (TOC). Passenger ratings are totalled for all TOCs across
the country to provide a National Rail average.
Note: extracted from the Bus Passenger Survey, Autumn 2012 and Autumn
2013. The survey asks passengers to rate their journey experience, covering
overall journey satisfaction and a range of specific factors. As a result of the
areas selected the proportion of each national operator’s services surveyed
will vary. Due to coverage of areas served by Go-Ahead services being less
widespread, they have been omitted from the major operator results
published by Passenger Focus.
108244_STC_Front PRINT_108244_STC_Front V12 03/07/2014 14:36 Page 1
ighH
Highlights
st
ighl
t7%.5
e
Adjusted earnings per share* up 5.7% to 26.0 pence
ecne p0.62o
snoitatcepxh etie wnin l
Financial results in line with expectations
ltusel raicnnaiF
s i
n l
*reah sre psg
up
ninra edd eetsujddjA
(2013 restated: 24.6 pence)
)ee)cne6 p.4 2
2:detatsre3 102(
)ee)cne6 p4 2
:detatsre3 102(
2
nediiv draeyyel luF
reahsr epd n
(2013: 8.6 pence)
)e
: 83102(
ecne p6.
nwoow d†bte detN
.835£: 3102 (m6.164 £otm 4.67 £n
g inidar ttt tnreruC
tatcepxet nemegana mhtiwe niln g i
debt† down £76.4m to £461.6m (2013: £538.0)
)0
Net
Current trading in line with management expectations
snoi
Full year dividend per share up 10.5% to 9.5 pence
ecne p5.
9ot% 5.0
up 1
su BKK BU
UK Bus
Market-leading financial performance and customer
re
emotsucd anecanmrforeplaicanni f
fgnidael-tekkearM
satisfaction
noticaffatisas
om011 £
£rr £evor offos rerdO
iss iniw
wt cartno cww ceN
ecanmrforep
and operational performance
lanioatrepodan
l
Orders for over £110m of new greener buses for 2014/15
51/410
New contract wins in London driven by good cost control
bneivr dnodnoLn
lortno c
fo
02r offos esubr eneregw enf
ctsocd oogy
ioat
d
K RaU
UK Rail
li
deregae sihcnar fs niar T Trt
New West Coast Trains franchise agreed
ecn
naillAl ia Rrkk RowteN-sniar T rtseWh tu
Extension of South West Trains-Network Rail Alliance
£9m invested in pursuing new rail franchise opportunities
tropp oesihcnarfl ia rww re ngniusru pn
seitinut
tsao Ctse W Weww WeN
onoisnetxE
oSf
nid etsevn im9£
North America
aricem AhtroN
iesarec
Over 80% increase in operating profit
tifoofr pgnitarepon
cni% 08r evO
htworgg niivrds ecivre syy tic-retn im
i
htworgg niivrds ecivre syyticretn im
eunevren
megabus.com inter-city services driving growth in revenue
i
eunevren
mocsubgaem
moc.subgaem
tiforpg
and operating profit
gniatrepodan
iw T Twtasesa clgae lgnivlos renis
ivtisoP
s petse
oi
erntuevntoi
jgnieesthgis
sightseeing joint venture
Positive steps in resolving legal cases at Twin America
acirem
mAn
upso
trop
tsucn
Focus on customer service improvements to support
tropup
daehs aeitinut
Growth opportunities ahead
twoowrG
tstnemevoovrmpiecivre sremot
h op
osucoF
modal shift
tfishaldom
ooffod nat cudorpm oc.subgae mff m ot
tnemploeveD
W Wehtuo Sff Sosrdaw a awtcrei drr dos noisne
etx edd eennaPl
sesihcnarfl ia rss rd
East Midlands rail franchises
dnadliMt saE
i
pihsrentrapn
Shortlisted for InterCity East Coast rail franchise in partnership
esihcnarfl ia rtsao Ctt CsaEytiCretn Irr Io
o f fodd fetsiltroSh
Sh
fddtilt
i
t
ih
K Un iseitinutr
oppol ia rweew nreht off ooofe nilepi phtiw
with Virgin, with pipeline of other new rail opportunities in UK
w, nirgiVh tiw
Development of megabus.com product and footprint
tnirpto
Planned extensions or direct awards of South West and
dnat se
CttEtiCt I
fl i
ih
t
smteil anotipecxed nas esnepx et essa
* excluding intangible asset expenses and exceptional items
e lbignatn ignidulcx e*
† see definitions in note 35 to the consolidated financial statements
nnis notiinifede e s†
te
stn
t oote
nemteatsl acinani fdteadilosnoce hto
t35
v
v repuoGr
e
v repuoGr
Group revenue
ev
(b
(by division)
)noisiiv dyy d
%
.641
14.6%
pgnit
Operating profit
taaterpO
t
i
O
t
n
(by division)
)
(b
isiiv dyy d
o
.73
%%
%
.73
%%%
3.7%
0.01
%
10.0%
UK Bus regions
snoiges ruK BU
UK Bus London
nodnos LuK BU
UK Rail
liaK RU
North America
acerim AhtorN
%.543
3
34.5%
UK Bus regions
n
s
noiges ruK BU
UK Bus London
no
odnos LuK BU
UK Rail
liaK RU
ac
North America
cerim AhtorN
Other
rehtO
.41
4%
14.4%
0.01
%
10.0%
%
.624
42.6%
%
8
.3
8.3%
%.916
61.9%
erahr se
Adjusted earnings per share
inrad eetsujddjA
d 3ednr eaeYYe(
(Year ended 30 April)
)lirp0 A
ngs p
erah syy sranidr oer
Dividend per ordinary share
pdendivDi
er
)lirp
(Year ended 30 April)
d 3ednr eaeY(
p0 A
12
12
13
13
14
14
21.8p
21.8
21 8
p
24.6p
24.6p
2
26.0p
26.0p
26 0p
rs ae
e
detatsee r
Note: 2012 and 2013 figures are restated.
.
rugi3 f10d 2n2 a102: etoN
nrute rrde
Total shareholder return
rah slatoTTo
ehol
de
e tcnamrofree p
o 3
)4)10l 2irp0 A
(Five year comparative performance to 30 April 2014)
e pvitarapmor caee yviF(
-3737
-37.6%
.6%
6%
232.7%
232.7%
7.
8p7
7.8p
8.6p
8.6p
9.5p
9.5p
5
12
12
13
13
14
14
seotN
Notes
:uenev repuorG.1
1. Group revenue:
e 2toe Ne. Sserutnet vniog jnidulcx, e410l 2irp0 A
e iuneveR
nr eaee yhr tos f
Revenue is for the year ended 30 April 2014, excluding joint ventures. See Note 2
.sten
cnani fdeatdilosno ceh tot
to the consolidated financial statements.
d 3ed
ematt slaic
ifro pgnitarepO.2
t:
2. Operating profit:
n owodk
d 3ednr eaee yhr tot fiforg pnitarepl oatof t
l 2irp0 A
aere bhs twoht srahe chT
,410l 2
The chart shows the breakdown of total operating profit for the year ended 30 April 2014,
ptecx ed ansesenpx eetss aelbigantn i,stso cgnirutcurtse r,sd
ovpuor ggndiuclxe
daeher
iopt
t ilna
.
excluding group overheads, restructuring costs, intangible asset expenses and exceptional items.
.stnemetatl saicnanid fetad
dilosnoe cho t
toe NeS
e 2 t
See Note 2 to the consolidated financial statements.
ems
:erahr s
r ses pgninrad eetsujddjA. 3
3. Adjusted earnings per share:
.stnemetatl saicnanid fetad
toe NeS
e 9 t
dilosnoe cho t
See Note 9 to the consolidated financial statements.
109.4%
09 4
11
109 4%
09 4
11
109.4%
149.0%
14
149.0%
136.3%
136.3%
13
139.3%
13
139.3%
Gh
oupr GhcaocegatS
Stagecoach Group
tS
First Group
pour GtsriF
Go-Ahead Group
oupr Gdeah-AoG
uo Gr
p
National Express Group
Gr
rpx ElanoitNa
ess
FTSE 350 Travel and Leisure
erusied Ln
nl aevar0 T5E 3STF
FTSE 250
0 25ESTF
:erahy s
r oed pnediviD. 4
y sranidr
4. Dividend per ordinary share:
toe NeS
dilosnoe cho t
.stnemetatl saicnanid fetad
d
id f
i
dil
e NS
h
See Note 8 to the consolidated financial statements.
e 8 t
e 8 t
l s
rered
.5
ah slatoTTo
:nr
rut
rehol
5. Total shareholder return:
e ocnamrofree p
)”RST“n (
e phs terapmoh cpare ghT
The graph compares the performance of the Stagecoach Group Total Shareholder Return (“TSR”)
s traee yvie fhr tev) os) dnedivid detsevnies rul
derapmo4 c1
t pnemevoe mulae vrahs(
(share value movement plus reinvested dividends) over the five years to 30 April 2014 compared
erusied Lnl a
s Gserpxl Eanoita, Npuord GaehA-o
tiw
f F
, GpuorGtsri
with that of FirstGroup, Go-Ahead Group, National Express Group, FTSE 350 Travel and Leisure
.xedn0 I5E 2STe F
rahS-llA
e Fhd tn, axedne I
All-Share Index, and the FTSE 250 Index.
r Redloherahl Satop Tuorh Gcaocegate Shf t
10l 2irp0 A
l aevar0 T5E 3ST, Fpuor
t oahh t
ruter R
o 3
108244_STC_Front PRINT_108244_STC_Front V12 03/07/2014 14:36 Page 2
Contents
Interview with the Chief Executive
Chairman’s statement
Strategic report
1
3
4
28 Board of Directors
30 Directors’ report
33
38 Audit Committee report
42 Nomination Committee report
43 Health, Safety and Environmental
Corporate governance report
STAGECOACH GROUP PLC COMPANY No. SC100764
YEAR ENDED 30 APRIL 2014
44 Directors’ remuneration report
58 Responsibility statement
59 Group independent auditors’ report
62 Consolidated financial statements
67 Notes to the consolidated financial statements
118 Company independent auditors’ report
120 Company financial statements
121 Notes to the Company financial statements
126 Shareholder information
Committee report
Financial summary
Year ended 30 April
Revenue (£m)
Total operating profit (£m)
Non-operating exceptional items (£m)
Net finance charges (£m)
Profit before taxation (£m)
Earnings per share (pence)
Proposed final dividend per share (pence)
Full year dividend per share (pence)
+ see definitions in note 35 to the consolidated financial statements
Results excluding intangible asset expenses
and exceptional items+
Reported results
2014
2013 (restated)
2014
2013 (restated)
2,930.0
2,804.8
2,930.0
2,804.8
223.3
–
(42.6)
180.7
26.0p
6.6p
9.5p
220.7
–
(43.3)
177.4
24.6p
6.0p
8.6p
200.9
(0.3)
(42.6)
158.0
23.1p
6.6p
9.5p
199.8
(2.2)
(43.3)
154.3
22.0p
6.0p
8.6p
Stagecoach Group plc | page 2
108244_STC_Front PRINT_108244_STC_Front V12 03/07/2014 14:36 Page 1
Q&A
Martin Griffiths
ree s
f E
?evitucexe
How would you sum up your first year as Chief Executive?
uu s
u sod y o
m up y
r aaet ysrir fuo
f Eeihs C
luow woow wH
t oot a l
emif t
: bsdroe werhy tlbaborP
t a l
nepve s
Probably three words: busy, rewarding and exciting. I have spent a lot of time
. I hgniticxd eng anidrawe, ryy, r
su
aave s
sesur bup o
, mseinapmoal c
p oeeo k ehs wmaee tniltnorr fug onitee
cor lut oa
, m
at our local companies, meeting our frontline teams who keep our buses
tropsnar. T
. Tyaay
hr tog f foninnus rniard tna
e ma
h
s wremotsuy cn
ve e
y drve
and trains running for the many customers we serve every day. Transport
yliae dhd t
d tnat hsrit f
e aeu son yeh. Wtnemnorivnh e
h eguoe a t
rs anoitarepo
operations are a tough environment. When you see at first hand the daily
b w
e d
sveid gno a
b woe jhf t
al wee d
t ma
s mek
d ouore p
e dlpoer pus oegnelalhc
challenges our people deal with, it makes me proud of the job we do and gives
ue fhn t
oiney sn
snaicitilor p
g ma
’. Ierut
niteen meeo bs
e ice nedifnoe c om
me confidence in the future. I’ve also been meeting many senior politicians
deunitnor c oo
hs tsorcs a
veitucexd ena
oe f fosae che tk
r totcel siad rns aue bh
o ma
and executives across the bus and rail sector to make the case for continued
ymonocoe eho t
rtnee crh acih, wskrowtet nropsnarc t
al t
o t
r pun ot inemtsveni
o t
rtnee crh acih, wskrowtet nropsnarc t
al t
ymonocoe eho t
r pun ot inemtsveni
investment in our public transport networks, which are central to the economy
s isenisur bus osorce ameht tnetsisnoe c oh. T
et wat hs t
. Tseitinummor c oud ona
s i
and our communities. The consistent theme across our business is that we
vend inus fple, hsbos jtroppuh stwort gah. T
tnemtsve
. Thtworg gnriveilee dra
are delivering growth. That growth supports jobs, helps fund investment
, psregnessa
edivor
ar pos f fotnemveorpmn i
s a p
dnt anem
i
in improvements for passengers, provides a premium to government and
.ssenisur bun oipredno uhs wrotsven
s werusne
e ihd trawee r
ensures we reward the investors who underpin our business.
rnveoo gm tuimer
, ihti
ve al
c tilub
c tilub
. W We n
s odoried pednetxt esoe mhf t
The weather seemed to make it a tough year for
e ike ao md teme
ror f fo
t a t
r faeh yguo
eer sehtaee whT
transport in the UK and North America. How did
diw d
e U
w do. Haciremh Atrod NnK a
t iropsnart
e Uhn t
the Group’s bus and rail operations cope?
s aus b’upore Ght
l opiad rns a
?eops cnoitare
r baet ysas pihT
hguor
rehtatee wmertxf e
e ont oh
f e
This past year brought one of the most extended periods of extreme weather
at w. Irebmemen raI c
skrowtel nia
ad rnd aaoe rhd tetcfefd ans aseltneles ra
I can remember. It was relentless and affected the road and rail networks
etaatmile cro
or mod f foerapere p
i
e Uhn t
h Atrod NnK a
acriemh A
o b
d teee n
in the UK and North America. We need to be prepared for more climate
alicnanis ftt iee
eo me tlbl alits sap wuore Ght tcae fh. Te
erutue fhn t
y itilitalov
volatility in the future. The fact the Group was still able to meet its financial
. Fs
t, iyltsri
r iaee y
sgniho tws twoht sahf t
e yhr tos f fonoitatcepxe
expectations for the year in the face of that shows two things. Firstly, it
e t
tsu. Jtpado a
e tlbe art aaat ahs tessenisuf b
e tlbe art aaat ahs tessenisuf b
ve a r
v
s wetaatrtsnomed
av
tsu. Jtpado a
e t
ve a r
s wetaatrtsnomed
demonstrates we have a robust set of businesses that are able to adapt. Just
av
v
, iyltnatropms ia
els c
n o
.elpoer puf o
oitubritnoc c oitsatnae f fhf t
e ocnedivr eae
as importantly, it is clear evidence of the fantastic contribution of our people.
nof c o
peeo k e
e ores wmaee tniltnorF
s tnoitidn
t oluciffit dsoe mhn t
g inikrot wue o
Frontline teams were out working in the most difficult of conditions to keep
skrowted negmaar diaped r
t p’na
e osiar
d rng anivos meceivres
elpoer pue o
services moving and repair damaged networks. I can’t praise our people
y ur
reo wos tremotsur cud one asno
pser riehr toh fguone
gnidnatsredny u
enough for their response and our customers too were very understanding
.niopturs die thtuohgu
theviaticerpp adan
or
and appreciative throughout the disruption.
e ocae fhn t
t oet ssubo
t oet ssubo
e h
e h
t i
e ve
. I c
t i
, irr, i
s a s
s a c
o b
g up t
s traep
g inidnufredn. Utnoi
,gnivoovrp
The general economic picture appears to be improving,
e aprutcic pimo
pme i
onocl earenee ghT
but public sector investment in transport still seems to be
s tmee
eo b
t inemtsevnr i
el slitt sropsnarn t
r iotcec silbut pub
an issue. How is Stagecoach facing up to that challenge?
ha
?egnellha
caocegat
nicah f fa
o t
. Heussn ia
ts Sw ioow i
t chaat c
ub
nd aehcterte srs ategdur botcec silub
n poitse
rehT
s ne i
o qu
d I e
There is no question public sector budgets are stretched and I expect that
taht tcepx
d I e
hguoe tcas ft
r soe f fosae chn t
tnemrnveot gaht tpeccc
tnemrnveot gaht tpeccc
. Wemie tmor s
e a
imael rliw
r soe f fosae chn t
. Wemie tmor s
e a
imael rliw
will remain the case for some time. We accept that governments face tough
hguoe tcas ft
s al
tnatropmo is
s onoisiced
y sehw ton h
s al
veewo. Hyeno’ msreyapxad tnepy s
decisions on how they spend taxpayers’ money. However, it is also important
y oc
eerf f
iloe plbaduae lh. Tstnemtimmoy c ocilod p
lrepory peht taht
d pnuy f
that they properly fund policy commitments. The laudable policy of free
s inezitir coiner sol f foveart
tal
xah t
alet
s i
e isa
n p
travel for senior citizens is a case in point. Underfunding is a stealth tax
ce ehs teni
rmednt uaht
wohs serguit f
t fseta. Lsresl u
r alos feceivref s
s ocimonoc
that undermines the economics of services for all users. Latest figures show
f t% o5n 8ahe trot maht
dedivor
s mue bhf t
iatrin Bd ietarepe ogaeli
rs pn i
that more than 85% of the bus mileage operated in Britain is provided
seceiv
e ssohd tny alalicremmoc
vres su, btsartnon c o
. Ielbate srs aeceivree s
commercially and those services are stable. In contrast, bus services
y p
ytriori
d betcartnoc
htual acoy l
as heitrioh
ve b
y p
contracted by local authorities have been shrinking rapidly. My priority
.secivret sro
psnaral t
icremmor c oud onuors asenisue b
e blbaniatsu
s ti
liuo b
d a s
is to build a sustainable business around our commercial transport services.
alicnanid fn
nt anemtsvend ieunitno, cseraw foh lguo
orht tat he tno
ve d
ae hW
We have done that through low fares, continued investment and financial
voer
emul
g
g
ip
,
g
ergenssa pd anniotcafsiat
ipcsdi
sermotsu cgni
si ro tgndiae l,enil
discipline, leading to rising customer satisfaction and passenger volume
,stsol cve
s oegnelalhe cre a
h acus seussg i
vears t
e arehw tone k
. Whtworg
growth. We know there are challenges on big issues such as travel costs,
lia
t inemtsvend iny aticap
ad rnd aaor run o
al cia, rnoitsegnod caor
road congestion, rail capacity and investment in our road and rail
sroaterp
p otropsanr tdn atenmnerov
tare cl
Ghat
closl am’ I.erutcurtsarfni
infrastructure. I’m also clear that Government and transport operators
gnikroy w
bisnopsed rerah
y ttilib
ve borpmo i
h
av
ve a s
have a shared responsibility to improve bus and rail services. By working
ecnerfef
e ph, trehtegot
ar cotcee stavrid p
together, the public and private sector can make the biggest difference
.tro
sietinmum
that
mo cd anelpoe peh trof
for the people and communities that depend on public transport.
y w. Bsecivrel siad rns au
n ma
fit dseggie bhe tke
opsanr tic
. Myldipag rniknrihn see
lbu pn odenpe d
d pnc ailub
in b
p
li
, b
n a p
n ha
e olcys cuoutri
t iu, bsyawlias r
t i
up b
lwa
Buses remain the core of the Group business and don’t
t’nod dns a
hn tiames resuB
e oroe ch
ore Ghf t
s asenisu
often have the same profile as railways. What’s the
ehs t’tha
etfto
ha
e alifore pmae s
ias r
. Wsy
e she tv
outlook for buses?
?ses
sesu bro f ok ooluto
yehs ttcepsee rm
s mesuB
at hot nhgi
ve t
e alifore pmae shve t
mon s
Buses might not have the same profile as railways, but in some respects they
ve t
hs tt
hve t
lif
B
t nhi
t h
s ik
e Uhn t
sK i
rawroy fae whw tohs
krowtes nur bum oore fce neriepxr eu. Od
show the way forward. Our experience from our bus networks in the UK is
tnemtsvend ieunitnof c o
remotsug cnis, ri
veilen dau cot yaht
r a v
r a v
that you can deliver a virtuous cycle of continued investment, rising customer
essad pnn aoitctafsitas
t oliuh btwore gmulor vegne
y ocilo
y o
.serar fewof l
satisfaction and passenger volume growth built on a policy of lower fares.
s achaocoegat Sd
thdethgile dsa wI
n iat
demrifno cytlence rcharese rtendenpedn
I was delighted that independent research recently confirmed Stagecoach as
ve t
ylnt oo. Nemi
e maj
t vses b’niatriB
ual
isseccud srihe thr tor fotareps our bo
e maj
ve t
Britain’s best value major bus operator for the third successive time. Not only
un b
s ma
tekr
eef we ocri
e ph, ttaht
n bodnod Letalguee r
l iveaavery tlk
roe mhn t
that, the price of weekly travel in the more regulated London bus market
K Ulaniog
ge rs’chaocoegat Sn iegaerv ae than
gi
h%0 5
ero msi
than
therhg
is more than 50% higher than the average in Stagecoach’s regional UK
n o
nf a
y maj
ro
n ooitcafsitar segnessat psee bhve t
ao hse al
e al
. Wsnoitatreps oub
bus operations. We also have the best passenger satisfaction of any major
er nos f foredr
dns aesuw be
h hcaocoegat. Srotarepo
d oecals pah h
f om o055r £ve
operator. Stagecoach has placed over £550m of orders for new buses and
vee
eh. Tsraen y
noiges rtr ios f foehcaoc
s inoitatreps oual bn
e Uhn t
K i
et ssae lhn t
vee
s inoitatreps oual bn
e Uhn t
K i
et ssae lhn t
noiges rtr ios f foehcaoc
eh. Tsraen y
coaches for its regional bus operations in the UK in the last seven years. The
sun bodnos Ltr i
ap huorG
s al
eredro os
ef nm o001n £ahe trod me
os f foelcihw ve
Group has also ordered more than £100m of new vehicles for its London bus
l o
es wt iahf t
iyue bce nis snoitarepo
s isenisue bhg tn
n 20
f al
operations since buying the business in 2010. The result of all of that is we
tero mr
han
en t
enssa pdeviech aevha
o f foare yyerv eylare nhtwor gemul
have achieved passenger volume growth nearly every year for more than ten
sergenssa pro
T.sarey
rtsnoem dhat
ledo m aeva he wt
o f foskro wt
years. That demonstrates that we have a model that works for passengers
e i
.erutue fhn t
. I b
. I bKe Uhs tsorct ahgri
moo c
h t
right across the UK. I believe there’s lots more growth to come in the future.
tha
twore gros mtos l
voergen
setatr
eile
tha
’erehve t
t olusee rh. T01
Stagecoach Group plc | page 1
108244_STC_Front PRINT_108244_STC_Front V12 03/07/2014 14:36 Page 2
p j
gs a
d a r
d a c
r v
t venoip juor
nies bt iha
nt anemrnveoe Gho t
w oeir vuos y
s tsergore phn tw o
t ihaW
edag mn
What is your view on the progress that is being made
?inag aginvo mginsihcna
ar flia rgintte gin
in getting rail franchising moving again?
g a
m p
g
ng anivoe mrgs anihT
sae hrutnt ve
Things are moving and I am pleased our Virgin Rail Group joint venture has
d I a
d I a
r Vud oesaelm p
l Gian Rigri
ehcaer
al aicremmo
t onemeergal a
e Whn t
hcnarl fiat rsaot Cse
t wahe tsi
lli
reached a commercial agreement on the West Coast rail franchise that will
y tenor moe fual
veiled
y t
pmf i
e ogna
os ttnemveor
deliver value for money to the Government and a range of improvements to
mocoe reh tn ohguor
nerov
Geh T.sergenssap
thgniwollo fs itenmn
snioatdenmm
passengers. The Government is following through on the recommendations
o tw teiven rwore Bhf to
e wrehs waere alkcao t
e fhve torpmn iae c
gnisihcnare f
of the Brown review to tackle areas where we can improve the franchising
raes yihr teilra. Emetsys
iahd cetnoipps aa
rma
el Diae Rhf t
puory Grveile
system. Earlier this year, I was appointed chairman of the Rail Delivery Group
s okaeph scih, w)”GDR“(
on. I kyrtsudnl iiae rhf t
l ow al
s o
l o
dluos wf u
(“RDG”), which speaks on behalf of the rail industry. I know all of us would
s wrotsvens iedulcnt iah. Tylkci
rog m
g mnivoe mo b
s tgnihe tkil
esohs w
like things to be moving more quickly. That includes investors whose
y iawlias r’niatrig Bnidn
nuf-tran p
t inemvelovni
nriotse. Ralcitri
ehg t
involvement in part-funding Britain’s railway is critical. Restoring the
mmoe cergo a
s tpetg snikad tns aesihcnar
rf f
ititepmoc
alicrem
competitive award of franchises and taking steps to agree commercial
h. Ttifeney bllus freyaaypxad tns aregnessa
ae prusnl eli
s wtcartnoc
re
e i
s a h
egu
contracts will ensure passengers and taxpayers fully benefit. There is a huge
38b£
f i
e Uh
liaK r
hr tod f foennal
rutcurtsarfn
t pnemtsvene i
£38bn programme of infrastructure investment planned for the UK rail
sretummor c oo
k orowten
ve
t fxee nhr t
os ftaatea srtxe edulcnl ili
it f
ve y
network over the next five years. This will include extra seats for commuters
n ooitac
ehf t
vrew se, nsemik taet pa
ns aeciv
cifritcele ero, msyernuor jekci
at peak times, new services and quicker journeys, more electrification of the
sdedrnuf h
f e
s oteelw fe, nkrowten
f h
f e
ritcel
n ooit
network, new fleets of electric trains, and the transformation of hundreds
s’yrtnuor cu
e chd tnuors anoitatf so
ud oermoffosnars tag hnisihcnar. Fyrtnuo c o
of stations around the country. Franchising has transformed our country’s
.ooe trutue f
reh. Ts
o qu
e fhr tot fhgs ri
099e 1he tcnis syawliar
railways since the 1990s. There is no question it is right for the future too.
d qu
ofsnare thd tn, asniarc t
, I w
f oalhen b
e qu
e ommargorn p
s wih. Tsrae
d orawve a
t in ioitse
s ne i
rma
n o
s c
x oi
luohe s
h fctiwo s
y shap
c tilbug pni
golonhcee t
y i
y i
ecore phe tk
, p
lralucitra, pecae plbidercnn i
n ma
ae c
e tlpoer pot f fo
e teu soo yw doH
tropsnarc t
How do you see technology shaping public transport
?sraew y
w yet f exee nhn ti
in the next few years?
g a
e p
y ig
g a
g anivos my igolonhceTTe
wof h
Technology is moving at an incredible pace, particularly in terms of how
g a
t a
rm
rmen t
s o
s ose
rog f foniyaf p
r weisae eh. Tlvearr t
r tiehy tus bremotsuc
customers buy their travel. The easier we can make the process of paying for
artte a at
rae chm torh f
lie w
ve witca
l ma
e ik
roe mh, tlveart
travel, the more attractive we will make it for people to switch from the car
rutue fhr to f fo
se i
os fniard tns aesuo bt
t fnemliflud fng anitekeci
. Tsyernuoy jer k eo
to buses and trains for key journeys. Ticketing and fulfilment for the future is
emot saht tegro
h a mguorhe t
g tnoig
o b
h a m
ot f fooo nsd al
. Wslennahf c
going to be through a mix of channels. We should also not forget that some
ecoihg cnidivor
l plits sremotsuc
r pfeer
t puobe a
l blie wrutue fh. Tstekecir tepar p
customers still prefer paper tickets. The future will be about providing choice
s aaere a
tras p
. Wsremotsur cof
e wre a
l o
g onikroe w
sorcs aemehcn s
s al
e asohf t
for customers. We are working on schemes across all of those areas as part
n – wodnon L
e
r duf oo
. Itceojral ptigi
n L
s a mt i
iht tahh t
g inineppay hlns os i
. I
of our digital project. It is a myth that this is only happening in London – we
, wg
re a
ose al
caln p
gnitekecis t
ah
s i
l ales w. Ayrtnuoe c ohs tsorce ac
have initiatives in place across the country. As well as ticketing, we are also
itmaotu
elcihc ve
ue adiwnoita
t inemtsvend inuop-no
g a mnikma
oillim-itlu
making a multi-million-pound investment in a nationwide automatic vehicle
t ieels fual bnoiger ru
ol
etsyn soitaatcol
r oom f
emial tew ro
t w. IKe Uhn t
li
l al
location system for our regional bus fleet in the UK. It will allow real time
sppe ano
d tedivore p
hptrma
ofne ice
n toit
o b
o b
ivres
service information to be provided to customers via smartphone apps
regnessa
veiles deitriohtual acop l
led h
e pmial ter r
d hn, aternetne Ihd tna
and the Internet, and help local authorities deliver real time passenger
sah hcih, w
e al
g tniunitnoo cse al
ofni
. Wnoit
information. We are also continuing to invest in social media, which has
ilibr aud oermoffosnart
pled hns a
transformed our ability to engage directly with our customers and help
eht
.emial ten rm i
them in real time.
t isveno i
remotsur cuh otiy wltcerie dggano e
a sis vremotsuo c
veitaitinve i
al micon s
, waide
n a n
rma
rma
re a
y tt
ty
u ha
You have recently signed an extension to the South
oYYo
tnecee rv
ly s
htuoe S
ly s
d aengi
n toisnetxn e
e Sho t
West Trains-Network Rail Alliance. How important
wteNs-niart T Tr
seW
tnatro
k Ra
row
l Ai
opmw io. Hecnaill
is the partnership to the Group moving forward?
p t
p tishrentr
up more Gho t
?drwa
hs ti
e pa
warog f onivo
bt aos nt iah. Tyaaywliad retaatrgetnn i
oht wuob
eilee bW
altnemadnuve f
We believe fundamentally in an integrated railway. That is not about who
lal
y i
n a
lbisnopseg rniem baet tnemegan
nt o
e ma
htor boe f
t ouobs at i
. Itaaths wnwo
owns what. It is about one management team being responsible for both
erutcturtsarfn
ernaeve l
l iiae rht tuobt anuome agu
d a h
v aave l
kcard tns aniart
. W e
e h
trains and track. We have learned a huge amount about the rail infrastructure
ru, oemie tmae s
r t
. Aecnaille Ahf t
s oraeo ywt tsrie fhr t
e sht t
s oegnelalhs ctd ina
ve
and its challenges over the first two years of the Alliance. At the same time, our
xe eho t
k Rrowtet Ns a at N
fs onoitaattcepx
l hiak R
ve haave h
a
d a g
eguaelloc
colleagues at Network Rail have had a greater insight into the expectations of
ey blnn oat cat h
h. Tsecivred snus fpley henoe msohe wlp
poee ph, tsremotsur cuo
our customers, the people whose money helps fund services. That can only be
e orutue fhr tove f fo
ve oeilee b
k hrod wrar hu
veis ga
n u
ns a
yawliae rhf t
. W We b
itisop
positive for the future of the railway. We believe our hard work has given us an
.ygetaatrtg sn
h wcih, wthgisne i
lbaualvni
h w
e agarveen lae c
t oras p
isihcnarr fuf o
invaluable insight, which we can leverage as part of our franchising strategy.
liak Rrowteh N
n ooisnetxe ehT
le Ahf t
lie wce nail
l al
h Nti
The extension of the Alliance will allow us to work together with Network Rail
tnemtsvenl iia
tifenee bhe tsimix
t
o ma
nrius dregnessar pos ft
af r
to maximise the benefits for passengers during a key period of rail investment
veo
it fxee nhr t
it f
.srae
hr t
over the next five years.
r wehtegok troo ws tw uol
g a k e
d ooriey pe
tnt ihgisnr ietater
ve y
e a r
e Uhn t
laruge re W e
el sli
d a G
The next year will see a referendum on Scottish
r w
ttocn Sm oudnereffee
shit
r waet yxee nhT
independence and a General Election in the UK. What is
. WKe U
st iha
e acnednepedni
ne a
l Earene
n ioitcel
e Uhn t
your view on what that could mean for the Group?
?upore G
n w
n ww oeir vuoy
t tha
e Ghr ton f oaed mluot cha
Voters decide who they want to elect and what things they want to see
t tnay we
ho the wdices dretoV
t tnay w
eeo s
y wehgs tniht taat thd wnt acelo e
atserkam-
wlae dy
niosice derht od ansaniictilo pthi
yl
.enppha
happen. We regularly deal with politicians and other decision-makers at
,sraee yh
l ive
. Oacriemh Atrod NnK a
hr t
cod lnal anoitan
veeal l
national and local level in the UK and North America. Over the years,
fs oeitrioh
ecccud sekro
tual acod lns atnemrnveoh gtiy wllufsse
e hw
ve waave w
we have worked successfully with governments and local authorities of
.alrtuey nlalcitilo
citilot pnerfefiy dnma
. Asruoloal c
c
s a b
, wssenisu
y ptrae pre a
many different political colours. As a business, we are party politically neutral.
sredloherahr sue o
otinoe m, wylalrutaN
ny alesols ctnempolveer d
e orue sk
d ma
Naturally, we monitor developments closely and make sure our shareholders
n. Ossenisur bur o
r oot f fonavelee r
e orawe ara
etoe phf t
rh acihs wegnahr coal f foitne
are aware of the potential for changes which are relevant for our business. On
desae brs anoisic
ey dcilog pnriusnn e
y aale p
itcn a
e i
e p
ropsnart
t ma
s wrett
transport matters we play an active role in ensuring policy decisions are based
n t
n iekead tns atcan fo
erutue fhd tns ar
et-gnoe lhn t
emotsur cuf o
on facts and taken in the long-term interests of our customers and the future
lbn aees byayws al
r Guf o
y otilibaniatsus
e t
ot tpado a
r G
sustainability of our Group. Our business has always been able to adapt to
cantmsucri ctenerffdi
.gnigan
ee st’no d I.sec
that
different circumstances. I don’t see that changing.
as hsenisur bu. Opuor
ch
love r
rm i
s otseretn
ve
o b
rnet
t tos a l
?daehr aae
What is your message to investors for the year ahead?
e tgasse
ee yhr tos f orotsevno i
t ihaW
r muos y
e irehT
o b
oe p
r po
cilub
There is a lot to be positive about. The long-term prospects for public
ve a
itiso
et-gnoe lh. Ttuob
rm p
os f fotcepsor
e Uhn t
nK a
t iropsnart
. Sdooe gra acriemh Atrod Nn
niheg bnitti
leehe whd tn
transport in the UK and North America are good. Sitting behind the wheel
llveard tnr aar cuon yi
k iroo wg tni
l ylel tliy wtid cnn awoy tnn a
daot rahu tol y
in your car and travelling to work in any town and city will tell you that road
g wnittes gn ioitsegnoc
g anikooe l
d tees ntnemrnveo. Gesrog w
g a t
t p
cilub
congestion is getting worse. Governments need to be looking at public
ns anoitulot sropsnart
ygetartl sufssece
t alnas wremusnod cn
transport solutions and consumers want alternatives. Our successful strategy
alnoitaatrep
s olveeh lgid hnt anemtsven, ilveaavere t
f oo
fef
e tuald voog gnri
of offering good value travel, investment and high levels of operational
aldom mort f
ae hce
s al
n ueey sdaer
tsud cne ace n
ivrer semot
rmaofforep
performance and customer service has already seen us benefit from modal
. A
,emie tmae sht t
l bli
. Adaehg anivoe msae che t
edifnom c o
t waat wht tne
nt afihs
shift and I am confident that will be the case moving ahead. At the same time,
s fegnelalhe cce ao f
t mah. Tt
snae
g pniknrihm sors f
tnemtsvenr iotcec silub
t mah. Tt
g pniknrihm sors f
tnemtsvenr iotcec silub
e dw
s fegnelalhe cce ao f
snae
e dw
we do face challenges from shrinking public sector investment. That means
sah hcaocoegatt S
n b
t Su. Blortnot c osod c ooon g
t uet lonnae cw
d oesucog f fonien b
we cannot let up on being focused on good cost control. But Stagecoach has
wthgenrt s
lli
enisu bst itliu bsyaaywla
s
slaicermmo c odd cnuo arsse
anseicver
d
that
always built its business around commercial services and that strength will
k ucie p
np o
e ab
. Iegatnavdn a
s nt i
s n
e pce ae phe teo s
luoe w
id l
e tke
be an advantage. It is no secret we would like to see the pace pick up on
dns aregness
s otifenee bhr t
sao p
veilen d
g tnisihcnarf f
n dae c
o ws syaaywliaK rU
UK railways so we can deliver the benefits of franchising to passengers and
dnp aihsrent
e
. Osreyaaypxat
, I blalrve
tra, pnoitavonnf i
ve oeile
d orocek rcarr tu
taxpayers. Overall, I believe our track record of innovation, partnership and
veititepmo
ve uid gns areyaaypxad tns aregnessa
s a c
o
at pifenen bah ctworg
growth can benefit passengers and taxpayers and give us a competitive
.serd
en g
dlohehar
rdoo geater
ichh wegatanvda
an c
advantage which can generate good returns for our shareholders.
ccur su. Osveitaat
pf o
t fifenes b
sru orr oo f fosnruet
t werceo s
d I a
p o
d a ma
e Uhn t
r fuom f fo
h Atron Nd inpaxo e
s ietat0 s
Megabus.com is continuing to expand in North America
aciremh A
g tniunitnos c
s cm ioc.subageM
and now covers more than 30 states in the US and two
owd tnS a
e tros m
ha
n 3
S a
s mrevow cod nna
provinces in Canada. Is there room for further expansion?
?noisnpaxr e
. Iadna
ooe rrehs t
r eehtr
s iecnivoovrp
naan C
a i
,600n 2
uae l
a icriemh Atron Nm ioco.subgaed Mehcnu
Absolutely. Since we launched Megabus.com in North America in 2006,
. SyletulosbA
e wce ni
ekr
etaaters cat h. Ilvears tuy btic-retn
sat waht te
nd iermoffosnar
ae hw
ve t
we have transformed inter-city bus travel. It has created a market that was
noitaatvonnt iah
. Tyrtsudne ihn t
s oedaceg dnis
e inilcef d
srvee, reroffoee breht ton
not there before, reversing decades of decline in the industry. That innovation
et
d a v
y ortne ehd tekeraps sah
tnarbi
r oebmu
f a n
f p
taers cah hcih, wsredivor
has sparked the entry of a number of providers, which has created a vibrant
. Osuy b
ubw her nu
g bnillveaaverf t
t iahr totces
g pnignahs c
s onoinips o’elpoeg p
sector that is changing people’s opinions of travelling by bus. Our new hub
dns aetatd S
, Fodnalrn Oi
a idriol
hs t
rtneal cnoitatreph ot4e 1
e i
d Setine Uhn t
h ot4e 1
e i
d S
al c
l
hs t
a idri
ttd S
d
it
e Uhn t
ti
n Oi
, Fdl
t
in Orlando, Florida is the 14th operational centre in the United States and
ylegus ht ia
. FadanaC
a idriol
s a s
ngi
noitiddt anacifin
al ma
t iekr
ahn toigen a r
Canada. Florida is a significant additional market in a region that is hugely
ns inoitan
u. Cmsriuor tor falupop
l tvearw ton nas cremots
itser dalupoo p
popular for tourism. Customers can now travel to popular destinations in
, wsvele
tuohti
uome amae shd tnuora
esmehve t
o dri
t onu
luot we imif t
e tke ad t
around the same amount of time it would take to drive themselves, without
,rfefd or
s oserte sht
iheg bnief b
h. Tleehe whd tn
e qu
aon b
the stress of being behind the wheel. The quality of the on board offer,
ehd tns ag
i, mf-ie were fhs t
h acus
l ales wt aahs tnae
gnivae sgug hnri
i, m
such as the free wi-fi, means that as well as offering huge savings and the
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page 2 | Stagecoach Group plc
108244_STC_Front PRINT_108244_STC_Front V12 03/07/2014 14:36 Page 3
1. Chairman’s statement
The Group has delivered on our expectations for the financial year ended
30 April 2014. We have further grown our businesses in the UK and North
America, adapting to changing circumstances, improving services for our
customers and adding value for our shareholders.
The Group achieved further revenue and profit growth in the year.
Revenue was up 4.5% at £2,930.0m (2013: £2,804.8m). Total operating
profit (before intangible asset expenses and exceptional items) was up
1.2% at £223.3m (2013 restated: £220.7m). Earnings per share before
intangible asset expenses and exceptional items were 5.7% higher at
26.0p (2013 restated: 24.6p).
In line with the Group’s performance, the Directors have proposed a final
dividend of 6.6p per share. This gives a total dividend for the year up
10.5% at 9.5p (2013: 8.6p). The proposed final dividend is payable to
shareholders on the register at 29 August 2014 and will be paid on
1 October 2014.
Our businesses have a focus on delivering our services commercially and
growing organically. They have been able to manage the implications of
reduced public sector investment in transport services and absorb the
impact of extended severe winter weather.
We believe passionately in the benefits of the public and private sector
working in partnership to improve bus and rail services. As public sector
budgets continue to be squeezed, innovative, efficient and customer-
focused commercial operators are key to securing the future of our public
transport networks.
Stagecoach has built a sustainable business through low fares, continued
investment, financial discipline, rising customer satisfaction and passenger
growth. We believe the lessons from this approach can help governments
and local authorities develop appropriate policies to tackle the inter-
connected issues around travel costs, road congestion, rail capacity and
investment in our road and rail infrastructure. We are finalising a new five-
year sustainability strategy to further improve our environmental
performance and reduce costs.
Across the Group, each of our divisions has delivered further revenue
growth and we continue to invest in better bus and rail services for our
customers. We are committed to maintaining the Group’s strong financial
position and our success is providing good returns to shareholders.
In the UK, our regional bus services have performed well, with both
passenger volumes and revenue growing year-on-year. We have placed
orders for over £90m of new greener buses for our regional bus services
in England, Scotland and Wales for 2014/15, which is a sign of our
confidence in our ability to continue to get people back on board the bus.
In London, where we are also investing in our bus fleet, we are seeing the
benefit of our focus on efficiencies and cost control flow through into new
contract wins and improved profitability.
Our growing megabus.com business is continuing to expand in the UK,
mainland Europe and North America. We are also continuing to innovate
and our new inter-city sleepercoach services in the UK are achieving good
load factors.
In North America, trading has been satisfactory, despite the prolonged
period of adverse winter weather across the United States. Megabus.com
in North America is the fastest-growing part of the Group and we have
significantly expanded our footprint. New services have been added in
Florida and North and South Carolina, while our Texas and California
networks are performing well. We believe there is a large market for high
quality, good value inter-city coach travel.
Trading in the increasingly competitive New York sightseeing market
remains challenging and we anticipate that our share of profit from Twin
America will further reduce in the year ending 30 April 2015. However, we
are pleased that we have made progress in resolving the current litigation
involving Twin America and are working to seek a full resolution of the
cases.
Our UK Rail division has performed in line with expectations in the face of
severe weather which affected the UK rail network over several months.
We are pleased that we have extended our innovative alliance with
Network Rail at South West Trains, which is planned to operate until April
2019. We are continuing to work closely with government to improve
services, deliver better value for rail users and taxpayers, and address
capacity and infrastructure challenges. We are working closely with
Network Rail to ensure our passengers benefit from the £38bn
programme of planned infrastructure investment between 2014 and
2019.
Our Virgin Rail Group joint venture has reached an agreement with the UK
Department for Transport to return its West Coast rail franchise to more
normal commercial terms following an 18-month management contract.
Under the new agreement, the West Coast rail franchise is now planned to
run until at least March 2017. We are continuing our discussions with the
Department for Transport regarding the terms for our continued
operation of our two wholly-owned franchises. The South West Trains
franchise is currently due to expire in February 2017 but the Department
for Transport plans to extend our tenure to April 2019. The East Midlands
Trains franchise is due to expire in October 2015 and it is planned we
would operate it for a further two years to October 2017.
We submitted what we considered to be a compelling yet deliverable bid
for the complex Thameslink, Southern and Great Northern franchise.
While we were disappointed not to secure the franchise, we continue to
pursue other new opportunities. We are one of three bidders shortlisted
for a new Docklands Light Railway franchise, and we expect Transport for
London to announce the winner soon. We have also recently submitted a
bid with Virgin for the new East Coast franchise and we expect the
Department for Transport to announce later in 2014 which one of the
three bidders has been awarded the franchise.
On behalf of the Board, I would like to congratulate Sir Ewan Brown, one
of our non-executive directors, on being awarded a knighthood in the
recent Queen’s Birthday honours list for his service to business, public life
and philanthropy in Scotland.
I would like to thank our employees for the huge contribution they make
to our Group, often in challenging circumstances, as shown by their
response to the extreme weather in the UK and North America during the
year. Recent independent research has shown we are leading the way in
delivering high levels of customer satisfaction in the bus sector, with high
levels of passenger endorsement also achieved in our rail and tram
operations. These results and our financial performance are driven by the
hard work of our bus and rail teams who serve the many customers who
travel with us every day.
Stagecoach has made a satisfactory start to trading in the financial year
ending 30 April 2015. The Group is in a strong financial position, with
investment grade credit ratings, and I believe the prospects for our
customers, employees and our shareholders are positive.
Sir Brian Souter
Chairman
25 June 2014
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2. Strategic report
Introduction
2.1
The Directors are pleased to present their report on the Group for the year ended 30 April 2014.
This section contains the Strategic report, which includes the information that the Group is required to produce to meet the need for a strategic report in
accordance with the Companies Act 2006. The Strategic report also provides significant information over and above the statutory minimum. Biographies of
each director are contained in section 3 of this Annual Report and the Directors’ report is set out in section 4.
Cautionary statement
2.2
The Strategic report has been prepared for the shareholders of the Company, as a body, and no other persons. Its purpose is to inform shareholders of the
Company and help them assess how the Directors have performed their duty to promote the success of the Company. This Strategic report and the Chairman’s
statement contains forward-looking statements that are subject to risk factors associated with, amongst other things, the economic and business circumstances
occurring from time to time in the countries, sectors and markets in which the Group operates. It is believed that the expectations reflected in these statements
are reasonable but they may be affected by a wide range of variables which could cause actual results to differ materially from those currently anticipated. No
assurances can be given that the forward-looking statements in this Strategic report will be realised. The forward-looking statements reflect the knowledge and
information available at the date of preparation.
2.3
The Stagecoach Group
2.3.1 Overview of the Stagecoach Group
Stagecoach Group is a leading international public transportation group, with extensive operations in the UK, continental Europe, United States and Canada. The
Group employs around 35,000 people, and operates bus, coach, train and tram services. The Group has four main divisions – UK Bus (regional operations), UK Bus
(London), North America and UK Rail.
We are committed to conducting business in a socially responsible way and we believe this to be consistent with our business objectives and strategy. Indeed, by
taking a responsible approach towards the environment and the wider community, we believe we will enhance our objective to deliver organic growth.
Stagecoach Group plc is a public limited company that is incorporated, domiciled and has its registered office in Scotland. Its ordinary shares are publicly traded
and it is not under the control of any single shareholder.
Throughout this Annual Report, Stagecoach Group plc is referred to as “the Company” and the group headed by it is referred to as “Stagecoach” and/or “the
Group”.
In the remaining parts of this section 2.3, we:
Summarise the Group’s business objectives and long-term strategy
Describe each of the Group’s business segments, their regulatory environments, their strategy, the market opportunities,
the competitive position and likely future market developments
Summarise how we aim to create value, by providing an overview of the Group’s business model
Discuss the key resources and relationships, including contractual relationships, that underpin the Group’s business and strategy
Set out the principal risks to the achievement of the Group’s objectives and strategy
Describe how we measure and monitor progress against our objectives and strategy, and how we are performing
Section
2.3.2
2.3.3
2.3.4
2.3.5
2.3.6
2.3.7
2.3.2 What we look to achieve (business objectives and long-term strategy)
Group strategy
The key elements of Stagecoach Group’s business strategy to deliver long-term shareholder value are:
• To deliver organic growth across all of the Group’s operations;
• To acquire businesses that are complementary to the Group’s existing operations, in areas where the Group’s management has proven expertise and which
offer prospective returns on capital in excess of the Group’s weighted average cost of capital;
•
In addition to organic and acquisition growth, to maintain and grow the Group’s Rail business by bidding for selected rail franchises and to seek to secure
new franchises where the risk/return trade-off is acceptable.
2.3.3 What we do (description and strategy of each business segment)
UK Bus (regional operations)
Description
The UK Bus (regional operations) Division connects communities in more than 100 towns and cities across the UK on bus
networks stretching from the Highlands of Scotland to south west England. These include major city bus operations in Liverpool,
Newcastle, Hull, Manchester, Oxford, Sheffield, Cambridge and Exeter.
The UK Bus (regional operations) Division operates a fleet of around 7,100 buses and coaches across a number of regional
operating units. Each regional operating unit is managed independently and is led by a managing director.
In addition to local bus services in towns and cities, Stagecoach operates interurban services linking major towns within its
regional operating company areas. The Group also runs the budget inter-city coach service, megabus.com, and a small
proportion of the Divison’s services are megabus.com links to and within continental Europe.
In Scotland, Stagecoach has a joint venture (Scottish Citylink Coaches Limited) with international transport group,
ComfortDelGro, to operate the Scottish Citylink express network and megabus.com branded services to, from and within
Scotland. Stagecoach owns 35% of the share capital of Scottish Citylink Coaches Limited and ComfortDelGro owns the
remaining 65%. The joint venture is the leading provider of express coach services in Scotland. Stagecoach is responsible for the
day-to-day operational management of the business, which is overseen by a joint board.
page 4 | Stagecoach Group plc
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2.3.3 What we do (description and strategy of each business segment) (continued)
UK Bus (regional operations) (continued)
Regulatory environment
Strategy
Market opportunity
Macroeconomic factors
Competition
Future market
developments
UK Bus (London)
Description
Regulatory environment
Strategy
Market opportunity
Macroeconomic factors
Competition
Future market
developments
The current structure of the bus market in Great Britain (outside London) was established by the Transport Act 1985. This is
essentially a deregulated structure: any holder of a Public Service Vehicle operator’s licence may operate bus services, having first
registered various details with the relevant traffic commissioner. The traffic commissioners are responsible for enforcing
compliance with these registered details, including standards of maintenance, reliability and punctuality.
The UK Bus (regional operations) bus and coach services are operated on a commercial basis in a largely deregulated market. The
Division also operates tendered services, including schools contracts, on behalf of local authorities. Around 11% of the UK Bus
(regional operations) revenue is receivable from local authorities in respect of such tendered and school services. Around 24% of
the UK Bus (regional operations) revenue is earned from statutory concessionary fare schemes, whereby the Group is reimbursed
by public authorities for carrying the elderly and disabled free of charge.
The strategy of the UK Bus (regional operations) is to deliver value over time driven by organic growth in revenue and passenger
volumes. This may be supplemented by acquiring businesses where appropriate opportunities arise.
The Group has around 20% of the UK Bus market excluding London. The UK Department for Transport’s National Travel Survey
(“NTS”) is a household survey of personal travel in Great Britain. The NTS found that in 2012, there was an average of 954 trips per
person per year. Trips by car or van accounted for 78% of distance travelled, bus trips accounted for 5%, rail trips accounted for 9%
and walking, cycling and other modes accounted for 8%. There therefore remains significant market opportunity to stimulate
modal shift from car to bus.
The UK Bus (regional operations) have performed well during more challenging macroeconomic conditions. Although revenue is
not immune to macroeconomic changes, it is less exposed than in many other types of business. In addition, the Group can adjust
the pricing and frequency of the majority of its services and is therefore well placed to respond to any changes in demand for
particular services. We estimate that around 70% of the costs vary with operating miles.
The UK Bus (regional operations) face competition for customers not only from other operators of coaches and buses but also
from other modes of transport. The Group regards its primary competitor as the private car and aims to encourage modal shift
from car to public transport. The other major groups that operate buses in the UK outside of London are three other groups
publically quoted on the London Stock Exchange (FirstGroup, National Express Group, and Go-Ahead Group) and Arriva, which is
owned by Deutsche Bahn.
The level of Government support in the UK Bus Industry has come under pressure in recent years with reductions in Bus
Services Operators Grant (a rebate of fuel tax) and constraints on the payments made by Government to bus operators for carrying
the elderly and disabled free of charge to the passenger. Funding of tendered services by local government has also reduced. The
Group is therefore gradually becoming less reliant on Government and a greater proportion of its revenue is coming directly from
passengers. The Division does continue to face risks related to regulatory changes and availability of public funding as noted in
section 2.3.6. There are positive long-term conditions for further growth in demand for UK Bus services created by rising road
congestion, rising car operating costs, supportive government policy and public concerns for the environment, which augur well
for the future of the Division.
In October 2010, the Group re-entered the London bus market through the acquisition of the bus business formerly owned by
East London Bus Group Limited (in administration), acquiring four companies that together operate the business. We operated a
successful and profitable bus business in London for several years and were pleased to re-enter the London bus market at an
attractive price.
The Group is the third largest operator in the London bus market, with an estimated 14% share of that market. The business
operates from 9 depots and has a fleet of around 1,200 buses serving routes in and around east and south-east London.
The UK Bus (London) business operates bus services under contract to Transport for London, receiving a fixed fee (subject to
adjustment for certain inflation indices) and taking the cost and capital risk. Bus operators tender to win contracts and each
contract is typically for a five-year period with the potential for it to be extended by two years.
We undertook a full review of the business prior to and following its acquisition in 2010 and identified a significant opportunity to
add value through a turnaround of the under-performing business and through synergies with the rest of Stagecoach. The UK Bus
(London) strategy was initially focused on addressing the structurally high cost base at the acquired business and on bidding for
contracts that will earn a realistic return. We have now achieved our aspirations for mid to upper single-digit operating margins
and our focus is now on maintaining tight control of costs while seeking to bid competitively for new contracts.
The Group operates approximately 14% of the bus operating mileage contracted by Transport for London to bus operators. The
Group does not seek to gain market share for its own sake and remains disciplined in ensuring that its bids for new contracts offer
an acceptable trade-off of risk and reward.
The UK Bus (London) operations are not especially exposed to short-term changes in macroeconomic conditions because the
business receives a fee from Transport for London for operating services irrespective of the passenger volumes on those services.
Its costs and in particular, labour costs, can vary due to macroeconomic changes and also, in the longer term, the level of services
that Transport for London offers for tender might be affected by the macroeconomy.
UK Bus (London) faces competition to win contracts from Transport for London from other bus operators, the largest of which
are Go-Ahead Group, Arriva, Metroline, RATP, Transit Systems and Abellio.
In light of the pressures on Government finances, we do not expect to see Transport for London significantly increase the level of
bus operating mileage in the next few years and so any revenue growth will come from inflationary price increases, retaining
work on tender but at higher rates and/or winning contracts from other operators.
Stagecoach Group plc | page 5
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Strategic report
2.3.3 What we do (description and strategy of each business segment) (continued)
North America
Description
Regulatory environment
Strategy
Market opportunity
Macroeconomic factors
Competition
Future market
developments
UK Rail
Description
Regulatory environment
Strategy
Market opportunity
Macroeconomic factors
Competition
Future market
developments
page 6 | Stagecoach Group plc
The North America Division provides transport services in the United States and Canada. Our businesses include commuter/transit
services, inter-city services, tour, charter and sightseeing operations. Megabus.com, a low cost inter-city coach operator that sells
its services principally via the Internet, is the fastest growing part of the North American business.
The North America business is headed by a chief operating officer. Stagecoach (excluding its joint ventures) currently operates
approximately 2,400 vehicles in the United States and Canada.
In addition to its wholly-owned operations in North America, Stagecoach has a joint venture, Twin America LLC, with CitySights
NY. The joint venture principally operates sightseeing services in New York under both the Gray Line and CitySights brands. The
Group holds 60% of the economic rights and 50% of the voting rights in the joint venture. Twin America LLC is headed by a chief
executive and is overseen by a joint board.
The North America business operates on a commercial basis in a largely deregulated market. It also operates some tendered
services for local authorities and services contracted by corporations.
The strategy of the North America Division is to deliver organic growth in revenue and passenger volumes. This may be
supplemented by acquiring businesses where appropriate opportunities arise. A core short to medium-term objective in
delivering this strategy is the expansion of the fast growing megabus.com business.
The Group estimates it has less than 4% of the bus and coach market in North America and is growing this through innovative
new services such as megabus.com. The US Department of Transportation’s Bureau of Transportation Statistics show that in 2012
some 86% of transportation to work was by car, compared with only 5% by public transport. The opportunity to stimulate modal
shift from car to bus and coach is substantial and megabus.com has been successful in doing this.
The North American operations are more exposed to macroeconomic factors than the UK Bus operations as a greater proportion
of their revenue is derived from customers using its services for leisure purposes, including its charter, tour and sightseeing
services. It nevertheless has similar flexibility to UK Bus over pricing and supply, enabling it to effectively respond to changes in
macroeconomic conditions.
The business faces competition for customers not only from other operators of coaches and buses but also from other modes of
transport. The Group regards its primary competitor as the private car and aims to encourage modal shift from car to public
transport. Megabus.com faces competition from the car but also from other coach operators, airlines and train operators.
FirstGroup and National Express Group are also major operators of coach and bus services in North America.
The Group has taken a leading role in the development of bus and coach travel in North America through its megabus.com
services. The market for inter-city coach travel, such as that provided by megabus.com, is growing rapidly and we expect that to
continue and present significant opportunities to the Group.
Stagecoach Group has major rail operations in the UK.
Our principal wholly-owned rail businesses are South West Trains and East Midlands Trains. South West Trains runs around 1,700
train services a day in south west England out of London Waterloo railway station, and operates Island Line services on the Isle of
Wight. The South West franchise is contracted to run until February 2017 and the UK Government plans to extend our tenure to
April 2019. From 11 November 2007, we have operated the East Midlands Trains franchise. The franchise comprises main line
train services running to London St Pancras, regional rail services in the East Midlands area and inter-regional services between
Norwich and Liverpool. The East Midlands Trains franchise is contracted to run until October 2015 and the UK Government plans
to extend our tenure to October 2017. We also operate Supertram, a 28km light rail network incorporating three routes in the city
of Sheffield, on a concession running until 2024.
Stagecoach Group has a 49% shareholding in a joint venture, Virgin Rail Group, which operates the West Coast Trains rail
franchise. The current West Coast Trains rail franchise runs until March 2017 and the Government has an option to extend it by a
further year. The other shareholder in Virgin Rail Group is the Virgin Group of Companies. South West Trains, East Midlands Trains
and the tram operations each have a managing director, who report to the Chief Executive. Stagecoach’s Chief Executive is Joint
Chairman of Virgin Rail Group. Virgin Rail Group has a lead Executive, who reports to the Virgin Rail Group board, which includes
Stagecoach Group and Virgin Group representatives.
The UK rail operating market is split into a number of separate franchises, which are awarded by the Government for set time
periods to a specification set by the Department for Transport (“DfT”) on the basis of competitive bids. Train operating companies
operate passenger trains on the UK rail network. The UK railway infrastructure is owned and operated by Network Rail, a “not for
dividend” company that invests any profits into improving the railway. Network Rail runs, maintains and develops tracks,
signalling systems, bridges, tunnels, level crossings and key stations.
In rail, we seek to deliver organic growth across all of our existing operations and to maintain and grow the business by bidding
for selected new franchises where the risk/return trade-off is acceptable.
The market opportunity in rail arises from the potential to retain existing and/or win new franchises, and also, from the potential
to attract increased use of the Group’s rail services. With a number of franchises expected to be tendered within the next few
years, there is scope to grow the Group’s share of the rail market.
The Rail operations are exposed to macroeconomic factors with passenger revenue correlated to Gross Domestic Product and
employment levels. The exposure is further increased by the relatively fixed cost base of the business which restricts the scope to
reduce costs in response to reduced demand. The Group’s existing South West Trains and East Midlands Trains franchises have
significant protection against macroeconomic risks due to the receipt of revenue support from Government whereby
Government pays the Group a proportion of the shortfall of actual revenue to the revenue expected when the Group bid for the
franchise. From June 2014, the West Coast Trains franchise operated by the Group’s Virgin Rail Group joint venture, is not entitled
to revenue support in the form received by South West Trains and East Midlands Trains. It does, however, have a “GDP sharing”
agreement that is intended to ensure that the DfT bears most of the risk of variances in West Coast Trains’ revenue resulting from
UK GDP differing from that expected at the time of the June 2014 franchise agreement. On bids for new franchises, the Group’s
evaluation of macroeconomic risks is a key component of the bid process.
The business faces competition for customers not only from other train operators but also from other modes of transport.
The main competitors that bid against the Group for UK rail franchises are FirstGroup, National Express Group, Go Ahead Group,
Arriva, MTR, Keolis, SNCF, Eurostar, Serco and Abellio.
The UK Government has reviewed the basis for rail franchising in the UK and changes to the franchising model are being
implemented. The Group is at the forefront of changes to the UK rail market in its ground breaking Alliance at South West Trains
with Network Rail.
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2.3.4 How we create value (the business model)
The Group’s overall business model is illustrated below.
Cost factors
Flexible cost
base
in bus
Strong
Group-wide
cost control
Lower cost
rail business
model
Stagecoach factors driving demand for public transport
Safe and
reliable
transport
Investment
in services
Advertising
and
marketing
Value for
money
pricing
Design of
services
Other drivers of
growth
Economic returns
External factors driving demand for public transport
Supportive
government
policy
Long-term
economic
growth
Increasing
road
congestion
Rising
environmental
awareness
Rising car
running
costs
Contract/
franchise
bids
Acquisitions
Contract
management
The right environment
to underpin the
business model
Decentralised
management
structure
Short chains of
command
Environment to
support innovation
Emphasis on
operational
performance
Sustainable, efficient
long-term capital
structure
The business model varies to some extent by division. The business model is intended to deliver the business objectives and long-term strategy explained above in
that it is designed to preserve and add value through organic growth, targeted acquisitions and rail franchise wins. The overall model of the Group is based on a
relatively decentralised management structure with short chains of command and close monitoring and direction from the centre. Across the Group, there is an
emphasis on achieving strong operational performance as an underpin of strong financial performance.
The business model for the Group’s UK Bus (regional operations) and North America Divisions is designed to be sufficiently flexible to respond to developments in
the markets in which they operate and to changes in demand. The key features of this business model are:
•
•
An emphasis on lightly regulated bus operations enabling management to vary prices, operating schedules and timetables in response to developments in
each local market without significant hindrance from regulation;
A decentralised management structure enabling local management to quickly identify and respond to developments in each local market;
A flexible cost base whereby operating mileage and operating costs can be flexed in response to changes in demand.
•
The business model of the UK Bus (London) and UK Rail Divisions is different. The businesses are more highly regulated and their cost base is less flexible so there
is greater management focus on agreeing the right contractual arrangements, including appropriate risk-sharing arrangements, and ensuring these are
appropriately managed for the duration of each contract.
2.3.5 What we need, to do what we do (resources and relationships)
Stagecoach Group has a range of resources and relationships, including contractual relationships, that underpin its business and support its strategy. These assist
in giving the Group a competitive advantage in the markets in which it operates.
Customers
Millions of people use our services and our relationship with our customers is important to us. To deliver organic growth in revenue, a key element of our strategy,
we need to provide services that people want to use.
We conduct customer research to monitor our performance and to determine how we can improve the delivery and accessibility of our services. We are passionate
about providing good customer service and our businesses have regular and ongoing discussions with bus and rail user groups. This includes presentations from
managers on detailed aspects of our service as well as consultation and information sharing on particular issues.
An important element of the Group’s success in growing its customer base lies in its record of product innovation and new ideas on developing effective public
transport systems. The Group has an ongoing programme of market research. We have a dedicated telemarketing unit in the UK that communicates with current
customers and non-users to build a detailed profile of what attracts people to use our services.
Employees
Human resources are key to the Group’s business and the Group’s relationship with its employees is therefore fundamental to achieving its objectives. We aim to
recruit and retain the best employees in our sector, offering an excellent package of benefits, which allows us to deliver good customer service to our passengers.
The Group’s individual divisions invest significantly in the training and development of our people and we operate a successful graduate training scheme which
provides one source of training for the managers of the future. We have established strong working relationships with trade unions and work in partnership with
them on a range of issues, including training and development, occupational health matters, pensions and other employee benefits. We also communicate with
our people face to face and through a number of internal publications.
The financial community
Our shareholders and lenders are critical to our business success. We have a regular programme of meetings with investors and provide frequent updates to the
markets and financial community on our performance.
We have contractual arrangements with banks and other finance providers for the provision of funds and financial products to the Group.
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Strategic report
2.3.5 What we need, to do what we do (resources and relationships) (continued)
Government and regulatory bodies
Our managers have ongoing relationships with national and local government in our main countries of operation to ensure the effective delivery of government
transport policy and to assist in meeting wider objectives. We work with local authorities, including passenger transport executives, regional transport committees
and transit authorities, in the delivery and planning of bus and rail services. Many of our businesses have partnership agreements in place to improve the delivery
of public transport in their areas. In the UK, we work closely with the DfT, the Scottish Government, Transport Scotland, the Welsh Government, and Transport for
London.
We contract with local authorities, government bodies and other parties for the supply of bus services on a contracted or tendered basis. We have franchise
agreements with the DfT governing the supply of franchised rail services in the UK.
We have constructive dialogue with organisations such as the Commission for Integrated Transport, which provides advice to the UK Government, and lobbying
groups such as the Campaign for Better Transport.
Suppliers
We rely on a range of suppliers to provide goods and services linked to our bus and rail operations. All of our businesses have various contractual relationships with
suppliers, including purchase contracts with fuel suppliers, vehicle suppliers, IT companies and spare part suppliers.
The operation of our rail franchises depends upon a number of contractual relationships with suppliers, including contracts with Network Rail governing station
and track access arrangements, leases with rolling stock companies for the lease of trains and maintenance contracts for the maintenance of trains.
Information technology is increasingly important to effectively operate our services and to meet our customer expectations. Significant investment, internal
management resource and external supplier input is made in developing and operating IT systems.
Corporate reputation, brand strength, and market position
Stagecoach is one of the best-known public transport operators in the UK and is consistently rated highly for the quality of its services in research by independent
organisations. We value our reputation, both as a public transport provider and as a key part of the communities in which we operate. Stagecoach has a strong set
of brands that support our strategy of organic growth in our business and that help maintain our leading market position.
Natural resources and manufacturing technology
Operating our bus and rail services requires considerable use of natural resources, including diesel and electricity. We have arrangements in place to ensure that
these resources are sourced as efficiently as possible and that our supplies are maintained to ensure the smooth functioning of our business. A number of
experienced manufacturers supply our buses, coaches, trains and trams, which are produced to detailed specifications relevant to the individual markets in which
they are required.
Licences
Various licences are held by Stagecoach giving authority to operate our public transport services and these are maintained up to date as required.
Transport and Industry Representation Groups
We are active members of industry groups, such as the Confederation of Passenger Transport UK (which covers buses and light rail), the Rail Delivery Group and
the American Bus Association.
2.3.6 The challenges we face (principal risks and uncertainties)
Like most businesses, there are a range of risks and uncertainties facing the Group and the matters described below are not intended to be an exhaustive list of all
possible risks and uncertainties.
Generally, the Group is subject to risk factors both internal and external to its businesses. External risks include global political and economic conditions,
competitive developments, supply interruption, regulatory changes, foreign exchange, materials and consumables (including fuel) prices, pensions funding,
environmental risks, industrial action, litigation and the risk of terrorism. Internal risks include risks related to capital expenditure, acquisitions, regulatory
compliance and failure of internal controls.
The focus below is on those specific risks and uncertainties that the Directors believe are the most significant to the Group, taking account of the likelihood of
occurrence of each risk and the potential effect on the Group.
Description of risk
Management of risk
Developments in year ended
30 April 2014
Section in
Annual Report
Catastrophic events
There is a risk that the Group is
involved (directly or indirectly) in a
major operational incident resulting in
significant human injuries or damage
to property. This could have a
significant impact on claims against
the Group, the reputation of the Group
and its chances of winning and
retaining contracts or franchises.
The Group has a proactive culture that
puts health and safety at the top of its
agenda in order to mitigate the
potential for major incidents. In the
unlikely event that a major incident
did occur, the Group has procedures in
place to respond. The Group
periodically rehearses its response to a
hypothetical major incident.
Terrorism
There have been multiple acts of
terrorism on public transport systems
and other terrorist attacks that whilst
not directly targeting public transport
have discouraged travel. There is a risk
that the demand for the Group’s
services could be adversely affected by
a significant terrorist incident. Such a
fall in demand would have a negative
effect on the Group’s revenue and
financial performance.
The Group has plans in place designed
to reduce the financial impact of a
terrorist incident and these plans take
account of the Group’s experience of
managing the North American
business during the period of
depressed demand following the
major terrorist attack on 11 September
2001.
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•
No significant matters to report.
•
No significant matters to report.
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2.3.6 The challenges we face (principal risks and uncertainties) (continued)
Description of risk
Management of risk
Developments in year ended
30 April 2014
Section in
Annual Report
Economy
The economic environment in the
geographic areas in which the Group
operates affects the demand for the
Group’s bus and rail services. In
particular, the revenue of the Group’s
UK rail operations is historically
correlated with factors such as UK
Gross Domestic Product and Central
London Employment. In North
America, a greater proportion of the
revenue from bus operations is derived
from tour, charter and sightseeing
services than in the UK and these
services tend to be more susceptible to
economic changes. The revenue and
profit of the Group could therefore be
positively or negatively affected by
changes in the economy.
Management monitors actual and
projected economic trends in order to
match capacity to demand and where
possible, minimise the impact of
adverse economic trends on the
Group. External forecasts of economic
trends form part of the Group’s
assessment and management of
economic risk.
In bidding for new rail franchises, the
evaluation of macroeconomic risks is a
key element of the bid process.
Further information on the relevance
of macroeconomic factors to each
business segment is provided in
section 2.3.3.
Rail cost base
A substantial element of the cost base
in the Group’s UK Rail Division is
essentially fixed because under its UK
rail franchise agreements, the Group is
obliged to provide a minimum level of
train services and is therefore unable
to flex supply in response to short-
term changes in demand. In addition,
a significant part of the cost base is
comprised of payments to the
infrastructure provider, Network Rail,
and payments under train operating
leases which are committed and do
not vary with revenue. Accordingly, a
significant proportion of any change in
revenue (for example, arising as a
result of the risks described above in
respect of terrorism and the economy)
will impact profit from the UK Rail
Division.
Sustainability of rail profit
A significant element of the Group’s
revenue and profit is generated by UK
rail franchises. There is a risk that the
Group’s revenue and profit could be
significantly affected (either positively
or negatively) as a result of the Group
winning new franchises or failing to
retain its existing franchises.
The Group looks to achieve sensible
risk sharing arrangements in its rail
franchise agreements and franchise
bids are designed to deliver an
acceptable risk-reward trade-off. As
described above, economic and
terrorism risks are closely managed. In
addition, the Group remains focussed
on controlling costs in the UK Rail
Division.
In order to manage the risks, the
Group has devoted significant
management resource and financial
investment to bidding for new rail
franchises.
Appropriately experienced personnel
are retained to work on rail bids and
third party consultants are engaged to
provide additional expertise. The
Board approves the overall rail bidding
strategy and the key parameters for
each bid.
•
•
•
•
•
•
•
•
•
During the year ended 30 April 2014,
the rail franchises in which the Group
has an interest had significant
protection from macroeconomic
changes. The West Coast Trains
franchise, operated by the Group’s
Virgin Rail Group joint venture,
operated under a management
contract meaning that the DfT bore
virtually all of the risk of revenue and
costs being significantly different
from those expected. The Group’s
two wholly owned franchises received
revenue support from the DfT such
that the DfT was and is at risk for the
majority of any difference between
actual and expected revenue.
From June 2014, the West Coast
Trains franchise has a “GDP sharing”
agreement that is intended to ensure
that the DfT bears most of the risk of
variances in West Coast Trains’
revenue resulting from UK GDP
differing from that expected at the
time of the June 2014 franchise
agreement.
As described above, revenue
support and GDP sharing
mechanisms reduce the Group’s
exposure to macroeconomic risks.
The DfT exercised its option to extend
the Group’s East Midlands Trains
franchise from March 2015 to October
2015. The Group is discussing with
the DfT, the planned direct award to
the Group of a new East Midlands
Train franchise and also, a new South
West Trains franchise.
New commercial terms have been
agreed and apply from June 2014 to
Virgin Rail Group’s West Coast Trains
franchise, which is now expected to
run until at least March 2017.
The Group is shortlisted with Virgin as
one of three bidders for a new East
Coast franchise.
The Group is also shortlisted as one of
three bidders for a new Docklands
Light Railway contract.
Further rail franchises are expected to
be tendered over the next few years.
The Group’s bid for the Thameslink,
Southern and Great Northern
franchise was confirmed in May 2014
as being unsuccessful.
•
2.5.4 and
2.5.5.1
•
2.5.5.1
•
2.5.4
•
•
2.5.4
2.5.4
•
2.5.4
•
•
•
•
2.5.5.1
2.5.4
2.5.4
2.5.4
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Strategic report
2.3.6 The challenges we face (principal risks and uncertainties) (continued)
Description of risk
Management of risk
Developments in year ended
30 April 2014
Section in
Annual Report
•
No significant matters to report.
Our UK Rail businesses are subject to
complex contractual arrangements.
Contract management is an important
part of our rail activities because the
way in which contracts are managed
can be a significant determinant of
financial performance.
Compliance with franchise conditions
is closely managed and monitored and
procedures are in place to minimise
the risk of non-compliance.
The Group maintains an overview of
Virgin Rail Group’s business risk
management process through
representation on its board and audit
committee.
•
2.6.11
Pension scheme liabilities have
moved during the year as
explained in section 2.6.11.
The Pensions Regulator has
initiated reviews of the valuation
basis applied by two of the
pension schemes to which the
Group contributes, the
Stagecoach Group Pension
Scheme and the East London Bus
Group Pension Scheme. This is
consistent with reviews the
Regulator has undertaken of other
pension schemes as part of its
remit.
Insurance and claims costs in our
UK Bus (regional operations)
division decreased in the year as a
proportion of revenue, but
increased in our UK Bus (London)
and North America divisions.
•
•
•
2.5.1
2.5.2
2.5.3
and
2.5.3
•
•
•
Decisions on pension scheme funding,
asset allocation and benefit promises
are taken by management and/or
pension scheme trustees in
consultation with trade unions and
suitably qualified advisors. A Pensions
Oversight Committee has been
established comprising the Finance
Director, a Non-Executive Director and
other senior executives, to oversee the
Group’s overall pensions strategy. The
Board participates in major decisions
on the funding and design of pension
schemes.
The Group has a proactive culture that
puts health and safety at the top of its
agenda and this helps mitigate the
potential for claims arising. Where
claims do arise, they are managed by
dedicated insurance and claims
specialists in order to minimise the
cost to the Group. Where appropriate,
legal advice is obtained from
appropriately qualified advisors. The
balance between insured and retained
risks is re-evaluated at least once a
year and insurance and claims activity
is monitored closely.
Breach of franchise
The Group is required to comply with
certain conditions as part of its rail
franchise agreements. If it fails to
comply with these conditions, it may
be liable to penalties including the
potential termination of one or more
of the rail franchise agreements. This
would result in the Group losing the
right to continue operating the
affected operations and consequently,
the related revenues and cash flows.
The Group may also be required to
make payments in respect of the
related shareholder loan facilities, the
performance bonds and the season
ticket bonds.
The Group can do more to prevent
breaches of franchise where it has
sole control than where it has joint
control. As the holder of a 49% joint
venture interest in Virgin Rail Group,
the Group has less control over the
joint venture’s operations and that
means the Group’s management may
be less able to prevent a breach of the
Virgin Rail Group franchise
agreement.
Pension scheme funding
The Group participates in a number of
defined benefit pension schemes.
There is a risk that the cash
contributions required to these
schemes increases or decreases due to
changes in factors such as investment
performance, the rates used to
discount liabilities and life
expectancies. Any increase in
contributions will reduce the Group’s
cash flows.
Insurance and claims environment
The Group receives claims in respect of
traffic incidents and employee claims.
The Group protects itself against the
cost of such claims through third party
insurance policies. An element of the
claims is not insured as a result of the
“excess” on insurance policies.
There is a risk that the number or
magnitude of claims are not as
expected and that the cost to the
Group of settling these claims is
significantly higher or lower than
expected. In the US, in particular, there
is a risk that given the size of the
“excess”, that a small number of large-
value claims could have a material
impact on the Group’s financial
performance and/or financial position.
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2.3.6 The challenges we face (principal risks and uncertainties) (continued)
Description of risk
Management of risk
Developments in year ended
30 April 2014
Section in
Annual Report
Regulatory changes and availability of public funding
Management closely monitors
relevant proposals for changes in the
regulatory environment and
communicates the Group’s views to
key decision makers and bodies. The
Group actively participates in various
industry bodies. The Group seeks to
maintain good, co-operative
relationships with all levels of
government, by developing and
promoting ideas that offer cost
effective ways of improving public
transport.
Where changes are known or
reasonably likely, the Group develops
plans to seek to mitigate any adverse
effects on it.
•
•
•
The Group confirmed plans to
reduce bus services and
headcount in Wales to partially
mitigate the Welsh Government’s
decision to cut the rate of
concessionary fare payments to
bus operators in Wales.
Growth in concessionary revenue
in the UK Bus (regional
operations) is expected to be low
in the short term.
Progress has been made in
resolving litigation in respect of
the Twin America joint venture.
•
2.5.1
•
•
2.5.1
2.5.5.2
•
Changes were made to the Board
on 1 May 2013.
•
5.1
Succession planning for the Directors
and senior management is an
important issue and as such is
considered by the Nomination
Committee (as described in section
7.5) and the Board. The appropriate
level of management deals with
recruitment and retention of other
staff.
The Group has plans in place to
respond to any significant outbreak of
disease.
•
No significant matters to report.
•
5.1
Public transport is subject to varying
degrees of regulation across different
geographies. There is a risk that
changes to the regulatory
environment in any locations in which
the Group operates could impact its
prospects..
Similarly, many of the Group’s
businesses benefit from some form of
financial support from government
including direct financial support, the
provision of equipment, government
contracts and concessionary fare
schemes. There is a risk that the
availability of sufficient government
financial support changes due to
regulatory or other reasons.
The UK General Election planned for
May 2015 and the referendum on
Scottish Independence planned for
September 2014 could result in
regulatory change and/or changes on
taxation regimes, pension regimes,
currency and the like.
Management and Board succession
The Group values the continued
services of its senior employees,
including its directors and
management who have operational,
marketing, engineering, technical,
project management, financial and
administrative skills that are important
to the operation of the Group’s
business.
Disease
There have been concerns in recent
years about the risk of a swine flu
pandemic, which follows previous
concerns over bird flu and SARS. There
is a risk that demand for the Group’s
services could be adversely affected by
a significant outbreak of disease. Such
a fall in demand would have a
negative impact on the Group’s
revenue and financial performance.
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Strategic report
2.3.6 The challenges we face (principal risks and uncertainties) (continued)
Description of risk
Management of risk
Developments in year ended
30 April 2014
Section in
Annual Report
•
The Board has increased its
scrutiny of cyber risks given the
increasing risks faced by most
large businesses in this regard.
Cyber risk was specifically
considered by the Board at its
meeting in February 2014.
The Group is continually investing in
its information technology systems,
people and suppliers to ensure the
robustness of its information
technology. It is developing new
Internet sales platforms and continues
to look to ensure that it secures
reliable service provision.
An Information Security Board
oversees the management of cyber
risks, and takes appropriate advice
from suitably experienced third party
consultants.
Information technology
The Group is reliant on information
technology for sales, operations and
back office functions. Information
technology failures or interruptions
could adversely affect the Group.
An increasing proportion of the
Group's sales are made via the Internet.
There is a risk that the Group's
capability to make Internet sales either
fails or cannot meet levels of demand
and the time taken to implement
restorative actions is unacceptably long
due to insufficient resource being
available and/or over reliance on a
small number of service providers. This
risk could result in significant levels of
lost revenue at a time when the Group
is investing in megabus.com coach
operations in North America, of which
Internet sales is a fundamental part. A
significant and ongoing megabus.com
website failure could severely affect the
megabus.com brand and also give a
competitor an advantage during the
time of the failure.
There are cyber risks relating to
unauthorised access to or disclosure of
data, disruption to IT systems and
disruption to business operations as a
result of a malicious attack.
Treasury risks
Details of the Group’s treasury risks are
discussed in note 26 to the consolidated
financial statements, and include the
risks arising from movements in fuel
prices.
2.3.7 How we measure our performance (key performance indicators)
The Group uses a wide range of key performance indicators (“KPIs”) across its various businesses and at a Group level to measure the Group’s progress in achieving
its objectives. The most important of these KPIs at a Group level focus on four key areas:
•
•
•
•
Organic growth
Service delivery
Profitability
Safety
KPI 1 – profitability
The overall strategy of the Group is intended to promote the success of the Group and create long-term value to shareholders. In the shorter term, we measure
progress towards this overall aspiration by monitoring growth in adjusted earnings per share.
KPI 2 – organic growth
To create long-term value, we aim to deliver organic growth in revenue. We measure progress on this by division, looking at like-for-like growth in passenger
volumes and/or revenue as we consider most appropriate for the particular division.
KPIs 3 and 4 – safety and service delivery
To deliver organic growth in revenue, we aim to provide safe and reliable transport services that people want to use. We measure safety and service delivery by
division using a range of measures appropriate for each business.
Further details on how we calculate these key performance indicators, our targets and our recent performance is summarised below.
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2.3.7 How we measure our performance (key performance indicators) (continued)
Profitability
Adjusted earnings per share is earnings per share before exceptional items and intangible asset expenses (“Adjusted EPS”). Adjusted EPS is calculated based on the
profit attributable to equity shareholders (adjusted to exclude exceptional items and intangible asset expenses) divided by the weighted average number of
ordinary shares ranking for dividend during the relevant period.
Adjusted EPS was as follows:
Adjusted EPS
To increase in excess of inflation
Target
Year ended 30 April
2014
pence
26.0p
2013 (restated)
pence
2012 (restated)
pence
24.6p
21.8
Organic growth
The following measures of organic growth are monitored:
• UK Bus (regional operations) – growth in passenger journeys measured as the percentage increase in the number of passenger journeys relative to the
equivalent period in the previous year.
• Rail – growth in passenger miles measured as the percentage increase in the number of miles travelled by passengers relative to the equivalent period in the
previous year.
• UK Bus (London) and North America – growth in constant currency revenue from continuing operations measured as the percentage increase in revenue
relative to the equivalent period in the previous year.
The measures vary by division reflecting differences in the underlying businesses – for example, a significant proportion of the revenue in North America and all
of the revenue in UK Bus (London) is not determined on a “per passenger” basis.
Throughout this Annual Report, references to passenger volume growth for UK Bus or Rail businesses mean growth determined on the basis set out here.
Certain of these growth KPIs involve a degree of estimation in respect of passenger volumes. All of the organic growth KPIs are normalised to exclude businesses
that have not been held by the Group for the whole of the relevant year and the preceding year.
Target
Year ended
30 April 2014
Growth %
Year ended
30 April 2013
Growth %
Year ended
30 April 2012
Growth %
UK Bus (regional operations) passenger journeys
UK Bus (London) revenue
UK Rail passenger miles
– South West Trains
– East Midlands Trains
– Virgin Rail Group – West Coast Trains
North America revenue
Positive growth
ultimate target is zero
each year
1.3%
5.2%
3.4%
(0.8)%
4.5%
3.9%
(0.4)%
1.0%
1.8%
2.7%
0.9%
8.9%
1.9%
n/a
4.1%
3.6%
4.6%
14.0%
The increase in passenger journeys at UK Bus (regional operations) in the year ended 30 April 2014 partly is due to more journeys by concessionary passengers
that we believe is largely attributable to better weather (in contrast to the more severe winter weather affecting South West Trains and North America),
reversing the weather-related decline in passenger journeys reported for the year ended 30 April 2013. Journeys by fare-paying passengers increased during both
years.
The increase in passenger miles at South West Trains during the year ended 30 April 2014 is artificially inflated by changes in travelcard factors used to
determine cross-industry passenger volumes in the London area. The decline in passenger miles at East Midlands Trains during the year ended 30 April 2014
includes the disruptive effect of planned engineering works on the rail network.
Safety
Safety is monitored in various ways, including through a range of KPIs. Businesses acquired or disposed of in the year are excluded from the safety KPIs.
Six of the more important safety KPI’s are reported below:
Target
Year ended
30 April 2014
Year ended
30 April 2013
Year ended
30 April 2012
UK Bus (regional operations) – number of blameworthy
accidents per 1 million miles travelled
UK Bus (London) – number of blameworthy
accidents per 1 million miles travelled
US – number of blameworthy accidents per
1 million miles travelled
South West Trains – workforce lost time injuries
per 1,000 staff
East Midlands Trains – workforce lost time injuries
per 1,000 staff
Virgin Rail Group – West Coast – workforce lost time
injuries per 1,000 staff
ultimate target is zero
To decrease each year –
To decrease each year –
ultimate target is zero
ultimate target is zero
19.1
26.2
4.9
1.4
1.3
1.3
19.3
27.9
4.8
1.5
1.4
1.4
20.6
25.0
5.2
1.8
1.6
1.5
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Strategic report
2.3.7 How we measure our performance (key performance indicators) (continued)
Service delivery
Our measures of service delivery include:
• UK Bus (regional operations) and UK Bus (London) – reliability measured as the percentage of planned miles to be operated that were operated.
• Rail – punctuality measured on the basis of the DfT’s Public Performance Measure (moving annual average) being the percentage of trains that arrive at their
final destination within 5 minutes (or 10 minutes for inter-city services) of their scheduled arrival time having called at all scheduled stations. References to
rail punctuality throughout this Annual Report refer to punctuality calculated on this basis.
Due to the nature of the North American business, there is no single measure of service delivery for the North American division as a whole. Service delivery
KPIs are not reported for businesses acquired or disposed of in the year.
The service delivery KPIs were as follows:
UK Bus (regional operations) reliability
UK Bus (London) reliability
UK Rail punctuality
– South West Trains
– East Midlands Trains
– Virgin Rail Group – West Coast Trains
Target
>99.0%
>99.0%
>90.0%
>85.0%
>85.0%
2014
%
99.5%
98.0%
89.5%
91.2%
86.1%
Year ended 30 April
2013
%%
99.3%
97.8%
91.5%
92.3%
83.5%
2012
99.5%
97.9%
92.2%
93.7%
86.0%
2.4 Overview of financial results
Stagecoach Group has achieved continued good financial and operational performance in the year ended 30 April 2014.
Revenue by division is summarised below:
REVENUE – YEAR TO 30 APRIL
2014
2013
2014
2013
Continuing Group operations
UK Bus (regional operations)
UK Bus (London)
North America
UK Rail
Intra-Group revenue
Group revenue
Operating profit by division is summarised below:
£m
Functional
currency
Functional currency
(m)
Growth
%
1,012.8
244.9
428.2
1,252.0
(7.9)
966.7
232.7
407.2
1,201.3
(3.1)
£
£
US$
£
£
1,012.8
244.9
685.7
1,252.0
(7.9)
966.7
232.7
641.2
1,201.3
(3.1)
4.8%
5.2%
6.9%
4.2%%
154.8%
2,930.0
2,804.8
OPERATING PROFIT – YEAR TO 30 APRIL
2014
2013 (restated)
2014
2013 (restated)
Continuing Group operations
UK Bus (regional operations)
UK Bus (London)
North America
UK Rail
Group overheads
Restructuring costs
Joint ventures – share of profit after tax
Virgin Rail Group
Citylink
Twin America
Total operating profit before intangible asset
expenses and exceptional items
Intangible asset expenses
Exceptional items
Total operating profit: Group operating profit
and share of joint ventures’ profit after taxation
%%
margin
14.6%
9.8%
5.5%
2.7%
£m
147.4
23.9
23.7
34.3
(13.9)
(0.9)
214.5
2.0
1.3
5.5
223.3
(14.0)
(8.4)
200.9
page 14 | Stagecoach Group plc
£m
margin
currency
(m)
Functional Functional currency
14.8%
8.2%
3.3%
3.4%
£
£
US$
£
147.4
23.9
38.0
34.3
143.2
19.0
21.1
41.2
143.2
19.0
13.4
41.2
(15.7)
(1.7)
199.4
8.3
1.3
11.7
220.7
(16.1)
(4.8)
199.8
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2.5 Divisional Performance
2.5.1 UK Bus (regional operations)
Financial performance
The financial performance of the UK Bus (regional operations) division for the
year ended 30 April 2014 is summarised below:
Year to 30 April
Revenue
Like-for-like* revenue
Operating profit*
Operating margin
2014
£m
1,012.8
982.7
147.4
2013
(restated)
£m
966.7
939.8
143.2
Change
4.8%
4.6%
2.9%
14.6%
14.8%
(20)bp
Our bus businesses are built on a successful commercial formula of low fares,
investment and high customer service which has delivered continued
passenger volume growth nearly every year for more than ten years. The
Division’s results reflect a continuation of our successful strategy to grow
revenue and passenger volumes organically, as well as pursuing targeted small
bolt-on acquisitions.
The previous year’s financial results to 30 April 2013 included revenue of
£18.8m and operating profit of around £4m arising from the successful
delivery of contracts to provide transport for the media and athletes at the
London 2012 Olympic and Paralympic Games. Excluding that £4m operating
profit, the division has increased operating profit by £8.2m or 5.9% in the year
ended 30 April 2014.
Passenger volume and revenue growth
Like-for-like revenue was built up as follows:
Year to 30 April
Commercial on and off bus revenue
Concessionary revenue
Tendered and school revenue
Contract revenue
Hires and excursions
Like-for-like revenue
2014
£m
591.4
236.8
105.8
45.2
3.5
982.7
2013
£m
570.4
229.4
98.9
37.7
3.4
939.8
Change
3.7%
3.2%
7.0%
19.9%
2.9%
4.6%
The like-for-like revenue growth of 4.6% shown above for the year ended
30 April 2014 is in line with our expectations. We had previously reported like-
for-like revenue growth of 4.8% for the forty eight weeks ended 30 March
2014. The lower growth for April 2014 reflects the timing of Easter. Bus
revenue is generally lower than normal around Easter and in 2014, Easter
weekend fell in the second half of April whereas in 2013, it fell around the end
of March.
Overall like-for-like passenger volume growth for the year was 1.3%.
An increase in our commercial revenue has contributed most to the overall
revenue growth, with concessionary, contract, tendered and school revenue
also continuing to grow. The growth in concessionary revenue is principally a
result of an increase in the volume of concessionary journeys during the year,
which we believe reflects more benign weather conditions. Although severe
weather adversely affected our North America and South West Trains
operations in the year, the weather across the UK was generally better than in
the previous year. In addition to underlying growth, we benefitted from the
division providing additional bus services to replace train services that were
affected by planned railway resignalling work in the Nottingham area, and this
is reflected in the increased contract revenue.
Continuing pressure on public sector budgets has, however, resulted in further
reductions in central and local government investment in bus services. This
has been particularly acute in Wales where we were recently forced to
announce a 10% reduction in our fleet, the planned closure of our Brynmawr
* See definitions in note 35 to the consolidated financial statements
depot and a number of service reductions, following a succession of Welsh
Government bus investment cuts.
Stagecoach has been appointed as the official provider of buses to the 2014
Ryder Cup, being held at Gleneagles in Scotland. We will provide a fleet of 150
double decker buses to and from several park and ride sites during the week of
the event. It builds further on our expertise in managing major transport
operations at the 2012 London Olympics, the 2010 Ryder Cup in Wales, the
British Grand Prix at Silverstone and other events.
Profitability
The decrease in operating margin was built up as follows:
Operating margin – 2012/13 (restated)
Effect of Olympics contracts
Change in:
Insurance and claims costs
Operating lease costs
Bus Service Operators’ Grant
Other
Operating margin – 2013/14
14.8%
(0.1)%
0.3%
0.4%
(0.6)%
(0.2)%
14.6%
The main changes in the operating margin shown above are:
• The Olympics contracts in the prior year earned an operating margin in
excess of the average operating margin for the division. The non recurrence
of those contracts this year results in a slight decrease in margin.
• Continuing the trend seen in the first half of the year just ended, insurance
and claims costs have reduced as we remain focussed on minimising claims.
• Operating lease costs fell due to a combination of additional lease costs in
the prior year to cover for vehicles redeployed on Olympics work, vehicles
reaching the end of their lease terms and lower charges on vacant
properties.
• In April 2012, the proportion of fuel duty that is rebated to bus operators in
the form of Bus Service Operators’ Grant (“BSOG”) was cut. Since April
2012, the rate of BSOG has remained stable meaning that the total BSOG
received by the division has fallen as a percentage of revenue.
Acquisition
In December 2013, we acquired Norfolk Green, an award-winning independent
bus operator in the east of England. It will allow us to expand our operations in
the east of England, where we have achieved good passenger volume growth
by focusing on good value fares, investing in our networks and delivering
punctual and reliable services.
Investment
We have now placed orders worth more than £90m for 534 new greener
vehicles for the UK Bus regional operations benefitting communities in regions
across England, Scotland and Wales. Most of the buses and coaches will be
produced in the UK, supporting British manufacturing jobs and smaller
businesses in the supply chain. It takes the Group's total orders of new buses
and coaches for its regional bus operations in the UK to over £550m in the last
seven years.
Customer service and smart ticketing
Customer service is central to our growth plans. The latest independent
research by Passenger Focus shows that our customers are more satisfied with
their service than those using other national UK bus operators for the second
year in a row. Some 90% of Stagecoach bus passengers were either very or
fairly satisfied with their overall service, which is higher than the national
average of 88%. We are working hard to further improve the passenger
experience, by for example, expanding our use of social media site, Twitter. We
are also making a multi-million-pound investment in a nationwide automatic
vehicle location system for our regional bus fleet in the UK. It will allow real
time service information to be provided to customers via smartphone apps
and the Internet, and help local authorities deliver real time passenger
information.
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Strategic report
We are continuing to invest and roll-out smarter ticketing across the UK to
make travel easier for our customers. Nearly all of our bus companies in
England offer customers our StagecoachSmart travel cards and we have now
extended this benefit to passengers in Scotland and Wales. We were the first
major operator to accept concessionary smartcard transactions on every one of
our buses outside London. More than 240 million journeys are now made each
year on Stagecoach bus and rail services using smartcards and that figure will
grow further as we complete our roll out programme. In addition, we are
testing smartphone ticketing using near-field communications technology.
Partnership
Strong partnerships with local authorities are continuing to deliver improved
services for customers and support our growth plans. As well as building good
relationships in shire counties, partnerships are either in place or have been
proposed by bus operators in each of the metropolitan areas in England outside
London. Successful, award-winning partnerships, such as that in Sheffield
between South Yorkshire Passenger Transport Executive and several operators,
have helped improve bus reliability and punctuality, increase customer
satisfaction and generate passenger volume growth. In Oxford, our partnership
with Oxfordshire County Council and other operators has delivered coordinated
high-frequency bus services and an improved urban environment, whilst
maintaining high levels of bus use in the city.
In Tyne and Wear, as previously reported, there has been consideration of a
potential bus contracting system. Bus operators have put forward alternative
better partnership proposals to the transport authority, offering investment in
new vehicles, ticketing, network and customer service improvements, and
guaranteed financial savings for the public sector. Tyne and Wear has one of the
most used bus networks and recent research found it has the highest customer
satisfaction of any metropolitan area in England. Responsibility for deciding on
the merits of the respective partnership and bus contracting proposals has
passed from the now dissolved Tyne and Wear Integrated Transport Authority to
a new Combined Authority, which includes councils in County Durham and
Northumberland, with a decision expected in September 2014. We believe that
our extensive engagement with customers, bus employees and other
stakeholders suggests significant backing for partnership as the best way
forward for bus services and communities.
Inter-city coach services
Inter-city coach services operated under the megabus.com brand continue to
grow in the UK and in mainland Europe. Our megabus.com network in
mainland Europe is performing well and we have invested in new left-hand drive
coaches to serve these locations. We have built on our initial services linking
London with Paris, Brussels, Amsterdam and Boulogne to offer several new
destinations. In October 2013, we entered the German market for the first time
with a new route from London to Cologne. We have also added new services to
Ghent, Lille, Rotterdam and Antwerp. Most recently, in June 2014, we extended
our network into Spain and also widened our footprint in France, with a new
route linking London, Paris, Toulouse and Barcelona. We continue to explore
opportunities for the further expansion of the Group’s inter-city coach services in
continental Europe.
Outlook
We do not expect significant short-term growth in concessionary and tendered
revenue as local authorities look to minimise concessionary reimbursement
amounts and bus tenders in light of their budget constraints. This is exemplified
by the Welsh Government’s cuts in concessionary reimbursement rates for bus
operators in Wales. Our focus is therefore to seek to continue to deliver good
growth in commercial revenue to offset inflationary cost pressures.
Our assessment of the longer term outlook for our UK Bus (regional operations)
remains as before: the market conditions are positive with a combination of a
rising population, increasing road congestion, the cost of running a car and
widespread concern for the natural environment providing good potential for
increased bus usage across the UK. Furthermore, our business is well positioned
to outperform the market with its low fares, high customer satisfaction and
continued investment.
2.5.2 UK Bus (London)
Financial performance
The financial performance of the UK Bus (London) division for the year ended
30 April 2014 is summarised below:
Year to 30 April
Revenue and like-for-like revenue
Operating profit
Operating margin
2014
£m
244.9
23.9
9.8%
2013 (restated)
£m
232.7
19.0
8.2%
Change
5.2%
25.8%
160bp
Our UK Bus (London) operations have already surpassed the expectations we
had when we reacquired the business in 2010, reflecting the progress made in
restructuring the cost base, winning new profitable contracts and improving
operational performance. The operating profit for the year ended 30 April
2014 exceeds our expectations from the start of the year reflecting the further
positive progress made in the turnaround of the business.
Revenue growth
From 1 October 2013, the business no longer receives BSOG but this is offset by
a corresponding uplift in the contract prices paid to the business by Transport for
London. The impact of this change (all other things being equal) is an increase
in both our reported revenues and costs, and a decline in profit margin (as
shown in the table below) but no overall change to profit. Excluding the effect
of this change, revenue increased by 2.1%. As we anticipated, the underlying
decline in revenue that was reported in the first half of the financial year was
more than offset by growth in the second half as we benefitted from the nine
new contracts won last financial year.
Profitability
The further progress in improving both operational and financial performance is
reflected in the improvement in operating margin, which was built up as
follows:
Operating margin – 2012/13 (restated)
Change in:
Staff costs – Olympic payment
Staff costs – Other
Bus Service Operators’ Grant
Fuel costs
Insurance and claims costs
Materials, consumables and other costs
Operating margin – 2013/14
8.2%
0.3%
2.6%
(3.3)%
1.2%
(0.8)%
1.6%
9.8%
The results for the year ended 30 April 2013 included a net cost of £0.8m as a
result of the agreement reached between London bus operators, Transport for
London and trade unions to pay additional amounts to bus operators’
employees in connection with the 2012 London Olympics. This payment did not
recur in the current financial year contributing to the improved operating
margin shown above. In addition and consistent with the trend seen in the first
half of the year, other staff costs continue to reduce as a proportion of revenue
reflecting the steps previously taken to reduce units costs to ensure that the
business can compete effectively for new contracts.
During the second half of the year ended 30 April 2014, we benefited from
falling fuel prices with only around half of our anticipated fuel consumption
hedged by financial derivatives against price movements. This unanticipated
saving is reflected in the reduction in fuel costs as a percentage of revenue.
As we expected, insurance and claims costs increased in the second half of the
year ended 30 April 2014 because the equivalent costs in the prior year included
a benefit from reassessing the level of insurance provisions held in respect of
historic claims.
The reduction in other costs as a percentage of revenue mainly arises from
lower maintenance and other expenses relating to the return of leased buses to
lessors.
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Operational performance and investment
We are pleased to have made further steady progress in improving our
operational performance. Transport for London closely monitors the delivery of
its contractors across a range of indicators. Since we acquired the UK Bus
(London) division in 2010, we have improved the standing of the business in
Transport for London’s league tables significantly and are now among the
leading operators on key measures.
We have announced orders for around £21m of hybrid electric buses for London
to be delivered in 2014/15.
Current contract portfolio
The current, contracted, annualised revenue base (excluding contingent quality
incentive income and any miscellaneous income) of the Group’s London bus
operations is estimated at £257.4m (which compares to £239.2m of such
revenue for the year ended 30 April 2014) and can be analysed by contract
expiry date as follows:
Earliest date of contract expiry
Year ending 30 April 2015
Year ending 30 April 2016
Year ending 30 April 2017
Year ending 30 April 2018
Year ending 30 April 2019
Annualised revenue
£m
28.5
62.2
69.2
44.1
53.4
257.4
Outlook
Having surpassed the expectations we had for the London Bus business when
we reacquired it in 2010, the focus now remains on keeping costs under control
and aiming to retain and win contracts on acceptable terms. Given the
competitive environment in which our London Bus business operates, we
believe that delivering further improvement in reported operating margin
would be challenging but we do see potential for growth in absolute revenue
and profit over time.
2.5.3 North America
Financial performance
The financial performance of the North America division for the year ended
30 April 2014 is summarised below:
Year to 30 April
Revenue
Like-for-like revenue
Operating profit
Operating margin
2014
US$m
685.7
530.1
38.0
5.5%
2013 (restated)
US$m
641.2
510.3
21.1
3.3%
Change
%
6.9%
3.9%
80.1%
220bp
The increase in revenue and operating profit shown above includes the full
year effect of the businesses acquired from Coach America in July 2012 and
further growth in like-for-like revenue as analysed below.
Revenue growth
Year to 30 April
Megabus
Scheduled service and commuter
Charter
Sightseeing and tour
Contract
School bus
Like-for-like revenue
2014
US$m
177.9
213.6
78.1
22.6
36.1
1.8
530.1
2013
US$m
152.8
212.3
79.7
21.4
42.2
1.9
510.3
Change
%
16.4%
0.6%
(2.0)%
5.6%
(14.5)%
(5.3)%
3.9%
Despite the impact of severe weather during the year, further like-for-like
revenue growth has been delivered. Megabus.com continues to be the fastest
growing part of the North American business, with the growth reflecting both
the full year effect of the new networks launched in Texas and California in
2012/13 as well as further growth on more established networks.
Like-for-like charter revenue declined as we continued to adjust our charter
fleet size to reflect changes in demand and the decline in contract revenue
reflects the expiry of certain contracts previously operated by the Group.
The like-for-like growth in scheduled service and commuter revenue includes
declines in revenue on certain airport express services that we have
restructured with a view to improving their profitability. The like-for-like
growth in sightseeing and tour revenue included good growth in revenue at
our Chicago sightseeing operations.
Profitability
The increase in operating margin was built up as follows:
Operating margin – 2012/13
Change in:
Staff costs
Fuel costs
Sub-contracted services
Insurance and claim costs
Other
Operating margin – 2013/14
3.3%
1.0%
0.9%
0.7%
(0.2)%
(0.2)%
5.5%
Growth in our North America division is continuing to be driven by our inter-
city megabus.com services where we have further expanded our growing
megabus.com coach network. We have achieved our objective for the year,
which was to deliver a significant increase in the division’s operating profit
compared to 2012/13.
Overall, the financial performance of the non-megabus businesses remains
satisfactory and the integration of the businesses acquired from Coach
America in July 2012 has been successfully completed.
The changes in operating margin partly reflect the shift in the mix of business
with a full year of the businesses acquired in 2012 and as megabus.com
continues to grow at a faster rate than the other businesses. As revenue and
yield improves on megabus.com, staff and fuel costs grow to a lesser extent
and therefore fall as a proportion of revenue. Additional claims costs were
recorded in the year to reflect our latest assessment of the required provision
for claims on major incidents. Less megabus.com work has been sub-
contracted to third parties resulting in lower sub-contracting costs.
Megabus.com expansion
We have further expanded our growing megabus.com coach network in North
America during the year. It now serves around 130 cities in the United States
and Canada. We have also created more than 1,000 new jobs over the past
seven years as a result of the success of the product. In April 2014, we
announced a 14th North America hub, located in Orlando, Florida. Across
Florida, megabus.com now serves a total of six metro areas - Gainesville,
Jacksonville, Miami, Orlando, Tallahassee and Tampa. We also launched a new
route connecting Orlando and New Orleans. This followed the addition of new
destinations in North and South Carolina in February 2014 and routes between
Baton Rouge and Houston and New Orleans in September 2013. In July 2013,
we relaunched daily services between Cleveland and eight cities.
Recent research by the Chaddick Institute for Metropolitan Development of
DePaul University found travellers in the United States saved $1.1 billion last
year by taking megabus.com and other inter-city bus operators rather than the
train or plane. We believe the market to encourage people to switch from the
car to the bus is significant.
Investment and customer improvements
The North America division continues to invest in new vehicles and other
improvements in customer service. Our megabus.com expansion in 2013/14
has been supported by a US$10.5m investment in new double-decker coaches.
We have further improved the megabus.com website to better provide
customer alerts and exchange of trips during periods of weather disruption. We
are also seeking to further improve the safety and fuel-efficiency of our services
through the introduction of the same eco-driving technology we have
introduced in the UK.
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Strategic report
Canada
We have been working with other bus operators in Ontario on a campaign to
encourage greater customer choice through changes to the current licensed
system in the province, which is controlled by government. The Premier of
Ontario and the Minister of Transportation have previously publicly supported a
change to the system, but as yet the regulation has not been modified.
Research published by Ipsos Reid found that 80% of Ontarians polled believed
change should be a priority for the Ontario government.
Disposals
In October 2013, we completed two small disposals of businesses as part of our
strategic focus on commercial intercity, commuter and scheduled services. RAZ
was purchased by DMC Transport, LLC for US$0.8m. The business, located in
the North West of the United States, provides charter services and operating
contracts for the transportation of construction workers to and from work sites.
In Canada, we sold several small operations to Pacific Western Transportation
Ltd for C$4.6m. This included the last of our remaining school bus operations,
based in Peterborough and Whitby, a local transit contract business, and
services providing transport to and from Pearson International Airport in
Toronto.
Outlook
Revenue growth in North America remains the highest of any of our divisions,
reflecting the successful expansion of megabus.com services. We expect this to
continue with the further expansion of the megabus.com inter-city services,
including the new Florida network where operations began in May 2014.
Although we would not expect the level of increase in operating profit in the
year ended 30 April 2014 to be repeated in the new financial year, we remain
positive on the prospects for the North America Division.
2.5.4 UK Rail
Financial performance
The financial performance of the UK Rail division for the year ended 30 April
2014 is summarised below:
Year to 30 April
2014
£m
2013 (restated)
£m
Revenue and like-for-like revenue
Operating profit
Operating margin
1,252.0
34.3
2.7%
1,201.3
41.2
3.4%
Change
4.2%
(16.7)%
(70)bp
Revenue growth
The Group’s two wholly-owned rail franchises, South West Trains and East
Midlands Trains, continue to receive “revenue support” which partly offsets the
extent to which actual revenue falls short of the revenue that was forecast as
part of the successful bids for the franchises. As a result of the revenue support
arrangements, the profit of our UK Rail Division is less sensitive to changes in
revenue than it would otherwise be.
The Division reported good revenue growth for the year ended 30 April 2014
even after allowing for the adverse effect on revenue of severe winter weather,
particularly at South West Trains.
Profitability
The decrease in operating margin was built up as follows:
Operating margin – 2012/13 (restated)
Change in:
Amounts paid to / from DfT
Other operating income
Other
Operating margin – 2013/14
page 18 | Stagecoach Group plc
The financial performance of our rail businesses is in line with our expectations
and there is continuing good passenger revenue growth at our South West and
East Midlands rail franchises. Expected increases in the franchise payments to
the DfT resulted in a reduced operating margin for the year.
Our efficient financial stewardship of the railway and our ability to generate
continued growth is benefitting taxpayers. Recent data published by the Office
of the Rail Regulator shows that our South West Trains franchise made the
largest net return to the taxpayer of any UK train operator in 2012/13, providing
a significant premium which the government can choose to invest in public
services and improvements for passengers.
Franchise opportunities and negotiations
We are pleased that the rail franchising programme is again moving. We believe
it is important to move quickly in restoring the competitive award of franchises
and taking steps to agree commercial contracts to ensure passengers and
taxpayers fully benefit. There are several opportunities ahead and we will bid for
franchises where we believe we can improve services for passengers and add
value to our shareholders. In the year ended 30 April 2014, we invested around
£9m in pursuing new rail franchise opportunities.
We continue to discuss with the DfT the planned direct awards of new South
West Trains and East Midlands Trains franchises. The DfT has previously
announced that it plans to extend our tenure at South West Trains from
February 2017 to April 2019, the end of Network Rail’s regulatory Control
Period 5. In March 2014, the DfT exercised the pre-contracted extension of the
East Midlands rail franchise through to October 2015. The Group is continuing
discussions with the DfT on a planned direct award at East Midlands Trains,
subject to agreement of commercial terms, from October 2015 through to
October 2017.
In December 2013, we submitted our bid for the Thameslink, Southern and
Great Northern franchise with clear plans to manage the substantial, complex
changes the franchise will face in the coming years. We were disappointed not
to win the franchise but see further opportunities for franchise wins. We are one
of three bidders shortlisted for a new Docklands Light Railway franchise, and we
expect Transport for London to soon announce who has been awarded that
franchise. We have also recently submitted a bid with Virgin for the new East
Coast franchise and we expect the DfT to announce later in 2014 which of the
three bidders has been awarded the franchise.
Our Alliance between South West Trains and Network Rail, where one
management team manages both trains and track, is helping deliver a more
integrated and customer-focused railway for passengers. We believe our hard
work over the past two years has given us an invaluable insight, which we can
leverage as part of our franchising strategy. We are pleased that South West
Trains and Network Rail have entered into a new agreement that extends the
duration of their alliance and will build on the successes that the Alliance has
achieved over the last two years. The new agreement contemplates that the
single, joint Alliance management team will continue to have responsibility for
both train and infrastructure operations for the next five years to April 2019.
Investment in trains, stations, infrastructure and customer service
Strong operational performance has been underpinned by consistently high
levels of customer satisfaction across our UK rail division over several years. The
latest National Passenger Survey, published in June 2014, shows more than
eight in ten customers at our South West Trains and East Midlands Trains
networks are satisfied with their services.
3.4%
(1.0)%
0.7%
(0.4)%
2.7%
Expanding capacity and improving the resilience of the track and signalling
infrastructure is a key priority, particularly on busy commuter services into
London. Around £360m is being spent to renew and enhance the
infrastructure to provide more reliable journeys at our South West Trains
franchise, Europe’s busiest commuter network. The first of 108 extra carriages
have been introduced on the network as part of a £65m programme to provide
an additional 23,000 peak time seats every weekday. Platform 20 at the former
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Waterloo International Terminal (“WIT”) has been opened ahead of schedule to
help accommodate trains during disruption. The Alliance is also working with
the DfT on significant proposals to re-open the remaining four WIT platforms
and to extend platforms 1 to 4 at London Waterloo to create extra capacity at
the UK's busiest station.
East Midlands Trains has been the UK's most punctual long distance train
operator for the past four years and we are committed to improving services
further for our customers. We worked in partnership with Network Rail over the
summer to deliver a successful £100m resignalling improvement scheme in the
Nottingham area. It included one of the largest bus rail replacement operations
and we offered affected passengers a 15% discount on rail fares during the
works. Station improvement schemes have been completed at the key Derby
and Leicester transport hubs and we are rolling out free wi-fi to 30 stations. East
Midlands Trains is creating more than 1,000 extra cycle spaces at stations
throughout the network, to deliver greener and more integrated travel. New
changing facilities and a cycle repair shop are being introduced at Sheffield and
Leicester stations.
Customer service and improved communication and engagement are among
our top priorities across our rail businesses. South West Trains, which has won a
national “Putting Passengers First” award for keeping customers informed, has
launched a new Passenger Forum. East Midlands Trains has launched a new
customer contact centre with extended opening hours. It has also become the
first train company in the UK to offer a 24-hour, 7-day-a-week point of contact
for its customers within its control centre. The team is available to book
passenger assistance, answer help-point calls, help to track lost property and
deal with any urgent enquiries, as well as engaging with customers via social
media.
Light rail
The Sheffield Supertram network is benefitting from a five-year multi-million-
pound track improvement project, which will safeguard the future of Sheffield’s
tram network for the long-term. During the year, we launched a commercial
smart ticketing scheme, which allows customers to store their tickets
electronically on a StagecoachSmart travel card. It means passengers can access
integrated smart ticketing across Stagecoach’s bus and tram operations in
Sheffield. Recent Passenger Focus research showed that 94% of Supertram
customers in Sheffield were satisfied with their overall service, above the
average score of 90% for the five UK light rail networks covered in the survey.
Outlook
As we approach the end of the existing period of our two wholly-owned
franchises, the financial performance of the businesses becomes more
challenging compared to that forecast in the original bids for the franchises.
The existing franchise periods end in 2015 for East Midlands Trains and in 2017
for South West Trains. South West Trains and East Midlands Trains face further
substantial increases in the amounts they are due to pay to the DfT as franchise
premia amounts in the year ahead. While we remain focussed on growing
revenue and controlling costs to offset these increased premia payments, to the
extent possible, the greater opportunities to add value in UK Rail lie in the
planned direct awards of new South West Trains and East Midlands Trains
franchises and in the opportunities to secure other new franchises.
2.5.5 Joint Ventures
2.5.5.1 Virgin Rail Group
Financial performance
The financial performance of the Group’s Virgin Rail Group joint venture
(excluding intangible asset expenses and exceptional items) for the year
ended 30 April 2014 is summarised below:
Year to 30 April
49% share
Revenue and like-for-like revenue
Operating profit
Net finance income
Taxation
Profit after tax
Operating margin
2014
£m
465.6
2.6
0.3
(0.9)
2.0
0.6%
2013 (restated)
£m
441.5
10.5
0.5
(2.7)
8.3
Change
5.5%
(75.2)%
(40.0)%
(66.7)%
(75.9)%
2.4%
(180)bp
Until December 2012, Virgin Rail Group (“VRG”) operated the West Coast rail
franchise under a commercial agreement where it was at risk for variations in
revenue and cost, and earned a commensurate return. To ensure the
continued operation of the franchise following the DfT’s failure to properly
conclude its re-letting of the franchise during 2012, a temporary commercial
arrangement was entered into in December 2012. Since then until June 2014,
VRG has earned a pre-tax profit equivalent to 1% of revenue from the West
Coast rail franchise with the DfT taking virtually all of the risk that revenue
and/or costs differ from those expected.
VRG has now reached an agreement with the DfT to return its West Coast rail
franchise to more normal commercial terms. Under the new agreement, the
West Coast rail franchise is now planned to run until at least March 2017.
VRG will look to build on its industry-leading customer satisfaction by
delivering a range of further enhancements to the customer experience,
including, high bandwidth wi-fi, a partnership with the Nectar loyalty scheme,
additional standard class seating capacity, more ticket vending machines, an
upgraded website and planned new train services from London to Blackpool
and Shrewsbury. The new franchise has a “GDP sharing” agreement that is
intended to ensure that the DfT bears most of the risk of variances in the
West Coast Trains’ revenue resulting from UK GDP differing from that
expected at the time of the June 2014 franchise agreement. A profit share
arrangement also applies whereby a share of the profit above certain pre-
determined thresholds is payable to the DfT.
Business developments
VRG introduced a new timetable in December 2013 following investment in
four new 11-car Pendolino trains and 62 extra standard train carriages, which
has delivered significant extra capacity. The new timetable provides new
through journey opportunities between the Midlands, North West England
and Scotland. Network Rail has delivered a £7.6m investment in
improvements to overhead power lines on the busiest section of the West
Coast Main Line between London and Rugby. The work is designed to
improve operational performance and reduce delays for passengers. VRG is
also working closely to ensure the West Coast franchise is effectively
integrated with the Government’s planned HS2 network.
Further investment is being made by VRG in customer service improvements
for passengers, including a new First Class lounge at London Euston station
and accessibility enhancements at other stations. VRG’s West Coast franchise
has achieved consistently high customer satisfaction and in the most recent
National Passenger Survey, customer satisfaction was 90%.
Outlook
The new West Coast Trains franchise that Virgin Rail Group has now agreed
enables it to deliver a range of benefits to customers. The franchise also has the
potential to deliver higher levels of profitability than were earned in the year
ended 30 April 2014 under the management contract then in force.
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Strategic report
2.5.5.2 Twin America
Financial performance
The financial performance of the Group’s Twin America joint venture
(excluding intangible asset expenses and exceptional items) for the year
ended 30 April 2014 is summarised below:
Year to 30 April
60% share
Revenue
Operating profit
Taxation
Profit after tax
2014
US$m
81.6
9.1
(0.3)
8.8
2013
US$m
88.7
19.3
(0.8)
18.5
Change
(8.0)%
(52.8)%
(62.5)%
(52.4)%
Operating margin
11.2%
21.8% (1,060)bp
Trading remains challenging as a result of an increasingly competitive New
York sightseeing market, among other factors, and we anticipate that our
share of profit from Twin America will further reduce in the year ending
30 April 2015. Major international bus operators such as Big Bus and RATP
have entered the New York sightseeing market in recent months adding to an
already highly competitive New York Tourist market.
Litigation
We have made progress in resolving the previously reported litigation
regarding Twin America.
The US Department of Justice and the New York Attorney General (together,
"the Government plaintiffs") initiated litigation against Twin America and its
joint venture partners ("the Defendants", which include two Stagecoach US
subsidiaries) in 2012. The litigation alleges that the formation of the Twin
America joint venture in 2009 was anti-competitive. Separately, private
plaintiffs brought a claim based on the same allegations on behalf of a
proposed class of customers.
The Defendants have not admitted any liability but have agreed a cash
settlement of US$19m (US$11.9m) with the private plaintiffs to fully resolve
the private litigation. That settlement has received preliminary court
approval. Final court approval is anticipated in approximately six to nine
months following a period for class notification and claims administration.
The Government action remains pending at this time. Until the Government
action concludes, the total financial cost of the actions cannot be determined.
The Group has recorded exceptional pre-tax costs of US$14.8m (£9.2m) in
its consolidated financial statements for the year ended 30 April 2014 in
respect of its share of financial costs connected with the litigation. The
ultimate cost to the Group may differ from this as it remains dependent on
court approval of the settlement with private plaintiffs and also, the outcome
of the Government action.
2.5.5.3 Scottish Citylink
Our Scottish Citylink joint venture with Comfort DelGro is the leading inter-
city coach operator in Scotland. The megabusGold and sleepercoach services,
launched in 2012/13, have performed well. During the year, we launched a
dedicated website to market these services. We are already achieving good
load factors and are now focused on effective yield management and
refinements to our customer service offer.
2.6 Other financial matters
2.6.1 EBITDA, depreciation and intangible asset expenses
Earnings from continuing operations before interest, taxation, depreciation,
intangible asset expenses and exceptional items (pre-exceptional EBITDA)
amounted to £340.2m (2013 restated: £333.9m). Pre-exceptional EBITDA
can be reconciled to the consolidated financial statements as follows:
Year to 30 April
Total operating profit before
intangible asset expenses and
exceptional items
Depreciation
Add back joint venture
finance income & tax
Pre-exceptional EBITDA
2014
£m
2013 (restated)
£m
223.3
115.7
1.2
340.2
220.7
110.0
3.2
333.9
The income statement charge for intangible assets decreased from £16.1m to
£14.0m. Of the charge, none (2013: £1.0m) related to joint ventures.
2.6.2 Exceptional items
The following exceptional items were recognised in the year ended 30 April
2014:
• The share of profit of joint ventures includes a pre-tax charge of £9.2m in
respect of the Group’s share of the financial costs associated with the Twin
America litigation. Further details are provided in section 2.5.5.2 above.
• Virgin Rail Group received a further £2.0m from the DfT during the year
ended 30 April 2014 in respect of the refund of bid and related legal costs
incurred on the West Coast rail franchise. The Group’s £1.0m share of this
is included within the share of profit of joint ventures as is the related
£0.2m tax charge in respect of the refund.
• A net pre-tax loss of £0.2m in respect of the disposal of certain North
American businesses is recognised within non-operating exceptional items.
• £0.1m of pre-tax costs incurred in connection with the acquisition of
businesses during the year ended 30 April 2014 are reported within non-
operating exceptional items.
2.6.3 Net finance costs
Net finance costs for the year ended 30 April 2014 were £42.6m (2013
restated: £43.3m) and can be further analysed as follows:
Year to 30 April
Finance costs
Interest payable and other facility costs on bank loans,
loan notes, overdrafts and trade finance
Hire purchase and finance lease interest payable
Interest payable and other finance costs on bonds
Unwinding of discount on provisions
Interest charge on defined benefit pension schemes
Finance income
Interest receivable on cash
Effect of interest rate swaps
Net finance costs
2013
(restated)
£m
2014
£m
7.2
3.5
28.0
3.9
4.6
47.2
(3.2)
(1.4)
(4.6)
42.6
6.2
5.2
26.2
3.9
5.9
47.4
(2.5)
(1.6)
(4.1)
43.3
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2.6.4 Taxation
The effective tax rate for the year ended 30 April 2014, excluding exceptional
items, was 16.8% (2013 restated: 21.4%). The effective rate is lower than the
standard rate of UK corporation tax for the year of 22.8% due primarily to
adjustments in respect of prior years the utilisation of previously
unrecognised tax losses and the impact of the reduction in the rate at which
deferred tax is calculated (following the reduction in the corporation tax rate
from 23% to 20%). The tax charge for continuing operations can be analysed
as follows:
Year to 30 April 2014
Excluding intangible asset expenses
and exceptional items
Intangible asset expenses
Exceptional items
Reclassify joint venture taxation for
reporting purposes
Reported in income statement
Pre-tax profit
£m
Tax
£m
Rate
%
182.2
(32.7)
17.9%
(14.0)
168.2
(8.5)
159.7
(1.7)
158.0
4.5
32.1%
(28.2)
16.8%
1.0
11.8%
(27.2)
17.0%
1.7
(25.5)
16.1%
2.6.5 Fuel costs
The Group’s operations as at 30 April 2014 consume approximately 399.5m
litres of diesel fuel per annum. As a result, the Group’s profit is exposed to
movements in the underlying price of fuel. The Group’s fuel costs include the
costs of delivery and duty as well as the costs of the underlying product.
Accordingly, not all of the cost varies with movements in oil prices.
The proportion of the Group’s projected fuel usage that is now hedged using
fuel swaps is as follows:
Year ending 30 April
2015
2016
2017
2018
Total Group
83%
35%
3%
1%
The Group has no fuel hedges in place for periods beyond 30 April 2018.
2.6.6 Cash flows
Net cash from operating activities before tax for the year ended 30 April 2014
was £268.5m (2013: £329.2m) and can be further analysed as follows:
Year to 30 April
2014 2013 (restated)
£m
£m
EBITDA of Group companies before exceptional items 330.2
Loss on disposal of property, plant and equipment
2.1
Equity-settled share based payment expense
2.2
Working capital movements
(42.3)
Net interest paid
(33.5)
Dividends from joint ventures
8.2
Difference between employer pension contributions
and pension expense in operating profit
1.6
309.4
2.0
2.6
27.9
(35.2)
24.9
(2.4)
Net cash flows from operating activities before taxation 268.5
329.2
The net working capital outflow for the year ended 30 April 2014 of £42.3m
(2013: inflow of £27.9m) was principally attributable to the timing of cash
flows in the UK Rail division. Excluding the cash held within train operating
companies, net debt reduced £102.5m in the year.
Net cash from operating activities before tax was £268.5m (2013: £329.2m)
and after tax was £248.3m (2013: £313.1m). Net cash outflows from
investing activities were £121.8m (2013: £241.1m), which included £5.5m
(2013: £106.7m) in relation to the acquisition of businesses. Net cash used in
financing activities was £146.3m (2013: £52.4m).
2.6.7 Net debt
Net debt (as analysed in note 30(c) to the consolidated financial statements)
decreased from £538.0m at 30 April 2013 to £461.6m at 30 April 2014, due
to the Group’s continued strong cash generation. The Group’s net debt at
30 April 2014 is further analysed below:
Unrestricted cash
Cash held within train operating
companies
Restricted cash
Total cash and cash equivalents
US Notes
Sterling bond
Sterling hire purchase
and finance leases
US dollar hire purchase and
finance leases
Loan notes
Bank loans
Fixed
rate
£m
–
–
–
–
–
(400.0)
Floating
rate
£m
50.6
Total
£m
50.6
170.8
18.9
240.3
(88.5)
–
170.8
18.9
240.3
(88.5)
(400.0)
(5.0)
(68.1)
(73.1)
(38.2)
–
–
–
(19.7)
(82.4)
(38.2)
(19.7)
(82.4)
Net debt
(443.2)
(18.4)
(461.6)
The split between fixed and floating rate debt shown above takes account of
the effect of interest rate swaps in place as at 30 April 2014.
The net impact of purchases of property, plant and equipment for the year on
net debt was £160.9m (2013: £208.7m). This primarily related to
expenditure on passenger service vehicles, and comprised cash outflows of
£154.2m (2013: £181.9m) and new hire purchase and finance lease debt of
£6.7m (2013: £26.8m). In addition, £42.0m (2013: £53.4m) cash was
received from disposals of property, plant and equipment.
2.6.8 Liquidity
The Group’s financial position remains strong and is evidenced by:
• The ratio of net debt at 30 April 2014 to pre-exceptional EBITDA for the
year ended 30 April 2014 was 1.4 times (2013 restated: 1.6 times).
• Pre-exceptional EBITDA for the year ended 30 April 2014 was 8.0 times
(2013 restated: 7.8 times) net finance charges (including joint venture net
finance income).
• Undrawn, committed bank facilities of £342.1m at 30 April 2014 (2013:
£303.8m) were available to be drawn as bank loans with further amounts
available only for non-cash utilisation. In addition, the Group continues to
have available asset finance lines.
• The three main credit rating agencies continue to assign investment grade
credit ratings to the Group.
The Group’s main bank facilities are committed through to 2016.
2.6.9 Capital expenditure
Additions to property, plant and equipment for the year were:
Year to 30 April
UK Bus (regional operations)
UK Bus (London)
North America
UK Rail
Other
2014
£m
88.5
2.9
33.9
37.1
–
162.4
2013
£m
90.0
13.3
68.3
33.7
0.4
205.7
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Strategic report
2.6.10 Net assets
Net assets at 30 April 2014 were £79.3m (2013 restated: £16.3m).
Retirement benefits
2.6.11
The reported net assets of £79.3m (2013 restated: £16.3m) that are shown
on the consolidated balance sheet are after taking account of net pre-tax
retirement benefit liabilities of £115.8m (2013 restated: £109.6m), and
associated deferred tax assets of £23.1m (2013 restated: £25.2m).
The Group recognised net pre-tax actuarial losses of £Nil in the year ended
30 April 2014 (2013 restated: £29.2m) on Group defined benefit schemes.
2.6.12 Capital
The Group regards its capital as comprising its equity, cash, gross debt and
any similar items. As at 30 April 2014, the Group’s capital comprised:
As at 30 April
Market value of ordinary shares in issue
(excluding shares held in treasury)
Cash
Gross debt
Net debt (see section 2.6.7)
2014
£m
2013
£m
2,134.6
1,771.5
240.3
(701.9)
(461.6)
262.2
(800.2)
(538.0)
The Group manages its capital centrally. Its objective in managing capital is to
optimise the returns to its shareholders whilst safeguarding the Group’s
ability to continue as a going concern and as such its ability to continue to
generate returns for its shareholders. The Group also takes account of the
interests of other stakeholders when making decisions on its capital structure.
The capital structure of the Group is kept under regular review and will be
adjusted from time to time to take account of changes in the size or structure
of the Group, economic developments and other changes in the Group’s risk
profile. The Group will adjust its capital structure from time to time by any of
the following: issue of new shares, dividends, return of value to shareholders
and borrowing/repayment of debt. There are a number of factors that the
Group considers in evaluating capital structure. The Directors’ principal focus
is on maintaining an investment grade credit rating. As well as considering
the measures applied by credit rating agencies, the other principal ratios that
the Directors consider are (1) Net Debt to EBITDA, (2) EBITDA to interest and
(3) Net Debt to market capitalisation. It is a matter of judgement as to what
the optimal levels are for these ratios.
2.6.13 Treasury policies and objectives
Risk management is carried out by a treasury committee and a central
treasury department (“Group Treasury”) under policies approved by the
Board. Group Treasury identifies, evaluates and hedges financial risks in co-
operation with the Group’s operating units. The Board provides written
principles for overall treasury risk management, as well as written policies
covering specific areas, such as foreign exchange risk, interest rate risk, credit
risk, use of derivative financial instruments and investing excess liquidity.
The funding policy is to finance the Group through a mixture of bank, lease
and hire purchase debt, capital markets issues and cash generated by the
business.
See note 26 to the consolidated financial statements, for details of
• the Group’s exposure to financial risks;
• the Group’s treasury risk management;
• the Group’s management of interest rate risk;
• the Group’s fuel hedging;
• the Group’s management of foreign currency risk; and
• the Group’s management of credit risk.
Major financing transactions
During the year, the Group entered into various hire purchase and finance
lease arrangements for new assets as described in note 30(d) to the
consolidated financial statements.
The following new financing arrangements were put in place during the year
ended 30 April 2014 and subsequently:
• In May 2013, a new c.£31m three-year rail bonding arrangement was
agreed to replace an arrangement that was due to expire in November
2013.
• In February 2014, two new one-year rail bonding arrangements of c.£72m
and c.£8m were entered into to replace two arrangements that were due
to expire in March 2014.
• In November 2013, a US$70m bank facility which was due to expire in
February 2014, was increased to US$80m and extended until November
2018. This facility was subsequently increased to US$85m in May 2014.
• The Group entered into new operating lease commitments totalling
£21.2m in respect of new vehicles.
2.6.14 Critical accounting policies and estimates
The Group’s material accounting policies are set out in note 1 to the
consolidated financial statements.
Preparation of the consolidated financial statements in accordance with
International Financial Reporting Standards (“IFRS”) as adopted by the
European Union requires directors to make estimates and assumptions that
affect the reported amounts in the consolidated financial statements and
accompanying notes. Actual outcomes could differ from those estimated. The
Directors believe that the accounting policies and estimation techniques
discussed below represent those that require the greatest exercise of
judgement. The Directors have used their best judgement in determining the
estimates and assumptions used in these areas but a different set of
judgements could result in material changes to the Group's reported financial
performance and/or financial position. The discussion below should be read in
conjunction with the full statement of accounting policies.
Pensions
The determination of the Group’s pension benefit obligation and expense for
defined benefit pension schemes is dependent on the selection by the
Directors of certain assumptions used by actuaries in calculating such
amounts. Those assumptions include the discount rate, annual rate of
increase in future salary levels and mortality rates. The Directors’ assumptions
are based on actual historical experience and external data. While we believe
that the assumptions are appropriate, significant differences in actual
experience or significant changes in assumptions may materially affect the
pension obligation and future expense.
Insurance
The Group receives claims in respect of traffic incidents and employee
incidents. The Group protects against the cost of such claims through third
party insurance policies. An element of the claims is not insured as a result of
the “excess” or “deductible” on insurance policies. Provision is made for the
estimated cost to the Group (net of insurance recoveries) to settle claims for
incidents occurring prior to the balance sheet date. The estimation of the
balance sheet insurance provisions is based on an assessment of the expected
settlement on 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 eventual
settlements on such claims may differ from the amounts provided for at the
balance sheet date. This is of greater risk in “younger” operations with a
shorter claims history from which to make informed estimates of provisions.
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Taxation
The Group’s tax charge is based on the pre-tax profit for the year and tax rates
in force. Estimation of the tax charge requires an assessment to be made of the
potential tax consequences of certain items that will only be resolved when
agreed by the relevant tax authorities. Assessment of the likely outcome is
based on historical experience, professional advice from external advisors, and
the current status of any judgmental issues. However, the final tax cost to the
Group may differ from the estimates.
Litigation
The Group is from time to time party to litigation. The nature of litigation is
such that there can be uncertainty in estimating the amounts that the Group
will ultimately receive or pay. Assessment of the likely outcomes is based on
legal advice and past experience. However, the final outcomes may differ from
those reflected in the financial statements. Contingent liabilities are disclosed
in the financial statements to the extent required by accounting standards.
Acquired customer contracts and onerous contracts
The Group has a number of contractual commitments most significantly in
respect of its rail franchises and its London bus business. In certain
circumstances, IFRS requires a provision to be recorded for a contract that is
“onerous” or when acquired as part of a business combination, that is
unfavourable to market terms. A contract is considered onerous where it is
probable that the future economic benefits to be derived from the contract
are less than the unavoidable costs under the contract. Determining the
amount of any contract provision necessitates forecasting future cash flows
and applying an appropriate discount rate to determine a net present value.
There is uncertainty over future cash flows. Estimates of cash flows are
consistent with management’s plans and forecasts. The estimate of future
cash flows and the discount rate involves a significant degree of judgment.
Actual results can differ from those assumed and there can be no absolute
assurance that the assumptions used will hold true.
Goodwill and impairment
In certain circumstances, IFRS requires property, plant, equipment and
intangible assets to be reviewed for impairment. When a review for
impairment is conducted, the recoverable amount is assessed by reference to
the net present value of the expected future cash flows of the relevant cash
generating unit (“CGU”) or net realisable value, if higher. The discount rate
applied in determining the present value of future cash flows is based on the
Group’s estimated weighted average cost of capital with appropriate
adjustments made to reflect the specific risks associated with the CGU.
Estimates of cash flows are consistent with management’s plans and forecasts.
The estimation of future cash flows and the discount rate involves a significant
degree of judgement. Actual results can differ from those assumed and there
can be no absolute assurance that the assumptions used will hold true.
Property, plant and equipment
Property, plant and equipment, other than land, are depreciated on a straight-
line basis to write off the cost or valuation less estimated residual value of
each asset over their estimated useful lives. Useful lives are estimated based
on a number of factors, including the expected usage of the asset, expected
deterioration and technological obsolescence. If another depreciation
method (for example, reducing balance) was used or different useful lives or
residual values were applied, this could have a material effect on the Group’s
depreciation charge and net profit.
Rail contractual positions
The UK Rail industry is subject to a complex matrix of contractual
relationships. The Group’s train operating companies are party to contractual
relationships with, amongst others, the DfT, Network Rail and rolling stock
lessors. The nature of these contracts is such that there can be uncertainty
and/or disagreement as to amounts receivable or payable by the Group in
accordance with the contracts. The Group makes estimates of the amounts
receivable or payable taking account of the available, relevant information.
Actual outcomes can differ from the estimates made by the Group and there
can be no absolute assurance that the assumptions made by the Group will
hold true.
2.7 Current trading and outlook
The Group has made a satisfactory start to its financial year ending 30 April
2015 and overall trading for the financial year to date is in line with our
expectations.
We continue to see positive long-term prospects for public transport in the
markets in which we operate. There is a large market opportunity for modal
shift in both the UK and North America to capitalise on rising road
congestion, higher car operating costs and increasing environmental
awareness. Our successful strategy of offering good value travel, investment
and high levels of operational performance and customer service means we
are well placed to achieve further sustainable growth. We are progressing
discussions to reach commercial agreements with the Government to extend
our current rail franchises. In addition, under the DfT’s franchising
programme, there are several opportunities ahead to expand our rail portfolio
and we are focussed on developing bids which will benefit customers and
deliver value for money to government. We believe our track record of
innovation and partnership working can benefit passengers and taxpayers
and give us a competitive advantage which can generate good returns for our
shareholders.
2.8 Corporate Social Responsibility
Every day, our business and our employees touch people’s lives and we make
a significant contribution to society. Like all businesses, we want to grow, but
we want to do that responsibly. Our approach focuses on a number of specific
key areas:
• Our people and our customers
• Safety and security
• Accessibility and affordability
• Environmental stewardship and performance
• Building community relationships
• Corporate governance
We take a proactive approach to conducting our business in a responsible
manner and this has been independently recognised by a range of
organisations. We are a constituent in the FTSE4Good Index Series, meeting
stringent environmental, social and governance criteria. The Group has been
rated highly for its carbon disclosure and the steps it has taken in reducing
carbon emissions from its business. We have consistently been rated well
ahead of our bus and rail group peers in Management Today’s annual review
of Britain’s top companies. At the same time, research in the UK by Passenger
Focus has highlighted our sector-leading customer satisfaction. This all
contributes to a positive reputation that in turn supports the recruitment and
retention of frontline employee and management talent.
The success of our business helps generate income for government to invest
in public services and improvements to transport infrastructure.
Understanding the impacts of our business and having policies and targets in
place also means we are well-placed to meet our social and regulatory
obligations in each of our markets.
Right across our global operations, we will continue to work with our
stakeholders to become even more efficient and cut our business impact on
the environment.
We have published separate documents setting out our approach to
corporate social responsibility. These documents and comprehensive
information on our initiatives can be found on our website at the following
link: http://www.stagecoach.com/sustainability.aspx.
This section includes just a small number of examples of our work to
demonstrate the steps we are taking to meet our responsibilities.
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Strategic report
2.8.1 Living our values
Stagecoach Group has a set of core values and policies, which are detailed in
our Group Code of Conduct. This sets out key principles and provides practical
examples and guidance to help shape employees’ corporate behaviour. It
includes information on the Group’s anti-corruption policy and programme,
which is supported by the Board of Directors. The Board of Directors remains
committed to ensuring appropriate processes, controls, governance and
culture exists to support the maintenance of these values and behaviours. The
Code of Conduct is subject to periodic review by the Group Compliance
Committee and the Audit Committee. We have developed new and expanded
guidance for our employees on the use of social media. A copy of our Code of
Conduct can be found at the following link:
http://www.stagecoach.com/~/media/Files/S/Stagecoach-
Group/Attachments/pdf/stagecoach-group-code-of-conduct-2014.pdf
2.8.2 Supporting and recognising our people
Our employees are fundamental to the success of our business. This has
been illustrated during the year by the response of our teams to the
challenges of extended extreme weather. We believe in engaging and
supporting our people and investing in a high quality, diverse team. We
promote a culture where employees are treated with respect and given the
opportunity to develop. This means that we are able to provide a better
service to our customers.
We have a strong vocational training programme in our bus and rail
businesses and we continue to invest in developing our people. Our UK Bus
business has one of the most extensive vocational training programmes of
any bus operator. Our UK team of around 18,000 bus drivers has completed
more than 90,000 training courses as part of the Driver Certificate in
Professional Competence (“CPC”) initiative, which is accredited by the Driver
Standards Agency. Around 150 people benefit at any one time from our
engineering apprentice programme, while our graduate development
initiative continues to produce directors, senior managers and experts in
operations and engineering. We have similar schemes in place at our UK Rail
division. More than 200 employees at South West Trains were given the
opportunity to achieve an NVQ during 2013/14. During the year, we also
launched a management development programme at East Midlands Trains
which offers aspiring frontline employees the chance to develop their skills
to forge a career in management. Our centralised driver training school for
our New York and New Jersey bus operations is also helping to improve the
quality and consistency of our training. Major investment is also being
made across our business in dedicated customer service training.
The health and well-being of our people remains a priority. Many of our
businesses run dedicated well-being days where employees have access to
free flu jabs and confidential health assessments. There is also advice
available from bowel cancer and ovarian cancer awareness charities and
female employees within our UK bus operations were provided with
education and self-examination packs during National Breast Cancer
Awareness Week. Employees across the UK and North America are given
access to 24/7 assistance programmes where they can seek confidential
advice on any problems. Our successful cycle to work scheme has now been
rolled out across the UK. It provides an opportunity for our employees to pay
for a bike through monthly pre-tax installments.
We believe firmly in creating an inclusive and diverse workforce. In partnership
with trade unions, we have introduced management training programmes
and awareness campaigns on various issues, such as mental health. We have
also partnered with the charity Mencap and taken part in a number of work
experience programmes for people with learning difficulties.
We work hard to create a great place to work and build a culture that rewards
the excellent work of our employees. Our annual Stagecoach Champions
Awards, which are open to all employees, recognise excellence in the areas of
safety, community, health, customer service, environment and innovation.
page 24 | Stagecoach Group plc
2.8.3 Employment policies
The Group strives to meet its business objectives by motivating and
encouraging its employees to be responsive to the needs of its customers
and to maintain and, where possible, improve operational performance. The
Group is also committed to providing equality of opportunity to employees.
This applies to appropriate training, career development and promotion
opportunities for all employees regardless of disability, gender, sexual
orientation, religion, belief, age, nationality, race or ethnic origin. The Group
gives full consideration to applications for employment from disabled
persons where a disabled person can adequately fulfil the requirements of
the job. Where existing employees become disabled, it is the Group’s policy,
wherever practicable, to provide continuing employment under normal
terms and conditions and to provide training, career development and
promotion to disabled employees wherever appropriate.
The Group is committed to employee participation and uses a variety of
methods to inform, consult and involve its employees. Employees
participate directly in the success of the business through the Group’s bonus
and other remuneration schemes and are encouraged to invest through
participation in share schemes.
The Group periodically arranges meetings that bring together
representatives from management and trade unions. Discussions take place
regularly with the trade unions representing the vast majority of the Group’s
employees on a wide range of issues. The Group also produces a range of
internal newsletters and information circulars that keep employees abreast
of developments. Employees are encouraged to discuss matters of interest
to them and subjects affecting day-to-day operations of the Group with
management.
The Group is committed to developing a culture of openness across all its
businesses and ensuring the highest standards of probity and accountability.
The Board actively encourages employees with serious concerns about the
interests of others or the Group to come forward. The Group ‘‘Speaking Up”
policy is designed to ensure that employees can raise serious concerns
without fear of victimisation, discrimination or disadvantage.
2.8.4 Diversity
The Group recognises and values the individuality and diversity that each
employee brings to the business. We value diversity in its wider sense,
including but not limited to gender diversity. The table below shows the
gender split at different levels within the organisation, as at 30 April 2014.
The Group’s workforce is around 86% male and that high proportion is
common in the ground transportation industry. Gender diversity within the
Group is improving as new managers are developed. For example, 50% of
those current participants in the UK Bus two-year graduate training
programme are female. Encouraging and supporting diversity throughout
the Group is central to developing our talent pool.
Population
Male
Female
Total
Board
Senior management *
82
91
10
108
17
Whole workforce
30,413
5,057
35,470
85.7%
%%
Male
Female
80.0%
20.0%
84.3%
15.7%
14.3%
* Senior management is defined as those employees who receive awards under the
Group’s Executive Participation Plan and individuals who are statutory directors of the
corporate entities whose financial information is included in the Group’s 2014
consolidated financial statements in the Annual Report. This satisfies the definition set
out in the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations
2013.
108244_STC_Front PRINT_108244_STC_Front V12 03/07/2014 14:36 Page 25
2.8.5 Promoting safety
Safety is at the heart of our business. Independent research shows that
travelling by bus, coach and rail remains significantly safer than journeys by
private car, motorbike, cycling or walking (Source: Department for Transport,
Passenger casualty rates by mode, 2003-2012). We are committed to
delivering the highest standards of safety. Our safety record is good,
however we continue to drive improvement and encourage a proactive
culture so it remains a top priority.
The Group’s Strategic Safety Framework outlines our overarching approach
to safety. At our bus and rail operations we have a strong focus on employee
training, accident reduction, regulatory compliance and security
preparedness. Health and safety processes and performance are monitored
and reported on across the Group with action taken should there be a need
to address issues within our procedures. Our Health, Safety and
Environmental Committee, chaired by a non-executive director, considers
this area of the business and monitors a range of performance indicators,
reporting to the Board on these matters. We expect our suppliers and
contractors to have the same commitment as our employees to complying
with appropriate health and safety regulations and policies.
At our UK and North America bus businesses we have in place engineering
regimes which are stricter than legal requirements. These are bolstered by a
robust rolling programme of operational, engineering and health & safety
audits at our depots and garages. Comprehensive training programmes and
refresher sessions are in place covering all areas of work activity and our
people are encouraged to report any concerns. We are focused on achieving
the standards set by regulations as our minimum performance standards.
Detailed policies, risk assessments and safe working procedures are in place
covering all aspects of our activities including noise, vibration, display screen
equipment and the Working Time Directive. Performance is measured and
reviewed at operating company and Group level. This is supported by
analysis of audit results and review of civil liabilities claims to address any
issues around policies and working procedures.
Our managers contribute to health and safety lessons at local schools within
their communities, providing safety advice and information to assist young
people when using public transport. Most of our buses are fitted with CCTV
for the safety of our drivers and our customers, and we liaise closely with
police where required on promoting road safety and dealing with local
issues. In addition, our local managers often work alongside local authority
officials in providing guidance on transport decisions, such as bus station
safety or road layout options. We are continuing to work with Cycle Training
UK on raising awareness of the safety of cyclists among our driving team.
At our UK rail operations, we continue to work closely with industry partners
and the Samaritans on measures to reduce the level of suicides on rail
networks. More than 100 stations on the South West Trains-Network Rail
Alliance network now have Secure Station status, awarded by the British
Transport Police. A further 35 stations and 31 station car parks on East
Midlands Trains have also achieved the same mark. East Midlands Trains also
works closely with the British Transport Police to identify trends in crime
data, thereby allowing resources to be focused on risk areas.
In North America, we have a regular safety programme focusing on key
issues such as pedestrian awareness, lane changing, speed, driver fatigue,
and sleep management. Our computer-based screening system helps
identify candidates for driving positions who can progress to our training
school. Our safety executives in the United States have assisted with a
number of federal policy reviews covering bus industry regulation, including
areas such as hours of service and compliance enforcement. Our central
support centre, covering a number of our US businesses, including
megabus.com, monitors vehicles remotely to ensure that they are operating
on pre-approved routes. It also tracks speed, tyre pressures, and idling to
provide instant feedback and identify trends to help educate employees.
New vehicles for our megabus.com network in North America are fitted with
three-point lap/shoulder seat belts. Megabus.com was the first major US
bus/coach operator to achieve Transportation Safety Exchange (“TSX”)
approval for all of its operations. TSX is an independent safety rating
organisation that assesses more than 300,000 passenger and freight
carriers. Almost a third of our other business units in the United States are
also TSX approved. In Canada, we can track and monitor speed, location,
departures and hard stops through recent WebTech satellite fleet
management enhancements. Night drivers also use sleep prevention devices
called ‘Nap Zappers’ to further protect our customers.
2.8.6 Accessible and affordable travel
We believe that providing accessible and affordable travel is central to
encouraging modal shift from the private car to greener, smarter public
transport. Stagecoach has for the third time been independently assessed by
transport consultants, TAS, as Britain’s best value bus operator, offering
weekly travel that is significantly cheaper than both other companies in
regions across the UK and in London.
Stagecoach is the only UK bus operator to operate a long-term nationwide
discounted travel scheme for jobseekers which offers half-price single and
return bus travel in the UK outside London. We are also part of a Transport
for London scheme which offers reduced bus, tram and train travel rates for
jobseekers in the capital.
In 2014, we launched a discounted travel scheme for young people in Wales.
Under the scheme, people under the age of 19 receive a third off all adult
bus tickets on all Stagecoach services in Wales, making it easier for young
people to access employment and education opportunities.
Our bus and coach services also regularly run extra services to make it easier
for people to access sporting events and other attractions by public
transport instead of taking the car.
We have continued to expand our budget coach service, megabus.com, in
the UK, Europe and North America, bringing low-cost travel to more people.
A study by the DePaul University Chaddick Institute for Metropolitan
Development in Chicago found that travellers in the United States saved
more than $1 billion last year by taking megabus.com and other inter-city
bus operators rather than the train or plane. Customers are also accessing
more affordable travel options as a result of our new network of
sleepercoach services and megabusplus.com, our integrated coach-rail
service between the north of England and London.
Our rail networks continue to offer discounted tickets and promotions to
encourage people to try the train. We also offer a comprehensive assisted
travel service to support those with additional mobility requirements when
using our services.
We are continuing to invest significantly in new accessible buses and
coaches to help wheelchair and mobility scooter users, among others. In the
UK, we are on track to meet legislation requiring fully accessible fleets ahead
of schedule.
At our rail stations in the UK, we are making investments in ticketing
facilities, waiting areas and other accessibility improvements, including
tactile maps. East Midlands Trains has also become the first train company in
the UK to offer a 24-hour, seven-day-a-week point of contact for customers.
Stagecoach Group plc | page 25
108244_STC_Front PRINT_108244_STC_Front V12 03/07/2014 14:36 Page 26
Strategic report
2.8.7 Environmental stewardship
We continue to take a responsible approach to environmental matters. We
have met our five-year Group-wide carbon targets ahead of schedule and
have cut the carbon intensity of our businesses in the UK and North America
by 30% in the past five years. We hold the Carbon Trust Standard for our
global operations in recognition of the steps we have taken to monitor,
manage and reduce our footprint.
Our plans have been focused to date principally on improving the efficiency
and reducing the carbon impact of our transport fleets and buildings. As well
as ensuring we meet our regulatory obligations, our initiatives have helped
improve efficiency, cut costs and contributed to the growth and success of
our business.
We have a network of “green teams” at our operating companies and this
has been central to driving improvement. Our Group organic growth
strategy is designed to encourage people to switch to greener bus and rail
travel, reducing overall emissions from transport and helping address the
global challenge of climate change.
Over the past year, Stagecoach Group has taken the following measures to
reduce the impact of its businesses on the environment:
• extending the use of a hi-tech eco-driving system from all of our UK
regional bus companies to our operations in London
• cementing our position as the UK bus industry’s leading investor in new
hybrid electric buses, with around 380 now in service in England,
Scotland and Wales
• increasing the number of vehicles running on 100% biofuel, extending
our use of a 30% biofuel mix and introducing more gas powered buses
• continuing the installation of energy-saving lighting systems at bus
depots and railway stations across the UK and in North America
• delivering improved energy management systems and cutting gas
consumption at offices and depots
• significantly improving waste recycling rates at major train stations,
offices and depots
• holding our sixth annual Group-wide Green Week to drive up awareness
of environmental issues among our people and our customers in the UK
and North America
We have received further independent recognition for our environmental
initiatives, including our megabus.com brand receiving the American Bus
Association’s 2014 Green Operator Award.
Stagecoach Group works with industry partners and the UK Government on
climate change issues, including contributing to the development of policies
on adapting infrastructure to mitigate the impacts of climate change. We
also support the work of industry bodies and other stakeholders to seek
policies which promote more carbon-efficient modes of travel, such as buses
and trains.
Work is nearing completion on a new five-year Stagecoach Group
sustainability strategy running to 2019. This will include identifying further
cost-effective energy-saving opportunities, continuing investment to make
the business greener, and setting new targets around carbon reduction,
water consumption and waste recycling rates.
Communicating our performance is also a key part of our approach. Every
year, Stagecoach reports on its carbon emissions through its corporate
website, www.stagecoach.com. We also provide information on our global
carbon footprint to the Carbon Disclosure Project, the world’s largest
corporate greenhouse gas emissions database.
The data below shows our greenhouse gas emissions for the period 1 May
2013 to 30 April 2014. Emissions are expressed in terms of equivalent
carbon dioxide (“CO2e”) and are also shown relative to revenue.
Greenhouse Gas Emission Source
tonnes CO2e
Kg CO2e/£
of revenue
2013/14
Scope 1
Fuel combustion (natural gas, diesel,
petrol and heating oil)
1,030,488
Operation of facilities (refrigerants)
16,798
Total Scope 1
Scope 2
Purchased electricity
Statutory total (Scope 1 & 2)*
1,047,286
217,627
1,264,913
0.35
0.01
0.36
0.07
0.43
* Statutory carbon reporting disclosures required by the Companies Act 2006
(Strategic Report and Directors’ Report) Regulations 2013.
The Group has used the UK Government Environmental Reporting Guidance
methodology in reporting its greenhouse gas emissions, together with
emissions factors from the DEFRA/DECC Greenhouse Gas Conversion
Factors for Company Reporting 2013.
We define our organisational boundary using the financial control approach
and use a materiality threshold of 5%. We have reported on all the emissions
sources required under the Companies Act 2006 (Strategic Report and
Directors’ Reports) Regulations 2013. All of these sources fall within
businesses that are included in our consolidated financial statements.
Group Metrics
Revenue (£)
Total Scope 1 & 2 emissions tonnes (tCO2e)
Intensity ratio
2013/14
2,930,000,000
1,264,913
Scope 1 & 2 emissions per £ of revenue (Kg CO2e/£)
0.43
2.8.8 Supporting our communities and the economy
Stagecoach Group is a major employer and our investment in improving our
transport services also supports thousands of other jobs through the supply
chain.
We share our success with local people and communities by investing part of
our profits in good causes. During the year ended 30 April 2014, £0.7m
(2013: £0.7m) was donated by Stagecoach Group to help a number of
charities and to support fundraising events and vital services.
Many of our bus companies have adopted specific good causes as their
charities of the year and focus for local fundraising. In North America, our
megabus.com business donated $1 to the Wounded Warrior Project on
Veterans Day for every customer travelling with the service, raising nearly
$25,000 to help support injured servicemen and women.
In our UK Rail division, the South West Trains-Network Rail Alliance Charity
Panel donates thousands of pounds to local charities every year as well as a
similar value in complimentary train tickets across the network. East
Midlands Trains has also taken part in several train naming events in support
of local organisations.
Across our business, we provide in-kind support to local groups, including
buses and coaches for various local and national events. Many of our
employees regularly join in national fundraising events such as Children in
Need, Comic Relief and Sport Relief. In November 2013, the South West
page 26 | Stagecoach Group plc
108244_STC_Front PRINT_108244_STC_Front V12 03/07/2014 14:36 Page 27
Trains-Network Rail Alliance attached moustaches to the front of many
trains to help raise awareness for male cancer charities as part of the
Movember campaign. We also support a number of bus and rail industry
charities and events each year.
In the UK, we have supported a government back to work initiative where
we work with JobCentre Plus offices to recruit and train potential new
drivers. After a six-week Stagecoach training programme, we offer a
permanent driving job or individuals return to JobCentre Plus to seek
alternative employment, but having hopefully gained a PCV (Passenger
Carrying Vehicle) licence, Driver Certificate in Professional Competence and
work experience.
2.8.9 Human rights
The Group does not see human rights matters as presenting material issues
or risks for the Group and therefore the Group does not have specific,
detailed policies in respect of human rights. However, in the Group’s code of
conduct (see section 2.8.1), the Group recognises the fundamental civil,
political, economic and social human rights and freedoms of every individual
and strives to reflect this in its business. A respect for human rights is
reflected in our wider policies and in how we do business with customers,
suppliers, employees and other stakeholders.
2.8.10 Conclusion
Our responsible approach to business is reflected in the policies and
examples set out in this section 2.8. We continue to believe that corporate
social responsibility and good financial returns go hand in hand, reflecting
consideration of all stakeholders.
Approved by the Board of Directors and signed on its behalf by:
Mike Vaux
Company Secretary
25 June 2014
Stagecoach Group plc | page 27
108244_STC_Front PRINT_108244_STC_Front V12 03/07/2014 14:36 Page 28
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page 28 | Stagecoach Group plc
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Stagecoach Group plc | page 29
108244_STC_Front PRINT_108244_STC_Front V12 03/07/2014 14:37 Page 30
4. Directors’ report
Strategic report
4.1
The Group is required to produce a Strategic report complying with the
requirements of the Companies Act 2006. The Group has complied with these
minimum requirements as part of the Strategic report in section 2, which also
provides significant information over and above the statutory minimum.
4.2 Group results and dividends
The results for the year are set out in the consolidated income statement on
page 62.
An interim dividend of 2.9p per ordinary share was paid on 5 March 2014.
The Directors recommend a final dividend of 6.6p per share, making a total
dividend of 9.5p per share in respect of the year ended 30 April 2014. Subject
to approval by shareholders, the final dividend will be paid on 1 October 2014
to those shareholders on the register on 29 August 2014.
4.3 Directors and their interests
The names, responsibilities and biographical details of the current members
of the Board of Directors appear in section 3 of this Annual Report. Table A
shows the Directors’ interests in the Company’s shares.
The Board reviews its development plans at least annually as part of its
performance evaluation. The assessment involves a consideration of the
balance of skills, knowledge and experience of the Directors. The Board also
considers whether the Directors have sufficient time to discharge their duties
properly which includes a consideration of any other appointments that each
director has. The Board believes that the performance of each director
continues to be effective and that they continue to demonstrate
commitment to their respective roles. The Chairman will therefore propose
that each of the Directors be re-elected at the 2014 Annual General Meeting.
Report. From 1 May 2013, Sir Brian Souter is Chairman but is no longer an
executive director of the Company. Details of the options and other share
based awards held by Sir Brian are set out in the Directors’ remuneration
report. No other non-executive director had an interest in share based awards
at 30 April 2013, 25 June 2013, 30 April 2014 and 24 June 2014.
In addition to their individual interests in shares, Sir Brian Souter, Ann Gloag,
Martin Griffiths and Ross Paterson are potential beneficiaries of the
Stagecoach Group Employee Benefit Trust 2003, which held 725,821 ordinary
shares (2013: 2,030,824) as at 30 April 2014. Martin Griffiths and Ross
Paterson are also potential beneficiaries of the Stagecoach Group Qualifying
Employee Share Trust (“QUEST”), which held 300,634 ordinary shares (2013:
300,634) as at 30 April 2014.
No director had a material interest in the loan stock or share capital of any
subsidiary company.
4.4 Indemnification of directors and officers
The Company maintains Directors’ and Officers’ Liability Insurance in respect
of legal action that might be brought against its directors and officers. In
accordance with the Company’s Articles of Association, and to the fullest
extent permitted by law, the Company has indemnified each of its directors
and other officers of the Group against certain liabilities that may be incurred
as a result of their positions with the Group.
Substantial shareholdings
4.5
As at 30 April 2014 and 24 June 2014 (being the latest practical date prior to
the date of this report), the Company had been notified of the following major
interests in voting rights in the Company (other than certain Directors’
shareholdings details of which are set out in section 4.3 of this report):
Number of ordinary shares (including those held
under BAYE scheme)
24 June
2014
30 April
2014
25 June
2013
30 April
2013
Ameriprise Financial, Inc.
Standard Life Investments Ltd
24 June 2014 30 April 2014
5.0%
4.0%
5.0%
4.7%
TABLE A
Sir Brian Souter
Martin Griffiths
Ross Paterson
Gregor Alexander
Sir Ewan Brown
Ann Gloag
Helen Mahy
Garry Watts
Phil White
Will Whitehorn
86,900,445
86,900,445
86,900,445
86,900,445
397,164
198,808
10,406
397,091
198,735
10,406
203,394
135,073
406
203,300
134,979
406
See below
See below
See below
See below
62,501,721
62,501,721
62,501,721
62,501,721
8,834
16,000
4,070
72,288
8,834
16,000
4,070
72,288
8,710
16,000
4,070
72,288
8,710
16,000
4,070
72,288
Sir Ewan Brown has an indirect interest in the share capital of the Company.
He and his connected parties own approximately 18% (2013: 22%) of the
ordinary shares of Noble Grossart Holdings Limited, which in turn through its
subsidiary, Noble Grossart Investments Limited, held 3,267,999 ordinary
shares in the Company at 30 April and 24 June 2014 (2013: 3,267,999).
The Listing Rules of the Financial Conduct Authority (LR 9.8.6 R(1)) require
listed companies to disclose in their Annual Reports the interests of each
director. The Directors’ interests set out in Table A have been determined on
the same basis as in previous years and are intended to comply with the
requirements of LR 9.8.6 R(1), which is not the basis used to determine
voting rights for the purposes of notifying major interests in shares in
accordance with the Disclosure and Transparency Rules of the Financial
Conduct Authority. Accordingly, the voting rights of Sir Brian Souter and Ann
Gloag determined in accordance with the Disclosure and Transparency Rules
which as at 30 April 2014 were 87,055,636 ordinary shares (2013:
87,055,636) and 62,501,721 ordinary shares (2013: 62,501,721) respectively.
4.6 Statement of Directors’ responsibilities in
respect of the Annual Report, the Directors’
remuneration report and the financial
statements
The Directors are responsible for preparing the Annual Report, the Directors’
remuneration report and the consolidated and the parent company financial
statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law, the Directors have elected to prepare the
consolidated financial statements in accordance with International Financial
Reporting Standards (“IFRSs”) as adopted by the European Union, and the
parent company financial statements and the Directors’ remuneration report
in accordance with applicable law and United Kingdom Accounting Standards
(United Kingdom Generally Accepted Accounting Practice). Under company
law, the Directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of affairs of the
Company and the Group and of the profit or loss of the Group for that period.
In preparing those financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether IFRSs as adopted by the European Union, and applicable UK
Accounting Standards have been followed, subject to any material
departures disclosed and explained in the consolidated and parent
company financial statements respectively; and
• prepare the consolidated and parent company financial statements on the
going concern basis unless it is inappropriate to presume that the Group or
as the case may be, the Company, will continue in business.
Full details of share based awards held by the Directors at 30 April 2014 are
contained in the Directors’ remuneration report in section 9 of this Annual
The Directors also confirm that they consider the Annual Report and
consolidated financial statements, taken as a whole, are fair, balanced and
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108244_STC_Front PRINT_108244_STC_Front V12 03/07/2014 14:37 Page 31
understandable and provide the information necessary for shareholders to
assess the Group’s performance, business model and strategy.
The Directors are responsible for keeping adequate accounting records that
are sufficient to show and explain the Company’s transactions and disclose
with reasonable accuracy at any time the financial position of the Company
and the Group and enable them to ensure that the financial statements and
the Directors’ remuneration report comply with the Companies Act 2006 and,
as regards the Group financial statements, Article 4 of the IAS Regulation. They
are also responsible for safeguarding the assets of the Company and the Group
and hence for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of financial
information on the Company’s corporate website, www.stagecoach.com.
Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in other
jurisdictions.
Each of the Directors, whose names and functions are listed in section 3 of this
annual report confirms that, to the best of their knowledge:
• the consolidated financial statements, which have been prepared in
accordance with IFRSs as adopted by the EU, give a true and fair view of
the assets, liabilities, financial position and profit of the Group; and
• the Strategic report and Directors’ report contained in sections 2 and 4 of
this Annual Report includes a fair review of the development and
performance of the business and the position of the Group, together with
a description of the principal risks and uncertainties that it faces.
Conflicts of interest
4.7
Under the Companies Act 2006, a director has a statutory duty to avoid a
situation where he or she has, or can have, a direct or indirect interest that
conflicts, or may possibly conflict, with the relevant company’s interests. The
Companies Act 2006 allows directors of public companies to authorise
conflicts and potential conflicts where appropriate, if the relevant company’s
articles of association contain a provision to this effect. The Company’s
articles of association give the Directors authority to approve conflict
situations including other directorships held by the Directors.
There are safeguards in place that apply when the Directors decide whether to
authorise a conflict or potential conflict. Firstly, only the Directors who have
no interest in the matter being considered are able to take the relevant
decision and secondly, in taking any decision, the Directors must act in a way
that they consider, in good faith, will be most likely to promote the
Company’s success. The Directors are able to impose limits or conditions
when giving authorisation if they think that is appropriate.
From the period from 1 May 2013 until the date of this report, the Board
considers that the Directors’ powers of authorisation of conflicts have
operated effectively and those procedures set out above have been properly
followed.
4.8 Financial risk management
Information regarding the Group’s use of financial instruments, financial risk
management objectives and policies and exposure to price, credit, liquidity and
cash flow risks can be found in note 26 to the consolidated financial
statements.
4.9 Political donations
It is the Group’s policy not to make political contributions and accordingly
there were no contributions for political purposes during the year (2013: £Nil).
4.10 Authority for company to purchase its
own shares
At the 2012 Annual General Meeting, the Company was granted authority by
its shareholders to repurchase up to 57,609,996 of its ordinary shares.
Between 26 June 2013 and 1 July 2013, the Company acquired 724,693 of its
own 125/228p ordinary shares. The aggregate amount paid for the
repurchased shares was £2.3m (excluding fees). This represented 0.1% of the
Company’s called up share capital (excluding treasury shares) on 1 July 2013.
The shares were purchased to satisfy awards made under the Group’s
employee shares schemes. At the 2013 Annual General Meeting, the Company
was granted authority by its shareholders to repurchase up to 57,609,996 of
its ordinary shares. Under the existing authority, the Company may therefore
repurchase up to a further 57,609,996 ordinary shares. This authority will
expire at the conclusion of the 2014 Annual General Meeting unless revoked,
varied or renewed prior to this date.
A resolution will be proposed at the next Annual General Meeting that the
Company be authorised to repurchase up to approximately 10% of its ordinary
shares at the Directors’ discretion. If passed, the resolution will replace the
authority granted at the 2013 Annual General Meeting and will lapse at the
conclusion of the 2015 Annual General Meeting.
4.11 Shareholder and control structure
As at 30 April 2014, there were 576,099,960 ordinary shares (2013:
576,099,960) in issue with a nominal value of 125/228th pence each. The
ordinary shares are admitted to trading on the London Stock Exchange.
On a show of hands at a general meeting of the Company, every holder (and
proxy) of ordinary shares present in person and entitled to vote shall have one
vote (except that in certain circumstances a proxy may have one vote “for” and
one vote “against”) and on a poll, every member present in person or by proxy
and entitled to vote shall have one vote for every ordinary share held. The
notice of a general meeting will specify any deadlines for exercising voting
rights in respect of the meeting concerned. As at 30 April 2014, 724,693
(2013: nil) ordinary shares representing 0.1% of the Company’s called-up share
capital (excluding treasury shares) were held in treasury and carried no voting
rights.
The holders of ordinary shares are entitled to be paid the profits of the
Company available for distribution and determined to be distributed pro-rata
to the number of ordinary shares held.
There are no restrictions on the transfer of ordinary shares other than:
• certain restrictions may from time to time be imposed by laws and
regulations (for example, insider trading laws);
• pursuant to the Listing Rules of the Financial Conduct Authority whereby
certain employees of the Group require the approval of the Company to
deal in the Company’s securities; and
• shares held by employee benefit trusts may only be transferred by those
trusts in accordance with the relevant trust deeds.
None of the ordinary shares in issue provide the holders with special control
rights.
Section 4.5 of this Directors’ report gives details of any shareholders (other
than the Directors) that hold major interests in the voting rights in the
Company.
Details of each director’s interests in the share capital of the Company are
given in section 4.3 of this Directors’ report. Two directors of the Company, Sir
Brian Souter and Ann Gloag, who are siblings, were interested in 26.0% of the
ordinary shares in issue as at 30 April 2014, excluding shares held by the
Company in treasury (2013: 25.9%). The other directors of the Company held
0.1% of the ordinary shares in issue as at 30 April 2014 (2013: less than 0.1%).
In addition to the Directors’ individual interests in shares, two employee
benefit trusts held a further 0.2% of the ordinary shares in issue as at 30 April
2014 (2013: 0.4%). The shares held by the trusts are for the benefit of
employees of the Group. The voting rights are exercised by the trustees.
The Group operates a Buy as You Earn scheme, in connection with which the
participants’ shares are held in trust. The Trustees vote only where directed to
do so by participants in the plan.
The Company is not aware of any agreements between shareholders that may
result in restrictions on the transfer of securities and/or voting rights.
Directors are elected by ordinary resolution at a general meeting of holders of
ordinary shares. The Directors have the power to appoint a director but any
person so appointed by the Directors shall hold office only until the next
annual general meeting and shall then be eligible for election by ordinary
resolution at that meeting.
Stagecoach Group plc | page 31
A resolution to re-appoint PricewaterhouseCoopers LLP as auditors of the
Company will be proposed at the next Annual General Meeting. A resolution
will also be proposed that the Directors be authorised to fix the remuneration
of the auditors.
4.14 Material included in the Strategic report
The Strategic report in section 2 includes information on the following
matters that would otherwise be required to be presented in the Directors’
report:
• Employment policies;
• Future developments in the business; and
• Greenhouse Gas Emissions
By order of the Board
Mike Vaux
Company Secretary
25 June 2014
108244_STC_Front PRINT_108244_STC_Front V12 03/07/2014 14:37 Page 32
Directors’ report
The Company’s Articles of Association may only be amended by special
resolution at a general meeting of holders of ordinary shares.
The powers of the Directors to issue or repurchase ordinary shares are set by a
resolution at a general meeting of holders of ordinary shares. Section 4.10 of
this Directors’ report sets out the current authority for the Company to
purchase its own shares.
There are a number of agreements that take effect, alter or terminate on a
change of control of the Company such as commercial contracts, bank loan
agreements and employee share plans. The most significant of these are:
• The Group operates the South West Trains and East Midlands Trains rail
franchises. The Group’s joint venture, Virgin Rail Group, operates the West
Coast Trains franchise. The franchise agreements in respect of these three
franchises each contain provisions that would enable the Department for
Transport to terminate the franchises on a change of control of the
franchise.
• Each of the three rail franchises referred to above leases trains. The leases
generally contain termination rights for the benefit of the lessor on a
change of control of the Group.
• Certain of the Group’s bank facilities (including asset finance) contain
provisions that would require repayment of outstanding borrowings and
other drawings under the facilities following a change of control of the
Group.
• The Group’s arrangements with surety companies for the issue of rail
performance bonds and season ticket bonds would terminate following a
change of control of the Group.
• The Company’s £400m 5.750% Guaranteed Bonds due 2016 contain
provisions that would require repayment of the outstanding bonds
following a change of control of the Group that was accompanied by a
specified downgrade of certain of the Company’s credit ratings.
• The Company’s US$150m 10-year notes contain provisions that would
require the Company to offer to prepay those notes following a change of
control of the Group that was accompanied by a specified downgrade of
certain of the Company’s credit ratings.
The impact of a change of control of the Group on remuneration
arrangements is explained in section 9.4.12.
4.12 Going concern
On the basis of current financial projections and the funding facilities available,
the Directors are satisfied that it is reasonable to assume that the Group has
adequate resources to continue for the foreseeable future and, accordingly,
consider it appropriate to adopt the going concern basis in preparing the
financial statements. As part of the assessment of going concern, executive
management provided a paper to the Audit Committee covering matters such
as financial projections, sensitivity analysis, available debt facilities, credit
ratings, financial risk management and bank covenants. The Board’s
assessment of going concern takes account of its view of the principal business
risks facing the Group. Section 2.6.8 of this Annual Report comments on
liquidity, a key element of the Directors’ assessment of going concern.
4.13 Auditors
In the case of each of the persons who were directors of the Company at the
date when this report was approved:
• so far as each of the Directors is aware, there is no relevant audit
information (as defined in section 418 of the Companies Act 2006) of
which the Company’s auditors are unaware; and
• each of the Directors has taken all the steps that he/she ought to have taken
as a director to make himself/herself aware of any relevant audit
information (as defined) and to establish that the Company’s auditors are
aware of that information.
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5. Corporate governance report
5.1
Introduction from Garry Watts,
Deputy Chairman
The year to 30 April 2014 started with a new management structure for the
Group. Sir Brian Souter, who co-founded the Group with his sister, Ann
Gloag, became Chairman and Martin Griffiths took over the position of Chief
Executive after 13 years as the Group’s Finance Director. Ross Paterson, who
had been Director of Finance and Company Secretary, took over as Finance
Director. This introduction to the Group’s corporate governance report is an
opportunity to look back at the year 2013/14 and at the progress that has
been made with the governance of the Group and to look forward to the
governance challenges for the future.
The changes to the management structure were in many ways a
development of the executive team’s existing roles but the changes needed
to be managed to ensure a smooth, successful progression and to ensure
that the Board remained balanced and effective.
The Group discussed the proposal for Sir Brian Souter to become Chairman
with major shareholders before the changes were announced in 2012. We
were pleased with the support that we received, which has allowed the Group
to retain his knowledge and experience, while giving the executive team the
chance to progress into their new roles. We were asked by some investors to
explain why we appointed Sir Brian and not a new independent non-
executive Chairman. We considered this and other options when planning the
changes that were made. Sir Brian is a well recognised and respected figure in
the Group and in the wider transport industry. The Group benefits from
having him in the position of Chairman where he can continue to represent
the interests of the Group to the public and to address our shareholders and
answer their questions at the Annual General Meeting. The Corporate
Governance report that follows sets out in more detail how we address the
challenges arising from our Chief Executive moving to the role of Chairman.
At an early stage, the decision was taken to strengthen the independence of
the Board by appointing an additional non-executive director and to create
the new role of Deputy Chairman, which I assumed on 1 May 2013. A formal
division of responsibilities is in place, which requires the Deputy Chairman to
promote the highest standards of corporate governance throughout the
Group and particularly at Board level.
Gregor Alexander joined the Board on 1 April 2013. Gregor’s position as
Finance Director of SSE plc made him an ideal candidate to take on the role of
Audit Committee Chairman, which he took over from me, following a
handover period, on 1 July 2013. I believe that for Stagecoach and its
shareholders, the Board structure maintains the appropriate balance between
independent, non-independent and executive directors. In his new position
as Chairman, the Board is able to draw on the depth of experience of Sir Brian
Souter while he has ensured that the executive directors have been given the
space to manage the business. I am satisfied that the views of all of the
Directors are heard and given due weight and that our corporate governance
procedures are appropriate for the Group.
Following the changes to the Board, it was appropriate to review the
composition of our board committees. I chair the Nomination Committee
and asked Helen Mahy to join as an additional member of that committee.
We agreed that Gregor Alexander would become an additional member of
the Remuneration Committee and that Will Whitehorn would join the Health,
Safety and Environmental Committee. I believe that with these changes, we
are able to use the strengths of our non-executive directors more fully.
The end of our first year following the management changes seemed an
appropriate time to refresh our Board evaluation and I appointed Margaret
Exley of SCT Consultants to facilitate that process. I was pleased that
Margaret’s report was very positive and found only a small number of areas
for development. We will work to implement these over the coming year.
Further detail of the evaluation and its outcomes is given in the Corporate
Governance report.
2013/14 has been a year of transition for the governance of the Company,
during which the Group has continued to expand its UK Bus business,
consolidated and strengthened its North American business and has evaluated
and submitted rail franchise bids. I look forward to 2014/15 as Martin and Ross
push forward their strategy for the future success of the Group.
Garry Watts
Deputy Chairman
25 June 2014
5.2
Corporate governance and compliance
with the Code
The Stagecoach Board is accountable to shareholders for the Group’s
activities and is responsible for the effectiveness of corporate governance
practices within the Group. This section 5 of the Annual Report sets out
Stagecoach Group’s corporate governance arrangements. Taken together
with the Directors’ Report, it includes the disclosures recommended by the
Financial Reporting Council (“FRC”) UK Corporate Governance Code (the
“Code”), and describes how the principles of good corporate governance that
are set out in the Code have been applied. In line with best practice, separate
reports are provided from each of the Audit Committee, Nomination
Committee, Health, Safety and Environmental Committee and Remuneration
Committee.
The Code issued in September 2012 applied to the Company’s financial year
from 1 May 2013 to 30 April 2014. The Directors believe that throughout the
year ended 30 April 2014 the Group complied with all of the provisions of the
Code. The Group’s approach to audit tendering is considered in section 6.4.2.
A copy of the Code is available at
http://www.frc.org.uk/Our-Work/Publications/Corporate-Governance/UK-
Corporate-Governance-Code-September-2012.pdf
The Group also complies with the corporate governance requirements of the
Financial Conduct Authority’s Listing Rules, and Disclosure and Transparency
Rules.
Composition of the Board
5.3
The composition of the Board is as follows:
Date of
appointment
if later than
1 May 2010
Sir Brian Souter
Chairman
Gregor Alexander
Non-Executive Director
Sir Ewan Brown
Non-Executive Director
Helen Mahy
Non-Executive Director
Garry Watts
Senior Independent Director &
Deputy Chairman
Phil White
Non-Executive Director
Will Whitehorn
Non-Executive Director
Ann Gloag
Non-Executive Director
Martin Griffiths
Chief Executive
Ross Paterson
Finance Director
Independent
Non-
Executive
Director
Other
Director
Chairman
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
5.4 Division of responsibilities
Sir Brian Souter was the Chief Executive of the Group until 1 May 2013. To
address concerns regarding a Chief Executive becoming the Chairman of the
Group the Board has appointed Garry Watts to the role of Deputy Chairman.
The split of the Chairman’s, Deputy Chairman’s and Chief Executive’s
responsibilities has been agreed in writing and has been approved by the
Board. The Deputy Chairman reports to the Chairman and to the Board and has
responsibility for ensuring proper corporate governance of the Board. The
Deputy Chairman’s role includes ensuring that the Board’s consideration of
matters is in the best interests of the Group and unaffected by conflicts of
interest. No executives report directly to the Deputy Chairman.
The Deputy Chairman is responsible for ensuring that the Board determines
the Group’s strategy and overall commercial objectives with the overall success
of the Group in mind and to provide guidance in this regard to the Chairman.
Stagecoach Group plc | page 33
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Corporate governance report
The Chief Executive is responsible for proposing and developing that strategy
with support and guidance from the Chairman. In this way, the Group is able to
draw upon the talent, knowledge and entrepreneurial skills of Sir Brian Souter,
in his role as Chairman, while maintaining a strong board, independent of
executive management. This gives Martin Griffiths full executive responsibility
while retaining the ability to draw on Sir Brian Souter’s experience in that role.
In his role as Chairman, Sir Brian Souter’s key responsibility is the running of
the Board. Martin Griffiths is responsible for the running of the Group’s
business and reports to Sir Brian Souter and to the Board directly. All other
members of the executive management team report either directly or indirectly
to Martin Griffiths.
Garry Watts, as well as being Deputy Chairman, is the Group’s Senior
Independent Director and is available to shareholders if they have concerns
which contact through the Chairman, Chief Executive or Finance Director has
failed to resolve or for which such contact is inappropriate.
5.5 Board independence and balance
The Directors’ biographies appear in section 3 of this Annual Report and
illustrate the Directors’ range of experience, which ensures an effective Board
to lead and control the Group. The Board delegates the operational
management of the Group to the Chief Executive and Finance Director
(“Executive Directors”). The Non-Executive Directors bring an independent
viewpoint and create an overall balance. The Executive and Non-Executive
Directors have a complementary range of experience that ensures no one
director or viewpoint is dominant in the decision-making process.
The Code suggests that independent non-executive directors should make up
at least half of the Board (excluding the Chairman). Throughout the period
from 1 May 2013 to 30 April 2014, the Board considers that it complied with
this Code requirement. The current position is that two thirds of the Board
members (excluding the Chairman) are independent.
In determining the independence of non-executive directors, the Board
considers a number of factors. In particular the Board satisfies itself on the
following questions:
• Does the director provide a robust and effective challenge to executive
management?
• Is the director prepared to challenge others’ beliefs, assumptions and
viewpoints for the overall good of the Group and its shareholders?
• Does the director effectively contribute to constructive debate by the Board
and its Committees?
• Is the director willing to defend his or her own beliefs and viewpoints for the
overall good of the Group and its shareholders?
• Does the director have a sufficiently sound and detailed knowledge of the
Group’s business that enables him or her to effectively question strategy and
executive management’s running of the business?
Sir Ewan Brown, one of the six independent Non-Executive Directors, has
served on the Board since 1988 and is a non-executive director of Noble
Grossart, which has from time to time provided advice to the Company. The
Company recognises and understands investor concerns over longer-serving
non-executive directors but continues to regard Sir Ewan Brown as
independent. Sir Ewan Brown’s long association with the Group and the sound
and detailed knowledge of the Group’s business that he has developed enables
him to provide a robust and effective challenge to management. The Board
believes that Sir Ewan Brown’s length of service enhances his effectiveness as a
non-executive director and that he remains independent in character and
judgement. Six of the nine members of the Board, excluding the Chairman, are
considered by the Board to be independent. Even if Sir Ewan Brown is not
treated as independent, the balance of the Executive and Non-Executive
Directors complies with the recommendations of the Code.
In recognition of the factors suggested by the Code for determining
independence, Sir Ewan Brown does not serve on the Remuneration
Committee or the Audit Committee.
All Directors stand for election or re-election at each annual general meeting of
the Company.
5.6 Operation of the Board
The Board is generally scheduled to meet six times each year. Additional
meetings of the Board are held to consider matters arising between scheduled
Board meetings, where a decision of the Board is required prior to the next
scheduled meeting. In addition to the formal meetings of the Board and its
Committees, the Directors are in more frequent but less formal contact with
each other and with the Group’s management on a range of matters.
The Chairman and the Non-Executive Directors periodically meet without the
Executive Directors being present. In addition, the Non-Executive Directors, led
by the Deputy Chairman, meet without the Chairman at least annually.
All the Directors meet regularly with other senior management and staff of the
Group, have access to confidential advice from the Company Secretary and may
take independent legal or other professional advice at the Group’s expense
where it is considered necessary for the proper discharge of their duties as
directors. The Company Secretary, whose appointment and removal is a matter
for the Board as a whole, is responsible to the Board for ensuring the Board
procedures are complied with.
Each director receives induction training on appointment and subsequently
such training, briefings and site visits as are considered necessary to keep
abreast of matters affecting their roles as directors. The Chairman reviews the
Directors’ training and development needs in conjunction with the Company
Secretary. Training can encompass health, safety, environmental, social and
governance matters.
The number of full Board meetings during the year was seven. The full Board
typically meets once a year at an operational location and regular
communication is maintained by the Chairman with other directors between
meetings to ensure all directors are well informed on strategic and operational
issues. The June 2013 Board meeting was combined with a Group
management conference, allowing the Board members to gain a greater
insight into the strategies being pursued by the Group’s businesses and to meet
a wide range of managers from throughout the Group. In November 2013, the
Health, Safety and Environmental Committee of the Board visited the Group’s
tram operations in Sheffield to gain a greater understanding of how that
business addresses the challenges of operating a tram network.
The Board has a number of matters reserved for its consideration, with principal
responsibilities being to agree the overall strategy and investment policy, to
approve major capital expenditure, to monitor performance and risk
management procedures of senior management, to ensure that there are
proper internal controls in place and to consider major acquisitions or disposals.
The Directors have full and timely access to information with Board papers
distributed in advance of meetings. Notable matters that the Board considered
during the year ended 30 April 2014 included:
• The Group’s bids to operate the Docklands Light Railway, and Thameslink,
Southern and Great Northern franchises
• Management succession planning
• Potential business acquisitions
• Group strategy and development opportunities
• Risk management, including the management of Cyber risks
• Developments in the litigation regarding Twin America and the trading
performance of Twin America
• Political and regulatory developments and potential developments, including
the Quality Contract proposals in North East England and changes in UK bus
concessionary fares schemes
The Board keeps the roles and contribution made by each director under review
and changes in responsibilities are made where necessary to improve the
Board’s effectiveness. To provide a more manageable process and better
control, certain of the Board’s powers have been delegated to committees.
Minutes are taken of each meeting of the Board and its Committees. Where any
director has significant concerns that cannot be resolved about the running of
the Group or a proposed action, these concerns are recorded in the minutes. It
is also the Group’s policy that where a director resigns, the director is asked to
provide a written statement to the Chairman of any concerns leading to his or
her resignation.
5.7 Operational management of the Group
The Executive Directors maintain day-to-day contact and meet regularly face-
to-face or in video conferences with non-board senior management. With
effect from 1 May 2013, the Managing Director of the Group’s London Bus
operations reports directly to the Group Chief Executive. Accordingly, there are
four principal operating divisions:
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The Board has considered the results of these assessments and has concluded
that overall the Board and its committees continue to operate in an effective
and constructive manner.
5.9 Composition of Committees
The current composition of the various Board Committees is summarised
below:
Audit Committee
Number of members of Committee:
3
All members are independent non-executive directors.
Chairman and designated member with recent
and relevant financial experience
Gregor Alexander (Chairman from 1 July 2013)
Other members
Helen Mahy
Phil White
Nomination Committee
Number of members of Committee:
4
All members are independent non-executive directors.
Chairman
Garry Watts
Other members
Sir Ewan Brown
Helen Mahy (from 1 September 2013)
Will Whitehorn
Remuneration Committee
Number of members of Committee:
4
All members are independent non-executive directors.
Chairman
Phil White
Other members
Gregor Alexander (from 1 September 2013)
Garry Watts
Will Whitehorn
Health, Safety and Environmental Committee
Number of members of Committee:
5
Chairman
Helen Mahy
Other members
Martin Griffiths
Ann Gloag
Phil White
Will Whitehorn (from 1 September 2013)
5.10 Reports from the Committees
Reports from each of the Committees of the Board are set out in sections 6
to 9 of this Annual Report.
• UK Bus (London): headed by a managing director
• UK Bus (regional operations): headed by a managing director
• North America: headed by a chief operating officer
• UK Rail: headed by the Group Chief Executive
Each division comprises a number of autonomous business units, each headed
by a chairman or managing director who is responsible for the day-to- day
performance of the business unit. Each chairman or managing director is
supported by his or her own management teams. Two of the joint ventures in
which the Group has an interest, Virgin Rail Group and Twin America LLC, are
managed independently of the Group. Each is headed by its own chief or lead
executive. The Group has two representatives on the board of Virgin Rail Group
and three representatives on the board of Twin America LLC. The other trading
joint venture in which the Group has an interest, Scottish Citylink Coaches
Limited, has a joint board. The Group is responsible for the day-to-day
management of that business.
5.8 Performance evaluation
The Board assesses its own performance and the performance of each
individual Board member; this assessment is co-ordinated and directed by the
Chairman with the support of the Company Secretary. The Deputy Chairman
co-ordinates the Board’s assessment of the performance of the Chairman. As
part of the assessment process, the Non-Executive Directors meet without the
Executive Directors being present. The Non-Executive Directors also meet
without the Chairman being present. The Chairman obtains feedback from
each individual Director on the performance of the Board and other Board
members – this typically involves the completion of a questionnaire (which in
2014, was co-ordinated by SCT Consultants – see below) and a follow-up
discussion. In the same way, the Senior Independent Non-Executive Director
obtains feedback from each individual director on the performance of the
Chairman. A similar process is undertaken to assess the performance of each
of the Board’s committees.
The Directors have reviewed the effectiveness of the Board as a whole and its
committees. In 2010, the Code was amended to include a recommendation
that board performance evaluation should be externally facilitated at least
every three years. The Board appointed Margaret Exley of SCT Consultants to
facilitate its evaluation in the year ended 30 April 2014. Margaret Exley’s
evaluation comprised one-to-one interviews with each director and the
Company Secretary, review of a questionnaire completed by each director and
the Company Secretary, consideration of the papers from three Board
meetings held in 2013 and consideration of other key documents. Neither
Margaret Exley, nor SCT Consultants, has any other connection with, or
supplies any other services to the Group.
The Directors also reviewed the effectiveness of each committee of which he
or she is a member.
The assessment of effectiveness included consideration of:
• The composition of the Board and its committees;
• The balance of skills, experience, independence and knowledge on the
Board;
• The diversity of the Board;
• The effectiveness of the formal Board and committee meetings;
• The nature and extent of the Board’s interaction with the management of
the Group;
• The timeliness, relevance and accuracy of the information provided to the
Board and its committees; and
• The allocation of the Board’s time between differing priorities including the
time spent on strategic considerations relative to other matters.
A report of SCT Consultants’ conclusions of the Board evaluation was
presented and discussed at the April 2014 Board meeting. The review was
very positive about the Board’s performance and capability. SCT Consultants
identified a small number of areas for development, which included increasing
the breadth of the Board’s discussions on strategy, further developing the
pipeline of senior talent and streamlining the information provided to the
Board. The Chairman and Company Secretary will work with the Board to
implement an action plan to address these areas over the course of the year to
30 April 2015. The Board intends to continue to use external facilitation of its
performance evaluation no less frequently than every third year.
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Corporate governance report
5.11 Individual director participation at
meetings
The following is a table of participation in full Board meetings, meetings of
committees and the Annual General Meeting by directors during the year
ended 30 April 2014:
PARTICIPATION
IN MEETINGS
Full Board
meetings
Audit
Committee
Remuneration
Committee
Actual
Possible
Actual
Possible
Actual
Possible
Sir Brian Souter
Martin Griffiths
Gregor Alexander
Sir Ewan Brown
Ann Gloag
Helen Mahy
Ross Paterson
Garry Watts
Phil White
Will Whitehorn
77
77
77
77
77
77
77
77
77
77
n/a
n/a
3
n/a
n/a
3
n/a
1
3
n/a
n/a
3
n/a
n/a
3
n/a
1
3
n/a
n/a
n/a
n/a
2
n/a
n/a
n/a
n/a
3
3
n/a
n/a
2
n/a
n/a
n/a
n/a
3
3
33
PARTICIPATION
IN MEETINGS
Health, Safety
and Environmental
Committee
Nomination
Committee
Annual General
Meeting
Actual
Possible
Actual
Possible
Actual
Possible
Sir Brian Souter
Martin Griffiths
Gregor Alexander
Sir Ewan Brown
Ann Gloag
Helen Mahy
Ross Paterson
Garry Watts
Phil White
Will Whitehorn
n/a
44
n/a
n/a
44
44
n/a
n/a
44
23
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
11
n/a
n/a
n/a
11
n/a
1
n/a
n/a
n/a
n/a
n/a
n/a
n/a
1
11
11
11
1
11
11
11
1
11
1
1
1
1
5.12 Relations with shareholders
The Board endeavours to present a fair, balanced and understandable
assessment of the Group’s position and prospects in communications with
shareholders. The Group holds periodic meetings with representatives of
major institutional shareholders, other fund managers and representatives of
the financial media.
The programme of investor relations includes presentations in London of the
full-year and interim results and meetings with institutional investors in the
UK and overseas. Investor and analyst feedback is sought after presentations
to ensure key strategies, market trends and actions being taken are being
effectively communicated and shareholder objectives are known. Written
responses are given to letters or e-mails received from shareholders. The
annual report is published in hard copy and on the Group’s website.
The Board receives regular updates on the views of shareholders through
briefings from the Chairman and the Executive Directors, reports from the
Company’s brokers and reports from the Company’s Financial PR consultants.
The Senior Independent Non-Executive Director is available to shareholders
where contact through the normal channels is inappropriate, or has failed to
resolve concerns.
All shareholders are welcome to attend and participate at the Annual General
Meeting and any other general meetings. The Group aims to ensure that all
the Directors are available at the Annual General Meeting to answer
page 36 | Stagecoach Group plc
questions. The Annual General Meeting provides an opportunity for
shareholders to question the Chairman and other directors on a variety of
topics and further information is provided at the Annual General Meeting on
the Group’s principal business activities. It is the Company’s policy to propose
a separate resolution at the Annual General Meeting for each substantially
separate issue. Resolutions are taken on a show of hands and details of all
proxy votes lodged for and against, or withheld, in respect of each resolution
are given to the meeting. Details of the proxy votes are also published on the
Group’s website at http://www.stagecoach.com/investors/shareholder-
services/agm.aspx
The Company and its registrars have established procedures to ensure that
votes cast are properly received and recorded.
5.13 Risk management
The Group has an ongoing process for identifying, evaluating and managing
the significant risks that it faces. The Board regularly reviews the process.
The principal risks and uncertainties facing the Group are summarised in
section 2.3.6.
The Board considers acceptance of appropriate risks to be an integral part of
business and unacceptable levels of risk are avoided or reduced and, in some
cases, transferred to third parties. Internal controls are used to identify and
manage risk. The Directors acknowledge their responsibility for establishing
and maintaining the Group’s system of internal control, and for reviewing its
effectiveness. The Group’s system cannot provide absolute assurance but is
designed to provide the Directors with reasonable assurance that any
significant risks or problems are identified on a timely basis and dealt with
appropriately. The Group has established an ongoing process of risk review and
certification by the business heads of each operating unit.
Certain of the Group’s businesses are subject to significant risk. Each identified
business risk is assessed for its probability of occurrence and its potential
severity of occurrence. Where necessary, the Board considers whether it is
appropriate to accept certain risks that cannot be fully controlled or mitigated
by the Group.
The Group’s risk management process was embedded throughout the
businesses for the whole of the financial year ended 30 April 2014 and up to
the date of the approval of this report. The Board has carried out a review of
the effectiveness of the Group’s risk management and internal control
environment and such reviews are supported on an ongoing basis by the work
of the Audit Committee. The Board is satisfied that processes are in place to
ensure that risks are appropriately managed.
The Board has designated specific individuals to oversee the internal control
and risk management processes, while recognising that it retains ultimate
responsibility for these. The Board believes that it is important that these
processes remain rooted throughout the business and the managing director
of each operating unit is responsible for the internal control framework within
that unit.
Self-assessment of risk conducted by the Directors and senior management is
ongoing and has been considered at several levels, with each division
maintaining a separate risk profile.
The Group Risk Assurance (or internal audit) function, which is outsourced to
and managed by Deloitte LLP, reports to the Audit Committee and is utilised in
monitoring risk management processes to determine whether internal
controls are effectively designed and properly implemented. A risk-based
approach is applied to the implementation and monitoring of controls. The
monitoring process also forms the basis for maintaining the integrity and
improving, where possible, the Group’s risk management process in the
context of the Group’s overall goals.
The Audit Committee reviews Group Risk Assurance plans, as well as external
audit plans and any business improvement opportunities that are
recommended by the external auditors.
The Group’s risk management process does not specifically cover joint
ventures, but the Group maintains an overview of joint ventures' business risk
management processes through representation on the boards and in the case
of Virgin Rail Group, its audit committee. Stagecoach management
representatives also meet regularly with representatives of joint ventures to
ensure that they follow appropriate risk management procedures.
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5.14 Internal control
The wider process described above and the key procedures noted below,
enable the Directors to confirm that they have reviewed the effectiveness of
the system of risk management and internal control of the Group during the
year. The key procedures, which the Directors have established, are as follows:
• an annual budgeting process with periodic re-forecasting of out-turn,
identifying key risks and opportunities. All budgets are presented to a
panel consisting of executive directors and/or senior managers by each
business unit’s management team, before being approved by the Board.
• reporting of financial information to the Board encompassing income
statement, cash flow, balance sheet and key performance indicators. Group
management monitors the results throughout each financial year.
• a Risk Assurance function which reviews key business processes and
business controls, reporting directly to the Audit Committee.
• third party reviews commissioned periodically by the Group of areas where
significant inherent risks have been identified, such as health and safety,
treasury management, insurance provisioning, pensions strategy and
competition policy.
• a decentralised organisational structure with clearly defined limits of
responsibility and authority to promote effective and efficient operations.
• control over the activities of joint ventures through Stagecoach
representation on the boards of the entities together with regular contact
between Stagecoach management and the management of the relevant
entities.
• a performance management appraisal system, which covers the Group’s
senior management based on agreed financial and other performance
objectives, many of which incorporate managing risk.
• significant emphasis on cash flow management. Bank balances are
reviewed on a daily basis and cash flows are compared to budget on a four-
weekly basis.
• reporting to the Board and/or its Committees on specific matters including
updated key risks, taxation, pensions, insurance, treasury management,
foreign exchange, interest and commodity exposures. The Board regulates
treasury management policies and procedures.
• defined capital expenditure and other investment approval procedures,
including due diligence requirements where material businesses are being
acquired or divested.
• each operating unit maintains internal controls and procedures
appropriate to the business. A written certificate is provided at least
annually by the management of each business confirming that they have
reviewed the effectiveness of the system of internal control during the
year.
• a competition compliance programme, which the Board has approved and
which is subject to regular monitoring.
• an anti-bribery and anti-corruption policy with training and compliance
monitoring.
Any control weaknesses that these procedures identify are monitored and
addressed in the normal course of business. None of the weaknesses
identified in the year to 30 April 2014 have resulted in any material losses,
contingencies or uncertainties that would require disclosure in the Group’s
Annual Report.
5.15 Process for preparing consolidated financial
statements
The Group has established internal control and risk management systems in
relation to the process for preparing consolidated financial statements. The
key features of these internal control and risk management systems are:
• The Risk Assurance function and management conducts various checks on
internal financial controls periodically.
• Management regularly monitors and considers developments in
accounting regulations and best practice in financial reporting, and where
appropriate, reflects developments in the consolidated financial
statements. Appropriate briefings and/or training are provided to key
finance personnel on relevant developments in accounting and financial
reporting. The Audit Committee is also kept appraised of such
developments.
• A written certificate is provided annually by the management of each
business unit confirming that the internal financial controls have been
reviewed and highlighting any departures from the controls system that
the Group has determined to be appropriate practice.
• The financial statements of each business unit are subject to review by a
local finance manager prior to being submitted to the Group Finance
function.
• The financial statements of each business unit are subject to review by the
Group Finance function for unusual items, unexplained trends and
completeness. Any unexplained items are referred back to local
management to explain.
• The Group Finance function compares the financial statements of each
business unit to the management accounts received during the year and
obtains explanations for any material differences.
• The Group’s consolidation, which consolidates the results of each business
unit and makes appropriate adjustments, is subject to various levels of
review by the Group Finance function.
• The draft consolidated financial statements are reviewed by an individual
independent from those individuals who were responsible for preparing
the financial statements. The review includes checking internal
consistency, consistency with other statements, consistency with internal
accounting records and arithmetical accuracy.
• The Audit Committee and the Board review the draft consolidated
financial statements. The Audit Committee receives reports from
management and the external auditors on significant judgements,
changes in accounting policies, changes in accounting estimates and other
pertinent matters relating to the consolidated financial statements.
• The financial statements of all material business units are subject to
external audit.
The Group uses the same firm of auditors to audit all Group companies. The
Group auditors review the audit work papers for material joint ventures that
are audited by a different firm of auditors.
5.16 Pension schemes
The assets of the Group’s pension schemes are held under trust, separate
from the assets of the Group and are invested with a number of independent
fund managers. There are ten trustees for the principal UK scheme of whom
three are employee representatives nominated by the members on a regional
basis and two are pensioner trustees. The chairman of the trustees of the
principal UK scheme is a professional trustee who served for eight years as a
fund member elected representative on the National Association of Pension
Funds’ investment council. He also sits independently as an elected
representative of all railway employers on the board of the Railways Pension
Scheme and is the immediate past Trustee Chairman of the Railways Pension
Scheme trustees. The other trustees of the principal UK scheme include senior
Group and UK Bus executives.
A Pensions Oversight Committee was in operation throughout the year. This
Committee is chaired by a non-executive director, Sir Ewan Brown, and also
comprises one executive director and other members of senior management.
The Committee operates at a strategic level and its remit covers all matters
affecting the Group’s pension schemes from the perspective of the Group’s
shareholders and other stakeholders, and it will consider, develop and
propose recommendations to the Board in respect of such issues as may
arise. The Committee reviews pension scheme funding, investment strategy,
risk management, internal controls surrounding pension matters and the
related administration for all of the employee pension schemes of the Group.
By order of the Board
Mike Vaux
Company Secretary
25 June 2014
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6. Audit Committee report
Introduction from Gregor Alexander,
6.1
Chairman of the Audit Committee
Following my appointment as Chair of the Audit Committee in July 2013,
I am pleased to present our Audit Committee report for the financial year
ended 30 April 2014. I would like to take this opportunity to thank Garry
Watts for his effective Chairmanship of the Audit Committee over the
previous six years.
This is our first Audit Committee report under the revised UK Corporate
Governance Code (“the Code”), and it is our view that the recommendations
in the Code have further strengthened the role of the Audit Committee as a
key independent oversight Committee of the Group.
Gregor Alexander
Chairman of the Audit Committee
25 June 2014
Composition of the Audit Committee
6.2
The membership of the Audit Committee is summarised in section 5.9.
Gregor Alexander is the current Chairman of the Audit Committee and is a
Chartered Accountant. Gregor is the Finance Director of SSE plc, a FTSE 100
company, and is the designated Committee member with recent and relevant
financial experience. Phil White is a former Finance Director and former Chief
Executive of a FTSE 350 company and is also a Chartered Accountant. Helen
Mahy is a Barrister, an Associate of the Chartered Insurance Institute and was
the Company Secretary and General Counsel of a FTSE 100 company.
6.3 Operation of the Audit Committee
The Audit Committee met three times during the year. The Committee
retains discretion as to who from outside the Committee should attend its
meetings but generally invites the following to attend:
• The Group Finance Director;
• Group Financial Controller;
• The Company Secretary, who is Secretary to the Committee;
• Representatives from the external auditors;
• Representatives from the Risk Assurance Function.
In addition, the Group Tax Director and Group Treasurer are expected to
present to the Committee at least annually.
The Committee may also invite other directors of the Company to attend
meetings of the Committee and does so from time to time.
6.4 Activities of the Audit Committee
The Committee receives reports from major business functions including the
Risk Assurance Function (internal audit), which is outsourced and managed
by Deloitte. It also receives reports from the external auditors. It considers the
scope and results of the audit, the half-year and annual financial statements
and the accounting and internal control systems in place throughout the
Group. The Audit Committee reviews the cost effectiveness, independence
and objectivity of the internal and external auditors.
The terms of reference of the Audit Committee are available on the Group’s
website at
http://www.stagecoach.com/~/media/Files/S/Stagecoach-
Group/Attachments/about/Terms-of-reference-of-the-Audit-Committee-30-
Nov-2012.pdf
In response to the implementation of the revised version of the UK Corporate
Governance Code, which applies to financial years commencing on or after
1 October 2012, the Board requested that the Committee advise them on
whether it considers the Annual Report and financial statements, taken as a
whole, is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company’s performance, business
model and strategy. Having carefully considered this, the Committee
concluded positively and reported its conclusion to the Board. The
Committee did not consider it necessary to make significant changes to its
processes to enable it to conclude on this matter because the controls and
processes that were already in place in respect of the production of the
Annual Report and financial statements, and in respect of the provision of
information to the Committee were viewed as being sufficient. A new
document was, however, provided to the Committee that summarised the
various sources of information and assurance that enabled the Committee to
make the fair, balanced and understandable conclusion.
The sections that follow set out the areas that the Committee focused on
during and in respect of the year ended 30 April 2014.
6.4.1 Financial Reporting
The Group’s interim and preliminary financial results, as well as its Annual
Report, were reviewed and revised by the Audit Committee before
recommending their publication to the Board. At each meeting, the
Committee discussed with management how they had applied critical
accounting policies and judgements to these documents, having considered
reports from both the Group’s management and the external auditors. The
external auditors attended all meetings of the Committee and presented
audit plans and findings, amongst other matters.
The Committee considered a number of issues and accounting judgements
in respect of the financial statements for the year ended 30 April 2014, of
which it considered the most significant to be as follows:
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Significant issues or judgements
considered by Audit Committee
Work and conclusion of Audit
Committee
Quantification
Pensions
The determination of the Group’s
pension benefit obligation and
expense for defined benefit pension
schemes is dependent on the selection
by the Directors of certain
assumptions used by actuaries in
calculating such amounts. Those
assumptions include the discount rate,
annual rate of increase in future salary
levels and mortality rates.
Insurance
The estimation of the insurance
provision in respect of traffic accidents
and employee incidents is based on an
assessment of the expected settlement
on known claims together with an
estimate of settlements that will be
made in respect of incidents occurring
prior to the balance sheet but for which
claims have not been reported to the
Group.
Taxation
Estimation of the tax charge requires
an assessment to be made of the
potential tax consequences of certain
items that will only be resolved when
agreed by the relevant tax authorities.
Twin America Litigation
Certain of the Group’s subsidiaries and
one of its joint ventures, Twin
America, are party to litigation as
explained in note 31 to the
consolidated financial statements.
The ultimate cost to the Group in
respect of this matter is uncertain.
Relevant notes to the
consolidated financial
statements
6, 25
The Committee considered the appropriateness of
pension assumptions by receiving reports from
management outlining the basis of the
assumptions used, comparing these assumptions
to those applied by other companies operating in
the same sector as the Group as well as by listed
companies more generally, considering advice
from external actuaries and considering analysis
undertaken by the external auditors. The
Committee noted that there were a range of
acceptable assumptions but concluded that the
assumptions applied were appropriate.
The total pensions expense
recognised in the
consolidated income
statement for the year
ended 30 April 2014 was
£74.2m (2013 restated:
£66.0m) and the net
retirement benefit liability
as at 30 April 2014 was
£115.8m (2013 restated:
£109.6m).
The insurance provision in
the consolidated balance
sheet as at 30 April 2014
was £140.9m (2013:
£141.3m).
24
7, 23
The consolidated tax charge
for the year ended 30 April
2014 was £25.5m (2013
restated: £27.8m).
The net consolidated tax
liability as at 30 April 2014
was £82.9m (2013 restated:
£74.4m).
13, 31
The carrying value of the
Group’s investment in Twin
America as at 30 April 2014
was £28.5m (2013: £37.5m),
after deducting £11.6m
(2013: £6.4m) in respect of
the Group’s share of
liabilities related to the
litigation.
The Committee discussed with management the
key judgements made in determining the
insurance provision, challenging the methodology
used, and understanding the extent to which
estimates are supported by third party actuarial
advice and analysis provided by the external
auditors. The Committee noted that there was a
range of acceptable estimates for the year-end
insurance provision and after challenge, concluded
that the amount of the insurance provision was at
an appropriate point within that range.
The Committee considered the judgements made
in respect of tax by reviewing reports from
management outlining the basis of the
assumptions, challenging the estimates formed
and considering the extent to which third party
professional advice and/or historical experience
informed the judgements. The Committee met
with the Group’s Tax Director, the Group Tax
Manager and a tax partner from the external
auditors in April 2014. The specific judgements
considered by the Committee included the
accounting for the tax effect of fuel derivatives,
foreign exchange gains/losses and the financing of
foreign operations. The Committee concluded
that appropriate judgements had been made in
determining the tax amounts recorded in the
financial statements.
The Committee considered the appropriateness of
liabilities held by the Group and its joint venture in
respect of the Twin America litigation. It
considered this through discussion with
management and consideration of relevant legal
advice. It evaluated the range of possible outcomes
and concluded that appropriate liabilities had been
recorded in the consolidated financial statements.
The Group also assessed whether the carrying value
of its investment in Twin America was impaired.
The Committee agreed that the projected future
cash flows from Twin America supported the
carrying value of Twin America in the Group’s
consolidated balance sheet as at 30 April 2014 but
noted that a change in certain assumptions (most
notably, the rate of future revenue growth) could
result in an impairment loss.
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Audit Committee report
In addition to the significant accounting judgements set out above, the
Committee also considered other accounting and reporting matters in
respect of the year ended 30 April 2014, including the following:
• Exceptional items – The Committee considered the appropriateness of the
amounts disclosed as exceptional items in the financial statements and the
adequacy of the disclosure related to such items. In respect of the year
ended 30 April 2014, the Committee considered the proposal to no longer
treat certain gains and losses from the disposal of land and buildings as
exceptional items. The Committee concluded that this was appropriate
because such gains and losses were generally not material and arose in the
normal course of business. Also, it noted that the proposed approach
would enhance comparability with other listed peers.
• Acquisition accounting – Establishing the acquisition-date fair values of
assets and liabilities assumed in business combinations involves
judgements, particularly in assessing whether contractual commitments
are favourable or unfavourable to market terms. The Committee reviewed
the acquisition accounting for business combinations in the year. In the
year ended 30 April 2014, there were no material business combinations
and so the consolidated financial statements were not particularly sensitive
to the assumptions made in respect of these. The acquisition of
businesses from Coach America in the year ended 30 April 2013 was more
significant and the Committee considered the accounting for that
acquisition at the appropriate time.
• Rail franchise opportunities – In light of the range of opportunities facing
the Group’s UK Rail Division, the Committee considered whether any
actual or anticipated changes in the commercial terms or duration of rail
franchises resulted in any changes in accounting estimates. The
Committee concluded that the accounting estimates in the consolidated
financial statements had been appropriately updated for such franchise
changes.
• Impairment and onerous contracts – In addition to considering whether
the carrying value of the Group’s investment in Twin America was
impaired, the Committee also considered whether any adjustments were
required to the consolidated financial statements for impairments of any
other assets and/or onerous contracts. The Committee concluded that no
material impairment losses or new provisions for onerous contracts ought
to be recorded in the consolidated financial statements.
• Other liabilities – The Committee considered the judgments made in
respect of certain other liabilities, and considered them to be appropriate.
The Audit Committee also reviewed the evidence that supported the
conclusion that the Group remained a going concern, noting it was
consistent with the disclosure given in section 4.12 of this Annual Report.
6.4.2 External auditors
The external auditors presented a detailed audit plan to the Committee,
setting out their analysis of significant audit risks and key judgemental
accounting matters, which would inform their planned scope and approach
to the current year audit. For the year ended 30 April 2014, the most
significant risks identified were in relation to provisioning for insurance
claims, taxation, pensions accounting and the Twin America litigation and
impairment assessment, based on the inherent level of management
judgement required in these areas. These risks are monitored through the
year and the Committee challenged the work done by the auditors to test
management’s assumptions and estimates.
Private meetings were held with the external auditors at each Committee
meeting without the presence of management. The Committee Chairman
also holds meetings with the external auditors between Committee
meetings.
The Audit Committee has responsibility delegated from the Board for making
recommendations on the appointment, reappointment, removal and
remuneration of the external auditors. There have been no instances of
disagreements between the Board and the Audit Committee relating to the
external auditors.
Subject to the annual appointment of auditors by the shareholders, the Audit
Committee conducts a continuous review of the relationship between the
Group and the auditors. This review includes:
• the consideration of audit fees that should be paid and advance approval
of any other fees in excess of £50,000 per annum which are payable to
auditors or affiliated firms in respect of non-audit activities;
• the consideration of the auditors’ independence and objectivity;
• the nature and scope of the external audit and the arrangements which
have been made to ensure co-ordination where more than one audit firm
or offices of the same firm are involved; and
• discussions on such issues as compliance with accounting standards.
The Committee formally assesses the effectiveness of the external audit
process on an annual basis in the context of the wider assurance processes
across the Group. As well as undertaking its own assessment of the audit
effectiveness, the Committee also considers the views of a number of finance
managers from various parts of the Group. The auditor assessment
questionnaire is completed on an annual basis and examines three main
performance criteria – robustness of the audit process, quality of delivery and
quality of people and service. This assessment also includes consideration of
the auditors’ independence and objectivity, taking into account relevant laws,
regulations and professional requirements. The assessment involves
considering all relationships between the Group and the auditors, including
the nature and quantum of non-audit services. Assurances are obtained from
the auditors that they and their staff have no financial, business,
employment, family or other personal relationship with the Group that could
affect the auditor’s independence and objectivity, taking account of relevant
ethical standards. The auditors explain to the Audit Committee their policies
and processes for maintaining independence and monitoring compliance
with relevant requirements.
The Committee considers the reappointment of the external auditor each
year before making a recommendation to the Board and shareholders. The
Committee assesses the independence and effectiveness of the external
auditor on an ongoing basis and the ethical standards require that, other in
exceptional circumstances, the audit partner responsible for the Group audit
rotates every five years. The current lead partner has been in place for three
years. The current auditors have been in place since 2002 and this was the
last year an audit tender was conducted.
The Committee recognises the current requirements of the latest version of
the UK Corporate Governance Code (the “Code”) and transitional guidance in
relation to audit tendering, and also notes the European Union text on Audit
Regulation and Directive and the UK Competition Commission (now the
Competition and Markets Authority) response to conduct further
consultation on audit tendering.
Ongoing deliberations by these bodies might result in further requirements
or recommendations on audit rotation or tendering. We therefore intend to
await the results of these deliberations before making any firm decisions on
the timing of tendering the audit. At this point, we envisage that the timing
of the next audit tender will be such that a change of auditor, if any, occurs
following the end of the five-year term of the current lead audit partner in
2016.
The Group is not aware of any restrictions that would limit its choice of
external auditors.
The Audit Committee, having considered the external auditors’ performance
during their period in office, recommends re-appointment. The Committee
considered the audit fee of £0.8m (2013: £0.8m) for PricewaterhouseCoopers
LLP appropriate and concluded that an effective audit can be conducted for
such a fee.
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6.4.5 Code of Conduct and “Speaking Up” Policy
The Audit Committee reviews compliance with the Group’s Code of Conduct
and use of the Group’s “Speaking Up” policy, which provides a mechanism for
employees with serious concerns about the conduct of the Group or its
employees to report those concerns. The Committee ensures that appropriate
arrangements are in place to receive and act proportionately upon a
complaint about malpractice. The Committee takes a particular interest in
any reports of possible improprieties in financial reporting.
All known instances of fraud, theft or similar irregularities affecting the Group
were reported to and considered by the Committee, although there were no
such matters that were sufficiently material to merit disclosure in the Annual
Report. The Committee also received and considered updates on litigation
involving the Group, although other than the Twin America litigation referred
to in section 6.4.1 above, there were no such matters that were sufficiently
material to merit separate disclosure in the Annual Report.
6.4.6 Other activities
The Committee has considered a range of other matters at its three meetings
over the last year and received various reports and presentations as follows:
• A presentation was received from the Group Tax Director on the Group’s
tax affairs, significant tax accounting judgements and tax risks. The Group
Treasury team presented on the Group’s treasury affairs and management
of treasury risks.
• As part of the Committee’s ongoing training and development, both
management and the external auditors updated the Committee on
developments in accounting standards, auditing standards, guidance for
audit committees, the Financial Reporting Council UK Corporate
Governance Code, legislation affecting the Group more generally and
other relevant regulatory developments and guidance.
• The Committee considered reports from the Audit Committee of Virgin
Rail Group on matters relevant to that joint venture. The Group’s Finance
Director is Chairman of the Virgin Rail Group Audit Committee.
• Minutes of the Treasury Committee meetings (comprising members of
management) were shared with the Audit Committee.
• The Committee reviewed a summary of the Directors’ expense claims.
Committee evaluation
6.5
The Committee’s activities formed part of the external review of Board
effectiveness performed in the year. Details of this review are provided in
section 5.8. Overall, the Committee considers that it has continued to operate
effectively during the year.
6.4.3 Non-Audit services
Procedures in respect of other services provided by the auditors are in place to
safeguard audit objectivity and independence. The Group’s policies on non-
audit services are:
• Audit related services – These are services that the auditors must undertake
or are best placed to undertake by virtue of their role as auditors. Such
services include formalities relating to bank financing, regulatory reports,
and certain shareholder circulars. The auditors would generally provide all
such services.
• Tax consulting – It is the Group’s policy to select the advisor for each
specific piece of tax consulting work who has the most appropriate skills
and experience for the work required. The Group uses a range of advisors
for tax consulting, including the auditors where they are best suited to the
work being undertaken.
• General consulting – For other consulting work, the Group will select an
advisor after taking account of the skills and experience required and the
expected cost of the work. The Group uses a range of advisors for general
consulting, including the auditors where they are best suited to the work
being undertaken. The auditors are only permitted to provide general
consulting when the Group, the Audit Committee and the auditors are
satisfied that there are no circumstances that would lead to a threat to the
audit team’s independence or a conflict of interest that could not be
effectively safeguarded.
In addition to the audit fee, PricewaterhouseCoopers LLP received non-audit
related fees of £0.1m (2013: £0.1m), which equate to 12.5% (2013: 12.5%) of
the audit fee and further details of which can be found in note 3 of the
consolidated financial statements.
The Committee believes that the level and scope of non-audit services does
not impair the objectivity of the auditors and that there is a clear benefit
obtained from using professional advisors who have a good understanding of
the Group’s operations. Other accounting or consulting firms have been used
where the Group recognises them as having particular areas of expertise or
where potential conflicts of interest for the auditors are identified. The
Committee will, however, of course review its policy on non-audit services
from time to time, to ensure continued compliance with laws and
regulations, including European Union legislation.
6.4.4 Internal auditors
The Committee has received several reports from Deloitte, which manages
the outsourced Risk Assurance Function (internal auditors), detailing the
planned schedule of audits as well as tracking key findings and any related
material actions to address unsatisfactory results. Deloitte attended all
meetings of the Committee, in addition to meeting privately with the
Committee without the presence of management.
The Audit Committee has the responsibility for making recommendations on
the appointment, reappointment, removal and remuneration of the Group
Risk Assurance Function. There have been no instances of disagreements
between the Board and the Audit Committee relating to the Risk Assurance
Function.
The Audit Committee conducts a continuous review of the relationship
between the Group and the Risk Assurance Function. This review includes a
consideration of independence and objectivity, the overall level of fees, the
quality of the risk assurance process, and the role of the function in the
context of the broader sources of risk assurance.
The Committee formally assesses the effectiveness of the risk assurance
function on an annual basis.
Stagecoach Group plc | page 41
Board diversity
7.4
The Company believes strongly that its Board benefits from comprising
talented people with a range of perspectives and from differing backgrounds
and the terms of reference of the Committee reflect this in the criteria for
identifying suitable candidates for nomination to the Board.
The Committee notes that the Davies Review recommended that Chairmen of
FTSE 350 companies should set out the percentage of women they aim to
have on their boards by 2013 and 2015. The Company was co-founded by Ann
Gloag and throughout its life as a listed company it has had at least one
woman on its Board and since May 2001, at least two. There are currently ten
directors of the Company.
While the Board had nine members, the Board stated its aspiration to
maintain the percentage of women on the Board at 22%. By increasing the
size of the Board to ten directors, the proportion of women has decreased
from 22% to 20% of the Board. The appointment of an additional director to
the Board brings the benefit of an increased diversity of opinions and
knowledge to the Board. The percentage of women on the Board is now 20%
and the Board aspires to maintain at least this percentage in the future. In
addition to board diversity, the Company believes in promoting diversity at all
levels of the organisation, further detail of which is provided in section 2.8.4
of the Strategic report.
7.5
Succession planning arrangements
The Board and the Nomination Committee recognise the importance of
succession planning to ensure that the Group continues to prosper in the
longer term. The Group operates a decentralised organisational structure with
clearly defined limits of responsibility and authority, and oversight from head
office. This structure provides the opportunity for managers to develop in
some of the Group’s smaller business units before progressing to wider and
more responsible roles. The Group has a history of developing good managers
who have progressed to take on senior positions within the Group. The Group
operates a graduate recruitment programme, and some of the graduates
recruited have gone on to become managing directors of individual business
units, both in the UK and North America.
The Nomination Committee ensures that appropriate succession
arrangements are in place for the Directors. The Nomination Committee and
the Board seeks to identify new directors and senior managers to ensure
succession of directors is conducted in a managed way, without significant
disruption to the ongoing business of the Group. The Committee believes that
it is important to develop and promote existing talent from within the
organisation.
In recognition of the importance of talent management, the new Chief
Executive established and chaired during the year a new talent group involving
human resources, training and other professionals from within the Group. The
talent group looks to take a lead role to further enhance the recruitment,
retention and development of talented employees throughout the Group.
Given the importance of succession planning, the views of all directors are
considered and not just the views of the members of the Committee.
.
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7. Nomination Committee report
7.1 Introduction from Garry Watts, Stagecoach
Group Deputy Chairman and Chairman of the
Nomination Committee
The Nomination Committee has an important place in the governance
structure of the Stagecoach Group. To be effective a board needs to maintain
balance over time, taking account of planned and unplanned changes to the
membership of the Board. As Chairman of the Committee, I ensure that we
regularly review our Board composition and ensure that the mix of skills
available is appropriate. We are aware that talented individuals can come from
diverse backgrounds and aim to promote greater diversity in the
recommendations that we make to the Board.
The changes to the management team at the start of 2013/14 were consistent
with the succession planning that had been in place and we continue to
develop our succession plans to provide the skills the Group needs in order to
develop and implement the Group’s strategy now and in the future.
During the year, the Committee reviewed the composition of the Board’s
committees and recommended changes, which were put in place by the Board
from 1 September 2013.
We have reviewed the performance and length of service of our executive and
non-executive directors and are pleased to be able to recommend all of our
board for re-election at the 2014 Annual General Meeting.
Garry Watts
Chairman of the Nomination Committee
25 June 2014
Composition of the Nomination
7.2
Committee
The composition of the Nomination Committee is summarised in section
5.9. The Committee also invites other Non-Executive Directors to attend its
meetings.
7.3 Operation of the Nomination Committee
The Nomination Committee keeps under review the overall Board structure,
size and composition, and is responsible for evaluating the balance of skills,
knowledge and experience of the Board. Where appropriate the Committee
will suggest adjustments to achieve that balance. For a proposed
appointment, the Committee will prepare a description of the role and the
attributes required of the candidates, which will include a job specification and
the estimate of the time commitment expected. In making any appointment,
the Group’s policy on directors having other significant commitments will be
taken into account and potential candidates will be asked to disclose their
other commitments and confirm that they will have sufficient time to meet
what is expected of them. The Directors are also required to report any
significant changes in their other commitments as they arise. The Committee
identifies and evaluates suitable candidates and makes proposals for each
appointment, although final appointments are the responsibility of the Board
as a whole. The appointments process takes account of the benefits of
diversity of the Board, including gender diversity and in identifying suitable
candidates the Committee considers candidates from a range of backgrounds.
The Nomination Committee compiles a shortlist of potential new non-
executive directors by taking account of known candidates and candidates
suggested by the Group’s advisors.
Non-executive directors receive a letter of appointment. For any new
appointments, the expected time commitment is agreed with the director and
included in the letter of appointment.
No director of the Company is currently a chairman of a FTSE 100 company.
The terms of reference of the Nomination Committee are available on the
Group’s website at
http://www.stagecoach.com/~/media/Files/S/Stagecoach-
Group/Attachments/about/Nomination-committee-terms-of-reference-
approved-April-2013.pdf
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8. Health, Safety and Environmental Committee report
During the year the Committee Chairman spent time with UK Bus employees
to gain further understanding of health, safety and environmental processes
in that business and undertook a rail industry strategic safety management
training programme. Committee members attend meetings of the Safety
Committees of individual business units from time to time.
The Committee Chairman attended an Executive Board Safety and
Compliance meeting of the South West Trains-Network Rail Alliance to see
first-hand the benefits of working with Network Rail on safety issues and also
visited Clapham Junction to review the crowd management measures and
train despatch arrangements being implemented at the station. The
Committee Chairman met with UK Bus management to see the bus based
park and ride facility recently constructed at Halbeath. The Committee
Chairman was also presented with the plan for delivering the transport
provision for the 2014 Ryder Cup to be held at Gleneagles. This highlighted
the safety risks and other challenges which the team will face during the
delivery.
The Committee allocates time in its agendas to receive detailed briefings on
areas of specific interest or concern to it. During the year, presentations were
received on a range of topics, including the challenges inherent in dealing
with the increasing number of rail passengers using rail infrastructure, the
lessons that could be learned from the July 2013 Spanish rail crash (in which
the Group had no involvement but was nevertheless interested in lessons to
be learned), the formulation of the Group’s environmental targets and
strategy over the next few years, and employee health initiatives being
undertaken by the Group’s divisions.
The Committee reviews the Group’s analysis of health, safety and
environmental risks and its strategies to address those risks. The Committee
receives reports on trends in health and safety indicators across the Group as
well as information on significant incidents involving the Group. Key
performance indicators are provided and reviewed in respect of each major
operating division. Training, where relevant, is provided to the Committee on
health, safety and environmental matters. The Committee liaises with the
Remuneration Committee in determining any health and safety objectives to
form part of the Executive Directors’ personal objectives.
Members of the Committee review entries for the annual Stagecoach
Champions Awards, which reward employees for excellence in the areas of
safety, environmental, community, health, customer service and innovation.
8.1 Introduction from Helen Mahy, Chairman
of the Health, Safety and Environmental
Committee
The Health, Safety and Environmental Committee assists the Board to fulfil its
responsibilities by recommending Group policy in these areas and monitoring
compliance with the Group policy. I was pleased to welcome Will Whitehorn as
an additional member of the Committee in September 2013. The Committee
has benefited in particular from Will’s experience with, and insights into, the
rail industry.
In order to formulate and monitor the Group’s policies, I believe that it is
important to involve a range of contributors from the Group’s businesses and
to ensure that the members of the Committee actively engage with those
businesses to help the Group to evolve its health, safety and environmental
strategy over time. By bringing contributors together at its meetings, the
Committee aims to share knowledge between the Group’s businesses and to
challenge its business managers and safety advisers to promote sustained
improvement over time.
The safety and security of our customers, our people and others is
fundamental to our business. Public transport is the safest way to travel and
health and safety is at the top of our agenda.
Helen Mahy
Chairman of the Health, Safety and Environmental Committee
25 June 2014
Composition of the Health, Safety and
8.2
Environmental Committee
The membership of the Health, Safety and Environmental Committee is
summarised in section 5.9.
The terms of reference of the Health, Safety and Environmental Committee
are available on the Group’s website at
http://www.stagecoach.com/~/media/Files/S/Stagecoach-
Group/Attachments/about/HSE-terms-of-ref-Nov-2011.pdf
8.3 Operation of the Health, Safety and
Environmental Committee
The Committee considers health, safety and environmental risks, mitigations
and issues across the Group and reports to the Board on these matters. The
Committee also approves the Group’s overall strategic safety framework. It
has access to internal safety executives and also external consultants, where
required.
Executive management is responsible for ensuring that local health and
safety policies and procedures are consistent with the overall framework.
Managers from each of the Group’s key divisions attend meetings of the
Committee, providing the Committee with an opportunity to question and
challenge management on health, safety and environmental matters. As
incidents occur, the Committee, aided by the safety management teams, is
able to analyse those incidents and learn lessons to further improve the
Group’s safety processes.
The Committee and its members visit operational locations to observe
health, safety and environmental management in practice. During the year,
the members of the Committee visited the Group’s Supertram business and
were able to gain insight into the challenges for employees operating trams
in Sheffield city centre and on the challenging terrain of the wider Sheffield
area.
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9. Directors’ remuneration report
Introduction from Phil White, Chairman
9.1
of the Remuneration Committee
On behalf of the Remuneration Committee, I am pleased to present the
Directors’ remuneration report for the year ended 30 April 2014 prepared in
compliance with the new UK reporting regulations. The report comprises
three sections including the Directors’ Remuneration Policy in section 9.4,
and the Annual Report on Remuneration in section 9.5 following this
statement.
Our approach to remuneration is to ensure that the key components are
consistent and easily understood, overall remuneration is not excessive and
that the share based incentives and other elements of variable remuneration
provide an alignment between the objectives of executive management and
shareholders. From our previous engagements with shareholders we believe
they have appreciated the simplicity and consistency of our approach. The
Group has delivered a consistently strong financial performance over the last
ten years or so, and we consider this has been supported by the clear direction
provided by the remuneration policy.
We consider that the elements of variable pay, comprising the annual bonus
awards, Deferred Shares, and a long-term incentive plan should provide
meaningful but not excessive incentives designed to provide a clear
alignment with the corporate strategy and shareholders’ long-term
objectives.
Our approach to executive pay and our remuneration policy has therefore
remained unchanged during 2013/14, and the implementation has been
consistent with previous years. Annual bonus potentials are retained at a
maximum of 100% of basic pay (allocated 50% in cash, and 50% in Deferred
Shares), and with a maximum value on award under the Long Term Incentive
Plan (“LTIP”) of 150% of basic pay.
Following feedback received in previous years, we recently consulted with
shareholders and representative bodies on proposals to introduce a second
performance condition for the LTIP. This has resulted in the policy set out in
this Remuneration Report to introduce targets for growth in earnings per
share. The performance conditions for the LTIP would therefore be split in
two, with one half of the annual awards being made based on relative total
shareholder return, and the other would be based on targets set for the
growth in a measure of earnings per share (both over at least a three year
performance period). We consider that the proposals would provide a more
direct alignment with the corporate strategy (as set out in section 2.3.2 of
this Annual Report).
The Committee also considered it was appropriate to increase the executive
director shareholding guideline from 100% to 200% of basic pay from June
2014.
Activities of the Remuneration Committee
The main tasks and decisions of the Committee during the year ended
30 April 2014 were:
• Reviewed the performance and approved the Executive Directors’
bonuses for year ended 30 April 2013.
• Set annual performance targets for the Executive Directors’ bonuses.
• Reviewed performance and approved the vesting of the 2010 awards
under the LTIP in June and December 2013.
• Reviewed and approved targets for LTIP awards made in the year ended
30 April 2014.
• Reviewed and approved the vesting of the 2010 awards under the EPP.
• Decided on levels of pay and benefit increases in the annual salary
review, including reviewing the remuneration for senior non-Board
managers.
• Reviewed and implemented the changes in reporting requirements for
directors’ remuneration.
• Proposed, and received approval for, extending the periods of both the
LTIP and EPP arrangements for a period of 10 years, and updating the
malus provisions for both plans. Shareholders also approved the
page 44 | Stagecoach Group plc
proposal to increase the flexibility to satisfy awards through the issue of
shares, within ABI guidelines on the limits for satisfying awards with
new issue shares (5% in any 10 year period).
• Considered and agreed to start consultation with major shareholders on
matters of remuneration policy including proposals to introduce a
second condition based on targets for growth in earnings per share for
the long term incentive plan, and increasing the target shareholding
guideline for Executive Directors.
Remuneration for 2013/14
As regards the results for the year and payouts under the annual bonus plan, I
am pleased to say that the Group made good progress against its financial
and strategic objectives. Both the Executive Directors together with the senior
management team have provided strong leadership throughout the year.
Despite the impact of severe weather in the UK and North America, the
performance of the Group continued to be strong. We also continue to be
well positioned to take advantage of rail franchise opportunities. This strong
performance enabled the Group to meet its financial targets. As both
Executive Directors were able to meet their challenging personal objectives,
the Committee awarded both Executive Directors the maximum bonus of
100% of basic salary.
The Committee is aware of the continuing public debate on executive
remuneration in the UK and remains committed to ensuring there is a strong
linkage between pay and performance and that pay remains aligned with the
interests of shareholders and other major stakeholders.
We are grateful for the work undertaken by the Group and our remuneration
advisers, and for the support we have received from our major shareholders
and their representative bodies.
At the Group’s Annual General Meeting on 29 August 2014, shareholders will
be invited to approve
(a)
the Directors’ Remuneration Policy in a binding vote and
(b) this statement and the Annual Report on Remuneration together in an
advisory vote.
It is my hope that all of our shareholders, whether they are the large
institutional shareholders or individual shareholders, will find value in this
report.
We have looked to provide a clear and comprehensive report, seeking to
avoid the danger of over complexity from the new disclosures being
understood only by the institutional experts.
Increased and improved consultation between boards and their shareholders
has led to a much greater understanding of remuneration issues. We
appreciate that shareholders will express a wide range of differing views on
what can be a difficult or emotive area and that it will not always be easy to
find a consensus on all points. In such cases our approach would be to lean
towards the majority view while looking to retain the important alignment
with the corporate strategy set by the Board. Where our larger institutional
shareholders are also subject to these new reporting regulations we would
look to them in setting examples of the highest standards.
I look forward to hearing the views of our investors over the coming months
on the information presented here.
Phil White
Chairman of the Remuneration Committee
25 June 2014
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Compliance statement
9.2
This Directors’ remuneration report covers the period 1 May 2013 to 30 April 2014 and provides details of the Remuneration Committee’s role and the remuneration
policy we apply in decisions on executive remuneration. The structure of this report has been modified from previous years to take account of the revised regulations
enacted by the UK Government.
The Company has complied with the principles and provisions relating to directors’ remuneration in the UK Corporate Governance Code (“the Code”). This report has
been prepared in accordance with the Large & Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013. In accordance with
Sections 439 and 439A of the Companies Act 2006, an advisory ordinary resolution to approve the statement by the Chairman of the Remuneration Committee and the
Annual Report on Remuneration and a binding ordinary resolution to approve the Directors’ Remuneration Policy will be proposed at the 2014 Annual General Meeting.
Remuneration payments and payments for loss of office can only be made to directors if they are consistent with the approved Directors' Remuneration Policy or
otherwise approved by ordinary resolution of the shareholders.
Those sections in the remuneration report that have been audited have been highlighted as such. The remaining sections of the remuneration report are not subject to
audit.
9.3
The Committee’s principal function is to determine Stagecoach Group’s policy on executive remuneration and to approve specific remuneration packages for its
executive directors, and such senior members of the executive management as it is asked by the Board to consider, including their service contracts with the Company.
The Committee also has responsibility for making a recommendation to the Board in respect of the remuneration of the Chairman and Deputy Chairman.
The terms of reference of the Committee are available on our website at: http://www.stagecoach.com/~/media/Files/S/Stagecoach-Group/Attachments/about
/Remuneration-committee-terms-of-reference-25-April-2014.pdf
9.4 Directors’ Remuneration Policy Report
This section sets out the remuneration policy for executive directors and non-executive directors, which is subject to a binding vote of shareholders and will, if
approved, formally take effect from 29 August 2014 – the date of the 2014 Annual General Meeting. The stated policy does, however, reflect our current practice,
including changes applied from 1 May 2014.
Remuneration Committee
9.4.1 Key principles of the remuneration policy
In determining appropriate levels of remuneration for the Executive Directors, the Remuneration Committee aims to provide overall packages of terms and conditions
that are competitive in the UK and will attract, retain and motivate high quality executives capable of achieving the Group’s objectives and to ensure that they are fairly
rewarded for their individual responsibilities and contributions to the Group’s overall performance.
The Remuneration Committee believes that packages for the Executive Directors should contain meaningful performance-related elements and that these
performance-related elements should be designed to align the interests of the Executive Directors and other senior managers with the interests of shareholders. The
Remuneration Committee is able to consider all relevant factors when setting the Executive Directors’ remuneration, including environmental, social and governance
matters. Performance targets are established to achieve consistency with the interests of shareholders, with an appropriate balance between short-term and long-term
targets. Performance targets include financial measures as well as non-financial targets, such as environmental and safety objectives. The incentive arrangements for
the Executive Directors are structured so as not to unduly increase environmental, social and governance risks by inadvertently motivating irresponsible behaviour.
The Remuneration Committee regularly reviews the existing remuneration of the Executive Directors, making comparisons with peer companies of similar size
and complexity and with other companies in the public transport industry. Proposals for the forthcoming year are then discussed in the light of the prospects for
the Group as a whole. The Remuneration Committee is also kept informed of the salary levels of other senior executives employed by the Group. The approach is
consistent with that applied for the workforce in that we look to pay competitively with reference to the market rate for a job. With regard to pensions, the
Remuneration Committee has access to reports from pension scheme trustees and scheme actuaries regarding the cost of pension obligations.
We also consult our major shareholders in developing policy - see section 9.4.13.
9.4.2 Summary of remuneration policy for the Executive Directors
This section of our report sets out in tabular form a description of each of the components of the remuneration package for the Executive Directors. Other than the
changes in the last column noted as being applicable from 1 May 2014, the components reflect the policy that applied in the year ended 30 April 2014.
9.4.2.1 Fixed elements of pay
Purpose and link to strategy objectives Operation
Maximum value
Performance metrics and changes for 2014/15
Basic salary
To attract, retain and motivate
executives ensuring basic salaries are
competitive in the market.
Basic salary levels are predicated on continued
good performance by the director.
Salary levels set effective from 1 May 2014 are set
out in section 9.5.13.1.
Basic salaries are generally
reviewed as at 1 May each year but
the Remuneration Committee also
has discretion to adjust them at
other times of the year. Account is
taken of changes in individual
responsibilities that may have
occurred and the salaries for
similar roles in comparable
companies. The Committee also
considers the published salary data
for FTSE 250 companies. Account
is also taken of pay conditions
throughout the Group.
Basic salary increases are
applied in line with the
outcome of the annual review.
Whilst there is no maximum
salary or maximum increase in
salary, the Committee would
only set a salary which
exceeded the top quartile of
salaries applicable in FTSE 250
companies in unforeseen and
exceptional circumstances.
Pensions and life assurance arrangements
To provide relevant life assurance
and pension benefits that are
competitive in the market.
Pension obligations for the
Executive Directors are met
through a combination of
approved defined benefit,
unfunded pension arrangements,
and cash allowances, designed to
provide pension benefits on
retirement of up to two thirds of
final pensionable pay. Her Majesty’s
Revenue and Customs (“HMRC”)
and Scheme rules provide that
defined benefit pension benefits
may not be drawn before age 55.
Final salary elements are related
to basic salary, and any element
satisfied by an employer cash
allowance would be limited to a
third of basic salary.
Pensions and life assurance arrangements are
predicated on continued good performance by the
director.
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9.4.2.1 Fixed Pay (continued)
Purpose and link to strategy objectives Operation
Maximum value
Performance metrics and changes for 2014/15
Benefits in kind and other allowances
Designed to be competitive in the
market.
Benefits in kind and other
allowances can include:
– Health-care benefits, life
assurance cover, company car
allowance, and telephone costs.
– Opportunities to join the BAYE
scheme.
– Relocation assistance if/when
applicable.
Also, business related travel and
subsistence costs will be met or
reimbursed including for
directors’ partners attending
corporate events or management
conferences. Where the
Committee considers it
appropriate other benefits may be
provided, including on
recruitment or relocation.
Benefits in kind and other allowances are
predicated on continued good performance by
the director.
BAYE limits were increased in line with increases
in HMRC limits from 6 April 2014.
Benefits vary by role, and are
reviewed periodically to ensure
they are reasonable relative to
market. There is no maximum
value of a core benefit package
as this is dependent on the cost
to the employing company and
the individual’s circumstances.
Participation in the BAYE
scheme is subject to HMRC
limits.
9.4.2.2 Variable Pay
Purpose and link to strategy objectives Operation
Maximum value
Performance metrics and changes for 2014/15
Performance-related annual cash bonuses
Aims to focus the Executive Directors
on achieving demanding annual
targets relating to Group
performance.
Executive Participation Plan (“EPP”)
Aims to align the interests of
managers and shareholders by
purchasing interests in shares out of
the annual bonus award.
It is also designed to provide an
incentive for managers to remain
with the Group and forms a core part
of the Group’s succession and
management development plans.
Around the start of each financial
year, the Committee agrees
specific objectives for each
executive director. At the end of
each financial year, the
Remuneration Committee
determines the performance-
related annual bonus for each
executive director for the year
just ended. This is based on each
director’s performance in
achieving the set objectives, and
affordability for the Group.
No payment is made if none of
the specific objectives are met.
Participants are awarded Deferred
Shares, which have been
conditionally awarded, with an
initial market value
approximately equal to the
amount of the actual cash bonus
forgone.
Unvested awards granted after
30 August 2013 are subject to
malus (details are in section 9.4.3
below).
The maximum annual bonus is
up to 100% of basic salary, of
which 50% of any bonus award
in the year will be settled in
cash.
At least 50% of any actual bonus
earned in the year will be
deferred as shares under the
EPP.
Additional shares are allocated
in respect of dividends payable
during the relevant period. By
agreement or in appropriate
circumstances, more than 50%
may be deferred.
The actual value of the awards
at vesting will reflect the face
value of the Deferred Shares at
the time of award but also
subsequent movements in the
Company’s share price and
dividends paid by the Company.
70% of the maximum annual bonus is subject to
meeting demanding key financial objectives, and 30%
is for meeting individual business related objectives. In
accordance with the rules of the EPP, at least 50% of
any actual bonus will be deferred as shares under the
EPP.
A number of discrete objectives are set and the bonus
potential is specified for each. The minimum level of
performance required to be met for payout for each of
the discrete objectives is that specified in the objectives.
Further details of the performance measures used for
the 2014 bonus are set out in the Annual Report on
Remuneration in section 9.5.3.
The EPP is an effective retention programme in
that participants would lose their entitlement to
the Deferred Shares if, save for “good leaver”
provisions, they left of their own volition during
the three-year deferral period. It also increases
participants’ effective equity interests in the
Group and so better aligns their interests with
shareholders.
There are no specific performance conditions
attaching to the release of Deferred Shares
because the annual bonus is already subject to
performance conditions.
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9.4.2.2 Variable Pay (continued)
Purpose and link to strategy objectives Operation
Maximum value
Performance metrics and changes for 2014/15
Long Term Incentive Plan (“LTIP”)
Aims to align the interests of
shareholders and management in
growing the return to shareholders and
the value of the business over the long-
term.
Participants are
awarded Incentive
Units, which have a
nominal value equal
to one of the Group’s
ordinary shares.
Incentive Units can be
in the form of a
conditional award, a
cash award or a nil-
cost option.
Unvested awards
granted after 30
August 2013 are
subject to malus
(details are in section
9.4.3 below).
The Committee may
adjust and amend
awards only in
accordance with the
rules of the LTIP.
The maximum
awards granted in any
financial year for an
individual is limited to
Incentive Units with
an aggregate face
value at the time of
award, not exceeding
150% of basic salary.
The actual value of
the awards at vesting
will reflect the face
value of the Incentive
Units at the time of
award but also
subsequent
movements in the
Company’s share
price, dividends paid
by the Company and
actual performance
relative to the
performance metrics.
Awards made prior to 1 May 2014 are and will be subject to a stringent
performance condition related to total shareholder return (‘‘TSR’’) over a
three-year assessment period. TSR is calculated as the movement in
share value after taking account of re-invested dividends. TSR is
measured relative to an appropriate comparator group of FTSE 250
companies.
Such awards will vest as follows:
– If the TSR does not exceed the median of the comparator group, then
none of the relevant available Incentive Units will vest and they will all
lapse;
– If the TSR exceeds the median of the comparator group (which is the
"threshold" performance level), then one-sixth (16.67%) of the
available Incentive Units will vest and the remainder will lapse;
– If the TSR is in the top decile of the comparator group then all of the
available Incentive Units will vest;
– If the TSR is higher than the median but less than the top decile of the
comparator group then the proportion of the available Incentive Units
that will vest would be between 16.67% and 100% of the available
Incentive Units depending on the actual ranking against the
comparator group.
For awards under the LTIP from 1 May 2014, a second performance
condition will be applied, with one half of annual awards being made
based on relative total shareholder return, and the other half based on
targets set for a measure of earnings per share (“EPS”) over the three year
period. In setting stretching targets for the EPS based performance
condition the Committee will take into account factors such as:
– The long-term expectations for the Group;
– Analysts’ consensus expectations;
– Market norms and the approach of peer group companies;
– The level of expected underlying inflation, such that any growth target
should be positive and exceed inflation.
For the Incentive Units awarded that are subject to the TSR condition,
vesting will be as follows:
– If the TSR does not exceed the median of the comparator group, then
none of the relevant Incentive Units awarded will vest and they will all
lapse;
– If the TSR exceeds the median of the comparator group (which is the
"threshold" performance level), then one-quarter (25%) of the available
Incentive Units will vest and the remainder will lapse;
– If the TSR is in the top quartile of the comparator group then all of the
available Incentive Units will vest;
– If the TSR is higher than the median but less than the top quartile of the
comparator group then the proportion of the Incentive Units that will
vest would be between 25% and 100% of the available Incentive Units
depending on the actual ranking against the comparator group.
For the Incentive Units awarded that are subject to the EPS condition,
vesting will be as follows:
– If the EPS is below the target set by the Remuneration Committee,
then none of the relevant available Incentive Units will vest and they
will all lapse;
– If the EPS equals the target for threshold vesting set by the
Remuneration Committee (which is the "threshold" performance level),
then one-quarter (25%) of the available Incentive Units will vest and
the remainder will lapse;
– If the EPS equals or exceeds the target for maximum vesting set by the
Remuneration Committee then all of the available Incentive Units will
vest;
– If the EPS is higher than the threshold vesting target but less than the
maximum vesting target then the proportion of the Incentive Units
that will vest would be between 25% and 100% of the available
Incentive Units, adjusted on a straight basis depending on the EPS
achieved.
The performance conditions will be tested over a three-year period, being
the three years commencing on the 1 May or 1 November immediately
preceding the date of the relevant award.
The Committee is satisfied that the above remuneration policy is in the best interests of shareholders and does not promote excessive risk-taking. As part of the
Director’s Remuneration Policy, the Committee reserves the right to make minor amendments to the policies set out above for regulatory, exchange control,
administrative or tax purposes.
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9.4.3 Malus
Malus may apply where stated in the policy table shown above. Under the malus provisions the Remuneration Committee can reduce (to nil if appropriate)
awards that have not yet vested. The circumstances in which the malus provisions may apply are set out below:
•
if any of the financial statements or results for the Group or any Group Company are materially restated;
•
if a participant has deliberately misled the management of the Group, the market or the Company's shareholders regarding the financial performance of any
Group Company or the participant's business unit;
if a participant's actions or inactions have caused either the Group, any Group Company or the participant's business unit reputational damage;
if a participant's actions or inactions amount to serious misconduct or conduct which causes significant financial loss for the Group, any Group Company or
the participant's business unit;
if a participant's actions or inactions have caused a serious failure of risk management by the Group, any Group Company or the participant's business unit; or
such other circumstances, where the Committee determines that the malus provisions should apply.
•
•
•
•
No other element of remuneration is subject to malus.
9.4.4 Payments from outstanding awards
The Executive Directors would remain eligible to receive payment under any contractual arrangement agreed prior to the approval and implementation of the
remuneration policy, i.e. before 29 August 2014. This includes the vesting of awards granted prior to the remuneration policy taking effect.
9.4.5 Performance targets
9.4.5.1 Annual bonus targets
70% of the annual bonus potential is subject to financial performance measures. There are three financial measures used under the Annual Bonus Plan which
reflect the Company’s key financial objectives for the year. Of the annual bonus potential, 35% is attributable to consolidated profit before interest and taxation,
and was selected by the Committee as profitability is central to the Company’s overall strategy. The Committee considers that EPS is an accepted and well
established measure of the Company’s performance and so 17.5% of the annual bonus is attributable to meeting this target. The remaining 17.5% is attributable to
meeting the target on consolidated net debt as this rewards the effective management of cash and debt.
Targets for the Annual Bonus Plan are set with due regard to external forecasts. Performance targets are set to be stretching but achievable and take into account
the economic environment in a given year. The Committee retains the discretion to amend the weightings and components of the financial and non-financial
elements of the bonus from year to year and for each executive as appropriate.
The Committee is of the view that the amounts of the performance targets for the financial element under the annual bonus are commercially sensitive and that
it would be detrimental to the interests of the Company to disclose these before the end of the financial year. The performance targets of the financial element
will therefore be disclosed in the Annual Report on Remuneration in the following year.
30% of the annual bonus potential is subject to personal performance measures. The personal performance measures used under the Annual Bonus Plan include
achievement of personal and strategic goals. Personal performance measures and targets are proposed by the Chairman for the Chief Executive and by the Chief
Executive for other Executive Directors. The Committee discusses and sets the targets for executive directors and their review is linked to an annual appraisal
process. The Committee is of the view that the performance targets for the personal element are commercially sensitive as they relate to internal management
projects, strategic objectives and personal goals and it is not intended that these will be disclosed in advance. The Committee’s intention is that a summary of
these objectives will be disclosed when they are no longer considered commercially sensitive.
9.4.5.2 LTIP performance targets
The vesting of any LTIP award granted prior to 1 May 2014 will be subject to a stretching performance condition related to total shareholder return (‘‘TSR’’) over
a three-year assessment period. TSR is calculated as the movement in share value after taking account of re-invested dividends. TSR is measured relative to a
comparator group of the list of FTSE 250 companies. The amount of available Incentive Units which are released will range from the threshold payout level of
16.67% for exceeding the median of the comparator group, and up to 100% of the available Incentive Units for achieving top decile ranking.
LTIP awards granted from 1 May 2014 will be split with one half based on TSR performance against a comparator group of the list of FTSE 250 companies and the
other half based on performance against targets for a measure of earnings per share. For the TSR based awards, the TSR must exceed the median of the
comparator group before a payout is available. The amount of Incentive Units released will range from 25% to 100% of each award depending on the actual
ranking. A top quartile ranking is required to achieve 100% release of units. Demanding targets for the growth in earnings per share will be set for the other half
of the awards based on a range of relevant market factors and expectations for the Group as at the date of award.
The maximum level of awards granted for an individual in any financial year is limited to Incentive Units with an aggregate face value at the time of award not
exceeding 150% of basic salary.
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9.4.6 Summary of remuneration policy for the Non-Executive Directors
The table below summarises our policy on the remuneration paid to our Non-Executive Directors. The policy is consistent with the policy that applied in 2013/14.
Performance metrics and changes for
2014/15
Continued good performance.
In recognition of the additional workload and
responsibilities with these roles, from 1 May 2014
additional fees per year are paid for serving as a
Chairman of each of the Audit, Remuneration and
the Health, Safety & Environmental committees.
Purpose and link to
strategy objectives
To attract and retain non-executive
directors with an appropriate degree
of skills, experience, independence
and knowledge of the Company and
its business.
To attract and retain a Chairman and
Deputy Chairman to provide
effective leadership for the Board.
Operation
Maximum value
Any fee increases are applied in
line with the outcome of the
annual review.
Non-Executive Directors’ fees
are subject to an aggregate
maximum cap which is stated
in the Company’s Articles of
Association as £800,000 or
such larger amount as the
Company may decide by
ordinary resolution.
Fee levels for non-executive
directors are generally reviewed
by the Board annually, with any
adjustments effective 1 May in
the year following review.
Remuneration comprises an
annual fee for acting as a non-
executive director.
Remuneration for the Chairman
comprises an annual fee for
acting as Chairman.
Account is taken of fees for
similar roles in comparable
companies. The Board also
considers the published data for
FTSE 250 companies.
Non-executive directors do not
participate in pensions or
incentive benefits, or receive
other remuneration in addition
to their fees. Business related
travel and accommodation
expenses will be met or
reimbursed including for partners
to corporate events or
management conferences, and in
the case of the Chairman, home
telephone costs may be met or
reimbursed.
9.4.7 Approach to the remuneration of newly appointed directors
The Group’s approach to remuneration for newly appointed directors is the same as that for existing directors. As a matter of practicality, it is recognised that it
may be necessary to pay within the market top quartile salaries in order to attract candidates of the quality the business needs. Equally, a new recruit may be
appointed on a lower than market rate salary with phased increases to bring it to the market level. New executive directors will be invited to participate in
incentive plans on the same basis as existing executive directors. Where appropriate, the Company will offer to pay reasonable relocation and expatriate
expenses for new executive directors in line with the Company’s policies described above. It is not the Company’s policy to offer “golden hellos” or sign-on
payments, but where the Remuneration Committee considers it is necessary to do so in order to recruit a particular individual, it may offer compensation for
amounts of variable remuneration under previous employment being forfeited. Any such compensation for variable remuneration forfeited would be subject to
a maximum of the value of the unvested awards taking account of the time to vesting, delivery vehicle (e.g. cash, shares, or share options), any performance
conditions attached to the awards and the likelihood of the conditions being met. The Remuneration Committee reserves the discretion to put in place a plan
under Listing Rule 9.4.2R without seeking shareholders’ approval in order to facilitate such an arrangement. The maximum compensation for variable
remuneration forfeited (as set out above) will be applied even where Listing Rule 9.4.2R would permit higher amounts to be paid.
Where the Company is considering the promotion of senior management to the Board, the Remuneration Committee may, at its discretion, agree that any
commitments (including in respect of loss of office payments) made before promotion will continue to be honoured whether or not otherwise consistent with
the policy prevailing at the time the commitment is fulfilled.
In recruiting a new non-executive director, the Remuneration Committee will use the policy as set out in the table in section 9.4.6.
9.4.8 Pay for performance: scenario analysis
A key element of the Company’s remuneration policy is to provide a significant part of potential reward through performance based incentive plans. The graphs
below provide estimates of the potential future reward opportunities for the Executive Directors, and the potential split between the different elements of
remuneration under three different performance scenarios: “Minimum”, “Target” and “Maximum”.
Martin Griffiths (potential annual pay outcomes)
All values in £’000s
Ross Paterson (potential annual pay outcomes)
All values in £’000s
2,500
2,000
1,500
1,000
500
0
14%
36%
39%
26%
100%
50%
35%
LTIP
Annual Bonus
Salary, pension &
benefits
2,500
2,000
1,500
1,000
500
0
14%
36%
50%
39%
26%
35%
100%
LTIP
Annual Bonus
Salary, pension &
benefits
Minimum
£841
Target
£1,685
Maximum
£2,377
Minimum
£568
Target
£1,131
Maximum
£1,592
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Potential reward opportunities illustrated above are based on the Remuneration Policy, applied to the basic salary in force at 1 May 2014. For the annual bonus,
the amounts illustrated are those potentially receivable in respect of performance for 2014/15 and are on the basis that any bonus award would be satisfied
50% in cash and 50% in Deferred Shares under the EPP valued using the share price at the date of grant. It should be noted that the LTIP awards granted in a
year do not normally vest until the third anniversary of the date of grant. In illustrating potential reward opportunities the following assumptions are made:
Annual Bonus
LTIP
Pension
No annual bonus payable
Maximum annual bonus
Maximum annual bonus
Minimum
Target
Maximum
For the purpose of the charts in this section 9.4.8, pension amounts are calculated at an estimated accrual rate (net of employee contribution) of 33% of basic
salary. This differs from how the pension amounts shown in Table 1 in section 9.5.3 are calculated.
It should be noted that the value of EPP and LTIP awards can increase due to increases in the Company’s share price and/or payments of dividends by the
Company, and accordingly, there is no absolute maximum in the value of such awards.
Threshold not achieved
Threshold performance warranting 25% vesting
Performance warrants 100% vesting
33% of basic salary
33% of basic salary
33% of basic salary
9.4.9 Employment conditions across the Group
The Committee is kept regularly updated on pay and conditions across the Group, although when setting the Directors’ remuneration policy, the wider
employee group is not consulted. In determining the adjustments to the Executive Directors and Group executive salaries, the Committee considers the
increases to pay levels across the broader employee population.
9.4.10 Details of directors’ service contracts
The Executive Directors are employed under contracts of employment. It is the Group’s policy that Executive Directors should have 12-month rolling service
contracts providing for a maximum of one year’s notice. Due to the nature of the Group’s businesses, the service contracts contain restrictive covenants.
The principal terms of the Executive Directors’ service contracts (which have no fixed term) effective during the year were as follows:
Executive Directors’ service contracts
Name of director
Martin Griffiths
Ross Paterson
Date of contract
22 February 2013
11 February 2013
Notice period
12 months
12 months
The contracts for the Chairman and Deputy Chairman (effective of 1 May 2013) provide for six and three months’ notice periods respectively. Other Non-
Executive Directors are appointed by a letter, which provide for one month’s notice. The letters of appointment do not contain any contractual entitlement to a
termination payment and the directors can be removed in accordance with the Company’s Articles of Association.
All notice periods apply to both the director and the Company.
9.4.11 Loss of office payment policy
It is the Group’s policy to provide for 12 months’ notice for termination of employment for executive directors, to be given by either party, and to make
severance payments on termination in line with any pre-established contractual arrangements.
Service contracts provide that an executive director shall give and shall receive 12 months’ notice on termination and contain standard garden leave provisions
which the Group can enforce in order to protect the Group’s interests during a period of notice. An executive director would continue to be paid his basic salary
and contractual benefits during any period of garden leave in the usual way save that he will not be entitled to receive awards under the EPP or the LTIP (or
similar). Any bonus in respect of any period of garden leave would be at the discretion of the Remuneration Committee considering the specific circumstances
but would not exceed the total of the annual maximum bonus (currently at one times basic salary). This is the effect of legacy contractual positions and will not
be incorporated into new contracts for new appointments. In any event, the Remuneration Committee can decide that no such bonus will be payable if and to
the extent it reasonably considers that the payment of a bonus could be perceived as a reward for failure.
There are no arrangements to require the enhancement or acceleration of pension benefits on termination or early retirement.
In the case of gross misconduct by an executive director, a provision is included in the executive’s contract for immediate dismissal with no compensation
payable. In other cases where an executive director’s employment is terminated with immediate effect, the Committee’s policy would be that any compensating
payments would not exceed any amounts due under the contractual arrangements as summarised above.
In the event an executive director leaves for reasons of death, ill-health, injury, redundancy, retirement with the agreement of the Group, or his employing
company ceasing to be a member of the Group or other such event as the Remuneration Committee determines, then LTIP awards will be pro-rated for time and
will vest based on performance over the performance period as determined by the rules of the LTIP. For all other leavers, outstanding LTIP awards will lapse.
In the event an executive director leaves for reasons of death, ill-health, injury, redundancy, or his employing company ceasing to be a member of the Group, then
awards of EPP Deferred Shares will vest at the date of leaving for the benefit of the director. If an executive director retires with the agreement of the Company,
retirement is not a vesting event for the EPP and so the awards will vest on their original vesting date. For all other leavers, outstanding EPP awards will lapse.
In the event an executive director leaves for reasons of death, ill-health, injury, redundancy, retirement, or his employing company ceasing to be a member of
the Group, then shares held under any BAYE awards will vest in accordance with the HMRC approved rules of the Scheme. For all other leavers, outstanding
BAYE matching share awards will lapse.
Payments for loss of office may only be made to directors or former directors if such payments are consistent with the approved remuneration policy or are
otherwise approved by an ordinary resolution of the members of the Company.
9.4.12 Change of control
The following apply where there is a change in control of the Group:
•
The Executive Directors are entitled to normal termination benefits as outlined above, except where the director is offered and has refused employment on
terms and conditions that were no less favourable to those in place prior to the change of control, in which case the Executive Directors will have no claim
against the Group in respect of termination of employment;
under the EPP, Deferred Shares would automatically vest on a change of control;
under the LTIP, Incentive Units would vest on a pro-rata basis taking account of the proportion of the vesting period that had expired and the applicable
performance conditions; and
under the BAYE, awards will vest in full or, alternatively, the acquiring company may offer to roll-over the awards into awards over shares in the acquiring
company.
•
•
•
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9.4.13 Consideration of shareholder views
The Committee considers shareholder feedback received in relation to the Annual General Meeting each year at its first meeting following the Annual General
Meeting. This feedback, as well as any additional feedback received during other meetings with shareholders and representative bodies, is then considered when
reviewing remuneration policy. When any material changes are proposed by the Group to the remuneration policy, the Committee chairman will inform major
shareholders in advance and will offer a meeting to discuss these.
9.4.14 External appointments
It is the Board’s policy to allow the Executive Directors to accept directorships of other quoted companies as this will broaden and enrich the business skills of the
directors so long as the time commitments do not have any detrimental impact on the ability of the director to fulfil his duties. Any such directorships must be
formally approved by the Board.
Martin Griffiths is a non-executive director of AG Barr plc, and was permitted to retain the £46,500 fees received from this position in the year ended 30 April
2014 (2013: £42,847). He was previously a non-executive director at Robert Walters plc, and stepped down from this role on 31 July 2013. He was permitted to
retain the £15,600 fees received from that position in the year ended 30 April 2014 (2013: £62,400).
9.5 Annual Remuneration Report Implementation
This section of the remuneration report provides details of how the remuneration policy was implemented during the year ended 30 April 2014.
9.5.1 Committee members
The Remuneration Committee is currently composed of four independent non-executive directors. The Committee met three times during the year. The Group
Director of Tax and Employee Benefits is Secretary to the Committee. Attendance at meetings by individual members is detailed in section 5.11. No director was
involved in decisions as to their own remuneration.
The members of the Committee during the year ended 30 April 2014 and at the date of this report were:
•
•
•
• Will Whitehorn
The remuneration of executive directors was not considered by any other Committee or group of directors during the year.
Phil White (Chairman)
Garry Watts
Gregor Alexander (from 1 September 2013)
9.5.2 Advisers
The Committee retained Addleshaw Goddard LLP as its remuneration consultant to provide access to independent research and advice. It has no other
connection to the Group. Addleshaw Goddard LLP received £28,250 (2013: £12,380) in respect of work it carried out in the year ended 30 April 2014. The fees
payable were determined by Addleshaw Goddard LLP with reference to time spent and applicable hourly rates. We do not consider the level of fees paid or the
nature of the work performed would prejudice the objectivity or independence of Addleshaw Goddard LLP.
9.5.3 Remuneration of the Executive Directors and Non-Executive Directors (audited)
The remuneration of the Executive Directors and Non-Executive Directors may comprise a number of elements, as described in section 9.4.
Directors’ remuneration and the single figure total for the year ended 30 April 2014 are shown in Table 1 below. Each of the elements of remuneration is
discussed further below.
TABLE 1 – DIRECTORS’ REMUNERATION
(amounts in £000)
Basic
Salary/Fees
Benefits
in
kind
Performance
related
bonus
Long Term
Incentives vested
(LTIP)
Pension
related
benefits
Total
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
Executive directors
Martin Griffiths
Ross Paterson (appointed 1 May 2013)
Sir Brian Souter (retired as an executive
director 30 April 2013)
600
400
450
–
24
23
24
–
600
400
450
–
597 1,187
–
290
406 232
–
233
2,227 2,343
–
1,346
–
599
–
22
–
382
– 2,240
–
200
– 3,443
Non-executive directors
Sir Ewan Brown
Ann Gloag
Helen Mahy
Sir George Mathewson (retired 30 April 2013)
Sir Brian Souter (appointed as a non-executive
director 1 May 2013)
Garry Watts
Phil White
Will Whitehorn
Gregor Alexander (appointed 1 April 2013)
51
51
51
–
200
125
51
51
51
50
50
50
283
–
50
50
50
4
–
–
–
–
1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
51
51
51
–
201
125
51
51
51
50
50
50
283
–
50
50
50
4
Total
1,631 1,636
48
46
1,000
832
887 3,427
639 432
4,205 6,373
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Directors’ remuneration report
Notes to Table 1:
i. Basic Salary/fees
The basic salary/fees in Table 1 correspond to the amounts payable in respect of the relevant financial year ended 30 April. Salary is paid monthly and all salaries
shown above were effective from 1 May at the start of the relevant financial year. Both Executive Directors participated in pension salary sacrifice arrangements
during the year and the basic salary amounts are shown gross before any salary sacrifice arrangements.
ii. Benefits in kind and other allowances
The benefits in kind and other allowances shown in Table 1 are made up as follows:
TABLE 2 – BENEFITS IN KIND
Martin Griffiths
Ross Paterson
Sir Brian Souter
22,000
22,000
–
Cash allowance in lieu
of company car
2014
£
2013
£
22,000
–
22,000
Healthcare
benefits
2013
£
1,212
–
2014
£
982
982
––
Reimbursement
of home
telephone expenses
2013
2014
£
£
445
459
–
–
577
381
Employer
BAYE
Total
2014
£
197
197
––
2013
£
211
–
2014
£
2013
£
23,624 23,882
–
23,179
22,381
577
During the year both Executive Directors participated in the Buy As You Earn (“BAYE”) Plan. We believe that the BAYE plan aligns the interests of employees and
shareholders by allowing all UK employees of the Group to purchase shares out of salary. It is designed to aid staff motivation and retention. The maximum
employee purchase is governed by HMRC limits and for all monthly employee purchases in 2013/14 was £125 per month. The Group provides two matching
shares for every share purchased on the first £10 of each employee’s monthly investment. The amounts shown in Table 2 are the values of such matching
shares allocated to directors as at the dates of allocation. Additional shares are allocated in respect of dividends payable during the relevant period. Details of the
shares held under the BAYE plan are shown in Table 10.
iii. Performance related bonus
Around the start of each financial year, the Committee agrees specific objectives for each executive director. Following the end of each financial year, the
Committee determines the annual bonus for each executive director for the year just ended. This is based on the director’s performance in achieving the set
objectives. These comprise both financial objectives for the Group and individual business related objectives for each director. For each executive director, the
Group financial objectives for the year ended 30 April 2014 were to meet financial targets with respect to measures of profit before interest and taxation,
earnings per share, and net debt.
For the year ended 30 April 2014, Martin Griffiths and Ross Paterson each had a maximum potential bonus of up to 100% of basic salary, with 70% allocated
over a range of demanding key financial objectives and 30% for meeting individual business related objectives. Details of the financial objectives applicable for
2013/14 are shown below.
TABLE 3 – DIRECTORS’ OBJECTIVES
Target
Achieved
Potential Bonus
(% of basic salary)
Bonus Awarded
(% of basic salary)
Consolidated profit before interest and
taxation (“PBIT”) from Group companies
Consolidated adjusted earnings per
share (“EPS”)
Consolidated net debt (“Net Debt”)
Element of bonus related to Group
financial objectives
£213.7m
25.4p
£509.9m
£214.3m
26.0p
£457.3m
35.0%
17.5%
17.5%
70.0%
35.0%
17.5%
17.5%
70.0%
The PBIT and EPS measures shown above are determined in accordance with International Financial Reporting Standards but adjusted to exclude intangible
asset expenses and exceptional items. The PBIT measure also excludes any share of profit or loss from joint ventures. The Net Debt measure shown above is
determined in accordance with the definition of net debt given in note 35 to the consolidated financial statements. The actual values achieved in respect of each
of the three measures are adjusted to exclude the impact of any acquisitions and disposals of businesses that were not included in determining the target values.
The detailed individual business related targets are considered to be commercially sensitive and it is the Committee’s intention that a summary of these
objectives will be disclosed when they are no longer considered commercially sensitive.
In making its judgement of performance for the last financial year, the Remuneration Committee had particular regard to the results as recorded elsewhere in
the Annual Report, and relative total return to shareholders over the year, as well as other strategic developments and operating performance. Performance
related bonuses awarded to the Executive Directors in respect of the year ended 30 April 2014 are shown below.
TABLE 4 – DIRECTORS’ BONUSES AWARDED
Director
Martin Griffiths
Ross Paterson
Actual bonus as a percentage of
basic salary
Maximum potential bonus as a percentage of
basic salary
Cash
50%
50%
Deferred Shares
50%
50%
Cash
50%
50%
Deferred Shares
50%
50%
iv. LTIP
The amounts shown in Table 1 in respect of the LTIP for the year ended 30 April 2014 represents the actual market value of the vesting of the December 2010
award in December 2013, plus an estimate of the market value of the June 2011 award (due to vest in June 2014) as at the year end 30 April 2014. The
December 2010 award vested achieving a ranking of 79 out of the FTSE250 comparator group, resulting in a pay-out vesting percentage of 55.0% of the
relevant Incentive Units. The value for the awards due to vest in June 2014 is based on a projection using the information available as at 30 April 2014 for the
awards granted in June 2011 with an estimated ranking of 72 out of the FTSE 250 comparator group, resulting in a projected pay-out vesting percentage of
60.8% and using an estimated value based on the average share price over the last quarter of 2013/2014 of 380.25p.
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Details of LTIP awards that are treated in Table 1 as having vested during the year ended 30 April 2014 are shown below.
TABLE 5 – LTIP AWARDS
treated as vested for
inclusion in Table 1
Grant date
Martin Griffiths
09 Dec 10
30 Jun 11
Ross Paterson
09 Dec 10
30 Jun 11
As at 30 April
2013
(Incentive
Units)
Dividends
in year
(Incentive
Units)
Lapsed
during year
(Incentive
Units)
Vested
during year
(Incentive
Units)
As at 30 April
2014
(Incentive
Units)
Amounts
included in
Table 1
££
147,288
122,419
2,682
3,160
(67,487)
––
(82,483)
–
125,579
70,171
60,586
1,278
1,564
(32,153)
––
(39,296)
–
62,150
£306,837
£290,474
£597,311
£146,181
£143,756
£289,937
Price per
incentive
unit achieved
on vesting
Vesting Date
3.7200
–
09 Dec 13
30 Jun 14
Vesting
%
55.0%
60.8%
3.7200
–
09 Dec 13
30 Jun 14
55.0%
60.8%
v. Pension related benefits
The pension amounts shown in Table 1 for each director represents 20 times the increase (excluding inflation) in the accrued annual pension entitlement plus
the increase (excluding inflation) in the accrued cash lump sum entitlement, less contributions paid by the director.
9.5.4 Pensions (audited)
Under the terms of their service agreements, the Executive Directors are entitled to become members of one of the Group’s defined benefit pension schemes or,
if preferred, to receive payment of a proportion of salary for personal pension arrangements. Defined benefit pensions may be accrued under the HMRC
approved pension scheme and/or the Group’s funded pension arrangements. For pension purposes, the Executive Directors have a normal retirement age of 60
and in accordance with HMRC rules accrued defined benefits may not be drawn before age 55.
Martin Griffiths accrued benefits in the year ended 30 April 2014 under the Group funded pension arrangements. Other than adjustments for inflation no
further benefits accrued under a HMRC approved Group defined benefit scheme during the year.
Ross Paterson accrued benefits in the year ended 30 April 2014 under a combination of a HMRC approved Group defined benefit pension scheme and the
Group funded pension arrangements.
Life assurance of four times basic annual salary is provided under the arrangements for pension benefits.
Table 6 below provides the pensions information required by Schedule 8 of the Large & Medium- sized Companies and Groups (Accounts and Reports)
(Amendment) Regulations 2013 and gives details of benefits accruing during the year under the Group’s pension arrangements.
TABLE 6 – DIRECTORS’ PENSION
BENEFITS
Normal
Retirement
date
Contributions paid
by the director
for the year ended
30 April 2014
£’000
Martin Griffiths
Ross Paterson
31 March 2026
29 July 2031
42
20
Accrued cash
entitlement at
30 April 2013
£’000
161
115
Accrued
annual pension
entitlement at
30 April 2013
£’000
68
39
Accrued cash
entitlement at
30 April 2014
£’000
166
127
Accrued
annual pension
entitlement at
30 April 2014
£’000
92
52
The totals above include pension benefits accrued for service prior to appointment as a director of the Company.
Directors’ contributions to pension schemes as shown in Table 6 above are made by way of salary sacrifice arrangements.
No Non-Executive Directors accrued benefits in the year under pension schemes in connection with their roles with the Group.
9.5.5 EPP and LTIP awards during the financial year (audited)
Table 7 and 8 set out the awards to the Executive Directors under the Company’s share schemes during the year ended 30 April 2014.
TABLE 7 – LTIP AWARDS IN YEAR
Type of
interest
awarded
Share price at
time of award
£
Basis
of award
Awards
granted in year
Expected
total value at
time of grant
£
Maximum
total value at
time of grant
£
Martin Griffiths
27 Jun 13
12 Dec 13
Ross Paterson
27 Jun 13
12 Dec 13
Incentive
Units
Incentive
Units
Incentive
Units
Incentive
Units
3.1595
3.7200
3.1595
3.7200
75% of basic
salary
75% of basic
salary
75% of basic
salary
75% of basic
salary
142,427
127,916
450,000
120,967
127,916
450,000
94,951
85,277
300,000
80,645
85,277
300,000
Vesting
Date
Performance
period
27 Jun 16
28 Jun 2013 -
27 Jun 2016
12 Dec 16 13 Dec 2013 -
12 Dec 2016
27 Jun 16
28 Jun 2013 -
27 Jun 2016
12 Dec 16 13 Dec 2013 -
12 Dec 2016
Each Incentive Unit shown in Table 7, has a notional face value equal to one of the Company’s ordinary shares.
The maximum and expected total values shown above ignore non-market vesting conditions and do not include any assumed share price appreciation or
dividends paid. The actual number of Incentive Units (if any) which vest will depend on the performance conditions being achieved. The performance conditions
for both awards are that the TSR over the performance period must exceed the median of the comparator group, which is the list of FTSE 250 companies. The
amount of units awarded which are released will range from 16.67% to 100% depending on the actual ranking achieved. A challenging performance target of
top decile ranking is required to achieve a 100% release of units. No units will vest for below-threshold performance.
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Directors’ remuneration report
TABLE 8 – EPP AWARDS IN YEAR
Type of
interest
awarded
Share price at
time of award
£
Basis
of award
Awards
granted in year
(deferred
shares)
Maximum & expected
total value at
time of grant
£
Vesting
Date
Performance
period
£
Martin Griffiths
27 Jun 13
Ross Paterson
27 Jun 13
Deferred
Shares
Deferred
Shares
3.101
3.101
50% of
annual bonus
50% of
annual bonus
72,557
225,000
27 Jun 16
23,702
73,500
27 Jun 16
n/a
n/a
Each Deferred Share shown in Table 8 has a notional face value equal to one of the Company’s ordinary shares.
The maximum and total expected values shown above ignore non-market vesting conditions and do not include any assumed share price appreciation or
dividends paid. There are no specific performance conditions attaching to the release of these Deferred Shares because the annual bonus is already subject to
performance conditions.
9.5.6 Payments to past directors
There have been no payments in excess of the de minimis threshold to former directors during the year ended 30 April 2014 in respect of their former roles as
directors. The Company has set a de minimis threshold of £10,000 under which it would not report such payments.
9.5.7 Payments for loss of office
There have been no payments for loss of office to directors during the year ended 30 April 2014 (2013: £113,333).
9.5.8 Statement of directors’ shareholdings and share interests (audited)
The Executive Directors and certain other senior executives are expected to accumulate significant shareholdings in the Company. In the case of the Executive
Directors, they are each expected to accumulate an effective interest in shares in the Company with a value of at least 200% of basic salary. A target of 100%
was first introduced in 2005 and has been amended to 200% from June 2014 following feedback from shareholders. The Executive Directors are allowed five
years from the date of appointment to accumulate the appropriate level of shares. For these purposes, EPP Deferred Shares are included on a pre-tax basis, but
as from 1 May 2014, EPP Deferred Shares will be counted on a post-tax basis only and all interests in shares will be counted at current value. At 30 April 2014
under these revised definitions Martin Griffiths had an interest in shares equivalent to 327% of his basic salary and Ross Paterson had an interest in shares
equivalent to 230% of his basic salary. Both directors therefore met the shareholding guideline.
The effective interests of the Directors (including those of connected persons) as at 30 April 2014 were:
TABLE 9 – DIRECTORS’ INTERESTS IN SHARES OF THE GROUP
AS AT 30 APRIL 2014
Interests as at
30 April 2014
Scheme interests vested and
exercised during year ended
30 April 2014
Martin Griffiths
Ross Paterson
Non Executive Directors
Gregor Alexander
Sir Ewan Brown
Ann Gloag
Helen Mahy
Sir Brian Souter
Garry Watts
Phil White
Will Whitehorn
LTIP incentive
units (subject
to performance
conditions)
EPP Shares
(not subject
BAYE Shares
(not subject
to performance to performance
LTIP incentive
units (subject
to performance to performance
EPP Shares
(not subject
conditions)
conditions)
conditions)
conditions)
Shares held
outright
395,685
197,329
762,661
416,471
221,932
78,531
1,406
1,406
149,517
71,233
365,472
119,575
10,406
see note below
62,501,721
8,834
86,900,445
16,000
4,070
72,288
––
––
––
–
––
––
––
109,019
–
–
–
––
–
–
–
–
–
–
–
–
–
–
–
–
52,936
–
–
–
Sir Ewan Brown has an indirect interest in the share capital of the Company. He and his connected parties own approximately 18% (2013: 22%) of the
ordinary shares of Noble Grossart Holdings Limited, which in turn through its subsidiary, Noble Grossart Investments Limited, held 3,267,999
ordinary shares in the Company at 30 April 2014 (2013: 3,267,999).
Although Sir Brian Souter retired as an executive director of the Company on 30 April 2013, retirement is not a vesting event for the EPP and so he
retains awards of EPP Deferred Shares that are expected to vest on their original planned vesting dates.
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Further details of directors’ interests in the LTIP, EPP and BAYE schemes are shown in Table 10 below.
TABLE 10 – SUMMARY OF INTERESTS IN THE LTIP,
EPP AND BAYE SCHEMES
As at
30 April 2013
Granted in
year
Dividends
in year
Lapsed
during year
Vested
during year
As at
30 April 2014
Vesting
Date
Long Term Investment Plan
Martin Griffiths
Ross Paterson
Executive Participation Plan
Martin Griffiths
Ross Paterson
Sir Brian Souter
Buy as you Earn Scheme
Martin Griffiths
Ross Paterson
160,871
147,288
122,419
118,221
132,518
109,079
–
–
––
–
–
–
–
–
142,427
120,967
2,682
3,160
3,052
3,421
2,816
3,677
904
(93,837)
(67,487)
––
––
––
––
––
––
(67,034)
(82,483)
–
–
125,579
121,273
135,939
111,895
146,104
121,871
790,396
263,394
19,712
(161,324)
(149,517)
762,661
76,643
70,171
60,586
58,508
61,841
50,903
–
–
––
–
–
–
–
–
94,951
80,645
1,278
1,564
1,510
1,596
1,314
2,451
602
(44,706)
(32,153)
––
––
––
––
––
––
(31,937)
(39,296)
–
–
62,150
60,018
63,437
52,217
97,402
81,247
378,652
175,596
10,315
(76,859)
(71,233)
416,471
262,415
103,057
71,253
72,558
–
––
–
–
72,557
509,283
72,557
85,858
33,717
26,402
26,460
–
172,437
52,936
53,386
52,901
159,223
883
883
1,766
––
––
–
–
23,702
23,702
–
–
–
493
493
986
––
1,832
1,866
1,866
5,564
679
680
608
1,967
1,372
1,360
2,732
30
30
60
(262,415)
(103,057)
–
–
73,085
74,424
74,423
(365,472)
221,932
(85,858)
(33,717)
(119,575)
(52,936)
–
–
27,081
27,140
24,310
78,531
–
54,758
54,261
(52,936)
109,019
1,406
1,406
2,812
–
––
––
––
–
–
–
––
––
–
––
––
–
––
––
––
28 Jun 13
09 Dec 13
30 Jun 14
08 Dec 14
27 Jun 15
06 Dec 15
27 Jun 16
12 Dec 16
28 Jun 13
09 Dec 13
30 Jun 14
08 Dec 14
27 Jun 15
06 Dec 15
27 Jun 16
12 Dec 16
27 Jun 13
28 Jun 13
30 Jun 14
27 Jun 15
27 Jun 16
27 Jun 13
28 Jun 13
30 Jun 14
27 Jun 15
27 Jun 16
28 Jun 13
30 Jun 14
27 Jun 15
n/a
n/a
9.5.9 Performance graph
The graph below charts the performance of the total shareholder return (‘‘TSR’’) (share value movement plus reinvested dividends) from the Company’s ordinary
shares over the five years to 30 April 2014 compared with that of the FTSE Travel and Leisure All-Share Index, and the FTSE 250 Index. The FTSE 250 Index has
been selected for this comparison because it is the index used by the Company for the TSR based performance criterion for the LTIP Scheme, while the FTSE
Travel and Leisure All-Share Index is shown as the Company and a number of its peers make up a significant element of that index.
Stagecoach 5-Year TSR Comparative Performance to 30 April 2014:
Stagecoach TSR
FTSE 350 Travel & Leisure TSR
FTSE 250 TSR
400
350
300
250
200
150
100
50
May 09
Aug 09
Dec 09
Apr 10
Aug 10
Dec 10
Apr 11
Aug 11
Dec 11
Apr 12
Aug 12
Dec 12
Apr 13
Aug 13
Dec 13
Apr 14
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Directors’ remuneration report
For comparative purposes, the pay for the role of Chief Executive over the same five year comparative period is shown in Table 11 below.
TABLE 11 – PAY FOR THE ROLE OF CHIEF EXECUTIVE
Year ended 30 April:
Bonus (percentage of maximum)*
LTIP vesting rates against maximum opportunity
Single figure of total remuneration (£000)
2010
35%
100%
2,491
Sir Brian Souter
2011
46%
0%
1,269
2012
47%
n/a
1,227
2013
64%
61%
3,443
Martin Griffiths
2014
100%
57%
2,227
* Sir Brian Souter waived entitlement to part of his cash bonus, with the amounts waived being used to support funding of medical screening in the UK Bus Divisions. Therefore
the bonus percentages shown in Table 11 above reflect the amounts awarded to Sir Brian net of the waivers. For information, the full bonus percentage entitlements based on
performance and before the waivers are shown in Table 12 below.
TABLE 12 – BONUS AWARDED TO CHIEF EXECUTIVE
(before waivers) Year ended 30 April:
Bonus (percentage of maximum)*
Sir Brian Souter
2010
80.0%
2011
90.0%
2012
90.0%
2013
90.0%
The total remuneration figure is calculated on the same basis as the single total figure of remuneration for Directors shown in Table 1 in section 9.5.3.
9.5.10 Percentage change in Chief Executive Remuneration (audited)
The change in the Chief Executive’s remuneration from 2012/13 to 2013/14 in comparison to a comparator group of employees is shown in the Table 13 below
and should be considered in the context of the change in Chief Executive on 1 May 2014.
TABLE 13 – PERCENTAGE CHANGE IN REMUNERATION FOR THE ROLE OF CHIEF EXECUTIVE
Percentage change of Chief Executive
Percentage change per capita of employees in
the comparator group throughout both years
Salary
Benefits
Bonus
0%
9%
57%
3.5%
0%
(4.9)%
On the appointment of Martin Griffiths as Chief Executive, the Committee considered it was appropriate to retain the basic salary for this position at the same level
as paid to the predecessor.
The increase in the Chief Executive’s bonus percentage shown in Table 13 reflects a waiver of bonus amounting to 26.2% of basic salary by Sir Brian Souter, and
otherwise he would have been entitled to a bonus of 90% of basic salary for 2012/13 compared to an award of 100% for the Chief Executive for 2013/14.
The comparator group used comprises over 300 employees including the corporate head office employees, the management teams of each of the Group’s divisions
and their administrative support staff. This comparator group was used because the Committee believes it provides a sufficiently large and relative comparator
group to give a reasonable understanding of underlying increases, based on similar annual bonus performance measures utilised by Group management and
support functions. The Group seeks to ensure that the basis for pay increases for these functions are generally consistent with the pay rises at UK Bus and Rail
operations.
9.5.11 Relative Importance of spend on pay (audited)
The table below shows the expenditure of the Group on employee remuneration costs in the year ended 30 April 2014 and the year ended 30 April 2013. In
addition, it details the disbursements from profit made by way of dividend payments during the same periods.
TABLE 14 – SPEND ON PAY RELATIVE TO DIVIDENDS
AND STAFF COSTS
Profit distributed by way of dividend
Overall spend on pay for employees
2014
£m
51.0
1,133.9
2013
£m
45.9
1,098.7
Percentage
change
11.1%
3.2%
9.5.12 Consideration of shareholder views (audited)
The following table shows the results of the advisory vote on the 2013 Remuneration Report at the 2013 Annual General Meeting.
TABLE 15 – SHAREHOLDER VOTE
Total number of votes
% of votes cast
For+
Against
Total votes cast (excluding withheld votes)
Votes withheld*
Total votes cast (including withheld votes)
329,348,016
22,911,504
352,259,520
103,727,535
455,987,055
93.50%
6.50%
100.00%
+the number of votes “for” the resolution includes those cast at the Chairman’s discretion.
*A withheld vote is not a vote in law and is not counted in the calculation of the proportion of votes cast for and against a resolution.
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9.5.13 Implementation of remuneration policy in the financial year ending 30 April 2015
In the year ending 30 April 2015, the Executive Directors’ and Non-Executive Directors’ remuneration policies will be implemented as follows.
9.5.13.1 Implementation of Executive Directors’ remuneration policy
9.5.13.1.1 Fixed elements – basic salary
The Committee made the following 2014/15 basic salary decisions which are in line with the disclosed policy in section 9.4.2 of this report.
TABLE 16 – INCREASES IN BASIC SALARY
Martin Griffiths
Ross Paterson
2014/15
salary
£m
614,400
409,600
2013/14
salary
£m
600,000
400,000
Percentage
change
2.4%
2.4%
Salaries are effective from 1 May each year. The Committee has considered the broader employee context in determining salaries. .
9.5.13.1.2 Other elements
The implementation of policy in relation to other elements of remuneration is in line with the disclosed policy in section 9.4 of this report, and there are no
changes in the maximum bonus or LTIP potential amounts as a percentage of basic salary.
Short term incentives – Annual Bonus
The implementation of policy in relation to annual bonus is in line with the disclosed policy in section 9.4 of this report.
Targets are approved by the Remuneration Committee around the beginning of the year. Each executive director has a maximum potential bonus of up to
100% of basic salary, with 70% allocated over a range of demanding key financial objectives and 30% for meeting individual business related objectives. The
Committee is of the view that the performance targets for the financial element under the annual bonus are commercially sensitive and that it would be
detrimental to the interests of the Company to disclose these before the end of the financial year. The targets and achievements will be disclosed in the Annual
Report on Remuneration in the following year. The Committee is of the view that the performance targets for the personal element are commercially sensitive
as they relate to internal management projects, strategic objectives and personal goals and it is not intended that these will be disclosed in advance. The
Committe’s intention is that a summary of these objectives will be disclosed when they are no longer considered commercially sensitive.
50% of any actual bonus earned in the year will be deferred as shares under the EPP.
Long term incentives – LTIP awards
The Committee intends to grant awards in line with the disclosed policy and changes set out in section 9.4 of this report. Awards vest after three years subject
to performance conditions. A summary of the intended awards and nature of the performance conditions are provided in Table 17 below.
TABLE 17 – INTENDED LTIP AWARDS
Award
Type
Performance
metric
Face value of award
at maximum vesting
(% of 2014/15 salary)
Percentage of award
vesting for threshold
achievement
Length of
Performance
period
Martin Griffiths
Ross Paterson
Incentive Units
Incentive Units
Incentive Units
Incentive Units
TSR relative against
FTSE 250
EPS growth objectives
TSR relative against
FTSE 250
EPS growth objectives
75%
75%
75%
75%
25%
25%
25%
25%
3 years
3 years
3 years
3 years
In all cases, awards will only vest subject to the achievement of the performance conditions and if the Committee determines that the underlying performance
of the Company is sufficient to justify the vesting of awards.
Awards are generally made twice a year following the announcement of the Annual Results in June, and in December following the issue of the results for the
half-year. The maximum level of awards granted for an individual in any financial year is limited to Incentive Units with an aggregate face value at the time of
award not exceeding 150% of basic salary.
The 2014/15 awards will be split one half based on TSR performance against a comparator group of the list of FTSE 250 companies at the date of award, and
the other half based on a measure of earnings per share. For the TSR based awards, the TSR must exceed the median of the comparator group and the amount
of Incentive Units awarded which are released will range from 25% to 100% of the available Incentive Units depending on the actual ranking. A top quartile
ranking is required to achieve 100% release of units.
Demanding targets for the growth in earnings per share will be set for the other half of the awards based on relevant market factors and expectations for the
Group as at the date of award. The portion of the award that is EPS based will attract a threshold payout level of 25% if the EPS growth over the three-year
performance period is at least 15%, and a 100% payout only if the EPS growth is at least 27% over the three-year performance period. A sliding scale of vesting
on a straight line basis would be applied between these lower and upper vesting levels.
9.5.13.2 Implementation of Non-Executive Directors’ Remuneration Policy
Annual fees for 2014
The implementation of policy in relation to Non-Executive Directors is in line with the disclosed policy in section 9.4.6 of this report. The fees per annum for
Non-Executive Directors for 2013/14 and the amount set for 2014/15 are set out in Table 18 below.
TABLE 18 – NON-EXECUTIVE DIRECTOR FEES
Chairman
Deputy Chairman
Chairmen of Audit, Remuneration and the Health, Safety & Environmental Committees
Other non-executive Directors
Fees are effective from 1 May each year.
2014/15
fees
£m
204,800
128,000
57,500
52,500
2013/14
fees
£m
200,000
125,000
51,250
51,250
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10. Responsibility statement
The Directors confirm that to the best of their knowledge:
• The consolidated financial statements, prepared in accordance with the applicable United Kingdom law and in conformity with IFRS, as adopted by the
European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group and the undertakings included in the
consolidation taken as a whole; and
• The Chairman’s statement, the Strategic report and the Directors’ report include a fair review of the development and performance of the business and the
position of the Group and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties
that they face.
Signed on 25 June 2014 on behalf of the Board by:
Martin A Griffiths
Chief Executive
Ross Paterson
Finance Director
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11. Independent auditors’ report to the members of
Stagecoach Group plc (Company No. SC100764)
Report on the Group financial statements
Our opinion
In our opinion the financial statements, defined below:
• give a true and fair view of the state of the Group’s affairs as at 30 April 2014 and of its profit and cash flows for the year then ended;
• have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union; and
• have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation.
This opinion is to be read in the context of what we say in the remainder of this report.
What we have audited
The Group financial statements (the “financial statements”), which are prepared by Stagecoach Group plc, comprise:
• the consolidated balance sheet as at 30 April 2014;
• the consolidated income statement and consolidated statement of comprehensive income for the year then ended;
• the consolidated statement of cash flows for the year then ended;
• the consolidated statement of changes in equity for the year then ended; and
• the notes to the consolidated financial statements, which include a summary of significant accounting policies and other explanatory information.
The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European Union.
Certain disclosures required by the financial reporting framework have been presented elsewhere in the Annual Report and Financial Statements (the “Annual
Report”), rather than in the notes to the financial statements. These are cross-referenced from the financial statements and are identified as audited.
What an audit of financial statements involves
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”). An audit involves obtaining evidence
about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material
misstatement, whether caused by fraud or error. This includes an assessment of:
• whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and adequately disclosed;
• the reasonableness of significant accounting estimates made by the Directors; and
• the overall presentation of the financial statements.
In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial
statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the
course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
Overview of our audit approach
Materiality
We set certain thresholds for materiality. These helped us to determine the nature, timing and extent of our audit procedures and to evaluate the effect of
misstatements, both individually and on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the Group financial statements as a whole to be £8.3m. This represents approximately 5%
of profit before tax of £166.7m prior to exceptional items, (being the re-imbursement of rail bid costs, gains and losses on the disposal of businesses,
acquisition expenses and charges related to the Twin America litigation which total £8.7m). We based our materiality on this adjusted profit figure as an
appropriate measure of underlying business performance.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £415,000 as well as misstatements below
that amount that, in our view, warranted reporting for qualitative reasons.
Overview of the scope of the audit
The Group is structured along four business lines being UK Bus (regional operations), UK Bus (London), UK Rail and North America. In establishing the overall
approach to the Group audit, we determined the type of work that needed to be performed at each of these businesses by us, as the Group engagement team,
or component auditors within PwC UK and from other PwC network firms or other firms operating under our instruction. Where the work was performed by
component auditors, we determined the level of involvement we needed to have in the audit work at those reporting units to be able to conclude whether
sufficient appropriate audit evidence had been obtained as a basis for our opinion on the Group financial statements as a whole.
Through a combination of specific audit procedures over North American operations, targeted at individually material balances and/or identified risks, and an
audit of the complete financial information for the rest of the Group’s significant operating business lines, our Group audit work accounted for 86% of Group
profit before tax prior to exceptional items, 85% of Revenue and 81% of Total Assets. This, together with additional procedures performed at the Group level,
including over the consolidation process, exceptional items, pensions, taxation, financial instruments, share based payments and presentation of the Group
financial statements gave us the evidence we needed for our opinion on the Group financial statements as a whole.
Areas of particular audit focus
In preparing the financial statements, the Directors made a number of subjective judgements, for example in respect of significant accounting estimates that
involved making assumptions and considering future events that are inherently uncertain. We primarily focused our work in these areas by assessing the
Directors’ judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements.
In our audit, we tested and examined information, using sampling and other auditing techniques, to the extent we considered necessary to provide a reasonable
basis for us to draw conclusions. We obtained audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both.
We considered the following areas to be those that required particular focus in the current year. This is not a complete list of all risks or areas of focus identified
by our audit. We discussed these areas of focus with the Audit Committee. Their report on those matters that they considered to be significant issues in relation
to the consolidated financial statements is set out in section 6 of the Annual Report.
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11. Independent auditors’ report to the members of
Stagecoach Group plc (Company No. SC100764) (continued)
Area of focus specific to Stagecoach Group
How the scope of our audit addressed the area of focus
Pension liabilities
We focused on this area because of the significance of
pension liabilities to the overall financial statements.
Calculation of the liabilities requires judgement by
management in arriving at appropriate actuarial
assumptions. Relatively small movements in assumptions
applied can result in a material impact to the financial
statements.
Refer also to notes 6 and 25 to the consolidated financial
statements.
We obtained and read the independent actuary’s report commissioned by management which
reported on the assumptions and methodology used to calculate the pension liabilities and the
compliance of these with the relevant accounting standard.
We considered and challenged the reasonableness of the key actuarial assumptions (including
the discount rate, mortality assumptions and inflation rate) and the judgements taken by
management in applying these assumptions in calculating the pension liabilities.
Our work included comparing these key actuarial assumptions to our independently calculated
expectation and a benchmark range of companies operating in the same sector as the Group as
well as listed and other companies more generally. We assessed whether the methods used by
management to determine key assumptions and overall methodologies were consistently
applied and evaluated the rationale for any changes in approach, including the impact of
revisions to relevant accounting standards.
We tested pension scheme membership information as this is a key input used in the overall
pension liability calculations.
UK Bus and North America insurance provisions
We focused on this area because the balance is material to
the overall financial statements and is inherently
subjective. Management estimate provisions using the
best available information at a given point in time based
on outcomes that are uncertain.
Refer also to note 24 to the consolidated financial
statements.
We evaluated whether consistent methodology had been applied year on year in determining
the level of provisioning.
We compared the level of provisions against past experience of claims and actual settlements.
We obtained, read and critically assessed the results of independent actuarial procedures and
reports that were used to support provisions.
We also tested on a sample basis a number of individual claims and settlement provisions for
appropriateness with reference to advice to management from third parties and recent
settlement history.
Tax provisioning
We focused on this area because of the judgemental
nature of the balances and the inherent complexity of
interpreting and implementing taxation rules.
Refer also to notes 7 and 23 to the consolidated financial
statements.
Twin America
Due to the uncertainty created by the Twin America
litigation we focused on management’s judgements in
relation to determining the provisions to be recorded in
the consolidated financial statements and the impact on
the carrying value of the Group’s investment in Twin
America.
Refer also to notes 13 and 31 to the consolidated financial
statements
Area of focus based on risks required by
ISAs (UK & Ireland)
Fraud in revenue recognition
ISAs (UK & Ireland) presume there is a risk of fraud in
revenue recognition because of the pressure management
may feel to achieve the planned results.
Risk of management override of internal controls
ISAs (UK & Ireland) require that we consider this.
Our audit procedures considered both the potential exposure and the extent to which liabilities
are likely to crystallise.
We requested and read the latest correspondence between the Group and relevant tax
authorities. We discussed the potential tax exposure with senior Group management and the
basis of their provisions with the Group’s in-house tax specialists.
We also obtained and evaluated third party advice obtained by management.
We utilised our experience of similar circumstances to independently challenge and assess the
evidence described above.
We obtained an understanding of the latest developments in the litigation and management’s
judgements thereon relating to provisions and their assessment of the carrying value of Twin
America in the consolidated financial statements.
We evaluated whether the consolidated financial statements included appropriate disclosures
and provisions. We also assessed the pattern of legal costs incurred to date when evaluating
the appropriateness of the legal costs provision held and considered the advice obtained by
management from third party legal advisors.
We assessed the accounting implications of the litigation on the Group’s investment in Twin
America. This involved us considering management’s impairment review of the carrying value
of Twin America and challenging key assumptions used in the impairment review where
changes, particularly in relation to assumed future revenue assumptions, could result in an
impairment loss.
We also enquired about recent trading results to evaluate management’s trading and cash
flow assumptions used in their impairment review.
How the scope of our audit addressed the area of focus
We focused our audit work in this area on management’s calculations of accrued and deferred
income, especially those involving manual processes or estimation such as contractual revenue,
concessionary travel and advance ticket sales, which may be more susceptible to error and fraud.
Our work involved recalculating these amounts with reference to underlying contractual
documentation and assessing the reasonableness of accrued and deferred income with respect
to actual settlement history of prior period balances.
We also used computer aided auditing techniques (“CAATs”) to test manual journal entries and
to also perform testing of revenue for megabus USA, since these auditing techniques assist us in
focusing on non-standard transactions.
We considered whether there was evidence of bias by the Directors in the significant accounting
estimates and judgements relevant to the financial statements.
We compared the actual reported profit of disaggregated business units against budget and
considered those where there may have been a heightened risk of manipulation to achieve
results. We tested key balance sheet reconciliations and manual journal entries.
We also assessed the overall control environment of the Group, including the arrangements for
staff to “whistle-blow” inappropriate actions and we reviewed internal audit reports and
discussed controls with the Group’s internal auditors.
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Going concern
Under the Listing Rules we are required to review the Directors’ statement, set out in section 4.12 of the Annual Report, in relation to going concern. We have
nothing to report having performed our review.
As noted in the Directors’ statement, the Directors have concluded that it is appropriate to prepare the financial statements using the going concern basis of
accounting. The going concern basis presumes that the Group has adequate resources to remain in operation, and that the Directors intend it to do so, for at
least one year from the date the financial statements were signed. As part of our audit we have concluded that the Directors’ use of the going concern basis is
appropriate.
However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the Group’s ability to continue as a going
concern.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion:
• the information given in the Strategic report and the Directors’ report for the financial year for which the financial statements are prepared is consistent
with the financial statements; and
• the information given in the Corporate governance report in sections 5.13 and 5.14 of the Annual Report with respect to internal control and risk
management systems and provided in section 4.11 about share capital structures is consistent with the financial statements.
Other matters on which we are required to report by exception
Adequacy of information and explanations received
Under the Companies Act 2006 we are required to report to you if, in our opinion, we have not received all the information and explanations we require for our
audit. We have no exceptions to report arising from this responsibility.
Directors’ remuneration
Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors’ remuneration specified by law are not made.
We have no exceptions to report arising from this responsibility.
Corporate governance statement
Under the Companies Act 2006 we are required to report to you if, in our opinion, a corporate governance statement has not been prepared by the parent
company. We have no exceptions to report arising from this responsibility.
Under the Listing Rules we are required to review the part of the corporate governance report relating to the parent company’s compliance with nine provisions
of the UK Corporate Governance Code (“the Code”). We have nothing to report having performed our review.
In section 4.6 of the Annual Report, as required by the Code Provision C.1.1, the Directors state that they consider the Annual Report taken as a whole to be fair,
balanced and understandable and provides the information necessary for members to assess the Group’s performance, business model and strategy. In section
6.4.1, as required by C.3.8 of the Code, the Audit Committee has set out the significant issues that it considered in relation to the financial statements, and how
they were addressed. Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:
• the statement given by the Directors is materially inconsistent with our knowledge of the Group acquired in the course of performing our audit; or
• the section of the Annual Report describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit
Committee.
We have no exceptions to report arising from this responsibility.
Other information in the Annual Report
Under ISAs (UK & Ireland) we are required to report to you if, in our opinion, information in the Annual Report is:
• materially inconsistent with the information in the audited financial statements; or
• apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of performing our audit; or
• is otherwise misleading.
We have no exceptions to report arising from this responsibility.
Responsibilities for the financial statements and the audit
Our responsibilities and those of the Directors
As explained more fully in the Responsibility Statement set out in section 10 of the Annual Report, the Directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK & Ireland). Those standards
require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the
Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other
person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Other matter
We have reported separately on the parent company financial statements of Stagecoach Group plc for the year ended 30 April 2014 and on the information in
the Directors’ remuneration report that is described as having been audited.
Graham McGregor (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Glasgow
25 June 2014
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12. Consolidated Financial Statements
Consolidated income statement
For the year ended 30 April 2014
2014
2013 (restated)
Performance
pre intangibles
and
exceptional items
£m
Intangibles and
exceptional
items (note 4)
£m
Notes
Performance
pre intangibles
and
exceptional items
£m
Intangibles and
exceptional
items (note 4)
£m
Results for
the year
£m
Results for
the year
£m
CONTINUING OPERATIONS
Revenue
Operating costs and other operating income
Operating profit of Group companies
Share of profit of joint ventures
after finance income and taxation
Total operating profit: Group operating profit and
share of joint ventures’ profit after taxation
Non-operating exceptional items
Profit before interest and taxation
Finance costs
Finance income
Profit before taxation
Taxation
Profit for the year from continuing operations
and profit after taxation for the year
attributable to equity shareholders of the parent
Earnings per share (all of which relates to
continuing operations)
– Adjusted basic/Basic
– Adjusted diluted/Diluted
2
3
2
2
2
4
5
5
7
9
9
2,930.0
(2,715.5)
–
(14.0)
2,930.0
(2,729.5)
2,804.8
(2,605.4)
–
(15.1)
2,804.8
(2,620.5)
214.5
(14.0)
200.5
199.4
(15.1)
8.8
(8.4)
0.4
21.3
(5.8)
223.3
–
223.3
(47.2)
4.6
180.7
(31.2)
(22.4)
(0.3)
(22.7)
–
–
(22.7)
5.7
200.9
(0.3)
200.6
(47.2)
4.6
158.0
(25.5)
220.7
–
220.7
(47.4)
4.1
177.4
(36.3)
(20.9)
(2.2)
(23.1)
–
–
(23.1)
8.5
184.3
15.5
199.8
(2.2)
197.6
(47.4)
4.1
154.3
(27.8)
149.5
(17.0)
132.5
141.1
(14.6)
126.5
26.0p
25.8p
23.1p
22.9p
24.6p
24.2p
22.0p
21.7p
The accompanying notes form an integral part of this consolidated income statement.
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Consolidated statement of comprehensive income
For the year ended 30 April 2014
Profit for the year attributable to equity shareholders of the parent
Items that may be reclassified to profit or loss
Cash flow hedges:
– Net fair value losses on cash flow hedges
– Reclassified and reported in profit for the year
– Share of other comprehensive expense on joint ventures' cash flow hedges
– Tax effect of cash flow hedges
– Tax effect of share of other comprehensive expense on joint ventures' cash flow hedges
Foreign exchange differences on translation of foreign operations (net of hedging)
Total items that may be reclassified to profit or loss
Items that will not be reclassified to profit or loss
Actuarial losses on Group defined benefit pension schemes
Tax effect of actuarial losses on Group defined benefit pension schemes
Share of actuarial gains on joint ventures' defined benefit pension schemes
Tax effect of actuarial gains on joint ventures' defined benefit pension schemes
Total items that will not be reclassified to profit or loss
Other comprehensive expense for the year
Total comprehensive income for the year attributable to
equity shareholders of the parent
2014
£m
132.5
(2.8)
2.1
–
(0.2)
–
(14.8)
(15.7)
–
(3.2)
–
–
(3.2)
(18.9)
2013
(restated)
£m
126.5
(17.3)
(12.3)
(0.2)
7.0
0.1
2.7
(20.0)
(29.2)
6.3
4.3
(1.0)
(19.6)
(39.6)
113.6
86.9
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Consolidated balance sheet (statement of financial position)
As at 30 April 2014
ASSETS
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Interests in joint ventures
Available for sale and other investments
Derivative instruments at fair value
Retirement benefit asset
Other receivables
Current assets
Inventories
Trade and other receivables
Derivative instruments at fair value
Foreign tax recoverable
Cash and cash equivalents
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Current tax liabilities
Borrowings
Derivative instruments at fair value
Provisions
Non-current liabilities
Other payables
Borrowings
Derivative instruments at fair value
Deferred tax liabilities
Provisions
Retirement benefit obligations
Total liabilities
Net assets/(liabilities)
EQUITY
Ordinary share capital
Share premium account
Retained earnings
Capital redemption reserve
Own shares
Translation reserve
Cash flow hedging reserve
Total equity
2014
2013
(restated)
2012
(restated)
Notes
£m
£m
£m
10
11
12
13
14
26(g)
25
19
18
19
26(g)
20
21
22
26(g)
24
21
22
26(g)
23
24
25
27
29
29
29
29
29
29
125.4
22.6
1,040.9
42.8
0.3
0.1
7.8
14.2
1,254.1
24.6
269.2
0.5
0.8
240.3
535.4
127.8
29.6
1,063.1
53.3
0.3
0.4
15.6
18.2
91.4
17.5
961.6
57.8
0.3
1.6
19.5
16.4
1,308.3
1,166.1
21.1
239.7
2.2
1.1
262.2
526.3
22.2
221.2
20.8
0.4
241.0
505.6
1,789.5
1,834.6
1,671.7
581.2
49.7
50.9
9.8
57.5
749.1
28.5
660.2
3.4
34.0
111.4
123.6
961.1
594.1
40.0
63.7
9.9
59.1
766.8
21.2
747.9
3.2
35.5
118.5
125.2
543.4
23.6
55.9
0.6
57.2
680.7
22.2
721.0
0.4
51.7
121.9
96.3
1,051.5
1,013.5
1,710.2
1,818.3
1,694.2
79.3
16.3
(22.5)
3.2
8.4
(310.0)
422.8
(25.7)
(10.0)
(9.4)
79.3
3.2
8.4
(391.0)
422.8
(23.4)
4.8
(8.5)
16.3
3.2
8.4
(454.9)
422.8
(18.2)
2.1
14.1
(22.5)
These financial statements have been approved for issue by the Board of Directors on 25 June 2014. The accompanying notes form an integral part of
this consolidated balance sheet.
Martin A Griffiths
Chief Executive
page 64 | Stagecoach Group plc
Ross Paterson
Finance Director
108244_STC_Back PRINT_108244_STC_Back V12 03/07/2014 16:05 Page 65
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Stagecoach Group plc | page 65
108244_STC_Back PRINT_108244_STC_Back V12 03/07/2014 16:05 Page 66
Consolidated statement of cash flows
For the year ended 30 April 2014
Cash flows from operating activities
Cash generated by operations
Interest paid
Interest received
Dividends received from joint ventures
Net cash flows from operating activities before tax
Tax paid
Net cash from operating activities after tax
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired
Disposals and closures of subsidiaries and other businesses, net of cash disposed of
Purchase of property, plant and equipment
Disposal of property, plant and equipment
Purchase of intangible assets
Disposal of intangible assets
Net cash outflow from investing activities
Cash flows from financing activities
Purchase of treasury shares
Investment in own ordinary shares by employee share ownership trusts
Repayments of hire purchase and lease finance
Drawdown of other borrowings
Repayment of other borrowings
Dividends paid on ordinary shares
Sale of tokens
Redemption of tokens
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of year
Exchange rate effects
2014
Notes
£m
30
15
16
8
293.8
(38.2)
4.7
8.2
268.5
(20.2)
248.3
(5.5)
2.8
(154.2)
42.0
(7.9)
1.0
(121.8)
(2.3)
–
(56.9)
80.0
(115.8)
(51.0)
0.8
(1.1)
(146.3)
(19.8)
262.2
(2.1)
Cash and cash equivalents at the end of year
20
240.3
2013
£m
339.5
(39.8)
4.6
24.9
329.2
(16.1)
313.1
(106.7)
–
(181.9)
53.4
(5.9)
–
(241.1)
–
(5.2)
(57.0)
210.7
(154.7)
(45.9)
1.4
(1.7)
(52.4)
19.6
241.0
1.6
262.2
Cash and cash equivalents for the purposes of the consolidated statement of cash flows comprise cash at bank and in hand, overdrafts and other short-
term highly liquid investments with maturities at the balance sheet date of twelve months or less.
The accompanying notes form an integral part of this consolidated statement of cash flows.
page 66 | Stagecoach Group plc
108244_STC_Back PRINT_108244_STC_Back V12 03/07/2014 16:05 Page 67
Notes to the consolidated financial statements
Note 1 IFRS accounting policies
These consolidated financial statements are presented in accordance with International Financial Reporting Standards (“IFRS”), as adopted by the
European Union.
The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been
consistently applied to all the years presented, unless otherwise stated.
• Basis of preparation
The consolidated financial statements have been prepared in accordance with IFRS and International Financial Reporting Interpretations Committee
(“IFRIC”) interpretations as adopted by the European Union (and therefore comply with Article 4 of the EU IAS Regulation), and with those parts of the
Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical
cost convention as modified by (i) the revaluation of available for sale financial assets and (ii) financial assets and financial liabilities (including
derivative financial instruments) at fair value through profit or loss.
The consolidated financial statements are presented in pounds sterling, the presentation currency of the Group, and the functional currency of the
Company and all values are rounded to the nearest one hundred thousand (£0.1m) except where otherwise indicated.
• New accounting standards adopted during the year
The following new standards, amendments to standards and interpretations are mandatory for the first time for the financial year beginning 1 May
2013, but do not have any significant effect on the consolidated financial statements of the Group:
• Amendments to IAS 1, Presentation of financial statements – Presentation of items of other comprehensive income
• IFRS 13, Fair value measurement
• Amendments to IFRS 7, Financial instruments: Disclosures – Offsetting financial assets and financial liabilities
• Annual improvements to IFRS, 2011
• IAS 16, Property, Plant and Equipment (revised 2012)
The Group has adopted early the amendment to IAS 36, on the disclosure of the recoverable amounts of cash-generating units containing goodwill or
intangible assets with indefinite useful lives. This does not have a significant effect on the consolidated financial statements of the Group.
In June 2011, the International Accounting Standards Board (“IASB”) issued an amended version of IAS 19 ‘Employee Benefits’, which brings in various
changes relating to the recognition and measurement of post-retirement defined benefit expense and termination benefits, and to the disclosures for
all employee benefits. The IAS 19 change that has the most significant effect on the Group’s reported profit is that the Group’s annual expense for
defined benefit schemes now includes net interest expense or income calculated by applying the discount rate to the net defined benefit asset or
liability. This net interest expense or income replaces the finance charge on scheme liabilities and the expected return on scheme assets and results in a
higher annual expense. Applying IAS 19R to the consolidated financial statements had no impact on revenue or the consolidated statement of cash
flows previously reported. Its impact on the segmental operating profit and profit from continuing operations was as follows:
Year ended 30 April:
2013
2013
Effect of
2013
2012
2012
Effect of
2012
Reported applying new Restated
profit
IAS 19
profit
Reported
profit
applying new Restated
profit
IAS 19
£m
£m
£m
£m
£m
£m
Operating Profit
UK Bus (regional operations)
UK Bus (London)
North America
Total bus continuing operations
UK Rail
Total continuing operations
Group overheads
Intangible asset expenses
Restructuring costs
Total operating profit of continuing Group companies
Share of joint ventures’ profit after finance income and taxation
Total operating profit: Group operating profit and share of joint
ventures’ profit after taxation
Non-operating exceptional items
Profit before interest and taxation
Finance charges (net)
Profit on ordinary activities before taxation
Taxation
Profit from continuing operations
Adjusted earnings per share (pence)
165.0
21.9
13.3
200.2
49.9
250.1
(14.9)
(15.1)
(1.7)
218.4
17.0
235.4
(2.2)
233.2
(37.4)
195.8
(37.0)
158.8
30.2p
(21.8)
(2.9)
0.1
(24.6)
(8.7)
(33.3)
(0.8)
–
–
(34.1)
(1.5)
(35.6)
–
(35.6)
(5.9)
(41.5)
9.2
(32.3)
(5.6)p
143.2
19.0
13.4
175.6
41.2
216.8
(15.7)
(15.1)
(1.7)
184.3
15.5
199.8
(2.2)
197.6
(43.3)
154.3
(27.8)
126.5
24.6p
198.6
13.5
19.7
231.8
27.9
259.7
(9.8)
(9.1)
(2.3)
238.5
24.4
262.9
11.6
274.5
(34.7)
239.8
(51.5)
188.3
25.4p
(16.1)
(4.3)
0.2
(20.2)
(7.1)
(27.3)
(0.5)
–
–
(27.8)
(1.8)
(29.6)
–
(29.6)
(0.2)
(29.8)
7.2
(22.6)
(3.6)p
182.5
9.2
19.9
211.6
20.8
232.4
(10.3)
(9.1)
(2.3)
210.7
22.6
233.3
11.6
244.9
(34.9)
210.0
(44.3)
165.7
21.8p
The restated profit shown above, reflects:
• The inclusion of the pensions current service cost within the operating profit of each division in the consolidated income statement.
• The inclusion of investment administration costs and taxes, such as amounts levied by the UK Pension Protection Fund, in the actual return on
investment, with the difference between the actual return on investment and the discount rate applied to the scheme assets being reflected in other
comprehensive income.
• The inclusion of net interest expense on the net defined liability within finance charges (net) in the consolidated income statement.
Stagecoach Group plc | page 67
108244_STC_Back PRINT_108244_STC_Back V12 03/07/2014 16:05 Page 68
Notes to the consolidated financial statements
Note 1 IFRS accounting policies (continued)
The liability (or asset) recognised for the relevant sections of the Railways Pension Scheme reflects that part of the net deficit (or surplus) of each section that
the employer is expected to fund (or expected to recover) over the life of the franchise to which the section relates. The determination of those amounts
includes considering the expected return on assets in the relevant sections over the life of the related franchises. The new version of IAS 19 in effect applies a
lower expected return on assets and so, results in a change in the liability recognised for the relevant sections of the Railways Pension Scheme. The
consolidated balance sheets as at 30 April 2013 and 30 April 2012 have been restated as follows:
2013
Previously
reported net
liabilities
£m
50.3
(157.8)
(24.4)
108.1
(23.8)
Interests in joint ventures
Net retirement benefit liability
Deferred tax liabilities
Other net assets
Net (liabilities)/assets
2013
2013
Effect of Restated net
applying new (liabilities)/
assets
IAS 19
2012
Previously
2012
Effect of
reported net applying new
IAS 19
liabilities
£m
3.0
48.2
(11.1)
–
40.1
£m
53.3
(109.6)
(35.5)
108.1
16.3
£m
56.6
(122.1)
(40.0)
48.2
(57.3)
£m
1.2
45.3
(11.7)
–
34.8
2012
Restated net
(liabilities)/
assets
£m
57.8
(76.8)
(51.7)
48.2
(22.5)
• New standards and interpretations not applied
The IASB and IFRIC have issued the following standards and interpretations with an effective date for financial years beginning on or after the dates
disclosed below and therefore after the date of these financial statements:
International Accounting Standards and Interpretations
Effective date
Disclosure of Interests in Other Entities
Consolidated Financial Statements
Joint Arrangements
Regulatory Deferral Accounts*
Revenue from contracts from customers*
IFRS 10
IFRS 11
Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations
IFRS 12
Amendments to IFRS 10, 11 and 12 on transition guidance
IFRS 14
IFRS 15
Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation
IAS 27 (revised 2011)
IAS 28 (revised 2011)
Amendment to IAS 32
IFRS 9
IAS 19
Annual Improvements to IFRSs 2012
Annual Improvements to IFRSs 2013
IAS 39 (amendment)
IFRIC 21
*Not yet adopted for use in the European Union.
With the exception of IFRS 15 that was only recently issued, the Directors have reviewed the requirements of the new standards and interpretations
listed above and they are not expected to have a material impact on the Group’s financial statements in the period of initial application.
Separate Financial Statements
Associates and Joint Ventures
Financial instruments: Presentation, on offsetting financial assets and financial liabilities
Financial Instruments: Hedge accounting*
Defined Benefit Plans: employee contributions*
1 January 2014
1 January 2014
1 January 2016
1 January 2014
1 January 2014
1 January 2016
1 January 2017
1 January 2016
1 January 2014
1 January 2014
1 January 2014
no effective date set
1 July 2014
1 July 2014
1 July 2014
1 January 2014
1 January 2014
Financial Instruments: Novation of Derivatives and Continuation of Hedge Accounting*
Levies*
• Comparatives
Where appropriate, comparative figures for the previous year have been adjusted to conform to changes in presentation. These changes have no
impact on the consolidated income statement or on consolidated net liabilities.
• Basis of consolidation
The consolidated financial statements include the financial statements of the Company, its subsidiary undertakings and joint ventures made up to
30 April in each year.
The consolidated income statement includes the results of businesses purchased from the effective date of acquisition and excludes the results of
disposed operations and businesses sold from the effective date of disposal.
• Subsidiaries and joint ventures
(i) Subsidiaries
Subsidiaries, which are those entities in which the Group has an interest of more than one half of the voting rights or otherwise has power to
govern the financial and operating policies so as to obtain benefits from their activities, are consolidated.
Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control
ceases. The purchase method (also known as the acquisition method) of accounting is used to account for the acquisition of subsidiaries and other
businesses. The cost of an acquisition is measured as the fair value of the assets given up, shares issued or liabilities undertaken at the date of
acquisition. The excess of the cost of acquisition over the fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities is
recorded as goodwill. Costs attributable to the acquisition are expensed to the consolidated income statement.
Intercompany transactions, balances, income and expenses are eliminated on consolidation.
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Note 1 IFRS accounting policies (continued)
• Subsidiaries and joint ventures (continued)
(ii) Joint ventures
Investments in joint ventures are accounted for using the equity method of accounting.
Under the equity method of accounting, the Group’s consolidated income statement includes the Group’s share of profits less losses of joint
ventures, while the share of net assets of joint ventures is included in the Group’s consolidated balance sheet. Where the Group’s cumulative share
of losses in a joint venture exceeds its interest in that enterprise, the Group does not recognise further losses, unless it has incurred obligations or
made payments on behalf of the joint venture.
The Group’s reported interest in joint ventures includes goodwill on acquisition.
The Group applies its own accounting policies and estimates when accounting for its share of joint ventures making appropriate adjustments
where necessary, having due regard to all relevant factors.
• Presentation of income statement and exceptional items
Where applicable, income statement information has been presented in a columnar format, which separately highlights intangible asset expenses and
exceptional items. This is intended to enable users of the financial statements to determine more readily the impact of intangible asset expenses and
exceptional items on the results of the Group.
Exceptional items are defined in note 35.
• Use of estimates
The preparation of financial statements in conformity with IFRSs as adopted by the EU requires the use of estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the period.
Although these estimates and assumptions are based on management’s best knowledge, actual results may ultimately differ from those estimates and
assumptions used.
The key sources of estimation uncertainty that have a significant risk of causing material adjustments to the carrying amounts of assets and liabilities
within the next financial year are the measurement of tax assets and liabilities, the measurement of contract provisions, the measurement of
retirement benefit amounts, the measurement of liabilities for litigation, the measurement and impairment of goodwill and other non-current assets,
the measurement of insurance provisions and the measurement of receivables and payables in relation to rail contracts. The measurement of tax assets
and liabilities requires an assessment to be made of the potential tax consequence of certain items that will only be resolved when agreed by the
relevant tax authorities. The measurement of contract provisions requires estimates of future cash flows relating to the relevant contracts and the
selection of a suitable discount rate. The measurement of retirement benefit amounts requires the estimation of life expectancies, future changes in
salaries, inflation and the selection of a suitable discount rate. The measurement of liabilities in respect of litigation involves estimating the financial
effects of uncertain litigation. The Group determines whether goodwill arising on business combinations is impaired on an annual basis and this
requires the estimation of value in use of the cash generating units to which the goodwill is allocated. This requires estimation of future cash flows and
the selection of a suitable discount rate. The estimation of the insurance provisions is based on an assessment of the expected settlement on 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 estimation of receivables and payables in relation to rail contracts requires an estimate of the likely outcomes
based on interpreting the applicable contracts.
Those accounting policies that the Directors believe require the greatest exercise of judgement are described in section 2.6.14 of this Annual Report,
which forms part of these financial statements.
• Revenue
Revenue represents gross revenue earned from public transport services and excludes payments received on account. Amounts receivable for tendered
services and concessionary fare schemes are included as part of revenue. Where appropriate, amounts are shown net of rebates and VAT. Revenues
incidental to the Group’s principal activity (including advertising income and maintenance income) are reported as miscellaneous revenue.
Rail revenue includes amounts attributable to the train operating companies, based principally on agreed models of route usage, by Railway
Settlement Plan Limited (which administers the income allocation system within the UK rail industry) in respect of passenger receipts. Franchise
agreement receipts or payments from or to the UK’s Department for Transport are treated as operating costs or other operating income.
Revenue is recognised by reference to the stage of completion of the customer’s travel or services provided under contractual arrangements as a
proportion of total services to be provided. Cash received for the sale of season tickets and travelcards is deferred within liabilities and recognised in
the income statement over the period covered by the relevant ticket.
Income from advertising and other activities is recognised as the income is earned.
Finance income is recognised using the effective interest method as interest accrues.
Under the contractual terms of its franchise agreements to operate rail services, the Group has revenue sharing arrangements with the DfT. As a
result of these arrangements, the Group may be liable to make payments to the DfT or receive amounts from the DfT based on calculations that
involve comparison of actual revenue with the target revenue specified in the relevant franchise agreement. The Group recognises revenue share
amounts payable or receivable in the income statement in the same period in which it recognises the related revenue. Revenue share amounts
payable or receivable (if any) are treated as operating costs or other operating income.
The Group receives Bus Service Operators Grant (“BSOG”) which is essentially a rebate of fuel tax. BSOG is recognised within operating costs as part
of the net fuel costs of the Group.
• Performance incentive payments
Performance incentive payments received from or made to Network Rail by the Group in respect of train service delivery are recognised in the same
period that the performance relates to and are treated as operating costs or other operating income.
• Government grants
Grants from government are recognised where there is reasonable assurance that the grant will be received and the Group will comply with all attached
conditions. Government grants relating to costs are deferred and recognised in the income statement over the period necessary to match them with
the costs they are intended to compensate. Government grants relating to the purchase of property, plant and equipment are recorded as liabilities and
are credited to the income statement on a straight-line basis over the expected lives of the related assets. Amounts are held as deferred grant income
within trade and other payables.
Revenue grants receivable (and franchise premia amounts payable) in respect of the operation of rail franchises in the UK are recognised in the income
statement in the period in which the related revenue or expenditure is recognised in the income statement or where they do not relate to any specific
revenue or expenditure, in the period in respect of which the amount is receivable or payable. These premia payments and rail franchise grants are
classified within operating costs and other operating income.
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Notes to the consolidated financial statements
Note 1 IFRS accounting policies (continued)
• Share based payments
The Group issues equity-settled and cash-settled share based payments to certain employees.
Equity-settled transactions
The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted and is
recognised as an expense over the vesting period. In valuing equity-settled transactions, no account is taken of any non-market based vesting
conditions and no expense is recognised for awards that do not ultimately vest as a result of a failure to satisfy a non-market based vesting condition.
None of the Group’s equity-settled transactions have any market based performance conditions.
Fair value for equity-settled share based payments is determinable from the Company’s quoted share price at the time of the award.
At each balance sheet date, before vesting, the cumulative expense is calculated based on management’s best estimate of the number of equity
instruments that will ultimately vest taking into consideration the likelihood of achieving non-market based vesting conditions. The movement in this
cumulative expense is recognised in the income statement, with a corresponding entry in equity.
Where an equity-settled award is cancelled by the Group or the holder, it is treated as if it had vested on the date of cancellation and any cost not yet
recognised in the income statement for the award is expensed immediately. Any compensation paid up to the fair value of the award at the
cancellation or settlement date is deducted from equity, with any excess over fair value being treated as an expense in the income statement.
Cash-settled transactions
The cost of cash-settled transactions is measured at fair value. Fair value is estimated initially at the grant date and at each balance sheet date
thereafter until the awards are settled. Market based performance conditions are taken into account when determining fair value.
Fair value for cash-settled share based payments (being only those that relate to the Long Term Incentive Plan) is estimated by use of a
simulation model.
During the vesting period, a liability is recognised representing the estimated fair value of the award and the portion of the vesting period expired as at
the balance sheet date. Changes in the carrying amount of the liability are recognised in the income statement for the period.
Choice of settlement
The Company can choose to settle awards under the Long Term Incentive Plan in either cash or equity, although it currently expects to settle all such
awards in cash. Awards under the Long Term Incentive Plan are accounted for as cash-settled transactions (see above).
Employment taxes
Liabilities are recognised for employment taxes (principally, employers’ national insurance liabilities) payable by the Group on share based payments.
The liability for employment taxes is calculated at the balance sheet date with reference to the fair value of the related share based payments at that
date. In the case of cash-settled share based payments, the fair value is the pre-tax amount recorded in the balance sheet. Movements in the liabilities
for employment taxes on share based payments are charged or credited to the income statement.
• Operating profit
Operating profit is stated after charging restructuring costs and after the share of after-tax results of joint ventures but before finance income, finance
costs, non-operating exceptional items, taxation and profit from discontinued operations.
• Taxation
Tax, current and deferred, is calculated using tax rates and laws enacted or substantively enacted at the balance sheet date. Management periodically
evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation.
Corporation tax is provided on taxable profit at the current rate applicable. Tax charges and credits are accounted for through the same primary
statement as the related pre-tax item.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and
their carrying amounts in the financial statements. Deferred income tax is measured at tax rates that are expected to apply in periods in which the
temporary differences reverse based on tax rates and law enacted or substantively enacted at the balance sheet date.
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences
can be utilised.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries and joint ventures, except where the timing of the
reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.
• Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker, who is responsible
for allocating resources and assessing performance of operating segments, which for this purpose has been identified as the Board of Directors.
• Foreign currency translation
The financial statements of foreign operations are maintained in the functional currencies in which the entities transact business. The trading results of
foreign operations are translated into sterling using average rates of exchange. The assets and liabilities of foreign operations, including goodwill and fair
value adjustments arising on acquisition, are translated into sterling using rates of exchange at the relevant balance sheet date. Exchange differences arising
on the translation of the opening net assets and results of foreign operations, together with exchange differences arising on net foreign currency
borrowings and foreign currency derivatives, to the extent they hedge the Group’s investment in foreign operations, are recognised as a separate
component of equity being the translation reserve. Further information on the Group’s accounting policy on hedges of net investments in a foreign entity
is provided on page 74.
Foreign currency monetary assets and liabilities are translated into the respective functional currencies of the Group entities at the rates of exchange
ruling at the balance sheet date. Foreign currency transactions arising during the year are translated into the respective functional currencies of Group
entities at the rate of exchange ruling on the date of the transaction. Foreign currency differences arising on retranslation are recognised in profit or loss.
On disposal of a foreign subsidiary, the amount of any exchange differences relating to the subsidiary that has been deferred in the translation reserve is
recognised in the income statement within the reported gain or loss on disposal.
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Note 1 IFRS accounting policies (continued)
• Foreign currency translation (continued)
The principal rates of exchange applied to the consolidated financial statements were:
US Dollar:
Year end rate
Average rate
Canadian Dollar:
Year end rate
Average rate
2014
2013
1.6886
1.6013
1.8531
1.6994
1.5564
1.5748
1.5655
1.5796
• Business combinations and goodwill
On the acquisition of a business, fair values are attributed to the identifiable assets, liabilities and contingent liabilities of the acquiree. Goodwill
represents the excess of the fair value of the consideration given for a business over the fair value of such net assets. The fair value of intangible assets
(other than goodwill) and acquired customer contract provisions on the acquisition of a business are amortised to the income statement in line with the
projected cash flows.
Goodwill arising on acquisitions is capitalised and is subject to impairment review, both annually and when there are indications that the carrying value
may not be recoverable. Prior to 1 May 2004, goodwill was amortised over its estimated useful life; such amortisation ceased on 30 April 2004 but
goodwill amortisation expensed prior to 1 May 2004 was not reversed. Goodwill that arose prior to 1 May 2004 is measured at the amount recognised
under the Group’s previous accounting framework, UK GAAP.
Goodwill arising on acquisitions in the year ended 30 April 1998 and earlier periods was written off directly to equity in accordance with the UK
accounting standards then in force. Under IFRS 1 and IFRS 3, such goodwill remains eliminated against reserves.
For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash generating units expected to benefit from the combination.
Cash generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the
unit may be impaired. If the recoverable amount of the cash generating unit is less than the carrying amount of the unit, then the impairment loss is
allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the
carrying amount of each asset in the unit. The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use,
the estimated future pre-tax cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the cash generating unit. An impairment loss recognised for goodwill is not reversed in a subsequent
period.
Any impairment of goodwill is recognised immediately in the income statement.
Where goodwill (other than that already written off directly to equity) forms part of a cash generating unit and all or part of that unit is disposed of, the
associated goodwill is included in the carrying amount of the disposed operation when determining the overall gain or loss on disposal.
• Impairment of non-current assets
Property, plant and equipment, intangible assets (excluding goodwill) and other non-current assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is the
higher of fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are
separately identifiable cash flows. Non-financial assets other than goodwill that have suffered an impairment are reviewed for possible reversal at each
reporting date.
In assessing value in use, the estimated future pre-tax cash flows are discounted to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the asset. Any impairment loss is recognised immediately in the income
statement.
• Intangible assets
Intangible assets acquired separately from a business combination are initially capitalised at cost and subsequently measured at cost less accumulated
amortisation and accumulated impairment losses. The initial cost recognised is the aggregate amount paid plus the fair value of any other
consideration given to acquire the asset. Intangible assets acquired as part of a business combination are capitalised, separately from goodwill, at fair
value at the date of acquisition if (i) the asset is separable or arises from contractual or legal rights and (ii) its fair value can be measured reliably, and
are subsequently measured at fair value less accumulated amortisation and accumulated impairment losses.
Amortisation is calculated to write-off the cost or fair value at acquisition (as the case may be) of each asset over their estimated useful lives shown
below. Amortisation of intangible assets relating to customer contracts and lease contracts is amortised based on the pattern of the consumption of
economic benefits obtained from the relevant contract. Amortisation on other intangible assets is calculated on the straight-line method. Intangible
assets relating to rail franchises of a finite duration are amortised over the life of the franchise.
Operating leases on favourable terms
Customer contracts
over the life of the lease (up to 4 years for current contracts)
operating leases on favourable terms over the life of the lease
over the life of the contract (1 to 5 years for current contracts)
over the life of the franchise (10 years from February 2007 to February 2017 for South West
Trains franchise and 7 years and 11 months from November 2007 to October 2015 for East
Midlands Trains franchise)
between 2 and 5 years for current contracts
2 to 7 years
Non-compete contracts
Software costs
Where the life of a contract or rail franchise is shortened or extended, the useful economic lives of any related intangible assets are reviewed, the
intangible assets are reviewed for impairment and the remaining carrying value of each asset is amortised over its revised, remaining economic life.
New contracts and franchises are not treated as extensions of existing arrangements even when they cover the same business operations as expiring
contracts and franchises.
Marketing costs incurred during the start-up phase of a new activity are charged to the income statement as incurred.
Right to operate rail franchises
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Notes to the consolidated financial statements
Note 1 IFRS accounting policies (continued)
• Property, plant and equipment
Property, plant and equipment acquired as part of a business combination is stated at fair value at the date of acquisition and is subsequently measured
at fair value on acquisition less accumulated depreciation and any provision for impairment. All other property, plant and equipment is stated at cost
less accumulated depreciation and any provision for impairment. Cost includes the original purchase price of the asset and the costs attributable to
bringing the asset to its working condition for its intended use.
Depreciation is calculated on the straight-line method to write off the cost, fair value at acquisition or deemed cost of each asset to their residual values
over their estimated useful lives as follows:
50 years
period of lease
3 to 10 years
7 to 16 years
3 to 5 years
Heritable and freehold buildings and long leasehold properties
Short leasehold properties
IT and other equipment, furniture and fittings
Passenger Service Vehicles (“PSVs”) and transportation equipment
Motor cars and other vehicles
Freehold land is not depreciated.
The useful lives and residual values of property, plant and equipment are reviewed at least annually and, where applicable, adjustments are made on a
prospective basis.
An item of property, plant or equipment is derecognised upon disposal. An item on which no future economic benefits are expected to arise from the
continued use of the asset is impaired if it is continued to be used by the Group. Gains and losses on disposals are determined by comparing the
proceeds received with the carrying amount of the asset and are included in the income statement. Any gain or loss on derecognition of the asset is
included in the income statement in the period of derecognition.
Repairs and maintenance are charged to the income statement during the financial period in which they are incurred. The cost of major renovations is
included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of
performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining useful life of the related asset.
• Inventories
Inventories are stated at the lower of cost and net realisable value after making due allowance for obsolete or slow moving items. Cost is determined
using the first-in, first-out (“FIFO”) or average cost method. Net realisable value is the estimated selling price in the ordinary course of business, less the
costs of completion and selling expenses.
• Pre-contract costs
The costs associated with securing new rail franchises are expensed as incurred, except when at the time the costs are incurred it is probable that a
contract will be awarded, in which case they are recognised as an asset and are charged to the income statement over the life of the franchise.
• Hire purchase and lease obligations
Assets acquired under hire purchase and finance lease arrangements, where substantially all the risks and rewards of ownership of the asset have passed
to the Group, are capitalised at the commencement of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum
lease payments. Fixed lease payments are apportioned between the finance costs, and the reduction of the lease liability so as to achieve a constant
rate of interest on the remaining balance of the liability. Finance costs are charged directly against income and are reported within finance costs in the
consolidated income statement.
Assets capitalised under finance leases and other similar contracts are depreciated over the shorter of the lease terms and their useful economic lives.
Assets capitalised under hire purchase contracts are depreciated over their useful economic lives.
Rentals under operating leases are generally charged on a straight-line basis over the lease term. However, contingent rentals, principally being rental
adjustments related to inflation indices, are accounted for in the period they are incurred.
The principal restriction on assets held under finance lease or hire purchase agreements is a restriction on the right to dispose of the assets during the
period of the agreement.
• Tokens
Tokens issued by the Group to facilitate public passenger travel in the United Kingdom are credited to a token redemption provision to the extent they
are expected to be redeemed by customers. Redemptions are offset against this provision and associated handling commission paid to third parties is
included in operating costs. Funds from the sale of tokens and payments for the redemption of tokens are included as financing activities in the
consolidated statement of cash flows.
The estimate of the balance sheet provision for token redemptions is remeasured at each balance sheet date and is based on the value of tokens issued
by the Group but not yet redeemed or cancelled at the balance sheet date. Allowance is made for the estimated proportion of tokens in issue that will
never be redeemed. This allowance is estimated with reference to historic redemption rates. At 30 April 2014, it has been estimated that 97% (30 April
2013: 97%) of tokens in issue will be redeemed.
• Restructuring provisions
Provisions for restructuring are recognised when the Group has a present legal or constructive obligation as a result of past events and a reliable
estimate of associated costs can be made.
• Insurance
The Group receives claims in respect of traffic incidents and employee claims. The Group protects against the cost of such claims through third party
insurance policies. An element of the claims is not insured as a result of the “excess” or “deductible” on insurance policies.
Provision is made on a discounted basis for the estimated cost to the Group to settle claims for incidents occurring prior to the balance sheet date. The
estimate of the balance sheet insurance provisions 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 yet been reported to the
Group. The provision is set after taking account of advice from third party actuaries.
• Retirement benefit obligations
The Group contributes to a number of pension schemes.
In respect of defined benefit schemes, obligations are measured at discounted present value whilst scheme assets are recorded at market value. In
relation to each scheme, any recognised net asset is limited to the present value of economic benefits available in the form of any future refunds from
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Note 1 IFRS accounting policies (continued)
• Retirement benefit obligations (continued)
the scheme or reductions in future contributions to the scheme. An economic benefit is available to the Group if it is realisable during the life of the
scheme or on settlement of the scheme liabilities.
The service costs of defined benefit schemes are spread systematically over the working lives of employees and included within operating profit.
Scheme administration expenses are also included within operating profit. Net interest expense or income is calculated by applying the discount rate to
the net defined benefit asset or liability and included within net finance costs. Actuarial gains and losses are recognised immediately in the statement
of comprehensive income. Actuarial gains and losses include the difference between the actual return on assets (net of investment administration
costs and taxes, such as amounts levied by the UK Pension Protection Fund) and the discount rates applied to the assets. Mortality rates are considered
when retirement benefit obligations are calculated.
Past service costs and adjustments are recognised immediately in income, unless the changes to the pension scheme are conditional on the employees
remaining in service for a specified period (the vesting period), in which case the past service costs are amortised using a straight-line method over the
vesting period.
Curtailments arise where the Group makes a material reduction in the number of employees covered by a pension scheme or amends a defined benefit
pension scheme’s terms such that a material element of future service by current employees will qualify for no or significantly reduced benefits.
Settlements arise when the Group enters into a transaction that eliminates all or part of the Group’s obligations for benefits provided under a defined
benefit pension scheme. The gain or loss arising on a settlement or curtailment comprises the resulting change in the net pension asset or liability, and
such gain or loss is recognised in the income statement when the settlement or curtailment occurs. Where the gain or loss is related to a disposal of a
business, it is included within the reported gain or loss on disposal.
A full actuarial valuation is undertaken triennially for each scheme and updated annually using independent actuaries following the projected unit credit
method. The present value of the scheme obligations is determined by discounting the estimated future cash outflows using interest rates of high quality
corporate bonds which have terms to maturity equivalent to the terms of the related obligations. Experience adjustments and changes in assumptions
which affect actuarial gains and losses are reflected in the actuarial gain or loss for the year.
The liability or asset recognised for the relevant sections of the Railways Pension Scheme represents only that part of the net deficit (or surplus) of each
section that the employer expects to fund (or recover) over the life of the franchise to which the section relates.
For defined contribution schemes, the Group pays contributions to separately administered pension schemes. Once the contributions have been paid, the
Group has no further payment obligations. The Group’s contributions to defined contribution schemes are charged to the income statement in the period
to which the contributions relate.
• Financial instruments
The disclosure of the accounting policies that follow for financial instruments are those that apply under IFRS 7 ‘Financial Instruments: Disclosures’, IAS 32
‘Financial Instruments: Presentation’ and IAS 39 ‘Financial Instruments: Recognition and measurement’.
Financial assets
Financial assets are classified, as appropriate, as financial assets at fair value through profit or loss; loans and receivables; held-to-maturity investments or as
available for sale. They include cash and cash equivalents, accrued income, trade receivables, other receivables, other investments and derivative financial
instruments. The Group determines the classification of its financial assets at initial recognition. When financial assets are recognised initially, they are
measured at fair value, normally being the transaction price plus, in the case of financial assets not at fair value through profit or loss, directly attributable
transaction costs. The subsequent measurement of financial assets depends on their classification, as follows:
Financial assets at fair value through profit or loss: Financial assets classified as held for trading and other assets designated as such on inception are classified
as financial assets at fair value through profit or loss where the assets meet the criteria for such classification. Financial assets are classified as held for
trading if they are acquired for sale in the short-term. Derivatives are also classified as held for trading unless they are designated as hedging instruments.
Assets in this category are carried on the balance sheet at fair value with gains or losses recognised in the income statement.
Loans and receivables: Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market,
do not qualify as trading assets and have not been designated as either at fair value through profit or loss or available for sale. Such assets are carried at
amortised cost using the effective interest method. Gains and losses are recognised in the income statement when the loans and receivables are
derecognised or impaired, as well as through the amortisation process. Trade receivables are recognised initially at fair value and subsequently measured at
amortised cost using the effective interest method, less provision for impairment. Where the time value of money is material, receivables are discounted to
the present value at the point they are first recognised and are subsequently amortised to the invoice amount by the payment due date. A provision for
impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the
original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation,
and default or delinquency in payments are considered in evaluating whether a trade receivable is impaired. The amount of the provision is the difference
between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying
amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement within ‘Other
external charges’. When a trade receivable is uncollectable, it is written off against the allowance account for trade receivables. An impairment loss is
reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised
cost, the reversal is recognised in profit or loss.
Held-to-maturity investments: The Group holds no held-to-maturity investments.
Available for sale financial assets: Available for sale financial assets are those non-derivative financial assets that are designated as such or are not classified in
any of the above categories. These are included in non-current assets unless the Group intends to dispose of them within 12 months of the balance sheet
date. After initial recognition, available for sale financial assets are measured at fair value, with gains or losses being recognised as a separate component of
equity until the asset is derecognised or until the asset is determined to be impaired, at which time the cumulative gain or loss reported in equity is included
in the income statement.
The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or group of financial assets is impaired. In the case
of equity securities classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered an indicator
that the securities are impaired. If any such evidence exists for available for sale financial assets, the cumulative loss - measured as the difference between
the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss - is removed from
equity and is recognised in the income statement. Impairment losses recognised in the income statement on equity instruments are not reversed through
the income statement.
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Notes to the consolidated financial statements
Note 1 IFRS accounting policies (continued)
• Financial instruments (continued)
Financial liabilities
When a financial liability is recognised initially, the Group measures it at its fair value plus, in the case of a financial liability not at fair value through profit or
loss, transaction costs that are directly attributable to the issue of the financial liability. Financial liabilities include trade payables, accruals, other payables,
borrowings and derivative financial instruments. Subsequent measurement depends on its classification as follows:
Financial liabilities at fair value through profit or loss: Financial liabilities classified as held for trading and derivative liabilities that are not designated as hedging
instruments are classified as financial liabilities at fair value through profit or loss. Such liabilities are carried on the balance sheet at fair value with gains or
losses being recognised in the income statement.
Other: All other financial liabilities not classified as fair value through profit or loss are measured at amortised cost using the effective interest method.
Fair values
The fair value of quoted investments is determined by reference to appropriate market prices at the close of business on the balance sheet date. Where
there is no active market, fair value is determined using valuation techniques. These include using pricing models and discounted cash flow analysis.
Derivative financial instruments
Derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-
measured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.
For those derivatives designated as hedges and for which hedge accounting is desired, the hedging relationship is documented at its inception. This
documentation identifies the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how effectiveness will be
measured throughout its duration. Such hedges are expected at inception to be highly effective.
For the purpose of hedge accounting, hedges are classified as:
–
–
–
Fair value hedges, when hedging the exposure to changes in the fair value of a recognised asset or liability;
Cash flow hedges, when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset
or liability or a highly probable forecast transaction; or
Hedges of net investment in a foreign entity.
Net gains or losses arising from changes in the fair value of all other derivatives, which are classified as held for trading, are taken to the income statement.
These may arise from derivatives for which hedge accounting is not applied because they are either not designated or not effective as hedging instruments
from an accounting perspective.
The treatment of gains and losses arising from revaluing derivatives designated as hedging instruments depends on the nature of the hedging relationship,
as follows:
Fair value hedges: For fair value hedges, the carrying amount of the hedged item is adjusted for gains and losses attributable to the risk being hedged; the
derivative is remeasured at fair value and gains and losses from both the derivative and the hedged item are taken to the income statement.
The Group discontinues fair value hedge accounting if the hedging instrument expires or is sold, terminated or exercised, the hedge no longer meets the
criteria for hedge accounting or the Group revokes the designation.
Cash flow hedges: For cash flow hedges, the effective portion of the gain or loss on the hedging instrument is recognised in the statement of comprehensive
income, while the ineffective portion is recognised in the income statement. Amounts recorded in the statement of comprehensive income are transferred
to the income statement when the hedged transaction affects profit or loss, such as when a forecast sale or purchase occurs. For cash flow hedges of
forecast fuel purchases, the transfer is to operating costs within the income statement.
If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts
previously recorded in the statement of comprehensive income remain in equity until the forecast transaction occurs and are then transferred to the
income statement. If a forecast transaction is no longer expected to occur, amounts previously recognised in the statement of comprehensive income are
transferred to the income statement immediately.
Hedges of net investment in a foreign entity: For hedges of the net investment in a foreign entity, the effective portion of the gain or loss on the hedging
instrument is recorded in the statement of comprehensive income, while the ineffective portion is recognised in the income statement. Amounts recorded
in the statement of comprehensive income are transferred to the income statement when the foreign entity is sold.
Non-derivative financial liabilities, such as foreign currency borrowings, can be designated as hedges of a net investment in a foreign entity and are subject
to the same requirements as derivative hedges of a net investment in a foreign entity.
Cash and cash equivalents
For the purposes of the balance sheet and cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks and
other short-term highly liquid investments with maturities at the balance sheet date of twelve months or less.
Interest bearing loans and borrowings
Borrowings are recognised initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using
the effective yield method subject to any adjustments in respect of fair value hedges. Any difference between the proceeds (net of transaction costs) and
the redemption value is recognised in the income statement over the period of the borrowings. Interest on borrowings to purchase property, plant and
equipment is expensed in the income statement.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer or rollover settlement for at least 12 months after the
balance sheet date.
Trade and other payables
Trade and other payables are generally not interest bearing and are stated at amortised cost which approximates to nominal value due to creditors days
being relatively low.
Share capital and dividends
Ordinary shares are classified as equity.
Incremental external costs directly attributable to the issue of new ordinary shares are shown in equity as a deduction, net of tax, from the proceeds.
Where the Company, its subsidiaries or employee share ownership trusts sponsored by the Company purchase ordinary shares in the Company, the
consideration paid, including any attributable incremental external costs net of income taxes, is deducted from equity. Where such shares are subsequently
sold or reissued, any consideration received is included in equity.
Dividends on ordinary shares are recorded in the Group’s financial statements in the period in which they are approved by the Group’s shareholders, or in
the case of interim dividends, in the period in which they are paid.
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Note 2 Segmental information
Management has determined the operating segments based on the reports reviewed by the Board of Directors that are used to make strategic decisions.
The Group is managed, and reports internally, on a basis consistent with its four continuing operating segments, being UK Bus (regional operations), UK
Bus (London), North America and UK Rail. The Group’s IFRS accounting policies are applied consistently, where appropriate, to each segment.
The segmental information provided in this note is on the basis of four operating segments as follows:
Country of operation
Segment name
United Kingdom (and immaterial operations in mainland Europe)
UK Bus (regional operations)
United Kingdom
UK Bus (London)
United States and Canada
North America
UK Rail
United Kingdom
The Group has interests in three trading joint ventures: Virgin Rail Group that operates in UK Rail, Citylink that operates in UK Bus (regional operations)
and Twin America LLC that operates in North America. The results of these joint ventures are shown separately in notes 2(c) and 2(g).
Service operated
Coach and bus operations
Bus operations
Coach and bus operations
Rail operations
(a) Revenue
Due to the nature of the Group’s business, the origin and destination of revenue (i.e. United Kingdom or North America) is the same in all cases except
in respect of an immaterial amount of revenue for services operated by UK Bus (regional operations) between the UK and mainland Europe. As the
Group sells bus and rail services to individuals, it has few customers that are individually “major”. Its major customers are typically public bodies that
subsidise or procure transport services – such customers include local authorities, transport authorities and the UK Department for Transport.
Revenue split by segment was as follows:
Continuing operations
UK Bus (regional operations)
UK Bus (London)
North America
Total bus continuing operations
UK Rail
Total Group revenue
Intra-Group revenue – UK Bus (regional operations)
Reported Group revenue
(b) Operating profit
Operating profit split by segment was as follows:
Continuing operations
UK Bus (regional operations)
UK Bus (London)
North America
Total bus continuing operations
UK Rail
Total continuing operations
Group overheads
Intangible asset expenses
Restructuring costs
Total operating profit of continuing
Group companies
Share of joint ventures’ profit
after finance income and taxation
Total operating profit:
Group operating profit and share of joint ventures’
profit after taxation
2014
£m
1,012.8
244.9
428.2
1,685.9
1,252.0
2,937.9
(7.9)
2,930.0
2013
£m
966.7
232.7
407.2
1,606.6
1,201.3
2,807.9
(3.1)
2,804.8
2014
2013 (restated)
Performance
pre intangibles
and
exceptional items
£m
Intangibles and
exceptional
items (note 4)
£m
Performance
pre intangibles
and
exceptional items
£m
Intangibles and
exceptional
items (note 4)
£m
Results for
the year
£m
Results for
the year
£m
147.4
23.9
23.7
195.0
34.3
229.3
(13.9)
–
(0.9)
–
–
–
–
–
–
–
(14.0)
–
147.4
23.9
23.7
195.0
34.3
229.3
(13.9)
(14.0)
(0.9)
143.2
19.0
13.4
175.6
41.2
216.8
(15.7)
–
(1.7)
–
–
–
–
–
–
–
(15.1)
–
143.2
19.0
13.4
175.6
41.2
216.8
(15.7)
(15.1)
(1.7)
214.5
(14.0)
200.5
199.4
(15.1)
184.3
8.8
(8.4)
0.4
21.3
(5.8)
15.5
223.3
(22.4)
200.9
220.7
(20.9)
199.8
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Notes to the consolidated financial statements
Note 2 Segmental information (continued)
(c) Joint ventures
The share of profit from joint ventures was further split as follows:
Continuing
Virgin Rail Group (UK Rail)
Operating profit
Finance income (net)
Taxation
Goodwill charged on investment in continuing joint ventures
Citylink (UK Bus, regional operations)
Operating profit
Taxation
Twin America LLC (North America)
Operating profit
Taxation
2014
2013 (restated)
Performance
pre intangibles
and
exceptional items
£m
Intangibles and
exceptional
items (note 4)
£m
Performance
pre intangibles
and
exceptional items
£m
Intangibles and
exceptional
items (note 4)
£m
Results for
the year
£m
Results for
the year
£m
2.6
0.3
(0.9)
2.0
––
2.0
1.7
(0.4)
1.3
5.7
(0.2)
5.5
1.0
–
(0.2)
0.8
0.8
–
–
–
(9.2)
–
(9.2)
3.6
0.3
(1.1)
2.8
–
2.8
1.7
(0.4)
1.3
(3.5)
(0.2)
(3.7)
10.5
0.5
(2.7)
8.3
–
8.3
1.8
(0.5)
1.3
12.2
(0.5)
11.7
5.5
–
(1.3)
4.2
(1.0)
3.2
–
–
–
(9.0)
–
(9.0)
16.0
0.5
(4.0)
12.5
(1.0)
11.5
1.8
(0.5)
1.3
3.2
(0.5)
2.7
Share of profit of joint ventures after finance
income and taxation
8.8
(8.4)
0.4
21.3
(5.8)
15.5
(d) Gross assets and liabilities
Assets and liabilities split by segment were as follows:
UK Bus (regional operations)
UK Bus (London)
North America
UK Rail
Central functions
Joint ventures
Borrowings and cash
Taxation
Total
2014
2013 (restated)
Gross
assets
£m
805.3
84.1
349.0
245.3
Gross liabilities
£m
(310.1)
(69.8)
(102.3)
(402.4)
Net assets/
(liabilities)
£m
495.2
14.3
246.7
(157.1)
Gross
assets
£m
772.7
89.0
397.0
236.2
1,483.7
(884.6)
599.1
1,494.9
21.9
42.8
240.3
0.8
(30.8)
–
(711.1)
(83.7)
(8.9)
42.8
(470.8)
(82.9)
23.1
53.3
262.2
1.1
Gross liabilities
£m
(278.8)
(93.1)
(110.9)
(410.3)
(893.1)
(38.1)
–
(811.6)
(75.5)
Net assets/
(liabilities)
£m
493.9
(4.1)
286.1
(174.1)
601.8
(15.0)
53.3
(549.4)
(74.4)
1,789.5 (1,710.2)
79.3
1,834.6
(1,818.3)
16.3
Central assets and liabilities include the token provision, interest payable and receivable and other net assets of the holding company and other head
office companies.
Segment assets and liabilities are determined by identifying the assets and liabilities that relate to the business of each segment but excluding intra-
Group balances, cash, borrowings, taxation, interest payable, interest receivable and the token provision.
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Note 2 Segmental information (continued)
(e) Capital expenditure on property, plant and equipment
The capital expenditure on property, plant and equipment is shown below and is on an accruals basis, not on a cash basis, and includes expenditure on
property, plant and equipment through business combinations.
2014
2013
UK Bus (regional operations)
UK Bus (London)
North America
UK Rail
Central
£m
91.5
2.9
33.9
37.1
–
165.4
£m
99.6
13.3
112.2
33.7
0.4
259.2
Capital expenditure, excluding business combinations is analysed in section 2.6.9 of the Strategic report.
(f) Capital expenditure on intangible assets
The capital expenditure on intangible assets (including goodwill) is shown below and includes acquisitions through business combinations.
UK Bus (regional operations)
North America
UK Rail
Central
(g) Earnings before interest, tax, depreciation and amortisation (“EBITDA”)
The results of each segment are further analysed below:
Year ended 30 April 2014
2014
£m
11.2
0.6
1.3
–
13.1
2013
£m
11.9
45.9
2.5
0.4
60.7
UK Bus (regional operations)
UK Bus (London)
North America
UK Rail – subsidiaries
UK Rail – joint venture (Virgin
Rail Group)
UK Bus – joint venture (Citylink)
North America – joint venture
(Twin America)
Group overheads
Restructuring costs
UK Bus (regional operations)
UK Bus (London)
North America
UK Rail – subsidiaries
UK Rail – joint venture (Virgin
Rail Group)
UK Bus – joint venture (Citylink)
North America – joint venture
(Twin America)
Group overheads
Restructuring costs
EBITDA
pre-exceptional
items
£m
Joint venture
interest and
tax
£m
216.2
29.8
56.2
42.5
2.6
1.7
5.7
(13.6)
(0.9)
340.2
–
–
–
–
(0.6)
(0.4)
(0.2)
–
–
(1.2)
EBITDA
pre-exceptional
items
£m
Joint venture
interest and
tax
£m
205.4
25.0
44.7
51.5
10.5
1.8
12.2
(15.5)
(1.7)
333.9
–
–
–
–
(2.2)
(0.5)
(0.5)
–
–
(3.2)
EBITDA
including joint
venture interest Depreciation
and tax
£m
216.2
29.8
56.2
42.5
2.0
1.3
5.5
(13.6)
(0.9)
expense
£m
(68.8)
(5.9)
(32.5)
(8.2)
–
–
–
(0.3)
–
EBITDA
including joint
venture interest Depreciation
and tax
£m
205.4
25.0
44.7
51.5
8.3
1.3
11.7
(15.5)
(1.7)
expense
£m
(62.2)
(6.0)
(31.3)
(10.3)
–
–
–
(0.2)
–
Operating profit
pre intangibles
and exceptional
items
£m
Intangible
asset
expenses
£m
Exceptional
items
£m
Allocation
of restructuring
costs
£m
Operating
profit
£m
147.4
23.9
23.7
34.3
2.0
1.3
5.5
(13.9)
(0.9)
(1.4)
(1.9)
(7.8)
(2.9)
–
–
–
–
–
–
–
–
–
0.8
–
(9.2)
–
–
(8.4)
(0.3)
–
(0.3)
(0.3)
–
–
–
–
0.9
–
145.7
22.0
15.6
31.1
2.8
1.3
(3.7)
(13.9)
–
200.9
Operating profit
pre intangibles
and exceptional
items
£m
Intangible
asset
expenses
£m
Exceptional
items
£m
Allocation
of restructuring
costs
£m
Operating
profit
£m
143.2
19.0
13.4
41.2
8.3
1.3
11.7
(15.7)
(1.7)
(0.5)
(2.7)
(8.4)
(3.5)
(1.0)
–
–
–
–
–
–
–
–
4.2
–
(9.0)
–
–
(4.8)
(0.7)
–
(0.1)
(0.9)
–
–
–
–
1.7
–
142.0
16.3
4.9
36.8
11.5
1.3
2.7
(15.7)
–
199.8
Stagecoach Group plc | page 77
339.0
(115.7)
223.3
(14.0)
Year ended 30 April 2013 (restated)
330.7
(110.0)
220.7
(16.1)
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Notes to the consolidated financial statements
Note 3 Operating costs and other operating income
Operating costs and other operating income were as follows:
Miscellaneous revenue (see explanation below)
Rail franchise premia (see explanation below)
Rail revenue support (see explanation below)
Materials and consumables
Staff costs (note 6)
Depreciation on property, plant and equipment (note 12)
Loss on disposal of property, plant and equipment
Repairs and maintenance expenditure on property, plant and equipment
Amortisation of intangible assets (note 11)
Network Rail charges, including electricity for traction
Operating lease rentals payable
– plant and equipment
– property
Other external charges
Restructuring costs
2014
£m
112.8
(599.0)
301.3
(407.8)
(1,133.9)
(115.7)
(2.1)
(26.7)
(14.0)
(250.9)
(168.1)
(11.5)
(413.0)
(0.9)
2013 (restated)
£m
115.3
(531.4)
256.4
(379.3)
(1,098.7)
(110.0)
(2.0)
(29.0)
(15.1)
(242.8)
(164.3)
(11.8)
(406.1)
(1.7)
Total operating costs and other operating income
(2,729.5)
(2,620.5)
Miscellaneous revenue comprises revenue incidental to the Group’s principal activities. It includes commissions receivable, advertising income,
maintenance income, railway station access income, railway depot access income, fuel sales and property income.
Rail franchise premia is the amount of financial premia payable to the UK’s DfT in respect of the operation of UK passenger rail franchises.
Rail revenue support is the amount of additional financial support receivable from the UK’s DfT in certain circumstances where a train operating
company’s revenue is below target.
Amounts payable to PricewaterhouseCoopers LLP and their associates by the Company and its subsidiary undertakings in respect of audit and non-
audit services are shown below:
Fees payable to the Company’s auditors and its associates for the audit of the Company’s financial
statements and consolidated financial statements
Fees payable to the Company’s auditors and its associates for the audit of the Company’s subsidiaries
pursuant to legislation
Total audit fees
Taxation advisory services
Other assurance services
Non-audit fees
Total fees payable by the Group to its auditors
2014
£000
400.0
411.0
811.0
6.0
99.0
105.0
916.0
2013
£000
400.0
410.0
810.0
16.0
97.0
113.0
923.0
In addition to the fees detailed above, PricewaterhouseCoopers LLP received US$188,000 (2013: US$155,000) in relation to the audit of our joint
venture, Twin America LLC.
A description of the work of the Audit Committee is set out in the Audit Committee Report in section 6 of this Annual Report, and includes an
explanation of how auditor independence is safeguarded when non-audit services are provided by the auditors.
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Note 4 Exceptional items and intangible asset expenses
The Group highlights amounts before intangible asset expenses and exceptional items as well as clearly reporting the results in accordance with IFRS.
Exceptional items are defined in note 35.
Information on exceptional items is provided in section 2.6.2 of the Strategic report.
The items shown in the column headed “Intangibles and exceptional items” on the face of the consolidated income statement for the year ended
30 April 2014 and for the prior year comparatives can be further analysed as follows:
2014
2013
Exceptional
items
Intangible
asset expenses
Intangibles and
exceptional items
Exceptional
items
Intangible
asset expenses
Intangibles and
exceptional items
Operating costs
Intangible asset expenses
Share of profit of joint ventures
Refund of franchise bid costs
– related tax
Twin America litigation
Goodwill charged on investment
in joint ventures
Non-operating exceptional items
– continuing operations
Adjustments to assets and liabilities relating to
previous acquisitions and disposals
Expenses incurred in relation to acquisitions
Net loss on disposal of operations (note 16)
Non-operating exceptional items
– continuing operations
Intangible asset expenses and exceptional
items – continuing operations
Tax effect of intangible asset expenses
and exceptional items
Intangible asset expenses and exceptional
items after taxation – continuing operations
£m
–
1.0
(0.2)
(9.2)
–––
(8.4)
–––
(0.1)
(0.2)
(0.3)
(8.7)
1.2
£m
£m
(14.0)
(14.0)
–
–
–
–
–
–
–
1.0
(0.2)
(9.2)
(8.4)
(0.1)
(0.2)
(0.3)
(14.0)
(22.7)
4.5
5.7
(7.5)
(9.5)
(17.0)
£m
–
5.5
(1.3)
(9.0)
–
(4.8)
0.1
(2.3)
––
(2.2)
(7.0)
3.8
(3.2)
£m
£m
(15.1)
(15.1)
–
–
–
(1.0)
(1.0)
–
–
–
5.5
(1.3)
(9.0)
(1.0)
(5.8)
0.1
(2.3)
–
(2.2)
(16.1)
(23.1)
4.7
8.5
(11.4)
(14.6)
The “goodwill charged on investment in joint ventures” was an annual charge for goodwill in relation to our investment in Virgin Rail Group. On
adoption of IFRS, the Group took the exemption offered under IFRS 1 not to restate prior period business combinations. Accordingly, the goodwill arising
under UK GAAP on the acquisition of the 49% stake in Virgin Rail Group was carried over to IFRS. However, Virgin Rail Group’s only significant business is
the operation of the West Coast Trains rail franchise. The applicable long-term franchise ended on 8 December 2012 and the goodwill was written down
to zero by the end of that franchise. Whilst IFRS generally prohibits the amortisation of goodwill, the treatment adopted was a result of an anomaly on
the first-time adoption of IFRS that would not arise if IFRS were applied to new acquisitions of businesses.
Note 5 Finance costs and income
Net finance costs and items of income, expense, gains and losses in respect of financial instruments (excluding commodity hedges, trade and other
payables, and trade and other receivables) have been recognised in the income statement as follows:
2014
£m
2013 (restated)
£m
Interest income on financial assets not at fair value through profit and loss
– Interest receivable on cash
Interest income on fair value hedges
– Interest receivable on interest rate swaps qualifying as fair value hedges
Finance income
Interest expense on financial liabilities not at fair value through profit and loss
– Interest payable and other facility costs on bank loans, loan notes, overdrafts and trade finance
– Interest payable on hire purchase and finance leases
– Interest payable and other finance costs on bonds
Other finance costs
– Unwinding of discounts on provisions
– Interest charge on defined benefit pension schemes
Finance costs
Net finance costs
3.2
1.4
4.6
(7.2)
(3.5)
(28.0)
(3.9)
(4.6)
(47.2)
(42.6)
2.5
1.6
4.1
(6.2)
(5.2)
(26.2)
(3.9)
(5.9)
(47.4)
(43.3)
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Notes to the consolidated financial statements
Note 6 Staff costs
Total staff costs were as follows:
Staff costs
Wages and salaries
Social security costs
Pension costs, excluding interest on net liability (note 25)
Share based payment costs (excluding social security costs)
– Equity-settled
– Cash-settled
2014
£m
971.4
86.3
69.6
2.2
4.4
2013 (restated)
£m
942.4
84.7
60.1
2.6
8.9
1,133.9
1,098.7
The total amount shown for staff costs above includes an amount of £1.0m (2013: £2.5m) in respect of share based payment costs for the Directors.
Key management personnel are considered to be the Directors and full information on their remuneration, waivers of remuneration, share based
payments, incentive schemes and pensions is contained within the Directors’ remuneration report in section 9 of this Annual Report.
The average monthly number of persons employed by the Group during the year (including executive directors) was as follows:
UK operations
UK administration and supervisory
North America
2014
number
27,172
3,330
4,968
35,470
The average monthly number of persons employed by the Group during the year, split by segment, was as follows:
UK Bus (regional operations)
UK Bus (London)
North America
UK Rail
Central
2014
number
19,426
3,971
4,968
6,976
129
35,470
2013
number
26,890
3,183
5,433
35,506
2013
number
19,045
3,994
5,433
6,901
133
35,506
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Note 7 Taxation
(a) Analysis of charge in the year
Current tax:
UK corporation tax at 22.8% (2013: 23.9%)
Prior year over provision for corporation tax
Foreign tax (current year)
Total current tax
Deferred tax:
Origination and reversal of temporary differences
Change in tax rates
Adjustments in respect of prior years
Total deferred tax (note 23)
Total tax on profit
(b) Factors affecting tax charge for the year
2014
2013 (restated)
Performance
pre intangibles
and
exceptional items
£m
Intangibles and
exceptional
items
£m
Notes
Performance
pre intangibles
and
exceptional items
£m
Intangibles and
exceptional
items
£m
Results for
the year
£m
Results for
the year
£m
37.7
(6.0)
0.1
31.8
6.2
(6.1)
(0.7)
(0.6)
31.2
(1.2)
–
–
(1.2)
(4.5)
–
–
(4.5)
(5.7)
36.5
(6.0)
0.1
30.6
1.7
(6.1)
(0.7)
(5.1)
25.5
36.1
(3.2)
0.2
33.1
2.9
(1.6)
1.9
3.2
36.3
(1.3)
–
–
(1.3)
(7.2)
–
–
(7.2)
(8.5)
34.8
(3.2)
0.2
31.8
(4.3)
(1.6)
1.9
(4.0)
27.8
Profit before taxation – continuing operations
Profit multiplied by standard rate of corporation tax applying to the year in the UK of 22.8% (2013: 23.9%)
Effects of:
Intangible asset allowances/deductions
Non-deductible expenditure/non-taxable income
Utilisation of tax losses not previously recognised as deferred tax assets
Foreign taxes differences
Adjustments to tax charge in respect of prior years
Tax effect of share of results of joint ventures
Change in UK corporation rate to 20% from 1 April 2015 (2013: 23% from 1 April 2013)
Total taxation (note 7a)
2014
£m
158.0
36.0
–
5.1
(2.5)
0.9
(6.7)
(1.2)
(6.1)
25.5
2013 (restated)
£m
154.3
36.9
0.3
1.2
(2.9)
(1.0)
(1.3)
(3.9)
(1.5)
27.8
(c) Factors that may affect future tax charges
There are no temporary differences associated with investments in foreign subsidiaries for which deferred tax liabilities have not been recognised.
Gross deductible temporary differences of £30.1m (2013: £63.1m) have not been recognised due to restrictions in the availability of their use.
Temporary differences in respect of the revaluation of land and buildings and in respect of rolled over capital gains are fully offset by temporary
differences in respect of capital losses.
The reduction in the UK corporate income tax rate to 20% which takes effect from 1 April 2015 has been enacted by the balance sheet date. The deferred
tax balances have therefore been calculated by reference to the enacted UK corporation tax rate of 20% (2013: 23%).
(d) Tax on items taken directly or transferred from equity
The components of tax on items taken directly to or transferred from equity are shown in the consolidated statement of comprehensive income on
page 63.
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Notes to the consolidated financial statements
Note 8 Dividends
Dividends payable in respect of ordinary shares are shown below.
Amounts recognised as distributions in the year
Dividends on ordinary shares
Final dividend in respect of the previous year
Interim dividend in respect of the current year
Amounts recognised as distributions to equity holders in the year
Dividends proposed but neither paid nor included as liabilities in the
financial statements
Dividends on ordinary shares
Final dividend in respect of the current year
2014
2013
2014
pence per share
pence per share
£m
6.0
2.9
8.9
5.4
2.6
8.0
34.4
16.6
51.0
2013
£m
31.0
14.9
45.9
6.6
6.0
37.9
34.4
Note 9 Earnings per share
Basic earnings per share (”EPS“) have been calculated by dividing the profit attributable to equity shareholders by the weighted average number of
ordinary shares in issue during the year, excluding any ordinary shares held in treasury and by employee share ownership trusts.
The diluted earnings per share was calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all
dilutive potential ordinary shares in relation to executive share plans and long-term incentive plans.
Basic weighted average number of ordinary shares
Dilutive ordinary shares
– Long Term Incentive Plan
– Executive Participation Plan
Diluted weighted average number of ordinary shares
Profit after taxation (for basic EPS calculation)
Intangible asset expenses before tax (see note 4)
Exceptional items before tax (see note 4)
Tax effect of intangible asset expenses and exceptional items (see note 4)
Profit for adjusted EPS calculation
2014
no. of shares
million
574.2
1.8
2.6
578.6
2014
£m
132.5
14.0
8.7
(5.7)
149.5
2013
no. of shares
million
573.8
6.1
3.5
583.4
2013
(restated)
£m
126.5
16.1
7.0
(8.5)
141.1
Earnings per share before intangible asset expenses and exceptional items is calculated by adding back intangible asset expenses and exceptional items
after taking account of taxation, as shown on the consolidated income statement. This has been presented to allow shareholders to gain a further
understanding of the underlying performance.
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Note 10 Goodwill
The movements in goodwill were as follows:
Net book value
At beginning of year
Acquired through business combinations
Disposals
Foreign exchange movements
At end of year
2014
£m
127.8
4.0
(0.1)
(6.3)
125.4
2013
£m
91.4
33.7
–
2.7
127.8
For the purpose of impairment testing, all goodwill that has been acquired in business combinations has been allocated to three individual cash
generating units (”CGUs”) on the basis of the Group’s operations. Each cash generating unit is an operational division. The UK Bus (regional
operations) and UK Bus (London) cash generating units operate coach and bus operations in the United Kingdom. The North America cash generating
unit operates coach and bus operations in the US and Canada. No goodwill has been allocated to the Group’s UK rail operations.
The cash generating units are as follows:
Carrying amount of goodwill
Basis on which recoverable amount has
been determined
Period covered by approved management
plans used in value in use calculation
Pre-tax discount rate applied to cash flow
projections
Growth rate used to extrapolate cash flows
beyond period of management plan
Difference between above growth rate and
long-term average growth rate for market in
which unit operates
UK Bus
(regional operations)
UK Bus
(London)
North America
2014
£m
47.5
2013
£m
43.5
2014
2013
£m
3.6
£m
3.6
2014
£m
74.3
2013
£m
80.7
Value in use
Value in use
Value in use
Value in use
Value in use
Value in use
5 years
5 years
5 years
5 years
5 years
5 years
9.9%
9.3%
9.9%
9.3%
13.0%
11.8%
2.2%
2.2%
2.2%
2.2%
4.6%
4.6%
Nil
Nil
Nil
Nil
Nil
Nil
The calculation of value in use for each cash generating unit shown above is most sensitive to the assumptions on discount rates and growth rates and
in the case of UK Bus (London), the number of new contracts won and the terms of such contracts. The assumptions used are considered to be
consistent with past experience and external sources of information and to be realistically achievable in light of economic and industry measures and
forecasts.
The principal risks and uncertainties are set out in section 2.3.6 of the Strategic report.
The cost base of the UK Bus (regional operations) and North American operations can be flexed in response to changes in revenue and there is scope
to reduce capital expenditure in the medium-term if other cash flows deteriorate. Risks to the cash flow forecasts remain, however, and are described in
section 2.3.6. The cost base of UK Bus (London) is less flexible because the business is contractually committed to operate the majority of its services.
The discount rates have been determined with reference to the estimated post-tax Weighted Average Cost of Capital (“WACC”) of the Group. The
WACC has been estimated as at 30 April 2014 at 7.9% (2013: 7.2%) based on:
• The market capitalisation and net debt of the Group as at 30 April 2014 as an indication of the split between debt and equity;
• A risk-free rate of 2.7% (2013: 1.8%);
• A levered beta for the Group of 0.9 (2013: 1.0);
• A marginal pre-tax cost of debt of 5.2% (2013: 5.1%).
The pre-tax discount rate for each CGU has been determined by adjusting the Group’s WACC for the risk profile and effects of tax on each of the
relevant CGUs.
The Directors believe that in the case of each of the cash generating units shown above, any reasonably possible change in the key assumptions on
which the recoverable amount of the unit is based would not cause its carrying amount to exceed its recoverable amount.
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Notes to the consolidated financial statements
Note 11 Other intangible assets
The movements in other intangible assets, none of which were internally generated and all of which are assumed to have finite useful lives, were as
follows:
Year ended 30 April 2014
Cost
At beginning of year
Additions
Acquired through business combinations
Disposals
Foreign exchange movements
At end of year
Accumulated amortisation
At beginning of year
Amortisation charged to income statement
Disposals
Foreign exchange movements
At end of year
Net book value at beginning of year
Net book value at end of year
Operating
leases
Customer
contracts
Non-compete
contracts
Rail
franchises
Software
costs
£m
£m
£m
£m
£m
1.0
––
–
–
–
1.0
(0.3)
(0.3)
–
–
(0.6)
0.7
0.4
56.5
1.2
(18.2)
(1.5)
38.0
(40.2)
(9.6)
18.2
0.7
(30.9)
16.3
7.1
12.6
–
––
(8.1)
(0.4)
4.1
(12.6)
–
8.1
0.4
(4.1)
–
–
19.7
–
–
–
19.7
(13.1)
(2.3)
––
–
(15.4)
6.6
4.3
10.4
7.9
–
(1.0)
(0.4)
16.9
(4.4)
(1.8)
0.1
(6.1)
6.0
10.8
Intangible assets include customer contracts and operating leases on favourable terms to market purchased as part of the Group’s business
combinations, non-compete contracts, the right to operate UK Rail franchises and software costs.
Total
£m
100.2
7.9
1.2
(27.3)
(2.3)
79.7
(70.6)
(14.0)
26.3
1.2
(57.1)
29.6
22.6
Total
£m
72.7
5.9
21.1
0.5
Operating
leases
Customer
contracts
Non-compete
contracts
Rail
franchises
Software
costs
£m
£m
£m
£m
£m
–
––
1.0
–
1.0
–
(0.3)
––
(0.3)
–
0.7
36.2
20.1
0.2
56.5
(30.4)
(9.8)
(40.2)
5.8
16.3
12.4
–
––
0.2
12.6
(12.3)
–
(0.3)
(12.6)
0.1
–
19.7
–
–
19.7
(10.9)
(2.2)
––
(13.1)
8.8
6.6
4.4
5.9
–
0.1
10.4
100.2
(1.6)
(2.8)
(4.4)
2.8
6.0
(55.2)
(15.1)
(0.3)
(70.6)
17.5
29.6
Year ended 30 April 2013
Cost
At beginning of year
Additions
Acquired through business combinations
Foreign exchange movements
At end of year
Accumulated amortisation
At beginning of year
Amortisation charged to income statement
Foreign exchange movements
At end of year
Net book value at beginning of year
Net book value at end of year
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Note 12 Property, plant and equipment
The movements in property, plant and equipment were as follows:
Year ended 30 April 2014
Land and
buildings
£m
Passenger
service vehicles
£m
Other plant
and equipment
£m
Cost
At beginning of year
Additions
Acquired through business combinations
Disposals
Disposal of subsidiaries and other businesses
Foreign exchange movements
Reclassification
Prior year adjustments
At end of year
Depreciation
At beginning of year
Depreciation charged to income statement
Disposals
Disposal of subsidiaries and other businesses
Foreign exchange movements
Reclassification
Prior year adjustments
At end of year
Net book value at beginning of year
Net book value at end of year
Included in the above net book value at end of year are:
Assets on hire purchase
Assets on finance leases
Long leasehold land and buildings
298.7
16.0
0.1
(2.5)
–
(3.9)
1.7
12.6
322.7
(47.2)
(8.9)
0.9
–
1.7
–
(12.6)
(66.1)
251.5
256.6
–
–
54.3
1,247.2
104.7
2.7
(53.3)
(8.5)
(36.7)
0.1
2.8
1,259.0
(508.9)
(93.2)
47.9
5.6
15.9
(0.1)
(2.8)
(535.6)
738.3
723.4
109.6
6.1
––
225.9
41.7
0.2
(40.5)
–
(0.6)
(1.8)
–
224.9
(152.6)
(13.6)
1.9
–
0.2
0.1
–
(164.0)
73.3
60.9
–
–
Total
£m
1,771.8
162.4
3.0
(96.3)
(8.5)
(41.2)
–
15.4
1,806.6
(708.7)
(115.7)
50.7
5.6
17.8
–
(15.4)
(765.7)
1,063.1
1,040.9
109.6
6.1
54.3
Included in the net book value of property, plant and equipment is £22.2m (2013: £24.6m) in respect of assets under construction that the Group expects to be
sold to Network Rail following the completion of each asset’s construction.
Year ended 30 April 2013
Cost
At beginning of year
Additions
Acquired through business combinations
Disposals
Foreign exchange movements
Reclassification
At end of year
Depreciation
At beginning of year
Depreciation charged to income statement
Disposals
Foreign exchange movements
Reclassification
At end of year
Net book value at beginning of year
Net book value at end of year
Included in the above net book value at end of year are:
Assets on hire purchase
Assets on finance leases
Long leasehold land and buildings
Land and
buildings
£m
Passenger
service vehicles
£m
Other plant
and equipment
£m
278.0
13.7
5.2
(1.7)
1.4
2.1
298.7
(39.2)
(7.7)
0.3
(0.6)
–
(47.2)
238.8
251.5
–
–
55.9
1,108.2
154.5
48.2
(76.1)
12.8
(0.4)
1,247.2
(470.1)
(88.0)
54.8
(6.0)
0.4
(508.9)
638.1
738.3
145.9
9.8
––
224.3
37.5
0.1
(34.4)
0.1
(1.7)
225.9
(139.6)
(14.3)
1.8
(0.1)
(0.4)
(152.6)
84.7
73.3
–
–
Total
£m
1,610.5
205.7
53.5
(112.2)
14.3
–
1,771.8
(648.9)
(110.0)
56.9
(6.7)
–
(708.7)
961.6
1,063.1
145.9
9.8
55.9
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Notes to the consolidated financial statements
Note 13 Interests in joint ventures
The principal joint ventures are:
Virgin Rail Group Holdings Limited
Scottish Citylink Coaches Limited
Twin America LLC
Country of
incorporation
Number of
shares in issue
at 30 April 2014
Nominal value
of share capital
in issue at
30 April 2014
United Kingdom
United Kingdom
USA
34,780
1,643,312
n/a
£3,478
£1,643,312
n/a
% interest
held
49%
35%
60%
The Group has three joint ventures: Virgin Rail Group Holdings Limited, Scottish Citylink Coaches Limited (“Citylink”) and Twin America LLC.
Virgin Rail Group Holdings Limited is the holding company of Virgin Rail Group Limited, which in turn is the holding company of West Coast Trains
Limited. The Virgin Rail Group Holdings shareholders’ agreement provides for joint decision making on key matters and equal representation on the
Board. As a consequence, the investment has been accounted for as a joint venture.
The Citylink shareholder agreement provides for joint and unanimous decision making on all key matters and therefore the investment has been
accounted for as a joint venture. In making this judgement, the Group noted that although it is responsible for the day to day management of Citylink’s
operations, key decisions are reserved for the joint venture partners.
In North America, Stagecoach has a joint venture, Twin America LLC, with CitySights. Twin America LLC began operating on 31 March 2009. In return
for transferring certain assets to the joint venture, the Group holds 60% of the economic rights and 50% of the voting rights. Twin America LLC has no
share capital and is governed by a joint venture agreement, which provides for joint decision making on key matters. Although the Managing Director
of Twin America LLC is a representative of the other joint venture partner, the Group concluded Twin America LLC is a joint venture because key
decisions are reserved for the two joint venture partners.
The Directors undertook an impairment review as at 30 April 2014 of the carrying value of the Group’s joint venture interests and concluded that there
had been no impairment loss. Other than Twin America, there is no reasonably possible change that would cause the carrying values to exceed the
recoverable amounts.
Trading at Twin America has been challenging during the year ended 30 April 2014, as the New York sightseeing market has become increasingly
competitive. Downside sensitivities have been assessed and, although headroom exists between the £28.5m carrying value of the investment and its
value in use, this headroom is much reduced. As at 30 April 2014, the headroom in our base case is £8.6m. This headroom would be eliminated with
the investment at breakeven if the assumed revenue growth rate was lower by 40 basis points in each year of the 5-year forecast period, or if the
discount rate were to increase by a further 160 basis points.
The movements in the carrying values were as follows:
Cost
At beginning of year
Share of recognised profit/(loss)
Share of actuarial gains on defined
benefit pension schemes, net of tax
Share of other comprehensive income on
cash flow hedges, net of tax
Dividends received in cash
Foreign exchange movements
At end of year
Amounts written off
At beginning of year
Goodwill charged during year
At end of year
Net book value at beginning of year
Net book value at end of year
Virgin Rail
Group
Citylink
Twin
America LLC
£m
69.1
2.8
––
––
(4.2)
––
67.7
(57.5)
––
(57.5)
11.6
10.2
£m
4.2
1.3
(1.4)
4.1
––
––
4.2
4.1
£m
37.5
(3.7)
–
–
(2.6)
(2.7)
28.5
–
37.5
28.5
Total
2014
£m
110.8
0.4
–
–
(8.2)
(2.7)
100.3
(57.5)
–
(57.5)
53.3
42.8
Total 2013
(restated)
£m
114.3
16.5
3.3
(0.1)
(24.9)
1.7
110.8
(56.5)
(1.0)
(57.5)
57.8
53.3
A loan payable to Scottish Citylink Coaches Limited of £1.7m (2013: £1.7m) is reflected in note 21.
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Note 13 Interests in joint ventures (continued)
The Group’s share of the net assets of its joint ventures is analysed below:
Non-current assets
Current assets
Current liabilities
Share of net assets
Goodwill
Virgin Rail
Group
Citylink
Twin
America LLC
£m
1.4
84.1
(75.3)
10.2
–
10.2
£m
0.1
4.5
(3.1)
1.5
2.6
4.1
£m
11.7
8.9
(18.8)
1.8
26.7
28.5
The Group’s share of post-tax results from joint ventures is analysed below:
Virgin Rail
Group
Citylink
Twin
America LLC
£m
£m
£m
465.6
(463.0)
2.6
1.0
0.3
(1.1)
2.8
15.6
(13.9)
1.7
–
––
(0.4)
1.3
51.0
(45.3)
5.7
(9.2)
(0.2)
(3.7)
Revenue
Expenses
Operating profit
Exceptional items
Finance income (net)
Taxation
Share of joint ventures’ profit/(loss) after taxation
Note 14 Available for sale and other investments
The available for sale and other investments were as follows:
Cost / valuation and net book value
At beginning and end of year
Total
2014
£m
13.2
97.5
(97.2)
13.5
29.3
42.8
Total
2014
£m
532.2
(522.2)
10.0
(8.2)
0.3
(1.7)
0.4
Total 2013
(restated)
£m
16.2
95.8
(90.3)
21.7
31.6
53.3
Total 2013
(restated)
£m
512.0
(487.5)
24.5
(3.5)
0.5
(5.0)
16.5
2014
£m
0.3
2013
£m
0.3
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Notes to the consolidated financial statements
Note 15 Business combinations
The Group acquired two small UK businesses during the year ended 30 April 2014 for total consideration of £7.2m.
The effect of these two acquisitions on the consolidated income statement for the year ended 30 April 2014 is not material and had the acquisitions
completed on 1 May 2013, the effect on the consolidated income statement for the year ended 30 April 2014 would have been immaterial.
Intangible assets
– Customer contracts
Property, plant & equipment
– Passenger service vehicles
– Other
Inventory
Trade and other receivables
Net cash and cash equivalents acquired (including overdrafts)
Trade and other payables
Borrowings
Deferred taxation
Provisions
– Acquired customer contracts
Fair value of net assets acquired, excluding goodwill
Goodwill arising on acquisition
Total consideration
Cash consideration
Deferred consideration in respect of businesses acquired in current year
Total consideration
The total net cash outflow on acquisitions during the year was as follows:
Cash consideration
Net cash and cash equivalents acquired (including overdrafts)
Expenses relating to the acquisition
Cash outflow relating to acquisitions in year
Deferred consideration paid on acquisitions from prior years
Total cash outflow relating to acquisitions
UK Bus (regional)
acquisitions
£m
1.2
2.7
0.3
0.1
0.9
1.6
(1.4)
(1.8)
(0.3)
(0.1)
3.2
4.0
7.2
6.7
0.5
7.2
6.7
(1.6)
0.1
5.2
Total
£m
1.2
2.7
0.3
0.1
0.9
1.6
(1.4)
(1.8)
(0.3)
(0.1)
3.2
4.0
7.2
6.7
0.5
7.2
6.7
(1.6)
0.1
5.2
0.3
5.5
There are no material receivables that are considered to be uncollectable as at the date of acquisition.
Note 16 Disposals
In respect of businesses disposed of, the consideration, net assets disposed and profit on disposal for the year ended 30 April 2014, were as follows:
Net assets disposed
Loss on disposal
Net consideration receivable
Deferred consideration in respect of businesses disposed of in current year
Net cash inflow
2009
2009
2014
£m
3.1
(0.2)
2.9
(0.1)
2.8
2013
£m
–
–
–
–
–
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Note 17 Principal subsidiaries
The principal subsidiary undertakings (ordinary shares 100% owned) as at 30 April 2014 were:
Company
SCOTO Limited
Stagecoach Bus Holdings Limited
Stagecoach Rail Holdings Limited
Stagecoach (South) Limited
Stagecoach (North West) Limited
East Midland Motor Services Limited
East Kent Road Car Company Limited
Busways Travel Services Limited
Cleveland Transit Ltd
Cambus Limited
Greater Manchester Buses South Limited
Glenvale Transport Limited
Stagecoach Devon Limited
Thames Transit Limited
The Yorkshire Traction Company Limited
Stagecoach Services Limited
PSV Claims Bureau Limited
Red & White Services Limited
Cheltenham & Gloucester Omnibus Company Limited
Midland Red (South) Limited
Fife Scottish Omnibuses Limited
Bluebird Buses Limited
Western Bus Limited
East London Bus & Coach Company Limited
South East London & Kent Bus Company Limited
East London Bus Group Property Investments Limited
Stagecoach South Western Trains Limited
East Midlands Trains Limited
Trentway-Wager Inc
Hudson Transit Lines Inc
Sam Van Galder Inc
Megabus Northeast LLC
Jurisdiction of
registration or
incorporation
England
Scotland
Scotland
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
Scotland
Scotland
Scotland
England
England
England
England
England
Canada
USA
USA
USA
Principal activity
Holding and property company
Holding and financing company
Holding company
Bus and coach operator
Bus and coach operator
Bus and coach operator
Bus and coach operator
Bus and coach operator
Bus and coach operator
Bus and coach operator
Bus and coach operator
Bus and coach operator
Bus and coach operator
Bus and coach operator
Bus and coach operator
Provision of accounting, payroll and other
support services
Claims handling
Bus and coach operator
Bus and coach operator
Bus and coach operator
Bus and coach operator
Bus and coach operator
Bus and coach operator
Bus operator
Bus operator
Property company
Train operating company
Train operating company
Bus and coach operator
Bus and coach operator
Bus and coach operator
Coach operator
All companies operate in the countries shown above and are indirectly held. The Group considers that principal subsidiaries includes any subsidiary that
has revenue greater than £25.0m per annum, profit before interest and taxation greater than £2.5m per annum, gross assets greater than £25.0m or
gross liabilities greater than £25.0m. These thresholds exclude any intercompany amounts and investments in subsidiaries. A complete list of
subsidiary undertakings is available on request to the Company and will be filed with the next Annual Return.
Stagecoach Group plc has given a guarantee under section 479C of the Companies Act 2006 (the “Act”) in respect of the year ended 30 April 2014 of
the following of its subsidiary companies and the following subsidiary companies are exempt from the requirements of the Act relating to the audit of
individual accounts by virtue of Section 479A of the Companies Act 2006:
Stagecoach Aviation Europe Limited (in waiting period to be struck off)
SCH US Bond Co Limited
Concessionary Solutions Limited
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Notes to the consolidated financial statements
Note 18 Inventories
Inventories were as follows:
Parts and consumables
2014
£m
24.6
2013
£m
21.1
All inventories are carried at cost less a provision to take account of slow moving and obsolete items. Changes in the provision for slow moving and
obsolete inventories were as follows:
At beginning of year
Charged to income statement
Amount utilised
At end of year
2014
£m
(2.1)
(0.5)
0.3
(2.3)
2013
£m
(2.4)
(0.3)
0.6
(2.1)
The Group is party to consignment stock arrangements and as at 30 April 2014, the Group physically held consignment stock of a value amounting to
£0.3m (2013: £0.3m) in addition to the amounts disclosed above.
Note 19 Trade and other receivables
Trade and other receivables were as follows:
Non-current:
Prepayments
Other receivables
Current:
Trade receivables
Less: provision for impairment
Trade receivables – net
Other receivables
Prepayments
Accrued income
VAT and other government receivables
The movements in the provision for impairment of current trade receivables were as follows:
At beginning of year
Impairment losses in year charged to income statement
Reversal of impairment losses credited to income statement
Amounts utilised
At end of year
Further information on credit risk is provided in note 26.
2014
£m
13.9
0.3
14.2
132.6
(2.1)
130.5
23.0
30.5
59.6
25.6
269.2
2014
£m
(1.9)
(0.6)
0.1
0.3
(2.1)
2013
£m
17.5
0.7
18.2
123.7
(1.9)
121.8
21.1
27.1
43.7
26.0
239.7
2013
£m
(1.6)
(0.7)
0.1
0.3
(1.9)
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Note 20 Cash and cash equivalents
Cash at bank and in hand
2014
£m
240.3
2013
£m
262.2
The cash amounts shown above include £10.0m on 12 month deposit maturing by November 2014, £80.0m on 6 month deposit maturing by
October 2014, £17.0m on 3 month deposit maturing by May 2014 and £10.0m on 2 month deposit maturing by May 2014 (2013: £105.0m on 12
month deposit maturing by March 2014, £32.0m on 3 month deposit maturing by July 2013 and £15.0m on 1 month deposit maturing May 2013).
The remaining amounts are accessible to the Group within one day (2013: one day).
The Group has a bank offset arrangement whereby the Company and several of its subsidiaries each have bank accounts with the same bank, which are
subject to rights of offset. The cash at bank and in hand of £240.3m (2013: £262.2m) above included the net balance on these offset accounts of
£22.1m (2013: £14.8m), which comprised £296.9m (2013: £370.3m) of positive bank balances less £274.8m (2013: £355.5m) of bank overdrafts.
Note 21 Trade and other payables
Trade and other payables were as follows:
Current
Trade payables
Accruals
Deferred income
Cash-settled share based payment liability
Deferred grant income
Loans from joint ventures
PAYE and NIC payable
VAT and other government payables
Non-current
Accruals
Deferred grant income
Cash-settled share based payment liability
PAYE and NIC payable
Other payables
Deferred income
2014
£m
156.3
297.6
92.8
2.4
8.5
1.7
21.2
0.7
581.2
11.4
13.0
1.7
0.6
0.5
1.3
28.5
2013
£m
170.3
283.6
109.7
3.0
1.5
1.7
21.5
2.8
594.1
10.1
7.4
1.2
0.5
0.1
1.9
21.2
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Notes to the consolidated financial statements
Note 22 Borrowings
(a) Repayment profile
Borrowings are repayable as follows:
On demand or within 1 year
Loan notes
Hire purchase and lease obligations
Within 1-2 years
Bank loans
Hire purchase and lease obligations
Within 2-5 years
Bank loans
Hire purchase and lease obligations
Sterling 5.75% Notes
Over 5 years
Hire purchase and lease obligations
US Dollar 4.36% Notes
Total borrowings
Less current maturities
Non-current portion of borrowings
2014
£m
19.7
31.2
50.9
82.4
30.8
113.2
–
48.2
409.3
457.5
1.1
88.4
89.5
711.1
(50.9)
660.2
2013
£m
20.5
43.2
63.7
–
34.6
34.6
121.4
76.3
409.8
607.5
9.3
96.5
105.8
811.6
(63.7)
747.9
Interest terms on UK hire purchase and lease obligations are at annual rates between 0.40% and 2.00% (2013: 0.40% and 2.00%) over bank base rate
or equivalent LIBOR rates, subject to certain minimum rates. Interest terms on overseas lease obligations are at fixed rates, which at 30 April 2014
averaged 2.6% per annum (2013: 3.0%). Interest terms on bank loans are at LIBOR plus margins ranging from 0.80% to 1.40% (2013: 0.80% to
1.40%). Interest on loan notes are at three months LIBOR. Loan notes amounting to £19.7m (2013: £20.5m) are backed by guarantees provided under
Group banking facilities.
The loan notes have been classified by reference to the earliest date on which the loan note holders can request redemptions.
Bank loans, Sterling Notes and US Dollar Notes are unsecured.
The minimum lease payments under hire purchase and lease obligations fall due as follows:
Not later than one year
Later than one year but not more than five years
More than five years
Future finance costs on hire purchase and finance leases
Carrying value of hire purchase and finance lease liabilities
2014
£m
33.3
81.6
1.1
116.0
(4.7)
111.3
2013
£m
46.7
116.2
9.5
172.4
(9.0)
163.4
For variable-rate hire purchase arrangements, the future finance costs included in the above table are based on the interest rates applying at the
balance sheet date.
The Group in its ordinary course of business enters into hire purchase and finance lease agreements to fund or refinance the purchase of vehicles. All of
the hire purchase and lease obligations shown above are in respect of vehicles. The lease agreements are typically for periods of 5 to 10 years and do
not have contingent rent or escalation clauses.
The agreements have industry standard terms and do not contain any restrictions on dividends, additional debt or further leasing.
(b) Sterling 5.75% Notes
On 16 December 2009, the Group issued £400m of 5.75% Notes due in 2016. Interest on the Notes is paid annually in arrears and all remaining Notes
are due to be redeemed at their principal amount on 16 December 2016.
The Notes were issued at 99.599% of their principal amount. The consolidated carrying value of the Notes at 30 April 2014 was £409.3m (2013:
£409.8m) after taking account of accrued interest, the discount on issue, issue costs and the fair value of interest rate swaps previously used to manage
the interest rate profile of the Notes.
(c) US Dollar 4.36% Notes
On 18 October 2012, the Group issued US$150m of 4.36% Notes as a private placement. The Notes are due in 2022. Interest on the Notes is paid
semi-annually in arrears and all remaining Notes are due to be redeemed at their principal amount on 18 October 2022. The consolidated carrying
value of the Notes at 30 April 2014 was £88.4m (2013: £96.5m) after taking account of accrued interest, issue costs and the effect of fair value hedges.
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Note 23 Deferred tax
The Group movement in deferred tax during the year was as follows:
Due after more than one year:
At beginning of year (restated)
Credited to income statement
Arising through business combinations
(Charged)/credited to equity
Foreign exchange movements
At end of year
Deferred taxation is calculated as follows:
Accelerated capital allowances
Pension temporary differences
Short-term temporary differences
The amount of deferred tax recognised in the income statement by type of temporary difference is as follows:
2014
£m
(35.5)
5.1
(0.3)
(3.8)
0.5
(34.0)
2014
£m
(101.1)
23.1
44.0
(34.0)
2014
£m
(6.2)
1.2
10.1
5.1
2013
(restated)
£m
(51.7)
4.0
(0.8)
13.0
–
(35.5)
2013
(restated)
£m
(95.0)
25.2
34.3
(35.5)
2013
(restated)
£m
(7.5)
1.0
10.5
4.0
Total
£m
177.6
52.0
0.1
3.9
(61.0)
0.8
(1.1)
(3.4)
£m
21.7
–
0.1
0.1
(9.1)
–
–
12.8
168.9
6.4
6.4
12.8
10.6
11.1
21.7
57.5
111.4
168.9
59.1
118.5
177.6
Accelerated capital allowances
Pension temporary differences
Short-term temporary differences
Note 24 Provisions
The movements in provisions were as follows:
Beginning of year
Provided during year (after discounting)
Amounts recognised through business combinations
Unwinding of discount
Utilised in the year
Arising on sale of tokens during year
Redemption of tokens
Foreign exchange movements
End of year
30 April 2014:
Current
Non-current
30 April 2013:
Current
Non-current
Token redemption
provision
Insurance
provisions
Environmental
provisions
Redundancy
provision
Onerous
contracts
£m
10.2
–
––
–
–
0.8
(1.1)
–
9.9
2.0
7.9
9.9
2.0
8.2
10.2
£m
141.3
50.1
3.8
(51.0)
––
––
(3.3)
140.9
48.3
92.6
140.9
45.2
96.1
141.3
£m
3.7
1.7
–
––
(0.4)
(0.1)
4.9
0.6
4.3
4.9
0.6
3.1
3.7
£m
0.7
0.2
–
(0.5)
–
–
––
0.4
0.4
–
0.4
0.7
–
0.7
The token redemption provision relates to tokens issued to third parties to be redeemed as payment for transportation services. Tokens are typically redeemed within
five years of issue.
The insurance provisions relate to insurance reserves on incurred accidents up to 30 April in each year where claims have not been settled. These are based on actuarial
reviews and prior claims history. Claims are typically settled within five years of origination.
The environmental provisions relate to legal or constructive obligations to undertake environmental work, such as an obligation to rectify land which has been
contaminated by fuel or to eliminate the presence of asbestos. The provision is based on the estimated cost of undertaking the work required, and is expected to be
utilised over the next five years.
The redundancy provision relates to planned redundancies and is expected to be utilised within one year.
Provisions for onerous contracts relate to contracts where the costs of fulfilling the contract outweigh the economic benefits to be received, which includes contracts
that have been acquired through business combinations that have been identified as being on unfavourable terms at the relevant acquisition date. The provisions are
expected to be fully utilised within four years.
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Notes to the consolidated financial statements
Note 25 Retirement benefits
(a) Description of retirement benefit arrangements
United Kingdom
The Group participates in a number of defined benefit schemes in the UK as follows.
• Stagecoach Pension schemes (“SPS”) comprising:
The Stagecoach Group Pension Scheme; and
The East London and Selkent Pension Scheme;
• The South West Trains section of the Railways Pension Scheme (“RPS”);
• The Island Line section of the Railways Pension Scheme (“RPS”);
• The East Midlands Trains section of the Railways Pension Scheme (“RPS”); and
• A number of UK Local Government Pension Schemes (“LGPS”).
Date as at which last scheme valuation was prepared
30 April 2011
5 April 2013
30 December 2010
30 December 2010
30 December 2010
31 March 2013
Both the Stagecoach Pension Scheme and the Local Government Pension Schemes are closed to new members from the Group. All relevant sections
of the Railways Pension Schemes are open to new members. Unfunded benefits are provided to a small number of former employees with the net
liabilities included within the unfunded balance reported in the tables that follow.
The Group also operates a number of defined contribution schemes covering UK employees, for which the Group has no further payment obligation
once the contributions are paid other than lump-sum death in service benefits that are provided for certain UK employees.
For the defined benefit schemes, benefits are related to length of service and pensionable salary. Pensionable salary for the Stagecoach Pension
Schemes is subject to capped increases. The weighted average duration as at 30 April 2014 of the expected benefit payments across all UK defined
benefit schemes is estimated at 19.5 years (2013: 19.5 years).
The Directors believe that separate consideration should be given to RPS as the Group has no rights or obligations in respect of the relevant sections of
the scheme following expiry of the related franchises. In addition, under the terms of RPS, any fund deficit or surplus is shared by the employer (60%)
and the employees (40%) in accordance with the shared cost nature of RPS. The employees’ share of the deficit (or surplus) is reflected as an
adjustment to RPS liabilities (or assets).Therefore the liability (or asset) recognised for the relevant sections of RPS reflects only that part of the net
deficit (or surplus) of each section that the employer is expected to fund (or expected to recover) over the life of the franchise to which the section
relates. The adjusting entry referred to as the “franchise adjustment” represents that proportion of the deficit (or surplus) that is expected to exist at the
end of the franchise and which the Group would not be obliged to fund (or entitled to recover).
The Group is a participating employer in a number of UK Local Government Pension Schemes, and has limited influence over the operations of these
schemes. Active membership of these schemes is small and represents 2.4% (2013: 3.3%) of the pensions charge in the consolidated income
statement, but historic liabilities mean that these schemes represent around 11.5% (2013: 11.6%) of the gross present value of pension obligations as
at 30 April 2014 shown in the balance sheet. The Group liaises with the administering authorities to seek to set contributions at appropriate levels to
fund the benefits and deficit recovery payments over a reasonable period of time.
North America
The Group participates in two small defined benefit schemes in North America, both of which are closed to new members. The Group also operates
defined contribution schemes which are open to eligible North American employees, for which the Group has no further payment obligation once the
contributions are paid.
(b) Principal actuarial assumptions
The principal actuarial assumptions used for the accounting disclosures for the schemes are shown below:
Discount rate
Retail Prices inflation assumption
Consumer Prices inflation assumption
Rate of increase in pensionable salaries
SPS
Others
Rate of increase of pensions in payment
SPS
Others
Post-retirement mortality (life expectancies in years)
Current pensioners at 65 – male
Current pensioners at 65 – female
Future pensioners at 65 aged 45 now – male
Future pensioners at 65 aged 45 now – female
2014
4.5%
3.3%
2.3%
2.0%
3.8%
3.2%
2.3%
19.2
23.5
21.3
25.3
2013
4.4%
3.2%
2.2%
2.0%
3.7%
3.1%
2.2%
19.1
23.4
21.2
25.2
The assumptions shown above are chosen from a range of possible actuarial assumptions which, due to the long-term nature of the schemes, may not
be borne out in practice. The discount rate assumption is not determined using a cash-weighted method and is based on market yields on high quality
corporate bonds at the year end, adjusted to reflect the duration of the schemes’ liabilities.
The assumptions used to determine end-of-year benefit obligations are also used to calculate the following year’s cost. The post-retirement mortality
assumptions have been chosen with regard to the latest available published tables adjusted to reflect the experience of the Group and its sector and
allow for expected increases in longevity.
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Note 25 Retirement benefits (continued)
(c) Pension amounts recognised in the balance sheet
The consolidated balance sheet shows retirement benefit assets of £7.8m (2013 restated: £15.6m) and retirement benefit obligations of £123.6m
(2013 restated: £125.2m), resulting in the net liability of £115.8m (2013 restated: £109.6m) analysed below.
The amounts recognised in the balance sheet were as follows:
As at 30 April 2014
Funded schemes
SPS
RPS
LGPS
Other
Unfunded schemes
Total
Equities
Private Equity
Infrastructure
Growth Pooled Fund*
Bonds
Cash
Property
Fair value of scheme assets
Present value of obligations
– adjustment for members’ share of RPS deficit (40%)
– franchise adjustment
(Deficit)/Surplus in the scheme
Asset ceiling
Pension (liability)/asset before tax
As at 30 April 2013 (restated)
Equities and hedge funds
Bonds
Cash
Property
Fair value of scheme assets
Present value of obligations
– adjustment for members’ share of RPS deficit (40%)
– franchise adjustment
(Deficit)/Surplus in the scheme
Asset ceiling
Pension (liability)/asset before tax
£m
726.3
43.4
1.2
–
266.0
53.8
64.9
£m
0.2
86.6
38.5
640.9
25.9
3.7
–
1,155.6
(1,248.2)
–
–
795.8
(1,126.8)
132.4
204.9
(92.6)
––
(92.6)
6.3
6.3
£m
202.6
––
––
––
45.0
40.3
17.9
305.8
(309.6)
––
––
(3.8)
(19.8)
(23.6)
Funded schemes
RPS
£m
532.9
111.3
3.5
105.7
LGPS
£m
200.4
44.8
39.7
17.9
SPS
£m
890.0
131.5
50.7
79.0
1,151.2
(1,257.2)
–
–
753.4
(1,054.6)
120.5
190.5
302.8
(304.8)
––
––
(106.0)
––
(106.0)
9.8
9.8
(2.0)
(5.6)
(7.6)
£m
1.0
2.0
2.0
––
5.0
(7.0)
(2.0)
––
(2.0)
£m
–
–
–
–
–
–
–
(3.9)
–
–
(3.9)
(3.9)
£m
930.1
130.0
39.7
640.9
338.9
99.8
82.8
2,262.2
(2,695.5)
132.4
204.9
(96.0)
(19.8)
(115.8)
Other
Unfunded plans
Total
£m
2.7
0.9
0.6
––
4.2
(5.8)
(1.6)
––
(1.6)
£m
–
–
–
–
(4.2)
–
–
(4.2)
(4.2)
£m
1,626.0
288.5
94.5
202.6
2,211.6
(2,626.6)
120.5
190.5
(104.0)
(5.6)
(109.6)
*The Growth Pooled Fund is the principal investment vehicle for the Group’s sections of the RPS. This fund is a multi-asset fund, tactically adjusted by the
RPS Investment team.
The Group makes contributions to an unapproved employer-financed retirement benefit scheme (“EFRBS”) in the UK and a non qualifying defined
contribution scheme (“NQDC”) in the US. In each case, the liabilities of these schemes are unfunded but the Group has set aside assets to meet its
obligations under the schemes. In the case of the EFRBS, the scheme holds a guarantee over the assets which the Group has set aside. The Group
considers that the assets set aside are in substance pensions assets and so the amounts of those assets are included within the net pension amounts
reported in the consolidated balance sheet. The carrying value of those assets as at 30 April 2014 was £3.9m (2013: £3.1m).
(d) Funding arrangements and plans
The schemes’ investment approach, which aims to meet their liabilities as they fall due, is to invest the majority of the schemes’ assets in a mix of
equities and other return-seeking assets in order to strike a balance between:
• maximising the returns on the schemes’ assets, and
• minimising the risks associated with lower than expected returns on the schemes’ assets.
Trustees are required to regularly review investment strategy in light of the revised term and nature of the schemes’ liabilities.
The regulatory framework in the UK requires the Trustees of the Stagecoach Pension Schemes and the Group to agree upon the assumptions underlying
the funding target, and then to agree upon the contributions necessary to fund the benefits including any deficit recovery amounts over a reasonable
period of time. A Pensions Oversight Committee has been established comprising the Finance Director, a Non-Executive Director and other senior
executives, to oversee the Group’s overall pensions strategy. The Board participates in major decisions on the funding and design of pension schemes.
There is a risk to the Group that adverse experience could lead to a requirement for the Group to make additional contributions to fund deficits. The
defined benefit pension schemes typically expose the Group to actuarial funding risks such as investment risk, interest rate risk, and longevity/life
expectancy risk.
Pension contributions are determined with the advice of independent qualified actuaries on the basis of regular valuations using the projected unit
method. The actuarial valuation for the East London and Selkent Pension Scheme was completed during the year, and showed that as at 5 April 2013, the
scheme was 100% funded on the Trustees’ technical provisions basis. Actuarial valuations were completed for the Local Government Pension Schemes,
showing that the schemes were underfunded on the technical provisions basis as at 31 March 2013 with deficit contributions payable. Actuarial
valuations for the Railways Pensions Scheme and the Stagecoach Group Pension Scheme are currently being undertaken and will be finalised during the
year to 30 April 2015. The Group expects to contribute £59.1m (estimated at 30 April 2013 for year ended 30 April 2014: £54.0m) to its defined benefit
schemes in the financial year ending 30 April 2015.
Stagecoach Group plc | page 95
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Notes to the consolidated financial statements
Note 25 Retirement benefits (continued)
(e) Changes in net retirement benefit obligations
The change in net liabilities recognised in the balance sheet in respect of defined benefit schemes is comprised as follows:
Year ended 30 April 2014
At beginning of year – (liability)/asset, restated
Expense charged to consolidated income statement
Recognised in the consolidated statement of comprehensive income
Employers’ contributions
At end of year – (liability)/asset
Year ended 30 April 2013 (restated)
At beginning of year – (liability)/asset, restated
Expense charged to consolidated income statement
Recognised in consolidated statement of comprehensive income
Employers’ contributions
Foreign exchange movements
At end of year – (liability)/asset
SPS
£m
(106.0)
(26.2)
19.5
20.1
(92.6)
Funded plans
RPS
LGPS
Other
Unfunded
plans
Total
£m
9.8
(33.7)
(0.5)
30.7
6.3
£m
(7.6)
(1.8)
(18.9)
4.7
(23.6)
£m
(1.6)
(0.6)
(0.3)
0.5
(2.0)
£m
(4.2)
(0.2)
0.2
0.3
(3.9)
SPS
Funded plans
RPS
LGPS
Other
Unfunded
plans
£m
£m
£m
(58.9)
(22.6)
(44.2)
19.7
––
2.5
(32.2)
10.7
28.8
(106.0)
9.8
(14.7)
(2.2)
4.6
4.7
–
(7.6)
£m
(1.4)
(0.4)
–
0.3
(0.1)
(1.6)
£m
(4.3)
–
(0.3)
0.4
–
(4.2)
£m
(109.6)
(62.5)
–
56.3
(115.8)
Total
£m
(76.8)
(57.4)
(29.2)
53.9
(0.1)
(109.6)
(f) Sensitivity of retirement benefit obligations to changes in assumptions
The measurement of the defined benefit obligation is particularly sensitive to changes in key assumptions as described below:
• The discount rate has been selected following actuarial advice and taking into account the duration of the liabilities. A 10 basis points increase in the
discount rate would result in a £20.0m decrease in the net pension liabilities as at 30 April 2014 (2013: £22.0m). A 10 basis points decrease in the
discount rate would result in a £20.4m increase in the net pension liabilities as at 30 April 2014 (2013: £22.5m).
• The inflation assumption adopted is consistent with the discount rate used. It is used to set the assumptions for pension increases, uncapped
pensionable salary increases and deferred revaluations. A 10 basis points increase in the inflation rate would result in a £12.7m increase in the net
pension liabilities as at 30 April 2014 (2013: £14.2m). A 10 basis points decrease in the inflation rate would result in a £14.0m decrease in the net
pension liabilities as at 30 April 2014 (2013: £13.1m).
• A 10 basis point increase in the rate of increase in uncapped pensionable salaries would result in a £0.6m increase in the net pension liabilities as at
30 April 2014 (2013: £0.5m). A 10 basis point decrease in the rate of increase in uncapped pensionable salaries would result in a £0.6m decrease in the
net pension liabilities as at 30 April 2014 (2013: £0.5m).
• A 10 basis point increase in the rate of increase of pensions in payment would result in a £11.6m increase in the net pension liabilities as at 30 April
2014 (2013: £10.2m). A 10 basis point decrease in the rate of increase of pensions in payment would result in a £10.7m decrease in the net pension
liabilities as at 30 April 2014 (2013: £10.3m).
• The longevity assumptions adopted are a best estimate of the mortality of scheme members both during and after employment, and are based on the
most recent mortality data available from actuarial valuations. If life expectancy of the relevant individuals was to increase by one year, this would result
in an increase of £41.6m in the net pension liabilities as at 30 April 2014 (2013: £43.7m). If life expectancy of the relevant individuals was to decrease
by one year, this would result in a decrease of £43.8m in the net pension liabilities as at 30 April 2014 (2013: £43.6m).
These sensitivities have been calculated to show the movement in the net liability in isolation, and assuming no other changes in market conditions at the
accounting date. In practice, a change in discount rate is unlikely to occur without any movement in the value of the invested assets held by the schemes.
(g) Pension amounts recognised in income statement
The amounts recognised in the consolidated income statement are analysed as follows:
SPS
Funded schemes
RPS
LGPS
Other
Year ended 30 April 2014
Current service cost
Administration expenses
Defined contribution costs
Included in operating profit
Net interest expense
Interest income on asset ceiling
Unwinding of franchise adjustment
page 96 | Stagecoach Group plc
£m
£m
(20.8)
(0.9)
––
(21.7)
(4.5)
––
–
(33.6)
(0.6)
(34.2)
(7.9)
8.4
(26.2)
(33.7)
£m
(1.5)
––
–
(1.5)
(0.1)
(0.2)
––
(1.8)
Total
Unfunded
and DC
Schemes
£m
£m
£m
(0.5)
–
(0.5)
(0.1)
––
–
–
(11.7)
(11.7)
(0.2)
–
(0.6)
(11.9)
(56.4)
(1.5)
(11.7)
(69.6)
(12.8)
(0.2)
8.4
(74.2)
108244_STC_Back PRINT_108244_STC_Back V12 03/07/2014 16:06 Page 97
Note 25 Retirement benefits (continued)
(g) Pension amounts recognised in income statement (continued)
Year ended 30 April 2013 (restated)
Current service cost
Administration expenses
Defined contribution costs
Included in operating profit
Net interest expense
Unwinding of franchise adjustment
SPS
£m
(18.5)
(1.1)
––
(19.6)
(3.0)
–
Funded schemes
RPS
LGPS
Other
£m
(29.5)
(0.5)
(30.0)
(6.6)
4.4
£m
(1.5)
(0.1)
–
(1.6)
(0.6)
––
(2.2)
£m
(0.3)
––
–
(0.3)
(0.1)
(0.4)
Unfunded
and DC
Schemes
£m
–
(8.6)
(8.6)
–
–
(8.6)
Total
£m
(49.8)
(1.7)
(8.6)
(60.1)
(10.3)
4.4
(66.0)
(22.6)
(32.2)
Current service costs and administration expenses are recognised in operating costs and net interest on net pension liability and unwinding of
franchise adjustment are recognised in net finance costs.
(h) Pension amounts recognised in statement of comprehensive income
The amounts recognised in the consolidated statement of comprehensive income are analysed as follows:
Funded schemes
SPS
RPS
LGPS
Other
Unfunded
Schemes
Total
Year ended 30 April 2014
Actual return on scheme assets (lower)/higher than the discount rate
Changes in financial assumptions
Changes in demographic assumptions
Experience on benefit obligations
Changes in asset ceiling (net of interest)
Change in franchise adjustment
£m
£m
(20.5)
7.1
10.2
22.7
––
–
17.4
(0.4)
––
(23.5)
6.0
£m
(1.7)
(1.0)
(2.2)
(14.0)
––
£m
––
––
–
(0.3)
––
19.5
(0.5)
(18.9)
(0.3)
Funded schemes
SPS
RPS
LGPS
Other
Year ended 30 April 2013 (restated)
Actual return on scheme assets higher than the discount rate
Changes in financial assumptions
Changes in demographic assumptions
Experience on benefit obligations
Changes in irrecoverable surplus (net of interest)
Change in franchise adjustment
£m
£m
£m
76.8
(136.2)
15.2
–
––
–
(44.2)
50.4
(118.8)
7.3
16.1
55.7
10.7
27.9
(22.5)
1.6
0.2
(2.6)
––
4.6
(i) Benefit obligations
Changes in the present value of the defined benefit obligations are analysed as follows.
£m
––
(0.1)
––
0.1
––
£m
–
0.2
–
0.2
£m
(4.8)
5.7
10.2
(3.1)
(14.0)
6.0
–
Unfunded
Schemes
Total
£m
£m
–
(0.3)
–
155.1
(277.6)
24.1
16.1
(2.6)
55.7
–
(0.3)
(29.2)
Year ended 30 April 2014
At beginning of year (restated)
Current service cost
Interest on benefit obligations
Unwinding of franchise adjustment
Benefits paid
Contributions by employees
Actuarial (gains)/losses due to:
– Changes in demographic assumptions
– Changes in financial assumptions
– Experience on benefit obligations
– Change in franchise adjustment
Foreign exchange movements
At end of year
Funded schemes
SPS
RPS
LGPS
Other
Unfunded
Schemes
Total
£m
£m
£m
1,257.2
20.8
54.8
–
(45.7)
1.1
(10.2)
(7.1)
(22.7)
–
––
743.6
33.6
28.1
(8.4)
(31.1)
5.8
––
0.4
23.5
(6.0)
304.8
1.5
13.2
––
(13.6)
0.5
1.0
2.2
––
–
1,248.2
789.5
309.6
£m
5.8
0.5
0.3
(0.2)
0.7
–
––
0.3
(0.4)
7.0
£m
4.2
–
0.2
–
(0.3)
–
–
(0.2)
–
–
£m
2,315.6
56.4
96.6
(8.4)
(90.9)
8.1
(10.2)
(5.7)
3.1
(6.0)
(0.4)
3.9
2,358.2
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Notes to the consolidated financial statements
Note 25 Retirement benefits (continued)
(i) Benefit obligations (continued)
Year ended 30 April 2013 (restated)
At beginning of year
Current service cost
Interest on benefit obligations
Unwinding of franchise adjustment
Contributions by employees
Benefits paid
Actuarial (gains)/losses due to:
Changes in demographic assumptions
Changes in financial assumptions
Experience on benefit obligations
Change in franchise adjustment
Foreign exchange movements
At end of year
(j) Scheme assets
Funded schemes
SPS
RPS
LGPS
Other
Unfunded
Schemes
Total
£m
£m
£m
1,093.0
18.5
56.5
–
5.4
(37.2)
(15.2)
136.2
–
–
––
666.6
29.5
27.8
(4.4)
6.5
(22.1)
(7.3)
118.8
(16.1)
(55.7)
280.8
1.5
14.2
––
0.5
(12.9)
(1.6)
22.5
(0.2)
––
–
1,257.2
743.6
304.8
£m
4.6
0.3
0.2
0.7
(0.1)
––
0.1
(0.1)
0.1
5.8
£m
4.3
–
–
–
–
(0.4)
–
0.3
–
–
4.2
£m
2,049.3
49.8
98.7
(4.4)
13.1
(72.7)
(24.1)
277.6
(16.1)
(55.7)
0.1
2,315.6
The movement in the fair value of scheme assets is as follows:
Funded schemes
Year ended 30 April 2014
At beginning of year
Administration costs
Interest income
Employer contributions
Contributions by employees
Benefits paid
Remeasurements
– Return on assets excluding amounts included in net interest
Foreign exchange movements
At end of year
Year ended 30 April 2013 (restated)
At beginning of year
Administration costs
Interest income
Contributions by employees
Employer contributions
Benefits paid
Remeasurements
– Return on assets excluding amounts included in net interest
(k) Asset ceiling
The movement in the asset ceiling is shown below:
At beginning of year
Interest expense
Remeasurements
At end of year
page 98 | Stagecoach Group plc
SPS
RPS
LGPS
Other
Unfunded
Schemes
Total
£m
£m
1,151.2
(0.9)
50.3
20.1
1.1
(45.7)
(20.5)
––
753.4
(0.6)
20.2
30.7
5.8
(31.1)
17.4
£m
302.8
––
13.1
4.7
0.5
(13.6)
(1.7)
–
1,155.6
795.8
305.8
£m
4.2
0.2
0.5
0.7
(0.2)
––
(0.4)
5.0
£m
–
–
–
0.3
–
(0.3)
–
–
£m
2,211.6
(1.5)
83.8
56.3
8.1
(90.9)
(4.8)
(0.4)
2,262.2
Funded schemes
SPS
RPS
LGPS
Other
Unfunded
Schemes
Total
£m
£m
£m
1,034.1
(1.1)
53.5
5.4
19.7
(37.2)
669.1
(0.5)
21.2
6.5
28.8
(22.1)
269.1
(0.1)
13.6
0.5
4.7
(12.9)
76.8
50.4
27.9
1,151.2
753.4
302.8
£m
3.2
––
0.1
0.7
0.3
(0.1)
––
4.2
£m
–
–
–
0.4
(0.4)
£m
1,975.5
(1.7)
88.4
13.1
53.9
(72.7)
155.1
–
2,211.6
2014
£m
(5.6)
(0.2)
(14.0)
(19.8)
2013
£m
(3.0)
–
(2.6)
(5.6)
108244_STC_Back PRINT_108244_STC_Back V12 03/07/2014 16:06 Page 99
Note 26 Financial instruments
(a) Overview
This note provides details of the Group’s financial instruments. Except where otherwise stated, the disclosures provided in this note exclude:
–
Interests in subsidiaries and joint ventures accounted for in accordance with International Accounting Standard 27 (“IAS 27”), Consolidated and
Separate Financial Statements and International Accounting Standard 31 (“IAS 31”), Interests in Joint Ventures.
Financial instruments, contracts and obligations under share based payment transactions.
– Retirement benefit assets and obligations.
–
Liabilities or assets that are not contractual (such as income taxes that are created as a result of statutory requirements imposed by governments,
prepayments, provisions and deferred income) are not financial liabilities or financial assets. Accordingly, prepayments, provisions, deferred income
and amounts payable or receivable in respect of corporation tax, sales tax (including UK Value Added Tax), payroll tax and other taxes are excluded from
the disclosures provided in this note.
(b) Carrying values of financial assets and financial liabilities
The carrying amounts of financial assets and financial liabilities on the consolidated balance sheet and their respective fair values were:
Financial assets
Financial assets at fair value through profit or loss
Held-to-maturity investments
Loans and receivables
– Non-current assets
– Other receivables
– Current assets
– Accrued income
– Trade receivables, net of impairment
– Other receivables
– Cash and cash equivalents
Available for sale financial assets
– Non-current assets
– Available for sale and other investments
Total financial assets
Financial liabilities
Financial liabilities at fair value through profit or loss
Financial liabilities measured at amortised cost
– Non-current liabilities
– Accruals
– Other payables
– Borrowings
– Current liabilities
– Trade payables
– Accruals
– Loans from joint ventures
– Borrowings
Total financial liabilities
Net financial liabilities
Other
balance
sheet
notes
19
19
19
19
20
14
21
21
22
21
21
21
22
2014
2013
Carrying value
Carrying value
£m
–
–
0.3
59.6
130.5
23.0
240.3
0.3
454.0
£m
–
–
0.7
43.7
121.8
21.1
262.2
0.3
449.8
2014
Fair value
£m
–
–
0.3
59.6
130.5
23.0
240.3
0.3
454.0
2013
Fair value
£m
–
–
0.7
43.7
121.8
21.1
262.2
0.3
449.8
–
–
–
–
(11.4)
(0.5)
(660.2)
(156.3)
(297.6)
(1.7)
(50.9)
(1,178.6)
(724.6)
(10.1)
(0.1)
(747.9)
(170.3)
(283.6)
(1.7)
(63.7)
(1,277.4)
(827.6)
(11.4)
(0.5)
(696.8)
(156.3)
(297.6)
(1.7)
(50.9)
(1,215.2)
(761.2)
(10.1)
(0.1)
(797.0)
(170.3)
(283.6)
(1.7)
(63.7)
(1,326.5)
(876.7)
Derivatives that are designated as effective hedging instruments are not shown in the above table. Information on the carrying value of such
derivatives is provided in note 26(g).
The fair values of financial assets and financial liabilities shown above are determined as follows:
• The carrying value of accrued income, trade receivables and other receivables is considered to be a reasonable approximation of fair value. Given the
short average time to maturity, no specific assumptions on discount rates have been made. The effect of credit losses not already reflected in the
carrying value as impairment losses is assumed to be immaterial.
• £0.3m (2013: £0.3m) of available for sale financial assets for which market prices are not available are measured at cost because their fair value
cannot be measured reliably – the fair value of these assets is shown in the above table as being equal to their carrying value.
• The carrying value of trade payables, other payables, accruals and loans from joint ventures is considered to be a reasonable approximation of fair
value. Given the relatively short average time to maturity, no specific assumptions on discount rates have been made.
• The fair value of fixed-rate notes (included in borrowings) that are quoted on a recognised stock exchange is determined with reference to the “bid”
price as at the balance sheet date.
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Notes to the consolidated financial statements
Note 26 Financial instruments (continued)
(b) Carrying values of financial assets and financial liabilities (continued)
Financial liabilities (continued)
• The carrying value of fixed-rate notes that are not quoted on a recognised stock exchange and fixed-rate hire purchase and finance lease liabilities
(included in borrowings) is considered to be a reasonable approximation of fair value taking account of the amounts involved in the context of total
financial liabilities and the fixed interest rates relative to market interest rates at the balance sheet date.
• The fair value of other borrowings on which interest is payable at floating rates is not considered to be materially different from the carrying value.
We do not consider that the fair value of financial instruments would change materially from that shown above as a result of any reasonable change to
the assumptions made in determining the fair values shown above. The fair value of financial instruments, and in particular the fixed rate notes, would
be affected by changes in market interest rates. Excluding the element hedged in a fair value hedge, we estimate that a 100 basis points reduction in
market interest rates would increase the fair value of the fixed-rate notes liability by around £15.8m (2013: £20.3m).
Fair value estimation
Financial instruments that are measured in the balance sheet at fair value are disclosed by level of the following fair value measurement hierarchy:
Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly (that is, as prices) or indirectly
(that is, derived from prices).
Level 3 – Inputs for the assets or liability that are not based on observable market data (that is, unobservable inputs).
The following table presents the Group’s financial assets and liabilities that are measured at fair value within the hierarchy at 30 April 2014.
Assets
Derivatives used for hedging
Available for sale financial assets
– Equity securities
Total assets
Liabilities
Derivatives used for hedging
Note
26(g)
Level 2
£m
Level 3
£m
0.6
–
0.6
–
0.3
0.3
Total
£m
0.6
0.3
0.9
26(g)
(13.2)
–
(13.2)
The following table presents the Group’s financial assets and liabilities that are measured at fair value within the hierarchy at 30 April 2013.
Assets
Derivatives used for hedging
Available for sale financial assets
– Equity securities
Total assets
Liabilities
Derivatives used for hedging
Note
26(g)
Level 2
£m
Level 3
£m
2.6
–
2.6
–
0.3
0.3
Total
£m
2.6
0.3
2.9
26(g)
(13.1)
–
(13.1)
There were no material movements in the year or the preceding year in the “Level 3” financial assets of £0.3m, which represent investments in
securities that do not trade on a recognised market, such as investments in unlisted companies. The Group does not intend to dispose of these assets
in the foreseeable future. These assets are measured at cost because their fair value cannot be measured reliably. The value of the assets is not material
to the Group and therefore changes in valuations would not have a material effect on the financial statements.
(c) Nature and extent of risks arising from financial instruments
The Group’s use of financial instruments exposes it to a variety of financial risks, principally:
• Market risk – including currency risk, interest rate risk and price risk;
• Credit risk; and
• Liquidity risk.
This note (c) presents qualitative information about the Group’s exposure to each of the above risks, including the Group’s objectives, policies and
processes for measuring and managing risk: there have been no significant changes to these matters during the year ended 30 April 2014. This note
(c) also provides summary quantitative data about the Group’s exposure to each risk. In addition, information on the Group’s management of capital is
provided in section 2.6.12 of the Strategic report which forms part of these financial statements.
The Group’s overall financial risk management programme focuses on the unpredictability of financial markets and seeks to reduce the likelihood
and/or magnitude of adverse effects on the financial performance and financial position of the Group. The Group uses derivative financial instruments
from time to time to reduce exposure to foreign exchange risk, commodity price risk and interest rate movements. The Group does not generally hold
or issue derivative financial instruments for speculative purposes.
A Group Treasury Committee and central treasury department (“Group Treasury”) oversee financial risk management in the context of policies
approved by the Board. Group Treasury identifies, evaluates and hedges financial risks in co-operation with the Group’s operating units. Group
Treasury is responsible for the execution of derivative financial instruments to manage financial risks. Certain financial risk management activities (for
example, the management of credit risk arising from trade and other receivables) are devolved to the management of individual business units. The
Board provides written principles for overall risk management, as well as written policies covering specific areas such as foreign exchange risk, interest
rate risk, credit risk, use of derivative financial instruments and investing excess liquidity.
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Note 26 Financial instruments (continued)
(c) Nature and extent of risks arising from financial instruments (continued)
(i) Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates, equity prices and commodity prices will affect the
Group’s financial performance and/or financial position. The objective of the Group’s management of market risk is to manage and control market risk
exposures within acceptable parameters.
The Group enters into derivative financial instruments in the ordinary course of business, and also incurs financial liabilities, in order to manage market
risks. All such transactions are carried out within the guidelines set by the Board. Generally the Group seeks to apply hedge accounting in order to
reduce volatility in the consolidated income statement.
Foreign currency translation risk
Foreign currency translation risk is the risk that the fair value or future cash flows of a financial instrument (including foreign net investments) will
fluctuate because of changes in foreign exchange rates. The Group is exposed to foreign currency translation risk principally as a result of net
investments in foreign operations and borrowings denominated in foreign currencies.
The Group has material foreign investments in Canada and the USA. To reduce balance sheet translation exposure, the Group partially hedges the
sterling carrying value of foreign operations through borrowings denominated in their functional currency or, where appropriate, through the use of
derivative financial instruments. Gains and losses arising from hedging instruments that provide a hedge against foreign net investments are
recognised in the statement of comprehensive income. Bank loans drawn in US Dollars and a US$150.0m bond issued in October 2012 have been
accounted for as a hedge of the Group’s foreign net investments.
The Group’s objective in managing and measuring foreign currency translation risk associated with net investments in foreign operations and
borrowings denominated in foreign currencies is to maintain an appropriate cost of borrowing and retain some potential for benefiting from currency
movements whilst partially hedging against adverse currency movements. It is the Group’s policy to examine each foreign investment individually and
to adopt an appropriate hedging strategy. The Group measures foreign currency translation risk by identifying the carrying value of assets and liabilities
denominated in the relevant foreign currency and quantifying the impact on equity of changes in the relevant foreign currency rate.
The Group’s consolidated income statement is exposed to movements in foreign exchange rates in the following ways:
• The translation of the revenues and costs of the Group’s North American operations; and
• The translation of interest payable on US dollar denominated debt.
The Group’s consolidated balance sheet exposures to foreign currency translation risk were as follows:
2014
2013
US dollars
– Net investments in foreign operations (excluding intra-group balances, cash and borrowings)
– Cash
– Borrowings
Canadian dollars
– Net investments in foreign operations (excluding intra-group balances, cash and borrowings)
– Cash
Net exposure
£m
£m
230.7
24.5
(174.0)
37.0
0.7
118.9
272.6
21.4
(202.6)
47.6
1.2
140.2
The amounts shown above are the carrying values of all items in the consolidated balance sheet that would have differed at the balance sheet date had
a different foreign currency exchange rate been applied, except that commodity derivatives that are cash flow hedges are excluded.
The sensitivity of the amounts shown above in the Group’s consolidated balance sheet to translation exposures is illustrated below:
US dollar
US dollar balance sheet foreign exchange rate
Impact of 10% depreciation of UK sterling against US dollar
– US dollar foreign exchange rate
– Increase in consolidated equity (£m)
Impact of 10% appreciation of UK sterling against US dollar
– US dollar foreign exchange rate
– Decrease in consolidated equity (£m)
Canadian dollar
Canadian dollar balance sheet foreign exchange rate
Impact of 10% depreciation of UK sterling against Canadian dollar
– Canadian dollar foreign exchange rate
– Increase in consolidated equity (£m)
Impact of 10% appreciation of UK sterling against Canadian dollar
– Canadian dollar foreign exchange rate
– Decrease in consolidated equity (£m)
The above sensitivity analysis is based on the following assumptions:
2014
2013
1.6886
1.5197
9.0
1.8575
(7.4)
1.8531
1.6678
4.2
2.0384
(3.4)
1.5564
1.4008
10.2
1.7120
(8.3)
1.5655
1.4090
5.4
1.7221
(4.4)
– Only those foreign currency assets and liabilities that are directly affected by changes in foreign exchange rates are included in the calculation.
– The above calculations assume that the exchange rates between sterling and any currencies other than the one stated do not change as a result of
the change in the exchange rate between the currencies stated.
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Notes to the consolidated financial statements
Note 26 Financial instruments (continued)
(c) Nature and extent of risks arising from financial instruments (continued)
(i) Market risk (continued)
The Group’s consolidated income statement exposures to foreign currency translation risk were as follows:
US dollars
– US$ element of North American operating profit
– Intangible asset expenses
– Redundancy / restructuring costs
– Share of profit of joint ventures (excluding exceptional items)
– Exceptional items
– Net finance costs
– Net tax (charge)/credit
Canadian dollars
– C$ element of North American operating profit
– Exceptional items
– Net tax credit
Net exposure
2014
£m
22.3
(7.8)
(0.3)
5.6
(9.3)
(9.8)
(0.7)
2.4
(0.2)
0.1
2.3
2013 (restated)
£m
11.9
(8.4)
(0.1)
11.7
(10.6)
(7.7)
0.3
2.8
–
0.8
0.7
The operating profit figures shown in the above table reconcile to the operating profit for North America shown in the segmental information in note
2(b) as follows:
US$ element of North American operating profit shown above
C$ element of North American operating profit shown above
Share based payment charges denominated in sterling
Operating profit shown in segmental information
The sensitivity of the Group’s consolidated income statement to translational exposures is illustrated below:
US dollar
US dollar average foreign exchange rate
Impact of 10% depreciation of UK sterling against US dollar
– US dollar foreign exchange rate
– Decrease in consolidated profit after taxation (£m)
Impact of 10% appreciation of UK sterling against US dollar
– US dollar foreign exchange rate
– Increase in consolidated profit after taxation (£m)
Canadian dollar
Canadian dollar average foreign exchange rate
Impact of 10% depreciation of UK sterling against Canadian dollar
– Canadian dollar foreign exchange rate
– Increase in consolidated profit after taxation (£m)
Impact of 10% appreciation of UK sterling against Canadian dollar
– Canadian dollar foreign exchange rate
– Decrease in consolidated profit after taxation (£m)
The above sensitivity analysis is based on the following assumptions:
2014
£m
22.3
2.4
(1.0)
23.7
2013 (restated)
£m
11.9
2.8
(1.3)
13.4
2014
2013
1.6013
1.4412
–
1.7614
–
1.6994
1.5295
0.3
1.8693
(0.2)
1.5748
1.4173
(0.3)
1.7323
0.3
1.5796
1.4216
0.4
1.7376
(0.3)
– Only those income statement items directly affected by changes in foreign exchange rates are included in the calculation. For example, changes
in commodity prices that indirectly occur due to changes in foreign exchange rates are not included in the sensitivity calculation.
– The above calculations assume that the exchange rates between sterling and any currencies other than the one stated do not change as a result of
the change in the exchange rate between the currencies stated.
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Note 26 Financial instruments (continued)
(c) Nature and extent of risks arising from financial instruments (continued)
(i) Market risk (continued)
Foreign currency transactional risk
Foreign currency transactional risk is the risk that future cash flows (such as from sales and purchases of goods and services) will fluctuate because of
changes in foreign exchange rates.
The Group is exposed to limited foreign currency transactional risk due to the low value of transactions entered into by subsidiaries in currencies other
than their functional currency. Group Treasury carries out forward buying of currencies where appropriate.
The Group reviews and considers hedging of actual and forecast foreign exchange transactional exposures up to one year forward. At 30 April 2014
there were no material net transactional foreign currency exposures (2013: £Nil).
The Group’s exposure to commodity price risk includes a foreign currency element due to the impact of foreign exchange rate movements on the
sterling cost of fuel for the Group’s UK operations. The effect of foreign exchange rate movements on sterling-denominated fuel prices is managed
through the use of fuel derivative financial instruments denominated in the functional currency in which the fuel is purchased. Further information on
fuel hedging is given under the heading “Price risk” on page 104.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.
The Group is exposed to interest rate risk principally through its borrowings and interest rate derivatives. It has a mixture of fixed-rate borrowings
(where the fair value is exposed to changes in market interest rates), cash and floating-rate borrowings (where the future cash flows are exposed to
changes in market interest rates).
The Group’s objective with regards to interest rate risk is to reduce the risk of changes in interest rates significantly affecting future cash flows and/or
profit. To provide some certainty as to the level of interest cost, it is the Group’s policy to manage interest rate exposure through the use of fixed and
floating rate debt. Derivative financial instruments are also used where appropriate to generate the desired interest rate profile.
The Group measures interest rate risk by quantifying the relative proportions of each of gross debt and net debt that are effectively subject to fixed
interest rates and considers the duration for which the relevant interest rates are fixed.
At 30 April 2014, the interest rate profile of the Group’s interest bearing financial liabilities was as follows:
Currency
Floating rate
Fixed rate
Total
Weighted
average fixed
interest rate
Weighted
average period
for which rate
is fixed
Sterling
US Dollar
Gross borrowings
£m
122.8
135.8
258.6
£m
414.3
38.2
452.5
£m
537.1
174.0
711.1
%
5.8%
2.6%
5.5%
Years
2.6
2.6
2.6
At 30 April 2013, the interest rate profile of the Group’s interest bearing financial liabilities was as follows:
Currency
Floating rate
Fixed rate
Total
Weighted
average fixed
interest rate
Weighted
average period
for which rate
is fixed
Sterling
US Dollar
Gross borrowings
£m
193.0
147.9
340.9
£m
416.0
54.7
470.7
£m
609.0
202.6
811.6
%
5.8%
3.0%
5.4%
Years
3.6
2.8
3.5
The above figures take into account the effect of US$150m of interest rate derivatives which swap the US$150m Notes maturing October 2022 from
fixed to floating rate debt for a period of four years to December 2016.
The floating rate financial liabilities bear interest at rates fixed in advance for periods ranging from one to six months based on market rates.
The maturity profile of the Group’s borrowings is shown in note 22(a).
The Group’s financial assets on which floating interest is receivable comprise cash deposits and cash in hand of £240.3m (2013: £262.2m). As at
30 April 2014 the Group has no financial assets on which fixed interest is receivable (2013: £Nil).
The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss.
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Notes to the consolidated financial statements
Note 26 Financial instruments (continued)
(c) Nature and extent of risks arising from financial instruments (continued)
(i) Market risk (continued)
The net impact of a change of 100 basis points on all relevant floating interest rates on annualised interest payable on cash and borrowings balances
outstanding at the balance sheet date was not material.
Price risk
The Group is exposed to commodity price risk. The Group’s operations as at 30 April 2014 consume approximately 399.5m litres of diesel fuel per
annum. As a result, the Group’s profit is exposed to movements in the underlying price of fuel.
The Group’s objective in managing commodity price risk is to reduce the risk that movements in fuel prices result in adverse movements in its profit
and cash flow. The Group has a policy of managing the volatility in its fuel costs by maintaining an ongoing fuel-hedging programme whereby
derivatives are used to fix or cap the variable unit cost of a percentage of anticipated fuel consumption. The Group’s exposure to commodity price risk
is measured by quantifying the element of projected future fuel costs, after taking account of derivatives in place, which varies due to movements in
fuel prices. Group Treasury is responsible for the processes for measuring and managing commodity price risk.
The Group’s overall fuel costs include the impact of delivery margins, fuel taxes and fuel tax rebates. These elements of fuel costs are not managed as
part of Group Treasury’s commodity price risk management and are managed directly by business unit management.
The Group uses a number of fuel derivatives to hedge against movements in the price of the different types of fuel used in each of its divisions. The
fuel derivatives hedge the underlying commodity price risk (denominated in US$) and in the case of the UK Bus (regional operations) division, the UK
Bus (London) division and the UK Rail division, they also hedge the currency risk due to the commodity being priced in US$ and the functional currency
of the divisions being pounds sterling.
At 30 April 2014 and 30 April 2013, the projected fuel costs (excluding premia payable on fuel derivatives, delivery margins, fuel taxes and fuel tax
rebates) for the next twelve months were:
Costs subject to fuel swaps:
– UK Bus (regional operations)
– UK Bus (London)
– UK Rail
– North America
Costs not subject to fuel swaps:
– UK Bus (regional operations)
– UK Bus (London)
– UK Rail
– North America
Total
2014
£m
(90.7)
(9.5)
(24.6)
(34.8)
(159.6)
(5.5)
(8.9)
(9.0)
(8.2)
(31.6)
(191.2)
2013
£m
(91.6)
(9.3)
(25.8)
(37.2)
(163.9)
(3.1)
(9.2)
(7.5)
(11.8)
(31.6)
(195.5)
The figures in the above table are after taking account of derivatives and applying the fuel prices and foreign exchange rates as at the balance sheet
date.
If all of the relevant fuel prices were 10% higher at the balance sheet date, the amounts in the above table would change by the following:
2014
£m
(0.6)
(0.9)
(0.9)
(0.8)
(3.2)
2013
£m
(0.3)
(0.9)
(0.8)
(1.2)
(3.2)
Costs not subject to fuel swaps:
– UK Bus (regional operations)
– UK Bus (London)
– UK Rail
– North America
Decrease in projected profit before taxation
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Note 26 Financial instruments (continued)
(c) Nature and extent of risks arising from financial instruments (continued)
(i) Market risk (continued)
If all of the relevant fuel prices were 10% lower at the balance sheet date, the amounts would change by the following:
Costs not subject to fuel swaps:
– UK Bus (regional operations)
– UK Bus (London)
– UK Rail
– North America
Increase in projected profit before taxation
2014
£m
0.6
0.9
0.9
0.8
3.2
2013
£m
0.3
0.9
0.8
1.2
3.2
The revenue receivable under certain of the contracts that the Group has with customers is subject to adjustment for changes to certain fuel prices. This
further reduces the unhedged exposure to fuel prices shown above.
The Group is also exposed to changes in electricity prices, principally in its UK Rail Division where electricity is consumed to power some of the trains
operated. The Group has some protection to price changes via rail industry arrangements to fix the price on a proportion of anticipated future
electricity consumption.
The Group’s joint venture, Virgin Rail Group, is also exposed to changes in fuel and electricity prices and applies commodity price risk management
strategies similar to those applied by the Group and explained above.
(ii) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations.
Credit risk is managed by a combination of Group Treasury and business unit management, and arises from cash and cash equivalents, derivative
financial instruments and deposits with banks and financial institutions, as well as credit exposures to amounts due from outstanding receivables and
committed transactions.
The Group’s objective is to minimise credit risk to an acceptable level whilst not overly restricting the Group’s ability to generate revenue and profit. It
is the Group’s policy to invest cash assets safely and profitably. To control credit risk, counterparty credit limits are set by reference to published credit
ratings and the counterparty’s geographical location. The Group considers the risk of material loss in the event of non-performance by a financial
counterparty to be low.
In determining whether a financial asset is impaired, the Group takes account of:
• The fair value of the asset at the balance sheet date and where applicable, the historic fair value of the asset;
• In the case of receivables, the counterparty’s typical payment patterns;
• In the case of receivables, the latest available information on the counterparty’s creditworthiness such as available financial statements, credit
ratings etc.
In the case of equity investments classified as available for sale assets, a significant or prolonged reduction in the fair value of the assets is considered as
an indicator that the securities might be impaired.
The movement in the provision for impairment of trade and other receivables is shown in note 19.
The table below shows the financial assets exposed to credit risk at the balance sheet date:
Trade receivables
Loans, other receivables and accrued income
Cash and cash equivalents – pledged as collateral
Cash and cash equivalents – other
Excluding derivative financial instruments
Derivatives used for hedging
Total exposure to credit risk
Gross
Impairment Net exposure
2014
£m
132.6
82.9
18.9
221.4
455.8
0.6
456.4
2014
£m
(2.1)
–
–
–
(2.1)
–
(2.1)
2014
£m
130.5
82.9
18.9
221.4
453.7
0.6
454.3
Gross
2013
£m
123.7
65.5
19.2
243.0
451.4
2.6
454.0
Impairment Net exposure
2013
£m
(1.9)
–
–
–
(1.9)
–
(1.9)
2013
£m
121.8
65.5
19.2
243.0
449.5
2.6
452.1
The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer or counterparty. The Group’s largest credit
exposures are to the UK’s Department for Transport, Transport for London, and other government bodies and financial institutions with short-term
credit ratings of A2 (or equivalent) or better, all of which the Group considers unlikely to default on their respective liabilities to the Group.
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Notes to the consolidated financial statements
Note 26 Financial instruments (continued)
(c) Nature and extent of risks arising from financial instruments (continued)
(ii) Credit risk (continued)
The Group’s total net exposure to credit risk by geographic region is analysed below:
United Kingdom
North America
The Group’s financial assets by currency are analysed below:
Sterling
US dollars
Canadian dollars
The following financial assets were past due, but not impaired at the balance sheet date:
Amounts 1 to 90 days overdue
Amounts 91 to 180 days overdue
Amounts 181 to 365 days overdue
Amounts more than 365 days overdue
2014
£m
407.3
47.0
454.3
2014
£m
406.8
44.8
2.7
454.3
2014
£m
9.5
0.6
1.0
0.7
11.8
2013
£m
403.0
49.1
452.1
2013
£m
402.2
45.6
4.3
452.1
2013
£m
10.3
1.0
0.6
–
11.9
The Group does not hold any collateral in respect of its credit risk exposures set out above (2013: £Nil) and has not taken possession of any collateral it
holds or called for other credit enhancements during the year ended 30 April 2014 (2013: £Nil).
(iii) Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. The Group’s objective in managing
liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed
conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
The funding policy is to finance the Group through a mixture of bank, lease and hire purchase debt, capital markets issues and cash generated by the
business.
As at 30 April 2014, the Group’s credit facilities were £1,051.4m (2013: £1,098.9m), £483.4m (2013: £540.8m) of which were utilised, including
utilisation for the issuance of bank guarantees, bonds and letters of credit.
The Group had the following undrawn committed banking and uncommitted asset finance facilities:
2014
2013
Expiring within one year
Expiring in more than one year but not more than two years
Expiring beyond two years
£m
202.6
355.8
9.5
567.9
£m
229.3
–
328.8
558.1
Although there is an element of seasonality in the Group’s bus and rail operations, the overall impact of seasonality on working capital and liquidity is
not considered significant.
The Board expects the Group to be able to meet current and future funding requirements through free cash flow and available committed facilities. In
addition, the Group has investment grade credit ratings which should allow it access at short notice to additional bank and capital markets debt funding.
The Group’s principal lines of credit have been arranged on a bi-lateral basis with a group of relationship banks which provide bank facilities for general
corporate purposes. These arranged lines of credit allow cash drawdowns to finance the Group and also include facilities which are dedicated to issuing
performance/season ticket bonds, guarantees and letters of credit.
The Group’s committed bank facilities as at 30 April 2014 are analysed below:
Expiring in
MAIN GROUP FACILITIES
– 2018
– 2016
– 2015
LOCAL & SHORT-TERM FACILITIES
– Various
page 106 | Stagecoach Group plc
Facility
£m
47.4
546.8
110.5
704.7
21.8
726.5
Loans
drawn
£m
–
(82.4)
–
(82.4)
–
(82.4)
Performance bonds,
guarantees
etc drawn
£m
Available for
non-cash
utilisation only
£m
Available for
cash
drawings
£m
(37.9)
(110.3)
(88.9)
(237.1)
(8.7)
(245.8)
(9.5)
(25.1)
(21.6)
(56.2)
–
(56.2)
–
329.0
–
329.0
13.1
342.1
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Note 26 Financial instruments (continued)
(c) Nature and extent of risks arising from financial instruments (continued)
(iii) Liquidity risk (continued)
The Group manages its liquidity risk based on contracted cash flows. The following are the contractual maturities of financial liabilities, including
interest payments.
As at 30 April 2014
Non derivative financial liabilities:
Unsecured bond issues
Finance lease liabilities
Hire purchase liabilities
Loan notes payable
Trade and other payables
Bank loans
Derivative financial liabilities:
Derivatives used for hedging
As at 30 April 2013
Non derivative financial liabilities:
Unsecured bond issues
Finance lease liabilities
Hire purchase liabilities
Loan notes payable
Trade and other payables
Bank loans
Derivative financial liabilities:
Derivatives used for hedging
Carrying
amount
£m
Contractual
cash flows
£m
Less
than 1 year
£m
1-2
years
£m
2-5
years
£m
More
than 5 years
£m
(497.7)
(38.2)
(73.1)
(19.7)
(467.5)
(82.4)
(579.1)
(39.7)
(76.3)
(19.7)
(467.5)
(82.7)
(26.9)
(13.1)
(20.2)
(19.7)
(455.6)
(0.3)
(26.9)
(11.2)
(21.1)
––
(11.9)
(82.4)
(423.7)
(15.4)
(33.9)
––
––
(101.6)
–
(1.1)
–
(1,178.6)
(1,265.0)
(535.8)
(153.5)
(473.0)
(102.7)
(13.2)
(13.2)
(9.8)
(2.2)
(1.2)
–
(1,191.8)
(1,278.2)
(545.6)
(155.7)
(474.2)
(102.7)
Carrying
amount
£m
Contractual
cash flows
£m
Less
than 1 year
£m
1-2
years
£m
2-5
years
£m
More
than 5 years
£m
(506.3)
(54.7)
(108.7)
(20.5)
(465.8)
(121.4)
(619.9)
(57.5)
(114.9)
(20.5)
(465.8)
(121.8)
(25.8)
(21.4)
(25.3)
(20.5)
(455.6)
(0.4)
(26.0)
(12.7)
(24.4)
––
(10.2)
–
(455.7)
(23.4)
(55.7)
––
(121.4)
(112.4)
–
(9.5)
–
–
(1,277.4)
(1,400.4)
(549.0)
(73.3)
(656.2)
(121.9)
(13.1)
(13.1)
(9.9)
(2.8)
(0.4)
–
(1,290.5)
(1,413.5)
(558.9)
(76.1)
(656.6)
(121.9)
The “contractual cash flows” shown in the above tables are the contractual undiscounted cash flows under the relevant financial instruments. Where
the contractual cash flows are variable based on a price, foreign exchange rate, interest rate or index in the future, the contractual cash flows in the
above table have been determined with reference to the relevant price, foreign exchange rate, interest rate or index as at the balance sheet date. In
determining the interest element of contractual cash flows in cases where the Group has a choice as to the length of interest calculation periods and
the interest rate that applies varies with the period selected, the contractual cash flows have been calculated assuming the Group selects the shortest
available interest calculation periods. Where the holder of an instrument has a choice of when to redeem, the amounts in the above tables are on the
assumption the holder redeems at the earliest opportunity. In the case of bank loans, which are drawn under revolving facilities, the contracted cash
flows in respect of interest up to and including the next rollover date are shown.
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Notes to the consolidated financial statements
Note 26 Financial instruments (continued)
(d) Accounting policies
The Group’s significant accounting policies and measurement bases in respect of financial instruments are disclosed in note 1.
(e) Collateral
Included within the cash and cash equivalents balance of £240.3m as at 30 April 2014 (2013: £262.2m) are £18.9m (2013: £19.2m) of cash balances
that have been pledged as collateral for liabilities as follows:
– £18.4m (2013: £18.5m) has been pledged by the Group as collateral for £18.4m (2013: £18.5m) of loan notes that are classified within current
liabilities: borrowings. The cash is held on deposit at Bank of Scotland. Bank of Scotland has guaranteed the Group’s obligations to the holders of
the loan notes and to the extent that the Group fails to satisfy its obligations under the loan notes, Bank of Scotland shall use the cash collateral to
satisfy such obligations.
– £0.1m (2013: £0.3m) has been pledged by the Group as collateral for liabilities to the vendors of certain businesses that the Group acquired in
North America.
– £0.4m (2013: £0.4m) is held in an escrow account in North America in relation to insurance claims.
The fair value of the financial assets pledged as collateral is the same as their carrying value as at 30 April 2014 and 30 April 2013.
(f) Defaults and breaches
The Group has not defaulted on any loans payable during the years ended 30 April 2014 and 30 April 2013 and no loans payable were in default as at
30 April 2014 and 30 April 2013. The Group was in compliance with all bank loan covenants as at 30 April 2014 and as at 30 April 2013.
(g) Hedge accounting
A summary of the Group’s current hedging arrangements is provided in the table below.
Type of hedge
Fair value hedges
Cash flow hedges
Hedges of net investment in foreign operations
Risks hedged by Group
– Interest rate risks
– Commodity price risk
– Foreign investment risk
Carrying value and fair value of derivative financial instruments
Derivative financial instruments are classified on the balance sheet as follows:
Non-current assets
Interest rate derivatives
Fuel derivatives
Current assets
Interest rate derivatives
Fuel derivatives
Current liabilities
Fuel derivatives
Non-current liabilities
Interest rate derivatives
Fuel derivatives
Interest rate derivatives
Fuel derivatives
Hedging instruments used
– Derivatives (interest rate swaps)
– Derivatives (commodity swaps)
– Foreign currency borrowings
2014
£m
–
0.1
0.1
0.3
0.2
0.5
(9.8)
(0.6)
(2.8)
(3.4)
(0.3)
(12.3)
(12.6)
2013
£m
0.2
0.2
0.4
0.3
1.9
2.2
(9.9)
–
(3.2)
(3.2)
0.5
(11.0)
(10.5)
The fair value of derivative financial instruments is equal to their carrying value, as shown in the above table.
Embedded derivatives
In accordance with IAS 39, Financial Instruments: Recognition and measurement, all significant contracts to which the Group is a party have been
reviewed for embedded derivatives. There were no embedded derivatives as at 30 April 2014 (2013: None) which were separately accounted for.
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Note 26 Financial instruments (continued)
(g) Hedge accounting (continued)
Cash flow hedges - fuel
As noted previously, the Group uses a number of fuel derivatives to hedge the different types of fuel used in each of its divisions.
The movements in the fair value of fuel derivatives in the year were as follows:
2014
Fuel derivatives
Fair value at start of year
Changes in fair value during year taken to cash flow hedging reserve
Cash received during the year
Fair value at end of year
The fair value of the fuel derivatives split by maturity was as follows:
As at 30 April 2014
Within one year
1 to 2 years
2 to 3 years
As at 30 April 2013
Within one year
1 to 2 years
2 to 3 years
3 to 4 years
The fair value of fuel derivatives is further analysed by currency and segment as follows:
As at 30 April 2014
Sterling denominated – UK Bus (regional operations)
Sterling denominated – UK Bus (London)
Sterling denominated – UK Rail
US dollar denominated – North America
As at 30 April 2013
Sterling denominated – UK Bus (regional operations)
Sterling denominated – UK Bus (London)
Sterling denominated – UK Rail
US dollar denominated – North America
£m
(11.0)
(2.8)
1.5
(12.3)
2013
£m
21.4
(17.3)
(15.1)
(11.0)
Assets
Liabilities
£m
0.2
0.1
–
0.3
1.9
0.2
–
–
2.1
£m
(9.8)
(2.1)
(0.7)
(12.6)
(9.9)
(2.8)
(0.2)
(0.2)
(13.1)
Fair value
Notional quantity
of fuel covered
by derivatives
£m
Millions of litres
(7.9)
(1.9)
(2.4)
(0.1)
(12.3)
(4.8)
(1.2)
(2.4)
(2.6)
(11.0)
367.9
66.3
108.1
151.8
694.1
372.4
63.7
120.5
158.7
715.3
Fair value and cash flow hedges - interest
The Group uses a number of interest rate derivatives to hedge its exposure to movements in interest rates. In connection with the issue of the Group’s
US$150m Bonds in October 2012, the Group entered into a number of interest rate fair value hedges.
The movements in the fair value of interest rate derivatives used as hedging instruments in the year were as follows:
Cash flow hedges
Fair value hedges
Interest rate derivatives
Fair value at start of year
Changes in fair value reflected in carrying value of hedged item
Cash received during the year
Fair value at end of year
2012
£m
2011
£m
2014
£m
0.5
(0.5)
(0.3)
(0.3)
2013
£m
–
0.6
(0.1)
0.5
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Notes to the consolidated financial statements
Note 26 Financial instruments (continued)
(g) Hedge accounting (continued)
Fair value and cash flow hedges - interest (continued)
The fair value of the interest rate derivatives split by maturity as at 30 April 2014 was as follows:
As at 30 April 2014
Within one year
1 to 2 years
2 to 3 years
Nil
Nil
Nil
Nil
The fair value of the interest rate derivatives split by maturity as at 30 April 2013 was as follows:
As at 30 April 2013
Within one year
1 to 2 years
Nil
Nil
Nil
Nil
Nil
Ni
Nil
Nil
Ni
Nil
Assets
£m
Liabilities
£m
0.3
–
–
0.3
–
(0.1)
(0.5)
(0.6)
Assets
Liabilities
£m
0.3
0.2
0.5
£m
–
–
–
All of the interest rate derivatives were US Dollar denominated and were managed and held centrally.
Cash flow hedging reserve
The movements in the cash flow hedging reserve were as follows:
Interest rate
derivatives
Fuel
derivatives
£m
£m
£m
Cash flow hedging reserve at 1 May 2012
Changes in fair value during the year taken to cash flow hedging reserve
Cash flow hedges reclassified and reported in profit for year
Tax effect of cash flow hedges
Cash flow hedging reserve at 30 April 2013
Changes in fair value during the year taken to cash flow hedging reserve
Cash flow hedges reclassified and reported in profit for year
Tax effect of cash flow hedges
Cash flow hedging reserve at 30 April 2014
Cash flow hedging reserve before tax
Tax to be credited to income statement in future periods
Cash flow hedging reserve after tax
14.1
(17.3)
(12.3)
7.0
(8.5)
(2.8)
2.1
(0.2)
(9.4)
(11.9)
2.5
(9.4)
There have been no instances during the year ended 30 April 2014 (2013: None) from a Group perspective where a forecast transaction for which
hedge accounting had previously been used was no longer expected to occur.
Hedge of foreign net investments
The Group’s hedging of foreign net investments during the year ended 30 April 2014 is explained on page 101.
The movements in the fair value of the US$150m 4.36% notes and US$ bank loans used as hedging instruments in the year were as follows:
US$ 4.36% notes
Fair value at start of year
Notes issued during the year
Changes in fair value during the year
Fair value at end of year
US$ bank loans
Fair value at start of year
Loans drawn during the year
Loans repaid during the year
Changes in fair value during the year
Fair value at end of year
2014
£m
96.4
–
(7.5)
88.9
51.4
–
–
(4.0)
47.4
2013
£m
–
93.0
3.4
96.4
95.5
70.3
(116.9)
2.5
51.4
The fair values of the non-derivative hedging instruments shown above only take account of fair value movements arising from movements in foreign
exchange rates.
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Note 27 Share capital
Under the Companies Act 2006, companies are no longer required to have an authorised share capital and a resolution was passed at the 2010 Annual
General Meeting to take advantage of this deregulating measure. Therefore, the Company no longer has an authorised share capital. The allotted,
called-up and fully paid ordinary share capital was:
Allotted, called-up and fully-paid
ordinary shares of 125/228 pence each
(2013: 125/228 pence)
At beginning and end of year
2014
2013
No. of shares
£m
No. of shares
£m
576,099,960
3.2
576,099,960
3.2
The balance on the share capital account shown above represents the aggregate nominal value of all ordinary shares in issue. This figure includes
724,693 (2013: nil) ordinary shares held in treasury, which are treated as a deduction from equity in the Group’s financial statements. The shares held
in treasury do not qualify for dividends.
The Group operates two Employee Share Ownership Trusts: the Stagecoach Group Qualifying Employee Share Ownership Trust (“QUEST”) and the
Stagecoach Group Employee Benefit Trust (“EBT”). Shares held by these trusts are treated as a deduction from equity in the Group’s financial
statements. Other assets and liabilities of the trusts are consolidated in the Group’s financial statements as if they were assets and liabilities of the
Group. As at 30 April 2014, the QUEST held 300,634 (2013: 300,634) ordinary shares in the Company and the EBT held 725,821 (2013: 2,030,824)
ordinary shares in the Company. The trusts have waived dividends on the shares they hold and therefore received no dividends during the year ended
30 April 2014 (2013: £Nil). The trust deed for the EBT obliges the trustee to waive the right to any dividend on the shares unless and until they are
vested in an individual. The trustee is confirmed not to be liable for any lost income as a result of that waiver. The QUEST deed requires the trustee to
waive any dividends payable on the shares and the QUEST confirms that waiver within the deed. This can be reversed by a direction from the Company
to the trustee but is otherwise ongoing.
Note 28 Share based payments
The Group operates a Buy as You Earn Scheme (“BAYE”), a Long Term Incentive Plan (“LTIP”) and an Executive Participation Plan (“EPP”). The Directors’
remuneration report in section 9 of this Annual Report gives further details of each of these arrangements.
As disclosed in note 6, share based payment charges of £6.6m (2013: £11.5m) have been recognised in the income statement during the year in
relation to the above schemes.
The following assumptions were applied in accounting for awards under the LTIP scheme:
Grant date
June
2010
December
2010
June
2011
December
2011
June
2012
December
2012
June
2013
December
2013
Share price at time of grant/award (£)
1.9030
2.0785
2.5530
2.5915
2.6170
3.1210
3.1595
3.7200
Vesting period (years)
Option/award life (years)
Expected life (years)
Expected dividends expressed
as an average annual dividend yield
Fair value per Incentive Unit
at grant date (£)
Option pricing model
33
33
33
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3.89% 3.37%
3.00% 2.96%
3.22%
2.70%
2.94%
2.50%
0.52
0.60
0.73
0.74
0.75
0.90
0.90
1.06
Bespoke
simulation
Bespoke
simulation
Bespoke
simulation
Bespoke
simulation
Bespoke
simulation
Bespoke
simulation
Bespoke
simulation
Bespoke
simulation
LTIP awards are based on Incentive Units. One Incentive Unit has a value equal to one of the Company’s ordinary shares but subject to performance
conditions. LTIP awards are not share options and are valued using a separate simulation model and disclosures in respect of exercise prices, expected
volatility and risk free rates are not applicable. Expectations of meeting market-based performance criteria are reflected in the fair value of the LTIP awards.
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Notes to the consolidated financial statements
Note 28 Share based payments (continued)
Long Term Incentive Plan
Under the LTIP, executives are awarded Incentive Units with a value equal to one of the Company’s ordinary shares but subject to the same performance
conditions disclosed in the Directors’ remuneration report. The movements in the LTIP Incentive Units during the year to 30 April 2014 were as follows:
Outstanding
at start of year
(Incentive Units)
Awards granted
in year
(Incentive Units)
Lapsed
in year
Dividends
Vested in year
in year
(Incentive Units) (Incentive Units) (Incentive Units)
Outstanding
at end of year
(Incentive Units)
Price per
Incentive Unit
achieved on
vesting
££
Fair value per
LTIP unit at
grant
Fair value per
LTIP unit at
30 April 2014
£
TSR ranking
at
30 April 2014**
922,923
844,994
798,311
708,644
859,196
725,228
–
–
–
–
––
––
––
––
865,843
728,646
(538,347)
(387,180)
–
–
–
15,387
20,602
18,289
22,173
18,715
22,343
5,439
(384,576)
(473,201)
–
–
–
–
–
–
–
–
818,913
726,933
881,369
743,943
888,186
734,085
3.1395
3.7200
–
–
–
–
–
–
0.5186
0.5988
0.7339
0.7449
0.7523
0.8972
0.8987
1.0574
––
––
2.257
1.004
1.415
1.017
1.581
1.692
72
129
98
128
86
78
Vesting date
28 June 2013
9 Dec 2013
30 June 2014
8 Dec 2014
27 June 2015
6 Dec 2015
27 June 2016
12 Dec 2016
Award date
28 June 2010
9 Dec 2010
30 June 2011
8 Dec 2011
27 June 2012
6 Dec 2012
27 June 2013
12 Dec 2013
4,859,296
1,594,489
(925,527)
122,948
(857,777)
4,793,429
**TSR ranking is based on the Group’s ranking of total shareholder return in the FTSE 250 whereby 1 is top and 250 is bottom of the comparator group.
The TSR ranking is calculated by independent advisors.
Executive Participation Plan
Under the EPP, executives and senior managers sacrifice part of their actual annual cash bonus and are awarded Deferred Shares with an initial market
value approximately equal to the amount of bonus foregone. The movements in EPP Deferred Shares during the year to 30 April 2014 were as follows:
Award date
10 Dec 2009
28 June 2010
30 June 2011
27 June 2012
27 June 2013
Outstanding
at start of year
(Deferred Shares)
Awards granted
in year
Exercised
in year
(Deferred Shares) (Deferred Shares)
Dividends
in year
(Deferred Shares)
Outstanding
at end of year
(Deferred Shares)
410,593
894,493
853,375
880,643
–
3,039,104
–
–
––
––
738,262
738,262
(410,593)
(894,493)
–
(1,305,086)
––
––
21,883
22,584
18,905
63,372
875,258
903,227
757,167
2,535,652
Vesting date
27 June 2013
28 June 2013
30 June 2014
27 June 2015
27 June 2016
Expected total
value of award at
time of grant
££
Closing
share price on
date of grant
1,538,943
1,780,805
2,155,206
2,271,556
2,289,350
1.6060
1.9020
2.5530
2.6190
3.1600
Buy As You Earn Scheme
BAYE enables eligible employees to purchase shares (“partnership shares”) from their gross income. The Company provides two matching shares for
every share bought from the first £10 of each employee’s monthly investment, subject to a maximum Company contribution of shares to the value of
£20 per employee per month. If the shares are held in trust for five years or more, no Income Tax and National Insurance will be payable. The matching
shares will be forfeited if the corresponding partnership shares are removed from trust within three years of award.
At 30 April 2014 there were 8,617 (2013: 8,122) participants in the BAYE scheme to which were attributed 3,200,457 (2013: 2,090,496) shares that
they purchased, 1,185,596 (2013: 784,394) matching shares that the Company contributed and 137,727 shares (2013: 51,683) in respect of notional
dividends. These amounts exclude unattributed shares and any shares to be withdrawn because the employee has left the Group or requested a
withdrawal.
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Note 29 Reserves
A reconciliation of the movements in each reserve is shown in the Consolidated statement of changes in equity on page 65.
The balance of the share premium account represents the amounts received in excess of the nominal value of the ordinary shares offset by issue costs,
bonus issues of shares and any transfer between reserves.
The balance held in the retained earnings reserve is the accumulated retained profits of the Group. Cumulative goodwill of £113.8m (2013: £113.8m)
has been written off against reserves in periods prior to 1 May 1998 in accordance with the UK accounting standards then in force and such goodwill will
remain eliminated against reserves.
The capital redemption reserve represents the cumulative par value of all shares bought back and cancelled.
Details of own shares held are given in note 27. The own shares reserve represents the cumulative cost of shares in Stagecoach Group plc purchased in
the market and held in treasury and/or by the Group’s two Employee Share Ownership Trusts offset by cumulative sales proceeds.
The translation reserve is used to record exchange differences arising from the translations of the financial statements of foreign operations. It is also
used to record the effect of hedging net investments in foreign operations.
The cash flow hedging reserve records the portion of the gain or loss on a hedging instrument in a cash flow hedge that is determined to be an effective
hedge. The cumulative gain or loss is recycled to the income statement to match the recognition of the hedged item through the income statement.
Note 30 Consolidated cash flows
(a) Reconciliation of operating profit to cash generated by operations
The operating profit of Group companies reconciles to cash generated by operations as follows:
Operating profit of Group companies
Depreciation
Loss on disposal of property, plant and equipment
Intangible asset expenses
Equity-settled share based payment expense
Operating cashflows before working capital movements
(Increase)/decrease in inventories
Increase in receivables
(Decrease)/increase in payables
Decrease in provisions
Differences between employer pension contributions and pension expense in operating profit
Cash generated by operations
(b) Reconciliation of net cash flow to movement in net debt
The decrease in cash reconciles to the movement in net debt as follows:
(Decrease)/increase in cash
Cash flow from movement in borrowings
Debt assumed in business combinations
New hire purchase and finance leases
Foreign exchange movements
Other movements
Decrease/(increase) in net debt
Opening net debt (as defined in note 35)
Closing net debt (as defined in note 35)
2014
£m
200.5
115.7
2.1
14.0
2.2
334.5
(3.8)
(26.7)
(3.2)
(8.6)
1.6
293.8
2014
£m
(19.8)
92.7
72.9
(1.8)
(6.7)
13.1
(1.1)
76.4
(538.0)
(461.6)
2013 (restated)
£m
184.3
110.0
2.0
15.1
2.6
314.0
2.5
(7.4)
42.9
(10.1)
(2.4)
339.5
2013
£m
19.6
1.0
20.6
(1.0)
(26.8)
(6.7)
(0.3)
(14.2)
(523.8)
(538.0)
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Notes to the consolidated financial statements
Note 30 Consolidated cash flows (continued)
(c) Analysis of net debt
For the purpose of this note, net debt is as defined in note 35. The analysis below further shows the other items classified as net borrowings in the
consolidated balance sheet.
Opening
Cashflows
New hire
purchase/
Foreign
exchange
Business
finance leases combinations movements
£m
£m
£m
£m
£m
Cash
Cash collateral (see note 26(e))
Hire purchase and finance lease
obligations
Bank loans and loan stock
Bonds
Net debt
Accrued interest on bonds
Effect of fair value hedges on carrying value of borrowings
Unamortised gain on early settlement of interest rate swaps
243.0
19.2
(19.5)
(0.3)
(163.4)
(141.9)
(494.9)
(538.0)
(8.8)
(0.4)
(2.2)
56.9
35.8
––
72.9
27.0
––
––
––
––
(6.7)
––
(6.7)
––
(1.8)
–
(1.8)
–
–
Net borrowings (IFRS)
(549.4)
99.9
(6.7)
(1.8)
(2.1)
–
3.7
4.0
7.5
13.1
–
–
–
13.1
Other/
Charged to
income
statement
£m
–
–
–
–
(1.1)
(1.1)
(26.9)
0.8
1.3
Closing
£m
221.4
18.9
(111.3)
(102.1)
(488.5)
(461.6)
(8.7)
0.4
(0.9)
(25.9)
(470.8)
The cash amounts shown above include term deposits as explained in note 20 and cash held by train operating companies as explained in note 31(iii).
(d) Non cash transactions
The principal non cash transactions were the acquisition of property, plant and equipment using new hire purchase and finance leases.
During the year, the Group entered into hire purchase and finance lease arrangements in respect of new assets with a total capital value at inception of
the contracts of £6.7m (2013: £29.1m). After taking account of deposits paid up front and other financing transactions, new hire purchase and finance
lease liabilities of £6.7m (2013: £26.8m) were recognised.
Note 31 Contingencies
Contingent liabilities
(i) At 30 April 2014, the following bonds and guarantees were in place relating to the Group’s rail operations:
Performance bonds backed by bank facilities and/or insurance arrangements
– Stagecoach South Western Trains
– East Midlands Trains
Season ticket bonds backed by bank facilities and/or insurance arrangements
– Stagecoach South Western Trains
– East Midlands Trains
These contingent liabilities are not expected to crystallise.
2014
£m
35.7
28.8
54.2
5.9
2013
£m
34.7
17.6
51.2
5.7
(ii) The Group and its joint venture, Virgin Rail Group Holdings Limited, have, in the normal course of business, entered into a number of long-term
supply contracts. The most significant of these relate to track, station and depot access facilities, together with new train lease and maintenance
arrangements.
(iii) Under UK Rail franchise agreements, the Group and its joint venture, Virgin Rail Group Holdings Limited, have agreed with the DfT annual amounts
receivable or payable in respect of the operation of rail franchises for future periods. Under these agreements, there is a requirement to comply with a
number of obligations. Failure to comply with these obligations would be a breach of the relevant franchise.
The Group assessed whether a provision for onerous contracts is required in respect of its rail franchises. The Group has discounted the expected
future cash flows related to its rail franchises to determine whether it is probable that the benefits to be derived by the Group from the franchises will
be lower than the unavoidable costs of meeting its obligations under the franchises. Estimates of cash flows are consistent with management’s plans
and forecasts. The Group has determined that no provision is necessary. The estimation of future cash flows and the discount rate involves a
significant degree of judgment. Actual results can differ from those assumed and there can be no absolute assurance that the assumptions used will
hold true.
Under certain circumstances following a breach by the Group of one or more of its rail franchise agreements, the DfT has the right to terminate all of
the franchises operated by the Group. Where the Group has defaulted on one franchise, the DfT has cross-default rights that might enable it (but not
require it) to terminate all of the franchises. The financial effect on the Group of a termination of one or more franchises would depend on which, if
any, of the Group’s contingent liabilities that the DfT sought to call. As at 30 April 2014, the capital at risk of the Group in this respect was:
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Note 31 Contingencies (continued)
Actual liabilities
Net intra-group amounts payable to train operators
Contingent liabilities
Season ticket bonds
Performance bonds
Parent company guarantees to suppliers
Undrawn committed loan facilities
Capital at risk as at 30 April 2014
Cash
Cash in train operating companies
Pro forma impact on net debt
South Western
Trains
East Midlands
Trains
£m
59.8
54.2
35.7
–
25.0
174.7
103.3
278.0
£m
–
5.9
28.8
10.6
20.0
65.3
67.5
132.8
Total
£m
59.8
60.1
64.5
10.6
45.0
240.0
170.8
410.8
We consider the likelihood of the contingent liabilities crystallising as being low. However, if all of the contingent liabilities had crystallised at 30 April
2014, the Group would have needed to have financed £240.0m (2013: £221.1m) and its gross debt would have increased by this amount. In
addition, some of the cash in the train operating companies would be transferred with the franchises.
There is no recourse to the Group in respect of any liabilities or contingent liabilities of Virgin Rail Group.
(iv) We have made progress in resolving the previously reported litigation regarding Twin America.
The US Department of Justice and the New York Attorney General (together, "the Government plaintiffs") initiated litigation against Twin America
and its joint venture partners ("the Defendants", which include two Stagecoach US subsidiaries) in 2012. The litigation alleges that the formation of
the Twin America joint venture in 2009 was anti-competitive. Separately, private plaintiffs brought a claim based on the same allegations on behalf
of a proposed class of customers.
The Defendants have not admitted any liability but have agreed a cash settlement of US$19m (£11.9m) with the private plaintiffs to fully resolve the
private litigation. That settlement has received preliminary court approval. Final court approval is anticipated in approximately six to nine months
following a period for class notification and claims administration.
The Government action remains pending at this time. Until the Government action concludes, the total financial cost of the various actions cannot
be determined.
The Group has recorded exceptional pre-tax costs of US$14.8m (£9.2m) in the consolidated financial statements for the year ended 30 April 2014 in
respect of its share of financial costs connected with the litigation. The ultimate cost to the Group may differ from this as it remains dependent on
the outcome of the Government action.
(v) The Group and the Company are from time to time party to other legal actions arising in the ordinary course of business. Liabilities have been
recognised in the financial statements for the best estimate of the expenditure required to settle obligations arising under such legal actions. As at
30 April 2014, the accruals in the consolidated financial statements for such claims total £0.1m (2013: £1.9m) in addition to the amounts
recognised specifically in respect of the Twin America litigation noted in (iv) above. In addition, certain of the claims intended to be covered by the
insurance provisions (see note 24) are subject to or might become subject to litigation against the Group and/or the Company.
Note 32 Guarantees and other financial commitments
(a) Capital commitments
Contractual commitments for the acquisition of property, plant and equipment were as follows:
Contracted for but not provided:
For delivery within one year
2014
£m
135.9
(b) Operating lease commitments
The following were the future minimum contractual lease payments due under unexpired operating leases as at 30 April 2014:
As at 30 April 2014
Land &
buildings
Buses & other
road transportation
equipment
Lease payments due in respect of:
Year ending 30 April 2015
Year ending 30 April 2016
Year ending 30 April 2017
Year ending 30 April 2018
Year ending 30 April 2019
1 May 2019 and thereafter
£m
13.4
12.0
9.5
5.9
5.0
30.5
76.3
£m
20.2
13.0
8.0
4.6
3.2
0.1
49.1
Trains &
rolling stock
£m
147.6
140.0
97.6
–
–
––
385.2
Plant &
machinery
£m
2.8
1.9
0.9
0.3
0.1
6.0
2013
£m
44.2
Total
£m
184.0
166.9
116.0
10.8
8.3
30.6
516.6
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Notes to the consolidated financial statements
Note 32 Guarantees and other financial commitments (continued)
(b) Operating lease commitments (continued)
The following were the future minimum contractual lease payments due under unexpired operating leases as at 30 April 2013:
As at 30 April 2013
Land &
buildings
Buses & other
road transportation
equipment
Trains &
rolling stock
Plant &
machinery
Lease payments due in respect of:
Year ending 30 April 2014
Year ending 30 April 2015
Year ending 30 April 2016
Year ending 30 April 2017
Year ending 30 April 2018
1 May 2018 and thereafter
£m
16.4
11.0
9.6
8.2
6.5
33.5
85.2
£m
£m
22.3
19.0
10.2
4.4
1.0
––
56.9
138.1
150.7
126.8
97.5
–
513.1
£m
3.2
2.1
1.1
0.4
0.1
–
6.9
Total
£m
180.0
182.8
147.7
110.5
7.6
33.5
662.1
The amounts shown above do not include Network Rail charges, which are shown separately in note 32(c).
(c) Network Rail charges
The Group’s UK Rail franchises have contracts with Network Rail for access to the railway infrastructure (track, stations and depots) until the expected
end of the franchises. Commitments for payments under these contracts as at 30 April 2014 are as shown below.
Year ending 30 April 2015
Year ending 30 April 2016
Year ending 30 April 2017
Commitments for payments under these contracts as at 30 April 2013 were as follows:
Year ending 30 April 2014
Year ending 30 April 2015
Year ending 30 April 2016
Year ending 30 April 2017
2014
£m
80.7
63.2
42.4
186.3
2013
£m
183.3
161.1
94.5
72.7
511.6
(d) Joint ventures
Our share of commitments and contingent liabilities in joint ventures shown below are based on the latest statutory financial statements of the
relevant companies:
Annual commitments under non-cancellable operating leases
Franchise performance bonds
Season ticket bonds
2014
£m
64.7
10.3
2.7
2013
£m
63.9
10.3
2.5
The arrangements pursuant to which a performance bond is issued in respect of Virgin Rail Group Holdings Limited, a joint venture, requires that the
consolidated net assets (under UK GAAP and applying its own accounting policies) of Virgin Rail Group Holdings Limited are no less than £22.5m
(2013: £22.5m). This could restrict Virgin Rail Group Holding‘s ability to make distributions to the Group.
Note 33 Related party transactions
Details of major related party transactions during the year ended 30 April 2014 are provided below, except for those relating to the remuneration of the
Directors and management.
(i) Virgin Rail Group Holdings Limited - Non-Executive Directors
Two of the Group’s directors are non-executive directors of the Group’s joint venture, Virgin Rail Group Holdings Limited. During the year ended
30 April 2014, the Group earned fees of £60,000 (2013: £60,000) from Virgin Rail Group Holdings Limited in this regard. As at 30 April 2014, the
Group had £60,000 (2013: £60,000) receivable from Virgin Rail Group Holdings Limited in respect of this. In addition, the Group earned £Nil (2013:
£1.5m) and purchased £0.5m (2013: £Nil) from the group headed by Virgin Rail Group Holdings Limited in respect of work undertaken on rail franchise
bids and had an outstanding payable of £0.5m as at 30 April 2014 (2013: £0.8m receivable) in this respect.
The Group also earned £0.4m (2013: £Nil) from Virgin Holdings Limited (which holds a 51% joint venture interest in Virgin Rail Group Holdings Limited),
in respect of work undertaken on rail franchise bids, and had an outstanding receivable of £0.4m as at 30 April 2014 (2013: £Nil) in this respect.
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Note 33 Related party transactions (continued)
(ii) West Coast Trains Limited
West Coast Trains Limited is a subsidiary of Virgin Rail Group Holdings Limited (see above). For the year ended 30 April 2014, East Midlands Trains
Limited (a subsidiary of the Group) had purchases totalling £0.2m (2013: £0.2m) from West Coast Trains Limited. The outstanding amounts payable as
at 30 April 2013 and 30 April 2014 were immaterial.
(iii) Alexander Dennis Limited
Sir Brian Souter (Chairman) and Ann Gloag (Non-Executive Director) collectively hold 55.1% (2013: 46.8%) of the shares and voting rights in
Alexander Dennis Limited. Noble Grossart Investments Limited (of which Sir Ewan Brown (Non-Executive Director) is a director of its holding
company) controls a further 33.2% (2013: 35.1%) of the shares and voting rights of Alexander Dennis Limited. None of Sir Brian Souter, Ann Gloag or
Sir Ewan Brown is a director of Alexander Dennis Limited nor do they have any involvement in the management of Alexander Dennis Limited.
Furthermore, they do not participate in deciding on and negotiating the terms and conditions of transactions between the Group and Alexander
Dennis Limited.
For the year ended 30 April 2014, the Group purchased £65.5m (2013: £67.9m) of vehicles from Alexander Dennis Limited and £14.2m (2013:
£10.7m) of spare parts and other services. As at 30 April 2014, the Group had £1.0m (2013: £1.3m) payable to Alexander Dennis Limited, along with
outstanding orders of £70.9m (2013: £Nil).
(iv) Pension Schemes
Details of contributions made to pension schemes are contained in note 25.
Scottish Citylink Coaches Limited
(v)
A non interest bearing loan of £1.7m (2013: £1.7m) was due to the Group’s joint ventures, Scottish Citylink Coaches Limited, as at 30 April 2014. The
Group earned £25.2m in the year ended 30 April 2014 in respect of the operation of services subcontracted by Scottish Citylink Coaches Limited (2013:
£23.2m). As at 30 April 2014, the Group had a net £0.1m (2013: £1.2m) receivable from Scottish Citylink Coaches Limited, excluding the loan referred
to above.
(vi) Argent Energy Group Limited
Sir Brian Souter (Chairman) and Ann Gloag (Non-Executive Director) collectively held 39.3% (2013: 39.3%) of the shares and voting rights in Argent
Energy Group Limited, until its sale to John Swire & Sons (Green Investments) Ltd on 23 July 2013. Neither Sir Brian Souter nor Ann Gloag was a director
of Argent Energy Group Limited nor did they have any involvement in the management of Argent Energy Group. Furthermore, they did not participate
in deciding on and negotiating the terms and conditions of transactions between the Group and Argent Energy Group.
For the period from 1 May 2013 to 23 July 2013, the Group purchased £2.9m (year ended 30 April 2013: £10.9m) of biofuel from Argent Energy Group.
At 23 July 2013, the Group had £0.4m (30 April 2013: £0.2m) payable to Argent Energy Group along with outstanding orders of £0.3m (30 April 2013:
£0.3m).
(vii) Twin America LLC
In the year ended 30 April 2014, the Group received £3.6m (2013: £3.9m) from its joint venture, Twin America LLC, in respect of ticket sales made by
Twin America LLC for tour services provided by Group subsidiaries. As at 30 April 2014, the Group had £0.3m (2013: £0.4m) receivable from Twin
America LLC.
Note 34 Post balance sheet events
Details of the final dividend proposed are given in note 8.
On 19 June 2014, the Group’s joint venture, Virgin Rail Group, announced that it had agreed a new West Coast rail franchise with the UK’s Department
for Transport. The new franchise commenced on 22 June 2014 and is planned to run until 31 March 2017. The Department for Transport has the option
to extend the contract by an additional year to 31 March 2018.
Note 35 Definitions
• Adjusted earnings per share is calculated by dividing profit after taxation excluding intangible asset expenses and exceptional items by the basic
•
weighted average number of shares in issue in the period.
Like-for-like amounts are derived, on a constant currency basis, by comparing the relevant year-to-date amount with the equivalent prior year
period for those businesses and individual operating units that have been part of the Group throughout both periods.
• Operating profit or loss for a particular business unit or division within the Group refers to profit or loss before net finance income/charges,
taxation, intangible asset expenses, exceptional items and restructuring costs.
• Operating margin for a particular business unit or division within the Group means operating profit or loss as a percentage of revenue.
•
Exceptional items means items which individually or, if of a similar type, in aggregate need to be disclosed by virtue of their nature, size or
incidence in order to allow a proper understanding of the underlying financial performance of the Group.
• Gross debt is borrowings as reported on the consolidated balance sheet, adjusted to exclude accrued interest, the effect of fair value hedges on
the carrying value of borrowings and unamortised gains on the early settlement of interest rate swaps.
• Net debt (or net funds) is the net of cash and gross debt.
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13. Independent auditors’ report to the members of
Stagecoach Group plc (Company No. SC100764)
Report on the parent company financial statements
Our opinion
In our opinion the financial statements, defined below:
• give a true and fair view of the state of the parent company’s affairs as at 30 April 2014;
• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
This opinion is to be read in the context of what we say in the remainder of this report.
What we have audited
The parent company financial statements (the “financial statements”), which are prepared by Stagecoach Group plc, comprise:
• the Company balance sheet as at 30 April 2014; and
• the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information.
The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom
Generally Accepted Accounting Practice).
In applying the financial reporting framework, the Directors have made a number of subjective judgements, for example in respect of significant accounting
estimates. In making such estimates, they have made assumptions and considered future events.
What an audit of financial statements involves
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”). An audit involves obtaining evidence
about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material
misstatement, whether caused by fraud or error. This includes an assessment of:
• whether the accounting policies are appropriate to the parent company’s circumstances and have been consistently applied and adequately disclosed;
• the reasonableness of significant accounting estimates made by the Directors; and
• the overall presentation of the financial statements.
In addition, we read all the financial and non-financial information in the Annual Report and Financial Statements (the “Annual Report”) to identify material
inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent
with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we
consider the implications for our report.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion:
• the information given in the Strategic report and the Directors’ report for the financial year for which the financial statements are prepared is consistent
with the financial statements; and
• the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006.
Other matters on which we are required to report by exception
Adequacy of accounting records and information and explanations received
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not
visited by us; or
• the financial statements and the part of the Directors’ remuneration report to be audited are not in agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Directors’ remuneration
Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors’ remuneration specified by law are not made.
We have no exceptions to report arising from this responsibility.
Other information in the Annual Report
Under ISAs (UK & Ireland) we are required to report to you if, in our opinion, information in the Annual Report is:
• materially inconsistent with the information in the audited financial statements; or
• apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Company acquired in the course of performing our audit; or
• is otherwise misleading.
We have no exceptions to report arising from this responsibility.
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Responsibilities for the financial statements and the audit
Our responsibilities and those of the Directors
As explained more fully in the Responsibility Statement set out in section 10 of the Annual Report, the Directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK & Ireland). Those standards
require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the
Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other
person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Other matter
We have reported separately on the Group financial statements of Stagecoach Group plc for the year ended 30 April 2014.
Graham McGregor (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Glasgow
25 June 2014
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14. Separate Financial Statements of Parent, Stagecoach Group PLC
Company balance sheet
As at 30 April 2014
Prepared using UK Generally Accepted Accounting Practice (UK GAAP)
Fixed assets
Tangible assets
Investments
Current assets
Debtors – due within one year
Deferred tax asset
Derivative financial instruments at fair value – due after more than one year
Derivative financial instruments at fair value – due within one year
Cash
Creditors: Amounts falling due within one year
Deferred tax liability
Derivative financial instruments at fair value
Trade and other creditors
Net current assets
Total assets less current liabilities
Creditors: Amounts falling due after more than one year
Derivative financial instruments at fair value
Other creditors
Net assets excluding pension liability
Pension liability, net of deferred tax
Net assets including pension liability
Capital and reserves
Called-up share capital
Share premium account
Capital redemption reserve
Own shares
Profit and loss account
Total shareholders’ funds
Notes
2
3
4
5
7
7
5
7
6
7
6
8
9
10
10
10
10
2014
£m
1.0
1,172.6
1,173.6
746.0
–
2.8
9.9
18.4
777.1
(0.2)
(9.6)
(420.7)
(430.5)
346.6
2013
£m
1.4
1,182.0
1,183.4
692.7
0.2
3.6
11.0
20.0
727.5
–
(10.7)
(560.9)
(571.6)
155.9
1,520.2
1,339.3
(3.4)
(579.7)
937.1
(2.8)
934.3
3.2
8.4
422.8
(25.7)
525.6
934.3
(3.4)
(625.2)
710.7
(2.0)
708.7
3.2
8.4
422.8
(23.4)
297.7
708.7
These financial statements were approved for issue by the Board of Directors on 25 June 2014. The accompanying notes form an integral part of this
balance sheet.
Martin A Griffiths
Chief Executive
Ross Paterson
Finance Director
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Notes to the Company financial statements
Note 1 UK GAAP accounting policies
The separate financial statements of the Company are presented as required by the Companies Act 2006. As permitted by that Act, the separate
financial statements have been prepared in accordance with UK GAAP.
of accounting
•Basis
The financial statements have been prepared under the historical cost convention, except for the revaluation of certain financial instruments, and in
accordance with applicable accounting standards in the United Kingdom.
No profit and loss account is presented by the Company as permitted by Section 408 of the Companies Act 2006.
The Company is not required to prepare a cash flow statement under Financial Reporting Standard 1 (“FRS 1”) (revised).
Tangible assets
•
Tangible assets are shown at their original historic cost net of depreciation and any provision for impairment. Cost includes the original purchase price
of the assets and costs attributable to bringing the asset to its working condition for its intended use.
Depreciation is provided at rates calculated to write off the cost less estimated residual value of each asset on a straight-line basis over their estimated
useful lives, as follows:
IT and other equipment, furniture and fittings
Motor cars and other vehicles
The need for any fixed asset impairment write-down is assessed by comparing the carrying value of the asset against the higher of net realisable value
and value in use.
3 to 10 years
3 to 5 years
Investments
•
Investments in subsidiary undertakings are stated at cost, less provision for impairment.
Where the Company has designated foreign currency borrowings as a fair value hedge against its foreign equity investments, the part of that
investment which has been hedged is treated as a monetary asset and retranslated at the spot rate at the balance sheet date.
Exchange differences arising on the translation of foreign currency equity investments and on foreign currency borrowings (including loans from other
Group companies), to the extent the borrowings hedge the equity investments, are dealt within the profit and loss account.
Taxation
•
Corporation tax is provided on taxable profit at the current rate applicable. Tax charges and credits are accounted for through the same primary
statement (either the profit and loss account or the statement of total recognised gains and losses) as the related pre-tax item.
In accordance with FRS 19, “Deferred Taxation”, full provision is made for deferred tax on a non-discounted basis in respect of all timing differences
except those arising from the revaluation of fixed assets where there is no binding sale agreement and undistributed profits of foreign subsidiaries.
Deferred tax is calculated at rates at which it is estimated the tax will arise. Deferred tax assets are recognised to the extent they are more likely than not
to be recovered.
Tax, current and deferred, is calculated using tax rates and laws enacted or substantively enacted at the balance sheet date.
Foreign currencies
•
Foreign currency transactions arising during the year are translated into sterling at the rate of exchange ruling on the date of the transaction. Foreign
currency monetary assets and liabilities are retranslated into sterling at the rates of exchange ruling at the year end. Any exchange differences so arising
are dealt with through the profit and loss account.
For the principal rates of exchange used see the Group IFRS accounting policies on page 71.
Share based payment
•
The Company issues equity-settled and cash-settled share based payments to certain employees of its subsidiary companies.
Share based payment awards made by the Company to employees of its subsidiary companies are recognised in the Company’s financial statements as
an increase in its investments in subsidiary undertakings rather than as an expense in the profit and loss account to the extent that the amount of the
expense recorded by each subsidiary company is less than the amount recharged to it by the Company.
Equity-settled transactions
The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted and is
recognised as an expense (or as an increase in investments in subsidiary undertakings) over the vesting period. In valuing equity-settled transactions,
no account is taken of any non-market based vesting conditions and no expense or investment is recognised for awards that do not ultimately vest as
a result of a failure to satisfy a non-market based vesting condition. None of the Group’s equity-settled transactions have any market based
performance conditions.
Fair value for equity-settled share based payments is determinable from the Company’s quoted share price at the time of the award.
At each balance sheet date, before vesting, the cumulative expense or investment is calculated based on management’s best estimate of the number of
equity instruments that will ultimately vest taking into consideration the likelihood of achieving non-market based vesting conditions.
Cash-settled transactions
The cost of cash-settled transactions is measured at fair value. Fair value is estimated initially at the grant date and at each balance sheet date
thereafter until the awards are settled. Market based performance conditions are taken into account when determining fair value.
Fair value for cash-settled share based payments (being only those that relate to the Long Term Incentive Plan) is estimated by use of a
simulation model.
During the vesting period, a liability is recognised representing the estimated fair value of the award and the portion of the vesting period expired as at
the balance sheet date.
Choice of settlement
The Company can choose to settle awards under the Long Term Incentive Plan in either cash or equity, although it currently expects to settle all such
awards in cash. Awards under the Long Term Incentive Plan are accounted for as cash–settled transactions (see above).
Dividends
•
Dividends on ordinary shares are recorded in the financial statements in the period in which they are approved by the Company’s shareholders, or in the
case of interim dividends, in the period in which they are paid.
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Notes to the Company financial statements
Financial instruments
Note 1 UK GAAP accounting policies (continued)
•
The accounting policy of the Company under FRS 25 “Financial instruments: Presentation”, FRS 26 “Financial instruments: Recognition and
measurement” and FRS 29 “Financial instruments: Disclosures” for financial instruments is the same as the accounting policy for the Group under IAS
32 “Financial Instruments: Presentation”, IAS 39 “Financial instruments: Recognition and measurement”, and IFRS 7 “Financial instruments:
Disclosures”. Therefore for details of the Company’s accounting policy for financial instruments refer to pages 73 and 74.
The Company holds derivative financial instruments that hedge financial risks of the Group as a whole and to which hedge accounting is applied in the
consolidated financial statements. However, these instruments and certain intra-group derivative financial instruments are accounted in the Company
financial statements at fair value through profit or loss.
Investment in own shares
•
In accordance with UITF Abstract 38, “Accounting for ESOP Trusts”, own shares held by the Group’s Employee Benefit Trust and Qualifying Employee
Share Ownership Trust have been classified as deductions from shareholders’ funds. Shares held in treasury by the Company have also been classified as
deductions from shareholders’ funds
Interest bearing loans and borrowings
•
Borrowings are recognised initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost
using the effective interest rate method; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the
profit and loss account over the period of the borrowings.
Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement for at least 12 months after the
balance sheet date.
Pensions
•
The Company accounts for pensions and similar benefits under FRS 17 “Retirement Benefits” and measures its obligations due at discounted present
value.
Tangible assets
Note 2
The movements in tangible assets were as follows:
Cost
At beginning of year
Additions
At end of year
Depreciation
At beginning of year
Charge for year
At end of year
Net book value at beginning of year
Net book value at end of year
Investments
Note 3
The movements in investments were as follows:
Cost and net book value
At beginning of year
Additions
Foreign exchange movements
At end of year
Note 4 Debtors
Amounts falling due within one year were:
Amounts owed by Group undertakings
Other debtors
Prepayments and accrued income
page 122 | Stagecoach Group plc
£m
2.4
0.1
2.5
(1.0)
(0.5)
(1.5)
1.4
1.0
Subsidiary
undertakings
£m
1,182.0
2.2
(11.6)
1,172.6
2013
£m
672.5
20.0
0.2
692.7
2014
£m
708.9
36.9
0.2
746.0
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Note 5 Deferred tax asset/(liability)
The movement in the deferred tax asset/(liability) during the year was as follows:
At beginning of year
Change to the profit and loss account
At end of year
The deferred tax asset/(liability) recognised can be analysed as follows:
Short-term timing differences
Note 6 Creditors
(a) Creditors: Amounts falling due within one year
Bank overdrafts
Loan notes
Amounts owed to Group undertakings
Accruals and deferred income
(b) Creditors: Amounts falling due after more than one year
Sterling 5.75% Notes
US Dollar 4.36% Notes
Bank loans
Accruals and deferred income
(c) Borrowings were repayable as follows:
On demand or within 1 year
Bank overdraft
Loan notes
Repayable between 1 and 2 years
Bank loans
Repayable after 2 years, but within 5 years
Bank loans
Sterling 5.75% Notes
Repayable after 5 years
US Dollar 4.36% Notes
Total borrowings
Note 7 Derivative financial instruments
The fair values of derivative financial instruments are set out below:
Current assets – due after more than one year
Interest rate derivatives – external
Fuel derivatives – external
Fuel derivatives – intra-group
Current assets – due within one year
Interest rate derivatives – external
Fuel derivatives – external
Fuel derivatives – intra-group
2014
£m
0.2
(0.4)
(0.2)
2014
£m
(0.2)
2014
£m
207.1
19.7
185.6
8.3
420.7
2014
£m
408.4
88.7
82.4
0.2
579.7
2014
£m
207.1
19.7
82.4
–
408.4
88.7
806.3
2014
£m
–
–
2.8
2.8
0.3
0.2
9.4
9.9
2013
£m
0.2
–
0.2
2013
£m
0.2
2013
£m
291.6
20.5
242.3
6.5
560.9
2013
£m
407.3
96.2
121.4
0.3
625.2
2013
£m
291.6
20.5
–
121.4
407.3
96.2
937.0
2013
£m
0.2
0.2
3.2
3.6
0.3
1.3
9.4
11.0
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Notes to the Company financial statements
Note 7 Derivative financial instruments (continued)
Current liabilities
Fuel derivatives – external
Fuel derivatives – intra-group
Non-current liabilities
Interest rate derivatives – external
Fuel derivatives – external
Fuel derivatives – intra-group
2014
£m
(9.4)
(0.2)
(9.6)
(0.6)
(2.8)
–
(3.4)
2013
£m
(9.4)
(1.3)
(10.7)
–
(3.2)
(0.2)
(3.4)
In accordance with FRS 26, “Financial Instruments: Recognition and measurement” the Company has reviewed all significant contracts for embedded
derivatives that are required to be separately accounted for. No such embedded derivatives were identified (2013: None).
There were no derivatives outstanding at the balance sheet date designated as hedges.
Note 8 Pension liability, net of deferred tax
Unfunded pension liability
Deferred tax asset
2014
£m
3.5
(0.7)
2.8
2013
£m
2.7
(0.7)
2.0
The Company no longer has any employees but has unfunded liabilities in respect of former employees which are shown above. See note 25 to the
consolidated financial statements for more details on retirement benefits.
Note 9 Called up share capital
Information on share capital is provided in note 27 to the consolidated financial statements.
Note 10 Share capital and reserves
At 1 May 2013
Profit for the year
Credit in relation to share based payments
Dividends paid
Own shares purchased
At 30 April 2014
Equity
share
capital
£m
3.2
––
––
––
––
3.2
Share
premium
account
£m
8.4
8.4
Capital
redemption
reserve
£m
422.8
–
–
–
–
422.8
Own
shares
£m
(23.4)
–
–
–
(2.3)
(25.7)
Profit and
loss
account
£m
297.7
276.7
2.2
(51.0)
–
525.6
Total
£m
708.7
276.7
2.2
(51.0)
(2.3)
934.3
As permitted by section 408 of the Companies Act 2006, the Company has not presented its own profit and loss account. The profit as disclosed above
of £276.7m (2013: £96.6m) is consolidated in the results of the Group. Details of dividends paid, declared and proposed during the year are given in
note 8 to the consolidated financial statements.
The profit and loss account reserve is distributable but the other components of shareholders’ funds shown above are not distributable.
The remuneration of the Directors is borne by other Group companies and is detailed in section 9 of this Annual Report. The remuneration of the
auditors is shown in note 3 to the consolidated financial statements.
Note 11 Share based payments
For details of share based payment awards and fair values see note 28 to the consolidated financial statements. The Company accounts for the equity-
settled share based payment charge for the year of £2.2m (2013: £2.6m) by recording an increase to its investment in subsidiaries for this amount and
recording a corresponding entry to the profit and loss account reserve to reflect the fact that the Company has no employees (2013: Nil) and all share
based payment awards are to employees of subsidiary companies. The Company accounts for the cash-settled share based payment charge for the year
of £3.1m (2013: £7.0m) by recording a liability for this amount and recording a corresponding entry as a charge through the profit and loss account.
The cash-settled share based payment charge is recharged in full to subsidiary companies and the recharge income and related expense are both
included in the profit and loss account.
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Note 12 Guarantees, other financial commitments and contingent liabilities
(a) The Company has provided guarantees to third parties of £214.4m (2013: £224.0m) in respect of subsidiary companies’ liabilities. The liabilities
that are guaranteed are included in the consolidated balance sheet but are not included in the Company balance sheet.
In addition, the Company has provided guarantees to third parties of £143.8m (2013: £144.2m) in respect of contingent liabilities that are neither
included in the consolidated balance sheet nor the Company balance sheet.
The Company is also party to cross-guarantees whereby the bank overdrafts and Value Added Tax liabilities of it and certain of its subsidiaries are
cross-guaranteed by it and all of the relevant subsidiaries.
None of the above contingent liabilities of the Company are expected to crystallise.
The Company may be found to be liable for some of the legal liabilities referred to in note 31 (v) to the consolidated financial statements.
(b) Capital commitments
Capital commitments (where the Company has contracted to acquire assets on behalf of its subsidiaries) are as follows:
Contracted for but not provided:
For delivery in one year
(c) Operating lease commitments
Annual charges for operating leases are made with expiry dates as follows:
2014
£m
110.2
Within one year
Between one year and five years
Five years and over
2014
2013
Land and buildings
£m
–
–
0.3
Other
£m
0.1
0.6
–
Land and buildings
£m
–
–
0.3
2013
£m
–
Other
£m
0.1
0.6
–
Note 13 Related party transactions
The Company has taken advantage of the exemption under FRS 8, “Related party disclosures” from having to provide related party disclosures in its
own financial statements when those statements are presented with consolidated financial statements of its group. Related party disclosures provided
by the Group can be found in note 33 to the consolidated financial statements.
Stagecoach Group plc | page 125
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Shareholder information
Registrars
All administrative enquiries relating to shareholdings should, in the first instance, be directed to the Company’s registrars and clearly state the
shareholder’s name and address. Please write to: Capita Asset Services, Stagecoach Group Dedicated Team, The Registry, 34 Beckenham Road,
Beckenham, Kent, BR3 4TU. Telephone 0871 664 0443 (calls cost 10p per minute plus network extras) if calling from the UK, or +44 800 280 2583 if
calling from outside the UK, or email ssd@capitaregistrars.com. Registrar forms can be obtained on-line at
http://www.stagecoach.com/investors/shareholder-services/registrar-forms/
Online share portal
You can register to access your share account online using the share portal service at www.capitashareportal.com. You will need your Investor Code,
which is shown on shareholder correspondence, in order to register to use the portal.
Registering your account is quick and easy and you will immediately be able to benefit from the full range of services available on the share portal
including updating your personal details, adding a mandate to receive dividends direct to your bank account and registering proxy votes online. Using
the online share portal reduces the need for paperwork and provides 24 hour access.
Stagecoach individual savings accounts
The Company has appointed Halifax Share Dealing Limited as an ISA provider and shareholders who would like further information should contact
their help desk on +44 (0)8457 22 55 25.
The Company has also made arrangements with Stocktrade for ISAs. Full details and an application form are available from Stocktrade (a division of
Brewin Dolphin), 6th Floor, Atria One, 144 Morrison Street, Edinburgh, EH3 8BR. Telephone +44 131 240 0448.
Share dealing facilities
The Company has set up a range of execution only share dealing services to enable Stagecoach shareholders to buy and sell shares by phone, online or
by post. The phone and online dealing services are provided by Capita Share Dealing Services and offer a quick and easy way to buy and sell shares at
latest market prices. To use these services go to www.capitadeal.com or call 0871 664 0364 (calls cost 10p a minute plus network extras, lines are open
8.00am-4.30pm Mon-Fri). From outside the UK dial +44 203 367 2699. Please have your share certificate to hand when you log-in or call. Charges
start from £21 online and £28.50 by phone.
A postal dealing service is available from Stocktrade, a division of Brewin Dolphin. Charges start from £17.50. Shareholders who would like further
information should write to Stocktrade, 6th Floor, Atria One, 144 Morrison Street, Edinburgh, EH3 8BR. Telephone 0845 601 0995, quoting dealing
reference ‘Stagecoach dial and deal’. Postal dealing packs are available on request.
Payment of dividends by BACS
Many shareholders have already arranged for dividends to be paid by mandate directly to their bank or building society account. The mandates enable
the Company to pay dividends through the BACS (Bankers’ Automated Clearing Services) system. The benefit to shareholders of the BACS system is
that the registrar posts the tax vouchers directly to them, whilst the dividend is credited on the payment date to the shareholder’s bank or building
society account. Shareholders who wish to benefit from this service should request the Company’s registrars (address above) to send them a
dividend/interest mandate form or alternatively complete the mandate form attached to the next dividend tax voucher they receive, or register their
details through the Capita Share Portal.
Dividend Re-Investment Plan
The Company operates a Dividend Re-Investment Plan which allows a shareholder’s cash dividend to be used to buy Stagecoach shares at favourable
commission rates. Shareholders who would like further information should telephone the Company’s registrars, Capita Registrars, on 0871 664 0443
(calls cost 10p per minute plus network extras) if calling from the UK or +44 800 280 2583 if calling from outside the UK.
Share fraud warning
Share fraud includes scams where investors are called out of the blue and offered shares that often turn out of to be worthless or non-existent, or an
inflated price for shares they own. These calls come from fraudsters operating in ‘boiler rooms’ that are mostly based abroad.
While high profits are promised, those who buy or sell shares in this way usually lose their money.
The Financial Conduct Authority (“FCA”) has found most share fraud victims are experienced investors who lose an average of £20,000, with around
£200m lost in the UK each year.
PROTECT YOURSELF
If you are offered unsolicited investment advice, discounted shares, a premium price for shares you own, or free company or research reports, you
should take these steps before handing over any money:
1. Get the name of the person and organisation contacting you.
2. Check the FCA Register at www.fca.org.uk/consumers/protect-yourself/unauthorised-firms/ to ensure they are authorised.
3. Use the details on the FCA Register to contact the firm.
4. Call the FCA Consumer Helpline on 0800 111 6768 if there are no contact details on the Register or you are told they are out of date.
5. Search the FCA list of unauthorised firms and individuals to avoid doing business with.
6. REMEMBER: if it sounds too good to be true, it probably is!
If you use an unauthorised firm to buy or sell shares or other investments, you will not have access to the Financial Ombudsman Service or Financial
Services Compensation Scheme (“FSCS”) if things go wrong.
REPORT A SCAM
If you are approached about a share scam you should tell the FCA using the share fraud reporting form at
www.fca.org.uk/consumers/scams/investment-scams, where you can find out about the latest investment scams. You can also call the Consumer
Helpline on 0800 111 6768.
If you have already paid money to share fraudsters you should contact Action Fraud on: 0300 123 2040
page 126 | Stagecoach Group plc
Corporate information and financial calendar
Corporate Information
Financial Calendar
Company Secretary
Mike Vaux
Registered Office
10 Dunkeld Road
Perth PH1 5TW
Telephone +44 (0) 1738 442 111
Facsimile +44 (0) 1738 643 648
Email
info@stagecoachgroup.com
Company Number
SC 100764
Annual General Meeting
29 August 2014
Interim Results
10 December 2014
Final Dividend
1 October 2014
Interim Dividend
March 2015
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