Stagecoach Group Annual Report
and Financial Statements 2017
TRAVEL
ECOLOGICAL
VALUE
CLEAN
CONVENIENT
RELIABLE
GROWTH
INVESTMENT
ENVIRONMENTAL
INDUSTRY
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Adjusted earnings per share in line with
expectations
Adjusted earnings per share of 24.4 pence (2016: 27.7 pence) in line with
our expectations
Basic earnings per share of 5.5 pence (2016: 17.1 pence) reflect
exceptional charges
Dividend per share for the year up 4.4% to 11.9 pence (2016: 11.4 pence)
Substantial further investment – net capital expenditure of £157.3m
(2016: £187.0m)
Our expectation of 2017/18 earnings per share is broadly unchanged
Operational developments
Engaged in discussions with Department for Transport on contractual
matters at Virgin Trains East Coast, including implications of Network Rail’s
reprioritised infrastructure programme
– £84.1m exceptional charge to provide for anticipated losses under
current contract, over the next two years
– Business expected to be profitable from 2019
– £44.8m non-cash exceptional impairment of franchise intangible asset
– High customer satisfaction and around £525m to date in premium
payments to taxpayer – average monthly payments around 30% more
than made by Directly Operated Railways
Shortlisted for new East Midlands and South Eastern rail franchises
New joint venture with Virgin and SNCF shortlisted to bid for West Coast
Partnership rail franchise
Management action taken across our bus operations in response to
period of subdued revenue trends – targeted network, pricing and
management changes
Improving revenue trends and contract opportunities in North America
Progress with digital and technology programme, including new initiatives
outside of our core operating divisions
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STAGECOACH GROUP PLC
COMPANY No. SC100764
YEAR ENDED 29 APRIL 2017
Contents
Section
1
2
3
4
5
6
7
8
9
10
11
Strategic report
Board of Directors
Directors’ report
Corporate governance report
Audit Committee report
Nomination Committee report
Health, Safety and Environmental Committee report
Directors’ remuneration report
Responsibility statement
Independent auditors’ report
Consolidated financial statements
– Notes to the consolidated financial statements
12
Separate financial statements of the parent company
– Notes to the Company financial statements
13
14
Subsidiary and related undertakings
Shareholder information
Financial summary
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 34 to the consolidated financial statements
Page
1
30
32
36
42
46
48
49
66
67
74
79
135
137
143
151
Results excluding intangible asset expenses
and exceptional items*
Statutory results
2017
3,941.2
192.8
–
(34.1)
158.7
24.4p
8.1p
11.9p
2016
3,871.1
228.8
–
(41.4)
187.4
27.7p
7.9p
11.4p
2017
3,941.2
47.3
4.7
(34.1)
17.9
5.5p
8.1p
11.9p
2016
3,871.1
171.1
(2.0)
(64.7)
104.4
17.1p
7.9p
11.4p
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1. Strategic report
Introduction
1.1
Stagecoach Group plc (“the Company”) is the ultimate parent company of a group of companies (“the Group”) principally involved in the sale and
operation of passenger transport. The directors of Stagecoach Group plc (“the Directors”) are pleased to present their report on the Group for the year
ended 29 April 2017.
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. Biographies of each director are contained in section 2 of this Annual Report and the Directors’
report is set out in section 3.
Cautionary statement
1.2
The Strategic report has been prepared for the shareholders of the Company, as a body, and for no other persons. Its purpose is to inform shareholders
of the Company and to help them assess how the Directors have performed their duty to promote the success of the Company. This Strategic report
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.
1.3 Overview of the year ended 29 April 2017
We have achieved our recent expectation of adjusted earnings per share for the year ended 29 April 2017. Although the continuing trading challenges
faced by our businesses are reflected in the financial results, we continue to manage the Group with its long-term success in mind. That approach is
reflected in the substantial investment in the business during the year.
Our priority remains delivering safe, high quality and value-for-money travel for our customers. We are working closely with public sector partners to
deliver on our joint responsibility for improving services, while also responding to the competitive environment from other modes of travel. We have
made further significant investment in measures to make travel easier and more attractive to customers, as well as ensuring we have strong and
sustainable transport businesses for the long-term.
Overall we have achieved further revenue growth during the year, although the rate of growth was more subdued than in previous years. Revenue for
the year was up 1.8% at £3,941.2m (2016: £3,871.1m). Total operating profit (before intangible asset expenses and exceptional items) was £192.8m
(2016: £228.8m). Unadjusted operating profit for the year was £47.3m (2016: £171.1m). Earnings per share before intangible asset expenses and
exceptional items (“adjusted earnings per share”) were 24.4p (2016: 27.7p), with the year-on-year decrease mostly due to the previously anticipated fall
in operating profit from our UK Rail Division. Basic, unadjusted earnings per share decreased to 5.5p (2016: 17.1p), principally due to exceptional
charges relating to Virgin Trains East Coast that are explained below.
We are engaged in discussions with the Department for Transport regarding the terms of our continued operation of the Virgin Trains East Coast
franchise, taking account of our respective rights and obligations under the current franchise agreement. While any new agreement remains subject to
approvals and contract, based on our interactions with the Department for Transport, we expect to finalise new commercial terms during the next year.
These will provide clarity for customers, staff, investors and other stakeholders on the future operation of the franchise, and offer value for money for
taxpayers. We look forward to continuing to deliver our vision and plans for the franchise through to at least 2023. Reflecting our contractual rights and
obligations, and based on our ongoing discussions with the Department for Transport and the reprioritisation of Network Rail’s infrastructure
programme, we expect Virgin Trains East Coast to be profitable from 2019 with the potential to earn a profit margin commensurate with that of a “direct
award” franchise. However, we also expect Virgin Trains East Coast to incur losses under the current contract. Accordingly, in the financial statements
for the year ended 29 April 2017, we have recorded an exceptional pre-tax charge of £84.1m to reflect that the current contractual arrangements give
rise to an onerous contract. The calculation of that onerous contract provision takes account of the Stagecoach parent company’s £165m loan
commitment to Virgin Trains East Coast, from which £57.5m was already loaned at 29 April 2017. 10% of any loan is funded by Virgin. We have also
recorded a £44.8m impairment of intangible assets associated with the right to operate the franchise. The impairment charge is essentially an
acceleration of amortisation and is a non-cash charge.
We have proposed a final dividend of 8.1p per share (2016: 7.9p), which, if approved, would give a total dividend per share for the year up 4.4%. We
have slowed the rate of dividend growth relative to recent years to ensure that the dividend remains at a level we consider to be sustainable. The
dividend per ordinary share grew significantly from 2001/2 to 2015/16 at a compound annual growth rate of over 11% and we continue to seek to grow
the dividend. The final dividend would be payable on 4 October 2017 to shareholders on the register at 1 September 2017. Shareholders who wish to
participate in the dividend re-investment plan for this dividend should elect to do so by 13 September 2017. Election requests should be made to the
Company’s registrars in good time before that date.
In our UK Bus operations, regional growth trends are mixed, reflecting the variable economic picture and retail environment in town and cities in
different parts of the country. We have taken actions in response to the period of subdued revenue trends. As well as strengthening our UK Bus
management team, ours low fares strategy has given us scope to have a targeted approach to pricing and network changes. We are pleased at the
increasing take up of our digital offerings, which benefit our customers and allow us better insight into their needs.
We have maintained our sustainable approach to bidding for bus contracts in London, with a focus on cost efficiencies and capital discipline. While this
can result in changes to the scale of our contract portfolio at certain points in the bidding cycle, we believe our approach brings long-term benefits to the
business.
In North America, we see some evidence of improving revenue trends in markets previously affected by sustained low fuel prices, and heightened
competition from cars and airlines. Measures we have taken to match service provision with consumer demand are starting to flow through to improved
yields. We are also pleased that our strategy of seeking to grow our contract work has resulted in some recent success.
We are a significant and experienced participant in the UK rail market. As well as managing our existing portfolio and investing in improvements for our
customers, we are actively pursuing other opportunities which we believe can deliver long-term value. While we were disappointed not to have been
awarded the new South Western franchise, there are other new franchise opportunities. We have been shortlisted for the new East Midlands and South
Eastern franchises and have formed a new joint venture with Virgin and SNCF to bid for the West Coast Partnership franchise. Across the UK, revenue
growth in the franchised rail market remains low by historical standards. Growth rates in 2016/17 at our inter-city businesses out-performed those at
our London commuter business.
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Strategic report
Overview of the year ended 29 April 2017 (continued)
1.3
We continue to invest in our people to equip them to meet the growing expectations of customers. Our employees are fundamental to our success and
the Board extends its thanks to them for their hard work and professionalism. During the year, we have strengthened the Board with the appointments
of Ray O’Toole and Julie Southern, both of whom bring considerable senior management experience and an in-depth understanding of transport.
Looking ahead, we remain cautious on the short-term outlook for revenue trends and operating profit in our bus and rail markets in the UK.
Nevertheless, we have not significantly changed our expectation of our 2017/18 adjusted earnings per share and there are several medium to long-term
positive drivers for our businesses. These include urbanisation, population growth, and the growing demand for action on road congestion and air
quality. We remain confident that we can continue to deliver long-term value to our customers and investors.
Revenue by division is summarised below:
REVENUE
Continuing Group operations
UK Bus (regional operations)
megabus Europe
UK Bus (London)
North America
UK Rail
Intra-Group revenue
Group revenue
Operating profit by division is summarised below:
OPERATING PROFIT
Continuing Group operations
UK Bus (regional operations)
megabus Europe
UK Bus (London)
North America
UK Rail
Group overheads
Restructuring costs
Operating profit before joint ventures, intangible
asset expenses and exceptional items
Joint ventures – share of profit/(loss) 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/(loss) after
taxation
2017
£m
1,015.7
20.2
263.4
488.8
2,160.7
(7.6)
3,941.2
2016
£m
Functional
currency
2017
2016
Functional currency (m)
1,032.8
18.4
267.1
430.9
2,129.1
(7.2)
3,871.1
£
£
£
US$
£
£
1,015.7
20.2
263.4
632.3
2,160.7
(7.6)
1,032.8
18.4
267.1
647.7
2,129.1
(7.2)
Growth
%
(1.7)%
9.8%
(1.4)%
(2.4)%
1.5%
2017
2016
£m % margin
£m % margin
Functional
currency
2017
2016
Functional currency (m)
13.3%
( 131.0)%
7.6%
4.4%
3.1%
£
£
£
US$
£
121.1
(4.3)
18.4
25.0
31.0
137.3
(24.1)
20.2
28.4
66.7
11.9%
(21.3)%
7.0%
4.0%
1.4%
121.1
(4.3)
18.4
19.3
31.0
(14.1)
(4.8)
166.6
24.8
1.4
–
192.8
(16.8)
(128.7)
47.3
137.3
(24.1)
20.2
18.9
66.7
(11.9)
(3.1)
204.0
24.2
1.4
(0.8)
228.8
(15.8)
(41.9)
171.1
More details on the financial results for the year are provided in sections 1.5 and 1.6 of this Annual Report.
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The Stagecoach Group
1.4
1.4.1 Overview of the Stagecoach Group and its business model
Stagecoach Group is a leading international public transportation group, with extensive operations in the UK, the United States and Canada. The Group
employs around 40,000 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. During the year ended 29 April 2017, the Group exited the operations of its megabus Europe Division.
We offer greener, smarter travel in the UK and North America. Our principal business is providing passenger transport services, primarily by transporting
people by bus, coach, train or tram. Our “This is Stagecoach Group” infographic provides more information and can be found on our website at:
http://www.stagecoach.com/~/media/Files/S/Stagecoach-Group/Attachments/pdf/infographic-sept-2016.pdf
This section summarises the Group’s business model. We have revised the description of the business model included in prior years’ annual reports in
an effort to more clearly describe the business model and reflect good practice in our reporting. The remaining parts of this section 1.4 are also
important to an understanding of our business model and we cross-reference them where appropriate.
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”.
Section 1.4.2 summarises our strategy and section 1.4.3 explains what we do and provides a description of each of our key business segments, markets
and where appropriate, market share.
Business culture
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.
The Group began life as a family business in 1980 and the entrepreneurism and expertise of the founding family has played a significant part in its
growth. The founding family continues to play a part in the management of the Group. Although we have been publically listed on the London Stock
Exchange since 1993, we aim to maintain an entrepreneurial culture, reflecting our family heritage. That involves encouraging sensible risk taking while
managing risks appropriately and responding to risks that do crystallise. It is inevitable and appropriate for a group of its size that the Group has a
number of policies and procedures to ensure appropriate behaviours but these are designed to avoid stifling entrepreneurism. More information on the
Group’s core values and policies is provided in section 1.8.1 of this Annual Report.
We operate a relatively devolved management structure. That reflects our view that in operating local transport services, day-to-day decision making
should be made by local managers who understand the dynamics of their particular markets. We aim to have relatively short chains of command that
facilitate the effective exchange of information and enable timely decision making. Delegated authorities and other policies and procedures are in
place to achieve an appropriate balance between the benefits we perceive of devolved management and the need for proportionate management of
overall risk.
Sources of revenue
We have a number of revenue streams, principally arising from:
• Amounts we receive from individuals or groups of individuals to travel on our transport services;
• Amounts we receive from government bodies in respect of travel by individuals on our transport services – for example, in the UK, older people
and people with disabilities are legally entitled to travel on our bus services at certain times free of charge but we receive revenue from
government bodies in respect of that travel;
• Amounts we receive from government bodies as payment to us for operating transport services under contract – for example, a US Transit
Authority may pay us to run specified bus services. Any amount payable by individual passengers would flow to the US Transit Authority and our
revenue would be from that authority;
• Amounts we receive from corporations or others for operating transport services under contract – for example, a university might pay us to
operate a bus service to shuttle students around its campus;
• Subsidy we receive from government bodies to financially support the operation of transport services they consider to be socially desirable.
We also earn other income, which may include income from:
• commissions for selling travel on other operators’ transport services;
• undertaking maintenance work on other operators’ vehicles;
• selling advertising space on vehicles and premises we operate;
• access income for others to use railway stations and depots that we operate;
• selling fuel to other transport operators;
• property rental;
• Network Rail in respect of UK railway operating performance regimes;
• The UK Department for Transport under UK rail revenue risk sharing arrangements.
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Strategic report
1.4.1 Overview of the Stagecoach Group and its business model (continued)
Key costs and inputs
Our main tangible fixed assets are property, coaches, buses and technology. Our trains, as well as some of our property, buses and coaches, are
operated under operating leases.
Our people are key to providing our services. Notwithstanding developments in technology, our business remains relatively labour intensive. Around a
third of our consolidated operating costs are staff costs and in our bus divisions, the proportion is higher. Relationships with our people and their trade
unions are important to the success of the business.
Our other major operating costs are:
• amounts payable to the UK Department for Transport under rail franchise agreements for the right to operate the relevant franchises;
• amounts payable to Network Rail by our UK train operating companies for use of the railway infrastructure (tracks, stations etc.);
• diesel and electricity to fuel or power our buses, coaches, trains and trams;
• insurance costs and claims costs;
• material and consumables, including replacement parts for vehicles;
• depreciation and lease charges for the vehicles, properties and technology that we operate.
Section 1.4.4 of this Annual Report sets out more information on the key relationships and resources that underpin what we do.
Cash conversion
For the most part, our revenues and operating costs (excluding depreciation) are converted to cash within a short timescale. Indeed, payment for travel
by individuals tends to occur prior to or at the time of travel whereas costs tend to be settled in arrears. The exceptions to this are most significant in
the UK Rail segment where the complex, contractual arrangements can result in greater timing differences between the recognition of items in income
and the effect of those items on cash.
Competitive advantages
We see our key sources of competitive advantage as being:
• Our operational excellence – providing safe, reliable, good quality, value for money, customer-focused transport services;
• Innovation – we have a long record of innovation, including being the first private company to secure a rail franchise in the UK in the 1990s and
also, in disrupting the market for inter-city coach travel by introducing megabus.com in the 2000s as a low-cost, internet-only coach travel
retailer;
• Our commercial expertise in designing transport networks, pricing our services and marketing our services;
• Our brands – our operational excellence and commercial expertise is reflected in our generally high customer satisfaction scores meaning that our
key brands are well regarded in their respective markets;
• Our relationships – we view our relationships with employees, trade unions and government bodies, in particular, as key advantages to our
business;
• Our expertise in bidding and managing complex contracts, particularly in the UK Rail market where we see success as being predicated on a
combination of bidding and winning new contracts on acceptable commercial terms, actively managing those contracts during their term and
effective management of the day-to-day train operations;
• The economies of scale of being a relatively large transport provider.
Value for other stakeholders
As well as the financial value we generate for our investors, lenders and people, we provide value to a wider group of stakeholders, including:
• Public transport offers environmental benefits versus wide-scale car usage and can contribute to efforts to reduce pollution and improve air
quality, benefiting the public in general;
• Our business generates significant tax contributions to public finances across employee, sales, corporation, property and other taxes;
• We contribute around £1m per annum to charities as well as providing non-financial support to charities and the communities in which we
operate.
Risks
We do face a number of risks. Section 1.4.5 sets out the principal risks to the achievement of our strategy and objectives which include political,
regulatory, technological and macroeconomic risks.
Changes in regulation and technology in particular are likely to drive an evolution of our business model.
Key performance indicators
Section 1.4.6 describes how we measure and monitor progress against our objectives and strategy, and how we are performing.
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1.4.2 What we look to achieve (business objectives and long-term strategy)
Group strategy
The key elements of the Group’s business strategy to deliver long-term shareholder value are:
• To deliver organic growth across all of the Group’s operations by providing safe, reliable, good quality, customer-focused transport services that
deliver a positive customer experience at a reasonable price;
• 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 business by bidding for selected rail franchises and bus contracts to seek to
secure new franchises and contracts where the risk/return trade-off is acceptable.
1.4.3 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 6,900 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 inter-urban services linking major towns within
its regional operating company areas. The Group also runs the budget inter-city coach service, megabus.com, and the UK
Bus (regional operations) Division includes megabus.com coach services within the UK.
In Scotland, Stagecoach has a joint venture (Scottish Citylink Coaches Limited) with international transport group,
ComfortDelGro. The joint venture is responsible for the Scottish Citylink express coach 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 retailer of scheduled, inter-city
coach services in Scotland. Stagecoach is responsible for the day-to-day operational management of the business, which
is overseen by a joint board.
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. Most of the Division’s revenue is from customers paying for their own travel by bus. The Division also operates
tendered services, including schools contracts, on behalf of local authorities. Around 10% of the UK Bus (regional
operations) revenue is receivable from local authorities in respect of such tendered and school services. For some
services, the Group receives revenue from passengers as well as tendered revenue from a local authority. 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 older people and people with disabilities, at no charge to the passenger, on
the same bus services that are also available to the wider public. So, the Group would typically receive both revenue
from passengers and also, concessionary revenue from a local authority in respect of a single bus service and in some
cases, may also receive tendered revenue for the same service.
The strategy of the UK Bus (regional operations) is to deliver value over time driven by organic growth in revenue and
passenger volumes as a result of providing safe, reliable, good quality, customer-focused bus services at a reasonable
price to customers. This may be supplemented by winning new tendered or contract work and/or acquiring businesses
where appropriate opportunities arise.
The Group has around 23% of the UK Bus market excluding London. The UK Department for Transport’s National Travel
Survey (“NTS”) is a household survey of personal travel within Great Britain by residents of England. The NTS found that
bus is mainly used for trips of between one and 25 miles, and that in 2015, there was an average of 914 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
10% and walking, cycling and other modes accounted for 7%. There therefore remains significant market opportunity to
stimulate modal shift from car to bus. According to the NTS, around 30% of bus journeys are for shopping, 20% for
leisure, 17% for education, 21% for commuting and business, 12% are for personal business (e.g. visits to services such as
banks, medical consultations etc.) and for other purposes.
Although UK Bus (regional operations) 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. New, potential, sources of competition are emerging, often
enabled by digital developments. Potential new competitors include ride-sharing websites, digitally-driven taxi services
and aggregators of travel services.
The level of Government investment in the UK Bus Industry has come under pressure in recent years with reductions in
Bus Service Operators’ Grant (a rebate of fuel tax) and constraints on the payments made by Government to bus
operators for carrying older people and people with disabilities at no charge to the passenger. Funding of tendered
services by local government has also reduced. The Division does continue to face risks related to regulatory changes and
availability of public funding as noted in section 1.4.5. Technological developments present both opportunities and
threats to growing passenger volumes. There are positive long-term conditions for further growth in demand for UK Bus
services created by population growth, increasing urbanisation, rising road congestion, supportive government policy and
public concerns for the environment, which augur well for the future of the Division.
Regulatory environment
Strategy
Market opportunity
Macroeconomic factors
Competition
Future market
developments
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Strategic report
1.4.3 What we do (description and strategy of each business segment) (continued)
megabus Europe
Description
The megabus Europe Division operated megabus.com inter-city coach services within mainland Europe and between the
UK and mainland Europe. The Division’s revenue was principally derived from the sale of inter-city coach journeys via its
own websites until the sale of the retailing part of the Division to FlixBus in July 2016. Since that date, the Division’s
revenue was principally derived from operating services under contract to FlixBus.
Regulatory environment
The regulatory environment for inter-city coach services in Europe varies by country. The principal countries served by
the Division were the UK, France, Germany and Italy. Each of those countries permits commercially operated inter-city
coach services but some require specific route authorisations to be held.
Strategy and
market opportunity
Having sold the retailing part of the megabus Europe Division to FlixBus, and ceased operating services under contract to
FlixBus, the Group now has no further operations within the Division.
UK Bus (London)
Description
Regulatory environment
The Group is the fourth largest operator in the London bus market, with an estimated 13% share of that market. The
business operates from 9 depots and has a fleet of around 1,300 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. The UK Bus (London)
Division currently has over 80 separate contracts to provide bus services on behalf of Transport for London – this spreads
the Division’s risk of financial performance being adversely affected when a contract expires and the business is
unsuccessful in winning the replacement contract.
Strategy
Our strategic focus in the London bus market is now on maintaining good operational performance and tight control of
costs while seeking to bid competitively for new contracts.
Market opportunity
The Group operates approximately 13% 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.
Macroeconomic factors
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.
Competition
Future market
developments
UK Bus (London) faces competition to win Transport for London contracts from other bus operators, the largest of which
are Go-Ahead Group, Arriva, Metroline, RATP, Transit Systems and Abellio.
In the short-term, revenue growth could come from inflationary price increases, retaining work on tender but at higher
rates and/or winning contracts from other operators. Continuing population growth in London and positive government
policy on public transport can contribute to a positive long-term outlook for the business.
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1.4.3 What we do (description and strategy of each business segment) (continued)
North America
Description
The North America Division provides bus and coach transport services in the United States and Canada. Our businesses
include the operation of bus services under contract to transit authorities and others; commuter bus services; inter city
coach services; bus tours; charter operations; and sightseeing bus services. The Division encompasses megabus.com North
America, a low cost inter-city coach business, which sells inter-city coach journeys within North America and operates or
sub-contracts the coach services.
The North America business is headed by a chief operating officer. Stagecoach currently operates approximately 2,200
vehicles in the United States and Canada.
In addition to its wholly-owned operations in North America, Stagecoach had an interest in a joint venture, Twin America
LLC, with CitySights NY, which the Group sold to its joint venture partner in February 2017. The joint venture principally
operated sightseeing bus services in New York. Prior to disposing its stake in Twin America, the Group held 60% of the
economic rights and 50% of the voting rights in the joint venture.
Regulatory environment
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.
Strategy
Market opportunity
Macroeconomic factors
Competition
Future market
developments
The strategy of the North America Division is to deliver organic growth in revenue and passenger volumes as a result of
providing safe, reliable, good quality, customer-focused services at a reasonable price to customers. This may be
supplemented by winning new contract work and/or acquiring businesses where appropriate opportunities arise.
The Group estimates that it has less than 4% of the bus and coach market in North America. The latest US Department of
Transportation’s Bureau of Transportation Statistics, published in 2017, show that in 2015 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.
The North American operations are arguably 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. Demand for its services, particularly megabus.com, is also affected by movements in oil
prices. It nevertheless has some flexibility 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, has grown rapidly and while
megabus.com revenue has declined more recently reflecting lower oil prices, we expect the inter-city coach market to
continue to present significant long-term opportunities to the Group. We are also exploring new contract opportunities in
North America.
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1.4.3 What we do (description and strategy of each business segment) (continued)
UK Rail
Description
Stagecoach Group has major rail operations in the UK.
Our principal rail subsidiaries are South West Trains, East Midlands Trains and Virgin Trains East Coast. South West Trains
runs train services 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 due to run until August 2017 and the Group will not operate that business
thereafter. From 11 November 2007, we have operated the East Midlands Trains business. The business 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 at least March 2018. The UK
Department for Transport has the option to extend the franchise by up to one-year and has already indicated its intention
to extend the franchise until at least November 2018. Stagecoach has a 90% share in the Virgin Trains East Coast business
with the Virgin Group of Companies holding the other 10%. The Virgin Trains East Coast franchise began in March 2015
and is planned to run until 31 March 2023, with the option for a one-year extension at the discretion of the UK
Department for Transport. It provides inter-city train services between London and a number of locations including
Edinburgh, Newcastle, Leeds and York. 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 2018. The other shareholder in Virgin Rail Group is
the Virgin Group of Companies. South West Trains, East Midlands Trains, Virgin Trains East Coast and the tram operations
each have a managing director, who reports to the Managing Director of the UK Rail Division, who in turn reports to the
Chief Executive. Virgin Rail Group has a managing director, 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 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 win new franchises.
The rail operations are exposed to macroeconomic factors with passenger revenue correlated to Gross Domestic Product
(“GDP”) 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 South West Trains franchise has
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
agreed franchise terms. The Group’s East Midlands Trains and Virgin Trains East Coast franchise, as well as the West Coast
Trains franchise operated by the Group’s Virgin Rail Group joint venture, are not entitled to revenue support in the form
received by South West Trains. They do, however, have “GDP sharing” agreements that are intended to ensure that the
Department for Transport bears most of the risk of variances in revenue resulting from UK GDP differing from that
expected at the time of the applicable franchise agreement. On bids for new franchises, the Group’s evaluation of
macroeconomic risks is a key component of the bid process.
Regulatory environment
Strategy
Market opportunity
Macroeconomic factors
Competition
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, Go Ahead Group, Arriva, MTR,
Keolis, Trenitalia, SNCF, Eurostar, Serco and Abellio.
Future market
developments
The UK Department for Transport has a clear schedule in place for re-tendering rail franchises. The Group will assess each
opportunity to bid for a new rail franchise on a case-by-case basis.
The UK continues to see growth in demand for rail services presenting opportunities for the Group’s existing rail interests
and also in its bids for new franchises.
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Strategic report
1.4.4 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 quality, 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 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.
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.
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 Department for Transport, 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 Department for Transport 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 customers’ expectations. Significant investment,
internal management resource and external supplier input support the development and operation of 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 efficiently 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.
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1.4.5 The challenges we face (principal risks and uncertainties)
Like most businesses, there is 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 Board of Directors determines the nature and extent of the principal risks that it is willing for the Group to take in achieving its strategic objectives.
Information on the risk management process is provided in section 4.12. 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
29 April 2017 and since
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.
In extreme cases, services could be
suspended or structural changes
imposed on the Group as a result of
regulatory or other action.
A series of less severe incidents
could have similar consequences.
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.
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.
Other factors, such as movements in
fuel prices, can also affect revenue,
costs and profit. The revenue and
profit of the Group could therefore
be positively or negatively affected
by changes in the economy.
• No significant matters to report.
While it is not possible to fully
eliminate these risks, 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. The Group has insurance
arrangements in place to reduce the
financial effect on the Group of certain
claims against it.
The Group has plans in place
designed to reduce the operational
and financial impact of a terrorist
incident. It also has checks in place
such as vehicle inspections to
reduce the risk.
• 1.5.5
• We believe that recent high profile
terrorist attacks in major European
cities, including London and
Manchester, continue to suppress
demand for public transport,
particularly for longer distance UK Rail
services.
• 1.5.1 and 1.5.5
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 1.4.3.
• During the year ended 29 April 2017,
the Group’s wholly owned South West
Trains rail franchise received revenue
support from the Department for
Transport, such that the Department
was and is at risk for the majority of any
difference between actual and
expected revenue.
• The Virgin Trains East Coast franchise,
East Midlands Trains franchise and
West Coast Trains franchise, operated
by the Group’s Virgin Rail Group joint
venture, all have “GDP sharing”
agreements that are intended to ensure
that the Department for Transport and
the train operator share the risk of
variances in franchise revenue resulting
from UK GDP differing from that
expected at the time of the respective
franchise agreements.
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1.4.5 The challenges we face (principal risks and uncertainties) (continued)
Description of risk
Management of risk
Developments in year ended
29 April 2017 and since
Section in
Annual Report
Economy (continued)
• 1.5.5
• We believe that macroeconomic factors
have contributed to slower revenue
and passenger volume growth in the UK
businesses during the year and since.
• The ongoing negotiation of the terms of
the UK leaving the European Union may
lead to continuing economic, consumer
and political uncertainty. That may in
turn affect asset values and foreign
exchange rates, which have a bearing
on the amounts of our pension,
financial instruments and other
balances. UK policy following the UK
leaving the European Union may affect
the UK economy, including the
availability and cost of staff.
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, which have a
finite duration. 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. Included within
that overall risk, is the risk that the
Group wins a franchise on terms
that are unrealistic (whether due to
error or overly optimistic
assumptions) and which as a result,
adversely affects the Group’s
financial performance and/or
financial position.
• 1.5.5
• 2.5.4
• 2.5.4
• 2.5.4
• 1.5.5 and
1.5.6
The Group looks to achieve sensible
risk sharing arrangements in its rail
franchise agreements. The Group’s
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 focused on
controlling costs in the UK Rail
Division.
• Revenue growth at Virgin Trains
East Coast has been lower than
that assumed in the bid, which
has reduced the expected
profitability of that business. We
have recorded a £84.1m pre-tax
exceptional expense to provide
for the current onerous status of
the contract at Virgin Trains East
Coast.
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.
• The Group was unsuccessful in its bid
for the new South West Trains
franchise, and the existing franchise is
due to end in August 2017. We expect
the financial impact of losing the
franchise to include an increase in the
Group’s reported net debt of around
£100m.
• During the year, the Government
confirmed that it requires a short-term
franchise of approximately twelve
months to cover the period from the
end of the current West Coast franchise
in March 2018 until the planned start
of the West Coast Partnership franchise
in April 2019. Virgin Rail Group is in
discussions with the Department for
Transport with a view to agreeing
commercial terms for Virgin Rail Group
to continue operating the West Coast
Trains business through to at least
March 2019.
• The East Midlands Trains franchise is
contracted to run until at least March
2018, although the DfT has an existing
contractual option to extend it up until
March 2019.
• The Group is one of three shortlisted
bidders for the next East Midlands
Trains franchise.
• The Group is also shortlisted for the
new South Eastern rail franchise.
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Strategic report
1.4.5 The challenges we face (principal risks and uncertainties) (continued)
Description of risk
Management of risk
Developments in year ended
29 April 2017 and since
Section in
Annual Report
Our UK Rail businesses are subject to
complex contractual arrangements.
Contractual 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.
• We are engaged in constructive
discussions with the Department for
Transport regarding the terms of our
continued operation of the Virgin
Trains East Coast franchise, taking
account of our respective rights and
obligations under the existing
franchise agreement. While any
new agreement remains subject to
approvals and contract, we expect
to finalise new commercial terms
during the next year.
• 1.5.5
• 2.5.4
• 2.5.4
• 1.5.5
The Group monitors trends in revenue
and passenger numbers across its
businesses. In forecasting future
revenue and passenger numbers,
including in respect of bids for new rail
franchises, the Group considers
research and evidence on changing
customer behaviour.
The Group will, from time to time, vary
its timetables, pricing, range of ticket
types and transport networks in
response to actual or anticipated
changes in demand.
• Lower rates of growth seen recently in
the UK rail sector are partly a result of
changes in working patterns. On our
London commuter rail services, we
have seen evidence of changing
working patterns resulting in variations
in demand by weekday.
• In recent years, we have adjusted the
timetables for certain of our North
America commuter bus services to
adapt to changes in working patterns.
• Pension scheme liabilities have
increased during the year, principally
due to a fall in corporate bond yields.
• 1.6.9
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 comprising the
Finance Director, a Non-Executive
Director and other senior executives,
oversees the Group’s overall pensions
strategy. The Board participates in
major decisions on the funding and
design of pension schemes.
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 lose some or all
of the amounts committed for the
shareholder loan facilities, the
performance bonds and the season
ticket bonds. The Group can do more
to prevent breaches of franchise
where it has 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.
Changing customer habits
There are opportunities for the Group
to shape its services and its interaction
with its customers in response to
changes in customer habits such as
their working patterns and shopping.
People travel on the Group’s bus, train
and tram services for a variety of
reasons, including in some cases, to get
to and from work and/or to get to and
from shopping locations.
Changes in people’s working patterns,
shopping habits and/or other
preferences could affect demand for
the Group’s transport services, which
could in turn affect the Group’s
financial performance and/or financial
position.
For example, increases in the
proportion of working time that people
spend at home, or in the level of
shopping undertaken online, could
affect demand for travel.
Pension scheme funding
The Group participates in a number of
defined benefit pension schemes. There
is a risk that the reported net pension
asset/liability and/or 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.
Intervention by regulators could also
affect the contributions required. Any
increase in contributions will reduce the
Group’s cash flows. Any significant
increase in pension liabilities could
affect the Group’s credit ratings.
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1.4.5 The challenges we face (principal risks and uncertainties) (continued)
Description of risk
Management of risk
Developments in year ended
29 April 2017 and since
Section in
Annual Report
• No significant matters to report.
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 adversely impact
the Group’s financial performance
and/or financial position.
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.
Regulatory changes and availability of public funding
Public transport is subject to varying
degrees of regulation across the
locations in which the Group operates.
There is a risk that changes to the
regulatory environment could impact
the Group’s prospects. We see the
greatest risk in this respect as being
the risk that some bus services in the
UK outside London become subject to
franchising (whereby a government
body specifies the bus services and
puts them out to tender) compared to
the current model where commercial
bus operators are free to design and
operate their own services.
Similarly, many of the Group’s
businesses benefit from government
investment in bus and train services,
including tax rebates, the provision of
equipment, contracted services and
concessionary travel schemes for
passengers. There is a risk that the
availability of government finances
changes due to political, regulatory or
other reasons.
There is also a risk that the Group
suffers financial or reputational
damage as a result of non-compliance
with laws or regulations or as a result
of the Group having a different
interpretation of laws or regulations
from others. In addition, in the case of
tax, there is a risk the Group suffers
reputational damage because of how
others perceive the Group’s approach
to a tax matter even where the Group
has complied with the applicable laws
and regulations.
Management and Board succession
The Group values the continued
services of its senior employees,
including its directors and
management who have skills that
are important to the operation of
the Group’s business. The success of
the Group could be adversely
affected if effective succession
planning is not in place.
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
trade bodies and government forums.
The Group seeks to maintain good,
cooperative relationships with all
levels of government, by developing
and promoting ideas that offer cost
effective ways of improving public
transport.
Where regulatory changes are known
or reasonably likely, the Group
develops plans to seek to mitigate any
adverse effects on it.
The Group uses internal and/or
external experts to advise it on
compliance and management in
specialist areas such as tax and
transport law.
• 1.5.1
• The greater devolution of powers
within the UK, reflected in the Bus
Services Act 2017, could see the
introduction of franchised bus
networks in some areas of England,
which could affect our commercialised
bus operations.
• There are growing signs that the
Scottish Government is considering
giving local authorities the option to
franchise bus services and councils to
set up municipal bus companies as
part of measures to be included in a
planned Transport Bill. Some of the
measures in the Bus Services Act
referred to above (such as open data
and smart ticketing) could provide a
basis for developing bus policy in
Scotland. The timing of the Transport
Bill is yet to be confirmed. The Bill is
also expected to cover legislation on
enhancing and improving the
regulation of road works, matters
around parking and also, air quality.
• The Ontario Ministry of
Transportation is consulting on
proposals to deregulate the current
market, which may ultimately lead to
a more open, private-sector driven
inter-city coach market in this part of
Canada.
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 6.5)
and the Board. The appropriate level of
management deals with recruitment
and retention of other staff.
• Changes in the Company’s Board of
Directors during the year are explained
in section 1.3 of this Annual Report.
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1.4.5 The challenges we face (principal risks and uncertainties) (continued)
Description of risk
Management of risk
Developments in year ended
29 April 2017 and since
Section in
Annual Report
Disease
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.
Information security
The Group has plans in place to
respond to any significant outbreak
of disease.
• No significant matters to report.
There is a risk that confidential and/or
commercially sensitive information
relating to and/or held by the Group
is subject to unauthorised access, use,
disclosure, modification, perusal,
recording or destruction.
There is also a risk that the Group’s
information and/or systems are
subject to disruption, corruption or
failure due to security breaches.
An Information Security Board
oversees the management of
information security risks, and takes
appropriate advice from suitably
experienced third party consultants
and internal experts.
Investment is made in appropriate
policies, people and technology to
reduce the severity and likelihood of
information security risks crystallising.
• No significant matters to report.
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 digitally. There is a risk
that the Group’s capability to make
sales digitally 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.
Litigation
The Group is exposed to the risk of
commercial and consumer litigation
arising from the legal environment in
some markets, particularly the United
States.
Competition
Loss of business to existing
competitors or new entrants to the
markets in which we operate could
have a significant impact on our
business. We face competition for
customers not only from other
operators of trains, trams, 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.
Developments in new technology
and/or new business models could
affect the competitive environment in
which the Group operates.
Technological developments could
enable new competitors and/or
business models to be developed that
disrupt or compete with the Group’s
business.
Section 1.4.3 of this Annual Report
includes comments on competition in
the context of each of the Group’s key
divisions.
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
digital platforms and continues to look
to ensure that it secures reliable
service provision.
• A Digital and Technology
Committee was established during
the year to monitor the
development and effectiveness of
digital strategies across the Group.
and
• 5.1
2.5.3
The Group has compliance
programmes in order to reduce the
risk of material litigation against the
Group.
• The US Department of Justice’s
investigation of the conduct of
company personnel in responding to
discovery obligations relating to Twin
America is no longer ongoing.
• 1.5.6.2
• Sustained low fuel prices have led to
increased competition from cars and
airlines.
• 1.5.1, 1.5.4
and 1.5.5
We monitor competitive developments
in each of our markets and respond as
appropriate. That includes monitoring
developments in technology and
business models that could affect the
competitive landscape. Multi-modal
travel portals, taxi hailing technology
and businesses, ride-sharing
technology and businesses, and
autonomous vehicles are amongst the
developments we are monitoring and
assessing.
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.
• 1.5.1 2.5.3
Details of the Group’s treasury risks are discussed in note 25 to the consolidated financial statements, and include the risk to operating costs arising from
movements in fuel prices.
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1.4.6 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:
• Profitability
• Organic growth
• Safety
• Service delivery
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.
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:
Target
29 April 2017
pence
Year ended
30 April 2016
pence
30 April 2015
pence
Adjusted EPS
To increase in excess of the UK Consumer Prices Index
24.4p
27.7p
26.7p
Organic growth
The following measures of organic growth are monitored:
• UK Bus (regional operations) and megabus Europe – 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. The growth figures for the year ended
29 April 2017 are also normalised for differences in the number of days in each year.
Target
Year ended
29 April 2017
Growth %
Year ended
30 April 2016
Growth %
Year ended
30 April 2015
Growth %
UK Bus (regional operations) passenger journeys
megabus Europe passenger journeys
UK Bus (London) revenue
UK Rail passenger miles
– South West Trains
– East Midlands Trains
– Virgin Trains East Coast
– Virgin Rail Group – West Coast Trains
North America revenue
Positive growth
each year
(1.5)%
n/a
(0.8)%
(0.8)%
2.1%
2.1%
5.9%
(2.1)%
(0.8)%
235.0%
2.5%
2.7%
1.2%
1.7%
2.6%
(3.5)%
0.1%
65.1%
6.4%
3.9%
6.3%
n/a
10.2%
0.9%
The reduction in passenger journeys at UK Bus (regional operations) in the year ended 29 April 2017 is partly attributable to weak underlying local economic
conditions in some parts of the UK, sustained lower fuel prices, worsening road congestion and increased competition from other transport providers.
The lower revenue in North America during the year ended 29 April 2017 reflects the actions we have taken at our megabus.com inter-city coach business to
match our services with changes in demand from customers.
The increase in passenger miles at West Coast Trains during the year ended 29 April 2017 partly reflects the prior year impact of the temporary closure of
Lamington viaduct in southern Scotland, which carries the West Coast mainline railway.
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1.4.6 How we measure our performance (key performance indicators) (continued)
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.
Eight of the more important safety KPIs are reported below:
Target
Year ended
29 April 2017
Year ended
30 April 2016
Year ended
30 April 2015
UK Bus (regional operations) – number of blameworthy
accidents per 1 million miles travelled
megabus Europe – 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 Trains East Coast – workforce lost time injuries
per 1,000 staff
Virgin Rail Group – West Coast – workforce lost time
injuries per 1,000 staff
To decrease each
year – ultimate target
is zero
18.6
n/a
45.8
6.9
1.4
0.9
1.1
1.0
20.4
11.9
35.6
6.2
1.4
1.3
1.5
1.3
19.8
6.7
28.5
4.4
1.5
1.1
n/a
1.8
An increased proportion of newer, less experienced bus drivers, combined with the impact of greater road congestion, have contributed to the
increased rate of blameworthy accidents at UK Bus (London) during the year ended 29 April 2017. While the increase tends to be mostly low speed
manoeuvring incidents, each incident is investigated and health and safety remains our top priority.
We believe the increase in the number of blameworthy accidents in North America during the year ended 29 April 2017 reflects an increased focus on
reporting all such incidents, irrespective of how minor, rather than being indicative of deteriorating safety performance.
Service delivery
Our measures of service delivery include:
• UK Bus (regional operations), megabus Europe 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 Department for Transport’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
megabus Europe reliability
UK Bus (London) reliability
UK Rail punctuality
– South West Trains
– East Midlands Trains
– Virgin Trains East Coast
– Virgin Rail Group – West Coast Trains
29 April 2017
%
Year ended
30 April 2016
%
30 April 2015
%
99.5%
n/a
97.9%
87.0%
92.1%
83.1%
89.4%
99.4%
99.7%
97.4%
90.0%
92.8%
85.0%
86.2%
99.5%
99.3%
97.2%
90.1%
92.3%
n/a
84.4%
Target
>99.0%
>99.0%
>99.0%
>90.0%
>85.0%
>85.0%
>85.0%
The adverse trends in punctuality during the year ended 29 April 2017 at South West Trains and Virgin Trains East Coast in particular, reflect the poor
Network Rail operational performance on these parts of the network. In contrast, punctuality has improved at West Coast during the year, reflecting
positive work by Network Rail and Virgin Rail Group.
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1.5 Divisional Performance
1.5.1 UK Bus (regional operations)
Summary
• High margin public transport business – c.12% operating margin
• High passenger satisfaction – 86% in England, 90% in Scotland
• Further investment in digital and technology
• Action taken in response to a period of subdued revenue trends –
targeted network, pricing and management changes
• No change in our expectation of 2017/18 operating profit
Financial performance
The financial performance of the UK Bus (regional operations) Division
(excluding exceptional items) for the year ended 29 April 2017 is
summarised below:
Revenue
Like-for-like* revenue
Operating profit*
Operating margin
2017
£m
1,015.7
1,008.3
121.1
2016
£m
1,032.8
1,023.7
137.3
Change
(1.7)%
(1.5)%
(11.8)%
11.9%
13.3%
(140)bp
While the operating profit for the year ended 29 April 2017 of £121.1m
(2016: £137.3m) fell short of the target we set at the start of the financial
year, the UK Bus (regional operations) Division remains a strong business
with an operating margin of almost 12%, passenger satisfaction of 86% in
England and passenger satisfaction of 90% in Scotland. We have made
further investment in the future of the business, in new vehicles and new
technology.
The Division is organised and managed based on a number of core regional
bus businesses. Across those businesses, the operating margins in the year
ranged upwards from around 8%. Although the margin varies from
business to business, each of them continues to deliver a satisfactory level
of profitability.
Like-for-like revenue can be analysed as follows:
Commercial on and off bus revenue
– megabus.com
– other
Concessionary revenue
Commercial & concessionary revenue
Tendered and school revenue
Contract revenue
Hires and excursions
2017
£m
23.8
596.6
246.6
867.0
99.9
38.8
2.6
2016
£m
24.0
601.0
246.2
871.2
110.3
39.3
2.9
Change
(0.8)%
(0.7)%
0.2%
(0.5)%
(9.4)%
(1.3)%
(10.3)%
Like-for-like revenue
1,008.3
1,023.7
(1.5)%
The like-for-like revenue growth rates across our core regional bus
businesses ranged from around minus 4% to plus 4% in the year, reflecting
our view that the subdued revenue trends reflect variations in local
economies and traffic conditions to a greater extent than they reflect any
nationwide structural changes in transport markets.
The age at which older people are entitled to free bus travel in England has
been increasing in line with changes to the state pension entitlement age.
Therefore, the number of older people eligible for free bus travel in
England has reduced year-on-year. While that has some adverse effect on
the number of concessionary passenger journeys on our bus services, it
should have a positive effect on the number of commercial (i.e. where the
passenger pays for his or her own travel) journeys. To understand the
year-on-year revenue trends, therefore, we consider commercial and
concessionary revenue together.
* See definitions in note 34 to the consolidated financial statements
Like-for-like combined commercial and concessionary revenue was 0.5%
lower than in the previous year, although there was some improvement in
revenue trends in the second half of the year.
Total like-for-like passenger journeys fell by 1.5%, largely as a result of
weak underlying local economic conditions in some parts of the UK,
sustained lower fuel prices and worsening road congestion. We continually
review and adjust our local bus networks to take account of changing
patterns of demand. We have therefore taken action in response to the
current period of subdued revenue trends.
In partnership with transport authorities, we seek to maximise the value
from their funding for socially necessary services to provide as wide a set
of bus networks as possible for local communities. Revenue from tendered
and school services provided under contract has continued to decline, as a
result of local authorities reducing spending due to budget constraints.
While contract revenue also declined year-on-year, that revenue stream
does vary from year to year based on the particular contract opportunities
available.
Road works and worsening road congestion in many towns and cities are
increasingly having a negative impact on customer use of bus services,
damaging reliability and adding to operating costs. Along with other bus
operators, we are increasing pressure on local authorities to take practical
steps to address road congestion and invest in bus priority measures which
can help improve mobility and air quality for everyone.
The movement in operating margin was built up as follows:
Operating margin – 2015/16
Change in:
Staff costs
Fuel costs
Gain on disposal of property
Depreciation
Other
Operating margin – 2016/17
13.3%
(1.8)%
1.5%
0.6%
(0.6)%
(1.1)%
11.9%
The main changes in the operating margin shown above are:
• Staff costs have continued to rise against a backdrop of subdued
revenue.
• Fuel costs have reduced, reflecting market fuel prices and our fuel
hedging programme.
• Non-exceptional gains on property disposals, principally on two specific
properties, were higher than in the previous year.
• Our continued investment in our vehicle fleet and technology is
reflected in higher depreciation charges.
• Other costs have increased, including higher IT and digital costs as we
progress our digital programme.
Networks and pricing
Providing our customers with value-for-money travel is at the heart of
our strategy. Independent research by transport specialists TAS,
published in February 2017, found that weekly bus travel offered by
Stagecoach is almost 10% cheaper than the UK average. Stagecoach was
also found to have the country’s lowest average single bus fares. Our
market-leading low fares, and the fact that there were no price rises on
many of our tickets in the previous 12 months, has also given us
flexibility to make targeted changes to pricing recently whilst remaining
competitive to the private car.
We are pleased to have partnered with Special Olympics Great Britain to
support its National Games in Sheffield in August 2017. We will provide
daily transport for around 3,000 competitors and their sports coaches
between their event accommodation and the 13 sports venues.
We are continuing to develop our megabus.com inter-city coach brand in
the UK. In May 2017, we significantly expanded the network with a series
of new routes across the Midlands and south-west England, offering
direct links to Heathrow or Gatwick Airport from 13 towns and cities.
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Enhanced customer experience
We are continuing to invest in the quality of our services, initiatives to
further increase customer satisfaction, and steps to deliver better air quality
for local communities. In April 2017, we announced orders worth £70m for
around 340 new Euro 6 standard vehicles for 2017/18, most of which will
be built in the UK and support the country's manufacturing sector. Almost
half the new vehicles ordered meet the Government’s Low Carbon Emission
Bus specification, while around two-thirds feature innovative stop-start
technology to help improve fuel consumption and reduce emissions. All
new vehicles are fitted with CCTV and USB charging points, while most will
also offer free Wi-Fi. It brings our total investment in new buses and
coaches in the UK to well over £1bn in the past 11 years, delivering around
7,000 new vehicles.
We have also further invested in our digital offerings. Our new Stagecoach
Bus smartphone app provides customers with journey planning, next-stop
information and live bus tracking, and enables people to buy and download
bus tickets straight to their mobile phone. Smart ticketing is in place at all
Stagecoach regional companies with more than two million
StagecoachSmart cards in circulation and more than 330 million smart
transactions every year. In partnership with other bus companies, we have
ensured multi-operator smart ticketing is available in all of England’s city
regions, benefitting around 15 million people. We are pleased to have been
part of the launch of Scotland’s first smartcard multi-operator initiative
covering Aberdeen City and Aberdeenshire, as well as the introduction of a
similar initiative in Dundee. Further multi-operator schemes are set to follow
in Glasgow and Edinburgh. These projects will provide a platform to deliver
multi-modal travel in partnership with transport authorities. During
2016/17, we started the roll-out of contactless payment technology across
our UK regional bus services. This technology allows passengers to pay for
their travel with contactless credit or debit card, Apple Pay and Android Pay.
The most recent independent research by Transport Focus shows that our
customers continue to have high levels of satisfaction with Stagecoach
services, as high as 93% in some areas, and we have again been rated as
offering the best value for money of any major bus company.
Local partnerships and devolved arrangements
One of the Division’s strengths is the breadth of partnership working with
local authorities who understand the joint responsibility we share for
improving bus services for passengers. We are pleased to have signed a new
partnership agreement that will deliver significant investment in improved
bus services in Merseyside over the next five years. The Liverpool City Region
Bus Alliance, a partnership with Merseytravel and Arriva, will deliver more
than £25m worth of investment in bus services in the first year to boost
services for existing passengers and attract more people to bus travel.
Around 80% of public transport journeys in the Liverpool City Region are
made by bus, with overall customer satisfaction at 89%. The partnership will
provide a more modern bus fleet, improved smartcard ticketing, Wi-Fi and
USB charging on all new buses, joint marketing campaigns, improved bus
links, and clearly defined targets around punctuality and passenger
satisfaction. This builds on existing strong partnerships in several other city
regions and local authority areas around the country. We are developing
similar partnership proposals in conjunction with fellow bus operators for
other key regions.
New mayors have been appointed in a number of areas where we operate
local bus services. A further mayoral election for the Sheffield City Region
will take place in May 2018. We look forward to continuing to engage with
the newly appointed mayors and local authorities in these regions and
demonstrating how a partnership between bus operators and the public
sector offers the best and most cost effective route to deliver on their
aspirations for stronger and smarter local bus networks.
The Bus Services Act came into effect in April 2017 and makes some
amendments to the framework for the delivery of bus services in England
outside of London. We are pleased that this enabling legislation has retained
a significant focus on partnerships and that some proposals introduced
during its passage through Parliament which would not have benefitted
either customers or taxpayers have been reversed. The important
associated statutory instruments and guidance linked to the Act are not yet
finalised and we are continuing to engage constructively with key
stakeholders. Our focus is to ensure that there are proper protections for
passengers, taxpayers and bus operators, including a robust and transparent
assessment process for evaluating any proposed franchising of bus services.
A National Transport Bill is expected to be introduced in Scotland in the near
future. We are engaging with key stakeholders on what this may mean for
our bus operations in Scotland and will continue to monitor developments.
Outlook
We continue to expect subdued revenue trends from our local bus services
in the short-term. We have implemented targeted mileage reductions and
selective fare rises, as we make changes to our services that we consider
will support the long-term success of the business. Our costs remain well
controlled, although the reduction in fuel costs in 2017/18 is anticipated to
be more modest than that for the year ended 29 April 2017.
We have not significantly changed our expectation of the Division’s
operating profit for the year ending 28 April 2018 since our last update on
trading.
1.5.2 megabus Europe
Summary
• Exit from megabus Europe business completed
• No further losses expected
Financial performance
The financial performance of the megabus Europe Division (excluding
exceptional items) for the year ended 29 April 2017 is summarised below:
Revenue and like-for-like revenue
Operating loss
2017
£m
20.2
(4.3)
2016
£m
18.4
(24.1)
Change
9.8%
(82.2)%
Operating margin
(21.3)%
(131.0)%
10,970bp
The Group completed the sale of the retailing part of the megabus Europe
business to FlixBus on 1 July 2016. The consideration was satisfied by the
issue of a loan note and that loan note was settled in full in December 2016.
The Group also agreed to transfer a number of vehicles to FlixBus, or a
nominee of FlixBus. These transfers are now largely completed. After taking
account of costs and losses related to the sale, we have reported a pre-tax
exceptional loss on the disposal of the business of £6.9m. The exceptional
loss has increased from the loss of £2.8m reported for the half-year ended
29 October 2016, mainly reflecting additional costs relating to the Group’s
exit from its operations in France.
The operating loss of £4.3m shown above represents the loss incurred prior
to 1 July 2016, partly offset by a small profit from the operation from 1 July
2016 of an international network of coach services between the UK and
mainland Europe. These services were operated by us under contract to
FlixBus, where the revenue from passengers flowed to FlixBus and FlixBus
paid us for the operation of the coach services. These services have now
ceased operating. We have also ceased operating the other coach services
we previously ran in mainland Europe prior to 1 July 2016. Losses on all of
these services since 1 July 2016 and costs associated with terminating
services, where applicable, have been accounted for as part of the
exceptional loss on the sale of the retail business.
No further profits or losses are currently expected in respect of megabus
Europe.
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1.5.3 UK Bus (London)
Summary
• Significant value delivered since 2010 acquisition
• London Bus operator of the year 2017
• Pressure on wage rates and competition for new contracts
expected to result in lower operating profit in short-term
• Significant value in freehold property portfolio
Financial performance
The financial performance of the UK Bus (London) Division for the year
ended 29 April 2017 is summarised below:
Revenue
Like-for-like revenue
Operating profit
Operating margin
2017
£m
263.4
263.4
18.4
7.0%
2016
£m
267.1
265.6
20.2
7.6%
Change
(1.4)%
(0.8)%
(8.9)%
(60)bp
We have generated significant value from our acquisition of the London
bus business in 2010, when we paid around £60m to acquire the business.
In the last three years alone, the business has delivered over £60m of
operating profit.
The value of the business is supported by its freehold property portfolio.
Property in London is expensive and our properties provide a strong base
for the continuing operation of our bus services in East and South East
London. We believe the properties would also realise significant value if
they were to be sold to third parties.
As expected, like-for-like revenue was slightly down at 0.8% below the
prior year. That reflected a net reduction in vehicle miles operated
resulting from contract tenders concluded in the prior year. Revenue per
vehicle mile increased 1.4%.
The movement in operating margin was built up as follows:
Operating margin – 2015/16
Change in:
Insurance and claims costs
Fuel costs
Staff costs
Operating lease costs
Other
Operating margin – 2016/17
7.6%
0.7%
0.6%
(0.3)%
(0.4)%
(1.2)%
7.0%
Insurance and claims costs have reduced due to lower costs on the self-
insured portion of claims.
Although the Division’s fuel costs have reduced year-on-year, there is an
offsetting effect from the impact of lower fuel costs on the indexation of
contract revenue. Staff and other costs have continued to rise as a
proportion of revenue.
We have built a sustainable business in the contracted London bus market
through a measured approach to bidding, a focus on high operational
quality and a close control of costs. Our East London bus business was
named Bus Operator of the Year at the 2017 London Transport Awards in
recognition of high levels of reliability, driving standards and customer
satisfaction.
Road works and traffic congestion are a continuing challenge for
operators in the London bus market. Engagement is ongoing with both
Transport for London and the London Assembly on these issues. We
believe congestion is a major factor in the decline in bus passenger
volumes, which are now falling at a faster rate in the capital than in the
rest of the country. While London bus operators do not take passenger
volume risk in the short-term, a combination of declining revenues and
moves by central government to make the London bus network self-
financing means that Transport for London's current business plan
envisages no significant growth in London bus mileage for the next five
years.
Outlook
We currently expect our UK Bus (London) operating profit to reduce in the
year ending 28 April 2018. That reflects two main factors. Firstly, to ensure
we recruit and retain sufficient bus drivers to continue to reliably provide
the contracted bus services, we plan to increase our starting rates of pay for
bus drivers reflecting market conditions in London. Secondly, we are seeing
heightened competition for contracts in some parts of our London
operations resulting in us losing some contracts. While this means that the
2017/18 operating margin is likely to be below our long-term aspiration of
at least 7%, we plan to continue to bid for new contract opportunities at
prices we believe would deliver appropriate rates of return.
1.5.4 North America
Summary
• Actions taken to adjust megabus.com networks to reflect
passenger demand
• New contract wins
• Introduction of low-cost digital offerings for customers
• Targeting growth in operating profit in 2017/18
Financial performance
The financial performance of the North America Division for the year
ended 29 April 2017 is summarised below:
Revenue
Like-for-like revenue
Operating profit
Operating margin
2017
US$m
632.3
632.6
25.0
4.0%
2016
US$m
647.7
646.2
28.4
Change
(2.4)%
(2.1)%
(12.0)%
4.4%
(40)bp
Like-for-like revenue was built up as follows:
megabus.com
Scheduled service
– Commercial revenue
– Support from local authorities
Charter
Sightseeing and tour
Contract services
Like-for-like revenue
2017
US$m
193.0
158.1
20.5
119.0
23.8
118.2
632.6
2016
US$m
Change
202.9
(4.9)%
159.5
19.0
121.7
27.9
115.2
646.2
(0.9)%
7.9%
(2.2)%
(14.7)%
2.6%
(2.1)%
The market in North America has been challenging in recent years due
to the effects of sustained lower fuel prices, which have heightened car
and air competition. However, trading at our megabus.com inter-city
coach business shows some signs of improvement (with the rate of
revenue decline further moderating and revenue per mile for the year
up 3.2%) including as a result of the positive action we have taken to
match our services with changes in demand from customers. As well as
having taken proactive steps to reduce the mileage operated by
megabus.com in North America, we are making targeted use of smaller
vehicles. In addition, we have moved the core operating bases of our
Midwest operation from Chicago to Wisconsin and Ohio to deliver a
more efficient service. Marketing activity to promote the megabus.com
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brand in North America and to generate new customers is particularly
focused on digital channels. We remain well positioned to quickly
respond to further recovery in demand.
1.5.5 UK Rail
Summary
Trading at the other businesses in North America remains in line with
our expectations. While revenue from the more leisure-dependent
activities (charter, sightseeing and tour) reduced during the year, we
saw better trends in our scheduled service and contract revenues. The
fall in like-for-like revenue from sightseeing and tours largely reflects
reductions in mileage at our sightseeing business in California. Contract
revenue growth of 2.6% includes recent contract wins and we are
currently in discussions regarding several further opportunities to secure
new contract business.
As in the UK, the North America Division is expanding its digital
initiatives. Given the smaller size of the North America business relative
to our UK business, a number of our digital initiatives in North America
have been focused on ideas that are relatively low cost to the business
but which are valued by customers. As well as offering a link to buy
travel on some of our current commuter services to and from New York
City, our new www.commuterwiz.com website also allows commuters
to provide us with details of their commutes to enable us to develop
new services for journeys not already well served by public transport.
Our airport express services have increased their online sales
significantly following the launch of more mobile-friendly websites.We
currently have a small group of staff working on how we can further
improve our digital offerings, marketing, branding and overall customer
service at our airport express services. A new
www.stewartairportexpress.com website has recently been launched to
promote and sell our new coach services between Stewart International
Airport and New York City, linking the city to new low-cost international
flights from Norwegian Air.
The movement in the operating margin was built up as follows:
Operating margin – 2015/16
Change in:
Fuel costs
Insurance and claim costs
Staff costs
Other
Operating margin – 2016/17
4.4%
2.3%
(1.1)%
(1.0)%
(0.6)%
4.0%
The main changes in the operating margin shown above are:
• Fuel costs have reduced by around US$16m reflecting changes in
vehicle miles operated, market fuel prices and our fuel hedging
programme.
• The change in insurance and claims costs reflects our latest assessment
of the required provision for claims.
• Overall staff costs are in line with the previous year but have risen as a
proportion of our lower revenue base.
Outlook
As oil prices have stabilised, the trend in our megabus.com revenue per
vehicle mile has improved. If these revenue trends continue to recover,
we have the fleet capacity and operational plans to increase our overall
vehicle mileage.
We also see growth opportunities for the Division in new contract wins
but will remain disciplined in ensuring that our contract bids are designed
to deliver a satisfactory rate of return on capital.
Given the actions we have taken to match our services with customer
demand, and new contract opportunities, we are targeting growth in the
Division’s operating profit in 2017/18.
• Engaged in discussions with Department for Transport on
contractual matters at Virgin Trains East Coast, including implications
of Network Rail’s reprioritised infrastructure programme
• Onerous contract provision at Virgin Trains East Coast, reflecting
expected losses in the near-term, but business expected to be
profitable from 2019
• Rate of Stagecoach UK Rail revenue growth ahead of sector
• South West Trains franchise due to end in August 2017
• Shortlisted for new East Midlands and South Eastern franchises
• Joint venture with Virgin and SNCF shortlisted to bid for new West
Coast Partnership franchise
• Shortlisted for involvement in California High Speed Rail project
Financial performance
The financial performance of the UK Rail Division (excluding exceptional
items) for the year ended 29 April 2017 is summarised below:
Revenue
Like-for-like revenue
Operating profit
Operating margin
2017
£m
2,160.7
2,160.7
31.0
2016
£m
2,129.1
2,118.0
66.7
Change
1.5%
2.0%
(53.5)%
1.4%
3.1%
(170)bp
As expected, profit at the UK Rail Division has declined year-on-year,
principally due to our operations at Virgin Trains East Coast and South
West Trains, where passenger revenue growth was insufficient to cover
the combination of increased premia payments to Government and
movements in operating costs.
Revenue growth at our UK Rail Division, and for the UK rail sector as a
whole, has been lower over the last eighteen months or so than was
generally seen in preceding years. Like-for-like revenue growth in our UK
Rail Division was 2.0%. After normalising for differences in the timing of
events between years and for one-off revenue effects, we estimate that
underlying revenue growth was around 2.4%. This compares favourably
to our estimate of 2.0% normalised revenue growth for UK franchised
train operators in general over that period. We believe the reduced rate
of growth over the last eighteen months or so reflects a number of
factors including the following:
• Poor Network Rail operating performance impacting some train
companies within our UK Rail Division, although Virgin Rail Group’s
West Coast franchise is seeing notable improvements in infrastructure
performance.
• Increased car competition as a result of historically low fuel prices.
• Continued aggressive competition from airlines in light of lower fuel
prices.
• Slower UK GDP growth and weakened consumer and business
confidence, including uncertainty among consumers and businesses
following the UK’s decision to leave the European Union.
• The effect of changing working patterns on commuter services.
Virgin Trains East Coast – contractual arrangements
We are engaged in discussions with the Department for Transport
regarding the terms of our continued operation of the Virgin Trains East
Coast franchise. This takes account of our respective rights and
obligations under the existing franchise agreement, including in respect
of the reprioritisation of Network Rail’s infrastructure programme.
Accordingly, we expect Virgin Trains East Coast to be profitable from
2019 under new commercial terms.
Virgin Trains East Coast has already delivered extensive promised
improvements for passengers and completed a significant part of its
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overall £140m investment programme for the franchise to create a more
personalised travel experience for customers. This has included a
complete upgrade of the existing train fleet, new services and extra
capacity, improved fares and ticketing, as well as harnessing new
technology to deliver better information, on-board service and station
facilities. As a result, Virgin Trains East Coast has amongst the highest
customer satisfaction of any franchised rail operator. At the same time,
Virgin Trains East Coast has continued to meet its contractual and
financial obligations, including delivering around £525m to 29 April 2017
in premium payments to the taxpayer. This is around 30% more than the
average monthly payments made by Directly Operated Railways when it
ran the East Coast route. Trading, however, at Virgin Trains East Coast
have been challenging for some time, for the reasons we have set out in
previous reports. Revenue and profit at Virgin Trains East Coast have
been below the levels anticipated in our 2014 bid for the franchise, albeit
the shortfalls are primarily due to macroeconomic and other external
factors beyond its control. Revenue growth for the UK rail sector as a
whole has also been adversely affected by macroeconomic and other
external factors. Recently, the business has incurred operating losses.
While revenue trends showed some improvement in the second half of
the year to 29 April 2017, revenue is not growing as strongly as we
anticipated and most recently, revenue has been adversely affected by
increased terrorism concerns and political uncertainty. In addition, the
amounts payable to and receivable from Network Rail in respect of
operating performance remain volatile and uncertain.
Our bid for the franchise reflected forecast financial benefits of new
rolling stock and enhanced railway infrastructure. While we and the
Department for Transport continue to expect improved rolling stock and
infrastructure, the scope and timing of those have been reprioritised
such that they are not consistent with what was assumed in our
franchise bid and then contracted. Our contractual position is that the
financial risks related to changes in the scope and timing of new rolling
stock and infrastructure rest with the Department for Transport.
We expect Virgin Trains East Coast to incur losses under the current
contract but taking account of our contractual rights and obligations, we
would expect the franchise to be profitable from 2019. Accordingly, in the
financial statements for the year ended 29 April 2017, we have recorded
an exceptional pre-tax charge of £84.1m to reflect that the current
contractual arrangements give rise to an onerous contract. We have also
recorded a £44.8m impairment of intangible assets associated with the
right to operate the franchise. The impairment charge is essentially an
acceleration of amortisation and is a non-cash charge. The Stagecoach
parent company is committed to loan up to £165m to Virgin Trains East
Coast, of which 10% is to be funded by Virgin. As at 29 April 2017, the loan
to Virgin Trains East Coast was £57.5m.
Virgin Trains East Coast – revenue, investment and customer
satisfaction
As previously highlighted, revenue at Virgin Trains East Coast remains
below our original plans for the franchise, with like-for-like revenue
growth in the year of 3.2%. However, customers are responding well to
our improvements and we are yet to deliver some of the major
elements of our planned investment programme to transform customer
journeys and increase revenue.
We have now completed a £40m investment in upgrading the existing
train fleet, which has seen nearly 25,000 new seats installed. Customers
can also now benefit from 42 additional services per week between
Edinburgh and London, providing 22,000 extra seats. Next year should
see the introduction of completely new Azuma trains being built in the
UK by Hitachi. We are continuing to innovate to make travel easier and
more enjoyable for our customers. In an industry first, Virgin Trains East
Coast extended its booking horizon from the industry standard of three
months to six months in advance for weekday tickets and has recently
extended this to include weekends. We have launched a global first in
rail travel technology with our new Explorer app which helps customers
navigate their way around stations to locate friends, shops and
platforms. The app also enables real time automatic sign translation for
international customers to read signs in their own language. On board,
we have had a positive response from customers to our “Beam”
entertainment system, and we have introduced free WiFi for those
customers that book direct with Virgin Trains East Coast. We have also
transformed the dining and shopping experience for customers with a
revamped menu and food bar packed with new products. A cross-Virgin
Trains brand advertising campaign has been launched and Virgin Trains
has also expanded its customer contact centre in Newcastle.
Our investment programme and marketing initiatives have had a
positive impact on passenger volumes and customer satisfaction. There
has been an increase in the number of passengers choosing train over
plane, the result of a deliberate strategy by Virgin to win market share
on the UK’s busiest domestic air route. Customers consistently rate
Virgin Trains as one of the top long-distance rail franchise operators in
the National Rail Passenger Survey (“NRPS”) commissioned by industry
watchdog, Transport Focus. Figures for the autumn 2016 survey show
91% satisfaction, which is the best autumn result on the East Coast
route in three years and puts Virgin Trains East Coast top of the
franchised long-distance rail operators.
East Midlands Trains
Like-for-like revenue at East Midlands Trains grew 3.3% in the year. The
business is delivering a strong financial performance and a share of that
strong performance is being paid to the Department for Transport under
the franchise “profit share” arrangement. The current East Midlands
Trains franchise is contracted to run until 4 March 2018. The Department
for Transport has the option to extend the contract by up to one year on
commercial terms that have been agreed and has already indicated its
intention to extend the franchise to November 2018.
South West Trains
South West Trains’ like-for-like revenue grew by 0.6% in the year. It
currently receives revenue support from the Department for Transport
such that any future shortfall in revenue versus our current expectation
would be 80% offset by increased revenue support income from the
Department.
We were disappointed to hear in March 2017 that we had been
unsuccessful in our bid to operate the next South Western franchise.
The current South West Trains franchise is due to expire in August 2017.
In the final months of our franchise, we are continuing to work hard to
deliver a professional service to our customers, meet our obligations
and ensure a smooth transition to the new operator. Satisfaction
amongst South West Trains passengers is continuing to increase, with
the latest independent research by Transport Focus showing that overall
satisfaction has risen to 83%, up from 81% in autumn 2015. Overall
satisfaction with South West Trains services was higher than both the
national and London & South East sector average.
We are proud to have operated the network under the South West
Trains brand for more than 20 years. Over that time, we have delivered
significant improvements for our customers. We believe we submitted
a strong bid for the new South Western franchise. It offered a
transformation in the travel experience for our customers, more
investment to help the railway support the communities and economy
of the south-west, as well as a substantial and deliverable financial
benefit to taxpayers to help fund better public services.
We have received feedback from the Department for Transport on the
various elements of our bid. Together with our own review of our bid,
this will inform our approach to bids for other new franchises.
We are most grateful to all of our employees and partners who have
been involved in delivering our vision for the railway in the south-west
over the past two decades as well as those who contributed to our
strong bid for the new franchise. We know they share our
disappointment in the result.
Franchising update
We are pleased that the Group is one of three bidders to have been
shortlisted by the Department for Transport for the new East Midlands
rail franchise. The new franchise, which is likely to be for between seven
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Strategic report
and 15 years, is due to start in 2018 when the current East Midlands
Trains contract comes to an end.
We have also been shortlisted to bid for the new South Eastern
franchise. The franchise, which runs from 2018, incorporates rail
services in south east London, Kent, the Medway towns and East Sussex.
In April 2017, we confirmed that Stagecoach Group and Virgin Group
had joined forces with French high speed operator, SNCF, to bid for the
West Coast Partnership rail franchise. This creates a powerful world-
class partnership, bringing together the team which has transformed
inter-city rail travel in the UK with the most recognised and capable high
speed operator in Europe. Collectively, we have been shortlisted to bid
for the new franchise, which is expected to run from 2019 and include
current West Coast services and the first three to five years of operation
of High Speed 2 services. Stagecoach has a 50% share in the bid vehicle,
West Coast Partnership Limited, with a 30% share held by SNCF and the
remaining 20% owned by Virgin. It is envisaged that services under a
successful bid would carry the Virgin brand.
We take some encouragement from how the UK franchising model is
developing. The parent company of a franchised train operator is
required to commit loan facilities, which can be drawn down by the
train operator where necessary to meet contractual obligations or
funding needs. We are encouraged by early signs of moderation in the
amount of such loan commitments. We are also encouraged to hear
that the Department for Transport recognises that the risk sharing
arrangements on franchises awarded in recent years leaves train
operators too financially exposed to risks outside of their control – in
that regard, we welcome moves towards something more akin to a full
sharing of revenue risk rather than just risk sharing arrangements based
on specific macroeconomic measures.
We remain, however, concerned that the Department may continue to
expect train operators to bear significant financial risks in relation to the
availability of the train paths required to operate the train services that
an operator planned in its franchise bid and/or in relation to Network
Rail’s delivery of infrastructure improvements. Both of these risks are
affected by events outside of a train operator’s control yet can have
substantial financial consequences. We will continue to share our views
and ideas on the UK franchising model with the Department for
Transport.
We are one of five bidders shortlisted for an early train operator
(“ETO”) contract for a new high-speed railway being constructed in
California. The ETO will provide advice during the design and
construction of the new rail system and would also be expected to
initially run the train service. We look forward to further understanding
the objectives and expectations of the high-speed rail authority with
regards to the project.
Outlook
Our UK Rail operating profit for 2017/18 will reflect the end of our
South West Trains franchise with an expected full-year profit at East
Midlands Trains being partly offset by the costs of bidding for new
opportunities. We continue with our emphasis on growing revenue,
controlling costs and managing contracts.
Revenue has been weaker in recent weeks reflecting the effects on
demand of the dreadful terrorist attacks in Manchester and London as
well as political uncertainty related to the General Election and the UK’s
planned exit from the European Union. This in turn increases
uncertainty in forecasting revenue for the weeks and months ahead.
We will continue to consider rail bidding opportunities where we
believe we can deliver benefits to passengers and add value for our
investors. Our record of winning franchises, actively managing the
contracts during the life of franchises and operational excellence leaves
us well placed to consider contract opportunities, not just in the UK but
also overseas.
1.5.6 Joint Ventures
1.5.6.1 Virgin Rail Group
Summary
• Profit growth, record punctuality and high customer satisfaction
• Revenue growth ahead of sector average
• Opportunity for further “Direct Award” franchise through to
March 2019
Financial performance
The financial performance of the Group’s Virgin Rail Group joint venture
for the year ended 29 April 2017 is summarised below:
49% share
Revenue
Operating profit
Net finance income
Taxation
Profit after tax
Operating margin
2017
£m
2016
£m
556.8
525.3
31.5
0.5
(7.2)
24.8
5.7%
32.6
0.7
(9.1)
24.2
6.2%
Our share of Virgin Rail Group’s profit after tax increased from £24.2m
in 2015/16 to £24.8m in 2016/17. The business continues to deliver
strong profit margins for a franchised UK rail operator, notwithstanding
the slowing of UK rail sector revenue growth. Virgin Rail Group's West
Coast rail franchise continues to perform well, with revenue growth
higher than the industry average, and that is benefitting taxpayers
through profit share payments by the business to the UK Department
for Transport. The franchise, which is contracted to run until March
2018, is continuing to perform ahead of our expectations at the time
the contract was agreed. The Government has confirmed that it plans a
short-term franchise of approximately 12 months to cover the period
from the end of the current West Coast franchise in March 2018 until
the planned start of the West Coast Partnership franchise in April 2019.
Virgin Rail Group is in discussions with the Department for Transport
with a view to agreeing commercial terms to that end.
In March 2017, Virgin Trains marked 20 years of operating services on
the West Coast route. Over the past two decades, Virgin Trains has
revolutionised UK train travel with the introduction of new trains and
increased frequency along the route, as well as setting the industry
benchmark for customer service. Latest National Rail Passenger Survey
results showed 90% customer satisfaction on West Coast, amongst the
highest in the UK franchised rail sector. Passenger growth and
satisfaction have also coincided with punctuality reaching its highest
ever level since privatisation, as a result of strong partnership working
with Network Rail.
During 2016/17, Virgin Trains West Coast has delivered further
improvements for customers. It is the first train company to
automatically compensate customers who book advance tickets through
virgintrains.com or its app if their train service is delayed. In partnership
with thetrainline.com, Virgin Trains has also become the first operator
to give customers the option to add train tickets straight to their Apple
Wallet. Recently, the company unveiled its vision for the station of the
future, with a radical new £1m-plus open plan design for Birmingham
International’s ticket office. It features more user friendly information
screens, improved ticket machines and touch screen information points.
Customers can access roving staff equipped with tablets, wireless
charging for devices, cashless payment at car park barriers to reduce
queues and free station Wi-Fi.
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1.5.6.2 Twin America
Financial performance
In February 2017, the Group completed the sale of its interest in the
Twin America LLC joint venture. Twin America was a joint venture
between Stagecoach North America and City Sights. It principally
operated sightseeing bus services in New York City. Stagecoach North
America, which held 50 per cent of the voting rights and 60 per cent of
the economic rights of the joint venture, sold its interest to City Sights.
We have recognised an exceptional gain of £11.6m in respect of the
disposal. Our share of Twin America’s profit for the year ended 29 April
2017 is not material. In the year ended 30 April 2016, we determined
that the carrying value of the Group’s investment in Twin America was
impaired and an impairment loss was recorded to reduce the carrying
value to nil as at 30 April 2016.
Litigation
Related to the Twin America litigation involving the Group's North
America Division, which we have set out in previous reports and which as
noted in our annual report for the year ended 30 April 2016 was settled,
the Department of Justice investigated the conduct of company
personnel in responding to discovery obligations in the investigation and
litigation. The Group co-operated with the investigation, which is no
longer ongoing, and we do not anticipate any further action.
1.5.7 Other businesses
We see both structural risks and opportunities from advancements in areas
such as autonomous vehicles, electric vehicles, digital transport information
and retail channels, the sharing economy such as digitally enabled car
sharing and different operating models for transport. We continue to
monitor developments in and participate in trials in these areas.
In some cases, our participation in these areas sits outside our existing,
core operating divisions. That is because we believe we can better
harness multi-modal opportunities and explore new areas of transport
outwith the day-to-day management of the core divisions.
For example, earlier in 2017, we launched the TravelHero app. The
TravelHero concept is to provide a customer the opportunity to select
from multiple travel modes and/or operators for his or her journey. The
app allows customers to plan, book, pay for and make travel. We are
currently trialling it in Canterbury, East Kent where it can be used to
plan and purchase travel by buses and taxis.
Also, earlier this year, we invested in Global Travel Ventures and now
hold around 20% of the equity in that company. Global Travel Ventures
builds clever technology to create better deals for travellers. In January
2017, it launched the first independent rail ticketing website,
www.ticketclever.com, in Great Britain for five years and the UK’s first
post-pay contactless bus ticketing system outside London.
www.ticketclever.com uses Global Travel Ventures’ in-house cloud
technology to offer more cheap train journeys than anywhere else,
saving up to 60% compared with station kiosks or other websites for on-
the-day purchases.
1.6 Other financial matters
1.6.1 Pre-exceptional 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 £345.4m (2016: £370.0m). Pre-
exceptional EBITDA can be reconciled to the consolidated financial
statements as follows:
Total operating profit before
intangible asset expenses and
exceptional items
Depreciation
Add back joint venture
finance income & tax
Pre-exceptional EBITDA
2017
£m
2016
£m
192.8
145.5
228.8
132.2
7.1
9.0
345.4
370.0
The income statement charge for regular intangible asset amortisation
increased from £15.8m to £16.8m, principally due to higher software
amortisation associated with investment in technology.
Depreciation increased by £13.3m, reflecting continued capital
investment and the effect of foreign exchange movements on the
sterling amount of depreciation for the North America Division.
1.6.2 Exceptional items
The following exceptional items were recognised in the year ended
29 April 2017:
• A pre-tax exceptional loss of £3.2m was recognised in respect of an
impairment of surplus vehicles following the withdrawal of the
megabus Sleeper services in the UK.
• A pre-tax exceptional gain of £7.1m was recognised in respect of the
disposal of a depot within the UK Bus (regional operations) Division.
We do not ordinarily show gains and losses on the disposals of land and
buildings as exceptional items. However, we consider that this gain
arising from the sale of a single UK Bus depot is sufficiently large that it
should be presented as an exceptional gain to allow a proper
understanding of the Group’s financial performance.
• As explained in section 1.5.2, a pre-tax exceptional loss of £6.9m was
recognised in relation to the sale of the retailing part of the megabus
Europe business.
• A pre-tax exceptional loss of £3.7m was recorded in relation to the
megabus.com Midwest restructuring of operations, as explained in
section 1.5.4.
• As explained in section 1.5.5, an exceptional pre-tax expense of £84.1m
has been recorded in respect of an onerous contract provision for
Virgin Trains East Coast and an exceptional charge of £44.8m has also
been recognised in respect of Virgin Trains East Coast intangible assets.
• As explained in section 1.5.6.2, a pre-tax exceptional gain of £11.6m
was recognised in respect of the disposal of the Group’s interest in
Twin America.
The net effect of exceptional items was a pre-tax loss of £124.0m (2016:
£67.2m).
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Strategic report
1.6.3 Net finance costs
Net finance costs, excluding exceptional items, for the year ended 29
April 2017 were £34.1m (2016: £41.4m) and can be further analysed as
follows:
Taking account of the planned further reduction in the rates of UK
corporate tax rate, and assuming that the composition of the Group
remains broadly unchanged, we consider the Group’s sustainable,
effective tax rate to be in the range of 18% to 23%.
Finance costs, excluding exceptional items
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, excluding exceptional items
2017
£m
2016
£m
4.7
1.7
22.0
3.5
3.7
35.6
(1.2)
(0.3)
(1.5)
34.1
5.9
2.1
25.9
3.9
5.3
43.1
(1.4)
(0.3)
(1.7)
41.4
The fall in net finance costs includes the benefit of the full-year effect of
our 2015 bond re-financing.
1.6.4 Taxation
Our share of profit from joint ventures is reported after tax in arriving at
the profit before tax in the consolidated income statement. To better
understand the Group’s effective tax rate, we show below the Group’s
tax charge including our share of joint ventures’ tax relative to the
Group’s profit before tax excluding joint ventures’ tax. On that basis, the
effective tax rate for the year ended 29 April 2017, excluding exceptional
items, was 17.5% (2016: 18.9%).
The tax charge can be analysed as follows:
Year to 29 April 2017
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
%
166.3
(28.3)
17.0%
(16.8)
149.5
(124.0)
25.5
(7.6)
17.9
2.1
(26.2)
18.8
(7.4)
7.6
0.2
12.5%
17.5%
15.2%
29.0%
(1.1)%
The effective tax rate, excluding exceptional items, of 17.5% is lower
than the 19.9% rate of UK corporation tax for the year. The difference is
principally due to the utilisation of previously unrecognised historic tax
losses.
The cash tax paid in the year of £21.6m compares to a tax credit for
Group companies of £0.2m shown above. The largest difference relates
to the £18.8m tax credit recognised on exceptional items that has yet to
affect cash tax.
Where there is uncertainty regarding the amount of tax that will
ultimately be payable, the Group generally recognises a liability for the
maximum amount it expects will be payable or an asset for the minimum
amount it expects to receive. In respect of periods up to 29 April 2017,
the Group therefore considers there to be a low risk that it will be
required to pay significantly more tax than is provided for in the
consolidated financial statements. The areas where the Group sees
uncertainty around the amount of tax that is payable relate to the
financing of and transactions with overseas operations, losses incurred
by overseas operations in the ordinary course of business and overseas
tax audits.
1.6.5 Fuel costs
The Group’s operations as at 29 April 2017 consume approximately 411m
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 April:
2018
2019
2020
2021
Total Group
81%
70%
48%
1%
The Group has no fuel hedges in place for periods beyond April 2021.
1.6.6 Cash flows and net debt
Net debt (as analysed in note 29(c) to the consolidated financial
statements) has, as expected, increased from 30 April 2016, reflecting
additional investment in our businesses, movements in foreign exchange
rates causing an increase in the sterling value of our US dollar debt,
dividend payments and UK Rail working capital timing differences, partly
offset by continued strong cash generation from operations.
Net cash from operating activities before tax for the year ended 29 April
2017 was £253.7m (2016: £301.9m) and can be further analysed as
follows:
2017
£m
2016
£m
EBITDA of Group companies before
exceptional items
Cash effect of exceptional items
(Gain)/loss on disposal of property,
plant and equipment
Equity-settled share based payment expense
Working capital movements
Net interest paid
Dividends from joint ventures
312.1
(3.7)
(4.3)
1.9
(53.7)
(26.7)
28.1
Net cash flows from operating activities before taxation 253.7
336.2
–
0.5
2.2
(35.2)
(30.6)
28.8
301.9
Net cash from operating activities before tax was £253.7m (2016:
£301.9m) and after tax was £232.1m (2016: £278.9m). Net cash outflows
from investing activities were £100.7m (2016: £178.9m). Net cash used in
financing activities was £203.7m (2016: £114.8m).
The net impact of purchases of property, plant and equipment for the
year on net debt was £203.3m (2016: £213.5m). This primarily related to
expenditure on passenger service vehicles, and comprised cash outflows
of £155.5m (2016: £191.2m) and new hire purchase and finance lease
debt of £47.8m (2016: £22.3m). In addition, £46.0m (2016: £26.5m) cash
was received from disposals of property, plant and equipment.
The net impact of purchases and disposals of property, plant and
equipment on net debt (“net capital expenditure”), split by division, was:
UK Bus (regional operations)
megabus Europe
UK Bus (London)
North America
UK Rail
2017
£m
97.4
–
1.6
37.4
20.9
157.3
2016
£m
118.5
7.0
2.8
45.6
13.1
187.0
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The movement in net debt, showing train operating companies
separately, was:
1.6.8 Net assets
Net assets at 29 April 2017 were £68.5m (2016: £177.8m).
Year to 29 April 2017
Train operating
companies
£m
EBITDA of Group companies
before exceptional items
Cash effect of exceptional items
Loss/(gain) on disposal of property,
plant and equipment
Equity-settled share based
payment expense
Working capital movements
Net interest paid
Dividends from joint ventures
Net cash flows from operating activities
before taxation
Inter-company movements
Tax paid
Investing activities
Financing activities
Foreign exchange/other
Movement in net debt
Opening net debt
Closing net debt
46.6
–
0.5
0.7
(42.1)
(1.7)
–
4.0
(29.2)
(12.7)
(25.8)
–
–
(63.7)
283.1
219.4
Other
£m
265.5
(3.7)
Total
£m
312.1
(3.7)
(4.8)
(4.3)
1.2
(11.6)
(25.0)
28.1
249.7
29.2
(8.9)
(122.7)
(70.2)
(23.5)
53.6
(682.4)
1.9
(53.7)
(26.7)
28.1
253.7
–
(21.6)
(148.5)
(70.2)
(23.5)
(10.1)
(399.3)
(628.8)
(409.4)
The cash held by the train operating companies at any point in time is
affected by the timing of rail industry cash flows, which can be
individually substantial. The working capital cash outflow shown above
principally arises from funding received for specific projects in prior years
(within the overall franchise payments made by our train operating
companies), in advance of the related expenditure being made in the
year to 29 April 2017.
As explained in section 1.5.5, the current South West Trains franchise is
due to expire in August 2017. We anticipate that, at around that time,
certain assets and liabilities of the Group will transfer to the operator of
the next South West Trains franchise. We currently anticipate that the
net impact of the transfer on our consolidated net assets will be
immaterial. However, taking account of the net cash that will transfer,
we would forecast that the expiry of the current South West Trains
franchise will result (all other things being equal) in an increase in our
consolidated net debt of approximately £100m in 2017/18. As at 29 April
2017, £68.5m of cash held within South West Trains is included in our
consolidated net debt and the credit rating agencies already exclude such
cash from their own adjusted leverage figures.
1.6.7 Financial position and liquidity
The Group has maintained investment grade credit ratings and
appropriate headroom under its debt facilities.
During the year ended 29 April 2017, we extended the duration of
£480m of our committed, bi-lateral core bank facilities by a further year
to October 2021.
The Group continues to have an appropriate mix of long-term debt
enabling it to plan and invest with some certainty.
The Group’s financial position remains strong and is evidenced by:
• The ratio of net debt at 29 April 2017 to pre-exceptional EBITDA for
the year ended 29 April 2017 was 1.2 times (2016: 1.1 times).
• Pre-exceptional EBITDA for the year ended 29 April 2017 was 10.3
times (2016: 9.0 times) pre-exceptional net finance charges (including
joint venture net finance income).
• Undrawn, committed bank facilities of £333.8m at 29 April 2017
(2016: £281.2m) were available to be drawn as bank loans with
further amounts available only for non-cash utilisation. In addition, the
Group has available asset finance lines.
• The three main credit rating agencies continue to assign investment
grade credit ratings to the Group.
The decrease is after £67.1m of dividend payments and is principally due
to the actuarial losses on defined benefit pension schemes and the Virgin
Trains East Coast exceptional items, partially mitigated by the solid
financial results for the year ended 29 April 2017 and fair value gains on
cash flow hedges.
1.6.9 Retirement benefits
The reported net assets of £68.5m (2016: £177.8m) that are shown on
the consolidated balance sheet are after taking account of net pre-tax
retirement benefit liabilities of £232.5m (2016: £96.7m), and associated
deferred tax assets of £44.4m (2016: £21.0m).
The Group recognised net pre-tax actuarial losses of £127.6m in the year
ended 29 April 2017 (2016: gains of £68.5m) on Group defined benefit
pension schemes.
The discount rate used to determine pension scheme liabilities is
determined with reference to AA-rated bond yields. As AA-rated bond
yields have generally decreased in the year ended 29 April 2017, the
forecast future cash flows to settle pension scheme liabilities are now
discounted at a lower rate. This is the principal reason for the pre-tax
actuarial losses and the increase in the pre-tax retirement benefit
liabilities as at 29 April 2017.
1.6.10 Capital
The Group regards its capital as comprising its equity, cash, gross debt
and any similar items. As at 29 April 2017, the Group’s capital comprised:
Market value of ordinary shares in issue
(excluding shares held in treasury)
Cash
Gross debt
Net debt (see section 1.6.6)
2017
£m
2016
£m
1,167.3
1,478.6
313.3
(722.7)
382.3
(781.6)
(409.4)
(399.3)
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 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. Although Net Debt to market capitalisation has risen
in the year due to the Company’s lower share price, the Directors remain
content with the Group’s capital structure.
It is the Group’s objective to maintain an investment grade credit rating.
The Group is currently rated investment grade by three major,
independent credit rating agencies. That enhances our ability to access
cost-effective funding on a timely basis and enables us to demonstrate
financial strength when bidding for UK rail franchises and other
contracts. The financial standing of interested parties is considered by
government in determining the short list of bidders for a UK rail
franchise.
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Strategic report
The Board is continuing with its dividend policy of seeking to grow the
rate of dividend per share over time, and has increased the proposed
dividend for the year by over 4%. The Group will continue to regularly
review its financial strategy and capital structure.
1.6.11 Dividend policy
It is the Group’s policy to seek to grow the rate of dividend per ordinary
share over time while aiming to maintain the dividend rate at a level
which is sustainable. Taking account of the proposed final dividend of
8.1 pence per share, the total dividend per share in respect of the year
ended 29 April 2017 is 11.9 pence.
The Group has not set specific targets for dividend growth or dividend
cover ratios for the following reasons:
• The Group does not wish such targets to be viewed as a commitment
or promise by the Board which, in turn, could act as pressure to pay
certain levels of dividend in the future even when at that future point
in time, that might not be in the best interests of the Company and its
stakeholders.
• The appropriate pay-out ratio may vary based on many factors
including the mix of bus versus rail in the Group’s portfolio and factors
affecting the outlook that are not reflected in the historically reported
figures.
• Earnings may be volatile from year-to-year. We would look for
dividend rates to be more stable and not to fluctuate as significantly
as earnings simply to achieve target cover ratios.
As at 29 April 2017, the Company’s distributable reserves totalled
£247.7m (2016: £338.0m), which compares to dividends paid in cash in
the year ended 29 April 2017 of £67.1m (2016: £62.0m). In addition, we
consider that the Company’s distributable reserves could be further
increased through dividends from subsidiary companies and/or changes
in the Group structure. The Group considers there to be a low risk that
the level of distributable reserves will be a constraining factor on
dividend payments for the foreseeable future.
The Group has significant undrawn, committed bank facilities as
explained further in section 1.6.7 of this report. The Group considers
there to be a low risk that the level of available liquidity / cash resources
will be a constraining factor on dividend payments for the foreseeable
future.
As explained in section 1.6.10 above, the Directors are focused on
maintaining an investment grade credit rating and as noted in section
1.6.7, the three main credit rating agencies continue to assign
investment grade credit ratings to the Group. Where the Group was no
longer investment grade rated or there was a significant risk of that, the
Board would review the dividend policy.
1.6.12 Treasury policies and objectives
Risk management is carried out by a treasury committee and a central
treasury department (together, “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 25 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.
1.6.13 Use of non-GAAP measures
Our consolidated financial statements are prepared in accordance with
International Financial Reporting Standards as adopted by the European
Union and applied in accordance with the provisions of the Companies
Act 2006. In measuring our performance, the financial measures that we
use include those which have been derived from our reported results in
order to eliminate factors which distort period-on-period comparisons.
These are considered non-GAAP financial measures, and include
measures such as like-for-like revenue, pre-exceptional EBITDA and net
debt. We believe this information, along with comparable GAAP
measurements, is useful to shareholders and analysts in providing a basis
for measuring our financial performance. Note 34 to the consolidated
financial statements provides further information on these non-GAAP
financial measures.
1.7 Current trading and outlook
We have made a satisfactory start to the year ending 28 April 2018 and
have not significantly changed our expectation of adjusted earnings per
share for the year.
We see positive long-term prospects for public transport. There is a
large market opportunity for modal shift from cars to public transport
against a backdrop of technological advancements, rising road
congestion and increasing environmental awareness. We have a growth
strategy built on continued investment, value-for-money travel and high
customer satisfaction.
The Group is in good financial shape. Our core debt is committed and in
place for over a further four years and we remain investment grade
rated.
1.8 Corporate Social Responsibility –
statement of non-financial information
Section 1.4.1 of this Annual Report contains a description of the Group’s
business model. Section 1.4.6 describes key performance indicators,
including non-financial performance indicators, relevant to the Group’s
businesses. Section 1.4.5 includes a description of principal risks and this
section 1.8 provides information on how we approach our social
responsibilities.
Our business and our people make a significant contribution to society.
On average, more than three million journeys a day are made on our
transport services and in enabling those journeys, we:
• Connect people, families and communities
• Help individuals access health, education, employment and leisure
• Support jobs, the skills base and economic growth
• Play our part in tackling climate change
Like most businesses, we want to generate value for our employees and our
shareholders, but we want to do that responsibly and in partnership with all
our stakeholders. Our responsible approach to business includes taking an
appropriate approach to our people and our customers; safety and security;
the accessibility and affordability of our transport services; environmental
stewardship and performance; good governance; and building community
relationships. Our strong customer focus, commitment to sustainability, and
sector-leading reputation has been independently recognised by a range of
organisations. Right across our global operations, we will continue to work
with our stakeholders to become a better employer, a stronger business
and a more effective community partner.
We have published separate documents setting out our approach to
corporate social responsibility. These documents 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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1.8.1 Living our values
Stagecoach Group has a set of core values and policies, which are
detailed in our Group Code of Conduct. Stagecoach promotes a culture of
openness across all its businesses and our objective is to ensure the
highest standards of probity and accountability. The Code, which was
further updated during the year, sets out key principles and provides
practical examples and guidance to help shape employees’ corporate
behaviour across all levels of the business. 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. A copy of our Code of Conduct can be found at the following link:
http://www.stagecoach.com/code-of-conduct.pdf.
In addition, we have a Speaking Up policy, also updated in 2016/17,
which is designed to ensure that employees can raise serious concerns
without fear of victimisation, discrimination or disadvantage. A copy of
the document is available at:
http://www.stagecoach.com/speakingup.pdf.
1.8.2 Supporting and recognising our people
Our employees are fundamental to the success of the Group and we
encourage diversity across our business. We believe in empowering and
engaging with our people, promoting a positive culture where employees
are treated with respect and given equal opportunity to develop. This
means that we are able to provide a better service to our customers.
We have initiatives in place designed to nurture the next generation of
talent to support the business and help our people achieve their
potential. We have strong vocational training programmes in our bus and
rail businesses and we continue to invest in developing our people.
We are proud that Stagecoach UK Bus won the Large Employer Category
at the People 1st Apprenticeship Awards in 2017 for the robustness of
our programme, which has been in place for more than a decade. During
National Apprenticeship Week in 2017, we launched an initiative to
encourage more women to join the bus industry as engineers and we are
continuing with our campaign to attract more female bus drivers.
We also have programmes in place to promote the health and well-being
of our people. 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.
In 2016/17, we have further extended the use of our intranet, The Loop.
The Loop provides further opportunities for communication among our
people.
Further information is available here:
http://www.stagecoach.com/sustainability/our-people.aspx.
1.8.3 Employment policies
We aim to have a motivated team of people that will meet the
expectations of our customers, improve our business and be rewarded
for their commitment. Equality of opportunity is one of our key values,
regardless of disability, gender, sexual orientation, religion, belief, age,
nationality, race or ethnic origin. The Group gives full consideration to
applications for employment from people with disabilities.
Where existing employees become affected by a disability and where
practicable, our Group policy is to provide continuing employment under
normal terms and conditions. We also provide training, career
development and equal consideration for promotion. The Group is
committed to employee participation and we use a variety of methods to
inform, consult and involve 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. We are also committed to a continuing
dialogue with trade unions, which represent the majority of the Group’s
employees, on a wide range of issues. A wide range of communications
channels are used to keep our people informed and engaged.
Also in 2016/17, we surveyed our staff across the Group. Using the
results of the surveys and working with employee representatives, we
are progressing further improvements in how we operate.
1.8.4 Diversity
The Group recognises and values the individuality and diversity that each
employee brings to the business. We value diversity in its wider sense
and it is our policy to facilitate diversity of age, gender and background
across our workforce. We are particularly focused on promoting gender
diversity.
The table below shows the gender split at different levels within the
organisation, as at 29 April 2017. The Group’s workforce is around 82.8%
male and that high proportion is common in the ground transportation
industry.
Population
Male
Female
Total
Board
8
Senior management * 98
3
24
11
122
Whole workforce
33,136
6,863
39,999
%
Male
72.7%
80.3%
82.8%
%
Female
27.3%
19.7%
17.2%
*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 2017 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.
The equivalent figures as at 30 April 2016 were:
Population
Male
Female
Total
Board
Senior management
8
93
2
23
10
116
Whole workforce
33,488
6,637
40,125
%
Male
80.0%
80.2%
83.5%
%
Female
20.0%
19.8%
16.5%
1.8.5 Promoting safety
Safety is at the heart of our business and our overall approach is given
direction through the Group’s Strategic Safety Framework. 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.
Each of our divisions and operating companies has policies which are
appropriate to the transport modes they deliver. We are focused on
meeting and in many cases exceeding regulatory requirements and
performance standards. Detailed policies, risk assessments and safe
working procedures are in place covering various 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. A core part of our approach is encouraging
employees to report any concerns.
We work with local communities to encourage a safe environment
around our transport networks and use of our services, particularly with
young people. We invest in technologies which can make our services
safer for customers, our employees and other people. Further
information and examples of our initiatives are available at:
http://www.stagecoach.com/sustainability/safety-health.aspx.
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Strategic report
1.8.6 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 regularly been independently assessed as
having the lowest bus fares of any major operator in the UK. Recent
research by Transport Focus found that bus passengers rated Stagecoach
as the best national UK bus operator for value for money.
Stagecoach is the only UK bus operator to operate a long-term
nationwide discounted travel scheme for jobseekers and we have a range
of discounted ticketing options for young people.
We are committed to improving accessibility of our buses, trains and
stations. Our planned investment of £70m in 340 new buses and coaches
for 2017/18 will ensure that all of our local bus fleets in the UK are fully
accessible. It will mean Stagecoach Group has invested over £1bn in
more than 7,000 greener and more accessible buses and coaches since
2006/07. Automatic vehicle location technology is fully deployed across
our UK regional bus fleet, providing real time service information to
customers via our smartphone app and online. It also provides a
technology platform to deliver audio visual next stop information via
smartphones, including those which support blind and partially-sighted
people. In the UK, Stagecoach is a founder partner in the national
Accessible Travel Alliance, an industry-leading group of travel operators
working with the Whizz-Kidz charity to improve transport accessibility
for young wheelchair users. On our rail networks, we are working with
government to introduce easier disabled access at stations.
The Group is also investing in new digital technologies and working with
other transport partners to introduce simpler travel through smart,
integrated ticketing.
For further information, please go to:
http://www.stagecoach.com/sustainability/accessibility-affordability.aspx
1.8.7 Environmental stewardship
Stagecoach Group has a sustainability strategy covering the five years to
April 2019. It follows a 30% reduction in Stagecoach Group’s carbon
intensity since 2007/08 and the achievement of previous targets 12
months ahead of schedule. By April 2019, the Group is aiming to reduce
buildings carbon emissions by 7%; cut like-for-like fleet transport carbon
emissions by 2%; lower water consumption by 9% and achieve a waste
recycling rate of 83%. The Group has already been awarded the Carbon
Trust Standard for measuring, managing and reducing its global carbon
footprint, becoming the first public transport operator to have its
boundaries certified outside of Europe. A copy of the Group’s
sustainability strategy and further information about our initiatives and
performance is available at:
http://www.stagecoach.com/sustainability.aspx.
Part of the Group’s approach to sustainability is the ongoing review of
its plans, performance and targets. Policy information and annual
performance data is provided on the Group’s website. Stagecoach also
makes an annual submission to the Carbon Disclosure Project (“CDP”),
an organisation focused on carbon disclosure which collates
environmental information and works with thousands of companies and
investors to tackle climate change.
The data below shows our greenhouse gas emissions for the year ended
29 April 2017 with comparative data for the year ended 30 April 2016.
Greenhouse Gas Emission Source
tonnes CO2e
Kg CO2e/£
of revenue
2016/17
Scope 1
Fuel combustion (natural gas, diesel,
petrol and heating oil)
Operation of facilities (refrigerants)
Total Scope 1
Scope 2
Purchased electricity
Statutory total (Scope 1 & 2)*
998,765
20,467
1,019,232
345,544
1,364,776
0.25
0.01
0.26
0.09
0.35
2015/16
Greenhouse Gas Emission Source
tonnes CO2e
Kg CO2e/£
of revenue
Scope 1
Fuel combustion (natural gas, diesel,
petrol and heating oil)
1,009,003
Operation of facilities (refrigerants)
23,586
Total Scope 1
Scope 2
Purchased electricity
Statutory total (Scope 1 & 2)*
1,032,589
394,906
1,427,495
0.26
0.01
0.27
0.10
0.37
* 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 2016.
We define our organisational boundary using the financial control
approach and use a materiality threshold for the Group of 5% of
estimated Greenhouse Gas Emissions. 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 (£m)
Total Scope 1 & 2 emissions
tonnes (tCO2e)
Intensity ratio
Scope 1 & 2 emissions per £ of
revenue (Kg CO2e/£)
2016/17
3,941.2
2015/16
3,871.1
1,364,776
1,427,495
0.35
0.37
page 28 | Stagecoach Group plc
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The Group’s independent internal auditors review the Group’s anti-
corruption framework at least every three years and report their
findings to the Group’s Audit Committee.
A list of “Relevant Employees” is maintained, which comprises
employees in those groups of staff that are considered to be most likely
to have the opportunity to participate in or have knowledge of material
corruption. Specific anti-bribery and anti-corruption training is provided
to these Relevant Employees, including case studies. These employees
are required to certify annually their continuing compliance with the
Group’s anti-corruption policy.
The Group also has a number of other internal controls in place
designed to minimise the risk of anti-bribery and anti-corruption.
1.8.11 Conclusion
Our responsible approach to business is reflected in the policies and
examples set out in this section 1.8. 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
28 June 2017
1.8.8 Supporting our communities and the economy
Stagecoach Group is a major employer, supporting direct employment
for around 40,000 people. Our investment in improving our transport
services also supports thousands of other jobs through the supply chain.
Further information is available at:
http://www.stagecoach.com/sustainability/economic-contribution.aspx
We share our success with local people and communities by investing
part of our profits in good causes. During the year ended 29 April 2017,
£0.9m (2016: £0.9m) was donated by Stagecoach Group to help a
number of charities and to support fundraising events and vital services.
Significant additional in-kind support, such as complimentary bus and
rail travel, is provided by the Group to good causes. We have a number
of initiatives in place to help young people, including mentoring and
internship programmes to help students gain a better understanding of
the skills and routes to enter work, further and higher education and
training. We also have partnerships with veterans groups in the UK and
North America. Stagecoach Group has demonstrated its commitment to
the UK Armed Forces by signing a corporate covenant to support the
country’s military community. More information on our community
support and programmes is available at:
http://www.stagecoach.com/sustainability/community.aspx
1.8.9 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 1.8.1), 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.
1.8.10 Anti-corruption and anti-bribery
The Group has an anti-bribery and anti-corruption framework in place.
The Group’s attitude to bribery and corruption is set by the Board of
Directors and is reflected in the Group’s Code of Conduct (see section
1.8.1 of this Annual Report). The Group does not tolerate any form of
bribery or inducements for any purpose whether directly or through a
third party.
Any known instance of fraud, bribery or attempted bribery that was
designed to give an advantage to the Group is reported to the Group’s
Audit Committee for consideration and appropriate follow up. There
were no such matters arising during the year ended 29 April 2017 that
were sufficiently significant to report in this Annual Report. The
Speaking Up policy provides a channel for the reporting of fraud, bribery
or attempted bribery where reporting through other channels is not
appropriate.
A Group Compliance Committee is in place to monitor compliance with
laws and regulations and to monitor the effectiveness of the anti-
corruption framework, policies and procedures. The Group Compliance
Committee assesses the nature and extent of the risks relating to
bribery and corruption to which the Group is exposed. The Committee
considers not only bribery and corruption risks within the Group itself
but also within the Group’s supply chain. Supplier due diligence is
undertaken where considered appropriate to the particular supplier.
Stagecoach Group plc | page 29
2. Board of Directors
Executive Directors
Non-Executive Directors
1
2
3
4
5
6
Martin Griffiths (1)
Chief Executive
Sir Brian Souter (3)
Chairman
Gregor Alexander (5)
Non-Executive Director
Appointment to the Board: 2013
Age: 54
Committee membership: Audit (Chair)
and Remuneration.
Skills and previous experience: A Chartered
Accountant, Gregor Alexander has significant recent
and relevant financial experience. He is the Finance
Director of SSE plc, a FTSE 100 company. He has
worked in the energy industry since 1990, when he
joined Scottish Hydro Electric. He was appointed
Finance Director and joined the Board of SSE in 2002,
having previously been its Group Treasurer and Tax
Manager.
External appointments: Finance Director of SSE plc.
Chairman of Scotia Gas Networks, a company 33.3%
owned by SSE plc.
James Bilefield (6)
Non-Executive Director
Appointment to the Board: 2016
Age: 48
Committee membership: Digital and Technology
(Chair), Remuneration and Nomination.
Skills and previous experience: James Bilefield has
an international track record of successfully leading
growing digital businesses. He managed the digital
transformation of media group, Condé Nast, across
27 countries, scaled Skype’s global operations as part
of its founding management team and held senior
commercial and management roles at Yahoo!.
Formerly CEO of global advertising technology
company, OpenX, he also co-founded the local
information business, UpMyStreet, following an
investment banking career at JP Morgan Chase.
External appointments: McKinsey & Company
(Senior Advisor), Advent International (Industry
Advisor), UK Government Digital Service (Advisory
Board Member), Teach First (Trustee).
Appointment to the Board: 2000
Age: 51
Committee membership: Health, Safety and
Environmental.
Executive responsibilities: Martin Griffiths was
appointed Chief Executive from 1 May 2013. Martin
Griffiths is responsible for Group health, safety and
environmental matters, overall strategy and
management of all of the Group’s operations.
Skills and previous experience: A Chartered
Accountant, Martin Griffiths joined Stagecoach in
1997 as Group Business Development Manager,
before being appointed to the Board as Finance
Director in April 2000. He has also served as the
senior independent non-executive director of Robert
Walters plc and as a non-executive director of Troy
Income & Growth Trust plc. He was young Scottish
Finance Director of the year in 2004.
External appointments: Virgin Rail Group Holdings
Limited (Co-Chairman), AG Barr plc (Non-Executive
Director), Rail Delivery Group Limited (Non-Executive
Director).
Ross Paterson (2)
Finance Director
Appointment to the Board: 2013
Age: 45
Committee membership: Pensions Oversight, Digital
and Technology.
Executive responsibilities: Ross Paterson is
responsible for the Group’s overall financial policy,
taxation, treasury, corporate finance, City relations,
financial reporting, information technology and
employee benefits. He supports the Chief Executive
in the management of the Group’s operations and
new business development.
Skills and previous experience: A Chartered
Accountant, Ross Paterson joined Stagecoach in
1999. He became Director of Finance & Company
Secretary in 2007, with responsibility for treasury,
corporate finance, City relations, financial reporting,
internal audit and the company secretariat. He
succeeded Martin Griffiths as Finance Director in
2013. He is former Deputy Convenor of the Audit and
Assurance Committee of the Institute of Chartered
Accountants of Scotland.
External appointments: Director and Chairman of
Audit Committee, Virgin Rail Group Holdings Limited.
Member of the Business Policy Committee of the
Institute of Chartered Accountants of Scotland.
page 30 | Stagecoach Group plc
Appointment to the Board: n/a (co-founder)
Age: 63
Committee membership: Nomination (Chair).
Skills and previous experience: A Chartered
Accountant, Sir Brian Souter co-founded Stagecoach.
Sir Brian was named UK Master Entrepreneur of the
Year at the 2010 Ernst & Young Entrepreneur of the
Year Awards and, in 2012, became the first public
transport entrepreneur to be inducted into the
British Travel and Hospitality Industry Hall of Fame.
Sir Brian is the architect of the Group’s strategy and
philosophy and was the Group’s Chief Executive until
1 May 2013. He has extensive knowledge of the
ground transportation industry around the world
and continues to support Martin Griffiths and the
rest of the management team. Sir Brian has
responsibility for the running of the Board.
External appointments: Chairman, Souter
Investments. President of the Institute of Chartered
Accountants of Scotland.
Will Whitehorn (4)
Deputy Chairman and Senior
Independent Non-Executive Director
Appointment to the Board: 2011
Age: 57
Committee membership: Nomination.
Skills and previous experience: Will Whitehorn
joined the Virgin Group in 1987 and served as Group
Public Relations manager and as Brand Development
and Corporate Affairs Director, before being
appointed as President of Virgin Galactic from 2007
to 2011. Will is a former non-executive Chairman of
Next Fifteen Communications Group plc and of
Crowd Reactive Limited. He was a member of the
Science & Technology Facilities Council (“STFC”) until
2012, chaired its Economic Impact Advisory Board
and was a non-executive director of STFC
Innovations Limited.
External appointments: Scottish Event Campus
Limited (Chairman), GVC Holdings plc (Senior
Independent Director) and Purplebricks Group plc
(Non-Executive Director). Member of the First
Minister of Scotland’s ‘GlobalScot’ Business
mentoring network. Vice-President of the Chartered
Institute of Logistics and Transport. Scottish Gallery
(Aitken Dott Limited) (Chairman).
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7
8
9
10
11
Sir Ewan Brown CBE (7)
Non-Executive Director
Ray O’Toole (9)
Non-Executive Director
Karen Thomson (11)
Non-Executive Director
Appointment to the Board: 1988
Age: 75
Committee membership: Pensions Oversight (Chair)
and Nomination.
Skills and previous experience: Sir Ewan Brown
served as an executive director of Noble Grossart for
35 years and continues to serve as a non-executive
director of Noble Grossart Holdings Ltd. Sir Ewan was
Chairman of Lloyds TSB Scotland from 1999 to 2008.
He has also served as a non-executive director of
Wood Group and Lloyds Banking Group, chairing the
Audit Committee and the Group Pension Funds, and
as Chairman of Creative Scotland 2009 and Scottish
Financial Enterprise.
External appointments: Noble Grossart Holdings Ltd
(Non-Executive Director).
Appointment to the Board: 1 September 2016
Age: 61
Committee membership: Health Safety and
Environmental (Chair), Audit and Nomination.
Skills and previous experience: Ray served as the
Chief Operating Officer of National Express Group
until May 2010. In November 2013 Ray joined Kier
Group, Fleet and Passenger Services as Managing
Director. In July 2015 he led a management buy-out
team with private equity investor, Endless LLP, to
create Essential Fleet Services Limited, a company
which provides 3,500 vehicles with contract hire and
leasing to the local authority and corporate markets
nationally. Ray served as Chief Executive of Essential
Fleet Services Limited until February 2017.
External appointments: Yorkshire Water Services
Limited (Non-Executive Director).
Appointment to the Board: 2016
Age: 55
Committee membership: Audit, Health, Safety
and Environmental, Digital and Technology.
Skills and previous experience: Karen served as
Chief Executive of AOL UK and President of AOL
Europe, developing both the telecoms and
advertising lines of the business. As a member of the
Vodafone UK Board, Karen had responsibility for
developing online strategy, customer experience and
online sales performance. Karen was a non-executive
director of UBM plc from 2006 to 2014 and served
on its Audit, Nomination and Remuneration
committees.
External appointments: Outplay Entertainment
Limited (Chairman).
Ann Gloag OBE (8)
Non-Executive Director
Appointment to the Board: n/a (co-founder)
Age: 74
Committee membership: Health, Safety
and Environmental.
Skills and previous experience: Ann Gloag
co-founded Stagecoach and served as an executive
director until 2000. She has extensive experience in
transport operations, health and safety matters,
property management and wider business
management.
External appointments: Mercy Ships (International
Board Member).
Julie Southern(10)
Non-Executive Director
Appointment to the Board: 7 October 2016
Age: 57
Committee membership: Remuneration (Chair),
Audit
Skills and previous experience: Julie is a chartered
accountant and has considerable experience in
senior finance and management roles, including in
the transport sector. She served as Chief Financial
Officer with Virgin Atlantic from 2000 to 2010 and
then as the company’s Chief Commercial Officer
from 2010 to 2013. Previously Group Finance
Director at Porsche Cars Great Britain and former
Finance and Operations Director at HJ Chapman & Co.
External appointments: Rentokil Initial plc
(Non-Executive Director), DFS Furniture plc
(Non-Executive Director), Cineworld Group plc
(Non-Executive Director), NXP Semi-Conductors N.V.
(Non-Executive Director)
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Stagecoach Group plc | page 31
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3. Directors’ report
3.1 Group results and dividends
The results for the year are set out in the consolidated income
statement on page 74.
An interim dividend of 3.8p per ordinary share was paid on 8 March
2017. The Directors recommend a final dividend of 8.1p per share,
making a total dividend of 11.9p per share in respect of the year ended
29 April 2017. Subject to approval by shareholders, the final dividend
will be paid on 4 October 2017 to those shareholders on the register on
1 September 2017.
3.2 Directors and their interests
The names, responsibilities and biographical details of the current
members of the Board of Directors appear in section 2 of this Annual
Report.
Table A shows the Directors’ interests in the Company’s shares. The
interests of each director shown include those of their “connected
persons”.
TABLE A
Sir Brian Souter
Martin Griffiths
Ross Paterson
Gregor Alexander
James Bilefield
Sir Ewan Brown
Ann Gloag
Number of ordinary shares (including those held
under BAYE scheme)
7 July
2016
29 April
2017
30 April
2016
27 June
2017
86,900,445
86,900,445
86,900,445
86,900,445
501,038
244,006
10,406
–
500,879
243,847
10,406
–
499,978
242,946
10,406
n/a
437,907
229,065
10,406
n/a
See below
See below
See below
See below
62,501,721
62,501,721
62,501,721
62,501,721
Ray O’Toole (appointed
1 September 2016)
Julie Southern (appointed
7 October 2016)
Karen Thomson
Garry Watts (resigned
31 July 2016)
Will Whitehorn
–
–
–
–
–
–
n/a
n/a
–
n/a
n/a
–
n/a
72,288
n/a
72,288
16,000
72,288
16,000
72,288
Sir Ewan Brown has an indirect interest in the share capital of the
Company through his interest in Noble Grossart Investments Limited.
Noble Grossart Investments Limited held 0.6% (3,567,999 shares) of the
ordinary shares in the Company at 29 April and 27 June 2017 (2016:
0.6%; 3,567,999 shares). Noble Grossart Investments Limited is a
subsidiary of Noble Grossart Holdings Limited, in which Sir Ewan Brown
and his connected parties own approximately 18% (2016: 18%) of the
ordinary shares.
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. The voting rights of Sir Brian
Souter and Ann Gloag determined in accordance with the Disclosure and
Transparency Rules as at 29 April 2017 were 86,896,413 ordinary shares
(2016: 86,896,413) and 62,501,721 ordinary shares (2016: 62,501,721)
respectively, of which 86,896,009 (2016: 86,896,009) are held via HGT
Finance B Limited and 62,501,721 (2016: 62,501,721) are held via HGT
Finance A Limited.
Details of share based awards held by the Directors are contained in the
Directors’ remuneration report in section 8 of this Annual Report. No
non-executive director had an interest in share based awards at 30 April
2016, 7 July 2016, 29 April 2017 or 27 June 2017.
page 32 | Stagecoach Group plc
Martin Griffiths and Ross Paterson are potential beneficiaries of the
Stagecoach Group Qualifying Employee Share Trust (“QUEST”), which
held no ordinary shares as at 29 April 2017 (2016: 300,634).
No director had a material interest in the loan stock or share capital of
any subsidiary company.
Indemnification of directors and officers
3.3
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
3.4
As at 29 April 2017 and 27 June 2017 (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 3.2
of this report):
Ameriprise Financial, Inc. and its Group
15.0%
14.0%
27 June 2017 29 April 2017
Statement of Directors’ responsibilities in
3.5
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 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 (“IFRS”) 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), including Financial Reporting Standard
101, Reduced Disclosure Framework, (“FRS 101”). 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 the
relevant 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 IFRS as adopted by the European Union, and applicable
UK Accounting Standards, including FRS 101, 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.
The Directors also confirm that they consider the Annual Report and
consolidated financial statements, taken as a whole, are fair, balanced
and understandable and provide the information necessary for
shareholders to assess the Group’s position, performance, business
model and strategy. The approach taken in reaching this conclusion is
explained in the Audit Committee report in section 5.4.7 of this Annual
Report.
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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 2
of this Annual Report, confirms that, to the best of their knowledge:
• the consolidated financial statements, which have been prepared in
accordance 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 Strategic report and Directors’ report contained in sections 1 and 3
of this Annual Report include 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 the
Group faces.
Conflicts of interest
3.6
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 a director of the Company.
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.
For the period from 1 May 2016 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.
Financial risk management
3.7
Information regarding the Group’s use of financial instruments, its
financial risk management objectives and policies, and its exposure to
price, credit, liquidity and cash flow risks can be found in note 25 to the
consolidated financial statements.
Political donations
3.8
It is the Group’s policy not to make political contributions and
accordingly there were no material contributions for political purposes
during the year or in the prior year.
3.9
Shareholder and control structure
As at 29 April 2017, there were 576,099,960 ordinary shares (2016:
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. It is the Group’s current policy
to hold a poll on each resolution proposed at an annual general
meeting. The notice of a general meeting will specify any deadlines for
exercising voting rights in respect of the meeting concerned. As at
29 April 2017, 2,467,204 (2016: 1,885,887) ordinary shares
representing 0.4% (2016: 0.3%) 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);
• in accordance with the Group’s policy and applicable regulations,
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 3.4 of this Directors’ report gives details of any shareholders
(other than the Directors and their connected persons) 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 3.2 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 29 April 2017,
excluding shares held by the Company in treasury (2016: 26.0%). The
other directors of the Company held 0.1% of the ordinary shares in
issue as at 29 April 2017 (2016: 0.1%).
In addition to the Directors’ individual interests in shares, employee
benefit trusts hold further shares in the Company from time to time.
These trusts held no ordinary shares in issue as at 29 April 2017 (2016:
<0.1%). 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.
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.
The current authority for the Company to purchase its own shares is
explained in section 3.10 of this Annual Report.
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 Virgin Trains East Coast, 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 four 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 four rail franchises referred to above lease 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 could terminate
following a change of control of the Group.
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Directors’ report
• The Company’s £400m 4.00% Guaranteed Bonds due 2025 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 determined by the Directors’ remuneration policy.
3.10 Authority for company to purchase its
own shares
The movements in the Company’s issued share capital, shares held in
treasury and authorities to purchase its own shares can be summarised
as follows:
Issued
share capital,
Shares held
excluding
in treasury treasury shares
Authorised
for company
to purchase
its own shares
Issued
share capital
As at 30 April 2015
576,099,960
1,371,639
574,728,321
57,537,526
Shares purchased into
treasury
Transfer of treasury shares
–
–
518,065
(3,817)
(518,065)
3,817
(518,065)
–
Prior to 2015 AGM
576,099,960
1,885,887
574,214,073
57,019,461
Renewal of buy-back
authority
–
–
–
453,371
As at 30 April 2016
576,099,960
1,885,887
574,214,073
57,472,832
Shares purchased into
treasury
Transfer of treasury shares
–
–
1,313,266
(1,313,266)
(1,313,266)
(731,949)
731,949
–
Prior to 2016 AGM
576,099,960
2,467,204
573,632,756
56,159,566
Renewal of buy-back
authority
–
–
–
1,203,709
As at 29 April 2017
576,099,960
2,467,204
573,632,756
57,363,275
At the 2015 Annual General Meeting, the Company was granted
authority by its shareholders to repurchase up to 57,472,832 of its
ordinary shares. Between 30 June 2016 and 7 July 2016, the Company
acquired 1,313,266 of its own ordinary shares and held these in
treasury. The aggregate amount paid for the repurchased shares was
£2.7m. This represented 0.2% of the Company’s called up share capital
(excluding treasury shares) on 7 July 2016. The shares were purchased
to satisfy awards made under the Group’s employee share schemes.
During the year ended 29 April 2017, the Company transferred 731,949
of the shares held in treasury for nil consideration to employees to
satisfy awards made under the Group’s 2013 Executive Participation
Plan. This represented 0.1% of the Company’s called up share capital
(excluding treasury shares) on the date of transfer.
At the 2016 Annual General Meeting, the Company was granted
authority by its shareholders to repurchase up to 57,363,275 of its
ordinary shares. Under the existing authority, the Company may
therefore repurchase up to a further 57,363,275 ordinary shares. This
authority will expire at the conclusion of the 2017 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 50,000,000 of its
ordinary shares at the Directors’ discretion. If passed, the resolution will
replace the authority granted at the 2016 Annual General Meeting and
will lapse at the conclusion of the 2018 Annual General Meeting.
3.11 Going concern and longer term viability
Assessment process
The Board has developed the Group’s strategy to support the long-term
success of the Group. We have a portfolio of good quality transport
businesses that we see as having a successful, long-term future. We
encourage sensible risk taking but we also seek to manage risks
appropriately and respond to the risks that crystallise.
We update our financial forecasts and capital expenditure plans to take
account of any changes in risks, opportunities and market conditions.
We have recently updated our financial forecasts for the three-year
period to 2 May 2020. In considering the “viability statement” that the
Board is expected to make under the UK Corporate Governance Code,
the Board has formally considered the three-year period to 2 May 2020
but has also less formally considered risks that would threaten the
Group’s business model, future performance, solvency and/or liquidity
beyond 2 May 2020. The first year of the financial forecasts represents
the Group’s budget for the year ending 28 April 2018, adjusted for any
known, material changes since the budget was approved. The period to
2 May 2020 was chosen because the Board considers this to be a
reasonable period over which to assess the financial position and
performance of the Group. The level of forecasting accuracy reduces
significantly beyond three years and forecasts may be affected by
factors such as changes in government transport policy and/or major
contract wins and losses. We see limited value in producing detailed
financial forecasts for the Group as a whole beyond three years.
The key assumptions in the financial forecasts, reflecting our strategy,
include the intention to remain focused on the public transport sector
and goods and services related to that. The Group does not currently
have plans to expand into businesses unrelated to public transport. We
will seek to maintain and grow the business, including by potentially
bidding for selected rail franchises. However, the base financial forecasts
do not assume any rail franchise wins over and above our existing
contracts and expected extensions. Our key assumptions also include a
stable regulatory environment in both the UK and North America. The
financial forecasts in respect of Virgin Trains East Coast are consistent
with those used in determining the onerous contract provision referred
to in section 1.5.5 of this Annual Report.
The Group faces a number of risks and the risks that the Board has
currently assessed as being the principal risks are set out in section 1.4.5
of this Annual Report.
The cash generative nature of the Group's operations positions it well to
meet its liabilities as they fall due. In light of that, the Board considers
solvency risks to be relatively low.
The Group has committed bank facilities in place for the period to
October 2021 and currently has significant undrawn headroom under
these facilities. It re-financed £400m of bonds in 2015 with the new
bonds not due to mature until 2025. It also has US private placement
notes that are not due to mature until 2022. Furthermore, the Group
has three investment grade credit ratings from independent credit
rating agencies and remains comfortably in compliance with bank and
private placement financial covenants. In light of all of these factors, the
Board considers liquidity risks to be relatively low.
Stress testing of the financial forecasts has been undertaken with
reference to a number of severe but plausible scenarios involving our
principal risks. The scenario analysis undertaken included reverse stress
testing that involved constructing scenarios that would threaten the
Group’s viability then assessing the likelihood of those scenarios
occurring. The stress testing also considered the availability and
effectiveness of the mitigating actions that could realistically be taken to
avoid or reduce the impact or occurrence of the underlying risks. In
assessing the likely effectiveness of such actions, the conclusions of the
Board’s monitoring and review of risk management and internal control
systems, as described in sections 4.12 and 4.13, were taken into
account. The financial forecasts and the scenario analysis considered
profitability, cash flows, financial covenant compliance, rating agency
metrics, debt facility headroom, and other key financial ratios. The
Group’s exposures to external factors such as GDP, population, fuel
prices, inflation, consumer confidence, competition and terrorism risks
were considered. The results of this stress testing illustrated that the
Group was expected to be able to withstand the impact of these
scenarios occurring over the three-year period through adjusting its
operating plans within the normal course of business.
Of course, it is not possible to guarantee the viability of the Group; any
such assessment is subject to a degree of uncertainty that can be
expected to increase the longer the time horizon.
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Listing Required disclosure
Rule
9.8.4
(9)
(10)
Details of any share placing where the Company is a
subsidiary undertaking of another Company.
Details of any contract of significance subsisting during the
period under review:
(a) to which the Company, or one of its subsidiary
undertakings, is a party and in which a director of the
Company is or was materially interested; and
(b) between the Company or one of its subsidiary
undertakings, and a controlling shareholder;
(11)
(12)
Details of any contract for the provision of services to the
Company or any of its subsidiary undertakings by a
controlling shareholder.
Details of any arrangement under which a shareholder has
waived or agreed to waive any dividends.
(13)
Details of agreements by shareholders to waive future
dividends.
(14)
A statement made by the Board in respect of matters
relating to a controlling shareholder.
Location in
Annual
Report
Not applicable
Details of related party
transactions, including
those where a director is
materially interested, are
provided in note 32 to the
consolidated financial
statements.
The Company has no
controlling shareholders.
Not applicable
Note 26 to the
consolidated financial
statements provides
information on employee
benefit trusts that have
waived and agreed to
waive dividends. Shares
held in treasury do not
qualify for dividends.
Note 26 to the
consolidated financial
statements provides
information on employee
benefit trusts that have
agreed to waive future
dividends.
Not applicable
By order of the Board
Mike Vaux
Company Secretary
28 June 2017
Directors’ report
Viability statement
Based on its assessment of the Group’s prospects and viability above,
the Board confirms that it has a reasonable expectation that the Group
will be able to continue in operation and meet its liabilities as they fall
due over the period to 2 May 2020.
Going concern
In conjunction with its assessment of longer term viability, the Board
concluded that it remained appropriate to adopt the going concern
basis of accounting in preparing the consolidated financial statements.
The Board has a reasonable expectation that the Group will continue to
operate as a going concern for at least 12 months from the date of
approval of the financial statements.
3.12 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.
A resolution to re-appoint Ernst & Young LLP as auditors of the
Company will be proposed at the next Annual General Meeting. A
resolution will also be proposed that the Audit Committee be authorised
to fix the remuneration of the auditors.
3.13 Material included in the Strategic report
The Strategic report in section 1 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
3.14 Table of cross references required for
Listing Rule 9.8.4 of the UK Listing Rules
Listing Rule 9.8.4 of the Financial Conduct Authority’s Listing Rules
requires us to make certain disclosures. The table below summarises
where each of the disclosures can be found in this Annual Report.
Listing Required disclosure
Rule
9.8.4
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
A statement of the amount of interest capitalised by the
Group during the period under review with an indication of
the amount and treatment of any tax relief.
Any information required by Listing Rule 9.2.18R relating to
any unaudited financial information in a class 1 circular or a
prospectus; or any profit forecast or profit estimate.
Listing Rule deleted.
Details of long-term incentive schemes as required by Listing
Rule 9.4.3R, being any arrangement where the only
participant is a director of the Company (or an individual
whose appointment as a director of the Company is being
contemplated) and the arrangement is established
specifically to facilitate, in unusual circumstances, the
recruitment or retention of the relevant individual.
Details of any arrangements under which a director of the
Company has waived or agreed to waive any emoluments
from the Company or any subsidiary undertaking.
Details of any agreements by a director to waive future
emoluments.
Details of any allotment for cash of equity securities made
during the period under review otherwise than to the
holders of the Company's equity shares in proportion to their
holdings of such equity shares and which has not been
specifically authorised by the Company's shareholders.
The information required in item (7) above for any unlisted
major subsidiary undertaking of the Company.
Location in
Annual
Report
Not applicable
Not applicable
Not applicable
Not applicable
Section 8.5.9 of this
Annual Report explains
arrangements under
which Sir Brian Souter,
Chairman, waived
emoluments in prior
financial years.
Not applicable
Not applicable
Not applicable
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4. Corporate governance report
Introduction from Will Whitehorn,
4.1
Deputy Chairman
The Stagecoach Group is committed to operating with the high
standards of corporate governance that are expected of a group with
shares traded on the London Stock Exchange. In this introduction to the
Group’s corporate governance report I look back at the year 2016/17,
at the progress that has been made with the governance of the Group
and look forward to the governance challenges for the future.
As the Deputy Chairman, it is my responsibility to promote the highest
standards of corporate governance throughout the Group and
particularly at Board level. This report sets out the governance
structure in place for the Group, which I believe is both robust and
appropriate for the Group’s operations.
The composition of the Board has continued to evolve over the year.
Ray O’Toole’s appointment to the Board was approved by shareholders
at the 2016 Annual General Meeting and he joined the Board on
1 September 2016. Julie Southern joined as an additional non-executive
director on 7 October 2016.
Martin Griffiths and Ross Paterson continue in their roles as Chief
Executive and Finance Director respectively. As we have adjusted the
Board composition over the last two financial years we have appointed
new non-executive directors who bring substantial experience in areas
identified as important in the future strategy of the Group. The Group’s
Chairman, Sir Brian Souter, is responsible for the conduct of the Board
as a whole.
Our Board structure comprises experienced executive directors
managing the business, non-executive directors with the skills and
experience both to bring new ideas to the Board and to challenge the
executive directors, and our founder and former Chief Executive
continuing as non-executive Chairman. This structure allows the Board
to develop the strategic direction of the Group to meet future
challenges while ensuring the sound management of the Group’s
current business. I am satisfied that the governance structure allows
the views of all of the Directors to be heard and given due weight and
that our corporate governance procedures are appropriate for the
Group.
The Board focuses on the Group’s strategy and seeks to understand the
risks to the Group and the markets that it operates in. We aim to
achieve appropriate returns for our shareholders, balanced against an
appropriate level of risk. We look ahead to where we believe
opportunities are going to arise and to anticipate and address the
challenges that the business faces. I believe that good governance is
central to achieving these aims for the business as a whole and to
ensure that our management team is properly challenged to meet the
Group’s objectives.
In the past year, the Board has continued to discuss franchise
opportunities available in the rail sector, submitting a bid (albeit,
ultimately unsuccessful) for the new South Western franchise. The
Board has continued to review the balance of the Group between its
rail and bus businesses. The Board recognises and has discussed in
some detail the risks to the business in the changing political landscape
and the Group has engaged constructively with a range of stakeholders
on the Bus Services Act.
The Board has continued to discuss how new technology can enhance
the passenger experience and attract more passengers to our services.
The Board has drawn on the experience of the non-executive members
of the Board to develop the Group’s digital and technology strategies,
looking at how new technologies can support our current business
model and open up new ways to provide services to the public, and to
ensure that the Group is able to play a part in emerging transport
solutions. Following the launch of the enhanced stagecoachbus.com
website, the UK Bus division launched the Stagecoach Bus App,
available through the AppStore and Google Play, providing journey
planning and real-time bus information to passengers in a mobile-
friendly form, along with a greater range of ways to pay for tickets on
line and to carry tickets on mobile devices.
I am confident that the corporate governance structure of the Board
provides an appropriate forum to develop and adapt the Group’s
strategy to address future challenges and opportunities.
Will Whitehorn
Deputy Chairman
28 June 2017
Corporate governance and compliance
4.2
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 4 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 the recommendations of the Code and
best practice, separate reports are provided from each of the Audit,
Nomination, Health, Safety and Environmental and Remuneration
Committees.
The Code issued in September 2014 applied to the Company’s financial
year from 1 May 2016 to 29 April 2017. The Directors believe that
throughout the year ended 29 April 2017 the Group complied with all
of the provisions of the Code. A copy of the Code is available at:
https://www.frc.org.uk/Our-Work/Publications/Corporate-
Governance/UK-Corporate-Governance-Code-2014.pdf
In the period from Garry Watts leaving the Board on 31 July 2016 to
the appointment of Ray O’Toole to the Nomination Committee on
1 October 2016, the Nomination Committee comprised Sir Brian
Souter, James Bilefield, Sir Ewan Brown and Will Whitehorn. Code
provision B.2.1 recommends that a majority of members of the
nomination committee should be independent non-executive directors.
The Company considers Sir Ewan Brown to be independent and
considers that during this period the composition of the Nomination
Committee complied with the Code. However, as noted at section 4.5
of this Annual Report, some investors consider that Sir Ewan Brown
may not be considered to be independent. While the Company
considers that it fully complied with the provisions of the Code
throughout the financial year, if Sir Ewan Brown is considered not to be
independent, the composition of the Nomination Committee in the two
month period between Garry Watts leaving the Board and Ray O’Toole
joining the Nomination Committee did not comply with Code provision
B.2.1.
The Group also complies with the corporate governance requirements
of the Financial Conduct Authority’s Listing Rules, and Disclosure and
Transparency Rules.
The Financial Conduct Authority’s Disclosure and Transparency Rule
7.2.6 (“DTR 7.2.6”) requires the corporate governance statement to
contain certain information required by Schedule 7 to the Large and
Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008 (SI 2008/410). This information relates to significant
interests in the securities of the Company, securities carrying special
rights with regard to the control of the Company, restrictions on voting
rights, rules regarding the appointment and replacement of directors,
rules regarding changes to the Company’s Articles of Association and
the Directors’ powers in relation to the issuing or buying back by the
Company of its shares. The relevant information can be found in
sections 3.4 and 3.9 of this Annual Report.
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4.3 Composition of the Board
The composition of the Board is as follows:
Date of
appointment
if later than
1 May 2010
Chairman
3
Independent
Non-
Executive
Director
Other
Director
Sir Brian Souter
Chairman
Gregor Alexander
Non-Executive Director
James Bilefield
Non-Executive Director
Sir Ewan Brown
Non-Executive Director
Ray O’Toole
Non-Executive Director
Julie Southern
Non-Executive Director
Karen Thomson
Non-Executive Director
Will Whitehorn
Senior Independent Director
& Deputy Chairman
Ann Gloag
Non-Executive Director
Martin Griffiths
Chief Executive
Ross Paterson
Finance Director
3
3
3
3
3
3
3
3
3
3
The Board comprises eleven directors, seven of whom are considered to
be independent by the Board and six of whom meet the criteria suggested
by the Code for determining director independence.
4.4 Division of responsibilities
Sir Brian Souter was the Chief Executive of the Group until 1 May 2013.
When Sir Brian became the Chairman of the Group and Martin Griffiths
became Chief Executive, the Board created the new role of Deputy
Chairman to maintain the strength of its governance arrangements. 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. 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 Chairman is responsible for the running of the Board and for ensuring
that the Board as a whole plays a full and constructive part in the
development and determination of the Group’s strategy and overall
commercial objectives. 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. The Chief Executive is responsible
for proposing and developing that strategy with support and guidance
from the Chairman. The Chief Executive is responsible for the running of
the Group’s business and reports to the Chairman and to the Board
directly. All other members of the executive management team report
either directly or indirectly to the Chief Executive.
Will Whitehorn, 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.
4.5 Board independence and balance
The Directors’ biographies appear in section 2 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 Directors have a
complementary range of experience that ensures no one director or
viewpoint is dominant in the decision-making process.
The Code recommends that independent non-executive directors should
make up at least half of the Board (excluding the Chairman). Throughout
the year from 1 May 2016 to 29 April 2017, the Board considers that it
complied with this Code requirement. The current position is that seven
out of the ten Board members (excluding the Chairman) are considered by
the Board to be 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 seven 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. Seven of the ten
members of the Board (excluding the Chairman) are considered by the
Board to be independent. If Sir Ewan Brown was 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 of the Directors stand for election or re-election at each annual general
meeting of the Company.
4.6 Operation of the Board
The Board generally meets six times each year. Additional meetings of the
Board are held, or resolutions are circulated in writing, as appropriate, to
consider matters 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.
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Corporate governance report
The number of full Board meetings during the year was six. The full Board
typically meets at least once a year at an operational location. 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 Board met in Chester, New York in April 2017,
giving the Board the opportunity to inspect the facilities at the Group’s
operations in the city and to meet the local management team. The
opportunity was taken to allow the new members of the Board to meet
the local management teams in a number of operational locations in North
East US and for the members of the Health Safety and Environmental
Committee to visit the operation control centre for the North America
Division in Paramus, New Jersey. During the year, the Health, Safety and
Environmental Committee also visited the UK Bus Division’s newly
developed depot in Exeter and was briefed on the opportunities offered by
the new facilities and the environmental initiatives being undertaken at
that site and more broadly across the Division.
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 29 April 2017 included:
• Rail franchise bids including the submission of a bid for the new South
Western rail franchise
• Sale of European retail megabus.com business to Flixbus
• UK Rail industry trading conditions, industrial action affecting the
network and challenges at Virgin Trains East Coast.
• Board succession planning and appointment of new non-executive
directors
• Changes arising from the Bus Services Act
• Opportunities and challenges arising from new technologies in the
transport sector
• Information security controls
• UK Rail franchise bid process and long-term outlook
• Developments in digital technology, including launch of UK Bus app and
roll out of contactless payment technologies
• Adjustments to rail and bus service offerings in response to increased
car and air competition resulting from sustained low fuel prices
• Appointment of joint broker
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.
4.7 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.
There are four principal operating divisions:
• UK Bus (London): headed by a managing director
• UK Bus (regional operations): headed by two managing directors
• North America: headed by a chief operating officer
• UK Rail: headed by a managing director
Although the megabus Europe business is reported as a separate segment
for financial reporting purposes, it was managed as part of the UK Bus
(regional operations) operating division.
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.
One of the joint ventures in which the Group has an interest, Virgin Rail
Group, is managed independently of the Group. It is headed by its own
managing director. The Group has two representatives on the Board of
Virgin Rail Group. 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.
Performance evaluation
4.8
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 Board’s
assessment of the performance of the Chairman is co-ordinated by the
Deputy 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. The Deputy
Chairman obtains feedback from each individual director on the
performance of the Chairman. A questionnaire-based process is
undertaken to assess the performance of each of the Board’s
committees.
The Code recommends 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 29 April 2017. The evaluation was carried out between January
and April 2017, based on interviews, questionnaires, observation and
document review. The evaluation found that the Board had been
strengthened by introducing four new members. The report particularly
noted the additional experience on the Board in the areas of technology,
digitalisation, the transport industry and marketing. The evaluation noted
a focused, inclusive and open atmosphere to Board meetings with good
challenge between executive and non-executive directors. Agendas were
found to reflect the important issues and decision making was effective
and followed through. The Board has begun to implement the
recommendations from the report, including scheduling detailed
discussions of business risks and business and talent strategies outside
the Board meeting cycle and arranging time for more informal
discussions between the Board members. Suggested adjustments to the
forward agenda, including giving Board members more opportunity to
visit operational locations, will be implemented over the remainder of
the 2017/18 financial year. The Board intends to continue to use external
facilitation of its performance evaluation no less frequently than every
three years.
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.
Composition of Committees
4.9
The current composition of the various Board Committees is summarised
below.
Audit Committee
Number of members of Committee:
4
All members are independent non-executive directors.
Chairman and designated member with recent
and relevant financial experience
Gregor Alexander
Other members
Ray O’Toole
Julie Southern
Karen Thomson
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Nomination Committee
Number of members of Committee:
5
Chairman
Sir Brian Souter
Other members
James Bilefield
Sir Ewan Brown
Ray O’Toole
Will Whitehorn
Remuneration Committee
Number of members of Committee:
3
All members are independent non-executive directors.
Chairman
Julie Southern
Other members
Gregor Alexander
James Bilefield
Health, Safety and Environmental Committee
Number of members of Committee:
4
Chairman
Ray O’Toole
Other members
Martin Griffiths
Ann Gloag
Karen Thomson
4.10 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 29 April 2017:
PARTICIPATION
IN MEETINGS
Full Board
meetings
Audit
Committee
Remuneration
Committee
Actual
Possible
Actual
Possible
Actual
Possible
Sir Brian Souter
Martin Griffiths
Gregor Alexander
James Bilefield
Sir Ewan Brown
Ann Gloag
Ray O’Toole
Ross Paterson
Julie Southern
Karen Thomson
Garry Watts
Will Whitehorn
66
66
66
66
66
66
44
66
34
66
11
56
n/a
n/a
3
n/a
n/a
n/a
2
n/a
2
3
n/a
1
n/a
n/a
3
n/a
n/a
n/a
2
n/a
2
3
n/a
1
n/a
n/a
3
33
n/a
n/a
n/a
n/a
2
n/a
11
n/a
n/a
n/a
3
n/a
n/a
n/a
n/a
2
n/a
n/a
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
James Bilefield
Sir Ewan Brown
Ann Gloag
Ray O’Toole
Ross Paterson
Julie Southern
Karen Thomson
Garry Watts
Will Whitehorn
n/a
44
n/a
n/a
n/a
24
33
n/a
n/a
44
n/a
11
n/a
n/a
n/a
n/a
n/a
n/a
n/a
11
n/a
n/a
11
11
n/a
n/a
n/a
n/a
n/a
11
1
n/a
n/a
n/a
n/a
n/a
n/a
n/a
1
1
11
11
1
1
11
n/a
11
n/a
11
n/a
1
1
1
1
n/a
n/a
n/a
1
4.11 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 has periodic meetings and/or telephone
calls 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/calls with institutional
investors. Investor and analyst feedback is sought after presentations to
ensure key strategies, market trends and actions being taken are
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, Deputy Chairman and the Executive
Directors, reports from the Company’s brokers and reports from the
Company’s Financial PR consultants.
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 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. All resolutions
proposed to the 2016 Annual General Meeting were decided by a poll (as
opposed to a show of hands) and details of all votes lodged for and
against, or withheld, in respect of each resolution of the 2016 Annual
General Meeting were published on the Group’s website at:
http://www.stagecoach.com/investors/shareholder-services/agm.aspx
The Group intends to undertake a poll on each resolution put to the
2017 Annual General Meeting. All votes cast for or against each
resolution, whether by proxy or in person at the meeting, will be
aggregated and the results will be reported on the Group’s website.
The Company and its registrars have established procedures to ensure
that votes cast are properly received and recorded.
4.12 Risk management
The Board recognises the importance of maintaining a sound risk culture
throughout the Group such that risks are identified, evaluated and
managed appropriately. Further details are provided in the sections that
follow about the Board’s appetite for risk and the Group’s risk
management process.
4.12.1 Risk appetite
The Board considers that it is in the interests of the Group’s stakeholders
for the Group to evaluate and accept risk. Delivering the Group’s strategy
and objectives necessitates some risk taking.
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Corporate governance report
It is the Group’s objective that the risk of it not remaining viable for the
foreseeable future should be low. Its appetite for risk reflects that overall
objective. Consistent with that risk appetite:
• Safety is at the heart of the Group’s business as explained in section
1.8.5 of this Annual Report. Health and safety risks are carefully
assessed and the Group avoids activities where health and safety risks
cannot be managed to an acceptable level.
• It is the Group’s intention to remain focused on the public transport
sector and goods and services related to that. The Group does not
currently have plans to expand into businesses unrelated to public
transport. Before entering a new country, the Group carefully evaluates
the risks of doing so.
• The Group recognises the different risk profiles of each of its businesses
and in particular, recognises that profits and cash flows from UK rail
businesses are generally less predictable than those from the Group’s
bus businesses. As a result, the Board considers there to be an
acceptable limit to the size of the UK rail business relative to the other
businesses of the Group.
• The Group seeks to minimise as far as practical the risk of breaches of
laws and regulations and applies a zero tolerance approach to employee
breaches of legal and regulatory requirements, its own Code of Conduct
(see section 5.4.5 of this Annual Report), its delegated authority levels
and its other internal policies including in respect of health and safety,
anti-corruption and share dealing.
• It is the Group’s objective to maintain an investment grade credit rating
as explained in section 1.6.10 of this Annual Report.
• The Board has set a minimum level of undrawn, committed credit lines
that the Group should aim to maintain at all times and which should be
available for borrowings.
• Stress testing and reverse stress testing are undertaken in respect of
major investment proposals, major contract bids including rail franchise
bids and generally as part of the Board’s assessment of the Group’s
viability.
The Group’s risk appetite and related objectives are reflected in the
objectives that the Remuneration Committee sets for the Executive
Directors. For example, one of the Chief Executive’s current objectives
relates to health and safety, while one of the Finance Director’s current
objectives relates to the Group’s investment grade credit ratings and their
remuneration is partly linked to the achievement of those objectives.
4.12.2 Risk management process
The Group has an ongoing process for identifying, evaluating and managing
the principal risks that it faces. The Board regularly reviews the process.
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.
For those businesses that have been part of the Group for the whole of the
financial year ended 29 April 2017, the Group’s risk management process
was embedded throughout the businesses for that year 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 reports to the Audit
Committee and is utilised in monitoring risk management processes to
determine whether internal controls are effectively designed and properly
implemented. In conjunction with the tender for the provision of external
audit services for the Group that resulted in the appointment of Ernst &
Young as the Company’s auditors for the financial year ending 29 April
2017, the Audit Committee oversaw a tender for the provision of internal
audit services to the Group. As a result of that tender process, the Group
appointed PricewaterhouseCoopers to manage the Group Risk Assurance
Function in place of Deloitte with effect from September 2016.
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.
4.12.3 Principal risks and uncertainties
The Board has undertaken a robust assessment of the principal risks facing
the Group, including those risks that would threaten the Group’s business
model, future performance, solvency and liquidity. In making that
assessment, the Board considered the likelihood of each risk materialising
in the short-term and the longer term. In assessing the longer term viability
of the Group (see sections 3.11 and 5.5 of this Annual Report for further
information on the Group’s viability), the Board has considered the
principal risks.
The principal risks and uncertainties facing the Group are summarised in
section 1.4.5 of this Annual Report and that section includes an
explanation of how we aim to appropriately manage and mitigate those
risks.
4.13 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. The overall Group annual budget
is 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.
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• a decentralised organisational structure with clearly defined limits of
• 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 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.
4.15 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 twelve trustees for the principal
UK scheme, three of which are employee representatives nominated by
the members on a regional basis and three 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, and is a 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 and internal controls
surrounding pension matters
By order of the Board
Mike Vaux
Company Secretary
28 June 2017
responsibility and authority to promote effective and efficient
operations.
• joint 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. No control failings or
weaknesses that are significant to the Group as a whole have been
identified in the year to 29 April 2017.
4.14 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.
• Any recommendations from the auditors, the Financial Reporting
Council and others in respect of financial reporting are assessed with a
view to continuous improvement in the quality of the Group’s financial
statements.
• 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.
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5. Audit Committee report
Introduction from Gregor Alexander,
5.1
Chairman of the Audit Committee
As Chairman of the Audit Committee, I am pleased to present our Audit
Committee report for the financial year ended 29 April 2017 in
accordance with the UK Corporate Governance Code. The report
describes how we have discharged our responsibilities under the Code
and monitored the effectiveness of the Group’s financial reporting,
internal control systems and risk management.
As part of the planned changes to the Board’s composition, the
membership of the Audit Committee was refreshed during the year. Will
Whitehorn ceased to be a member on October 2016 and I would like to
thank him for his contribution to the Committee.
I was pleased to welcome two new members to the Audit Committee
with the appointment of Ray O’Toole and Julie Southern in October 2016,
and the Committee is already benefiting from the significant financial
and specific sector insights that they bring.
Gregor Alexander
Chairman of the Audit Committee
28 June 2017
Composition of the Audit Committee
5.2
The membership of the Audit Committee is summarised in section 4.9 of
this Annual Report and this section 5.2 explains how we have addressed
the audit committee composition requirements of the UK Corporate
Governance Code. 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.
The Committee as a whole has an appropriate and experienced blend of
audit, financial and commercial expertise, as well as competence
relevant to the Group’s industry sector. Of particular note, are the
insights brought by Ray O’Toole during the year from his experience in
other organisations involved in the bus and rail sectors.
5.3 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;
• The Group Financial Controller;
• The Company Secretary, who is Secretary to the Committee;
• Representatives from the external auditors;
• Representatives from the Risk Assurance (internal audit) 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.
5.4 Activities of the Audit Committee
The Committee receives reports from major business functions including
the outsourced Risk Assurance Function (internal audit). 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/tor-audit-committee-apr-2016.pdf
The sections that follow set out the areas that the Committee focused on
during and in respect of the year ended 29 April 2017.
5.4.1 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.
In March 2017, the Group received a letter from the Financial Reporting
Council’s Corporate Reporting Review team, which raised a number of
queries following its review of the 2016 Annual Report. The Audit
Committee assisted management in reviewing and drafting a response to
the letter, which included commitments by the Group to provide
additional information in the 2017 Annual Report. The Corporate
Reporting Review team has closed its enquiry. A number of suggestions
for improvements were noted, and these have been taken into account
in preparing the 2017 Annual Report.
The Committee considered a number of issues and accounting
judgements in respect of the financial statements for the year ended 29
April 2017, of which it considered the most significant to be those set out
in the table on the following page.
In addition to the significant accounting judgements set out in the table,
the Committee also considered other accounting and reporting matters
in respect of the year ended 29 April 2017, 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. The
Committee is satisfied that the Group’s approach is appropriate in this
area.
• Rail franchise opportunities – In light of the range of opportunities
facing the Group’s UK Rail Division and also the anticipated expiry of the
Group’s South West Trains franchise in August 2017, 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 also considered the accounting
for any costs incurred in pursuing rail franchise opportunities. The
Committee concluded that the accounting estimates in the consolidated
financial statements had been appropriately updated for such franchise
changes and that any costs incurred in pursuing rail franchise
opportunities had been appropriately accounted for.
The Audit Committee also reviewed the evidence that supported the
conclusions that the Group remains a going concern and that the Board
has a reasonable expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the period to 2 May
2020, noting it was consistent with the disclosure given in section 3.11 of
this Annual Report.
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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.
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 was 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 29 April 2017 was
£95.2m (2016: £106.7m)
and the net retirement
benefit liability as at
29 April 2017 was £232.5m
(2016: £96.7m). In note 24
to the consolidated financial
statements, analysis is
provided that shows the
sensitivity of pension
amounts to changes in key
assumptions.
Relevant notes to the
consolidated financial
statements
6, 24
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
date 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.
Impairment and onerous contracts
The Group’s critical accounting
policies described in note 1 to the
consolidated financial statements,
include goodwill and impairment;
and onerous contracts.
A number of the Group’s UK
businesses have experienced more
challenging trading conditions over
recent years. The Committee
therefore focused on whether any
impairment losses and/or onerous
contract provisions arose in respect
of those businesses.
The insurance provision in
the consolidated balance
sheet as at 29 April 2017
was £156.8m (2016:
£148.6m).
23
7
The consolidated tax credit
for the year ended 29 April
2017 was £0.2m (2016:
£5.4m charge).
The net consolidated tax
liability as at 29 April 2017
was £21.9m (2016:
£58.8m). Further
information on uncertain
tax estimates is provided in
section 1.6.4 of this Annual
Report.
4, 23
Pre-tax exceptional charges
of £84.1m and £44.8m
respectively were recognised
for the year ended 29 April
2017 to reflect that the
current contractual
arrangements give rise to an
onerous contract at Virgin
Trains East Coast, and the
related impairment of
certain intangible assets
associated with the right to
operate the franchise.
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 specialist from the external
auditors in April 2017. The specific tax
accounting judgements considered by the
Committee included the financing of and
transactions with overseas (i.e. non-UK)
operations, losses incurred by overseas
operations in the ordinary course of business
and overseas tax audits. The Committee
concluded that appropriate judgements had
been made in determining the tax amounts
recorded in the financial statements.
For those businesses where trading conditions
have been more challenging than previously
expected, in particular Virgin Trains East Coast,
the Committee assessed whether any assets
were impaired and whether any contracts had
become onerous.
The Committee considered the judgements
made by management in undertaking
impairment and onerous contract reviews and
challenged the assumptions on matters such as
future cash flows, growth rates, tax rates and
discount rates. It also considered the key
judgements exercised by management over the
expected outcomes of contractual positions on
the Virgin Trains East Coast franchise.
The Committee agreed with management’s
judgement that the Virgin Trains East Coast
franchise onerous contract provision for £84.1m
should be recognised as a pre-tax exceptional
charge. Having recognised an onerous contract
provision for the franchise, the Committee
concurs with management’s judgement that
certain intangible assets associated with the
right to operate the franchise are therefore also
impaired, and require a separate exceptional
charge of £44.8m to accelerate the amortisation
on these assets.
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Audit Committee report
5.4.2 External auditors
Following the external tender undertaken in the prior year, Ernst & Young
was appointed as the Group’s external auditor at the Annual General
Meeting in August 2016. Mark Harvey, who was appointed in August 2016,
is the current audit engagement partner, and under partner rotation rules,
a new lead audit partner will be required in 2022. In accordance with the
2014 Code, the Group will be expected to tender the external audit by
2026.
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 29 April 2017, the most
significant risks identified were in relation to provisioning for insurance
claims, taxation, carrying value of goodwill and intangibles, pensions
accounting and rail franchise contract compliance, 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 discussions with the external auditors between Committee
meetings.
The Audit Committee is responsible for agreeing the audit engagement
letter, agreeing the scope of the audit, appointing the audit partner and
making recommendations on the appointment, reappointment 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 auditors’ 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 Group has complied with the Statutory Audit Services for Large
Companies Market Investigation (Mandatory Use of Competitive Tender
Processes and Audit Committee Responsibility) Order 2014 during the
year.
The Committee considered the audit fee of £0.9m (2016: £0.9m) for the
external auditor appropriate and concluded that an effective audit can
be conducted for such a fee.
Having completed the assessment of both the external audit process and
the external auditor for the year ended 29 April 2017, a resolution to re-
appoint Ernst & Young as the Group’s auditor will be put to the
forthcoming Annual General Meeting.
5.4.3 Non-Audit services
In May 2014, the European Commission published a directive amending
the Statutory Audit Directive and a new Audit Regulation. The new Audit
Regulation has the direct effect of law and European Union member
states, including the UK, are required to adopt provisions to ensure its
effective application. The new Audit Regulation stipulates that a
statutory auditor of a public-interest entity, which would include the
Company, shall not provide certain non-audit services to that entity, its
parent undertaking and/or its subsidiary undertakings within the
European Union. The Company’s auditors will therefore be prohibited
from providing certain non-audit services to the Group that were not
previously prohibited. The new requirements shall first apply to the
Group in respect of its financial year ending 28 April 2018.
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 set by the Audit Committee and are
currently:
• General – The auditors are not permitted to provide any non-audit
services that they would be prohibited by law from providing due to
either the nature of the services or the level of the fee for the
services.
• 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, subject to any legal
restrictions.
• 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 and prior to July 2016, the Group would
consider using the auditors for tax consulting where they were best
suited to the work being undertaken. It is now the Group’s policy not
to use the auditors for such work.
• 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 and subject to any legal
restrictions.
• The auditors are only permitted to provide non-audit services to the
Group when 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, the external auditor received non-audit
related fees of £0.1m (2016: £0.2m), which equate to 7.7% (2016: 19.2%)
of the audit fee and further details of which can be found in note 3 to 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.
5.4.4 Internal auditors
Following the tender undertaken last year, PricewaterhouseCoopers
assumed responsibility for managing the outsourced Risk Assurance
Function (internal auditors) effective from September 2016. The
Committee has received several reports from PricewaterhouseCoopers,
detailing the planned schedule of audits as well as tracking key findings
and any related material actions to address unsatisfactory results.
PricewaterhouseCoopers attended all meetings of the Committee, in
addition to meeting privately with the Committee without the presence
of management. The Audit Committee reviews the internal audit plan at
least annually and considers whether it is aligned to the key risks of the
Group. The Committee also has the responsibility for making
recommendations on the appointment, reappointment, removal and
remuneration of the Group Risk Assurance Function. There have been no
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instances of disagreements between the Board and the Audit Committee
relating to the Risk Assurance Function.
The Committee formally assesses the effectiveness of the Risk Assurance
Function on an annual basis and seeks to satisfy itself that the quality,
expertise and experience of the function is appropriate for the Group.
This assessment involves both Audit Committee members and members
of the management team completing a questionnaire with the results of
that exercise then considered by the Committee. This assessment
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.
5.4.5 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.
5.4.6 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 and the Group
Tax Manager on the Group’s tax affairs, significant tax accounting
judgements and tax risks. The Group Treasury team gave a presentation
on the Group’s treasury affairs and management of treasury risks.
• The Committee considered and contributed to a response to a letter
received from the Financial Reporting Council’s Corporate Reporting
Review team on the 2016 Annual Report.
• 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, 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.
5.4.7 Fair, Balanced and Understandable
The Audit Committee advised the Board on whether it considers the
Annual Report and financial statements, taken as a whole, to be fair,
balanced and understandable and to provide the information necessary
for shareholders to assess the Company’s position, performance, business
model and strategy. The Committee assessed the controls and processes
in place in respect of the production of the Annual Report and financial
statements as operating effectively during the year, and was able to
provide positive assurance to the Board on the fair, balanced and
understandable conclusion.
In advising the Board, the Audit Committee noted that:
• The Board considers the key risks facing the Group and the Audit
Committee considered how these link to the description of principal
risks and uncertainties in the Annual Report;
• The Board considers the strategy of the Group and its short and long-
term objectives;
• The Board receives regular updates on the actual financial performance
of the Group and significant developments affecting the Group;
• The Board receives summaries of significant media coverage relevant
to the Group;
• The Board annually reviews and approves the Group’s budget and is
updated at least twice a year on an updated forecast of financial
performance for the year;
• The Audit Committee receives updates on developments in accounting
standards and other relevant laws and regulations;
• The Audit Committee receives updates on key areas such as treasury,
taxation and audit;
• The Audit Committee and the Board generally have the opportunity to
consider, comment and request changes to the Annual Report prior to
publication;
• The preparation of the “front end” of the Annual Report includes the
Corporate Communications team, the Company Secretariat, and Group
Finance as well as divisional management validating the
appropriateness of the material relating to the relevant division. The
involvement of these various groups helps ensure the balance,
completeness and accuracy of the “front end”;
• The Audit Committee receives reports from the external auditors, the
internal auditors and management in respect of various matters
including the financial statements;
• The external auditors report on whether the “fair, balanced and
understandable” statement is materially consistent with their
knowledge of the Group acquired in the course of performing their
audit.
The Audit Committee’s assessment considered whether:
• Appropriate weight had been given to “bad news” as well as “good
news” in the Annual Report;
• The description of the business, principal risks and uncertainties,
strategy and objectives in the Annual Report was consistent with the
Board’s understanding;
• The principal risks and uncertainties were consistent with the Group
risk register;
• The Annual Report was presented in an “understandable” way.
The Audit Committee also noted the established internal control and risk
management systems in relation to the process for preparing consolidated
financial statements, including those matters detailed in section 4.14 of
this Annual Report.
5.5 Viability statement
The Audit Committee advised the Board on the statement on the Group’s
viability included in section 3.11 of this Annual Report, which was
underpinned by the consideration of the following points:
• The Audit Committee assessed the reasonableness of the assumptions
made about the Group’s prospects, with reference to the strategy and
risk appetite set by the Board;
• The Audit Committee identified which risks, including those described
as principal risks and uncertainties in the Annual Report, could
potentially impact the Board’s assessment of the Group’s viability;
• The Audit Committee reviewed the length of the assessment period;
• The Audit Committee examined the stress testing of financial forecasts,
the potential effectiveness of mitigating actions, and consideration of
the Group’s ability to withstand the severe but plausible downside
scenarios modelled.
A draft of the viability statement was presented to the Audit Committee
and Board in June 2017 for review and finalisation.
Committee evaluation
5.6
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 4.8. Audit Committee members also completed a separate
questionnaire on the effectiveness of the Committee and the results of
that exercise were considered by the Committee. Overall, the Committee
considers that it has continued to operate effectively during the year.
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6. Nomination Committee report
6.1 Introduction from Sir Brian Souter,
Stagecoach Group Chairman and Chairman of
the Nomination Committee
The Nomination Committee has an important place in the governance
structure of the Stagecoach Group. An effective board needs to maintain
balance over time, taking account of planned and unplanned changes to
membership and the changing needs of the business. 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 diversity in the recommendations that we make to the Board. I
welcome the Report into the Ethnic Diversity of UK Boards published by
the Parker Review Committee. The Stagecoach Group aims to identify and
break down barriers to candidates from diverse backgrounds throughout
the business and ensure that its talent pipeline reflects the diversity of the
population.
Over the last year we have continued to adjust the composition of our
Board and the Nomination Committee was key to managing this process.
As we announced our results last year, we proposed the appointment of
Ray O’Toole to the Board. His appointment was confirmed by shareholders
at the 2016 Annual General Meeting. During the process to recruit Karen
Thomson and James Bilefield, we identified Julie Southern as a candidate
who could bring a complementary set of skills to the Board. Julie was
appointed by the Board on 7 October 2016. Julie will stand for election by
shareholders at the 2017 Annual General Meeting.
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 the Directors for election or re-election (as appropriate) at the 2017
Annual General Meeting.
Sir Brian Souter
Chairman of the Nomination Committee
28 June 2017
Composition of the Nomination
6.2
Committee
The composition of the Nomination Committee is summarised in section
4.9. The Committee also invites other non-executive directors to attend
its meetings from time to time.
6.3 Operation of the Nomination Committee
The Nomination Committee keeps under review the overall structure,
size and composition of the Board, and is responsible for evaluating the
balance of skills, knowledge and experience of the Board and its
committees. 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.
When seeking to appoint a new non-executive director, 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.
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The search for candidates for non-executive directors during the last two
years was undertaken on the basis of search specifications that set out
the key experience, skills and attributes that had been identified by the
Company. The Nomination Committee identified Julie Southern as a
potential candidate for appointment to the Board during the process,
described more fully in the 2016 report from this committee, that led to
the appointments of James Bilefield and Karen Thomson. We continued
our discussions over the summer and were able to announce Julie’s
appointment to the Board in October 2016.
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/Terms-of-reference-of-the-Nomination-
Committee.pdf
6.4 Board diversity
The Company believes strongly that its Board benefits from being
comprised of talented people with a range of perspectives and from
differing backgrounds. The terms of reference of the Committee reflect
this in the criteria for identifying suitable candidates for nomination to
the Board.
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 for
almost all of the time since May 2001, at least two. Following the
appointment of Julie Southern to the Board, there are currently eleven
directors of the Company, of whom three are women. Women constitute
27% of the full Board and 38% of the Non-Executive Directors (excluding
the Chairman).
The Board aspires to maintain at least 25% female representation on the
Board in 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 1.8.4 of the Strategic report.
6.5
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 aims to ensure that appropriate succession
arrangements are in place for the Directors. The Nomination Committee
and the Board seek 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.
The Chief Executive has established a talent group involving human
resources, training and other professionals from within the Group. The
talent group is taking a lead role to further enhance the recruitment,
retention and development of talented employees throughout the
Group.
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The Group’s Directors bring a broad range of skills to the Board, including
general management skills. In its succession planning, the Committee
considers the need to maintain and enhance this wide range of skills with
particular emphasis on the following:
• Health and safety – As is explained in section 1.8.5, safety is at the
heart of our business. The Group has a separate Health, Safety and
Environmental Committee and the Nomination Committee considers it
appropriate that the Non-Executive Directors collectively have an
understanding of health and safety matters. A number of the Directors
bring skills in these areas.
• Transport sector – The Committee considers it beneficial for the Non-
Executive Directors to collectively have experience of transport
businesses to bring a sector-specific perspective on matters such as
health and safety, transport operations, sector regulation and
accounting. Ray O’Toole brings considerable experience of bus, rail
and the broader transport sector to the Board. Julie Southern has
considerable financial and commercial experience gained within the
transport sector. Will Whitehorn brings significant aviation and rail
experience and Ann Gloag, as a co-founder of the Group, has
significant public transport expertise.
• Financial – The Committee considers it essential that the Non-
Executive Directors collectively have recent and relevant financial
experience, in order for the Audit Committee to function effectively
but also to bring broader financial insights to the Board. As Chairman
of the Audit Committee and as a serving FTSE 100 finance director,
Gregor Alexander brings substantial recent and relevant financial
expertise. Sir Brian Souter, Sir Ewan Brown and Julie Southern are
qualified accountants, while James Bilefield has investment banking
experience, bringing further financial insight to the Board.
• Digital and technology – In recent years, the Committee has identified
the increasing importance of digital and technological opportunities
and risks to the Group’s strategy. It identified a possible skills gap in
this respect and considered that it would be desirable to enhance the
collective experience of the Non-Executive Directors in those respects.
The appointments of James Bilefield and Karen Thomson to the Board
have enhanced the Board’s skills in these areas.
• Listed company – The Committee believes it is beneficial for the Non-
Executive Directors to have collective experience of other publically
listed companies to contribute in the areas of corporate governance,
management of potential conflicts, investor relations and regulatory
compliance. Each of Gregor Alexander, Sir Ewan Brown, Ray O’Toole,
Julie Southern, Karen Thomson, and Will Whitehorn serve or have
served on the boards of other publically listed companies.
• Regulatory – The Group operates in regulated markets and the risk of
regulatory change is a principal risk. The Committee therefore values
the Non-Executive Directors’ insight on regulatory matters. A number
of the Directors have significant skills on regulatory matters, including
Ray O’Toole (from the transport sector), Will Whitehorn (from the
transport sector), Gregor Alexander (from the regulated energy
business) and Sir Ewan Brown (from his experience in banking and
financial services).
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. Health, Safety and Environmental Committee report
7.1 Introduction from Ray O’Toole,
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. Helen Mahy stepped
down from the Board and as Chairman of this Committee on 29 February
2016, after serving six years on the Board. As Chairman of the Health,
Safety and Environmental Committee, Helen promoted a strong culture
of safety from the Board into the whole Group. Having served on the
Committee since September 2013, our Deputy Chairman, Will
Whitehorn, took over the chair from Helen Mahy in February 2016 and
handed over to me when I joined the Group in September 2016. I extend
my thanks to both Helen and Will for their contributions to the
Committee. As the new Chairman of the Committee, I am determined to
ensure that the Committee challenges the Group management team to
further strengthen its safety management processes over time.
I intend to continue involving a range of contributors from the Group’s
businesses in the business of the Committee and ensure that the
Committee actively engages with those businesses to help the Group to
evolve its health, safety and environmental strategy. Members of the
Committee are encouraged to be visible to the Group’s managers and
staff by engaging with operating divisions through regular site visits.
Managers are invited to attend meetings of the Committee and are
encouraged to bring more junior members of their management teams
to engage with the Committee. 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.
Ray O’Toole
Chairman of the Health, Safety and Environmental Committee
28 June 2017
Composition of the Health, Safety and
7.2
Environmental Committee
The membership of the Health, Safety and Environmental Committee is
summarised in section 4.9.
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
7.3 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.
Senior 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. The
Committee met at the Group’s new Exeter bus depot in November 2016.
The new facility provides greatly improved maintenance and training
facilities as well as incorporating new technologies to reduce the
environmental impact of its operations. The Committee’s April 2017
meeting was held in the North America Division’s headquarters in
Paramus, New Jersey, where Committee members were given the
opportunity to view the Division’s fleet monitoring technology in action
and were able to visit operations at the New York Port Authority. As part
of their induction, the North America management team provided the
new members of the Board with the opportunity to visit a number of
operational locations in the North East United States and to use the
Group’s megabus.com services during their stay in the United States.
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 suicide
prevention initiatives on the railways, the North America Division’s safety
culture, UK Bus carbon reduction environmental targets and updating of
the Group’s sustainability strategy targets, an update on the UK Bus
Division’s use of the Green Road telematics system and enhancements to
the UK Bus Division’s proactive maintenance procedures.
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, environment, community, health, customer service and
innovation.
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8. Directors’ remuneration report
In this section of the Annual Report there are three separate sections
dealing with the Directors’ remuneration report as follows:
• the annual statement from the Remuneration Committee Chairman;
• the remuneration policy; and
• the annual report on remuneration (implementation).
8.1 A statement to shareholders from the
Chairman of the Remuneration Committee
On behalf of the Board, I am pleased to present the Directors’
remuneration report for the year ended 29 April 2017. I joined the
Stagecoach Board in October 2016 and assumed the chairmanship of the
Remuneration Committee at that time. I would like to thank my
predecessor, Garry Watts, for his chairmanship of the Committee. I am
pleased that Gregor Alexander and James Bilefield remain members of
the Committee, bringing their own insights but also continuity to the
Committee as a balance to my fresh perspective. The Committee’s main
focus this year has been the review of the Directors’ remuneration policy
and it provided a good opportunity to look at the policy with a fresh pair
of eyes, taking into account the feedback that we have had from
shareholders and investor representative bodies. We hope that our new
policy will be well supported.
Remuneration policy
Included within this report is our proposed revised Directors’ remuneration
policy (the “Policy”). The current Directors’ remuneration policy was
approved by shareholders in 2014 and, under the applicable legislation, we
are now required to again seek shareholders’ approval for a remuneration
policy. The Policy will be presented to shareholders for approval at our
next Annual General Meeting (“AGM”) on 25 August 2017.
Our remuneration policies are designed with the long-term success of
the Company in mind. We believe our remuneration arrangements
should provide a clear alignment between the long-term interests of our
shareholders and the corporate strategy to be implemented by the
executive management. We also consider it is important that the
components of remuneration are easily understood and that overall
remuneration is not excessive. Feedback received from our major
shareholders has indicated that they have appreciated the straight
forward and clear components of remuneration set out in the 2014
policy and the Committee wishes to ensure the new policy retains that
clarity. We have consulted with investor representative bodies and our
major shareholders in the development of the revised policy, and have
also given consideration to the corporate governance policies and best
practice guidelines of investor representative bodies.
The principles applied in our approach to executive pay have remained
unchanged. The Committee has taken the opportunity over the last year
to undertake a review of our remuneration arrangements with the aim of
ensuring that pay reinforces the Company’s strategy, whilst continuing to
motivate and retain executive talent.
The main changes in policy that are proposed are as follows:
(i) The amount of the annual bonuses payable to the Executive
Directors is partly determined with reference to certain measures
of the Group’s financial performance. Under the current
remuneration policy, all of the potential bonus amount relating to
a particular financial measure is payable if the target is achieved
while none of the potential bonus is payable if the target is not
achieved. We are proposing to replace this “cliff edge” or “all or
nothing” approach with a performance range whereby the
amount of the bonus payable in respect of a particular financial
target is determined based on the financial performance achieved
relative to the target set.
(ii) To ensure that the Committee has sufficient flexibility to set
challenging financial targets for annual bonuses under the
proposed new arrangements described above, we are proposing
that the Committee will have the discretion to set the amount of
the potential bonus that can be earned in respect of financial
performance at between 70% and 120% of the annual basic salary
of the relevant Executive Director. Under the current policy, the
potential bonus that can be earned in respect of financial
performance is fixed at 70% of annual basic salary. The overall
annual bonus potential for an executive director would be
determined by the Committee around the start of the each year,
taking account of the financial and non-financial objectives and it
is proposed to be between 100% and 150% of basic salary.
(iii) We propose to continue with two performance criteria for the
Long Term Incentive Plan (“LTIP”). Under the current policy, the
criteria are based on measures of Total Shareholder Return
(“TSR”) and Earnings Per Share (“EPS”). Under the new policy, we
propose that the criteria will be based on measures of TSR and
profitability, giving the Committee more discretion to set a
measure of EPS or any other appropriate measure of profitability
in respect of any new LTIP award.
(iv) We propose to introduce claw-back provisions in respect of
performance related pay.
Activities of the Remuneration Committee
The main tasks and decisions of the Committee during the year ended
29 April 2017 were:
• Drafted the proposed new remuneration policy and consulted with
major shareholders on the policy.
• Reviewed the performance and approved the Executive Directors’
bonuses for the year ended 30 April 2016.
• Set annual performance targets for the Executive Directors’ bonuses
for the year ended 29 April 2017.
• Reviewed performance of the 2013 awards under the LTIP, in June
and December 2016.
• Reviewed and approved targets for LTIP awards made in the year
ended 29 April 2017.
• Reviewed and approved the vesting of Deferred Shares under the
2013 EPP award in June 2016.
• Decided on levels of pay and benefit increases in the annual salary
review for the Executive Directors and made recommendations to
the Board in respect of the remuneration of the Chairman and
Deputy Chairman.
• Reviewed the remuneration for senior non-Board managers.
Remuneration for 2016/17
As explained earlier in the Annual Report, we achieved our recent
expectation of adjusted earnings per share for the year ended 29 April
2017. Although the continuing trading challenges faced by our
businesses are reflected in the financial results for the year, we continue
to manage the business with its long-term success in mind. That
approach is reflected in the further investment that was made in the
business during the year. As a Committee, we try to maintain
remuneration arrangements that balance meeting short-term financial
objectives with supporting the Group’s long-term success. Certain of the
non-financial, personal objectives that we set for the Executive Directors
have the long-term in mind and can be achieved (or not) irrespective of
whether short-term financial targets are achieved.
Consolidated profit before interest and taxation (“PBIT”) from Group
companies and consolidated adjusted earnings per share (“EPS”) fell
short of the demanding targets that we set for the year, reflecting the
continuing trading challenges. The target for consolidated net debt,
however, was met. Accordingly, of the 70% of basic salary that the
Executive Directors could have earned as an annual bonus based on
financial performance, 23.3% of basic salary is payable for the year, being
one-third of the potential opportunity.
The Committee determined that Martin Griffiths achieved four out of the
five personal, non-financial objectives that we set for him for the year.
That entitles him to a bonus amount of 24% of basic salary from a
potential 30%. The Committee determined that Ross Paterson achieved
three of the four personal, non-financial objectives that we set for him
for the year. That entitles him to a bonus amount of 22.5% of basic
salary from a potential 30%.
The Committee remains focused on ensuring that there is a clear linkage
between pay and performance and that there is a strong alignment of
interests of managers, shareholders and other major stakeholders
through an appropriate mixture of pay, incentives and the use of
shareholding guidelines for the Executive Directors.
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 investor representative bodies. We continue to
value shareholders’ views on our remuneration arrangements and I can
be contacted via the Company Secretary should any shareholder wish to
meet with me.
At the Group’s Annual General Meeting on 25 August 2017, shareholders
will be invited to approve:
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Directors’ remuneration report
(i)
(ii)
the Directors’ remuneration policy in a binding vote; and
this statement and the Annual Report on Remuneration together
in an advisory vote.
The proposed, revised Policy is broadly consistent with our existing
policy. Key areas of difference between the revised and existing policies
are as follows:
It is my hope that all of our shareholders, whether they are large
institutional shareholders or individual shareholders, will find value in
this report.
Julie Southern
Chairman of the Remuneration Committee
28 June 2017
Compliance statement
8.2
This Directors’ remuneration report covers the year from 1 May 2016 to
29 April 2017 and provides details of the Remuneration Committee’s role
and the remuneration policy we apply in decisions on executive
remuneration.
This report has been prepared in accordance with the Large & Medium-
sized Companies and Groups (Accounts and Reports) (Amendment)
Regulations 2013 (“the 2013 Regulations”). 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 2017 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 other sections of the remuneration report
are not subject to audit.
8.3 Remuneration Committee
The Committee’s principal function is to determine Stagecoach Group’s
policy on executive remuneration and to approve specific remuneration
packages and service contracts for the Group’s Executive Directors and
such senior members of the executive management as it is asked by the
Board to consider. The Committee also has responsibility for making
recommendations 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/Terms-of-reference-of-the-Remuneration-
Committee.pdf
8.4 Directors’ remuneration policy
This section of the report sets out Stagecoach Group’s proposed revised
Directors’ remuneration policy (the “Policy”). The Policy is subject to a
binding shareholder vote at the Company’s AGM on 25 August 2017, and
subject to approval, will apply from that date. The current remuneration
policy approved on 29 August 2014, can be found in the 2014 Annual
Report, available on the Company’s website at:
http://www.stagecoach.com/Remunerationpolicy29August-2014.pdf
and will continue to apply until a new policy is approved.
• the introduction of claw-back provisions;
• the replacement of cliff edge targets by sliding scale targets for the
financial measures in the annual bonus and providing the
Remuneration Committee with flexibility to increase the maximum
potential bonus potential to 150% of basic salary; and
• continue to use two performance criteria for the Long Term
Incentive Plan, and continuing with total shareholder return but
instead of using EPS, the Remuneration Committee may use EPS or
any other appropriate measure of profitability, as determined prior
to the grant of any new award.
The details of the proposed changes are reflected in the annual
statement and the policy table.
8.4.1 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 Committee believes that remuneration packages for the Executive
Directors should contain meaningful and effective performance-related
elements, and that the 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 remuneration policy.
8.4.2 Remuneration policy table for the Executive Directors
This section of our report sets out in tabular form key components of the remuneration package for the Executive Directors.
8.4.2.1 Fixed elements of pay
BASIC SALARY
Purpose and link to strategy objectives
To attract, retain and motivate executives ensuring basic salaries are
competitive in the market.
Operation
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 and other companies in the public transport industry.
Account is also taken of pay conditions throughout the Group.
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Maximum value
Basic salary increases are applied in line with the outcome of the
annual review.
An executive director’s annual basic salary may not exceed £850,000.
The Committee would only set a salary which exceeded the top
quartile of salaries applicable in FTSE 250 companies in unforeseen
and exceptional circumstances.
Performance metrics
Basic salary levels are predicated on continued good performance by
the director.
Salary levels set effective from 1 May 2017 are set out in section
8.5.13.1.1 of the Annual Report on Remuneration.
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8.4.2.1 Fixed elements of pay (continued)
PENSIONS AND LIFE ASSURANCE ARRANGEMENTS
Purpose and link to strategy objectives
To provide relevant life assurance and pension benefits that are
competitive in the market.
Operation
Pension arrangements for executive directors are designed to provide
pension benefits on retirement of up to two thirds of final pensionable
pay and may be met through a combination of defined benefit pension
arrangements, money purchase or cash allowances.
Her Majesty’s Revenue and Customs (“HMRC”) and pension scheme
rules provide that defined benefit pension benefits may not be drawn
before age 55.
Freedom and Choice regulations introduced by the United Kingdom
Government in 2015 have impacted the flexibility for pension scheme
members in transferring benefits out of pension schemes. Consistent
with arrangements for other members of the relevant pension
schemes, accrued defined benefits pensions may be transferred out to
the beneficiary in accordance with the transfer arrangements
established by the trustees, or in the case of the company funded
arrangements, at the amount accrued in the consolidated financial
statements in respect of such benefits at the point of transfer.
BENEFITS IN KIND AND OTHER ALLOWANCES
Purpose and link to strategy objectives
Designed to be competitive in the market.
Operation
Benefits in kind and other allowances can include:
• Health-care benefits, life assurance cover, company car allowance, and
telephone and communications costs.
• Opportunities to join the Buy As You Earn (“BAYE”) scheme.
• Relocation assistance upon appointment if/when applicable.
Business related travel and subsistence costs will be met or reimbursed
including directors’ partners attending corporate events or management
conferences. Where the Committee considers it appropriate other benefits
may be provided, including on recruitment or relocation.
8.4.2.2 Variable pay
PERFORMANCE-RELATED ANNUAL CASH BONUSES
Purpose and link to strategy objectives
Aims to focus the Executive Directors on achieving demanding annual
targets relating to Group performance.
Operation
Around the start of each financial year, the Committee agrees specific
objectives for each executive director. Following 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.
In accordance with the rules of the Executive Participation Plan (“EPP”),
at least 50% of any actual bonus will be deferred as shares.
Claw-back and malus provisions will apply to the cash and deferred
elements of the annual bonus as described in section 8.4.3 below.
Maximum value
Final salary elements are related to basic salary and length of service,
and any payment to a money-purchase arrangement or an employer
cash allowance would be limited to a third of basic salary.
Performance metrics
Pensions and life assurance arrangements are predicated on continued
good performance by the director.
Maximum value
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.
Performance metrics
Benefits in kind and other allowances are predicated on continued
good performance by the director.
Maximum value
The potential annual bonus that can be earned by an executive
director in respect of any financial year may never exceed 150% of
basic salary. The maximum annual bonus would be set each year
within a range of 100% to 150% of basic salary, of which no more than
50% of any actual bonus award in the year will be settled in cash.
Performance metrics
The performance conditions for the annual bonus awards are subject to
a combination of financial objectives and individual business related
objectives.
Around the start of each financial year, the Committee will determine one
or more financial measures that will apply for bonus purposes for that
year. The Committee will also determine the maximum potential bonus
amount (expressed as a percentage of basic salary) that an executive
director will have the ability to earn in respect of each financial measure.
The aggregate maximum potential bonus amount across all financial
objectives will be between 70% and 120% of basic salary.
For each financial measure, the Committee will determine the
performance levels that will trigger “Threshold”, “Target” and
“Maximum” payout. The Threshold amount for a given financial
measure will be triggered on the minimum performance that needs to
be achieved to earn any bonus in respect of that measure. The
Maximum amount is the maximum potential bonus in respect of that
measure. The Target amount will be the arithmetic average of the
Threshold and Maximum amounts.
For each financial measure:
• The maximum potential bonus amount, payable only on the
achievement of Maximum performance is the amount set by the
Committee subject to the overall aggregate limits explained above;
• The bonus amount payable on the achievement of Threshold
performance will be 50% of the maximum potential bonus amount
where the aggregate maximum potential bonus amount across all
financial objectives is 70% of basic salary.
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Directors’ remuneration report
8.4.2.2 Variable pay (continued)
PERFORMANCE-RELATED ANNUAL CASH BONUSES (continued)
• The bonus amount payable on the achievement of Threshold
performance will be 25% of the maximum potential bonus amount
where the aggregate maximum potential bonus amount across all
financial objectives is 120% of basic salary.
• The bonus amount payable on the achievement of Threshold
performance will be between 25% and 50% of the maximum potential
bonus amount, determined on a straight-line basis, where the
aggregate maximum potential bonus amount across all financial
objectives is greater than 70% but less than 120% of basic salary.
• The bonus amount payable on the achievement of performance
between the Threshold and the Maximum will be between (a) the
bonus amount payable on Threshold performance and (b) the
maximum potential bonus, determined on a straight-line basis
proportionate to the extent actual performance exceeds Threshold
performance.
The tables below provide examples of how the above policy may be
implemented.
Example 1: Bonus potential of 70% of basic pay for financial performance:
Financial objectives
Potential payout as a percentage of: Potential Threshold
Maximum award level
Basic pay
50.0%
35.0%
Maximum
70.0%
Target Maximum
75.0%
52.5%
100.0%
70.0%
Example 2: Bonus potential of 120% of basic pay for financial
performance:
Maximum
25.0%
30.0%
Target Maximum
62.5%
75.0%
Financial objectives
Potential payout as a percentage of: Potential Threshold
100.0%
Maximum award level
Basic pay
120.0%
120.0%
The aggregate maximum potential bonus amount for achievement of the
individual business related objectives will be between 30% and 45% of
basic pay.
A number of objectives are set for the individual business related
objectives. To the extent that a particular objective is satisfied then there
would be a payout in respect of that objective. If the objective is not
satisfied then there is no payout in respect of that objective. The
minimum level of performance required to be met for payout for each of
the discrete objectives is that specified in the objectives.
In assessing the level of bonuses that will be paid, including individual
business related objectives, the Committee has the discretion to reduce
the level of any pay-outs after taking into account the financial
performance and standing of the Group and the overall individual
performance of the relevant director. So, even where one or more of the
specified objectives have been achieved, the Committee has the
discretion to pay no or a reduced bonus.
Further details of the performance measures used for the 2017 bonus are
set out in the Annual Report on Remuneration in section 8.5.3.
ExECUTIVE PARTICIPATION PLAN (“EPP”)
Purpose and link to strategy objectives
Aims to align the interests of managers and shareholders by awarding
interests in shares out of the annual bonus award.
It is also designed to provide an incentive for managers to remain with
the Group.
Operation
Participants are awarded Deferred Shares (with a minimum 3 year
vesting period), which can be issued as either a conditional award or a
nil-cost option, with an initial market value approximately equal to the
amount of the actual cash bonus forgone.
Unvested awards are subject to malus (details are in section 8.4.3
below).
Maximum value
At least 50% of any actual bonus earned in the year will be deferred as
shares under the EPP. By agreement with the Remuneration
Committee, more than 50% may be deferred.
Additional shares are allocated in respect of dividends payable during
the relevant period.
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.
Performance metrics
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 under which the Deferred
Shares are earned is already subject to performance conditions.
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8.4.2.2 Variable pay (continued)
LONG TERM INCENTIVE PLAN (“LTIP”)
Purpose and link to strategy objectives
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.
Operation
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.
Awards are subject to malus, and all awards granted after 25 August
2017 are subject to both malus and claw-back (details are in section
8.4.3 below). The Committee may adjust and amend awards only in
accordance with the rules of the LTIP.
Subject to performance conditions, Incentive Units vest around three
years after the date of award.
Maximum value
The maximum award granted in relation to 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.
Performance metrics
Awards granted prior to 25 August 2017 will be subject to the terms of
the 2014 remuneration policy that was in effect up to that date.
Awards granted from 25 August 2017 would be subject to the following
arrangements.
Awards remain subject to two performance conditions, with one half of
annual awards being made based on relative total shareholder return
(“TSR”), and the other half based on challenging profit targets set by
the Committee for a three-year 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 or other peer grouping of
companies in the public transport industry.
In setting targets for the profit based performance condition the
Committee may take into account a range of factors such as:
• internal and external factors affecting the Group,
• the long-term expectations for each of the operating divisions, and
• analysts’ consensus expectations for the operating divisions and the
Group as a whole.
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 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 adjusted on a straight-line basis depending on the
actual ranking against the comparator group.
For the Incentive Units awarded that are subject to the profit condition,
vesting will be as follows:
• If the profit achievement is below the target for threshold vesting set
by the Remuneration Committee, then none of the relevant
available Incentive Units will vest and they will all lapse;
• If the profit achievement 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 profit achievement equals or exceeds the target for maximum
vesting set by the Remuneration Committee then all of the available
Incentive Units will vest;
• If the profit achievement 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-line basis
depending on the profit achieved.
The performance conditions are tested over a three year period, being
the three years commencing on or around the 1 May or 1 November
immediately preceding the date of the relevant award.
The Committee is satisfied that the proposed remuneration policy is in the best interests of shareholders and does not promote excessive risk
taking. As part of the Directors’ remuneration policy, the Committee reserves the right to make minor amendments to the policies set out for
regulatory, exchange control, administrative or tax purposes.
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Directors’ remuneration report
8.4.3 Malus and claw-back
For the purposes of this remuneration policy, “Malus” refers to the withholding, cancellation or reduction of amounts of remuneration otherwise
payable to a director.
Malus may apply to unvested awards 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 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
• Other similar circumstances, where the Committee determines that the malus provisions should apply.
Claw-back arrangements may apply to awards granted after 25 August 2017 where stated in the policy table shown above. Under claw-back
arrangements, the Remuneration Committee may require a participant to repay the following elements of variable pay:
• the cash part of the annual bonus will be subject to potential claw-back for a period of two years following payment;
• the cash received or the cash equivalent value on vesting of shares received under the LTIP will be subject to claw-back arrangements for a period of
two years from the vesting of an LTIP award.
The circumstances in which the Remuneration Committee may claw-back awards are set out below:
• If a participant's actions or inactions amount to serious misconduct which causes
– significant financial loss for the Group; or
– a material restatement of the previously published financial statements for the Group (other than in respect of a change in accounting policy); or
• Where and to the extent that there has been an error in the calculation of any payout under an award.
No other element of remuneration is subject to malus or claw-back.
8.4.4 Payments from outstanding awards
The Executive Directors remain eligible to receive payment under any contractual arrangement agreed under the 2014 remuneration policy or
entitlements established prior to the approval and implementation of the 2014 policy, including the vesting of awards granted prior to the revised
remuneration policy taking effect on 25 August 2017.
8.4.5 Performance targets
8.4.5.1 Annual bonus targets
The maximum annual bonus potential would be set by the Committee around the start of each financial year and be within the range of 100% and
150% of basic pay, out of which between 70% and 120% of basic pay would be subject to financial performance measures, and between 30% and 45%
of basic pay would be subject to a number of individual business related objectives.
The individual business related objectives 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.
Targets for the Annual Bonus Plan are set with due regard to internal and 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 number, weightings and components of the financial and non-financial elements of the bonus
from year to year and for each executive as appropriate, subject to the overall limits described above.
8.4.5.2 LTIP performance targets
LTIP awards will be split with one half based on TSR performance against an appropriate comparator group of FTSE 250 companies or other
companies in the public transport industry, and the other half based on performance against a profit measure for the Group or key operating
divisions. 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 profit measure for the three year performance period will be set for the other half of the awards based
on a range of relevant market factors and expectations for the Group or relevant operating divisions 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.
8.4.6 Pension benefits
Under the legacy terms of their service agreements, the Executive Directors are entitled to accrue benefits under defined benefit pension
arrangements or, if preferred, to receive a cash allowance in lieu of contributions to pension arrangements. Pension arrangements are intended to
provide pension benefits on retirement up to two thirds of final pensionable pay. The normal retirement age for executive directors is 60. In
accordance with HMRC rules, accrued defined benefits may not be drawn before age 55. Benefits may only be drawn subject to any necessary
employer or trustee consent and in accordance with the relevant scheme rules. Life assurance of four times basic annual salary is provided under the
arrangements for pension benefits.
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8.4.7 Remuneration policy table for the Non-Executive Directors
The table below sets out key components of the remuneration for the Non-Executive Directors.
BASIC SALARY/FEES
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
Fee levels for non-executive directors are generally reviewed by the Board
annually with any adjustments effective 1 May in the year following review
although there is discretion to adjust them at other times of the year.
Account is taken of individual responsibilities, involvement in Board
committees and fees for similar roles in comparable companies.
Remuneration comprises an annual fee for acting as a non-executive
director.
Remuneration for the Chairman comprises an annual fee for acting as
Chairman.
Non-executive directors do not participate in pensions or incentive
benefits, or receive other remuneration in addition to their fees. Business
related expenses and travel and accommodation expenses will be met or
reimbursed including for partners at corporate events or management
conferences. Home telephone and communications costs may be met or
reimbursed.
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. Subject to
shareholder approval at the 2017 AGM, that cap will be increased from
£800,000 to £1,200,000 and may subsequently be further adjusted by
an ordinary resolution of the Company. That cap, as adjusted from
time to time, is the only limit in place that acts as setting a maximum
value for fees payable to non-executive directors.
Performance metrics
Continued good performance.
8.4.8 Approach to the remuneration of newly appointed directors
The Group’s approach to remuneration for newly appointed directors is generally 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
generally 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 a senior manager 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 apply the policy as set out in the table in section 8.4.7.
8.4.9 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”, “Expected”, and “Maximum”.
Chief Executive (potential annual pay outcomes)
Finance Director (potential annual pay outcomes)
2,800
2,400
2,000
1,600
1,200
800
400
–
100%
Minimum
£892k
21%
26%
53%
39%
26%
35%
Expected
£1,674k
Maximum
£2,522k
2,800
2,400
2,000
1,600
1,200
800
400
–
20%
26%
54%
39%
26%
35%
Expected
£1,123k
Maximum
£1,689k
100%
Minimum
£602k
Salary, pension and benefits
Annual Bonus
LTIP
Salary, pension and benefits
Annual Bonus
LTIP
Potential reward opportunities illustrated above are based on the proposed new remuneration policy, applied to the basic salary in force at 1 May
2017. For the annual bonus, the amounts illustrated are based on those potentially receivable in respect of performance for 2017/18 on the basis of
a maximum bonus potential of 100% of basic pay, and that any actual 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:
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Directors’ remuneration report
Annual Bonus
LTIP
Pension
Minimum
Expected
Maximum
No annual bonus payable
No vesting – nil payment
33% of basic salary
67.5% of the maximum annual bonus payable
35% vesting of maximum award
33% of basic salary
100% of maximum annual bonus
100% vesting of maximum award
33% of basic salary
For the purposes of the charts above it is assumed that 70% of the annual bonus plan would be based on financial objectives and 30% over a range of
individual business related objectives. While each individual business related objective will be separately assessed, for the purpose of the two charts
above, the assumption is that the expected level of performance is for one-half of the objectives to be satisfied, and that all are satisfied for maximum
achievement. Pension amounts are included at 33% of basic salary which is equivalent to the money purchase or cash allowance alternative available
under the Policy. This differs from how pension amounts shown in Table 1 in section 8.5.3 are calculated, which is in accordance with the provisions of
paragraph 13 of the 2013 Regulations.
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 value of such awards.
8.4.10 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 formally 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.
8.4.11 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 April 2016) 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 a non-executive director can be removed in accordance with the Company’s Articles of Association.
All notice periods apply to both the director and the Company.
8.4.12 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 annual maximum bonus that may be paid in accordance with the Policy set out in
section 8.4.2. This bonus potential on loss of office is the effect of legacy contractual positions and will not be incorporated into 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 that 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 at the end of the director’s period of employment.
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 at the end of the director’s period of employment.
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 BAYE 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.
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8.4.13 Change of control
The following apply where there is a change in control of the Group:
• Each executive director is 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 director 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.
8.4.14 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 will consult major shareholders.
8.4.15 External appointments
It is the Board’s policy to allow the Executive Directors to accept directorships of other unconnected companies and to retain any related
remuneration, as this will broaden and enrich the business skills of a director 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.
8.5 Annual Remuneration Report
This section of the remuneration report provides details of how the remuneration policy was implemented during the year ended 29 April 2017.
8.5.1 Committee members
The Remuneration Committee is currently composed of three independent non-executive directors. The Committee met three times during the year.
The Group Director of Tax and Employee Benefits attended as Secretary to the Committee. The Chief Executive attended meetings to provide
information on performance and strategy. A representative from the Committee’s independent external remuneration advisor attended at least part
of every Remuneration Committee meeting during the year. The Finance Director attended part of one meeting to present a view on the short and
long-term outlook for the Group’s financial performance. Attendance at meetings by individual members is detailed in section 4.10. No director was
involved in decisions as to their own remuneration.
• Garry Watts (as Chairman to 31 July 2016)
• Julie Southern (as Chairman from 7 October 2016)
• Gregor Alexander
• James Bilefield
There was no business to be considered by the Committee in the two months between Garry Watts stepping down as Committee Chairman on
31 July 2016 and Julie Southern succeeding him on 7 October 2016.
The remuneration of executive directors was not considered by any other Committee or group of directors during the year.
8.5.2 Advisers
Addleshaw Goddard LLP provided remuneration consultancy until 31 October 2016. From 18 November 2016, Osborne Clarke LLP provided such
consultancy. They each acted as the Committee’s independent remuneration consultant, providing access to independent research and advice. The
Group has no other connection to either Addleshaw Goddard LLP or Osborne Clarke LLP. Addleshaw Goddard LLP received £3,000 (2016: £8,417) in
respect of work it carried out in the year ended 29 April 2017 and Osborne Clarke LLP received £10,211 (2016: £Nil). The fees payable were
determined 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 the remuneration consultants.
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Directors’ remuneration report
8.5.3 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 the Directors’
remuneration policy.
Directors’ remuneration and the single figure total for the year ended 29 April 2017 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
Short Term
Incentives
(performance
related bonus)
Long Term
Incentives
vested
(LTIP)
Pension
related
benefits
Total
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
Executive directors
Martin Griffiths
Ross Paterson
639
426
627
418
25
23
25
23
302
195
334
223
Non-executive directors
Gregor Alexander
James Bilefield (appointed 1 February 2016)
Sir Ewan Brown
Ann Gloag
Helen Mahy (resigned 29 February 2016)
Ray O'Toole (appointed 1 September 2016)
Sir Brian Souter
Julie Southern (appointed 7 October 2016)
Karen Thomson (appointed 31 March 2016)
Garry Watts (resigned 31 July 2016)
Phil White (resigned 31 March 2016)
Will Whitehorn
60
58
53
55
–
40
213
34
58
33
–
150
59
13
53
54
49
–
209
–
5
131
54
62
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
1,819 1,734
48
48
497
557
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
347
167
330
192
1,313
811
1,316
856
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
60
58
53
55
–
40
213
34
58
33
–
150
59
13
53
54
49
–
209
–
5
131
54
62
514
522
2,878
2,861
Notes to Table 1:
i. Basic Salary/fees
The basic salary/fees in Table 1 correspond to the amounts payable in respect of the financial year ended April. Salary is paid monthly. 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 shown in Table 1 are made up as follows:
TABLE 2 – BENEFITS IN KIND
AND OTHER ALLOWANCES
Martin Griffiths
Ross Paterson
Sir Brian Souter
Cash allowance in lieu
of company car
2017
£
2016
£
22,000
22,000
–
22,000
22,000
–
Healthcare
benefits
2017
£
964
964
–
2016
£
1,061
1,061
–
Reimbursement
of home
telephone expenses
Employer
BAYE
contributions
2017
£
1,906
–
337
2016
£
1,800
–
286
2017
£
202
202
–
2016
£
185
185
–
Total
2017
£
25,072
23,166
337
2016
£
25,046
23,246
286
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 is currently £1,800 per annum. 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 11.
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. The objectives 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 29 April 2017 were to meet financial targets with respect to
measures of profit before interest and taxation, earnings per share, and net debt.
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For the year ended 29 April 2017, 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 financial objectives and 30% for meeting individual business related objectives. Details of the financial objectives applicable
for 2016/17 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
£198.8m
27.3p
£478.1m
£168.7m
24.7p
£430.3m
23.4%
23.3%
23.3%
70.0%
–
–
23.3%
23.3%
The PBIT and EPS measures shown above are determined in accordance with International Financial Reporting Standards but adjusted to exclude
intangible asset expenses, exceptional items, and rail franchise bid costs. 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 34 to the consolidated financial
statements excluding any unbudgeted over or under spend on rail franchise bid costs. 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.
For the year ended 29 April 2017, the Chief Executive had personal objectives relating to:
• Leadership on health and safety performance across all business units;
• Contractual and financial risk reduction from rail franchising activities;
• Strategic review of European inter-city coach operations;
• Strategic review of UK Bus in line with regulatory developments; and
• Development of the Group digital strategy.
For the year ended 29 April 2017, the Finance Director had personal objectives relating to:
• Maintaining an investment grade credit rating;
• Enhancing reporting and analytics within UK Bus;
• Delivering a local transport app; and
• Contractual and financial risk reduction from rail franchising activities.
The Committee intends to provide information on the Executive Directors’ personal objectives for the year ending 28 April 2018 when it considers
such disclosure to be no longer commercially sensitive.
In making its judgement of performance for the last financial year, the Remuneration Committee had particular regard to the Group’s financial results
as presented elsewhere in the Annual Report, relative total return to shareholders over the year, the Group’s operational performance and other
strategic developments. Performance related bonuses awarded to the Executive Directors in respect of the year ended 29 April 2017 are shown below:
TABLE 4 – DIRECTORS’ BONUSES AWARDED
Actual bonus as a percentage of
basic salary
Maximum potential bonus as a percentage of
basic salary
Director
Martin Griffiths
Ross Paterson
Cash
23.7%
22.9%
Deferred Shares under EPP
23.7%
22.9%
Cash
50%
50%
Deferred Shares under EPP
50%
50%
iv. LTIP
No amount is shown in Table 1 in respect of the LTIP vestings for the year ended 29 April 2017, as the December 2013 award achieved a ranking of 190
out of the 230 companies in the comparator group throughout the performance period, so did not pay out. Similarly, no amount is included for the
June 2014 awards as it is considered unlikely they will pay out.
TABLE 5 – LTIP AWARDS
treated as vested for
inclusion in Table 1
Grant date
Martin Griffiths
12 Dec 13
26 Jun 14
Ross Paterson
12 Dec 13
26 Jun 14
As at 30 April
2016
(Incentive
Units)
Dividends
in year
(Incentive
Units)
Lapsed
during year
(Incentive
Units)
As at 29 April
2017
(Incentive
Units)
Amounts
included in
Table 1 including
dividend amounts
£
129,559
128,913
4,876
7,357
(134,435)
–
––
136,270
86,371
85,942
3,250
4,904
(89,621)
–
––
90,846
–
–
–
–
Vesting Date
12 Dec 16
28 Jun 17
12 Dec 16
28 Jun 17
LTIP awards vested in June 2016
In the 2016 Annual Report a nil value was included in respect of the June 2013 LTIP awards, and it is confirmed that this was in accordance with the
actual vesting as no payment was made on vesting in June 2016.
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Directors’ remuneration report
v. Pension related benefits
The pension amounts shown in Table 1 are nominally calculated in accordance with the provisions of the 2013 Regulations and so 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.
vi. External Appointments
Martin Griffiths is a non-executive director of AG Barr plc, and was permitted to retain the £56,289 fees received from this position in the year ended
29 April 2017 (2016: £55,395).
8.5.4 Pensions (audited)
Under the legacy terms of their service agreements, the Executive Directors accrued benefits under defined benefit pension arrangements. Historic
benefits previously accrued under an HMRC approved pension scheme and included in the Table 6 below were revalued only for inflation. The
directors accrued benefits in the year ended 29 April 2017 under Group funded pension arrangements. Other than adjustments for inflation, no
further benefits accrued under the HMRC approved Group defined benefit pension scheme during the year. Pension benefits are targeted with a
normal retirement age of 60. In accordance with HMRC rules, accrued defined benefits may not be drawn before age 55.
Table 6 below provides the 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
29 April 2017
£000
Martin Griffiths
Ross Paterson
31 March 2026
29 July 2031
56
38
Accrued cash
entitlement at
30 April 2016
£000
168
137
Accrued
annual pension
entitlement at
30 April 2016
£000
132
76
Accrued cash
entitlement at
29 April 2017
£000
169
138
Accrued
annual pension
entitlement at
29 April 2017
£000
153
87
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 money purchase schemes or defined benefits schemes in connection with their roles with
the Group.
8.5.5 EPP and LTIP awards during the financial year (audited)
Tables 7 and 9 set out the awards to the Executive Directors under the Company’s share schemes during the year ended 29 April 2017.
TABLE 7 – LTIP AWARDS IN YEAR
Type of
interest
awarded
Share price at
time of award
£
Basis
of award
Awards
granted in year
(Incentive
Units)
Face
value at
time of grant
£
Vesting
Date
Performance
period
(approximate)
Martin Griffiths
30 Jun 16
8 Dec 16
Ross Paterson
30 Jun 16
8 Dec 16
Incentive
Units
Incentive
Units
Incentive
Units
Incentive
Units
2.2650
2.1100
2.2650
2.1100
75% of
basic salary
75% of
basic salary
75% of
basic salary
75% of
basic salary
211,655
479,398
30 Jun 19
227,203
479,398
8 Dec 19
141,125
319,648
30 Jun 19
151,492
319,648
8 Dec 19
1 May 2016 -
30 April 2019
1 Nov 2016 -
31 Oct 2019
1 May 2016 -
30 April 2019
1 Nov 2016 -
31 Oct 2019
Each Incentive Unit shown in Table 7 has a notional face value equal to one of the Company’s ordinary shares and was granted as a cash-settled
award. The closing price on the preceding dealing day was used to determine the number of Incentive Units.
The face 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. Both awards are subject to two
performance conditions. One half of the award is based on TSR, where the TSR over the performance period must exceed the median of the
comparator group, which is the list of FTSE 250 companies over the period. The amount of units awarded which are released will range from 25% to
100% depending on the actual ranking achieved. A top quartile ranking is required to achieve a 100% release of units. No units will vest for below-
threshold performance. The other half of each award is based on targets set for a measure of EPS over a three-year period. The threshold and upper
performance targets for each award over the three year performance period are as follows:
TABLE 8 – EPS Performance
Criteria
Award date
30 Jun 16
8 Dec 16
Threshold
Maximum
31.9p
28.9p
35.2p
31.9p
25% of the Incentive Units would vest for a threshold level of performance and 100% for maximum performance. A sliding scale of vesting on a
straight-line basis would be applied between these lower and upper vesting levels.
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TABLE 9 –EPP AWARDS IN YEAR
Award date
Martin Griffiths
30 Jun 16
Ross Paterson
30 Jun 16
Type of
interest
awarded
Share price
at time
of award
£
Basis
of award
Maximum
and
expected total
value of award
year (Deferred at time of grant
Awards
granted in
Shares)
£
Vesting
Date
Performance
period
Deferred Shares
2.2650
Deferred Shares
2.2650
50% of
annual bonus
50% of
annual bonus
73,737
167,014
30 Jun 19
n/a
49,158
111,343
30 Jun 19
n/a
Each Deferred Share shown in Table 9 has a notional face value equal to one of the Company’s ordinary shares. The maximum and total expected
values 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.
8.5.6 Payments to past directors (audited)
There have been no payments (2016: £Nil) in excess of the de minimis threshold to former directors during the year ended 29 April 2017 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.
8.5.7 Payments for loss of office (audited)
There have been no payments for loss of office to directors during the year ended 29 April 2017 (2016: £Nil).
8.5.8 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 Group with a value of at least 200% of basic salary. A
target of 100% was first introduced in 2005 and was amended to 200% in 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. Where there have been relevant increases in basic
salary or significant fluctuations in the share price of the Company, the Committee may allow a further period of three years for directors to adjust
their holdings within the shareholding guideline. For these purposes, EPP Deferred Shares will be counted on a post-tax basis only and all interests in
shares will be counted at current value as at the relevant measurement date. LTIP Incentive Units are not included in this measurement. As at 29 April
2017, Martin Griffiths had an interest in shares equivalent to 197% (2016: 226%) of his basic salary and Ross Paterson had an interest in shares
equivalent to 154% (2016: 179%) of his basic salary. Both directors have at various points in the previous two years comfortably met the guideline and
the Committee also noted that both directors increased their interest in the number of shares held outright during the period. There was no
divestment in the period by either director and they are below the target because of the fall in the Company’s share price. As such the Committee
remains satisfied that both directors retained significant interests in the shares of the Company. Consistent with the Committee’s policy explained
above it is satisfied that a director should have a period of three years to adjust his holding in shares to achieve the shareholding guideline.
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Directors’ remuneration report
The effective interests of the Directors (including those of connected persons) as at 29 April 2017 were:
TABLE 10 – DIRECTORS’ INTERESTS IN SHARES OF THE
GROUP AS AT 29 APRIL 2017
Interests as at
29 April 2017
Scheme interests vested
during year ended
29 April 2017
EPP Shares
LTIP Incentive
BAYE Shares
Units (subject to (not subject to (not subject to Units (subject to (not subject to
performance
performance
conditions)
conditions)
performance
conditions)
performance
conditions)
performance
conditions)
LTIP Incentive
EPP Shares
Shares held
outright
Executive directors
Martin Griffiths
Ross Paterson
Non-executive directors
Gregor Alexander
James Bilefield
Sir Ewan Brown
Ann Gloag
Ray O'Toole
Sir Brian Souter
Julie Southern
Karen Thomson
Will Whitehorn
497,103
240,071
1,012,535
675,062
219,517
146,346
3,776
3,776
10,406
––
see note below
62,501,721
––
86,900,445
––
––
72,288
––
––
––
––
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
79,163
25,857
–
–
–
–
–
–
–
–
Sir Ewan Brown has an indirect interest in the share capital of the Company. He and his connected parties own approximately 18% (2016: 18%) of
the ordinary shares of Noble Grossart Holdings Limited, which in turn through its subsidiary, Noble Grossart Investments Limited, held 3,567,999
ordinary shares in the Company at 29 April 2017 (2016: 3,567,999).
Further details of directors’ interests in the LTIP, EPP and BAYE schemes are shown in Table 11 below.
TABLE 11 – SUMMARY OF INTERESTS IN THE LTIP,
EPP AND BAYE SCHEMES
As at
30 April 2016
Granted in
year
Dividends
in year
Lapsed
during year
Vested
during year
As at
29 April 2017
Vesting
Date
Long Term Investment Plan
Martin Griffiths
Ross Paterson
Executive Participation Plan
Martin Griffiths
Ross Paterson
Buy as you Earn Scheme
Martin Griffiths
Ross Paterson
page 62 | Stagecoach Group plc
155,320
129,559
128,913
126,902
116,605
156,204
–
–
––
–
–
–
–
–
211,655
227,203
4,876
7,357
7,243
6,655
7,460
12,081
4,257
(155,320)
(134,435)
–
––
––
––
––
–
––
––
–
–
136,270
134,145
123,260
163,664
223,736
231,460
813,503
438,858
49,929
(289,755)
– 1,012,535
103,546
86,371
85,942
84,601
77,735
104,135
–
–
––
–
–
–
–
–
141,125
151,492
3,250
4,904
4,828
4,436
4,972
8,054
2,838
(103,546)
(89,621)
––
––
––
––
––
––
––
––
90,846
89,429
82,171
109,107
149,179
154,330
542,330
292,617
33,282
(193,167)
–
675,062
79,163
84,362
49,562
–
213,087
25,857
56,243
33,041
–
115,141
–
–
–
73,737
73,737
–
–
–
49,158
49,158
2,667
2,667
926
926
–
4,817
2,829
4,210
11,856
–
3,211
1,886
2,807
7,904
183
183
–
–
–
–
–
–
–
–
–
–
–
––
(79,163)
–
–
–
–
89,179
52,391
77,947
(79,163)
219,517
(25,857)
–
–
–
–
59,454
34,927
51,965
(25,857)
146,346
29 Jun 16
12 Dec 16
28 Jun 17
11 Dec 17
25 Jun 18
10 Dec 18
30 Jun 19
08 Dec 19
29 Jun 16
12 Dec 16
28 Jun 17
11 Dec 17
25 Jun 18
10 Dec 18
30 Jun 19
08 Dec 19
29 Jun 16
28 Jun 17
25 Jun 18
30 Jun 19
29 Jun 16
26 Jun 17
25 Jun 18
30 Jun 19
–
3,776
3,776
n/a
n/a
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8.5.9 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 eight years to April 2017 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 currently 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 8-Year TSR Comparative Performance to April 2017:
Stagecoach TSR
FTSE 350 Travel & Leisure TSR
FTSE 250 TSR
420
370
320
270
220
170
120
70
20
May 09
Jul 09
Oct 09
Jan 10
Apr 10
Jul 10
Oct 10
Jan 11
Apr 11
Jul 11
Oct 11
Jan 12
Apr 12
Jul 12
Oct 12
Jan 13
Apr 13
Jul 13
Oct 13
Jan 14
Apr 14
Jul 14
Oct 14
Jan 15
Apr 16
Jul 16
Oct 16
Jan 17
Apr 17
For comparative purposes, the pay for the role of Chief Executive over time is shown in Table 12 below.
TABLE 12 – PAY FOR THE ROLE OF CHIEF ExECUTIVE
Year ended 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
2012
2011
46%
0%
1,269
47%
n/a
1,227
2013
64%
61%
3,443
Martin Griffiths
2014
100%
56%
2,212
2015
65%
10%
1,451
2016
53%
0%
1,316
2017
47%
0%
1,313
* 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 12 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 13 below.
TABLE 13 – BONUS AWARDED TO CHIEF ExECUTIVE
(before waivers)
Year ended April:
Bonus (percentage of maximum)
Sir Brian Souter
2010
80%
2011
90%
2012
90%
2013
90%
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 8.5.3.
8.5.10 Percentage change in Chief Executive Remuneration (audited)
The change in the Chief Executive’s remuneration from 2015/16 to 2016/17 in comparison to a comparator group of employees is shown in Table 14
below.
TABLE 14 – 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
2.0%
0.1%
(9.5)%
4.5%
6.2%
7.9%
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 Group management support
functions are generally consistent with the pay rises at UK Bus and Rail operations.
8.5.11 Relative importance of spend on pay (audited)
The table below shows the expenditure of the Group on employee remuneration costs in the year ended 29 April 2017 and the year ended 30 April
2016. In addition, it details the disbursements from profit made by way of dividend payments during the same periods.
TABLE 15 – SPEND ON PAY RELATIVE TO
DIVIDENDS AND STAFF COSTS
Profit distributed by way of dividend to shareholders
Overall spend on pay for employees
2017
£m
67.1
1,436.8
2016
£m
62.0
1,382.3
Percentage
change
8.2%
3.9%
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Directors’ remuneration report
8.5.12 Shareholder voting at general meetings
The following table shows the results of the vote on the 2016 remuneration report at the 2016 Annual General Meeting, along with the last vote on
the policy from the 2014 Annual General Meeting.
TABLE 16 – SHAREHOLDER VOTE
For+
Against
Total votes cast (excluding withheld votes)
Votes withheld*
Total votes cast (including withheld votes)
Directors’ 2016
Remuneration Report
Directors’ 2014
Remuneration Policy
Total number of votes
% of votes cast
Total number of votes
% of votes cast
428,184,515
8,586,918
436,771,433
146,129
436,917,562
98.03%
1.97%
100%
442,971,273
20,747,438
463,718,711
1,370,407
465,089,118
95.53%
4.47%
100%
+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.
8.5.13 Implementation of remuneration policy in the financial year ending 28 April 2018
In the year ending 28 April 2018, the Executive Directors’ and Non-Executive Directors’ remuneration policies will be implemented as follows.
8.5.13.1 Implementation of executive directors’ remuneration policy
8.5.13.1.1 Fixed elements – basic salary
The Committee made the following 2017/18 basic salary decisions, which are in line with the current and proposed Directors’ remuneration policy.
TABLE 17 – INCREASES IN BASIC SALARY
Martin Griffiths
Ross Paterson
2017/18
salary
£
652,000
434,700
2016/17
salary
£
639,200
426,200
Percentage
change
2.0%
2.0%
Salaries are effective from 1 May each year. The Committee has considered the broader employee context in determining salaries.
8.5.13.1.2 Other elements
The implementation of policy in relation to other elements of remuneration is in line with the proposed Directors’ remuneration policy. The
maximum potential bonus award for the year to 28 April 2018 is retained at 100% of basic salary and the nominal value of LTIP awards will be
retained at 150% of basic salary.
Short-term incentives – Annual Bonus
The implementation of policy in relation to annual bonus is in line with the proposed Directors’ remuneration policy. 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 for
2017/18, with 70% allocated over a range of demanding key financial objectives and 30% for meeting individual business related objectives. The
Committee has determined that the element of the potential bonus related to financial objectives for 2017/18 will be allocated as follows:
TABLE 18 – POTENTIAL 2017/18 BONUS PAYOUTS FOR
FINANCIAL OBJECTIVES
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
Threshold
performance
(% of basic
salary)
Target
performance
(% of basic
salary)
Maximum
Bonus (% of
basic salary)
11.7%
11.7%
11.6%
35.0%
17.5%
17.5%
17.5%
52.5%
23.4%
23.3%
23.3%
70.0%
In the event that the Policy is not approved, then the maximum bonus amounts shown in Table 18 will be payable, in accordance with the 2014 policy,
for achieving target performance and no bonus will be payable for any particular financial objective for which the target performance is not met.
The three measures listed in Table 18 will be defined consistently with 2016/17 (see note iii to Table 1), and the Net Debt achievement for the year will
be adjusted to ignore the impact of unbudgeted transactions with shareholders (such as additional dividends or other distributions) and for the impact
of the currency translation effect on opening and closing debt balances.
The Committee is of the view that the values of the performance targets for the financial measures under the annual bonus scheme 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 in respect of the year ending 28 April 2018 will be disclosed in the 2018 Annual Report. The Committee is of the view that the
performance targets for the individual business related objectives 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. 50% of any actual bonus earned in the year would ordinarily be
deferred as shares under the EPP.
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Long-term incentives – LTIP awards
LTIP awards vest after three years subject to performance conditions. A summary of the intended awards during the year ending 28 April 2018 and the
nature of the performance conditions are provided in Table 19 below.
TABLE 19 – INTENDED LTIP AWARDS
Martin Griffiths
Ross Paterson
Award Type
Performance metric
TSR relative against FTSE 250
Incentive Units
Incentive Units Profitability targets
Incentive Units
Incentive Units Profitability targets
TSR relative against FTSE 250
Percentage of
Face value of award award vesting for
at maximum vesting
(% of 2017/18 salary)
threshold
achievement
Length of
Performance
period
75%
75%
75%
75%
25%
25%
25%
25%
3 years
3 years
3 years
3 years
In all cases, LTIP 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. For 2017/18, however, the first tranche of LTIP awards will be made following and subject to the outcome of the shareholders vote
on the Policy at the AGM on 25 August 2017. The maximum level of awards granted for an individual in relation to 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 2017/18 awards will be split one half based on TSR performance against a comparator group of the FTSE 250 companies, and the other half based
on a measure of profitability. 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 profitability targets 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 and a sliding scale of vesting on a straight-line basis would be applied between
these lower and upper vesting levels.
8.5.13.2 Implementation of non-executive directors’ remuneration policy
Annual fees for 2017/18
The implementation of policy in relation to the Non-Executive Directors is in line with the current and proposed remuneration policy. Each non-
executive director’s fee is set by the Board taking account of the views of each director, the specific responsibilities of each director and the fees for
equivalent roles in similar companies. The fees per annum for the Non-Executive Directors for 2016/17 and the amount set for 2017/18 are set out in
Table 20 below.
TABLE 20 – NON-ExECUTIVE DIRECTOR FEES
Chairman
Deputy chairman
Other non-executive directors (range)
2017/18 fees
£
217,400
153,000
52,500-60,900
2016/17 fees
£
213,100
150,000
52,500-59,700
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9. 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 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 28 June 2017 on behalf of the Board by:
Martin A Griffiths
Chief Executive
Ross Paterson
Finance Director
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10. Independent auditors’ report to the members of
Stagecoach Group plc (Company No. SC100764)
Our opinion on the financial statements
In our opinion:
•
•
•
•
Stagecoach Group plc’s Consolidated financial statements (the “consolidated financial statements”) and separate financial statements of the
parent (the “Company financial statements”) give a true and fair view of the state of the Group’s and Parent Company’s affairs as at 29 April 2017
and of the Group’s profit for the year then ended;
the consolidated financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice,
including FRS 101 “Reduced Disclosure Framework”; and
the consolidated and Company financial statements have been prepared in accordance with the requirements of the Companies Act 2006; and, as
regards the consolidated financial statements, Article 4 of the IAS Regulation.
What we have audited
Stagecoach Group plc’s financial statements comprise:
Consolidated income statement
Company balance sheet
Consolidated statement of comprehensive income
Company statement of changes in equity
Consolidated balance sheet (statement of financial position)
Related notes 1 to 16 to the Company financial statements
Consolidated statement of changes in equity
.
Consolidated statement of cash flows
Related notes 1 to 34 to the consolidated financial statements.
The financial reporting framework that has been applied in the preparation of the consolidated financial statements is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been
applied in the preparation of the Company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom
Generally Accepted Accounting Practice), including FRS 101 “Reduced Disclosure Framework”.
Overview of our audit approach
Risks of material misstatement
•
•
•
•
•
Impairment and onerous contracts
Adequacy of provision for insurance claims
Accounting for pension liabilities
Carrying value of goodwill and intangibles
Liability for uncertain tax positions
Audit scope
• We performed an audit of the complete financial information of eight components and audit
procedures on specific balances for a further 14 components
•
The components where we performed full or specific audit procedures accounted for 74% of
adjusted profit before tax and 99% of Revenue
Materiality
• Overall Group materiality of £7.0m which represents approximately 5% of adjusted profit before
tax (“PBT”)
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10. Independent auditors’ report to the members of
Stagecoach Group plc (Company No. SC100764) (continued)
Our assessment of risk of material misstatement
We identified the risks of material misstatement described below as those that had the greatest effect on our overall audit strategy, the allocation of
resources in the audit and the direction of the efforts of the audit team. In addressing these risks, we have performed the procedures below which
were designed in the context of the consolidated financial statements as a whole and, consequently, we do not express any opinion on these individual
areas.
Key observations communicated
to the Audit Committee
We have concluded that the Virgin
Trains East Coast onerous contract
provision (representing
management’s best estimate) of
£84.1m is materially correct, that
management’s judgements in relation
to underlying assumptions are
appropriate and that related
disclosures are appropriate.
We concluded that the recognition of
a £44.8m impairment of intangible
assets associated with the right to
operate the franchise was
appropriate.
We concur with the classification of
both of the above items as
exceptional items.
We are satisfied with the adequacy of
disclosure within the financial
statements.
We have concluded that the insurance
provision is materially correct.
We are satisfied with the adequacy of
disclosure within the financial
statements.
Risk
Our response to the risk
Impairment and onerous contracts
We specifically focused on the update to the onerous
contract assessment on Virgin Trains East Coast as a
result of the profitability being less than that forecast
by the Group at the time of its bid for the franchise.
The significant risk relates to the adequacy of the level
of provision given the significant judgement involved
in assessing the financial impact of management’s
assumptions around the application of contractual
terms and future performance.
Refer to the Audit Committee Report (Section 5.4.1)
and notes 1 and 23 of the consolidated financial
statements.
Adequacy of provision for insurance claims
The Group makes provision for amounts payable on
individual claims. The majority of these claims relate
to UK Bus and North America.
As at 29 April 2017 the Group had recognised
insurance provisions amounting to £156.8m (2016:
£148.6m).
The significant risk relates to the appropriateness of
the level of provision given the significant judgement
involved.
Refer to the Audit Committee Report (Section 5.4.1)
and note 23 of the consolidated financial statements.
In connection with Virgin Trains East Coast,
with the involvement of our rail specialists, we:
Understood and challenged the methodology
applied by management to assess whether the
contract is onerous, discussing with senior rail
personnel.
Read the underlying franchise agreement to
understand relevant terms and conditions.
Challenged the underlying model assumptions
by sensitising the model, the most significant
of which were future revenue growth
assumptions and the application of contract
terms, and changes from prior year.
We tested management’s calculation of the
onerous contract provision to ensure its
measurement is in accordance with IAS 37
“Provisions, Contingent Liabilities and
Contingent Assets”.
We reviewed correspondence with the UK
Department for Transport to understand the
current status of contractual negotiations.
We considered the impact of the onerous
contract on the recoverability of Virgin Trains
East Coast assets.
We assessed whether the classification of the
impact of the onerous contract as an
exceptional item was in accordance with the
Group’s policy.
We assessed the adequacy of disclosure within
the financial statements.
We gained an understanding of the key
controls and processes in place to assess
claims and related provisions.
We challenged management over the accuracy
of provision level by reference to recent
settlement experience on comparable claims.
We assessed the reasonableness of the
methodology and assumptions contained
within the independent actuarial estimate in
respect of UK Bus and North America through
involvement of our actuarial specialists. In
doing so we compared against standard
actuarial approaches to ensure the
methodology was appropriate.
We have evaluated the competence,
capabilities and objectivity of management’s
specialists.
We reviewed and assessed the
appropriateness of management’s risk
adjustments to arrive at the recorded
provision.
We assessed the adequacy of disclosure within
the financial statements.
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Risk
Our response to the risk
Accounting for pension liabilities
The Group makes provision for the net pension
liabilities of its defined benefit pension schemes.
As at 29 April 2017 the Group had recognised a net
pension deficit of £232.5m (2016: £96.7m).
The significant risk relates to the potential
misstatement of the pension liability due to the
significant judgements being exercised by
management in determining the appropriate
underlying actuarial assumptions.
Relatively small movements in the assumptions
applied can result in a material impact to the financial
statements and may be influenced by the outcome of
the Brexit negotiations.
Refer to the Audit Committee Report (Section 5.4.1)
and notes 1 and 24 of the consolidated financial
statements.
Carrying value of goodwill and intangibles
The Group carries out an annual impairment review in
connection with the carrying value of its goodwill.
As at 29 April 2017 the Group carried goodwill
amounting to £148.2m (2016: £136.9m) and other
intangible assets amounting to £45.0m (2016: £88.7m).
The significant risk arises because of the significance of
the goodwill to the financial statements and the level
of management judgement required in estimating
future cash flows and the appropriate growth and
discount rates.
We specifically focused on North America where
trading at the megabus.com inter-city coach services
remained challenging due to heightened car and air
competition as a result of the effects of sustained
lower fuel prices.
In addition, the Group carries out impairment reviews
of other intangible assets when indicators of
impairment are identified.
Refer to the Audit Committee Report (Section 5.4.1)
and notes 1 and 10 of the consolidated financial
statements.
Liability for uncertain tax positions
The Group recognises a liability for corporate taxes
due on the taxable profits generated in the year. The
Group has recognised a liability in respect of uncertain
tax positions.
As at 29 April 2017 the Group had recognised overall
net tax liabilities of £21.9m (2016: £58.8m).
The significant risk relates to the adequacy of the level
of provision given the significant judgement involved.
Refer to the Audit Committee Report (Section 5.4.1)
and note 7 of the consolidated financial statements.
Key observations communicated
to the Audit Committee
We have concluded that the pension
liability is materially correct and that
management’s judgements in relation
to underlying actuarial assumptions
are appropriate.
We are satisfied with the adequacy of
disclosure within the financial
statements.
We gained an understanding of the key
controls and processes in place to assess the
appropriateness of actuarial assumptions.
We tested input payroll data used to calculate
the pension liabilities.
We considered the reasonableness and
consistency of the methodology used to
calculate the pension liabilities through
involvement of our actuarial specialists.
We challenged key actuarial assumptions with
the assistance of our actuarial specialists to
determine whether they were within an
acceptable range using a number of differing
IFRS compliant valuation methodologies.
We have evaluated the competence,
capabilities and objectivity of management’s
specialists.
We assessed the adequacy of disclosures
within the financial statements.
We gained an understanding of the key
controls and processes in place over
management’s impairment testing.
We have concluded that the goodwill
and intangible assets balances are
materially correct.
We assessed the appropriateness of the Cash
Generating Units (CGUs) identified by
management to be tested for impairment.
We are satisfied with the adequacy of
disclosure within the financial
statements.
We assessed the reasonableness of the
methodology used to calculate value in use
through involvement of our valuation
specialists.
We corroborated key assumptions being future
cash flows, growth and discount rates and
challenged their reasonableness using our
valuation specialists.
We considered the reasonableness of
management’s sensitivity analysis showing the
impact of a reasonably possible change in
impairment assumptions.
We performed procedures to identify any
additional indicators of impairment for other
intangibles by assessing whether the relevant
assets continue to be used by the entity.
We assessed the adequacy of disclosures
within the financial statements.
We gained an understanding of the Group’s
process for determining liabilities for tax and
calculating the tax charge for the overall
Group, including the tax proof.
We have concluded that management’s
judgements in relation to the
recognition of liabilities for uncertain
tax positions were appropriate.
We are satisfied with the adequacy of
disclosure within the financial
statements.
We involved our tax specialists, including in US
specialists for US specific matters, in all areas
of the tax audit to assist with the evaluation
and challenge of the assumptions and
estimates in relation to the level of liability
recognised for significant tax risks.
We agreed underlying tax balances to
supporting documentation, including
correspondence with tax authorities.
We have also challenged the appropriateness
of management’s assumptions with regard to
the recoverability of deferred tax assets.
We assessed the adequacy of disclosures
within the financial statements.
The risks identified above are substantially the same as those identified last year.
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10. Independent auditors’ report to the members of
Stagecoach Group plc (Company No. SC100764) (continued)
The scope of our audit
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each entity
within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements. We take into account size, risk profile,
the organisation of the Group and effectiveness of Group-wide controls, changes in the business environment and other factors such as recent Internal
Audit results when assessing the level of work to be performed at each entity.
In assessing the risk of material misstatement to the consolidated financial statements, and to ensure we had adequate quantitative coverage of
significant accounts in the financial statements, of the 51 reporting components of the Group, excluding the parent entity, we selected 22 components
covering entities within the UK Rail, UK Bus (regional operations), UK Bus (London) and North America business areas, which represent the principal
business units within the Group.
Of the 22 components selected, we performed an audit of the complete financial information of 8 components (“full scope components”) which were
selected based on their size or risk characteristics and comprised three rail operating companies, three UK Bus (regional operations) components,
North America and the Virgin Rail Group joint venture. For the remaining 14 components (“specific scope components”), comprising 12 UK Bus
(regional operations) components and two UK Bus (London) components, we performed audit procedures on specific accounts within each component
that we considered had the potential for the greatest impact on the significant accounts in the consolidated financial statements either because of the
size of these accounts or their risk profile.
The reporting components where we performed audit procedures were:
Components
Percentage of PBT
Percentage of Revenue
Full Scope
Specific Scope
Parent and consolidation adjustments
Overall coverage
8
14
22
83
66
149
(75)
74
78
21
99
–
99
The audit work on all in scope reporting units, with the exception of Virgin Rail Group, was performed directly by the Group engagement team. We
also communicated with a firm outside of the EY network of firms with respect to the audit of the complete financial information of the Virgin Rail
Group joint venture. The Group engagement team held meetings and calls with the Virgin Rail Group auditors to clarify and discuss their audit
approach, materiality and our reporting requirements. In addition, we had meetings and calls with them as their audit work progressed so that we
could effectively supervise, direct and understand the findings from their work.
Of the remaining 29 components, none are individually greater than 5% of the Group’s adjusted profit before tax. For these components, we
performed other procedures, including analytical review, intercompany eliminations and obtaining audit evidence to respond to any potential risks of
material misstatement to the consolidated financial statements.
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Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in
forming our audit opinion.
Materiality
Materiality is the magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the
economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures.
We determined materiality for the Group to be £7.0 million, which is approximately 5% of adjusted profit before tax of £141.9 million being reported
profit before tax of £17.9 million adjusted to exclude net exceptional losses of £124.0 million (as disclosed in note 4 to the consolidated financial
statements). We believe that adjusted profit before tax provides us with a consistent measure of underlying year on year performance as it excludes
the impact of non-recurring items.
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability
that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement was that performance
materiality was 75% of our planning materiality, namely £5.3 million. We have set performance materiality at this percentage following our
assessment that there is an effective control environment and low expectation of misstatements.
Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is undertaken based on a
percentage of total performance materiality. The performance materiality set for each component is based on the relative scale and risk of the
component to the Group as a whole and our assessment of the risk of misstatement at that component. The range of performance materiality
allocated to components was £1.1m to £2.5m.
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of £0.4m, as well as differences below
that threshold that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant
qualitative considerations in forming our opinion.
Scope of the audit of the consolidated financial statements
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 and 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 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.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ responsibilities statement set out on page 66, 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 International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing
Practices Board’s Ethical Standards for Auditors.
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work
has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for
no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the
Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
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10. Independent auditors’ report to the members of
Stagecoach Group plc (Company No. SC100764) (continued)
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
•
the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006;
•
based on the work undertaken in the course of the audit:
–
–
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;
the Strategic report and Directors’ report have been prepared in accordance with applicable legal requirements;
based on the work undertaken in the course of the audit the information given in the Corporate governance report with respect to internal control
and risk management systems in relation to financial reporting processes and about share capital structures and in compliance with rules 7.2.5 and
7.2.6 of the Disclosure Guidance and Transparency rules sourcebook made by the Financial Conduct Authority:
–
–
is consistent with the financial statements; and
has been prepared in accordance with applicable legal requirement;
based on the work undertaken during the course of the audit, rules 7.2.2, 7.2.3 and 7.2.7 in the Disclosure Guidance and Transparency Rules
sourcebook made by the Financial Conduct Authority (with respect to the Company’s corporate governance code and practices about its
administrative, management and supervisory bodies and their committees) have been complied with if applicable.
•
•
Matters on which we are required to report by exception
ISAs (UK and Ireland) reporting
Companies Act 2006 reporting
We have no exceptions to report.
We have no exceptions to report.
We are required to report to you if, in our opinion, financial and non-
financial 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
•
otherwise misleading.
In particular, we are required to report whether we have identified
any inconsistencies between our knowledge acquired in the course of
performing the audit and the Directors’ statement that they consider
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 entity’s performance, business model
and strategy; and whether the annual report appropriately addresses
those matters that we communicated to the Audit Committee that we
consider should have been disclosed.
In light of the knowledge and understanding of the Company and its
environment obtained in the course of the audit, we have identified
no material misstatements in the Strategic report, Directors’ report or
in the Corporate governance report.
We are required to report to you if, in our opinion:
•
•
•
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 parent Company financial statements and the part of the
Directors’ remuneration report to be audited are not in
agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are
not made; or
• we have not received all the information and explanations we
require for our audit.
•
a Corporate Governance Statement has not been prepared by the
Company.
Listing Rules review
requirements
We are required to review:
We have no exceptions to report.
•
•
the Directors’ statement in relation to going concern and longer-
term viability, set out in section 3.11, and
the part of the Corporate governance report relating to the
Company’s compliance with the provisions of the UK Corporate
Governance Code specified for our review.
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Statement on the Directors’ Assessment of the Principal Risks that Would Threaten
the Solvency or Liquidity of the Entity
ISAs (UK and Ireland) reporting
We are required to give a statement as to whether we have anything
material to add or to draw attention to in relation to:
We have nothing material to add
or to draw attention to.
•
•
•
•
the Directors’ confirmation in the annual report that they have
carried out a robust assessment of the principal risks facing the
entity, including those that would threaten its business model,
future performance, solvency or liquidity;
the disclosures in the annual report that describe those risks and
explain how they are being managed or mitigated;
the Directors’ statement in the financial statements about
whether they considered it appropriate to adopt the going
concern basis of accounting in preparing them, and their
identification of any material uncertainties to the entity’s ability
to continue to do so over a period of at least twelve months from
the date of approval of the financial statements; and
the Directors’ explanation in the annual report as to how they
have assessed the prospects of the entity, over what period they
have done so and why they consider that period to be
appropriate, and their statement as to whether they have a
reasonable expectation that the entity will be able to continue in
operation and meet its liabilities as they fall due over the period
of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
Signed on 28 June 2017 for and on behalf of Ernst & Young LLP, Statutory Auditor, Glasgow, by:
Mark Harvey
Senior statutory auditor
Stagecoach Group plc | page 73
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11. Consolidated Financial Statements
Consolidated income statement
For the year ended 29 April 2017
2017
2016
Performance
pre intangibles
and
exceptional items
Intangibles and
exceptional
items (note 4)
Notes
£m
£m
Performance
pre intangibles
and
exceptional items
Intangibles and
exceptional
items (note 4)
£m
£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/(loss) of joint ventures
after finance costs, finance income and taxation
Total operating profit: Group operating profit and
share of joint ventures’ profit/(loss) 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 holders of the parent
Non-controlling interests
Earnings per share (all of which relates to
continuing operations)
Adjusted basic/Basic
Adjusted diluted/Diluted
2(a)
3
2(b)
2(c)
2(b)
4
5
5
7
9
9
3,941.2
(3,774.6)
–
(145.5)
3,941.2
(3,920.1)
3,871.1
(3,667.1)
–
(21.8)
3,871.1
(3,688.9)
166.6
(145.5)
26.2
–
192.8
–
192.8
(35.6)
1.5
158.7
(20.7)
(145.5)
4.7
(140.8)
–
–
(140.8)
20.9
21.1
26.2
47.3
4.7
52.0
(35.6)
1.5
17.9
0.2
204.0
(21.8)
182.2
24.8
(35.9)
(11.1)
228.8
–
228.8
(43.1)
1.7
187.4
(26.8)
(57.7)
(2.0)
(59.7)
(23.3)
–
(83.0)
21.4
171.1
(2.0)
169.1
(66.4)
1.7
104.4
(5.4)
138.0
(119.9)
18.1
160.6
(61.6)
99.0
139.7
(1.7)
138.0
(107.9)
(12.0)
(119.9)
31.8
(13.7)
18.1
158.8
1.8
160.6
(60.9)
(0.7)
(61.6)
24.4p
24.3p
5.5p
5.5p
27.7p
27.6p
97.9
1.1
99.0
17.1p
17.0p
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 29 April 2017
Profit for the year
Items that may be reclassified to profit or loss
Cash flow hedges:
– Net fair value gains/(losses) on cash flow hedges
– Reclassified and reported in profit for the year
– Share of other comprehensive income/(expense) on joint ventures' cash flow hedges
– Tax effect of cash flow hedges
– Tax effect of share of other comprehensive (income)/expense on joint ventures’ cash flow hedges
Foreign exchange differences on translation of foreign operations (net of hedging)
– Foreign exchange differences arising in year
– Reclassified and reported in profit for the year
Total items that may be reclassified to profit or loss
Items that will not be reclassified to profit or loss
Actuarial (losses)/gains on Group defined benefit pension schemes
Tax effect of actuarial losses/(gains) on Group defined benefit pension schemes
Share of actuarial gains on joint ventures' defined benefit pension schemes, net of tax
Total items that will not be reclassified to profit or loss
Other comprehensive (expense)/income for the year
Total comprehensive (expense)/income for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
2017
£m
18.1
17.6
21.0
3.3
(7.3)
(0.6)
13.5
(4.6)
42.9
(127.6)
22.7
2.5
(102.4)
(59.5)
(41.4)
(29.9)
(11.5)
(41.4)
2016
£m
99.0
(84.2)
67.8
(0.3)
2.9
–
3.1
_
(10.7)
68.5
(16.0)
4.0
56.5
45.8
144.8
143.9
0.9
144.8
Stagecoach Group plc | page 75
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Consolidated balance sheet (statement of financial position)
As at 29 April 2017
ASSETS
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Interests in joint ventures
Derivative instruments at fair value
Deferred tax asset
Retirement benefit assets
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
EQUITY
Ordinary share capital
Share premium account
Retained earnings
Capital redemption reserve
Own shares
Translation reserve
Cash flow hedging reserve
Total equity attributable to the parent
Non-controlling interests
Total equity
2017
Notes
£m
10
11
12
13
25(g)
22
24
18
17
18
25(g)
19
148.2
45.0
1,190.3
25.7
7.0
14.4
45.6
4.9
1,481.1
25.2
449.0
7.3
0.3
313.3
795.1
2016
£m
136.9
88.7
1,165.2
22.4
5.6
–
24.8
5.6
1,449.2
27.5
382.2
1.0
–
382.3
793.0
2(d)
2,276.2
2,242.2
20
21
25(g)
23
20
21
25(g)
22
23
24
2(d)
2(d)
26
28
28
28
28
28
28
848.0
36.6
40.5
16.6
118.6
825.2
33.2
53.6
41.3
54.9
1,060.3
1,008.2
35.8
693.0
6.9
–
133.6
278.1
1,147.4
2,207.7
68.5
3.2
8.4
(320.4)
422.8
(37.0)
10.2
(9.0)
78.2
(9.7)
68.5
45.5
738.2
19.5
25.6
105.9
121.5
1,056.2
2,064.4
177.8
3.2
8.4
(185.1)
422.8
(34.3)
1.3
(40.3)
176.0
1.8
177.8
These financial statements have been approved for issue by the Board of Directors on 28 June 2017. The accompanying notes form an integral part of
this consolidated balance sheet.
Martin A Griffiths
Chief Executive
page 76 | Stagecoach Group plc
Ross Paterson
Finance Director
145376 STC Back PRINT_CIO_145376 STC_Back V13 06/07/2017 17:32 Page 77
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Stagecoach Group plc | page 77
145376 STC Back PRINT_CIO_145376 STC_Back V13 06/07/2017 17:32 Page 78
Consolidated statement of cash flows
For the year ended 29 April 2017
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
Disposal of business
Purchase of property, plant and equipment
Disposal of property, plant and equipment
Purchase of intangible assets
Movements in loans to joint ventures
Disposal of investment in joint ventures
Net cash outflow from investing activities
Cash flows from financing activities
Purchase of treasury shares
Repayments of hire purchase and lease finance
Redemption of 5.75% sterling bond – principal
Redemption of 5.75% sterling bond – exceptional items
Issue of new 4.00% sterling bond
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 in cash and cash equivalents
Cash and cash equivalents at the beginning of year
Exchange rate effects
Notes
29
15
15
8
2017
£m
252.3
(26.9)
0.2
28.1
253.7
(21.6)
232.1
–
19.6
(155.5)
46.0
(17.8)
–
7.0
(100.7)
(2.7)
(58.1)
–
–
–
182.9
(258.3)
(67.1)
0.1
(0.5)
(203.7)
(72.3)
382.3
3.3
Cash and cash equivalents at the end of year
19
313.3
2016
£m
303.7
(32.3)
1.7
28.8
301.9
(23.0)
278.9
(0.5)
–
(191.2)
26.5
(19.6)
5.9
–
(178.9)
(2.2)
(35.4)
(400.0)
(23.3)
393.5
270.0
(255.2)
(62.0)
0.3
(0.5)
(114.8)
(14.8)
395.6
1.5
382.3
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 78 | Stagecoach Group plc
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Notes to the consolidated financial statements
Note 1 IFRS accounting policies
These consolidated financial statements are presented in respect of the group of companies headed by Stagecoach Group plc. Stagecoach Group plc is a
public limited liability company limited by shares. It is incorporated, domiciled and has its registered office in Scotland. Its registered number is 100764
and its registered address is 10 Dunkeld Road, Perth, Perthshire, PH1 5TW.
The 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 European Union 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. All values are rounded to the nearest one hundred thousand (£0.1m) except where otherwise indicated.
As intimated in our 2016 Annual Report, the Group now reports its annual results based on a financial year ending on the Saturday nearest to 30 April.
This report therefore sets out the Group’s results for the period from 1 May 2016 to 29 April 2017.
• 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 2016:
• Amendments to IFRS 5, Annual improvements project
• Amendments to IFRS 7, Annual improvements project
• Amendments to IFRS 10, 12 and IAS 28, Investment Entities: Applying the consolidation exception
• Amendments to IFRS 11, Accounting for acquisitions of interests in joint operations
• Amendments to IAS 16 and IAS 38, Clarification of acceptable methods of depreciation and amortisation
• Amendments to IAS 16 and IAS 41, Amendment to bring bearer plants into the scope
• Amendments to IAS 19, Annual improvements project
None of these have materially impacted the consolidated financial statements of the Group.
• New standards and interpretations not applied
The International Accounting Standards Board (“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
Amendments to IFRS 10 and IAS 28
Amendments to IFRS 2
Sale or contribution of assets between an investor and its associate
or joint venture*
Clarification of classification and measurement of share based
payment transactions*
Amendments to IFRS 4 and IFRS 9
Amendments regarding the interaction of IFRS 4 and IFRS 9*
IFRS 9
IFRS 15
IFRS 16
IFRS 17
Financial instruments: Hedge accounting
Revenue from contracts with customers*
Leases*
Insurance contracts*
Annual Improvements to IFRSs 2014-2016 Cycle *
Amendments to IAS 7
Amendments to IAS 12
Amendments as a result of the Disclosure Initiative*
Recognition of deferred tax assets for unrealised losses*
Effective for annual periods
beginning on or after
Deferred indefinitely
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2019
1 January 2021
1 January 2018
1 January 2017
1 January 2017
IAS 40
IFRIC 22
IFRIC 23
Amendments to clarify transfers of property to, or from, investment property*
1 January 2018
Foreign currency transactions and advance consideration*
Uncertainty over Income Tax Treatments*
1 January 2018
1 January 2019
*Not yet adopted for use in the European Union.
The Directors expect the application of IFRS 16 to have a material effect on the consolidated financial statements. In particular, the accounting for the
Group’s substantial rolling stock operating lease commitments will be affected by the application of the new standard. IFRS 16 eliminates the
classification of leases as either operating leases or finance leases and, instead, introduces a single lessee accounting model. Applying that model, a
lessee is required to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value; and
depreciation of lease assets separately from interest. On adopting IFRS 16, the Group expects to recognise substantial new assets and new liabilities in
respect of those leases currently classified as operating leases.
The Directors do not expect IFRS 15 to have a material impact on the consolidated financial statements. In both our rail and bus divisions our
contracted customers are easily recognised, performance obligations are clear and transaction prices are even over the period to which they relate
and are time apportioned. However, our detailed assessment of IFRS 15 is ongoing.
The Directors have reviewed the requirements of the remaining 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.
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Notes to the consolidated financial statements
Note 1 IFRS accounting policies (continued)
• Critical accounting judgements and key sources of estimation uncertainty
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.
The Audit Committee summarises, in its report, the significant financial reporting and accounting judgements that it specifically considered in respect of
the year ended 29 April 2017 - see section of 5.4.1 of this Annual Report. As might be expected, there is considerable overlap between the significant
judgements considered by the Audit Committee in respect of the year and the critical accounting judgements and estimations summarised below.
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, the 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. Note 24(f) provides information on the sensitivity of pension benefit obligations to changes in assumptions.
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 financial performance
and applying an appropriate discount rate to determine a net present value. There is uncertainty over future profit/loss and cash flows. Forecasts for this
purpose are consistent with management’s plans and forecasts. The forecasts and the estimation of 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 asset or 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 asset or CGU.
Forecasts of cash flows for this purpose are consistent with management’s plans and forecasts. The forecast of future cash flows and the estimation of
the discount rate involve 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.
• Basis of consolidation
The consolidated financial statements include the financial statements of the Company, its subsidiary undertakings and joint ventures made up to a
period broadly one year in length that ends on the Saturday nearest to 30 April.
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.
Non-controlling interests represents the portion of earnings and equity attributable to third party shareholders of a subsidiary of the Group.
• Subsidiaries and joint ventures
(i)
Subsidiaries
Subsidiaries are all entities over which the Group has control. The Group controls an entity where the Group is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity.
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. Where a business is acquired, the purchase method (also known as the acquisition method) of accounting is used to account for the
acquisition of the 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.
The non-controlling interest in respect of Virgin Trains East Coast is shown in the consolidated balance sheet at 10% of the carrying value of the
related assets and liabilities, and was initially recognised at 10% of the acquisition-date fair values of the assets acquired and liabilities assumed.
Intercompany transactions, balances, income and expenses are eliminated on consolidation.
(ii)
Joint ventures
Joint ventures are entities over which the Group has joint control with other investors.
Investments in joint ventures are accounted for using the equity method of accounting.
Under the equity method of accounting, interests in joint ventures are initially recognised at cost and adjusted thereafter to recognise the Group’s
share of the post-acquisition profits or losses and movements in other comprehensive income. When the Group’s share of losses in a joint venture
equals or exceeds its interests in the joint venture (which includes any long-term interests that, in substance, form part of the Group’s net investment
in the joint venture), 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.
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Note 1 IFRS accounting policies (continued)
• 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, improve comparability of the Group’s results with those of peer companies and respond to analysts who
have requested reporting on that basis.
Exceptional items are defined in note 34.
• Revenue
The Group has a number of revenue streams, as set out as part of the description of the Group’s business model in section 1.4.1 of the Strategic report
contained in this Annual Report.
Revenue presented in the income statement represents gross revenue and excludes payments received on account. Revenue is recognised at the fair
value of the consideration received or receivable. Where appropriate, amounts are shown net of discounts, rebates, VAT and other sales taxes.
Revenue that is receivable from individuals or groups of individuals to travel on our transport services is accounted for with the objective that the revenue
is recognised in the income statement in the period in which the related travel occurs. This can involve some estimation – for example, revenue from the
sale of season tickets and travelcards, that entitle individuals to use certain of our services during a specified period of time, is deferred within liabilities
and recognised in the income statement over the period covered. The recognition of season ticket and travelcard income is generally recorded on a
straight-line basis over the applicable period.
In UK Rail, travel on a train operating company’s services can be sold by other train operating companies as well as other travel retailers. Furthermore,
certain tickets for train travel can be sold which provide the holder with a choice of train operators to travel with. In light of those factors, our UK Rail
revenue includes amounts receivable from individuals or groups of individuals to travel on UK rail services that is attributed to train operating companies
by the Railway Settlement Plan Limited (“RSP”). RSP administers the income allocation system within the UK rail industry and allocates revenue to
operators principally on agreed models of route usage. Similar revenue allocations apply to rail services in the Transport for London area and in respect
of multi-operator ticket schemes in which some of our UK bus and tram businesses participate. Procedures exist to allow operators to challenge the
appropriateness of revenue allocation – where the revenue allocated to the Group is subsequently adjusted, the effect of the adjustment is recognised in
the income statement in the period in which we are made aware of it. Where an adjustment results in additional revenue being attributed to the Group,
the additional revenue is recognised when the amount of revenue can be reliably estimated and it is highly probable that the economic benefits will flow
to the Group.
Amounts that are receivable from government bodies in respect of travel by individuals on our transport services is also recognised in the income
statement in the period in which the related travel occurs. Such amounts are included in revenue because they represent payments for transport services
provided. This can involve some estimation – for example, revenue receivable in respect of UK concessionary travel schemes can involve some
negotiation with relevant public authorities on the amount of revenue due and/or be subject to adjustment based on the levels of concessionary travel
across a number of operators. Revenue is recognised based on the Group’s best estimates of the amounts receivable in respect of travel prior to the
balance sheet date.
Revenue receivable from government bodies and others as payment to us for operating transport services under contract is recognised in the income
statement in the period that the contracted services relate to. In general, the revenue in respect of any particular period can be clearly determined from
the contract. Where there is a contingent element to contract revenue (for example, where additional amounts are payable or receivable based on the
punctuality of transport services and/or other operational measures), revenue is recognised based on the applicable operational measures when the
amount of revenue can be reliably estimated and it is highly probable that the economic benefits will flow to the Group.
Franchise payments payable to or receivable from the UK Department for Transport under rail franchise agreements are recognised as operating costs or
other operating income in the income statement. Further details on the recognition of such amounts are included below under the section headed
“Government grants”.
Under the contractual terms of its franchise agreements to operate rail services, the Group has revenue sharing arrangements with the Department for
Transport. As a result of these arrangements, the Group may be liable to make payments to the Department for Transport or receive amounts from the
Department for Transport. The arrangements vary by franchise. The amounts at South West Trains are based on calculations that involve comparison of
actual revenue with the target revenue specified in the relevant franchise agreement. The amounts at West Coast Trains (operated by the Group’s Virgin
Rail Group joint venture), East Midlands Trains and Virgin Trains East Coast are based on calculations that involve comparing published UK national Gross
Domestic Product (“GDP”) with the GDP comparator 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.
Other subsidies we receive from government bodies to financially support the operation of transport services they consider to be socially desirable is
included in revenue and recognised in the income statement in the period that the subsidy relates to. This includes tender revenue receivable to
financially support certain bus services the Group operates in the UK.
Revenue that is incidental to the Group’s principal activity of providing transport services is reported as miscellaneous income. Such income is recognised
as the income is earned and may include income from:
• commissions for selling travel on other operators’ transport services;
• undertaking maintenance work on other operators’ vehicles;
• selling advertising space on vehicles and premises we operate;
• access income for others to use railway stations and depots that we operate;
• selling fuel to other transport operators;
• property rental;
• Network Rail in respect of UK railway operating performance regimes – see “performance incentive regimes” section below.
The Group’s regional UK Bus operations receive 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.
Finance income is recognised under the effective interest method as interest accrues.
Stagecoach Group plc | page 81
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Notes to the consolidated financial statements
Note 1 IFRS accounting policies (continued)
• Performance incentive payments
Performance incentive payments received from or made to Network Rail by the Group in respect of rail operational performance 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.
• 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. At each balance sheet date, the
liability recognised is based on the fair value of outstanding awards (ignoring non-market based vesting conditions) at the balance sheet date, the period
that fell prior to the balance sheet date and management’s estimate of the likelihood and extent of non-market based vesting conditions being achieved.
Changes in the carrying amount of the liability are recognised in the income statement for the period.
Fair value for cash-settled share based payments relating to the Long Term Incentive Plan is estimated by use of a simulation model.
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).
The Company can choose to settle awards under the Executive Participation Plan in either cash or equity, although it currently expects to settle all such
awards in equity. The awards under the Plan can also be structured as deferred shares or share options with a zero exercise price. The Company intends
the awards to operate in substance as deferred shares such that, subject to fulfilling the service condition, each participant receives actual shares on the
applicable vesting date. Awards under the Executive Participation Plan are accounted for as equity-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
Consolidated operating profit is stated inclusive of restructuring costs and the share of after-tax results of joint ventures but before finance income,
finance costs, non-operating exceptional items and taxation.
• 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.
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Note 1 IFRS accounting policies (continued)
• Taxation (continued)
Where a change in accounting policy requires adjustment of prior year amounts, the taxation effects of the change of accounting policy are treated as
part of the prior year adjustment. Where a change in accounting policy in a subsidiary’s own financial statements (for example, on a transition from UK
Generally Accepted Accounting Policies to International Financial Reporting Standards) materially affects the tax amounts recognised in the consolidated
financial statements, the change is treated as a prior year adjustment and is not included as a component of the current period’s tax expense.
• 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 87.
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 or an interest in a joint venture or associate, the amount of any exchange differences relating to the relevant entity
that has been deferred in the translation reserve is recognised in the income statement within the reported gain or loss on disposal.
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
2017
2016
1.2937
1.2937
1.7689
1.7036
1.4649
1.5031
1.8349
1.9756
• 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.
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 equity.
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.
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Notes to the consolidated financial statements
Note 1 IFRS accounting policies (continued)
• 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, and is recorded in operating costs in the income statement. 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 expected life of the
franchise.
Operating leases on favourable terms
Customer contracts
Right to operate rail franchises
Software costs
over the life of the lease (up to 4 years for current contracts)
over the life of the contract (1 to 5 years for current contracts)
over the expected life of the franchise (10 years from February 2007 to February 2017 for South
West Trains franchise, 2 years and 5 months from October 2015 to March 2018 for East
Midland Trains franchise and previously 8 years and 1 month from March 2015 to March 2023 for
Virgin Trains East Coast franchise until fully impaired as at 29 April 2017)
2 to 7 years
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.
• 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:
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
50 years
period of lease
3 to 10 years
7 to 16 years
3 to 5 years
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.
• Contract provisions
A provision is recognised in the consolidated balance sheet for any 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 that contract. Determining the amount of any contract provision necessitates forecasting future financial
performance and applying an appropriate discount rate to determine a net present value.
The recognition of a contract provision (other than a provision arising from a business combination) is charged to the consolidated income statement.
Losses that subsequently arise on that contract are treated as a utilisation of the provision to the extent they have been provided for.
The amount of any contract provision (or potential contract provision) is re-assessed at each balance sheet date. Any increase or decrease required to
the amount of the provision is charged or credited to the consolidated income statement.
• 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 intangible asset and are charged to the income statement over the life of the franchise.
In general, costs incurred in bidding for a UK rail franchise prior to the signing of a franchise agreement are expensed because until an agreement is
signed, the Directors do not consider a franchise award to be probable. Costs incurred after an agreement is signed, but before the franchise period
commences, are generally capitalised as intangible assets.
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Note 1 IFRS accounting policies (continued)
• 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.
• 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
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 in income at the earlier of (a) the date on which a scheme amendment occurs and (b) the date on
which related restructuring costs or termination benefits are recognised.
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 of that business.
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. Where the award of a new rail franchise
to the Group results in it assuming a net pension liability, a corresponding intangible asset is recognised, reflecting a cost in obtaining the right to operate
the franchise. When a pension asset is assumed, a corresponding deferred income balance is recognised. The intangible asset or deferred income balance
is amortised to the income statement on a straight-line basis over the expected life of the related franchise.
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’.
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Notes to the consolidated financial statements
Note 1 IFRS accounting policies (continued)
• Financial instruments (continued)
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 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. 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.
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, loans from
joint ventures, loans from non-controlling interests, 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.
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Note 1 IFRS accounting policies (continued)
• Financial instruments (continued)
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 accounting 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 in 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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Notes to the consolidated financial statements
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 five operating segments, being UK Bus (regional operations), megabus Europe,
UK Bus (London), North America and UK Rail. During the year ended 29 April 2017, the Group exited the operations of its megabus Europe Division.
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 the five operating segments as follows:
Segment name
Country of operation
Service operated
UK Bus (regional operations)
megabus Europe
UK Bus (London)
North America
UK Rail
Coach and bus operations
Coach operations
Bus operations
Coach and bus operations
Rail operations
United Kingdom
United Kingdom and mainland Europe
United Kingdom
United States and Canada
United Kingdom
The Group has interests in two material joint ventures: Virgin Rail Group that operates in UK Rail and Citylink that operates in UK Bus (regional
operations). During the year ended 29 April 2017, the Group sold its interest in the Twin America joint venture. The results of these joint ventures are
shown separately in notes 2(c) and 2(g).
(a) Revenue
Due to the nature of the Group’s business, the origin and destination of revenue (i.e. United Kingdom, mainland Europe or North America) is the same
in all cases except in respect of an immaterial amount of revenue for services previously operated by megabus Europe 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)
megabus Europe
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)
megabus Europe
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/(loss)
after finance costs, finance income and taxation
Total operating profit:
Group operating profit and share of joint ventures’
profit/(loss) after taxation
page 88 | Stagecoach Group plc
2017
£m
1,015.7
20.2
263.4
488.8
1,788.1
2,160.7
3,948.8
(7.6)
3,941.2
2016
£m
1,032.8
18.4
267.1
430.9
1,749.2
2,129.1
3,878.3
(7.2)
3,871.1
2017
2016
Performance
pre intangibles
and
exceptional items
Intangibles and
exceptional
items (note 4)
Performance
pre intangibles
and
exceptional items
Results for
the year
Intangibles and
exceptional
items (note 4)
Results for
the year
£m
£m
£m
£m
£m
£m
121.1
(4.3)
18.4
19.3
154.5
31.0
185.5
(14.1)
–
(4.8)
3.9
–
–
–
3.9
(128.9)
(125.0)
–
(16.8)
(3.7)
166.6
(145.5)
26.2
–
125.0
(4.3)
18.4
19.3
158.4
(97.9)
60.5
(14.1)
(16.8)
(8.5)
21.1
26.2
137.3
(24.1)
20.2
18.9
152.3
66.7
219.0
(11.9)
–
(3.1)
204.0
24.8
–
–
–
–
–
(6.0)
(6.0)
–
(15.8)
–
(21.8)
(35.9)
137.3
(24.1)
20.2
18.9
152.3
60.7
213.0
(11.9)
(15.8)
(3.1)
182.2
(11.1)
192.8
(145.5)
47.3
228.8
(57.7)
171.1
145376 STC Back PRINT_CIO_145376 STC_Back V13 06/07/2017 17:32 Page 89
Note 2 Segmental information (continued)
(c)
Joint ventures
The share of profit/(loss) from joint ventures was further split as follows:
2017
2016
Performance
pre intangibles
and
exceptional items
Intangibles and
exceptional
items (note 4)
Performance
pre intangibles
and
exceptional items
Results for
the year
Intangibles and
exceptional
items (note 4)
Results for
the year
£m
£m
£m
£m
£m
£m
Continuing
Virgin Rail Group (UK Rail)
Operating profit
Finance income (net)
Taxation
Citylink (UK Bus, regional operations)
Operating profit
Taxation
Twin America LLC (North America)
Operating loss
Impairment loss
Finance costs (net)
31.5
0.5
(7.2)
24.8
1.8
(0.4)
1.4
–
–
–
–
Share of profit/(loss) of joint ventures after finance costs,
finance income and taxation
26.2
(d) Gross assets and liabilities
Assets and liabilities split by segment were as follows:
–
–
–
–
–
–
–
–
–
–
–
–
31.5
0.5
(7.2)
24.8
1.8
(0.4)
1.4
–
–
–
–
32.6
0.7
(9.1)
24.2
1.8
(0.4)
1.4
(0.6)
–
(0.2)
–
–
–
–
–
–
–
–
(35.9)
–
(0.8)
(35.9)
32.6
0.7
(9.1)
24.2
1.8
(0.4)
1.4
(0.6)
(35.9)
(0.2)
(36.7)
26.2
24.8
(35.9)
(11.1)
UK Bus (regional operations)
megabus Europe
UK Bus (London)
North America
UK Rail
Central functions
Joint ventures
Borrowings and cash
Taxation
Total
Non-current assets
2017
2017
£m
881.5
5.1
60.9
387.4
104.9
2016
£m
844.1
23.2
65.1
354.0
138.3
Gross
assets
£m
952.5
7.1
69.1
429.5
426.2
Gross liabilities
Net assets/
(liabilities)
£m
£m
(358.3)
(10.1)
(176.7)
(144.7)
(704.3)
594.2
(3.0)
(107.6)
284.8
(278.1)
Gross
assets
£m
909.2
24.2
74.3
391.8
413.0
2016
Gross liabilities
Net assets/
(liabilities)
£m
£m
(283.2)
(5.6)
(103.6)
(132.4)
(635.8)
626.0
18.6
(29.3)
259.4
(222.8)
1,439.8
1,424.7
1,884.4
(1,394.1)
490.3
1,812.5
(1,160.6)
651.9
1.2
25.7
–
14.4
2.1
22.4
–
–
38.1
25.7
313.3
14.7
(43.5)
–
(733.5)
(36.6)
(5.4)
25.7
(420.2)
(21.9)
25.0
22.4
382.3
–
(53.2)
–
(791.8)
(58.8)
(28.2)
22.4
(409.5)
(58.8)
1,481.1
1,449.2
2,276.2
(2,207.7)
68.5
2,242.2
(2,064.4)
177.8
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.
Stagecoach Group plc | page 89
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Notes to the consolidated financial statements
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.
UK Bus (regional operations)
megabus Europe
UK Bus (London)
North America
UK Rail
(f) Capital expenditure on intangible assets
The capital expenditure on intangible assets (including goodwill) is shown below.
UK Bus (regional operations)
North America
UK Rail
(g) Earnings before interest, tax, depreciation and amortisation (“EBITDA”)
The results of each segment are further analysed below:
Year ended 29 April 2017
2017
£m
113.6
–
1.5
40.7
43.7
199.5
2017
£m
12.6
0.2
5.0
17.8
2016
£m
123.8
7.3
2.5
52.8
33.2
219.6
2016
£m
14.2
–
5.4
19.6
Operating profit
Joint venture
pre intangibles
interest and venture interest Depreciation and exceptional
EBITDA
including joint
Intangible
asset
expenses
Exceptional
items
Allocation
of restructuring
costs
EBITDA
pre-exceptional
items
£m
197.6
(2.5)
24.1
63.0
48.7
31.5
1.8
(14.0)
(4.8)
345.4
EBITDA
pre-exceptional
items
£m
208.5
(20.4)
26.1
56.2
80.6
32.6
1.8
(0.6)
(11.7)
(3.1)
370.0
UK Bus (regional operations)
megabus Europe
UK Bus (London)
North America
UK Rail – subsidiaries
UK Rail – joint venture (Virgin
Rail Group)
UK Bus – joint venture (Citylink)
Group overheads
Restructuring costs
UK Bus (regional operations)
megabus Europe
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
page 90 | Stagecoach Group plc
tax
£m
–
–
–
–
–
(6.7)
(0.4)
–
–
(7.1)
tax
£m
–
–
–
–
–
(8.4)
(0.4)
(0.2)
–
–
(9.0)
and tax
expense
£m
£m
197.6
(2.5)
24.1
63.0
48.7
24.8
1.4
(14.0)
(4.8)
(76.5)
(1.8)
(5.7)
(43.7)
(17.7)
–
–
(0.1)
–
items
£m
121.1
(4.3)
18.4
19.3
31.0
24.8
1.4
(14.1)
(4.8)
£m
£m
(4.3)
–
–
(1.5)
(11.0)
–
–
–
–
3.9
–
–
(3.7)
(128.9)
–
–
–
–
338.3
(145.5)
192.8
(16.8)
(128.7)
Year ended 30 April 2016
and tax
expense
£m
£m
208.5
(20.4)
26.1
56.2
80.6
24.2
1.4
(0.8)
(11.7)
(3.1)
(71.2)
(3.7)
(5.9)
(37.3)
(13.9)
–
–
–
(0.2)
–
items
£m
137.3
(24.1)
20.2
18.9
66.7
24.2
1.4
(0.8)
(11.9)
(3.1)
Intangible
asset
expenses
£m
(2.6)
–
(0.3)
(1.8)
(11.1)
–
–
–
–
–
£m
–
–
–
–
(6.0)
–
–
(35.9)
–
–
361.0
(132.2)
228.8
(15.8)
(41.9)
Operating
profit
£m
120.0
(4.3)
18.4
14.1
(113.0)
24.8
1.4
(14.1)
–
47.3
Operating
profit
£m
133.8
(24.1)
19.8
16.5
48.1
24.2
1.4
(36.7)
(11.9)
–
171.1
£m
(0.7)
–
–
–
(4.1)
–
–
–
4.8
–
£m
(0.9)
–
(0.1)
(0.6)
(1.5)
–
–
–
–
3.1
–
Operating profit
Joint venture
pre intangibles
interest and venture interest Depreciation and exceptional
EBITDA
including joint
Exceptional
items
Allocation
of restructuring
costs
145376 STC Back PRINT_CIO_145376 STC_Back V13 06/07/2017 17:32 Page 91
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)
Gain/(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
Other external charges
Impairment
Restructuring costs
Total operating costs and other operating income
2017
£m
259.4
(958.0)
264.6
(396.4)
(1,436.8)
(145.5)
11.4
(35.3)
(16.8)
(291.4)
(300.6)
(818.2)
(48.0)
(8.5)
(3,920.1)
2016
£m
183.3
(935.7)
274.0
(416.4)
(1,382.3)
(132.2)
(0.5)
(27.2)
(15.8)
(234.1)
(292.2)
(700.7)
(6.0)
(3.1)
(3,688.9)
Miscellaneous revenue comprises other operating income incidental to the Group’s principal activities. It includes amounts receivable from Network
Rail under performance regimes, commissions receivable, advertising income, maintenance income, railway station access income, railway depot
access income, fuel sales and property income.
Under the Schedules 4 and 8 possessions and performance regimes, amounts may be payable or receivable by the Group’s UK Rail Division to/from
Network Rail. Schedule 4 compensates train operators for the impact of planned service disruption and Schedule 8 compensates rail industry
participants for the impact of unplanned service disruption. The amounts payable or receivable reflect our own operational performance as well as
Network Rail’s and other train operators’. The amounts are intended to cover the wider effects of disruption on our and others’ revenue and costs,
such as those associated with the impact on customer demand for train services and the costs of managing disruption. Any compensation received
from Network Rail is not therefore intended to correspond to the refunds that might be payable to train passengers. £121.3m (2016: £78.3m) is
included in respect of these possessions and performance regimes in the overall miscellaneous revenue of £259.4m (2016: £183.3m) shown above.
Rail franchise premia is the amount of financial premia and profit share payable to the UK’s Department for Transport in respect of the operation of UK
passenger rail franchises.
Rail revenue support is the amount of financial support receivable from the UK’s Department for Transport in certain circumstances where a train
operating company’s revenue is below target or where defined macroeconomic indices are below target.
During the year ended 29 April 2017, Ernst & Young LLP replaced PricewaterhouseCoopers LLP as the Group’s auditors. Accordingly, the figures for
auditor’s remunueration below relate to Ernst & Young LLP for 2017 and PricewaterhouseCoopers LLP for 2016.
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
Taxation compliance services
Other non-audit services
Other assurance services
Non-audit fees
2017
£000
400.0
475.0
875.0
–
–
–
67.5
67.5
2016
£000
400.0
510.0
910.0
20.0
28.0
23.5
103.6
175.1
Total fees payable by the Group to its auditors
942.5
1,085.1
In addition to the fees detailed above, PricewaterhouseCoopers LLP received US$Nil (2016: US$180,000) in relation to the audit of the Group’s former
joint venture, Twin America LLC.
A description of the work of the Audit Committee is set out in the Audit Committee Report in section 5 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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Notes to the consolidated financial statements
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 34.
Information on exceptional items is provided in section 1.6.2 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
29 April 2017 and for the prior year comparatives can be further analysed as follows:
2017
2016
Exceptional
items
Intangible
Intangibles and
asset expenses exceptional items
Exceptional
items
Intangible
Intangibles and
asset expenses exceptional items
£m
£m
£m
£m
£m
£m
Operating costs and other operating income
Gain on disposal of property at UK Bus (regional operations) 7.1
(3.2)
Impairment of assets at UK Bus (regional operations)
(3.7)
North America restructuring
–
Impairment of assets at Sheffield Supertram
(44.8)
Impairment of Virgin Trains East Coast intangible asset
(84.1)
Onerous contract provision of Virgin Trains East Coast
–
Intangible asset expenses
Share of profit/(loss) of joint ventures
Impairment of interest in Twin America
Non-operating exceptional items
Provision for commitment to Twin America
megabus Europe disposal
Twin America disposal
Non-operating exceptional items
Finance costs
Premium on early redemption of bonds
Cancellation of ineffective interest rate swaps
Finance costs
(128.7)
–
–
(6.9)
11.6
4.7
–
–
–
–
–
–
–
–
–
(16.8)
(16.8)
7.1
(3.2)
(3.7)
–
(44.8)
(84.1)
(16.8)
(145.5)
–
–
–
(6.0)
–
–
–
(6.0)
–
(35.9)
–
–
–
–
–
–
–
–
–
(6.9)
11.6
4.7
–
–
–
(2.0)
–
–
(2.0)
(21.3)
(2.0)
(23.3)
(67.2)
19.4
–
–
–
–
–
–
(15.8)
(15.8)
–
–
–
–
–
–
–
–
(15.8)
2.0
–
–
–
(6.0)
–
–
(15.8)
(21.8)
(35.9)
(2.0)
–
–
(2.0)
(21.3)
(2.0)
(23.3)
(83.0)
21.4
Intangible asset expenses and exceptional items
Tax effect of intangible asset expenses
and exceptional items
(124.0)
(16.8)
(140.8)
18.8
2.1
20.9
Intangible asset expenses and exceptional
items after taxation
(105.2)
(14.7)
(119.9)
(47.8)
(13.8)
(61.6)
The impairment of Virgin Trains East Coast intangible asset is considered to be both an exceptional item and an intangible asset expense. It is
presented as an exceptional item in the table above.
The impact of the above exceptional items on pre-tax cash flows was as follows:
Disposal of property at UK Bus (regional operations)
North America restructuring
megabus Europe disposal
Twin America disposal
Premium on early redemption of bonds
Cancellation of ineffective interest rate swaps
2017
£m
7.7
(3.7)
19.6
7.0
–
–
30.6
2016
£m
–
–
–
–
(21.3)
(2.0)
(23.3)
In addition to the above, the Group paid £1.4m in the year ended 30 April 2016 in respect of Twin America litigation, in respect of which exceptional
charges were recorded in previous years. Also in the year ended 30 April 2016, its share of payments made by Twin America in respect of the litigation
was £1.1m.
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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:
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
– Exceptional finance costs (note 4)
Finance costs
Net finance costs
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 24)
Share based payment costs (excluding social security costs)
– Equity-settled
– Cash-settled
2017
£m
1.2
0.3
1.5
(4.7)
(1.7)
(22.0)
(3.5)
(3.7)
–
(35.6)
(34.1)
2017
£m
1,225.4
117.1
91.5
1.9
0.9
2016
£m
1.4
0.3
1.7
(5.9)
(2.1)
(25.9)
(3.9)
(5.3)
(23.3)
(66.4)
(64.7)
2016
£m
1,177.2
100.9
101.4
2.2
0.6
The total amount shown for staff costs above includes an amount of £0.2m (2016: £Nil) 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 8 of this Annual Report.
The average monthly number of persons employed by the Group during the year (including executive directors) was as follows:
1,436.8
1,382.3
UK operations
UK administration and supervisory
North America
Mainland Europe
2017
number
31,270
3,852
4,444
157
39,723
The average monthly number of persons employed by the Group during the year, split by segment, was as follows:
UK Bus (regional operations)
megabus Europe
UK Bus (London)
North America
UK Rail
Central
2017
number
20,212
157
4,165
4,444
10,638
107
39,723
2016
number
31,296
3,862
4,669
376
40,203
2016
number
20,513
376
4,189
4,669
10,342
114
40,203
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Notes to the consolidated financial statements
Note 7 Taxation
(a) Analysis of charge in the year
2017
2016
Performance
pre intangibles
and
exceptional items
Intangibles and
exceptional
items (note 4)
Performance
pre intangibles
and
exceptional items
Results for
the year
Intangibles and
exceptional
items (note 4)
Results for
the year
£m
£m
£m
£m
£m
£m
Current tax:
UK corporation tax at 19.9% (2016: 20.0%)
Prior year over provision for corporation tax
Foreign tax (current year)
Foreign tax (prior 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 22)
33.5
(7.5)
1.1
–
27.1
(4.1)
(3.3)
1.0
(6.4)
(2.7)
–
–
–
(2.7)
(18.2)
–
–
30.8
(7.5)
1.1
–
24.4
(22.3)
(3.3)
1.0
(18.2)
(24.6)
Total tax on profit
20.7
(20.9)
(0.2)
21.8
(2.2)
0.8
(0.1)
20.3
14.3
(5.0)
(2.8)
6.5
26.8
(1.3)
–
–
–
(1.3)
(20.1)
–
–
(20.1)
(21.4)
20.5
(2.2)
0.8
(0.1)
19.0
(5.8)
(5.0)
(2.8)
(13.6)
5.4
(b) Factors affecting tax charge for the year
Profit before taxation
Profit multiplied by standard rate of corporation tax applying to the year in the UK of
19.9% (2016: 20.0%)
Effects of:
Non-deductible intangible asset amortisation
Impact of initial recognition exemption on property, plant and equipment
Impact of initial recognition exemption on defined benefit pension schemes
Non-taxable exceptional gain – Twin America disposal
Non-deductible exceptional loss – impairment of intangible asset
Non-deductible/non-taxable exceptional gains/losses – other
Non-deductible element of share based payment expense
Other non-deductible expenditure
Other non-taxable income
Effect of higher tax rates applying to non-UK profit/(loss)
Tax effect of share of results of joint ventures
Adjustments to tax charge in respect of prior years:
– utilisation of unrecognised losses
– other UK prior year adjustments
– other US prior year adjustments
Changes in UK corporation tax rate
– impact on opening deferred tax (from 18% to 17%), including any prior year adjustments
– impact on current year (difference between 20% and 17%)
Total taxation (note 7a)
2017
£m
17.9
3.6
1.4
0.8
0.8
(2.3)
8.3
(0.9)
0.3
1.2
(0.9)
1.7
(5.2)
(5.5)
0.6
(1.6)
(3.3)
0.8
(0.2)
2016
£m
104.4
20.9
1.5
0.8
0.1
–
–
0.8
0.4
0.5
(0.2)
(4.2)
(5.0)
(5.8)
0.7
–
(5.1)
–
5.4
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Note 7 Taxation (continued)
(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 £10.0m (2016: £23.2m) 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 deferred tax balances have been calculated with reference to the enacted UK corporation tax rates of 20% to 31 March 2017, 19% from 1 April 2017
and 17% from 1 April 2020 (2016: as 2017 except for 18% from 1 April 2020).
(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 75 and the consolidated statement of changes in equity on page 77.
To the extent that the deferred tax balances relate to the pension deficit, any rate change impact has been recognised in the consolidated statement of
comprehensive income.
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
2017
2016
2017
pence per share
pence per share
£m
7.9
3.8
11.7
7.3
3.5
10.8
45.3
21.8
67.1
2016
£m
41.9
20.1
62.0
8.1
7.9
46.5
45.3
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
– Executive Participation Plan
Diluted weighted average number of ordinary shares
Net profit attributable to equity holders of the parent (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)
Non-controlling interest in intangible asset expenses
Non-controlling interest in exceptional items
Profit for adjusted EPS calculation
2017
2016
no. of shares
million
no. of shares
million
573.6
2.3
575.9
2017
£m
31.8
16.8
124.0
(20.9)
(0.8)
(11.2)
139.7
573.8
2.0
575.8
2016
£m
97.9
15.8
67.2
(21.4)
(0.7)
–
158.8
Earnings per share before intangible asset expenses and exceptional items (“adjusted EPS”) is calculated by adding back intangible asset expenses and
exceptional items (after taking account of taxation and the non-controlling interest), 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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Notes to the consolidated financial statements
Note 10 Goodwill
The movements in goodwill were as follows:
Cost and net book value
At beginning of year
Foreign exchange movements
At end of year
2017
£m
136.9
11.3
148.2
2016
£m
132.9
4.0
136.9
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 megabus Europe and UK rail operations.
The cash generating units are as follows:
UK Bus
(regional operations)
UK Bus
(London)
North America
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
2017
£m
47.5
2016
£m
47.5
2017
2016
£m
3.6
£m
3.6
2017
£m
97.1
2016
£m
85.8
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
8.6%
8.6%
8.6%
8.6%
10.1%
11.3%
2.1%
2.3%
2.1%
2.3%
3.7%
4.3%
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 commercial 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 facing the Group are set out in section 1.4.5 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 1.4.5. 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 29 April 2017 at 6.9% (2016: 6.9%) based on:
• The market capitalisation and net debt of the Group as at 29 April 2017 as an indication of the split between debt and equity;
• A risk-free rate of 1.1% (2016: 1.7%);
• A levered beta for the Group of 1.0 (2016: 0.8);
• A marginal pre-tax cost of debt of 3.9% (2016: 3.9%).
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.
As at 29 April 2017, the value in use of the North America Division exceeds its carrying amount by £113.9m. Our sensitivity analysis indicates that this
headroom would be eliminated if the assumed long-term growth rate fell by more than 255 basis points, or if the discount rate were to increase by
170 basis points.
The Directors believe that there is no impairment to any of the CGUs.
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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 29 April 2017
Cost
At beginning of year
Additions
Disposals
Foreign exchange movements
At end of year
Accumulated amortisation
At beginning of year
Amortisation charged to income statement
Impairment 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
Year ended 30 April 2016
Cost
At beginning of year
Additions
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
Customer
contracts
Rail
franchises
Software
costs
£m
£m
£m
20.4
–
–
2.2
22.6
(19.6)
(0.8)
–
–
(2.2)
(22.6)
0.8
–
73.1
–
–
–
73.1
(20.0)
(8.3)
(44.8)
–
–
(73.1)
53.1
–
49.4
17.8
(0.5)
0.7
67.4
(14.6)
(7.7)
–
0.5
(0.6)
(22.4)
34.8
45.0
Operating
leases
Customer
contracts
Rail
franchises
Software
costs
£m
£m
£m
£m
1.1
–
(1.1)
–
–
(1.1)
–
1.1
–
–
–
–
21.9
0.1
(2.6)
1.0
20.4
(19.8)
(1.5)
2.6
(0.9)
(19.6)
2.1
0.8
80.6
0.2
(7.7)
–
73.1
(18.9)
(8.8)
7.7
–
(20.0)
61.7
53.1
29.8
19.3
–
0.3
49.4
(8.9)
(5.5)
–
(0.2)
(14.6)
20.9
34.8
Total
£m
142.9
17.8
(0.5)
2.9
163.1
(54.2)
(16.8)
(44.8)
0.5
(2.8)
(118.1)
88.7
45.0
Total
£m
133.4
19.6
(11.4)
1.3
142.9
(48.7)
(15.8)
11.4
(1.1)
(54.2)
84.7
88.7
Intangible assets include customer contracts and operating leases on favourable terms to market purchased as part of business combinations, the right
to operate UK Rail franchises and software costs.
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Notes to the consolidated financial statements
Note 12 Property, plant and equipment
The movements in property, plant and equipment were as follows:
Year ended 29 April 2017
Land and
buildings
£m
Passenger
service vehicles
£m
Other plant
and equipment
£m
Cost
At beginning of year
Additions
Disposals
Reclassifications
Foreign exchange movements
At end of year
Depreciation
At beginning of year
Depreciation charged to income statement
Impairment charged to income statement
Disposals
Reclassifications
Foreign exchange movements
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
341.2
20.5
(9.9)
–
6.7
358.5
(77.1)
(9.8)
–
4.4
–
(2.3)
(84.8)
264.1
273.7
–
–
46.6
1,463.8
127.7
(89.7)
(0.2)
55.0
1,556.6
(638.7)
(112.8)
(3.2)
62.8
0.2
(26.0)
(717.7)
825.1
838.9
62.1
88.8
–
244.4
51.3
(33.4)
0.2
0.6
263.1
(168.4)
(22.9)
–
6.3
(0.2)
(0.2)
(185.4)
76.0
77.7
–
–
–
Total
£m
2,049.4
199.5
(133.0)
–
62.3
2,178.2
(884.2)
(145.5)
(3.2)
73.5
–
(28.5)
(987.9)
1,165.2
1,190.3
62.1
88.8
46.6
Included in the net book value of property, plant and equipment is £13.4m (2016: £8.9m) in respect of assets under construction that the Group
expects to be sold to Network Rail and other third parties following the completion of each asset’s construction.
Year ended 30 April 2016
Cost
At beginning of year
Additions
Disposals
Reclassifications
Foreign exchange movements
At end of year
Depreciation
At beginning of year
Depreciation charged to income statement
Disposals
Reclassifications
Foreign exchange movements
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
327.0
18.6
(4.2)
(2.6)
2.4
341.2
(70.4)
(9.3)
2.3
1.1
(0.8)
(77.1)
256.6
264.1
–
–
51.4
1,364.1
153.0
(72.3)
–
19.0
1,463.8
(587.5)
(103.9)
61.8
–
(9.1)
(638.7)
776.6
825.1
78.2
43.3
–
222.0
48.0
(28.4)
2.6
0.2
244.4
(157.3)
(19.0)
9.0
(1.1)
–
(168.4)
64.7
76.0
–
–
–
Total
£m
1,913.1
219.6
(104.9)
–
21.6
2,049.4
(815.2)
(132.2)
73.1
–
(9.9)
(884.2)
1,097.9
1,165.2
78.2
43.3
51.4
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Note 13 Interests in joint ventures
During the year ended 29 April 2017, the Group had three significant joint ventures as summarised below. The Group’s interest in the Twin America
joint venture was disposed of during the year. Each joint venture is structured as a distinct legal entity and the Group accounts for its interests in all
three joint ventures using the equity method of accounting. There are no quoted market prices for any of the Group’s investments in joint ventures.
(a) Virgin Rail Group Holdings Limited
The Group holds 49% of the equity and voting rights in Virgin Rail Group Holdings Limited (“Virgin Rail Group”). The principal business of the group
headed by Virgin Rail Group is the operation of inter-city train services under the West Coast rail franchise. Virgin Rail Group is incorporated in the UK.
The Group considers that it has joint control of Virgin Rail Group even though it controls less than half of the voting rights in Virgin Rail Group. That
joint control results from contractual arrangements between the shareholders of Virgin Rail Group that require the agreement of both shareholders to
make decisions on key matters.
Virgin Rail Group‘s principal subsidiary is West Coast Trains Limited. Under the terms of its rail franchise agreement, West Coast Trains Limited may
only pay dividends and/or repay loans from other related companies to the extent it remains compliant with certain financial ratios specified in the
franchise agreement. This could restrict West Coast Trains Limited from making distributions or repaying loans that would be otherwise permitted by
company law. West Coast Trains Limited is also prohibited from loaning money to related companies without the prior consent of the UK Department
for Transport. Such restrictions on distributions and loans generally apply to all entities operating train services under UK rail franchise agreements.
In addition, under arrangements pursuant to which a performance bond has been issued by an insurance company in connection with the West Coast
rail franchise, Virgin Rail Group is required to maintain consolidated net assets (applying its own accounting policies) of no less than £22.5m (2016:
£22.5m). This could restrict Virgin Rail Group’s ability to make distributions to the Stagecoach Group.
Subject to the shareholders’ consideration of how much cash to retain in the business for working capital requirements and subject to retaining
sufficient cash to meet any obligations under rail franchise agreements, the distributable profits of Virgin Rail Group are to be distributed in full to its
shareholders. Both shareholders in Virgin Rail Group would need to agree to any changes to or deviations from that dividend policy.
(b) Twin America LLC
Until 15 February 2017, the Group held 60% of the economic interests and 50% of the voting rights in Twin America LLC (“Twin America”). The
principal business of the group headed by Twin America is the operation of sightseeing coach tours in and around the city of New York in the United
States. Twin America is incorporated in the United States.
Contractual arrangements were in place in respect of Twin America which required the agreement of both members to decisions on key matters. In
light of that, the fact voting rights were split 50:50 between the two joint venture members and despite the fact that the Chief Executive of Twin
America is a representative of the other member, the Group considered that it had joint control of Twin America.
(c) Scottish Citylink Coaches Limited
The Group holds 35% of the equity and voting rights in Scottish Citylink Coaches Limited (“Citylink”). The principal business of Citylink is the operation
of inter-city coach services to, from and within Scotland. It is incorporated in the UK.
The Group considers that it has joint control of Citylink even although it controls less than half of the voting rights in Citylink but is responsible for the
day-to-day management of the business. That joint control results from contractual arrangements between the shareholders of Citylink that require
the agreement of both shareholders to make decisions on key matters.
The profit after tax of Citylink is distributed in full to its shareholders subject to retaining sufficient cash to meet the liquidity requirements of the
business and subject to there being no outstanding amounts payable by Citylink in respect of loans from its shareholders and accrued interest on such
loans. Both shareholders in Citylink need to agree to any changes to or deviations from that dividend policy.
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Notes to the consolidated financial statements
Note 13 Interests in joint ventures (continued)
(d) Movements in carrying values
The movements in the carrying values were as follows:
Net book value
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/(expense) on
cash flow hedges, net of tax
Dividends received in cash
Foreign exchange movements
At end of year
Virgin Rail
Group
Citylink
Twin
America LLC
£m
£m
£m
17.9
24.8
2.5
2.7
(28.1)
–
19.8
4.5
1.4
–
–
–
–
5.9
–
–
–
–
–
–
–
Total
2017
£m
22.4
26.2
2.5
2.7
(28.1)
–
25.7
Total
2016
£m
57.8
(11.1)
4.0
(0.3)
(28.8)
0.8
22.4
A loan payable to Citylink of £1.7m (2016: £1.7m) is reflected in note 20.
(e) Summarised financial information of joint ventures
The summarised financial information shown below is in accordance with IFRS and the Group’s accounting policies. Where a joint venture’s own
accounts are prepared other than in accordance with IFRS and the Group’s accounting policies, appropriate adjustments have been made to determine
the figures shown below. Adjustments have also been made, as appropriate, to reflect fair value adjustments made at the time of acquisition. Except
where stated, the amounts shown are in respect of 100% of each joint venture and not just the Group’s share of the joint venture.
Each of the Group’s joint ventures has a statutory financial year-end that differs from that of the Group’s, which is the Saturday nearest to 30 April. In
applying the equity method of accounting to its interests in joint ventures, the Group refers to the edition of each joint venture’s management
accounts that has a balance sheet date closest to the Group’s balance sheet date. In some cases, the balance sheet date differs from the Group’s by a
few days but the impact of that on the Group’s consolidated financial statements is not material. Further information on the relevant dates in respect
of joint ventures is below:
Joint venture
Virgin Rail Group
Citylink
Latest statutory financial year-end
closest to 29 April 2017
Balance sheet date of management accounts
31 March 2017
31 December 2016
29 April 2017
30 April 2017
(f) Summarised financial information of joint ventures
The consolidated balance sheets of each of the Group’s joint ventures are summarised below:
As at 29 April 2017
Non-current assets
Cash and cash equivalents
Other current assets
Current liabilities
Net assets
Non-controlling interests
Shareholders’ funds
Group share
Group share of net assets
Goodwill
Group interest in joint ventures
page 100 | Stagecoach Group plc
Virgin Rail
Group
Citylink
£m
–
80.5
99.9
(139.7)
40.7
(0.2)
40.5
49%
19.8
–
19.8
£m
0.1
6.8
8.4
(5.9)
9.4
–
9.4
35%
3.3
2.6
5.9
Total
2017
£m
•
•
•
•
•
•
•
23.1
2.6
25.7
145376 STC Back PRINT_CIO_145376 STC_Back V13 06/07/2017 17:32 Page 101
Note 13 Interests in joint ventures (continued)
(f) Summarised financial information of joint ventures (continued)
As at 30 April 2016
Non-current assets
Cash and cash equivalents
Other current assets
Non-current liabilities
Current liabilities
Net assets
Non-controlling interests
Shareholders’ funds
Group share
Group share of net assets
Goodwill
Group interest in joint ventures
Virgin Rail
Group
Citylink
Twin
America
£m
21.2
98.4
84.3
(10.1)
(157.1)
36.7
(0.2)
36.5
49%
17.9
–
17.9
£m
0.1
1.4
9.0
–
(5.2)
5.3
–
5.3
35%
1.9
2.6
4.5
£m
6.4
5.9
6.6
(10.3)
(8.6)
–
–
–
60%
–
–
–
Total
2016
£m
•
•
•
•
•
•
•
•
19.8
2.6
22.4
The assets and liabilities shown above include the following financial assets and financial liabilities (excluding cash, cash equivalents, trade receivables,
other receivables, trade payables and other payables):
Virgin Rail Group
Non-current assets – derivative instruments at fair value
Current assets – derivative instruments at fair value
Current liabilities – derivative instruments at fair value
Citylink
Current assets – loan to Stagecoach Group
Twin America
Current liabilities – bank borrowings
The financial performance of each of the Group’s joint ventures is summarised below:
Year ended 29 April 2017
Revenue
Other operating expenses
Operating profit
Finance income
Taxation
Profit after tax
Other comprehensive income
Total comprehensive income
2017
£m
–
1.3
–
1.7
–
Virgin Rail
Group
£m
Citylink
£m
1,136.3
(1,072.0)
64.3
1.0
(14.7)
50.6
10.7
61.3
39.0
(33.8)
5.2
–
(1.1)
4.1
–
4.1
2016
£m
0.4
–
(4.5)
1.7
(6.5)
Twin
America
£m
50.1
(50.1)
–
–
–
–
–
–
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Notes to the consolidated financial statements
Note 13 Interests in joint ventures (continued)
(f) Summarised financial information of joint ventures (continued)
Year ended 30 April 2016
Revenue
Depreciation & amortisation
Other operating expenses
Operating profit/(loss)
Finance income
Finance costs
Taxation
Profit after tax
Other comprehensive income
Total comprehensive income
Virgin Rail
Group
£m
1,072.1
–
(1,005.5)
66.6
1.4
–
(18.6)
49.4
7.6
57.0
Citylink
Twin
America
£m
41.2
–
(36.0)
5.2
–
–
(1.1)
4.1
–
4.1
£m
77.4
(3.2)
(75.2)
(1.0)
–
(0.3)
–
(1.3)
–
(1.3)
In addition to the above amounts, the Group has recognised exceptional costs in the year ended 30 April 2016 in respect of Twin America (see note 4).
Note 14 Business combinations
The Group completed no material business combinations during the years ended 29 April 2017 and 30 April 2016. Details of business combinations
completed in previous years are provided in the Annual Reports for the years concerned.
Note 15 Disposal of businesses and joint ventures
(a) Sale of the retailing part of megabus Europe
On 1 July 2016, the Group completed the sale of the retailing part of the megabus Europe business to FlixBus. The consideration was satisfied by the
issue of a loan note which was subsequently settled by FlixBus on 30 December 2016.
As part of the sale of the retailing part of megabus Europe, the Group also agreed to transfer a number of vehicles to FlixBus, or a nominee of FlixBus.
After taking account of costs and losses related to the sale, we have reported a pre-tax exceptional loss on the disposal of the business of £6.9m.
(b) Sale of shareholding in Twin America
In February 2017, the Group agreed to sell its shareholding in Twin America LLC to its co-venturer City Sights, for cash consideration of £7.0m. An
exceptional gain on disposal of £11.6m was reported, including £4.6m of cumulative foreign exchange difference.
(c) Details of disposals
The following table summarises the disposals described above with carrying amounts of assets and liabilities at the respective dates of sale.
Net assets disposed
Liabilities for future costs associated with the disposals
Foreign exchange differences recycled on disposal
(Loss)/profit on disposal
Net cash inflow
megabus Europe
2017
Twin America
£m
19.3
7.2
–
(6.9)
19.6
£m
–
–
(4.6)
11.6
7.0
Total
£m
19.3
7.2
(4.6)
4.7
26.6
All reported gains and losses on disposal were recognised in the income statement.
Details of acquisitions and disposals completed in earlier periods are given in the Group’s annual reports for the relevant periods.
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Note 16 Subsidiary and related undertakings
Asset purchase and non-controlling interests
The UK Department for Transport awarded the Virgin Trains East Coast rail franchise to the Group during the year ended 30 April 2015. In connection
with that award, a subsidiary company, Inter City Railways Limited, purchased all of the equity in East Coast Main Line Company Limited, the train
operating company that now operates inter-city train services in the UK under the Virgin Trains East Coast rail franchise. East Coast Main Line
Company Limited held certain assets and liabilities at the date of purchase. However, it did not constitute a business and so the purchase was
accounted for by the Group as an asset purchase rather than as a business combination. The purchase price was allocated to the assets acquired and
liabilities assumed by the Group based on their fair values. The excess of the purchase price over the fair value of the net liabilities assumed was
recognised as an intangible asset, being the cost of the right to operate the franchise.
Inter City Railways Limited is the one subsidiary in which a third party has a material non-controlling interest. The Group holds 90% of the equity and
voting rights in Inter City Railways Limited. Both Inter City Railways Limited and East Coast Main Line Company Limited are incorporated in the UK.
The Virgin Group of companies holds the other 10% of the equity and voting rights of Inter City Railways Limited and may also receive a royalty fee
from East Coast Main Line Company Limited that varies depending on the revenue and profit of that company. The Group has contractual
arrangements with the Virgin Group in respect of the business. However, the Group may appoint a majority of the directors of Inter City Railways
Limited and appoint the executive management of East Coast Main Line Company Limited. Also, the Group is responsible for the day-to-day
management of the business, the Managing Director of the business reports directly to the Managing Director of the Group’s UK Rail Division, and so
the Group has the power to direct the activities of the entity. The Group therefore accounts for Inter City Railways Limited and East Coast Main Line
Company Limited as subsidiaries.
The loss for the year ended 29 April 2017 allocated to the non-controlling interest is shown on the consolidated income statement. The accumulated
non-controlling interest as at 29 April 2017 is shown on the consolidated balance sheet and the movement in that interest in the year (including any
dividends paid to non-controlling interests) is shown in the consolidated statement of movements in equity.
At least 75% of the distributable profit of Inter City Railways Limited should be distributed to its shareholders within four months of each financial
year-end subject to retaining sufficient cash to meet any obligations under rail franchise agreements. Both shareholders in Inter City Railways Limited
need to agree to any changes to or deviations from that dividend policy.
Under the terms of its rail franchise agreement, East Coast Main Line Company Limited may only pay dividends and/or repay loans from other Group
companies to the extent it remains compliant with certain financial ratios specified in the franchise agreement. This could restrict it from making
distributions or repaying loans that would be otherwise permitted by company law. East Coast Main Line Company Limited is also prohibited from
loaning money to other Group companies without the prior consent of the UK Department for Transport. Such restrictions on dividends and loans
generally apply to all entities operating train services under UK rail franchise agreements, including two of Stagecoach Group’s other subsidiaries,
Stagecoach South Western Trains Limited and East Midlands Trains Limited.
The Group may be required to loan further amounts to East Coast Main Line Company Limited pursuant to the committed loan facilities shown in
note 30(iii).
The consolidated balance sheet of Inter City Railways Limited as at 29 April 2017 and its financial performance for the year ended 29 April 2017 are
summarised below. The amounts shown below are determined in accordance with the Group’s accounting policies before inter-company
eliminations.
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Net (liabilities)/assets
Revenue
Expenses
Operating (loss)/profit
Management recharge
Intangible asset expenses
Impairment of intangible fixed assets
Provision for onerous contract
Restructuring costs
Finance costs (net)
Taxation
(Loss)/profit after tax
Other comprehensive income/(expense)
Total comprehensive (expense)/income
2017
£m
35.8
183.3
(163.5)
(152.7)
(97.1)
749.7
(767.3)
(17.6)
(0.2)
(9.4)
(44.8)
(84.1)
(3.3)
(1.3)
22.8
(137.9)
22.4
(115.5)
2016
£m
78.6
193.6
(175.4)
(78.4)
18.4
730.4
(704.9)
25.5
(0.2)
(9.2)
–
–
(0.8)
(1.0)
(2.7)
11.6
(2.4)
9.2
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Notes to the consolidated financial statements
Note 17 Inventories
Inventories were as follows:
Parts and consumables
2017
£m
25.2
2016
£m
27.5
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:
2017
£m
(3.9)
(0.3)
0.5
(3.7)
2017
£m
4.7
0.2
4.9
256.9
(2.5)
254.4
39.4
55.2
54.0
46.0
449.0
2017
£m
(2.5)
(0.7)
0.2
0.5
(2.5)
2016
£m
(3.8)
(0.3)
0.2
(3.9)
2016
£m
5.4
0.2
5.6
237.1
(2.5)
234.6
30.8
44.2
38.5
34.1
382.2
2016
£m
(2.8)
(0.7)
0.3
0.7
(2.5)
At beginning of year
Charged to income statement
Amount utilised
At end of year
Note 18 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 25.
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Note 19 Cash and cash equivalents
Cash at bank and in hand
2017
£m
313.3
2016
£m
382.3
The cash amounts shown above include £17.0m on 12 month deposit maturing by December 2017, £35.0m on 6 month deposit maturing by May
2017, £5.0m on 5 month deposit maturing by July 2017, £20.0m on 5 month deposit maturing by August 2017, £10.0m on 3 month deposit maturing
by May 2017, and £15.0m on 2 month deposit maturing by May 2017. (2016: £15.0m on 12 month deposit maturing by March 2017, £50.0m on 6
month deposit maturing by October 2016, £35.0m on 6 month deposit maturing by September 2016, £10.0m on 6 month deposit maturing by
August 2016, £27.0m on 3 month deposit maturing by June 2016, £10.0m on 3 month deposit maturing by May 2016 and £10.0m on 2 month
deposit maturing by June 2016). The remaining amounts are accessible to the Group within one day (2016: one day). The deposits with an original
maturity in excess of 3 months are held within train operating companies. They relate to cash balances that are not available to be loaned or
distributed to other members of the Group (see note 30 (iii)) but are not expected to be required by the train operating companies during the
deposit period. The deposits can be accessed prior to the end of the deposit period without incurring material break costs.
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 £313.3m (2016: £382.3m) above included the net balance on these offset accounts of
£28.9m (2016: £43.2m), which comprised £179.8m (2016: £152.8m) of positive bank balances less £150.9m (2016: £109.6m) of bank overdrafts.
Note 20 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
Loan from joint venture
Loan from non-controlling interest
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
Deferred income
2017
£m
270.0
436.7
96.6
0.2
4.7
1.7
5.8
31.9
0.4
848.0
–
20.2
0.3
0.2
15.1
35.8
2016
£m
270.3
381.8
114.4
0.6
20.6
1.7
5.3
30.4
0.1
825.2
6.0
18.7
0.5
0.3
20.0
45.5
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Notes to the consolidated financial statements
Note 21 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
Hire purchase and lease obligations
Within 2-5 years
Bank loans
Hire purchase and lease obligations
Over 5 years
Sterling 4.00% Notes
US Dollar 4.36% Notes
Total borrowings
Less current maturities
Non-current portion of borrowings
2017
£m
18.6
21.9
40.5
15.2
121.8
34.9
156.7
405.2
115.9
521.1
733.5
(40.5)
693.0
2016
£m
19.3
34.3
53.6
18.8
189.6
23.7
213.3
403.8
102.3
506.1
791.8
(53.6)
738.2
Interest terms on UK hire purchase and lease obligations are at annual rates between 0.40% and 1.50% (2016: 0.40% and 1.90%) 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 29 April 2017
averaged 1.8% per annum (2016: 2.0%). Interest terms on bank loans are at LIBOR plus margins ranging from 0.40% to 1.10% (2016: 0.40% to 1.10%).
Interest on loan notes are at three months LIBOR. Loan notes amounting to £18.6m (2016: £19.3m) 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
Future finance costs on hire purchase and finance leases
Carrying value of hire purchase and finance lease liabilities
2017
£m
22.9
51.5
74.4
(2.4)
72.0
2016
£m
35.7
43.7
79.4
(2.6)
76.8
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 4.00% Notes
On 29 September 2015, the Group issued £400m of 4.00% Notes. Interest is paid annually in arrears and the Notes are due to be redeemed at their
principal amount on 29 September 2025.
The Notes were issued at 98.979% of their principal amount. The consolidated carrying value of the Notes at 29 April 2017 was £405.2m (2016:
£403.8m) after taking account of accrued interest, the discount on issue, issue costs and the effect of fair value hedges.
(c) US Dollar 4.36% Notes
On 18 October 2012, the Group issued US$150m of 4.36% Notes as a private placement. 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 29 April 2017
was £115.9m (2016: £102.3m) after taking account of accrued interest, issue costs and the effect of fair value hedges.
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Note 22 Deferred tax
The Group movement in deferred tax during the year was as follows:
Due after more than one year:
At beginning of year
Credited to income statement
Credit/(charged) to equity
Foreign exchange movements
At end of year
Deferred taxation is calculated as follows:
Accelerated capital allowances
Pension temporary difference
Short-term temporary differences:
– Employee remuneration and share based payments
– Accrued expenses deductible when paid
– Fuel derivatives
– Cash flow hedge reserve
– Profit recognition temporary differences
– Deferred interest expense
– US losses
– Other timing differences
2017
Assets
Liabilities
£m
–
44.4
2.8
49.5
–
1.8
–
2.2
19.5
2.9
£m
(105.5)
–
–
–
(3.1)
–
(0.1)
–
–
–
123.1
(108.7)
Net
£m
(105.5)
44.4
2.8
49.5
(3.1)
1.8
(0.1)
2.2
19.5
2.9
14.4
The amount of deferred tax recognised in the income statement by type of temporary difference is as follows:
Accelerated capital allowances
Pension temporary differences
Short-term temporary differences
2017
£m
(25.6)
24.6
15.4
–
14.4
2016
Assets
Liabilities
£m
(99.3)
–
–
–
(11.2)
–
–
–
–
(0.7)
£m
–
21.0
2.7
31.7
–
9.4
0.9
4.9
10.6
4.4
85.6
2016
£m
(25.1)
13.6
(13.3)
(0.8)
(25.6)
Net
£m
(99.3)
21.0
2.7
31.7
(11.2)
9.4
0.9
4.9
10.6
3.7
(111.2)
(25.6)
2017
2016
£m
(5.4)
0.7
29.3
24.6
£m
20.1
1.7
(8.2)
13.6
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Notes to the consolidated financial statements
Note 23 Provisions
The movements in provisions were as follows:
Beginning of year
Provided during year (after discounting)
Unused amounts credited to income statement
Unwinding of discount
Utilised in the year
Arising on sale of tokens during year
Redemption of tokens
Foreign exchange movements
End of year
29 April 2017:
Current
Non-current
30 April 2016:
Current
Non-current
Token redemption
provision
Insurance
provisions
Environmental
provisions
Redundancy
provision
Onerous
contracts
£m
3.3
–
(0.1)
–
–
0.1
(0.5)
–
2.8
0.6
2.2
2.8
0.7
2.6
3.3
£m
148.6
51.3
–
3.5
(53.6)
–
–
7.0
156.8
49.4
107.4
156.8
49.5
99.1
148.6
£m
4.1
0.3
–
–
(1.1)
–
–
0.3
3.6
1.5
2.1
3.6
1.2
2.9
4.1
£m
0.2
0.4
–
–
(0.2)
–
–
–
0.4
0.4
–
0.4
0.2
–
0.2
£m
4.6
85.0
–
–
(1.6)
–
–
0.6
88.6
66.7
21.9
88.6
3.3
1.3
4.6
Total
£m
160.8
137.0
(0.1)
3.5
(56.5)
0.1
(0.5)
7.9
252.2
118.6
133.6
252.2
54.9
105.9
160.8
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 the year-end 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 onerous contract provision in respect of Virgin Trains East Coast has been calculated based on updated financial forecasts for the franchise. The forecasts
are based on a number of assumptions, most significantly in respect of revenue growth. There can be no certainty that the actual outcome will be consistent
with those currently forecast, however based on our sensitivity analysis, we consider it unlikely that the actual costs will be more than £10m higher or lower
than the provision recorded. The provisions are expected to be fully utilised within three years.
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Note 24 Retirement benefits
(a) Description of retirement benefit arrangements
United Kingdom funded schemes
The Group participates in a number of funded defined benefit schemes in the UK as follows:
Date as at which last scheme valuation was prepared
• The Stagecoach Group Pension Scheme (“SPS”);
• 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”);
• The East Coast Main Line section of the Railways Pension Scheme (“RPS”); and
• A number of UK Local Government Pension Schemes (“LGPS”).
30 April 2014
31 December 2013
31 December 2013
31 December 2013
31 December 2013
31 March 2016
The Stagecoach Group Pension Scheme is comprised of two sections, the main section and a separate East London and Selkent section. The main
section closed to future accrual in April 2017.
The Stagecoach Group Pension Scheme and the Local Government Pension Schemes are closed to new members from the Group. The East London and
Selkent section is closed to new entrants but is open to future accrual for the existing remaining members. All relevant sections of the Railways
Pension Schemes are open to new members.
For the defined benefit schemes, benefits are related to length of service and pensionable salary. Pensionable salary for the Stagecoach Group Pension
Scheme is subject to capped increases. The weighted average duration as at 29 April 2017 of the expected benefit payments across all UK defined
benefit schemes is estimated at 20.0 years (2016: 20.0 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 1.2% (2016: 1.1%) of the pensions charge in the consolidated income
statement, but historic liabilities mean that these schemes represent around 7.6% (2016: 8.9%) of the gross present value of pension obligations as at
29 April 2017 shown in the consolidated 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. There is no right for the Group to receive any surplus in the
schemes, although there is an obligation on the Group to fully fund the benefits. To reflect this, the Group would only recognise existing surpluses
relating to these schemes, to the extent that these surpluses could be recouped through the reduction of future contributions. The contributions
schedules for the LGPS include deficit contributions and the present value of these contributions are reflected in the net deficit shown on the balance
sheet for the Group's participation in the LGPS.
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.
North America funded schemes
The Group participates in two small funded 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.
Unfunded schemes
The Group provides benefits under 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, as no contributions are made to any scheme, but
the Group has set aside assets to meet its obligations under the schemes. In the case of the EFRBS, the scheme may hold 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 29 April 2017 was £6.5m
(2016: £4.7m).
Other 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.
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Notes to the consolidated financial statements
Note 24 Retirement benefits (continued)
(b) Principal actuarial assumptions
The principal actuarial assumptions used in determining the pensions amounts as at 29 April 2017 and 30 April 2016 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
2017
2.8%
3.4%
2.1%
0.5%*
2.6%
3.3%
2.1%
20.5
22.7
21.9
24.3
2016
3.7%
3.0%
1.7%
2.0%
2.2%
2.9%
1.7%
19.4
23.7
21.5
25.6
* Future accrual is limited to participation in the East London and Selkent section of SPS, where annual increases in pensionable salaries are capped at
0.5%.
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 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.
(c) Pension amounts recognised in the balance sheet
The consolidated balance sheet shows retirement benefit assets of £45.6m (2016: £24.8m) and retirement benefit obligations of £278.1m (2016:
£121.5m), resulting in the net liability of £232.5m (2016: £96.7m) analysed below.
The amounts recognised in the balance sheet were as follows:
As at 29 April 2017
Equities
Private equity
Infrastructure
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
Funded schemes
SPS
£m
840.0
51.3
–
331.6
50.9
124.0
RPS
£m
823.5
234.5
54.0
165.3
214.9
162.0
1,397.8
(1,649.6)
–
–
(251.8)
–
(251.8)
1,654.2
(2,267.1)
245.1
412.9
45.1
–
45.1
LGPS
£m
231.3
23.8
–
51.6
15.0
27.0
348.7
(325.1)
–
–
23.6
(41.1)
(17.5)
Other
Unfunded schemes
Total
£m
4.5
–
–
2.0
1.1
–
7.6
(11.6)
–
–
(4.0)
–
(4.0)
£m
–
–
–
–
–
–
–
(4.3)
–
–
(4.3)
–
(4.3)
£m
1,899.3
309.6
54.0
550.5
281.9
313.0
3,408.3
(4,257.7)
245.1
412.9
(191.4)
(41.1)
(232.5)
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Note 24 Retirement benefits (continued)
(c) Pension amounts recognised in the balance sheet (continued)
As at 30 April 2016
Equities
Private equity
Infrastructure
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
Funded schemes
SPS
£m
786.8
48.7
–
255.3
48.8
116.7
RPS
£m
708.0
193.6
54.3
142.1
176.6
139.3
1,256.3
(1,366.5)
–
–
(110.2)
–
(110.2)
1,413.9
(1,691.7)
111.1
191.1
24.4
–
24.4
LGPS
£m
221.2
–
–
49.3
42.1
20.2
332.8
(299.2)
–
–
33.6
(37.9)
(4.3)
Other
Unfunded schemes
Total
£m
4.1
–
–
0.7
0.9
–
5.7
(8.5)
–
–
(2.8)
–
(2.8)
£m
–
–
–
–
–
–
–
(3.8)
–
–
(3.8)
–
(3.8)
£m
1,720.1
242.3
54.3
447.4
268.4
276.2
3,008.7
(3,369.7)
111.1
191.1
(58.8)
(37.9)
(96.7)
At 29 April 2017, 80% (2016: 81%) of scheme assets were quoted on a recognised stock exchange or held in cash or assets readily convertible to cash
and are therefore considered to be liquid.
The LGPS assets are not sectionalised and so assets are effectively co-mingled with other participating employers. Therefore, the Company’s asset value
is a notional value based on a share of fund calculation which is undertaken by the LGPS’s Fund Actuary.
The vast majority of assets held by the LGPS arrangements are invested in pooled funds with a quoted market price. We have therefore allocated our
holdings between the various asset categories in proportion to that of the overall LGPS funds in which we participate.
(d) Funding arrangements and schemes
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 term and nature of the schemes’ liabilities.
The regulatory framework in the UK requires the Trustees of the Stagecoach Group Pension Scheme 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.
There are particular funding risks with the Local Government Pension Schemes to which the Group contributes. The Group has limited ability to influence
the funding strategy of these schemes. Furthermore, the contributions that the Group is required to make to the schemes are determined by the schemes,
which tend to take a cautious approach in setting contribution rates for non-government employers. This can result in the Group being required to make
higher levels of contributions than it believes is necessary or desirable. Known future contribution levels are taken account of in determining the reported
deficit or surplus in each scheme in these consolidated financial statements.
As explained in section 1.6.10 of this Annual Report, the Directors are focused on maintaining an investment grade credit rating and as noted in section
1.6.7, the three main credit rating agencies continue to assign investment grade credit ratings to the Group. Each of the credit rating agencies include
pension amounts as “debt” in assessing the Group’s credit worthiness and consider pensions funding risks as part of their wider risk assessment.
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 in 2015, and showed that as at 5 April 2013, the scheme was 100%
funded on the Trustees’ technical provisions basis. The 5 April 2013 valuation was the final valuation for the scheme prior to its merger with the Stagecoach
Group Pension Scheme. 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 2016 with deficit contributions payable. The actuarial valuation for the Stagecoach Group Pension Scheme
showed that as at 30 April 2014, the scheme was 111% funded on the Trustees’ technical provisions basis. The Group forecasts to contribute £42.1m
(forecast at 30 April 2016 for year ended 29 April 2017: £69.6m) to its defined benefit schemes in the financial year ending 28 April 2018.
(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 29 April 2017
At beginning of year – (liability)/asset
Expense charged to consolidated income statement
Recognised in the consolidated statement of comprehensive income
Employers’ contributions and settlements
At end of year – (liability)/asset
Funded schemes
RPS
£m
24.4
(48.6)
28.8
40.5
45.1
LGPS
£m
(4.3)
(1.1)
(19.9)
7.8
(17.5)
SPS
£m
(110.2)
(22.5)
(135.3)
16.2
(251.8)
Other
£m
(2.8)
(1.7)
(0.5)
1.0
(4.0)
Unfunded
schemes
£m
(3.8)
(0.1)
(0.7)
0.3
(4.3)
Total
£m
(96.7)
(74.0)
(127.6)
65.8
(232.5)
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Notes to the consolidated financial statements
Note 24 Retirement benefits (continued)
(e) Changes in net retirement benefit obligations (continued)
Year ended 30 April 2016
At beginning of year – (liability)/asset
Rail franchise changes
Expense charged to consolidated income statement
Recognised in the consolidated statement of comprehensive income
Employers’ contributions and settlements
At end of year – (liability)/asset
Funded schemes
SPS
£m
(171.7)
–
(27.1)
70.3
18.3
(110.2)
RPS
£m
24.4
5.3
(57.1)
1.6
50.2
24.4
LGPS
Other
Unfunded
schemes
£m
(6.6)
–
(1.2)
(3.5)
7.0
(4.3)
£m
(2.6)
–
(1.0)
0.1
0.7
(2.8)
£m
(4.0)
–
(0.1)
–
0.3
(3.8)
Total
£m
(160.5)
5.3
(86.5)
68.5
76.5
(96.7)
(f) Sensitivity of retirement benefit obligations to changes in assumptions
The measurement of the defined benefit obligations 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 £28.3m decrease in the net pension liabilities as at 29 April 2017 (2016: £18.7m). A 10 basis points decrease in the
discount rate would result in a £28.9m increase in the net pension liabilities as at 29 April 2017 (2016: £18.9m).
• The inflation assumption adopted is consistent with the discount rate used. It is used to set the assumptions for pension increases, pensionable salary
increases and deferred revaluations. A 10 basis points increase in the inflation rate would result in a £22.2m increase in the net pension liabilities as at
29 April 2017 (2016: £11.6m). A 10 basis points decrease in the inflation rate would result in a £21.9m decrease in the net pension liabilities as at
29 April 2017 (2016: £11.5m).
• A 10 basis point increase in the rate of increase in pensionable salaries would result in a £1.8m increase in the net pension liabilities as at 29 April 2017
(2016: £1.7m). A 10 basis point decrease in the rate of increase in pensionable salaries would result in a £1.8m decrease in the net pension liabilities as
at 29 April 2017 (2016: £1.7m).
• A 10 basis point increase in the rate of increase of pensions in payment would result in a £12.0m increase in the net pension liabilities as at 29 April
2017 (2016: £8.2m). A 10 basis point decrease in the rate of increase of pensions in payment would result in a £12.0m decrease in the net pension
liabilities as at 29 April 2017 (2016: £8.2m).
• 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 £56.5m in the net pension liabilities as at 29 April 2017 (2016: £42.4m). If life expectancy of the relevant individuals was to
decrease by one year, this would result in a decrease of £56.3m in the net pension liabilities as at 29 April 2017 (2016: £43.9m).
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
balance sheet 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:
Year ended 29 April 2017
Current service cost
Administration expenses
Defined contribution costs
Included in operating profit
Net interest (expense)/income
Interest expense on asset ceiling
Unwinding of franchise adjustment
Year ended 30 April 2016
Current service cost
Administration costs
Defined contribution costs
Included in operating profit
Net interest (expense)/income
Interest expense on asset ceiling
Unwinding of franchise adjustment
Funded schemes
SPS
£m
(17.9)
(0.8)
–
(18.7)
(3.8)
–
–
RPS
£m
(48.9)
(0.5)
–
(49.4)
(6.3)
–
7.1
(22.5)
(48.6)
LGPS
£m
(0.8)
–
–
(0.8)
1.1
(1.4)
–
(1.1)
Other
£m
(1.4)
–
–
(1.4)
(0.3)
–
–
(1.7)
Funded schemes
SPS
£m
(20.4)
(0.9)
–
(21.3)
(5.8)
–
–
RPS
£m
(57.3)
(0.6)
–
(57.9)
(10.0)
–
10.8
(27.1)
(57.1)
LGPS
£m
Other
£m
(1.1)
–
–
(1.1)
1.0
(1.1)
–
(1.2)
(0.9)
–
–
(0.9)
(0.1)
–
–
(1.0)
Unfunded
and DC
Schemes
£m
–
–
(21.2)
(21.2)
(0.1)
–
–
(21.3)
Unfunded
and DC
Schemes
£m
–
–
(20.2)
(20.2)
(0.1)
–
–
Total
£m
(69.0)
(1.3)
(21.2)
(91.5)
(9.4)
(1.4)
7.1
(95.2)
Total
£m
(79.7)
(1.5)
(20.2)
(101.4)
(15.0)
(1.1)
10.8
(20.3)
(106.7)
Current service costs and administration costs are recognised in operating costs and net interest on net pension liability, interest on asset ceiling and
unwinding of franchise adjustment are recognised in net finance costs.
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Note 24 Retirement benefits (continued)
(h) Pension amounts recognised in statement of comprehensive income
The amounts recognised in the consolidated statement of comprehensive income are analysed as follows:
Year ended 29 April 2017
Actual return on scheme assets 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
Year ended 30 April 2016
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
Funded schemes
SPS
£m
147.0
(303.0)
20.3
0.4
–
–
RPS
£m
219.3
(535.3)
26.4
103.7
–
214.7
LGPS
£m
12.3
(65.6)
2.1
33.1
(1.8)
–
(135.3)
28.8
(19.9)
Funded schemes
SPS
£m
(13.2)
37.3
24.4
21.8
–
–
70.3
RPS
£m
42.7
241.7
–
(136.6)
–
(146.2)
LGPS
£m
(10.8)
13.8
0.9
(0.3)
(7.1)
–
1.6
(3.5)
Other
£m
0.5
(1.7)
0.1
0.6
–
–
(0.5)
Other
£m
(0.2)
0.1
–
0.2
–
–
0.1
Unfunded
Schemes
£m
–
(0.7)
–
–
–
–
(0.7)
Unfunded
Schemes
£m
–
–
–
–
–
–
–
Total
£m
379.1
(906.3)
48.9
137.8
(1.8)
214.7
(127.6)
Total
£m
18.5
292.9
25.3
(114.9)
(7.1)
(146.2)
68.5
(i) Benefit obligations
Changes in the present value of the defined benefit obligations (net of franchise adjustments and members’ share of RPS deficit) are analysed as follows.
Other
Unfunded
Schemes
Year ended 29 April 2017
At beginning of year
Current service cost
Interest on benefit obligations
Unwinding of franchise adjustment
Benefits paid
Contributions by employees
Actuarial losses/(gains) due to:
– Changes in demographic assumptions
– Changes in financial assumptions
– Experience on benefit obligations
– Change in franchise adjustment
Foreign exchange movements
Funded schemes
SPS
£m
1,366.5
17.9
49.5
-
(67.4)
0.8
(20.3)
303.0
(0.4)
–
–
RPS
£m
1,389.5
48.9
37.6
(7.1)
(55.7)
5.4
(26.4)
535.3
(103.7)
(214.7)
–
LGPS
£m
299.2
0.8
11.0
–
(16.6)
0.3
(2.1)
65.6
(33.1)
–
–
At end of year
1,649.6
1,609.1
325.1
11.6
Year ended 30 April 2016
At beginning of year
Rail franchise changes
Current service cost
Interest on benefit obligations
Unwinding of franchise adjustment
Benefits paid
Contributions by employees
Actuarial losses/(gains) due to:
– Changes in demographic assumptions
– Changes in financial assumptions
– Experience on benefit obligations
– Change in franchise adjustment
Foreign exchange movements
Funded schemes
SPS
£m
1,431.2
–
20.4
51.7
–
(54.1)
0.8
(24.4)
(37.3)
(21.8)
–
–
RPS
£m
1,314.2
(5.3)
57.3
40.0
(10.8)
(53.9)
6.9
–
(241.7)
136.6
146.2
–
LGPS
£m
314.7
–
1.1
11.4
–
(13.9)
0.3
(0.9)
(13.8)
0.3
–
–
At end of year
1,366.5
1,389.5
299.2
Total
£m
3,067.5
69.0
98.7
(7.1)
(140.0)
6.5
(48.9)
906.3
(137.8)
(214.7)
0.2
3,599.7
Total
£m
3,072.9
(5.3)
79.7
103.6
(10.8)
(123.9)
8.2
(25.3)
(292.9)
114.9
146.2
0.2
£m
3.8
–
0.1
–
(0.3)
–
–
0.7
–
–
–
4.3
£m
4.0
–
–
0.1
–
(0.3)
–
–
–
–
–
–
£m
8.5
1.4
0.5
–
–
–
(0.1)
1.7
(0.6)
–
0.2
£m
8.8
–
0.9
0.4
–
(1.7)
0.2
–
(0.1)
(0.2)
–
0.2
8.5
Other
Unfunded
Schemes
3.8
3,067.5
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Notes to the consolidated financial statements
Note 24 Retirement benefits (continued)
(j) Scheme assets
The movement in the fair value of scheme assets was as follows:
Year ended 29 April 2017
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
Funded schemes
SPS
£m
1,256.3
(0.8)
45.7
16.2
0.8
(67.4)
RPS
£m
1,413.9
(0.5)
31.3
40.5
5.4
(55.7)
147.0
–
219.3
–
LGPS
£m
332.8
–
12.1
7.8
0.3
(16.6)
12.3
–
At end of year
1,397.8
1,654.2
348.7
Year ended 30 April 2016
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
Funded schemes
SPS
£m
1,259.5
(0.9)
45.9
18.3
0.8
(54.1)
RPS
£m
1,338.6
(0.6)
30.0
50.2
6.9
(53.9)
(13.2)
–
42.7
–
LGPS
£m
337.8
–
12.4
7.0
0.3
(13.9)
(10.8)
–
At end of year
1,256.3
1,413.9
332.8
(k) Asset ceiling
The movement in the asset ceiling is shown below:
At beginning of year
Interest expense
Remeasurements
At end of year
(l) Franchise adjustment
The movement in the franchise adjustment is shown below:
At beginning of year
Rail franchise changes
Amounts recognised in income statement:
– Unwinding of franchise adjustment
Remeasurements:
– Change in franchise adjustment
At end of year
page 114 | Stagecoach Group plc
Other
£m
5.7
–
0.2
1.0
–
–
0.5
0.2
7.6
Unfunded
Schemes
£m
–
–
–
0.3
–
(0.3)
–
–
–
Other
Unfunded
Schemes
£m
6.2
–
0.3
0.7
0.2
(1.7)
(0.2)
0.2
5.7
£m
–
–
–
0.3
–
(0.3)
–
–
–
Total
£m
3,008.7
(1.3)
89.3
65.8
6.5
(140.0)
379.1
0.2
3,408.3
Total
£m
2,942.1
(1.5)
88.6
76.5
8.2
(123.9)
18.5
0.2
3,008.7
2017
£m
(37.9)
(1.4)
(1.8)
(41.1)
2017
£m
191.1
–
7.1
214.7
412.9
2016
£m
(29.7)
(1.1)
(7.1)
(37.9)
2016
£m
297.4
29.1
10.8
(146.2)
191.1
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Note 25 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 Financial Reporting Standard 10 (“IFRS 10”), Consolidated
Financial Statements and International Financial Reporting Standard 11 (“IFRS 11”), Joint Arrangements.
– Retirement benefit assets and obligations.
– Financial instruments, contracts and obligations under share based payment transactions.
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:
2017
2016
2017
2016
Carrying value
Carrying value
Fair value
Fair value
Note
£m
£m
£m
£m
Financial assets
Loans and receivables
– Non-current assets
– Other receivables
– Current assets
– Accrued income
– Trade receivables, net of impairment
– Other receivables
– Cash and cash equivalents
Total financial assets
Financial liabilities
Financial liabilities measured at amortised cost
– Non-current liabilities
– Accruals
– Borrowings
– Current liabilities
– Trade payables
– Accruals
– Loan from joint venture
– Loan from non-controlling interest
– Borrowings
Total financial liabilities
Net financial liabilities
18
18
18
18
19
20
21
20
20
20
20
21
0.2
54.0
254.4
39.4
313.3
661.3
–
(693.0)
(270.0)
(436.7)
(1.7)
(5.8)
(40.5)
(1,447.7)
(786.4)
0.2
38.5
234.6
30.8
382.3
686.4
(6.0)
(738.2)
(270.3)
(381.8)
(1.7)
(5.3)
(53.6)
(1,456.9)
(770.5)
0.2
54.0
254.4
39.4
313.3
661.3
–
(737.0)
(270.0)
(436.7)
(1.7)
(5.8)
(40.5)
(1,491.7)
(830.4)
0.2
38.5
234.6
30.8
382.3
686.4
(6.0)
(755.6)
(270.3)
(381.8)
(1.7)
(5.3)
(53.6)
(1,474.3)
(787.9)
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 25(g).
The fair values of financial assets and financial liabilities shown above are determined as follows:
• The carrying value of cash and cash equivalents, 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.
• The carrying value of trade payables, other payables, accruals, loan from non-controlling interest and loan from joint venture 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.
• 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 £26.1m (2016: £37.7m).
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Notes to the consolidated financial statements
Note 25 Financial instruments (continued)
(b) Carrying values of financial assets and financial liabilities (continued)
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 29 April 2017.
Assets
Derivatives used for hedging
Liabilities
Derivatives used for hedging
Note
25(g)
25(g)
Level 2 & Total
£m
14.3
(23.5)
The following table presents the Group’s financial assets and liabilities that are measured at fair value within the hierarchy at 30 April 2016.
Assets
Derivatives used for hedging
Liabilities
Derivatives used for hedging
Note
25(g)
25(g)
Level 2 & Total
£m
6.6
(60.8)
The following table presents the Group’s financial instruments that are not measured at fair value but for which the fair value disclosed in the table on
the previous page differs from book value:
Carrying value
Level 1 & Total
2017
£m
2016
£m
Fair value
Level 1 & Total
2017
£m
2016
£m
(405.2)
(403.8)
(449.2)
(421.2)
Borrowings: fixed-rate notes
(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 29 April 2017. 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 1.6.10 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.
(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.
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Note 25 Financial instruments (continued)
(c) Nature and extent of risks arising from financial instruments (continued)
(i) Market risk (continued)
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 principally 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 (excluding immaterial exposure to Euros) were as follows:
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
2017
£m
243.3
22.9
(224.3)
23.0
2.1
67.0
2016
£m
244.6
25.9
(198.7)
23.6
2.1
97.5
The amounts shown above are the carrying values of all US and Canadian dollar 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 derivatives that are cash flow hedges are excluded.
The sensitivity of the amounts shown above in the Group’s consolidated balance sheet to US and Canadian dollar translation exposures is illustrated
below:
2017
2016
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:
1.2937
1.1643
4.7
1.4231
(3.8)
1.7689
1.5920
2.8
1.9458
(2.3)
1.4649
1.3184
8.0
1.6114
(6.5)
1.8349
1.6514
2.9
2.0184
(2.3)
– 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 25 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 (excluding immaterial exposure to Euros) were as follows:
US dollars
– US$ element of North American operating profit
– Intangible asset expenses
– Redundancy/restructuring costs
– Share of loss of joint ventures (excluding exceptional items)
– Exceptional items
– Net finance costs
– Net tax credit
Canadian dollars
– C$ element of North American operating profit
– Net tax charge
Net exposure
2017
£m
14.9
(1.5)
–
–
7.9
(9.3)
3.6
4.5
(1.5)
18.6
2016
£m
14.0
(1.8)
(0.6)
(0.8)
(37.9)
(9.0)
12.3
4.3
(1.0)
(20.5)
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 adjustment denominated in sterling
Operating profit shown in segmental information
2017
£m
14.9
4.5
(0.1)
19.3
2016
£m
14.0
4.3
0.6
18.9
The sensitivity of the Group’s consolidated income statement to US and Canadian dollar translation 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
– Increase/(decrease) in consolidated profit after taxation (£m)
Impact of 10% appreciation of UK sterling against US dollar
– US dollar foreign exchange rate
– (Decrease)/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:
2017
2016
1.2937
1.1643
1.7
1.4231
(1.4)
1.7036
1.5332
0.3
1.8740
(0.3)
1.5031
1.3528
(2.6)
1.6534
2.2
1.9756
1.7780
0.4
2.1732
(0.3)
– Only those income statement items directly affected by changes in foreign exchange rates are included in the calculation. For example, changes
in the sterling value of 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 25 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 29 April 2017
there were no material net transactional foreign currency exposures (2016: £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 120.
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 29 April 2017, the interest rate profile of the Group’s interest bearing financial liabilities was as follows:
Currency
Sterling
US Dollar
Gross interest bearing financial liabilities
Floating rate
Fixed rate
£m
209.1
61.8
270.9
£m
305.9
162.5
468.4
Total
£m
515.0
224.3
739.3
At 30 April 2016, the interest rate profile of the Group’s interest bearing financial liabilities was as follows:
Currency
Sterling
US Dollar
Gross interest bearing financial liabilities
Floating rate
Fixed rate
£m
192.5
156.9
349.4
£m
405.9
41.8
447.7
Total
£m
598.4
198.7
797.1
Weighted
average fixed
interest rate
Weighted
average period
for which rate
is fixed
%
4.0
3.6
3.9
Years
8.4
4.8
7.2
Weighted
average fixed
interest rate
Weighted
average period
for which rate
is fixed
%
4.0%
2.0%
3.8%
Years
9.4
2.7
8.8
The above figures take into account the effect of US$150m of interest rate derivatives which swapped the US$150m Notes maturing October 2022
from fixed to floating rate debt for a period of four years to December 2016, and £100m of interest rate derivatives which swap £100m of the £400m
Notes maturing September 2025 from fixed to floating rate debt for a period of two years to December 2018.
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 21(a).
The Group’s financial assets on which floating interest is receivable include cash deposits and cash in hand of £313.3m (2016: £382.3m). As at 29 April
2017, the Group had no other financial assets on which fixed interest is receivable (2016: £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 25 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 29 April 2017 consume approximately 411m litres of diesel fuel per
annum. As a result, the Group’s future profit and cash flows are 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 29 April 2017 and 30 April 2016, 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)
– megabus Europe
– UK Bus (London)
– UK Rail
– North America
Total
2017
£m
(64.0)
(9.1)
(14.2)
(17.9)
(105.2)
(0.3)
–
(2.5)
(10.6)
(9.8)
(23.2)
(128.4)
2016
£m
(66.5)
(7.1)
(26.3)
(26.0)
(125.9)
(1.1)
(1.3)
(4.5)
(1.7)
(4.6)
(13.2)
(139.1)
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:
2017
£m
–
–
(0.3)
(1.0)
(1.0)
(2.3)
2016
£m
(0.1)
(0.1)
(0.4)
(0.2)
(0.5)
(1.3)
Costs not subject to fuel swaps:
– UK Bus (regional operations)
– megabus Europe
– UK Bus (London)
– UK Rail
– North America
Decrease in projected profit before taxation
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Note 25 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)
– megabus Europe
– UK Bus (London)
– UK Rail
– North America
Increase in projected profit before taxation
2017
£m
–
–
0.3
1.0
1.0
2.3
2016
£m
0.1
0.1
0.4
0.2
0.5
1.3
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.
Demand for the Group’s services can also be affected by movements in fuel prices due to the impact on the cost of competing transport services,
including private cars.
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.
The movement in the provision for impairment of trade and other receivables is shown in note 18.
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
2017
£m
256.9
93.6
18.6
294.7
663.8
14.3
678.1
2017
£m
(2.5)
–
–
–
(2.5)
–
(2.5)
2017
£m
254.4
93.6
18.6
294.7
661.3
14.3
675.6
Gross
2016
£m
237.1
69.5
18.6
363.7
688.9
6.6
695.5
Impairment
Net exposure
2016
£m
(2.5)
–
–
–
(2.5)
–
(2.5)
2016
£m
234.6
69.5
18.6
363.7
686.4
6.6
693.0
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 25 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 & Europe
North America
The Group’s financial assets by currency are analysed below:
Sterling & Euros
US dollars
Canadian dollars
The amount of financial assets denominated in Euros included in the figures above is immaterial.
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
2017
£m
628.8
46.8
675.6
2017
£m
621.7
51.2
2.7
675.6
2017
£m
10.0
1.2
1.3
0.8
13.3
2016
£m
644.6
48.4
693.0
2016
£m
643.7
46.5
2.8
693.0
2016
£m
4.7
0.8
0.8
2.0
8.3
The Group does not hold any collateral in respect of its credit risk exposures set out above (2016: £Nil) and has not taken possession of any collateral it
holds or called for other credit enhancements during the year ended 30 April 2016 (2016: £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 29 April 2017, the Group’s credit facilities were £1,130.5m (2016: £1,146.6m), £648.3m (2016: £686.5m) of which were utilised, including
utilisation for the issuance of bank guarantees, performance/season ticket bonds and letters of credit.
The Group had the following undrawn committed banking and uncommitted asset finance facilities:
Expiring within one year
Expiring beyond two years
2017
£m
160.3
321.9
482.2
2016
£m
189.9
270.2
460.1
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 has bank lines of credit 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 29 April 2017 are analysed below:
Expiring in
MAIN GROUP FACILITIES
– 2021
– 2020
– 2018
– 2017
LOCAL & SHORT-TERM FACILITIES
– Various
page 122 | Stagecoach Group plc
Facility
£m
480.0
135.0
141.1
89.4
845.5
28.1
873.6
Loans
drawn
£m
(121.8)
–
–
–
(121.8)
–
(121.8)
Performance bonds,
guarantees
etc drawn
£m
Available for
non-cash
utilisation only
£m
Available for
cash
drawings
£m
(44.8)
(126.5)
(122.1)
(80.2)
(373.6)
(13.7)
(387.3)
–
(2.5)
(19.0)
(9.2)
(30.7)
–
(30.7)
313.4
6.0
–
–
319.4
14.4
333.8
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Note 25 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 29 April 2017
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 2016
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
Contractual
cash flows
Less
than 1 year
£m
£m
£m
1-2
years
£m
2-5
years
£m
More
than 5 years
£m
(521.1)
(46.5)
(25.5)
(18.6)
(714.2)
(121.8)
(688.0)
(48.3)
(26.1)
(18.6)
(714.2)
(121.9)
(21.1)
(11.7)
(11.2)
(18.6)
(714.2)
(0.1)
(21.1)
(10.4)
(5.5)
–
–
–
(63.3)
(26.2)
(9.4)
–
–
(121.8)
(582.5)
–
–
–
–
–
(1,447.7)
(1,617.1)
(776.9)
(37.0)
(220.7)
(582.5)
(23.5)
(23.5)
(16.6)
(3.0)
(3.9)
–
(1,471.2)
(1,640.6)
(793.5)
(40.0)
(224.6)
(582.5)
Carrying
amount
Contractual
cash flows
Less
than 1 year
£m
£m
£m
1-2
years
£m
2-5
years
£m
More
than 5 years
£m
(506.1)
(41.8)
(35.0)
(19.3)
(665.1)
(189.6)
(691.5)
(43.5)
(35.9)
(19.3)
(665.1)
(189.8)
(20.5)
(18.5)
(17.2)
(19.3)
(659.1)
(0.2)
(20.5)
(7.4)
(12.0)
–
(6.0)
–
(61.4)
(17.6)
(6.7)
–
–
(189.6)
(589.1)
–
–
–
–
–
(1,456.9)
(1,645.1)
(734.8)
(45.9)
(275.3)
(589.1)
(60.8)
(60.8)
(41.3)
(18.5)
(1.0)
–
(1,517.7)
(1,705.9)
(776.1)
(64.4)
(276.3)
(589.1)
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 value of 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 interest cash flows in respect of interest up to and including the next rollover date are shown and the principal is shown as repayable at the
expiry date of the relevant facility.
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Notes to the consolidated financial statements
Note 25 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 and restricted cash
Included within the cash and cash equivalents balance of £313.3m as at 29 April 2017 (2016: £382.3m) are £18.6m (2016: £18.6m) of cash balances
that have been pledged as collateral for liabilities as follows:
• £18.2m (2016: £18.2m) has been pledged by the Group as collateral for £18.2m (2016: £18.2m) 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.
• £0.4m (2016: £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 29 April 2017 and 30 April 2016.
In addition, cash includes train operating company cash of £219.4m (2016: £283.1m) of which £68.5m (2016: £103.1m) relates to South West Trains
and £28.3m (2016: £18.1m) is cash held by Virgin Trains East Coast that may only be used for innovation projects approved by the UK Department for
Transport. Under the terms of the franchise agreements, other than with the Department for Transport’s consent, train operating companies can only
distribute cash out of retained earnings and only to the extent they do not breach any franchise liquidity ratios.
(f) Defaults and breaches
The Group has not defaulted on any loans payable during the years ended 29 April 2017 and 30 April 2016 and no loans payable were in default as at
29 April 2017 and 30 April 2016. The Group was in compliance with all bank loan covenants as at 29 April 2017 and as at 30 April 2016.
(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
Interest rate derivatives
Fuel derivatives
Non-current liabilities
Fuel derivatives
Total
Interest rate derivatives
Fuel derivatives
Hedging instruments used
– Derivatives (interest rate swaps)
– Derivatives (commodity swaps)
– Foreign currency borrowings
2017
£m
2.0
5.0
7.0
1.2
6.1
7.3
(0.7)
(15.9)
(16.6)
(6.9)
2.5
(11.7)
(9.2)
2016
£m
1.8
3.8
5.6
–
1.0
1.0
(1.1)
(40.2)
(41.3)
(19.5)
0.7
(54.9)
(54.2)
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 29 April 2017 (2016: None) which were separately accounted for.
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Note 25 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:
2017
Fuel derivatives
Fair value at start of year
Changes in fair value during year taken to cash flow hedging reserve
Cash paid during the year
Fair value at end of year
The fair value of the fuel derivatives split by maturity was as follows:
As at 29 April 2017
Within one year
1 to 2 years
2 to 3 years
More than 3 years
As at 30 April 2016
Within one year
1 to 2 years
2 to 3 years
More than 3 years
The fair value of fuel derivatives is further analysed by currency and segment as follows:
As at 29 April 2017
Sterling denominated – UK Bus (regional operations)
Sterling denominated – UK Bus (London)
Sterling denominated – UK Rail
US dollar denominated – North America
As at 30 April 2016
Sterling denominated – UK Bus (regional operations)
Sterling denominated – UK Bus (London)
Sterling denominated – UK Rail
US dollar denominated – North America
£m
(54.9)
17.6
25.6
(11.7)
2016
£m
(37.2)
(82.8)
65.1
(54.9)
Assets
Liabilities
£m
6.1
5.0
–
–
11.1
1.0
2.9
0.9
–
4.8
£m
(15.9)
(3.0)
(3.8)
(0.1)
(22.8)
(40.2)
(18.5)
(0.8)
(0.2)
(59.7)
Notional quantity
of fuel covered
by derivatives
Fair value
£m
Millions of litres
(6.6)
(1.2)
(1.1)
(2.8)
(11.7)
(34.1)
(4.5)
(5.6)
(10.7)
(54.9)
624.2
81.2
164.0
125.4
994.8
634.1
63.4
183.1
152.4
1,033.0
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. In addition, during the year ended 30 April 2015,
the Group entered into a number of interest rate derivatives as cash flow hedges of the Group’s exposure to floating interest rates to December 2016. In
September 2015, following the issue of the Group’s £400m sterling notes, these sterling-denominated interest rate derivatives were subsequently
cancelled. The Group entered into new interest rate derivatives as fair value hedges of the Group’s exposure to fixed interest rates from December 2016
on expiry of the existing US dollar-denominated fair value hedges.
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
Changes in fair value during the year taken to cash flow hedging reserve
Interest income on fair value hedges
Cash paid/(received) during the year
Fair value at end of year
2017
£m
–
–
–
–
–
–
2016
£m
(0.6)
–
(1.4)
–
2.0
–
2017
£m
0.7
0.6
–
0.3
0.9
2.5
2016
£m
(0.1)
0.8
–
0.3
(0.3)
0.7
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Notes to the consolidated financial statements
Note 25 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 29 April 2017 was as follows:
Nil
Ni
Nil
Nil
Nil
Ni
Nil
As at 29 April 2017
Within one year
1 to 2 years
Nil
Nil
Nil
The fair value of the interest rate derivatives split by maturity as at 30 April 2016 was as follows:
As at 30 April 2016
Within one year
1 to 2 years
2 to 3 years
Nil
Nil
Nil
Nil
All of the interest rate derivatives were managed and held centrally.
Cash flow hedging reserve
The movements in the cash flow hedging reserve were as follows:
Cash flow hedging reserve at 30 April 2015
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 2016
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 29 April 2017
Cash flow hedging reserve before tax
Tax to be credited to income statement in future periods
Cash flow hedging reserve after tax
Assets
£m
1.2
2.0
3.2
Assets
£m
–
0.5
1.3
1.8
Liabilities
£m
(0.7)
–
(0.7)
Liabilities
£m
(1.1)
–
–
(1.1)
Total
£m
(26.8)
(84.2)
67.8
2.9
(40.3)
17.6
21.0
(7.3)
(9.0)
(11.2)
2.2
(9.0)
Interest
derivatives
Fuel
derivatives
£m
(0.5)
(1.4)
2.0
(0.1)
–
–
–
–
–
–
–
–
£m
(26.3)
(82.8)
65.8
3.0
(40.3)
17.6
21.0
(7.3)
(9.0)
(11.2)
2.2
(9.0)
During the year ended 30 April 2015, the Group entered into interest rate derivatives as cash flow hedges. These derivatives were intended to hedge
against the variability of forecast future floating-rate interest payments on debt from December 2016. In September 2015, the Group issued £400m of
new fixed-rate bonds to re-finance the previous £400m of fixed-rate bonds that were due to mature in December 2016. Following that issue of new
bonds, the forecast floating-rate interest payments were no longer expected to occur because fixed-rate debt had been issued rather than the
previously anticipated floating-rate debt. The derivatives were cancelled following the new bond issue.
There have been no other instances during the year ended 29 April 2017 (2016: 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 29 April 2017 is explained on page 87.
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
Changes in fair value during the year
Fair value at end of year
US$ bank loans
Fair value at start of year
Changes in fair value during the year
Fair value at end of year
2017
£m
102.4
13.5
115.9
54.6
7.2
61.8
2016
£m
97.6
4.8
102.4
52.1
2.5
54.6
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 26 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
At beginning and end of year
2017
2016
No. of shares
576,099,960
£m
3.2
No. of shares
£m
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
2,467,204 (2016: 1,885,887) 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 29 April 2017, the QUEST held no (2016: 300,634) ordinary shares in the Company and the EBT held no (2016: none) ordinary shares in
the Company. The trusts have waived dividends on the shares they hold and therefore received no dividends during the year ended 29 April 2017
(2016: £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 27 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 8 of this Annual Report gives further details of each of these arrangements.
As disclosed in note 6, share based payment charges of £2.8m (2016: £2.8m) 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
2013
December
2013
June
2014
December
2014
June
2015
December
2015
June
2016
December
2016
Share price at time of grant/award (£)
3.1595
3.7200
3.8000
3.7920
4.1700
3.0470
2.2650
2.1100
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
*Ignoring non-market vesting conditions.
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
2.94%
2.50%
2.70%
2.71%
2.72%
3.72%
5.44%
5.84%
0.90
1.06
2.60*
2.59*
2.85*
2.08*
1.55*
1.44*
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 27 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 29 April 2017 were as follows:
Award date
27 June 2013
12 Dec 2013
26 June 2014
11 Dec 2014
25 June 2015
10 Dec 2015
30 June 2016
8 Dec 2016
Outstanding
at start of year
(Incentive Units)
Awards granted
in year
(Incentive Units)
Lapsed
in year
(Incentive Units)
Dividends
in year
(Incentive Units)
Outstanding
at end of year
(Incentive Units)
Fair value per
LTIP unit at
grant
£
Fair value per
LTIP unit at
29 April 2017
£
TSR ranking
at
29 April 2017**
869,920
722,837
776,088
766,471
745,474
1,074,206
–
–
–
–
–
–
–
–
1,565,751
1,718,354
(869,920)
(750,034)
(87,104)
(85,747)
(78,803)
(104,635)
(215,198)
(222,629)
–
27,197
44,279
43,728
42,534
51,284
88,001
30,790
–
–
733,263
724,452
709,205
1,020,855
1,438,554
1,526,515
0.8987
1.0574
2.5999*
2.5945*
2.8531*
2.0847*
1.5497*
1.4437*
–
–
1.1671*
1.1417*
1.1434*
1.1166*
1.1283*
1.2517*
–
–
204
217
216
233
225
172
4,954,996
3,284,105
(2,414,070)
327,813
6,152,844
Vesting date
29 June 2016
12 Dec 2016
28 June 2017
11 Dec 2017
25 Jun 2018
10 Dec 2018
30 Jun 2019
8 Dec 2019
*Ignoring non-market based vesting conditions.
**TSR ranking is based on the Group’s ranking of total shareholder return in the FTSE 250 whereby 1 is top 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 were as follows:
Award date
27 June 2013
26 June 2014
25 June 2015
10 Dec 2015
30 June 2016
Outstanding
at start of year
Awards granted
in year
(Deferred Shares) (Deferred Shares) (Deferred Shares)
Vested
in year
Lapsed
in year
(Deferred Shares)
Dividends
in year
(Deferred Shares)
Outstanding
at end of year
(Deferred Shares)
748,792
679,739
522,096
26,597
–
1,977,224
–
–
–
–
1,203,239
1,203,239
(741,166)
–
–
–
–
(741,166)
(7,626)
(87,108)
(61,670)
–
(122,138)
(278,542)
–
37,092
28,328
1,516
66,298
133,234
–
629,723
488,754
28,113
1,147,399
2,293,989
Expected total
value of award at
time of grant
£
Closing
share price on
date of grant
£
2,289,350
2,497,467
2,165,756
79,993
2,725,336
3.1600
3.8100
4.1960
2.9800
2.3110
Vesting date
29 June 2016
28 June 2017
25 June 2018
10 Dec 2018
30 June 2019
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 29 April 2017 there were 8,645 (2016: 9,578) participants in the BAYE scheme to which were attributed 7,387,315 (2016: 5,848,847) shares that
they purchased, 2,328,648 (2016: 1,831,550) matching shares that the Company contributed and 868,247 shares (2016: 458,081) 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.
Note 28 Reserves
A reconciliation of the movements in each reserve is shown in the consolidated statement of changes in equity on page 77.
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 (2016: £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 26. 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.
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Note 29 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
Intangible asset expenses
Depreciation
Exceptional items
EBITDA of Group companies before exceptional items
Cash effect of exceptional items
(Gain)/loss on disposal of property, plant and equipment
Equity-settled share based payment expense
Operating cashflows before working capital movements
Decrease/(increase) in inventories
Increase in receivables
Increase/(decrease) 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 and cash equivalents reconciles to the movement in net debt as follows:
Decrease in cash and cash equivalents
Cash flow from movement in borrowings
New hire purchase and finance leases
Foreign exchange movements
Other movements
Increase in net debt
Opening net debt (as defined in note 34)
Closing net debt (as defined in note 34)
(c) Analysis of net debt
2017
£m
21.1
16.8
145.5
128.7
312.1
(3.7)
(4.3)
1.9
306.0
2.7
(59.8)
1.6
(2.7)
4.5
252.3
2017
£m
(72.3)
133.5
61.2
(47.8)
(22.7)
(0.8)
(10.1)
(399.3)
(409.4)
2016
£m
182.2
15.8
132.2
6.0
336.2
–
0.5
2.2
338.9
(0.5)
(11.2)
(12.0)
(16.2)
4.7
303.7
2016
£m
(14.8)
50.4
35.6
(22.3)
(7.6)
(23.7)
(18.0)
(381.3)
(399.3)
For the purpose of this note, net debt is as defined in note 34. The analysis below further shows the other items classified as net borrowings in the
consolidated balance sheet.
Cash
Cash collateral (see note 25(e))
Hire purchase and finance lease
obligations
Bank loans and loan notes
Bonds
Net debt
Accrued interest on bonds
Effect of fair value hedges on carrying value of borrowings
Opening
Cashflows
£m
£m
363.7
18.6
(72.3)
–
(76.8)
(208.9)
(495.9)
(399.3)
(9.5)
(0.7)
58.1
75.4
–
61.2
21.3
–
New hire
purchase/
Foreign
exchange
finance leases movements
Other/
Charged to
income
statement
£m
–
–
(47.8)
–
–
(47.8)
–
–
£m
3.3
–
(5.5)
(6.9)
(13.6)
(22.7)
(0.2)
–
£m
–
–
–
–
(0.8)
(0.8)
(21.1)
(0.6)
Closing
£m
294.7
18.6
(72.0)
(140.4)
(510.3)
(409.4)
(9.5)
(1.3)
Net borrowings (IFRS)
(409.5)
82.5
(47.8)
(22.9)
(22.5)
(420.2)
The cash amounts shown above include term deposits as explained in note 19 and cash held by train operating companies as explained in notes 25(e)
and 30(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 the
inception of the contracts of £56.6m (2016: £22.3m). After taking account of deposits paid up front and other financing transactions, new hire
purchase and finance lease liabilities of £47.8m (2016: £22.3m) were recognised.
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Notes to the consolidated financial statements
Note 30 Contingencies
Contingent liabilities
(i) At 29 April 2017, the following bonds and bank guarantees were in place relating to the Group’s rail operations:
Performance bonds backed by bank facilities and/or insurance arrangements
– South West Trains
– East Midlands Trains
– Virgin Trains East Coast
Season ticket bonds backed by bank facilities and/or insurance arrangements
– South West Trains
– East Midlands Trains
– Virgin Trains East Coast
Shareholder loan commitment backed by bank facilities
– Virgin Trains East Coast
These contingent liabilities are not expected to crystallise.
2017
£m
40.3
15.0
20.0
60.2
7.1
4.8
82.5
2016
£m
40.2
15.0
20.0
60.5
6.6
4.6
82.5
(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 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 Department for
Transport 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 has recorded a provision for an onerous contract in respect of its Virgin Trains East Coast franchise.
The Group assessed whether a provision for onerous contracts is required in respect of its other rail franchises. The Group has determined that no
provision is necessary. The estimation of future financial performance 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.
Under certain circumstances following a breach by the Group of one or more of its rail franchise agreements, the Department for Transport has the
right to terminate the relevant franchises. Where the Group has defaulted on one franchise, the Department for Transport has cross-default rights in
certain circumstances that might enable it (but not require it) to terminate another 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 Department for Transport sought
to call. As at 29 April 2017, the capital at risk of the Group in this respect was:
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 29 April 2017
Cash
Cash in train operating companies
Pro forma impact on net debt
Virgin Trains
East Coast
South West
Trains
East Midlands
Trains
£m
–
4.8
20.0
6.6
107.5
138.9
60.7
199.6
£m
68.2
60.2
40.3
–
20.0
188.7
68.5
257.2
£m
–
7.1
15.0
3.0
31.8
56.9
90.2
147.1
Total
£m
68.2
72.1
75.3
9.6
159.3
384.5
219.4
603.9
To the extent that any of the above contingent liabilities in respect of Virgin Trains East Coast crystallise the Group is contractually entitled to recover
10% of any such payment from Virgin Holdings Limited. The Group has credit exposure to Virgin Holdings Limited in this regard.
Other than in respect of the undrawn committed loan facility for Virgin Trains East Coast, we consider the likelihood of the contingent liabilities
crystallising as being low. However, if all of the contingent liabilities had crystallised and the franchises terminated at 29 April 2017, the Group would
have needed to have financed £384.5m (2016: £419.3m) and, subject to any amounts it recovered from Virgin Holdings Limited, 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.
Under the terms of the franchise agreements, other than with the UK Department for Transport’s consent, train operating companies can only distribute
cash out of retained earnings and only to the extent they do not breach the financial covenants specified in applicable contracts.
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Note 30 Contingencies (continued)
Contingent liabilities (continued)
(iv) 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 in 2012. The litigation alleged that the formation of the Twin America joint venture in 2009 was anti-competitive. A
settlement was agreed with the US Department of Justice and the New York Attorney General’s office, and has received court approval.
Related to the Twin America litigation involving the Group's North America Division, which we have set out in previous reports and which as noted in
our annual report for the year ended 30 April 2016 was settled, the Department of Justice investigated the conduct of company personnel in
responding to discovery obligations in the investigation and litigation. The Group co-operated with the investigation, which is no longer ongoing, and
we do not anticipate any further 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
29 April 2017, the accruals in the consolidated financial statements for such claims total £0.6m (2016: £0.1m) 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 23) are subject to or might become subject to litigation against the Group and/or the Company.
Note 31 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
(b) Operating lease commitments
2017
£m
115.2
The following were the future minimum contractual lease payments due under unexpired operating leases as at 29 April 2017:
As at 29 April 2017
Land &
buildings
Buses & other
road transportation
equipment
Trains &
rolling stock
Plant &
machinery
Lease payments due in respect of:
Year ending 28 April 2018
Year ending 27 April 2019
Year ending 2 May 2020
Year ending 1 May 2021
Year ending 30 April 2022
1 May 2022 and thereafter
£m
17.7
14.2
12.0
10.3
10.0
31.1
95.3
£m
19.5
16.9
11.3
7.0
2.2
0.1
57.0
£m
109.8
122.3
288.7
329.3
329.1
309.5
£m
7.7
6.0
4.9
4.3
4.0
3.6
The following were the future minimum contractual lease payments due under unexpired operating leases as at 30 April 2016:
As at 30 April 2016
Land &
buildings
Buses & other
road transportation
equipment
Trains &
rolling stock
Plant &
machinery
Lease payments due in respect of:
Year ending 30 April 2017
Year ending 30 April 2018
Year ending 30 April 2019
Year ending 30 April 2020
Year ending 30 April 2021
1 May 2021 and thereafter
£m
19.7
14.3
11.3
9.3
8.8
30.4
93.8
£m
17.2
12.9
11.0
6.1
2.3
0.1
49.6
£m
237.0
112.2
122.5
296.5
329.2
638.6
£m
5.9
4.9
3.2
2.2
1.8
3.2
2016
£m
141.7
Total
£m
154.7
159.4
316.9
350.9
345.3
344.3
Total
£m
279.8
144.3
148.0
314.1
342.1
672.3
1,488.7
30.5
1,671.5
1,736.0
21.2
1,900.6
The amounts shown above do not include Network Rail charges, which are shown separately in note 31(c).
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Notes to the consolidated financial statements
Note 31 Guarantees and other financial commitments (continued)
(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). Commitments for
payments, until the expected end of the franchises or the end of the current Network Rail regulatory control period, if earlier, under these contracts as
at 29 April 2017 are as shown below.
.
Year ending 28 April 2018
Year ending 27 April 2019
Commitments for payments under these contracts as at 30 April 2016 were as follows:
Year ending 30 April 2017
Year ending 30 April 2018
Year ending 30 April 2019
(d) Joint ventures
2017
£m
47.3
53.7
101.0
2016
£m
88.2
46.4
51.0
185.6
Our share of commitments and contingent liabilities in joint ventures shown below is based on the latest statutory financial statements of the relevant
companies:
Annual commitments under non-cancellable operating leases
Franchise performance bonds
Season ticket bonds
2017
£m
65.8
10.3
3.0
2016
£m
71.3
10.3
2.9
Note 32 Related party transactions
Details of major related party transactions during the year ended 29 April 2017 are provided below, except for those relating to the remuneration of
the Directors and management.
(i)
Virgin Rail Group Holdings Limited
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
29 April 2017, the Group earned fees of £60,000 (2016: £60,000) from Virgin Rail Group Holdings Limited in this regard. As at 29 April 2017, the Group
had £60,000 (2016: £60,000) receivable from Virgin Rail Group Holdings Limited in respect of this. In addition, the Group net purchased £Nil (2016:
£0.2m) from the group headed by Virgin Rail Group Holdings Limited, principally in respect of work undertaken on rail franchise bids, and had an
outstanding receivable of £Nil as at 29 April 2017 (2016: £Nil) in this respect.
(ii) West Coast Trains Limited
West Coast Trains Limited is a subsidiary of Virgin Rail Group Holdings Limited (see note 32(i)). In the year ended 29 April 2017, East Midlands Trains
Limited (a subsidiary of the Group) had purchases totalling £0.2m (2016: £0.2m) from West Coast Trains Limited, and sales to West Coast Trains
Limited were immaterial (2016: £0.3m). The outstanding amounts payable as at 29 April 2017 and 30 April 2016 were immaterial.
During the year ended 29 April 2017, South West Trains Limited (a subsidiary of the Group) sold services of £0.3m (2016: £Nil) to West Coast Trains Limited
and as at year-end had £Nil receivable in respect of this (2016: £Nil).
(iii) Alexander Dennis Limited
Sir Brian Souter (Chairman) and Ann Gloag (Non-Executive Director) collectively hold, via companies that they control, 55.1% (2016: 55.1%) 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% (2016: 33.2%) 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 29 April 2017, the Group purchased £75.2m (2016: £75.4m) of vehicles from Alexander Dennis Limited and £9.4m (2016: £9.8m) of
spare parts and other services. As at 29 April 2017, the Group had £0.5m (2016: £1.0m) payable to Alexander Dennis Limited, along with outstanding
orders of £56.7m (2016: £96.0m).
(iv) Pension Schemes
Details of contributions made to pension schemes are contained in note 24.
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Note 32 Related party transactions (continued)
(v) Scottish Citylink Coaches Limited
A non interest bearing loan of £1.7m (2016: £1.7m) was due to the Group’s joint venture, Scottish Citylink Coaches Limited, as at 29 April 2017. The Group
earned £18.2m in the year ended 29 April 2017 in respect of the operation of services subcontracted by Scottish Citylink Coaches Limited (2016: £22.0m).
The Group also collected revenue of £19.3m on behalf of Scottish Citylink Coaches Limited in the year ended 29 April 2017 (2016: £18.6m). As at 29 April
2017, the Group had a net £1.6m (2016: £0.5m) receivable from Scottish Citylink Coaches Limited, excluding the loan referred to above.
(vi) Twin America LLC
In the period from 1 May 2016 to 15 February 2017 (the date the Group disposed of its interest in Twin America LLC), the Group’s joint venture, Twin
America LLC, sold travel of £2.3m (year ended 30 April 2016: £2.4m) for tour services operated by the Group. The commission received by Twin
America from the Group was not material. As at 29 April 2017, the Group had £Nil (30 April 2016: £0.2m) receivable from Twin America LLC in this
regard.
(vii) East Coast Main Line Company Limited
The Group owns 90% and Virgin Holdings Limited owns 10% of the ordinary shares in Inter City Railways Limited. East Coast Main Line Company
Limited is 100% owned by Inter City Railways Limited and enters into various arm’s length transactions with other Group companies. In the year ended
29 April 2017, other Group companies earned £19.2m (2016: £16.3m) from East Coast Main Line Company Limited in respect of the provision of
certain services including train maintenance and rail replacement bus services. Other Group companies had a net payable to East Coast Main Line
Company Limited of £4.5m as at 29 April 2017 (2016: £0.8m), which principally relates to VAT payments.
The ultimate parent company of the Group, Stagecoach Group plc, had an outstanding receivable of £57.5m as at 29 April 2017 (2016: £52.5m) in
respect of loans to East Coast Main Line Company Limited. The interest receivable for the year ended 29 April 2017 was £1.8m (2016: £1.2m) and the
accrued interest outstanding as at 29 April 2017 was £1.5m (2016: £0.3m). Related to that, the Group had an outstanding payable of £5.8m (2016:
£5.3m) in respect of a loan from Virgin Holdings Limited and accrued interest outstanding of £0.1m (2016: £0.1m).
In addition, in the year ended 29 April 2017, East Coast Main Line Company Limited purchased services amounting to £Nil (2016: £2.2m) from Virgin
Holdings Limited. The Group had a payable balance of £Nil to Virgin Holdings Limited at 29 April 2017 in this respect (2016: £Nil).
Note 33 Post balance sheet events
Details of the final dividend proposed are given in note 8.
Note 34 Definitions
(a) Alternative performance measures
The Group uses a number of alternative performance measures in this document to help explain the financial performance and financial position of the
Group. More information on the definition of these alternative performance measures and how they are calculated is provided below. All of the
alternative performance measures explained below have been calculated consistently for the year ended 29 April 2017 and for comparative amounts
shown in this document for prior years.
Adjusted earnings per share
Adjusted earnings per share is calculated by dividing profit attributable to equity holders of the parent, excluding intangible asset expenses and
exceptional items, by the basic weighted average number of shares in issue in the period.
For the year ended 29 April 2017 and the comparative prior year, the numerators for the calculations (i.e. the adjusted profit) are shown clearly on the
face of the consolidated income statement in the columns headed “performance pre intangibles and exceptional items”. The denominators for the
calculations (i.e. the weighted average number of shares in issue) and further details of the calculations are shown in note 9 to the consolidated
financial statements.
Like-for-like amounts
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. Where the number of days differs
between the current and prior year periods, the prior year amount is normalised for this when calculating like-for-like amounts.
Like-for-like revenue growth for the year ended 29 April 2017 is calculated by comparing the revenue for the current and comparative years, each
adjusted as described above. The revenue of each segment is shown in note 2(a) to the financial statements. The reconciliation to the adjusted
revenue figures for the purposes of calculating like-for-like revenue growth is shown below:
Year ended 29 April 2017
UK Bus (regional operations)
megabus Europe
UK Bus (London)
North America
UK Rail
Year ended 30 April 2016
UK Bus (regional operations)
megabus Europe
UK Bus (London)
North America
UK Rail
Reported
revenue
1,015.7
20.2
263.4
632.3
2,160.7
Reported
revenue
1,032.8
18.4
267.1
647.7
2,129.1
£m
£m
£m
US$m
£m
£m
£m
£m
US$m
£m
Exclude
effect of
businesses
acquired
(7.4)
–
–
–
–
Exclude
effect of
businesses
acquired
(3.5)
–
–
–
–
Exclude effect
of foreign
exchange
–
–
–
0.3
–
Normalisation
for number of
days in year
(5.6)
–
(1.5)
(1.5)
(11.1)
Like-for-like
revenue
1,008.3
20.2
263.4
632.6
2,160.7
Like-for-like
revenue
1,023.7
18.4
265.6
646.2
2,118.0
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Notes to the consolidated financial statements
Note 34 Definitions (continued)
(a) Alternative performance measures (continued)
Operating profit (or loss)
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. The operating profit (or loss) for each segment is directly identifiable
from note 2(b) of the financial statements.
Operating margin
Operating margin for a particular business unit or division within the Group means operating profit (or loss) as a percentage of revenue. The revenue
and operating profit (or loss) for each segment is directly identifiable from notes 2(a) and 2(b) of the financial statements. The revenue, operating
profit (or loss) and operating margin (being operating profit (or loss) as a percentage of revenue) for each segment are also shown on page 2 of this
Annual Report.
Pre-exceptional EBITDA
Pre-exceptional EBITDA is earnings before interest, taxation, depreciation, intangible asset expenses and exceptional items.
A reconciliation of pre-exceptional EBITDA for the year ended 29 April 2017, and the comparative prior year, to the financial statements is shown in
section 1.6.1.
EBITDA from Group companies before exceptional items
EBITDA from Group companies before exceptional items is earnings before interest, taxation, depreciation, intangible asset expenses and exceptional
items from Group companies (i.e. the parent company and all of its subsidiaries consolidated but excluding share of profit/(loss) from joint ventures).
EBITDA from Group companies before exceptional items is directly identifiable from note 29(a) of the financial statements.
Pre-exceptional net finance charges
Pre-exceptional net finance charges are finance costs (excluding exceptional items) less finance income, each as shown on the face of the consolidated
income statement.
Gross debt
Gross debt is borrowings as reported on the consolidated balance sheet, adjusted to exclude accrued interest and the effect of fair value hedges on the
carrying value of borrowings.
The components of gross debt are shown in note 29(c) of the financial statements, which also reconciles net debt to the net borrowings (cash less
borrowings) shown on the face of the balance sheet.
Net debt
Net debt (or net funds) is the net of cash/cash equivalents and gross debt (see above).
The components of net debt are shown in note 29(c) to the financial statements, which also reconciles net debt to the net borrowings (cash less
borrowings) shown on the face of the balance sheet.
Net capital expenditure
Net capital expenditure is the impact of purchases and sales of property, plant and equipment. Its reconciliation to the consolidated financial
statements is explained in section 1.6.6 of this Annual Report.
(b) Other definition
The following other definition is also used in this document:
Exceptional items
Exceptional items means items which individually or, if of a similar type, in aggregate, need to be separately disclosed by virtue of their nature, size or
incidence in order to allow a proper understanding of the underlying financial performance of the Group.
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12. Separate Financial Statements of the parent company,
Stagecoach Group plc
Company balance sheet
As at 29 April 2017
ASSETS:
Non-current assets
Intangible assets
Property, plant and equipment
Investments
Derivative instruments at fair value
Current assets
Other receivables
Deferred tax asset
Derivative instruments at fair value
Cash and cash equivalents
Total assets
LIABILITIES:
Current liabilities
Trade and other payables
Derivative instruments at fair value
Non-current liabilities
Other payables
Derivative instruments at fair value
Retirement benefit obligations
Total liabilities
Net assets
EQUITY:
Ordinary share capital
Share premium account
Retained earnings
Capital redemption reserve
Own shares
Total equity
Notes
2
3
4
8
5
7
8
6
8
6
8
9
10
11
11
11
11
2017
£m
0.2
0.1
1,035.1
7.0
1,042.4
581.8
1.2
4.1
35.5
622.6
2016
£m
0.3
0.1
1,197.7
4.5
1,202.6
659.2
0.9
0.7
18.1
678.9
1,665.0
1,881.5
(309.3)
(16.7)
(326.0)
(642.9)
(6.9)
(7.1)
(656.9)
(982.9)
682.1
3.2
8.4
284.7
422.8
(37.0)
682.1
(350.3)
(38.5)
(388.8)
(695.7)
(19.5)
(5.1)
(720.3)
(1,109.1)
772.4
3.2
8.4
372.3
422.8
(34.3)
772.4
In accordance with the concession granted under section 408 of the Companies Act 2006, the income statement and statement of comprehensive
income of the Company has not been separately presented in these financial statements. The loss of the Company was £22.4m (2016: £86.0m).
These financial statements were approved for issue by the Board of Directors on 28 June 2017. The accompanying notes form an integral part of this
balance sheet.
Martin A Griffiths
Chief Executive
Ross Paterson
Finance Director
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Company statement of changes in equity
Ordinary
share
capital
Share
premium
account
Retained
earnings
Capital
redemption
reserve
Balance at 30 April 2015
Loss for the year and total comprehensive expense
Own ordinary shares purchased
Credit in relation to equity-settled share based payments
Dividends paid on ordinary shares
£m
3.2
–
–
–
–
£m
8.4
–
–
–
–
Own
shares
£m
£m
£m
518.1
(86.0)
–
2.2
(62.0)
422.8
(32.1)
–
–
–
–
–
(2.2)
–
–
Total
equity
£m
920.4
(86.0)
(2.2)
2.2
(62.0)
Balance at 30 April 2016
3.2
8.4
372.3
422.8
(34.3)
772.4
Loss for the year and total comprehensive expense
Own ordinary shares purchased
Credit in relation to equity-settled share based payments
Dividends paid on ordinary shares
–
–
–
–
–
–
–
–
(22.4)
–
1.9
(67.1)
–
–
–
–
–
(2.7)
–
–
(22.4)
(2.7)
1.9
(67.1)
Balance at 29 April 2017
3.2
8.4
284.7
422.8
(37.0)
682.1
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Notes to the Company financial statements
Note 1
Parent company accounting policies
These financial statements are presented in respect of Stagecoach Group plc. Stagecoach Group plc is a public limited liability company limited by shares.
It is incorporated, domiciled and has its registered office in Scotland. Its registered number is 100764 and its registered address is 10 Dunkeld Road,
Perth, Perthshire, PH1 5TW.
The Company financial statements are prepared in accordance with Financial Reporting Standard 101 “Reduced DIsclosure Framework” (“FRS 101”). The
Company transitioned from UK Generally Accepted Accounting Practice (“UK GAAP”) to FRS101 for the year ended 30 April 2016. The transition from UK
GAAP is not considered to have resulted in any material restatements. Full details of the transition are shown in note 15.
Basis of preparation
•
These financial statements have been prepared on a going concern basis and under the historical cost accounting convention, as modified by the
revaluation of certain financial assets and financial liabilities (including derivative financial instruments) at fair value, in accordance with the Companies
Act 2006.
The Company has taken advantage of the legal dispensation contained in Section 408 of the Companies Act 2006 allowing it not to publish a separate
income statement and related notes. The Company has also taken advantage of the legal dispensation contained in Section 408 of the Companies Act
2006 allowing it not to publish a separate statement of other comprehensive income. The following exemptions from the requirements of IFRS have been
applied in the preparation of these financial statements, in accordance with FRS 101:
• Paragraphs 45(b) and 46-52 of IFRS 2, ‘Share-based payment’
• IFRS 7, ‘Financial Instruments: Disclosures’
• Paragraphs 10(d), 10(f) and 134-136 of IAS 1 ‘Presentation of financial statements’
• IAS 7, ‘Statement of cash flows’
• Paragraphs 30 and 31 of IAS 8 ‘Accounting policies, changes in accounting estimates and errors’
• Paragraph 17 of IAS 24, ‘Related party disclosures’
• The requirements in IAS 24, ‘Related party disclosures’ to disclose related party transactions entered into between two or more members of a
group
Intangible assets
•
Intangible assets, consisting of software, are shown at their original historic cost net of amortisation 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.
Amortisation is charged on a straight-line basis over their estimated useful economic lives, typically between 2 to 5 years.
The need for any impairment write-down is assessed by comparing the carrying value of the asset against the higher of net realisable value and value in
use.
Property, plant and equipment
•
Property, plant and equipment 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
3 to 10 years
3 to 5 years
The need for any impairment is assessed by comparing the carrying value of the asset against the higher of net realisable value and value in use.
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 with in the income statement.
•
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.
•
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 income statement.
For the principal rates of exchange used see the Group accounting policies on page 83.
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Notes to the Company financial statements
Note 1
Parent company accounting policies (continued)
Share based payments
•
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 income statement to the extent that the amount is not
recharged to each subsidiary 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 Company’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. At each balance sheet date, the
liability recognised is based on the fair value of outstanding awards (ignoring non-market based vesting conditions) at the balance sheet date, the period
that fell prior to the balance sheet date and management’s estimate of the likelihood and extent of non-market based vesting conditions being achieved.
Changes in the carrying amount of the liability are recognised in the income statement for the period. Fair value for cash-settled share based payments
relating to the Long Term Incentive Plan is estimated by use of a simulation model.
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).
The Company can choose to settle awards under the Executive Participation Plan in either cash or equity, although it currently expects to settle all such
awards in equity. The awards under the Plan can also be structured as deferred shares or share options with a zero exercise price. The Company
intends the awards to operate in substance as deferred shares such that, subject to fulfilling the service condition, each participant receives actual
shares on the applicable vesting date. Awards under the Executive Participation Plan are accounted for as equity-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.
Financial instruments
•
Financial instruments are accounted for in accordance with IAS 32 “Financial Instruments: Presentation”, IAS 39 “Financial instruments: Recognition
and measurement”, and IFRS 7 “Financial instruments: Disclosures” which is the same as the accounting policy for the Group. Therefore, for details of
the Company’s accounting policy for financial instruments refer to pages 85 to 87.
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 are accounted in the Company financial statements at fair value through profit or loss.
Investment in own shares
•
Own shares held by the Group’s Employee Benefit Trust and Qualifying Employee Share Ownership Trust are treated as deductions from equity in the
Company’s financial statements. Shares held in treasury by the Company have also been classified as deductions from equity.
•
Interest bearing loans and borrowings
Borrowings are recognised initially as 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
income statement over the period of the borrowings. The carrying value of borrowings takes account of accrued interest, issue costs and the effect of
fair value hedges.
Retirement benefit obligations
•
The Company has no employees and is therefore not liable for a share in any of the Group defined benefit schemes that are disclosed in note 24 to the
consolidated financial statements. It does have unfunded liabilities in respect of former employees and these are reflected in the balance sheet.
Note 2
Intangible assets
The movements in intangible assets were as follows:
Cost
At beginning and end of year
Accumulated amortisation
At beginning of year
Amortisation charged to income statement
At end of year
Net book value at beginning of year
Net book value at end of year
page 138 | Stagecoach Group plc
2017
£m
0.7
(0.4)
(0.1)
(0.5)
0.3
0.2
145376 STC Back PRINT_CIO_145376 STC_Back V13 06/07/2017 17:33 Page 139
Note 3
Property, plant and equipment
The movements in property, plant and equipment were as follows:
Cost
At beginning of year
Additions
At end of year
Depreciation
At beginning of year
Depreciation charged to income statement
At end of year
Net book value at beginning of year
Net book value at end of year
Note 4
Investments
The movements in investments were as follows:
Cost and net book value
At beginning of year
Disposals
Additions
Foreign exchange movements
At end of year
Note 5
Other receivables
Other receivables were as follows:
Current:
Amounts owed by Group undertakings
Less: provision for impairment
Amounts owed by Group undertakings – net
Other receivables
Prepayments and accrued income
£m
1.8
0.1
1.9
(1.7)
(0.1)
(1.8)
0.1
0.1
Subsidiary
undertakings
£m
1,197.7
(185.9)
1.9
21.4
1,035.1
2016
£m
563.2
–
563.2
95.8
0.2
659.2
2017
£m
598.8
(59.0)
539.8
41.9
0.1
581.8
Of amounts owed by Group undertakings £46.3m (2016: £53.7m) accrue no interest and are repayable on demand. The remaining £552.5m (2016:
£509.5m) accrue interest at 6 month LIBOR plus margins ranging from 2.5% to 3.5%. These are all repayable on demand.
Note 6
Payables
Trade and other payables were as follows:
Current:
Bank overdrafts
Loan notes
Amounts owed to Group undertakings
Accruals and deferred income
Loan from non-controlling investor in subsidiary
Non-current:
Sterling 4.00% Notes
US Dollar 4.36% Notes
Bank loans
2017
£m
56.8
18.6
214.2
13.9
5.8
309.3
405.2
115.9
121.8
642.9
2016
£m
48.2
19.3
270.1
7.4
5.3
350.3
403.8
102.3
189.6
695.7
Of amounts owed to Group undertakings £150.8m (2016: £120.1m) accrue no interest and are repayable on demand. The remaining £63.4m (2016:
£150.0m) accrue interest at 6 month LIBOR or bank rate plus a margin of 1.5%. These are all repayable on demand.
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Notes to the Company financial statements
Note 6
Payables (continued)
Borrowings are repayable as follows:
On demand or within 1 year
Bank overdraft
Loan notes
Repayable after 2 years, but within 5 years
Bank loans
Repayable after 5 years
US Dollar 4.36% Notes
Sterling 4.00% Notes
Total borrowings
Note 7
Deferred tax
The movement in the deferred tax asset during the year was as follows:
At beginning of year
Credit to the income statement
At end of year
Deferred taxation is calculated as follows:
Pension temporary differences
Short-term timing differences
Accelerated capital allowances
At the end of year
Note 8
Financial instruments
The fair values of derivative financial instruments are set out below:
Non-current assets
Interest rate derivatives
Fuel derivatives
Current assets
Interest rate derivatives
Fuel derivatives
Current liabilities
Interest rate derivatives
Fuel derivatives
Non-current liabilities
Fuel derivatives
2017
£m
56.8
18.6
121.8
115.9
405.2
718.3
2017
£m
0.9
0.3
1.2
2017
£m
1.2
(0.1)
0.1
1.2
2017
£m
2.0
5.0
7.0
1.2
2.9
4.1
(0.7)
(16.0)
(16.7)
2016
£m
48.2
19.3
189.6
102.3
403.8
763.2
2016
£m
0.8
0.1
0.9
2016
£m
0.9
–
–
0.9
2016
£m
1.8
2.7
4.5
–
0.7
0.7
(1.1)
(37.4)
(38.5)
(6.9)
(19.5)
In accordance with IAS 39, “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 (2016: None).
There were no derivatives outstanding at the balance sheet date designated as hedges.
Note 9
Retirement benefit obligations
Retirement benefit obligations
2017
£m
7.1
2016
£m
5.1
The Company no longer has any employees but has unfunded retirement benefit liabilities in respect of former employees which are shown above. See
note 24 to the consolidated financial statements for more details on retirement benefits.
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Note 10 Share capital
Information on share capital is provided in note 26 to the consolidated financial statements.
Note 11 Equity reserves
The loss of £22.4m (2016: loss of £86.0m) shown in the statement of changes in equity 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 retained earnings are distributable but the other components of equity shown in the statement of changes in equity are not distributable.
The remuneration of the Directors is borne by other Group companies and is detailed in section 8 of this Annual Report. The remuneration of the
auditors is shown in note 3 to the consolidated financial statements.
Note 12 Share based payments
For details of share based payment awards and fair values see note 27 to the consolidated financial statements. The Company accounts for the equity-
settled share based payment charge for the year of £1.9m (2016: £2.2m) by recording an increase to its investment in subsidiaries for this amount and
recording a corresponding entry to retained earnings to reflect the fact that the Company has no employees (2016: Nil) and all share based payment
awards are to employees of subsidiary companies. The Company accounts for the cash-settled share based payment credit for the year of £0.6m
(2016: £1.2m credit) by recording an adjustment to the 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 income statement.
Note 13 Guarantees, other financial commitments and contingent liabilities
(a) The Company has provided guarantees to third parties of £283.7m (2016: £252.7m) 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 £342.4m (2016: £292.1m) 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 30(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
2017
£m
67.8
The following were the future minimum contractual lease payments due under unexpired operating leases as at 29 April 2017:
As at 29 April 2017
Lease payments in respect of:
Year ending 28 April 2018
Year ending 27 April 2019
Year ending 2 May 2020
Year ending 1 May 2021
Year ending 30 April 2022
1 May 2022 and thereafter
Land and buildings
£m
0.1
0.1
0.1
0.1
0.1
0.2
0.7
Other
£m
0.1
0.1
0.1
–
–
–
0.3
The following were the future minimum contractual lease payments due under unexpired operating leases as at 30 April 2016:
As at 30 April 2016
Lease payments in respect of:
Year ending 30 April 2017
Year ending 30 April 2018
Year ending 30 April 2019
Year ending 30 April 2020
Year ending 30 April 2021
1 May 2021 and thereafter
Land and buildings
£m
0.1
0.1
0.1
0.1
0.1
0.3
0.8
Other
£m
0.1
0.1
0.1
0.1
–
–
0.4
2016
£m
99.1
Total
£m
0.2
0.2
0.2
0.1
0.1
0.2
1.0
Total
£m
0.2
0.2
0.2
0.2
0.1
0.3
1.2
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Notes to the Company financial statements
Note 14 Related party transactions
The Company has taken advantage of the exemption under FRS 101 from disclosing related party transactions entered into between two or more
members of a group. Related party disclosures provided by the Group can be found in note 32 to the consolidated financial statements.
Note 15 Transition to FRS 101
For all periods up to the year ended 30 April 2015, the Company prepared its financial statements in accordance with previously issued UK GAAP. For
the year ended 30 April 2016, the Company transitioned to FRS 101.
In preparing the financial statements for the year ended 30 April 2016, the Company started from an opening balance sheet as at 1 May 2014, the
Company’s date of transition to FRS 101, and made those changes in accounting policies and other restatements required for the first time adoption of
FRS 101. This note explains the principal adjustments made by the Company in restating its balance sheet as at 1 May 2014 prepared under previously
issued UK GAAP and its previously published UK GAAP financial statements for the year ended 30 April 2015.
On transition to FRS 101, the Company has applied the requirements of paragraphs 6-33 of IFRS 1 “First time adoption of International Financial
Reporting Standards”.
Restatement required on transition from UK GAAP to FRS 101
Reclassification of software assets
Under previously issued UK GAAP, software development costs were capitalised as tangible assets. Under FRS 101, these costs meet the criteria for
capitalisation as intangible assets under IAS 38 “Intangible Assets” and as such have been reclassified from tangible assets to intangible assets in the
balance sheet as at 1 May 2014 (£0.6m) and 30 April 2015 (£0.4m).
Note 16 Employees
The Company has no (2016: none) employees. The Company’s directors and some other head office personnel are employed by a subsidiary company,
Stagecoach Holdings Limited.
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13. Subsidiary and related undertakings
The Company owns the following subsidiary and related undertakings. The Company indirectly owns 100% of each undertaking through its holding of
the stated class or classes of share or other interest unless otherwise stated.
Country of registration
Class of shares/other interest
Registered office address
A Shares
5550 Monk Blvd, Montreal, QC H4C 3R8
Common shares and Dividend
Access shares
United States
Common stock
Company
3329003 Canada Inc
3376249 Canada Inc
349 First Street Urban Renewal
Corporation
4216849 Canada Inc
A1 Service Limited
AA Buses Limited
Canada
Canada
Canada
Scotland
Scotland
Common stock
Guarantor
Ordinary shares
Ordinary shares
Common Stock
Aberdare Bus Company Limited
All West Coachlines Inc
England
United States
American Coach Lines of Atlanta Inc
United States
Common Stock
American New York Tours Corporation
American Tour Connection Inc
United States
non-voting
United States
Common A and Common B
Common stock
Atlanta Airport Shuttle Inc
United States
Common stock
B&B Bus Company Inc
United States
Common stock
Barclay Airport Service Inc
United States
Common stock
Barclay Transportation Services Inc
United States
Common stock
Bayline Limited
Bluebird Buses Limited
Busways Travel Services (1986) Limited
Busways Travel Services Limited
Busways Trustee (No. 1) Limited
Busways Trustee (No. 2) Limited
England
Scotland
England
England
England
England
Butler Motor Transit Inc
United States
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares and
Ordinary-A shares
Ordinary shares
Ordinary shares
Common stock
CAM Leasing LLC
United States
LLC Units
Cambus Limited
Cape Transit Corporation
England
United States
Ordinary shares
Common stock
Central Cab Company Inc
United States
Common stock
Central Charters & Tours Inc
United States
Common stock
Central Jersey Transit Inc
United States
Common stock
Century Airline Services Inc
Cheltenham and Gloucester Omnibus
Company Limited
Cheltenham District Traction
Company Limited
Chenango Valley Bus Lines Inc
Canada
England
England
United States
Common stock
Chesterfield Transport (1989) Limited
Chesterfield Transport EBT
England
England
Ordinary shares
Ordinary shares
66 Wellington Street West, Ste 4100,
Toronto ON M5K 1B7 Canada
820 Bear Tavern Road, West Trenton,
NJ 08628
5550 Monk Blvd, Montreal, QC H4C 3R8
10 Dunkeld Road, Perth, Perthshire,
PH1 5TW
10 Dunkeld Road, Perth, Perthshire,
PH1 5TW
Daw Bank, Stockport, Cheshire, SK3 0DU
1999 Bryan Street, Suite 900, Dallas,
TX 75201-4234,
1999 Bryan Street, Suite 900, Dallas,
TX 75201-4234,
111 Eighth Avenue, 13th Floor,
New York, NY 10011
820 Bear Tavern Road, West Trenton,
NJ 08628
1201 Peachtree Street, NE, Atlanta,
GA 30361
820 Bear Tavern Road, West Trenton,
NJ 08628
820 Bear Tavern Road, West Trenton,
NJ 08628
820 Bear Tavern Road, West Trenton,
NJ 08628
Daw Bank, Stockport, Cheshire, SK3 0DU
10 Dunkeld Road, Perth, Perthshire,
PH1 5TW
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
116 Pine Street, Suite 320, Harrisburg,
PA 17101
1209 Orange Street, Wilmington,
DE 19801
Daw Bank, Stockport, Cheshire, SK3 0DU
820 Bear Tavern Road, West Trenton,
NJ 08628
116 Pine Street, Suite 320, Harrisburg,
PA 17101
116 Pine Street, Suite 320, Harrisburg,
PA 17101
820 Bear Tavern Road, West Trenton,
NJ 08628
66 Wellington Street West, Ste 4100,
Toronto ON M5K 1B7 Canada
Common stock
Ordinary and Preference shares
Daw Bank, Stockport, Cheshire, SK3 0DU
Ordinary shares
Daw Bank, Stockport, Cheshire, SK3 0DU
111 Eighth Avenue, 13th Floor,
New York, NY 10011
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
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Company
Country of registration
Class of shares/other interest
Registered office address
Chesterfield Transport Limited
Chesterfield Transport PST Limited
Cisko Bus Company
Cleveland Transit Limited
Cleveland Transit Trustee (No. 1) Limited
England
England
United States
England
England
Clinton Avenue Bus Company
United States
Ordinary shares
Ordinary shares
Common stock
Ordinary shares
Ordinary shares
Common stock
Coach Leasing Inc
United States
Common stock
Coach USA Administration Inc
Coach USA Inc
Coach USA Investment Inc
Coach USA MBT LLC
Coach USA Tours - Las Vegas Inc
Colonial Coach Corporation
United States
United States
United States
United States
United States
United States
Common stock
Common stock
Common stock
LLC Units
Common stock
Common stock
Commodore Tours Inc
United States
Common stock
Community Bus Lines Inc
United States
Common stock
Community Coach Inc
United States
Common stock
Community Tours Inc
United States
Common stock
Community Transit Lines Inc
United States
Common stock
Community Transportation Inc
United States
Common stock
County Wide Travel Limited
Cumberland Motor Services Limited
Devon General Limited
Dillon's Bus Service Inc
Douglas Braund Investments Limited
Dragon Bus LLC
E&A Bus Company
England
England
England
United States
Canada
United States
United States
Ordinary shares
Ordinary shares
Ordinary shares
Common stock
LLC Units
Common stock
East Coast Mainline Company Limited (90%)
England
Ordinary shares
East Kent Coaches Limited
East Kent Road Car Company Limited
East London Bus and Coach Company Limited
East London Bus Group Property
Investments Limited
East London Bus Limited
East Midlands Trains Limited
England
England
England
England
England
England
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
820 Bear Tavern Road, West Trenton,
NJ 08628
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
820 Bear Tavern Road, West Trenton,
NJ 08628
208 South LaSalle Street, Suite 814,
Chicago, IL 60604
701 S. Carson Ste 200, Carson City NV 89701
1209 Orange Street, Wilmington, DE 19801
1209 Orange Street, Wilmington, DE 19801
1209 Orange Street, Wilmington, DE 19801
701 S. Carson Ste 200, Carson City NV 89701
820 Bear Tavern Road, West Trenton,
NJ 08628
820 Bear Tavern Road, West Trenton,
NJ 08628
820 Bear Tavern Road, West Trenton,
NJ 08628
820 Bear Tavern Road, West Trenton,
NJ 08628
820 Bear Tavern Road, West Trenton,
NJ 08628
820 Bear Tavern Road, West Trenton,
NJ 08628
820 Bear Tavern Road, West Trenton,
NJ 08628
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
1209 Orange Street, Wilmington, DE 19801
1209 Orange Street, Wilmington, DE 19801
820 Bear Tavern Road, West Trenton,
NJ 08628
Friars Bridge Court, 41-45 Blackfriars Road,
London, SE1 8NZ
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
Friars Bridge Court, 41-45 Blackfriars Road,
London, SE1 8NZ
Class A, Common and preference
shares
66 Wellington Street West, Ste 4100,
Toronto ON M5K 1B7 Canada
East Midlands Transport Information
England
Ordinary shares
c/o Stagecoach Lincolnshire, PO Box 15,
Service Limited (28%)
Elizabeth Bus Company
United States
Common stock
ELKO Inc
United States
Common stock
Fife Scottish Omnibuses Limited
Fleet Buzz Limited
Formia Limited
Frenchwood Holdings Limited
Scotland
England
England
England
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Deacon Road, Lincoln, Lincolnshire, LN2 4JB
820 Bear Tavern Road, West Trenton,
NJ 08628
1908 Thomes Ave, Cheyenne,
WY 82001-3527
10 Dunkeld Road, Perth, Perthshire,
PH1 5TW
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
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Company
Country of registration
Class of shares/other interest
Registered office address
Ordinary B and Preference shares
Daw Bank, Stockport, Cheshire, SK3 0DU
Friedman Transportation Inc
United States
Common stock
G&G Travel Limited
Gad About Tours Inc
England
United States
Ordinary shares
Common stock
Generic Holding Inc
United States
Common stock
Gilsam Bus Company Inc
United States
Common stock
GL Bus Lines Inc
United States
Common stock
Glenvale Transport Limited
Glossopdale Bus Company Limited
GM Buses South (EBT) Limited
Go West Travel Limited
Gray Line Air Shuttle Inc
England
England
England
England
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
United States
Class A and Class B stock
Greater Manchester Buses South Limited
Greater Manchester Buses West Limited
England
England
Grimsby Cleethorpes Transport Company Limited England
Halliday-HartleTravel (1988) Limited
HAML Corporation
England
United States
Hartlepool Transport (1993) Limited
Hartlepool Transport Limited
Hastings and District Transport Limited
England
England
England
High Adventure Tours Inc
United States
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Common stock
Ordinary shares
Ordinary shares
Common stock
Highland Country Buses Limited
Scotland
Ordinary shares
Hudson Transit Corporation
United States
Common stock
Hudson Transit Lines Inc
Independent Bus Company Inc
United States
United States
Common stock
Common stock
Inter City Railways Limited (90%)
England
A Shares
International Bus Services Inc
United States
Common stock
J&J Bus Company
United States
Common stock
J&J Transit Inc
United States
Common stock
J&L Bus Company
United States
Common stock
JW Coaches Limited
Scotland
Ordinary shares
Kaunas Bus Company
United States
Common stock
Keeshin Charter Service Inc
United States
Common stock
Kerrville Bus Company
United States
Common stock
KHCT (ESOP) Limited
KHCT (Holdings) Limited
KILT of CT Inc
England
England
Ordinary shares
Ordinary shares
United States
Class A and Class B Common stock
Mini Coach of Boston Inc
United States
Common stock
820 Bear Tavern Road, West Trenton,
NJ 08628
Daw Bank, Stockport, Cheshire, SK3 0DU
1300 East Ninth Street, Cleveland,
OH 44114
7770 E. Arapahoe Road, Suite 220,
Centennial, CO 80112
820 Bear Tavern Road, West Trenton,
NJ 08628
111 Eighth Avenue, 13th Floor, New York,
NY 10011
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
820 Bear Tavern Road, West Trenton,
NJ 08628
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
820 Bear Tavern Road, West Trenton,
NJ 08628
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
111 Eighth Avenue, 13th Floor, New York,
NY 10011
10 Dunkeld Road, Perth, Perthshire,
PH1 5TW
111 Eighth Avenue, 13th Floor, New York,
NY 10011
1209 Orange Street, Wilmington, DE 19801
820 Bear Tavern Road, West Trenton,
NJ 08628
Friars Bridge Court, 41-45 Blackfriars Road,
London, SE1 8NZ
111 Eighth Avenue, 13th Floor, New York,
NY 10011
820 Bear Tavern Road, West Trenton,
NJ 08628
820 Bear Tavern Road, West Trenton,
NJ 08628
820 Bear Tavern Road, West Trenton,
NJ 08628
10 Dunkeld Road, Perth, Perthshire,
PH1 5TW
820 Bear Tavern Road, West Trenton,
NJ 08628
208 South LaSalle Street, Suite 814,
Chicago, IL 60604
1999 Bryan Street, Suite 900, Dallas,
TX 75201-4234,
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
One Corporate Center, Floor 11, Hartford,
CT 06103-3220
155 Federal Street, Suite 700, Boston,
MA 02110
KILT of RI Inc (previously Bonanza Bus Lines)
United States
Common stock
10 Weybosset Street, Providence, RI 02903
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Company
Country of registration
Class of shares/other interest
Registered office address
Kingston Upon Hull City Transport Limited
England
Lakefront Lines Inc
Landylines Limited
Leisure Time Tours
United States
England
United States
Ordinary shares
Common stock
Ordinary shares
Common stock
Lenzner Tours Inc
United States
Common stock
Lenzner Tours, Ltd
United States
Partnership interest
Lenzner Transit Inc
United States
Common stock
Lenzner Transportation Group Inc
LER Transportation Company
United States
United States
Common stock
Common stock
Liberty Bell Taxi Company Inc
United States
Common stock
Limousine Rental Service Inc
United States
Common stock
Lincoln City Transport Limited
Lincolnshire Road Car Company Limited
M&J Bus Company
England
England
United States
Massachusetts Bay Transportation Services LLC
United States
Meadowlands Transit Inc
Megabus Acquisition LLC
Megabus Northeast LLC
Megabus Philadelphia LLC
Megabus Southeast LLC
Megabus Southwest LLC
Megabus USA LLC
Megabus West LLC
Planet Coach BVBA
Megabus.com Europe Limited
Megabus.com GmbH
Megabus.com SAS
Megabus.com SRL
Megabus.com (UK) Limited
Megacity Limited (35%)
United States
United States
United States
United States
United States
United States
United States
United States
Belgium
England
Germany
France
Italy
England
Scotland
Midland Red (South) Limited
Midtown Bus Terminal New York Inc
England
United States
Ordinary shares
Ordinary shares
Common stock
LLC Units
Common stock
LLC Units
LLC Units
LLC Units
LLC Units
LLC Units
LLC Units
LLC Units
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Common stock
Minsol Bus Company Inc
United States
Common stock
Mister Sparkle Inc
United States
Common stock
Mountaineer Coach Inc
United States
Common stock
New Delaware Coach Inc
New York Splash Tours Inc LLC
Niagara Scenic Bus Lines Inc
United States
United States
United States
Common stock
LLC Units
Common stock
Daw Bank, Stockport, Cheshire, SK3 0DU
818 West Seventh Street, Suite 930,
Los Angeles, CA 90017
Daw Bank, Stockport, Cheshire, SK3 0DU
820 Bear Tavern Road, West Trenton,
NJ 08628
116 Pine Street, Suite 320, Harrisburg,
PA 17101
116 Pine Street, Suite 320, Harrisburg,
PA 17101
116 Pine Street, Suite 320, Harrisburg,
PA 17101
701 S. Carson Ste 200, Carson City NV 89701
820 Bear Tavern Road, West Trenton,
NJ 08628
818 West Seventh Street, Suite 930,
Los Angeles, CA 90017
820 Bear Tavern Road, West Trenton,
NJ 08628
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
820 Bear Tavern Road, West Trenton,
NJ 08628
1209 Orange Street, Wilmington, DE 19801
820 Bear Tavern Road, West Trenton,
NJ 08628
1209 Orange Street, Wilmington, DE 19801
1209 Orange Street, Wilmington, DE 19801
1209 Orange Street, Wilmington, DE 19801
1209 Orange Street, Wilmington, DE 19801
450 Veterans Memorial Parkway, Suite 7A,
East Providence, RI 02914
1209 Orange Street, Wilmington, DE 19801
5601 South 59th Street, Lincoln, NE 68516
Koningsstraat 97, 1000 Brussel
Daw Bank, Stockport, Cheshire, SK3 0DU
Otto-Lilienthal Ring 3, 85622, Feldkirchen,
Munchen
34 Avenue des Champs Elysees, 75008, Paris
Piazza della Stazione n.2, Commune di
Firenze
Daw Bank, Stockport, Cheshire, SK3 0DU
Buchanan Bus Station, Killermont Street,
Glasgow, G2 3NP
Daw Bank, Stockport, Cheshire, SK3 0DU
111 Eighth Avenue, 13th Floor, New York,
NY 10011
820 Bear Tavern Road, West Trenton,
NJ 08628
820 Bear Tavern Road, West Trenton,
NJ 08628
116 Pine Street, Suite 320, Harrisburg,
PA 17101
1209 Orange Street, Wilmington, DE 19801
1209 Orange Street, Wilmington, DE 19801
111 Eighth Avenue, 13th Floor, New York,
NY 10011
Nicecon Limited (50%)
Scotland
Ordinary shares
395 King Street, Aberdeen, AB24 5RP
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Company
Country of registration
Class of shares/other interest
Registered office address
North Shore Dispatch Inc
United States
Common stock
Olympia Trails Bus Company Inc
United States
Common stock
Orange, Newark, Elizabeth Bus Inc
United States
Common stock
P. Phythian and Son Limited
England
Pacific Coast Sightseeing Tours and Charters Inc
United States
Ordinary shares
Common stock
Paramus Northeast Mgt Co. LLC
United States
LLC Units
Parfitts Motor Services Limited
PCSTC Inc
England
United States
Ordinary shares
Common stock
Penn-Mall Transit Inc
United States
Common stock
Pennsylvania Transportation Systems Inc
Perfect Body Inc
United States
United States
Common stock
Common stock
Phantom Cab Company Inc
United States
Common stock
Powder River Transportation Services Inc
United States
Common stock
Precis (1628) Limited
PSV Claims Bureau Limited
PTI (South East) Limited (20%)
England
England
England
Ordinary shares
Ordinary shares
Ordinary shares
R&W Inc
United States
Common stock
R&W Transit Inc
United States
Common stock
Red and Tan Charter Inc
United States
Common stock
Red and Tan Enterprises Inc
United States
Common stock
Red and Tan Tours Inc
United States
Common stock
Red and Tan Transportation Systems Inc
United States
Common stock
Red and Tan Unlimited Inc
United States
Common stock
Red and White Services Limited
Rhondda Buses Limited
Rhondda Valley Buses Limited
Ribble Motor Services Limited
Road Runner Tours Inc
England
England
England
England
United States
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Common stock
Rockland Coaches Inc
United States
Common stock
Rockland Transit Corporation
United States
Common stock
Route 17 North Realty LLC
United States
LLC Units
RTI Stagecoach Limited *
England
Ordinary-A shares, Ordinary-B shares
and Preference shares
Sam Van Galder Inc
United States
A and B Common stock
Schoolbus Limited
Scotland
Ordinary shares
818 West Seventh Street, Suite 930,
Los Angeles, CA 90017
820 Bear Tavern Road, West Trenton,
NJ 08628
820 Bear Tavern Road, West Trenton,
NJ 08628
Daw Bank, Stockport, Cheshire, SK3 0DU
1200 South Pine Island Road, Plantation,
FL 33324
820 Bear Tavern Road, West Trenton,
NJ 08628
Daw Bank, Stockport, Cheshire, SK3 0DU
818 West Seventh Street, Suite 930,
Los Angeles, CA 90017
820 Bear Tavern Road, West Trenton,
NJ 08628
1209 Orange Street, Wilmington, DE 19801
820 Bear Tavern Road, West Trenton,
NJ 08628
818 West Seventh Street, Suite 930,
Los Angeles, CA 90017
111 Eighth Avenue, 13th Floor, New York,
NY 10011
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
1 Admiral Way, Doxford International
Business park, Sunderland,
Tyne and Wear, SR3 3XP
820 Bear Tavern Road, West Trenton,
NJ 08628
820 Bear Tavern Road, West Trenton,
NJ 08628
820 Bear Tavern Road, West Trenton,
NJ 08628
820 Bear Tavern Road, West Trenton,
NJ 08628
820 Bear Tavern Road, West Trenton,
NJ 08628
820 Bear Tavern Road, West Trenton,
NJ 08628
820 Bear Tavern Road, West Trenton,
NJ 08628
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
820 Bear Tavern Road, West Trenton,
NJ 08628
820 Bear Tavern Road, West Trenton,
NJ 08628
111 Eighth Avenue, 13th Floor, New York,
NY 10011
820 Bear Tavern Road, West Trenton,
NJ 08628
Daw Bank, Stockport, Cheshire, SK3 0DU
8020 Excelsior Drive, Suite 200, Madison,
WI 53717
10 Dunkeld Road, Perth, Perthshire,
PH1 5TW
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Country of registration
Class of shares/other interest
Registered office address
Company
SCOTO Limited
SCOTO US Subsidiary Limited LLC
England
United States
Scottish Citylink Coaches Limited (35%)
Scotland
SCUSI Limited
SCUSI US Subsidiary Limited LLC
Seven Bus Corporation
SGP Group Finance Sarl *
Sharpton Limited
SHM Transit Inc
England
United States
United States
Luxembourg
England
United States
Ordinary shares
LLC Units
Ordinary shares
Ordinary, A and B shares
LLC Units
Common stock
Ordinary shares
Ordinary shares
Common stock
Short Line Terminal Agency Inc
United States
Common stock and preferred stock
Skipburn Limited
Canada
Ordinary shares
SL Capital Corporation
United States
South East London & Kent Bus Company Limited
England
South Orange Avenue Bus Association Inc
United States
Class A voting and Class B
non-voting shares
Ordinary shares
Common stock
South Orange Avenue Bus Company
United States
Common stock
South West Trains Limited
South Yorkshire Supertram Limited
South Yorkshire Supertram Operating
Company Limited
Southdown Motor Services Limited
Sporran AWC Inc
Sporran FL Inc
Sporran GBL Inc
Sporran GCBS Inc
Sporran GCTC Inc
Sporran GLS Inc
Sporran RTI Inc
Sporran TI Inc
England
England
England
England
United States
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Common stock
United States
Common stock
United States
Common stock
United States
Common stock
United States
Common stock
United States
Common stock
United States
Common stock
United States
Common stock
Stagecoach (North West) Limited
Stagecoach (South) Limited
Stagecoach Bus Holdings Limited
TravelHero Limited
Stagecoach Devon Limited
Stagecoach Glasgow Limited
Stagecoach Holdings Limited
England
England
Scotland
England
England
Scotland
Scotland
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Stagecoach International Services Limited
Scotland
Ordinary shares
Stagecoach East Midlands Trains Limited
Stagecoach QUEST Trustee Limited
England
Scotland
Ordinary shares
Ordinary shares
page 148 | Stagecoach Group plc
Daw Bank, Stockport, Cheshire, SK3 0DU
1209 Orange Street, Wilmington, DE 19801
Buchanan Bus Station, Killermont Street,
Glasgow, G2 3NP
Daw Bank, Stockport, Cheshire, SK3 0DU
1209 Orange Street, Wilmington, DE 19801
820 Bear Tavern Road, West Trenton,
NJ 08628
6, Rue Henri M Schnadt, 2nd Floor
Daw Bank, Stockport, Cheshire, SK3 0DU
820 Bear Tavern Road, West Trenton,
NJ 08628
820 Bear Tavern Road, West Trenton,
NJ 08628
791, Webber Avenue, Peterborough,
Ontario, K9J 8N3
111 Eighth Avenue, 13th Floor, New York,
NY 10011
Daw Bank, Stockport, Cheshire, SK3 0DU
820 Bear Tavern Road, West Trenton,
NJ 08628
820 Bear Tavern Road, West Trenton,
NJ 08628
Friars Bridge Court, 41-45 Blackfriars Road,
London, SE1 8NZ
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
818 West Seventh Street, Suite 930,
Los Angeles, CA 90017
818 West Seventh Street, Suite 930,
Los Angeles, CA 90017
818 West Seventh Street, Suite 930,
Los Angeles, CA 90017
818 West Seventh Street, Suite 930,
Los Angeles, CA 90017
1999 Bryan Street, Suite 900, Dallas,
TX 75201-4234,
818 West Seventh Street, Suite 930,
Los Angeles, CA 90017
818 West Seventh Street, Suite 930,
Los Angeles, CA 90017
701 S. Carson Ste 200, Carson City,
NV 89701
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
10 Dunkeld Road, Perth, Perthshire,
PH1 5TW
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
10 Dunkeld Road, Perth, Perthshire,
PH1 5TW
10 Dunkeld Road, Perth, Perthshire,
PH1 5TW
10 Dunkeld Road, Perth, Perthshire,
PH1 5TW
41-45 Blackfriars Road, London, SE1 8NZ
10 Dunkeld Road, Perth, Perthshire,
PH1 5TW
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Company
Country of registration
Class of shares/other interest
Registered office address
Stagecoach Rail Holdings Limited
Scotland
Ordinary shares
Stagecoach Rail North America, LLC
Stagecoach Rail Passenger Services LLC
Stagecoach Rail Projects Limited
United States
United States
England
Stagecoach Rail Replacement (East) Limited
Stagecoach Rail Replacement (South) Limited
Stagecoach Rail Replacement Limited
Stagecoach (Scotland) Limited
Stagecoach Services Limited
Stagecoach South West Limited
England
England
England
Scotland
England
England
LLC units
LLC units
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Stagecoach South Eastern Trains Limited
England
Ordinary shares
Stagecoach South Western Trains Limited
England
Ordinary shares
Stagecoach Supertram Maintenance Limited
Stagecoach Technology Limited
Stagecoach West Coast Trains Ltd
England
Scotland
England
Ordinary shares
Ordinary shares
Ordinary shares
Stagecoach Transport Holdings Limited *
Scotland
Ordinary shares
Suburban Management Corporation
United States
Common stock
Suburban Trails Inc
United States
Common stock
Suburban Transit Corporation
United States
Common stock
SuperCAM Limited
Superior Bus Company
England
United States
Swindon and District Bus Company Limited
England
Syracuse and Oswego Coach Lines Inc
United States
A and B shares
Common stock
Ordinary shares
Common stock
10 Dunkeld Road, Perth, Perthshire,
PH1 5TW
1209 Orange Street, Wilmington, DE 19801
1209 Orange Street, Wilmington, DE 19801
Friars Bridge Court, 41-45 Blackfriars Road,
London, SE1 8NZ
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
10 Dunkeld Road, Perth, Perthshire,
PH1 5TW
Daw Bank, Stockport, Cheshire, SK3 0DU
Friars Bridge Court, 41-45 Blackfriars Road,
London, SE1 8NZ
Friars Bridge Court, 41-45 Blackfriars Road,
London, SE1 8NZ
Friars Bridge Court, 41-45 Blackfriars Road,
London, SE1 8NZ
Daw Bank, Stockport, Cheshire, SK3 0DU
10 Dunkeld Road, Perth, Perthshire,
PH1 5TW
Friars Bridge Court, 41-45 Blackfriars Road,
London, SE1 8NZ
10 Dunkeld Road, Perth, Perthshire,
PH1 5TW
820 Bear Tavern Road, West Trenton,
NJ 08628
820 Bear Tavern Road, West Trenton,
NJ 08628
820 Bear Tavern Road, West Trenton,
NJ 08628
Daw Bank, Stockport, Cheshire, SK3 0DU
820 Bear Tavern Road, West Trenton,
NJ 08628
Daw Bank, Stockport, Cheshire, SK3 0DU
111 Eighth Avenue, 13th Floor, New York,
NY 10011
Tanport Limited
Tees Valley Limited
Thames Transit Limited
The Barnsley and District Traction
Company Limited
England
England
England
England
Ordinary shares
Daw Bank, Stockport, Cheshire, SK3 0DU
Ordinary and A-Ordinary shares
Daw Bank, Stockport, Cheshire, SK3 0DU
Ordinary shares
Ordinary shares
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
The Bus Exchange Inc
United States
Common stock
The Hudson Bus Transportation Company
United States
Common stock
111 Eighth Avenue, 13th Floor, New York,
NY 10011
820 Bear Tavern Road, West Trenton,
NJ 08628
Ordinary shares
Daw Bank, Stockport, Cheshire, SK3 0DU
The Mexborough and Swinton Traction
Company Limited
The Valleys Bus Company Limited
England
England
The Yorkshire Traction Company (Trustee) Limited England
The Yorkshire Traction Company Limited
England
Trans Maintenance Inc
United States
Ordinary shares
Ordinary shares
Ordinary shares
Common stock
Trans-Hudson Express Inc
United States
Common stock
Transit Advertising Limited
England
Transportation Management Services Inc
United States
Ordinary shares
Common stock
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
820 Bear Tavern Road, West Trenton,
NJ 08628
820 Bear Tavern Road, West Trenton,
NJ 08628
Daw Bank, Stockport, Cheshire, SK3 0DU
116 Pine Street, Suite 320, Harrisburg,
PA 17101
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Company
Country of registration
Class of shares/other interest
Registered office address
Trentway-Wagar (Properties) Inc
Trentway-Wagar Inc
Canada
Canada
Class A and class B Common shares
Common stock and first
preference shares
Tri State Coach Lines, Inc
United States
Common stock
TRT Transportation Inc
United States
Common stock
Twenty-Four Corporation
United States
Common stock
Tyburn Limited
Tyne and Wear Omnibus Company Limited
United Counties Omnibus Company Limited
Vailsburg Bus Company
United States
England
England
United States
Common stock
Ordinary shares
Ordinary shares
Common stock
Van Nortwick Bros Inc
United States
Common stock
Virgin Rail Group Holdings Limited (49%)
England
B shares
Virgin Rail Group Limited (49%)
Virgin Rail Projects Limited (49%)
Virgin Trains Sales Limited (49%)
Virgin Trains Limited (49%)
Welcome Passenger Transport Limited
West Coast Partnership Limited (50%)
West Coast Trains Limited (49%)
England
England
England
England
England
England
England
Ordinary and Preference shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
West Coast Trains Partnership Limited (50%)
England
Ordinary shares
West Sussex Buses Limited
Western Buses Limited
Whites World Travel Limited
Wisconsin Coach Lines Inc
England
England
England
United States
Ordinary shares
Ordinary shares
Ordinary shares
Common stock
WJB Bus Company Inc
United States
Common stock
Wohlgemuth Bus Company
United States
Common stock
XYZ-JP Taxi Inc
XYZ-PBT Inc
United States
Common stock
United States
Common stock
Yellow Cab Leasing Company of San Diego
United States
Common stock
Yellow Cab of San Diego Inc
United States
Common stock
66 Wellington Street West, Ste 4100,
Toronto ON M5K 1B7 Canada
66 Wellington Street West, Ste 4100,
Toronto ON M5K 1B7 Canada
251 East Ohio Street, Suite 1100,
Indianapolis, IN 46204
208 South LaSalle Street, Suite 814,
Chicago, IL 60604
820 Bear Tavern Road, West Trenton,
NJ 08628
1209 Orange Street, Wilmington, DE 19801
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
820 Bear Tavern Road, West Trenton,
NJ 08628
820 Bear Tavern Road, West Trenton,
NJ 08628
The Battleship Building, 179 Harrow Road,
London, W2 6NB
The Battleship Building, 179 Harrow Road,
London, W2 6NB
The Battleship Building, 179 Harrow Road,
London, W2 6NB
The Battleship Building, 179 Harrow Road,
London, W2 6NB
The Battleship Building, 179 Harrow Road,
London, W2 6NB
Daw Bank, Stockport, Cheshire, SK3 0DU
Friars Bridge Court, 41-45 Blackfriars Road,
London, SE1 8NZ
The Battleship Building, 179 Harrow Road,
London, W2 6NB
Friars Bridge Court, 41-45 Blackfriars Road,
London, SE1 8NZ
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
Daw Bank, Stockport, Cheshire, SK3 0DU
8020 Excelsior Drive, Suite 200, Madison,
WI 53717
820 Bear Tavern Road, West Trenton,
NJ 08628
820 Bear Tavern Road, West Trenton,
NJ 08628
1200 South Pine Island Road, Plantation,
FL 33324
1200 South Pine Island Road, Plantation,
FL 33324
818 West Seventh Street, Suite 930,
Los Angeles, CA 90017
818 West Seventh Street, Suite 930,
Los Angeles, CA 90017
Yellow Cab Service Corporation
United States
Common stock
1209 Orange Street, Wilmington, DE 19801
* Companies are directly held by Stagecoach Group plc
All subsidiary undertakings are included in these consolidated financial statements.
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14. Shareholder information
Shareholder enquiries
Capita Asset Services
Stagecoach Group Share Register
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Telephone: +44 (0)371 664 0443 (Calls are charged at the standard geographic rate and will vary by provider. Calls from outside the UK will be charged
at the applicable international rate. Lines are open 9.00am to 5.30pm, Monday to Friday excluding public holidays in England and Wales).
Email: StagecoachGroup@capita.co.uk.
Online share administration
You can access your share account online using the Signal Shares share portal service at www.signalshares.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;
• reinvesting dividends to buy more shares;
• registering proxy votes online; and
• buying and selling shares.
Using the online share portal reduces the need for paperwork and provides 24 hour access.
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. 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 register for online share administration as above and choose the option to buy and sell shares. Alternatively, go to
www.capitadeal.com or call +44 (0)371 664 0364 (Calls are charged at the standard geographic rate and will vary by provider. Calls from outside the
United Kingdom will be charged at the applicable international rate. Lines are open 8.00am to 4.30pm, Monday to Friday excluding public holidays in
England and Wales). Please have your share certificate to hand when you log-in or call.
A postal dealing service is available from Stocktrade, a division of Brewin Dolphin. Shareholders who would like further information should write to
Stocktrade, 6th Floor, Atria One, 144 Morrison Street, Edinburgh, EH3 8BR or call +44 (0)131 240 0414, quoting dealing reference ‘Stagecoach dial and
deal’. Lines are open 8.00am to 4.30pm, Monday to Friday. Postal dealing packs are available on request.
Other organisations also offer facilities to buy and sell shares.
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. Shareholders
can opt to reinvest dividends using the online share administration services referred to above. Shareholders who would like further information should
telephone the Company’s registrars, Capita Asset Services, on +44 (0)371 664 0443 (Calls are charged at the standard geographic rate and will vary by
provider. Calls from outside the UK will be charged at the applicable international rate. Lines are open 9.00am to 5.30pm, Monday to Friday excluding
public holidays in England and Wales), or email StagecoachGroup@capita.co.uk.
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Share fraud warning
Share fraud includes scams where investors are called out of the blue and offered shares that often turn out to be worthless or non-existent, or are
offered 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/report-scam. You can find out about the latest investment scams at
www.fca.org.uk/consumers/scams/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
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Corporate information and calendar
Corporate Information
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
SC100764
Annual General Meeting
25 August 2017
Final Dividend
4 October 2017
Interim Dividend
March 2018
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www.stagecoach.com
Registered Office:
10 Dunkeld Road, Perth PH1 5TW, Scotland
T: 01738 442111 | F: 01738 643648 | E: info@stagecoachgroup.com
Registered in Scotland | Number: 100764