Return of Value 2007 Update on current trading and prospects and proposed Return of Value to...
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Transcript of Return of Value 2007 Update on current trading and prospects and proposed Return of Value to...
Return of Value 2007
Update on current Update on current trading and prospects trading and prospects
and proposed Return of and proposed Return of Value to Shareholders Value to Shareholders
14 March 200714 March 2007
2 Return of Value 2007
Current trading and prospects
Overall trading remains strong EPS* for FY07 anticipated to be at upper end of our expectations Prospects for FY08 trading have further improved reflecting:
continuing strong revenue growth sustained reduction in fuel prices
Earnings enhancement from: return on additional contributions to pension schemes proposed Return of Value
Group’s consolidated net funds expected to be between £130m - £150m at 30 April 2007
* before intangible asset expenses and exceptional items
3 Return of Value 2007
Drivers of capital structure review
Continually seeking to maximise Shareholder value Periodic evaluation of the optimal capital structure Predictable, cash generative nature of Group’s operations has
potential to support greater levels of debt Increased level of debt has potential to reduce the Group’s cost
of capital and increase Shareholder returns Maintain flexibility to invest in operations and bolt-on acquisitions
4 Return of Value 2007
Why is recommendation increasedfrom £400m?
Further detailed analysis undertaken by the Board and advice taken Improved visibility of future cash flows:
West Coast renegotiated with strong prospectsLower fuel prices (further hedging in place)Continued strong revenue growth in UK Bus and Rail
Appetite from banking market to provide facilities at acceptable pricing Increasing market acceptance of higher debt levels
5 Return of Value 2007
Return of Value structureMechanism Return equivalent to 63 pence per Existing Ordinary Share Issue of redeemable “B” and/or irredeemable “C” Shares Share Capital Consolidation – ratio to be determined
Why this structure? Allows all Shareholders to be treated equally Allows Shareholders choice as to when and in what form they receive
their cash Clarity as to the quantum and financial effect of the Return of Value
Impact of share price Value to Shareholders is not affected by share price or consolidation
ratio
6 Return of Value 2007
Expected timetable
14 March 2007
Trading statement
Announcement of Return of Value proposals
Late March/early April 2007 – Circular posted to Shareholders
Late April /early May 2007 – EGM
By 30 June 2007– Return of Value payments to Shareholders
7 Return of Value 2007
Pensions
Reached agreement with Trustees for additional funding of £50m to Stagecoach Group Pension Scheme (“SGPS”)
£20m of £50m expected to be paid to SGPS by 30 April 2007
Balance to be paid by 30 June 2007
Remainder of deficit in SGPS expected to be eliminated in 4 years
Ongoing employer contributions expected to exceed the net pensions charge to the Group’s income statement
8 Return of Value 2007
Funding
Return of Value to be funded from Group’s available cash balances and bank facilities
Bank facilities of approximately £825m arranged, majority of which mature in 2012
Appetite from existing and new banks to lend at acceptable rates
9 Return of Value 2007
Dividend policy Maintain progressive dividend per share policy
Total dividend reduced due to less shares
Board has option to change dividend policy in future
Illustrative example*
2006/7 market consensus full-year dividend of 4.1 pence
2.6% yield on 160 pence share price
On existing dividend policy and £700m return
2007/8 market consensus full-year dividend of 4.4 pence
2.8% yield on 160 pence share price
* NOTE: The dividend and yield figures are for illustration only and have been sourced from the Company’s records of analysts’ forecasts. These figures are neither the Company’s forecast nor a statement of the Company’s intended dividend policy.
10 Return of Value 2007
Impact on analyst forecasts Interest charges on approximately £700m Return of Value
2007/08 (approx 11 months)
2008/09 (full year)
Interest charges on additional pension contributions
Tax shield on interest
Some one-off implementation costs c.£4m
Reduction in weighted average ordinary shares
Subject to consolidation ratio
Ordinary shares currently in issue 1,100.3m
Pro-forma Ordinary Shares in issue (illustrative based on 13 March 2007 closing share price) 669.1m
Pro-forma 2007/08 weighted average (illustrative based on 13 March 2007 closing share price and mid-May 2007 consolidation date ) 687.0m
Adjust for subsequent share issues
11 Return of Value 2007
Financial ratios considered
Net Debt/EBITDA
Net Debt/(EBITDA plus dividends from joint ventures)
Impact of working capital cash in rail franchises
EBITDA/Interest
12 Return of Value 2007
Conclusion
Overall strong trading performance Return of Value is intended to establish a more appropriate and
efficient capital structure Maintain financial flexibility to continue investing in operations
and bolt-on acquisitions Number of factors led Board to conclude that £700m should be
returned to Shareholders before 30 June 2007 Return of Value is conditional upon Shareholder approval Further details on Return of Value to be announced within next
two weeks