Member Info for wealthtrasfer

A poster on this board:) I was replying to their question "what does RI stand for' (in the context of the post)

Emiloco - Rights Issue

Good find Lara

There is no need for an RI unless NA Bus falls through 'and' there is a further significant worsening of trading.

They would have to offer what 90% of holders will accept. I doubt that is as low as they have managed to scoop up in the last 6 months or so. We also don't know what price they had to pay to get the chunks just bought, which mostly was off-market.

I also cant see them making a move prior to sale of US Bus. My thoughts are they are blocking for now and playing a waiting game to make a move on ALSA when the time is right. But as most things on here its just a guess.

30% does. With Azvalor in concert they are getting mighty close (plus any unknown sub notifiable holdings)

Just read posts - see its already been discussed :)

European Ent- taken another 1%

Lack of confidence in performance. Sense of debt risk. Delayed recovery. Easier opportunities elsewhere. Short term view.

All of the above.

JG, we should be in for a small statutory profit if impairments are not forthcoming. The BoD have stated that we should see £175-£185m adjusted. Less £75-£80m interest. Leaves £100m for adjustments which will be largely wiped out with higher costs and onerous contract provisions. It’s down to unknown impairment. No impairment = reasonable outcome and start of recovery imo

Delayed results not ideal but at least we know what the adjusted profits will look like. The German rail contract provision is a bit late and is obviously due to a difference of view between management and auditors on treating the contracts future value. The onerous contract provision is in effect a mini impairment and can reverse as and if costs reduce in or cost recovery price rises are effected. This is a massive over reaction to a contract technicality. Not ideal and not what anyone wants, but of an own goal, but also not a massive investment shock surprise either. It’s just another embarrassing mark against the new CFO. We now know that adjusted profits are okay. But what exceptional costs are for restructuring and impairment? We need a small profit but this is looking more challenging with that specific impairment. Depending on US impairment we might still be okay, just!

I think Cosmens are buying because they want ALSA. I think they are also very operationally aware in ALSA which is upheld by ALSA performance in relation to UK and US. They are not as 'in tune' with the rest of the business as they are on the home turf (I say home turf as although its a UK based business, in reality its run from Spain).

Aside from the Dividend fiasco, Im not sure the market has no confidence in the management. But it understands the macros and the effect that has in general and on the accounts of companies like MCG with long term fixed or semi fixed contracts and high debt to equity levels. Its a slow ship to turn and is now half way around. The obvious catalyst is US bus sale but the operational activities have now stabilised in my view with a lot of upside over the next 24 months. This has always been a longer term play and nothing has changed in my view if you wait 2-3 years.

Some more numbers if anyone is interested:

Future value of company goodwill reduced by £1.1b (£2.7b to £1.6b) between Dec 21 and Dec 22 (ALSA and US Goodwill and Headroom) resulting in a recognised reduction of goodwill in ALSA of £260m at year end. That was reflected in a share price approx halving from £2.80 to £1.40 a reduction in value of the company from £1.7b to £0.8b = £0.9b drop. No coincidence!

Future value of company improved (due to headroom improvement) between Dec 22 and June 23 by £170m to around £1b but share price dropped further and not recovered. Thats why if a small profit is achieved and no impairment then there should be more confidence in the future ability to pay debt and follow with an improvement, without further med/long term macro issues.

To sum up the importance of impairment: Impairment of Goodwill (future value of the contracts the company has acquired) is essentially a reduction in its future value and profit potential and therefore importantly a reduction in the confidence/ability of the company to repay its debts. Based on a calculation of interest rates, inflation, future GDP expectations and operating margins etc...

This is why it is so important, especially, for a company with high levels of debt.

It is also very important to look at a company's impairment calculations to understand the headroom available over and above the goodwill declared. As the macros improve then negative impairment ( a gain if you like in the future value of contracts) is not recaptured in the goodwill but is recognised as 'headroom'. If a company with debts has a lot of headroom in the goodwill then there is a lot of confidence that its future ability to repay debt debts if macros turn against it and also that the future value can be much higher than stated in the balance sheet. This is what effectively happened with MCG. There was a lot of headroom which got eroded and ended up being wiped out and some (£350m). The numbers turn fast and large when there are big worldwide events so its very important.

XxxAcc - impairment is critical in terms of confidence and therefore underlying support of the SP. 2022 saw a £197m operating profit (underlying) before impairment. A PBT of £145m. This would have been a game changer but wasn't due to a £350m impairment in ALSA. No impairment = reported profit which although non cash impacting is very important for future value.

Hindy - FirstGroup Operating profit doesn't get impacted by finance costs in the same way as MCG as they cleared a lot of debt with asset sales and drops through to the bottom line.

Also as you say the 2% reduction in margin wipes out any headroom in the impairment calculation, but as margin has dropped much more than that, then this on its own may well cause an impairment, this year, due to stated costs. However equivalent US GDP forecasts and inflation outlook forecasts have improved which will hopefully offset that margin decline. I think its going to be close in the US.

All things being equal, if we achieve a £185m underlying profit less c. £85m finance costs and depending on 'exceptional' costs incurred due to cost cutting etc... then a reported £25m - £75 PBT could be on the cards. Or another substantial paper loss if US is impaired due to margins. the former should underpin a re-rate and signal things are turning and the company is servicing its debt ahead of the asset sale. Takes a lot of pressure off the sale!

Report due 29th Feb. I think thats a good sign. Otherwise theyd bury it on 6th March.

Nothing has changed. Macro improving. Need a decent update in early march with small profit and no impairment and warm words around School Bus sale interest / progress and 2024 positive update. Pre-budget report would be good. Then a confidence inspiring (pre-election) budget announcement on the 6th March to keep things moving. SP will look very different if those things happen.

JG - what a difference a few weeks makes :)

An interesting Note on Costs for longer term holders is Fuel Costs. The statement on fuel costs from the company is below. If fuel costs are 9% of 'revenue' in 2022 @ 37.8p a ltr and we are now paying 51p to 52p a ltr that means, if revenue was unchanged, we are incurring fuel costs of around 12% in the current financial reports. So if fuel returns to say 38p a ltr (a 25% reduction) that reduces fuel costs to around 8-9% of margin again. A 3% of revenue reduction = £100m per year to the bottom line for 2026 and about £60m in 2025, £25m in 2024. Thats in addition to the enhanced margins negotiated in the contract renewals.

All rough numbers but hopefully the idea is right. Any thoughts or comments?

Fuel costs

Fuel cost represents approximately 9% of revenue (30 June 2022: 8%). At 30 June 2023 the Group is fully hedged for 2023 at an average price of 48.5p per litre; around 75% hedged for 2024 at an average price of 51.1p; and around 35% hedged for 2025 at an average price of 52.3p. This compares to an average hedged price in 2020, 2021 and 2022 of 37.2p, 37.8p and 37.5p

respectively.