ROL.L Regulatory News (ROL)

15 April 2013

Rotala plc

("Rotala" or 'the Company')

Final audited results for the year ended 30 November 2012

Highlights

·; Turnover £54.8 million (2011: £56.1 million)

·; Gross profit margin up to 16.5% (2011: 15.6%)

·; Profit before taxation up 10.5% to £2.08 million (2011: £1.88 million)

·; Finance expense down 19% to £1.33 million (2011: £1.64 million)

·; Basic earnings per share 5.29 pence

·; EBITDA to debt ratio 2.56 times (2011: 2.4 times)

·; Final proposed dividend of 0.90 pence per share (2011: 0.80 pence), making 1.40 pence for the year, a rise of 17%

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CHAIRMAN'S STATEMENT AND REVIEW OF OPERATIONS

Chairman's Statement and Review of Operations

I am pleased to be able to make this report to the shareholders of Rotala Plc for the year ended 30 November 2012.

Review of trading

Rotala continues to hold a leading market position in Preston and be the number two bus operator in Bristol and Bath. In the West Midlands (the second largest bus market in the country after London), where we are also the number two bus operator, we strengthened our position shortly after the year end with the acquisition from First Group Plc ("First") of their depots in Kidderminster and Redditch. I shall return to this acquisition later in my statement. We are furthermore one of the leading providers of private bus networks in the country, especially to the aviation industry around Heathrow.

The 2012 financial year was one of profound and continuing change for the bus industry. Against the background of an economy, at the very least, showing no signs of recovery, the industry has been obliged to confront and deal with the challenges put in its way by a number of changes in government policy. These changes stem from the austerity measures which the Government has introduced since its election in 2010. In April 2012 the 20% reduction in the fuel tax rebate inherent in the Bus Services Operators' Grant took effect. For Rotala this cut in rebate amounted to approximately £1 million. This increase in the effective cost of fuel came on top of progressive reductions in concessionary fares reimbursement rates and the fall in local authority transport budgets. These measures made and make for a challenging operating environment. In this we are no different from our competitors, large and small, but difficult choices have to be made in these circumstances. Bus fares can only rise so far before volumes begin to fall. There is a limit in the operating efficiencies which can be obtained. Therefore your board has taken a number of measures during the year to safeguard margins and profitability. These have been successful, as is borne out by the group results. Bus fares have been raised where possible, but where this was not a viable option, route mileage has been cut back to that which remains profitable. We have also not been drawn in to submitting unrealistic bids for local authority tenders and have thus deliberately relinquished some business in this area. For the group as a whole therefore, excluding the fall in Charter Revenue (which is ad hoc by nature), and the effect of the timing of the acquisition of Preston Bus in 2011, revenues fell by only 4% when compared to 2011, to a total of £54.8 million.

·; Contracted Services

Revenues in Contracted Services overall rose by 3% to £22.5 million (2011: £21.9 million). Reductions in revenue resulted from further cutbacks in transport budgets in Worcestershire and, to a certain extent, in the Bristol area, following the withdrawal of some subsidised services. In addition the group lost a number of marginally profitable subsidised contracts in the Centro operating area, in circumstances where we refused to match unrealistic tender bids made by certain competitors. We had closed our small Gatwick depot at the end of 2011 and moved some of the business to our Heathrow depot, relinquishing the rest. This had some impact on the comparisons with 2012. We took this step because we did not consider that we stood any realistic prospect of significant expansion in our business around Gatwick and because we felt that our capital invested there would be better utilised elsewhere in the group. But in contrast to this our revenues from corporate customers grew strongly in the year and more than compensated for the reductions in local authority business and the closure of the Gatwick depot.

CHAIRMAN'S STATEMENT AND REVIEW OF OPERATIONS (continued)

·; Commercial Services

Revenues in Commercial Services fell by some 4% to £29.6 million (2011: £30.9 million). There was a mixture of reasons for this fall. The reduction in the reimbursement rates for concessionary fares was a significant factor. Revenues also fell as the result of decisions to cease operations on all or part of routes, where we felt that economic running was no longer profitable. In addition the variable revenue element attached to local authority contracts is classified in this sector of business and, as certain local authority contracts were not renewed, the associated commercial income also fell away. Nevertheless, taking into account compensating positive variances in a number of areas, including a significant rise in income from our own network cards, the overall reduction in revenue was slight. Encouragingly there was a continuing large rise in sales of the Centro Network Card. I mentioned this trend last year; it bodes well for the full introduction of the electronic multi-operator pass card by Centro later in 2013.

·; Charter Services

In line with group policy we have progressively reduced the exposure of the group to this area of business in recent years. We have done this consciously because we judged the return on capital in this sector to be too low to justify continued investment. We also cut back the number of coaches we have available for private hire work as we considered that, in the current economic environment, the risks in speculative private hire work were too high. Thus Charter Revenues fell by 18% to £2.7m million (2011: £3.3 million). Airline related chauffeur car services (which we sub-contract in their entirety) also saw fewer movements in the year and this had some impact on year on year revenues.

Strategy and acquisitions

At the end of January 2013 we were able to announce the acquisition from First of certain of their bus operations in Worcestershire. This deal was completed at the beginning of March 2013. We acquired, for a cash consideration of £1.5 million, two freehold depots, one in Kidderminster and the other in Redditch, 36 vehicles, and various items of plant and equipment. These depot acquisitions added about 108 staff to our workforce. On the basis of the information available at present the acquisition is expected to generate a small amount of negative goodwill.

The Kidderminster depot comprises a site of some two acres and was purpose built in 2001. It can accommodate up to 60 vehicles. The Redditch depot, built about 35 years ago, has a slightly smaller useable area and can accommodate about 50 vehicles. In the year ended 31 March 2012, these depots reported combined revenues of approximately £5.2 million and an operating loss of about £0.27 million.

In essence the two depots bring bus routes which are complementary to our existing route network in Worcestershire. There was very little overlap between our operations and those of First: indeed we competed on only one route. The acquisition therefore enables us to expand and consolidate our position in those areas of Worcestershire which are contiguous to our main areas of operation in and around the Birmingham conurbation. By integrating these acquired depots into our current depot network, the Company will in time be able to take advantage of the operating efficiencies that will be generated. The acquisition is not expected to have a material impact on earnings in 2013. It will take time to integrate fully the two route networks and workforces. Inevitably a certain amount of investment is required. The 36 vehicles we did acquire from First did not comprise the whole of their fleet at these two depots. We immediately brought in more than 20 vehicles from our existing fleet in order to bring the fleet numbers up to those required for efficient operations. Furthermore, many of the vehicles do not comply with the requirements of the Disability Discrimination Act which begin to come into force in 2014. We will thus need to replace most of these vehicles in due course, and in certain cases have done this already. Once the integration of operations and overheads has been fully implemented, the acquisition is expected to have a beneficial effect on earnings in the following years.

Fuel prices

In the earlier part of 2012 the price of fuel was volatile and an average price of about 113p per litre was paid. This gave rise to an adverse variance in that period against the budgeted cost of fuel. However in the middle of the year we were able to take advantage of the dip in diesel prices at that time to fix some 75% of the group's diesel needs out to July 2013. These fuel fixes ensured that the average price of three quarters of the group's fuel supply was 108p a litre for the rest of the year. This was slightly below the figure at which we had budgeted for that period. The board is keen to fix fuel prices as far out as possible and so will take advantage of any further opportunities to eliminate fuel price exposures as and when they arise.

Following the recent acquisition of the Kidderminster and Redditch depots of First, the group will use about 12 million litres of diesel fuel in a full year.

Fleet improvement

During the year we have received the remainder of our initial batch of 15 hybrid-power buses from the Optare Group. These have performed well in service and have achieved the targeted 30% fuel saving, when compared to a similar diesel bus. We were also awarded a grant of £683,000 in the third round of the Government's Green Bus funding. This is in respect of a further eight hybrid-power vehicles, this time from the Wright group using the Volvo chassis and hybrid drive system. These vehicles were all in service by the time of writing this report. Their initial performance has been excellent and they have been very well received by customers.

Under a separate programme, we have embarked upon the installation of "EcoManager" fuel-saving software in the existing conventionally powered fleet. The aim of this software is to give the driver visual indication not only if he or she is driving in a manner which is comfortable for the passenger but also in a manner which is economical and efficient. So far about 23% of the vehicle fleet has been equipped with this software. A further 50% of the fleet will be fitted with this equipment by the end of the year. Thus, by that date, almost three quarters of the fleet will have been equipped with fuel saving systems which should be delivering significant cost reductions. To date EcoManager has shown a like for like fuel saving of a minimum of 11% of fuel usage. We are confident that further fuel efficiency gains will be achieved once drivers are fully attuned to what is needed from them and the software is optimised for individual route characteristics.

The board continues to target an average fleet age of about 7.5 years. Even with the addition of the relatively old vehicles which we acquired recently with the purchase of the Redditch and Kidderminster depots from First, the average fleet age stands at 7.7 years. As we continue to replace vehicles this average will certainly fall. This figure is low in industry terms. We believe that having a modern and efficient bus fleet is a key aspect of customer service and that running one of the youngest fleets compared to its peers gives the group an important competitive advantage. Older vehicles also emit a greater level of emissions and we are keen to minimise this aspect of bus operation.

The board monitors each vehicle in the fleet for relative fuel consumption, reliability and maintenance cost. Those vehicles that fall outside of acceptable parameters are designated for disposal. As a result of this policy about 25% of the vehicle fleet was replaced in the year. These

replacements are a judicious mix of the new and the second hand, chosen so as to meet the criteria which we have set. The objective, to possess an efficient and effective fleet of the right age profile, was successfully achieved.

CHAIRMAN'S STATEMENT AND REVIEW OF OPERATIONS (continued)

Banking facilities and finance

At the end of the year we entered into a revised suite of banking facilities with our principal bankers RBS/NatWest. The new facilities, totalling £11m, increased our existing facilities. First we obtained an enlarged mortgage facility of approximately £4 million. This enabled us in January 2013 to acquire the freehold of our depot at Avonmouth, Bristol, which up to now we had been leasing. We bought this very attractive 2.6 acre site for a consideration of £1.8 million. We have been at this depot since the middle of 2011 and have invested heavily in the plant and facilities there. At the same time we were able to reduce our ordinary overdraft facility with the bank from £3 million to £2 million because we obtained a new revolving credit facility of up to £5 million, of which £1.5 million had been drawn down at the end of the year. We can use this facility both for working capital finance and acquisition finance. Indeed the £1.5 million purchase price of the First depots described earlier in this statement was provided by this facility. These enhanced facilities will support our aim of continuing to grow both organically and by acquisition.

In addition to these facilities we had at the year's end available but unused vehicle financing facilities of approximately £10 million. Thus we believe that the group has been provided with sufficient working capital and financing facilities to continue its growth, whether by acquisition or otherwise, for the foreseeable future.

Financial review

I have already highlighted the slight decrease in revenues year on year and the reasons for this variance. Cost of Sales fell by 3%; the principal business reasons for this have been described above. Gross Profits were almost exactly the same when compared to the previous year, but the gross profit margin improved somewhat to 16.5% from the 15.6% of 2011. This rise resulted from all the measures we took to focus on profitable business and operational efficiencies. Administrative Expenses were 7% higher than those of the previous year. The principal reason for this increase was the inclusion for a full year of the Avonmouth depot which was only in use for part of 2011. The Profit from Operations at £3.4 million was also much the same as that recorded in 2011. Finance expense was down overall by about 19%. Partly this resulted from a fall of about 17% in hire purchase debt year on year. The retirement of some 40% of the convertible loan stock at the beginning of the calendar year also made a significant contribution as the effective rate of interest on this debt was about 11%. Profit before taxation therefore rose by 10.5% when compared to the previous year to £2.08 million (2011: £1.88 million). In 2011 basic earnings per share, at 6.22p, benefited from a one-off tax credit; there is no real comparison possible with this figure in 2012, where there was a tax charge of £210,000 instead of the prior year's tax credit of £279,000. Basic earnings for 2012 were 5.29p per share.

The gross assets of the group stood at £48.2 million at 30 November 2012 (2011: £48.4 million). Holdings of Property, Plant and Equipment fell by about 7% largely because of the changes made in the vehicle fleet in the year which I have described in a separate paragraph. The ever rising cost of fuel and the switch from rented to owned tyres is reflected in the value of Inventories; the working capital devoted to Trade and Other Receivables rose as well as more business was derived from contracted income where payment periods tend to be longer. The swing from a cash asset of £869,000 to a net overdraft of £1,410,000 is analysed below but is another reason for the change in the make up of gross assets. The bulk of the change in Trade and Other Payables results from the movement in Green Bus Grant creditor compared to the previous year. The gross loans and borrowings of the group increased by some £2.2 million very largely because of the use of the new banking facilities described above, but in contrast HP obligations fell by £2.3 million year on year to £10.9 million (2011: £13.2 million). The amount outstanding on the convertible unsecured loan stock also fell from £3.9 million in 2011, to £2.3 million in these financial statements, as a significant proportion

of the loan stock was retired on 31 December 2011. There was finally an adverse movement in the Preston pension fund as at 30 November 2012. The gross liabilities of the group therefore stood slightly down on the previous year at £26.3 million at 30 November 2012 (2011: £27.3 million). Net assets reached £21.9 million at the year end (2011: £21.1 million).

Cash flows from operating activities before changes in working capital, at £6.3 million, were little changed from those generated in the previous year. Working capital was absorbed by a number of factors. I have already mentioned the rise in fuel and tyre stocks. The switch to a tyre contract will ensure that this working capital is released in 2013. Trade receivables rose by some £0.7 million in

reflection of the changing nature of the group's business. Prepayments, accruals and deferred income absorbed significant amounts of working capital as the result of the inception of new contracts, a swing to a net recoverable in Bus Services Operators' Grant and a higher level of insurance claims recoverable from third parties than the previous year. Many of these increases in working capital will reverse in the current year and some have already done so. Investment in property, plant and equipment rose this year to £1.6 million (2011: £0.6 million), representing a considerable investment in new ticket machinery as well as vehicles. Sale of vehicles, after taking account of the related hire purchase settlements, produced £3.1 million for the group (2011: £0.7 million). As related above, new banking facilities were agreed before the year's end. Almost all bank loans were thus repaid and then drawn anew. Fresh bank borrowings amounted to some £2 million net of repayments. During the year a total of £1,337,000 of the convertible unsecured loan stock was also repaid; in addition the capital element of payments on hire purchase agreements reached £5.0 million (2011: £4.5 million). After taking account of rising dividend but falling interest payments, the group swung from a cash and cash equivalents asset at the end of 2011 to an overdraft of £1,410,000 at the end of 2012, in line with management's plans and expectations.

Dividend

The Company paid an interim dividend of 0.50 pence per share in December 2012. At the forthcoming Annual General Meeting the Board will recommend a final dividend in respect of 2012 of 0.90p per share, making 1.40p for the year as a whole. The dividend will be paid, subject to shareholder approval at the Annual General Meeting, on 28 June 2013 to all shareholders on the register on 31 May 2013.

As the company matures I expect the dividend to be progressive. The Board is conscious of the importance of dividend flows to shareholders and intends that dividends should grow in line with the growth in underlying earnings and free cash flows.

CHAIRMAN'S STATEMENT AND REVIEW OF OPERATIONS (continued)

Outlook

The acquisition of the Redditch and Kidderminster depots from First will expand further the commercial bus revenues of the group in line with our stated strategy. After the acquisition approximately 60% of the group's annualised revenues will derive from this source. We intend to continue the expansion of our revenues from this business stream.

Given the downward pressure on local authority transport budgets it is unlikely that contracted revenues from this source will increase this year. There may well be further reductions. But there is still encouraging activity in the corporate sector for private bus networks. We are one of the leading players in this field and we are confident that we will obtain more new business in this area. One of the leading drivers of this business comes from the focus of government on the reduction of pollution and congestion. This will provide further opportunities for growth. In addition many private bus tenders derive from decisions by the private sector to outsource those activities (like transport) which lie outside their core areas of expertise.

Government policy decisions are driving considerable changes in the bus industry. I would have to say that many of these decisions look illogical: Government wishes to get us out of our cars and on to public transport but takes decisions which are not calculated to promote the increase in bus patronage that could be obtained with more coherent thinking. But this does mean that volatility and instability in the bus industry will continue. We have managed to cope with these changes as a result of much hard work and application of operational expertise, but the trading environment will remain challenging. Many smaller operators are finding the going very hard and a number of family businesses of long standing have given up the ghost in the last year or so.

Where others take decisions to divest, or not re-invest, we are given the opportunity to expand, as with the Redditch and Kidderminster acquisition. Uncertainty brings opportunity. The group has a very solid financial base. Your board has in the forefront of its mind the total return to shareholders, whether that comes from earnings growth, dividend growth or net asset value per share. The latter is reflected in a balance sheet underpinned by some £21 million of vehicle assets and 22 acres of property in prime sites in the books at £9 million. The aim of the board is to be financially conservative whilst respecting these three key points for shareholder return. We want to create a solid and reliable performer for all shareholders for the long term.

When we have digested our recent acquisition, the group will be conservatively geared and we possess ample facilities to take on any further acquisitions that may arise. Therefore the Board feels confident about the group's prospects and believes many opportunities will be available to ensure the continued growth of the group.

John Gunn

Non-Executive Chairman

12 April 2013

CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 30 NOVEMBER 2012

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED

30 NOVEMBER 2012

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 NOVEMBER 2012

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 NOVEMBER 2012

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 NOVEMBER 2012 (Continued)

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 NOVEMBER 2012

Notes to the Preliminary Announcement of results for the year ended 30 November 2012

1. Basis of preparation:

The accounting policies used in the preparation of these financial statements are those that have been used in the preparation of the annual statutory financial statements of the company for the year ended 30 November 2012. These policies are in accordance with the recognition and measurement principles of International Financial Reporting Standards (IFRSs) as endorsed by the European Union.

2. Turnover:

Revenue represents sales to external customers excluding value added tax. Passenger revenue is recognised when payment is received in cash. Subsidy revenue from local authorities is recognised on an accruals basis, based on actual passenger numbers. Revenues delivered under contract arerecognisedas services are delivered, based on agreed contract rates.

All of the activities of the group are conducted in the United Kingdom within the operating segment of provision of bus services. The group has three main revenue streams: contracted, commercial and charter, and management monitors revenue across these there streams. All streams operate within a single operating segment, that is the provision of bus services. The activities of each revenue stream are as described in the Chairman's Statement.

3. Tax expense/(credit):

Tax expense/(credit) includes the following:

Notes to the Preliminary Announcement of results for the year ended 30 November 2012 (continued

3. Tax expense/(credit) (continued):

The tax assessed for the year is different to the standard rate of corporation tax in the U.K. for the following reasons:

Notes to the Preliminary Announcement of results for the year ended 30 November 2012 (continued)

4. Earnings per share:

The calculation of the basic and diluted earnings per share is based on the earnings attributable to the ordinary shareholders divided by the weighted average number of shares in issue during the year.

In order to arrive at the diluted earnings per share, the weighted average number of ordinary shares has been adjusted on the assumption of conversion of all dilutive potential ordinary shares. The company has in issue two sources of potential ordinary shares: convertible loan notes and share options. The convertible loan notes are assumed to have been converted into ordinary shares (where dilutive), but the associated interest expense has been added back to the profit attributable to shareholders. In respect of the options a calculation has been carried out to determine the number of shares, at the average annual market price of the company's shares, which could have been acquired, based on the monetary value of the rights attached to those shares. This number has then been subtracted from the number of shares that could be issued on the assumption of full exercise of the outstanding options, in order to compute the necessary adjustments in the above table. 

Notes to the Preliminary Announcement of results for the year ended 30 November 2012 (continued)

5. Loans and borrowings:

Notes to the Preliminary Announcement of results for the year ended 30 November 2012 (continued)

6. Obligations under hire purchase contracts:

Future lease payments are due as follows:

The present value of future lease payments are analysed as:

Obligations under hire purchase contracts are secured on the assets to which they relate.

Notes to the Preliminary Announcement of results for the year ended 30 November 2012 (continued)

7. Post balance sheet events:

As set out in the Chairman's Statement, on 3 March 2013 the group acquired certain businesses and assets in Kidderminster and Redditch from First Group plc. The Chairman's Statement describes the reasons for the acquisition and should be consulted for a detailed description of all the relevant factors. The consideration for the acquisition was £1.5 million in cash. At the date of these accounts it is possible only to estimate the fair values of the assets which have been acquired. These are set out below. It is not expected that there will be a material amount of goodwill attached to the acquisition.

8. Financial Information:

The Financial Statements for the year ended 30 November 2012 were approved by the Board of Directors on 12 April 2013. The financial information in this announcement does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for 2012 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The auditors have reported on the 2012 accounts; the auditors' opinion is unqualified and does not include a statement under section 496 of the Companies Act 2006.

9. Further Information:

Copies of this statement are available from the registered office of the Company at Beacon House, Long Acre, Birmingham, B7 5JJ or the Company's website at www.rotalaplc.co.uk.