ROL.L Regulatory News (ROL)

12 April 2012

Rotala plc

("Rotala" or 'the Company')

Final audited results for the year ended 30 November 2011

Highlights

·; Growth in turnover of 26% to £56.1 million (2010: £44.6 million)

·; Profit before taxation up 14% to £1.88 million (2010: £1.65 million)

·; Basic earnings per share up 24% to 6.22 pence (2010: 5.00 pence)

·; Net cash flows from operating activities of £6.66 million (2010: £5.84 million)

·; EBITDA to debt ratio 2.4 times (2010: 3.1 times)

·; Final proposed dividend of 0.80 pence per share (2010: 0.60 pence), making 1.20 pence for the year, a rise of 33%

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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 2011.

Review of trading

The group made very good progress in 2011. Revenues rose by 26%, when compared to those of 2010, to a total of £56.1 million. This rise in revenue was naturally mainly driven by the acquisition of Preston Bus Limited ("PBL") in January 2011. I shall have more to say about PBL later in this statement, but, setting aside the contribution of PBL in its first year under our ownership, underlying turnover growth in the existing business was overall a healthy 4% per annum. Excluding the variation in Charter Service revenue, by its very nature sensitive to one off occurrences, this underlying increase in revenues was 6%.

Besides having acquired through PBL an excellent market position in Preston, Rotala continues to be the number two bus operator by market share in both the West Midlands, (the second largest bus market in the country after London), and Bristol. We are moreover one of the leading providers of private bus networks in the country, especially to the aviation industry in the South East.

·; Contracted Services

Revenues in Contracted Services rose by 16% to a total of £21.9 million (2010: £18.8 million). The acquisition of PBL, with its contracts for local authorities, made some contribution under this heading. However, excluding this revenue, there was an underlying increase in turnover of 9% when compared to the previous year. The largest contribution to this increase in revenue came from the two new route diagrams for National Express coach services that were announced at the interim stage. These are seven year contracts which will bring in new revenues of about £3.2 million per annum in a full year. But in addition there were substantial increases in revenues from local bus contracts in the Bath and Bristol areas. These new revenues more than compensated for the loss of turnover which resulted from the cutbacks in Worcestershire, as the transport budget of that county was savagely reduced in the new economic environment.

·; Commercial Services

Revenues in Commercial Services rose by 41% to £30.9 million (2010: £21.8 million). Much of this increase resulted from the commercial bus activities of the newly-acquired PBL. But again, excluding this factor, there was an underlying increase in turnover, this time of 4% in this business stream. Commercial Bus revenues grew strongly both in the South West and in the West Midlands. Network card products (including those administered by Centro - the West Midlands Passenger Transport Executive) benefited from particularly notable rates of growth. This trend bodes well for the future and I shall return to this theme later in my statement. The underlying growth rate of 4% was furthermore struck after the considerable negative impact on concessionary fares income which resulted from the cutbacks in Worcestershire mentioned above. Thus there was much encouraging development in this stream of group revenue in the year.

·; Charter Services

By contrast revenues in Charter Services fell by 17% to £3.3 million (2010: £4.0 million). Revenues in this business stream tend to be more one-off and erratic in nature, as we are using our contacts and expertise in this area to provide a bespoke service. Disruption work resulting from poor weather conditions made less of a contribution to turnover this year. At the same time we took a deliberate policy decision several years ago to reduce gradually the number of coaches we operate for speculative private hire work, as we felt that this line of business was exposed to higher levels of risk in current economic conditions. Thus, within Charter Services, income from private hire fell markedly compared to the previous year. In contrast, demand for chauffeur car services in the aviation sector (which we currently sub-contract in their entirety) rose considerably, but this did not compensate for the reductions in private hire income outlined above. Given the nature of Charter Service work, and the conscious reduction in group resource and investment devoted to this

business stream, the reduced revenues were to be expected and did in fact exceed those anticipated when the budget for the year was set.

·; Fleet Improvement

The board has continued to monitor closely the average age of the bus fleet and has set itself the objective to maintain an average fleet age of about 7.5 years. This 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 15% of the vehicle fleet was replaced in the year. This is not by any means always done with new vehicles, since many attractively priced replacements are available second hand. But the desired outcome, to keep the fleet age at the level set, was successfully achieved. As I described in detail in the 2010 annual report this policy also means that the board does not anticipate any problems in complying with the vehicle standards embodied in the Disability Discrimination Act: 98% of the fleet already meets the required standards.

Towards the end of the year our first diesel-electric hybrid power buses from the Optare Group began to be delivered. The initial batch, out of the total order for 15 vehicles, was put into service in Preston to much local acclaim. These vehicles are highly-specified to enhance the customer experience and to encourage repeat usage. More recently we have introduced another batch into service in the Black Country within our Diamond operation. The operational experience with these vehicles so far has been good. Fuel consumption shows a marked improvement over a comparable diesel bus, which is a most encouraging development.

We have also been awarded a grant in the third round of Green Bus funding, the results of which have just been announced by the Government. In this round we are taking up an allocation of £683,000 for the deployment of 8 double-deck buses, split between batches for Preston and Bristol. When these vehicles, which have already been ordered, are all put into service, we will be operating a total of 23 hybrid buses. For British Airways at Heathrow Terminal 5, we have deployed an all-electric bus, again from the Optare Group. This bus has acquitted itself well in operational use and provides another pointer to the future.

·; Fuel Prices

The price of diesel fuel continues to be a significant cause of concern to the board. In 2011, after a sharp rise in price at the end of the first quarter, the cost of a litre of diesel was reasonably stable. At the start of 2012 however we appear to have entered a period of further instability. Historically the group has remained unhedged since, as a relatively small user, it has been very difficult to obtain a hedge at economic prices. However the steadily rising price of fuel is a fact of life faced by the whole bus industry. Such large increases as we have seen recently cannot be absorbed within the business and must inevitably be passed on to the customer through increased fares. Nevertheless the board has

been conscious of the need to achieve economy of fuel usage in other ways. I mentioned above that each vehicle is monitored for unacceptable fuel consumption and weeded out if this proves intractable. Use of new technologies is clearly also of paramount importance in this area. I have described our orders for fuel efficient hybrid buses. There is no doubt that the rate of introduction of such vehicles will gather pace. Furthermore we have begun rolling out, within the whole bus fleet, electronic driver aids which tell the driver whether he or she is driving economically and efficiently. All new vehicles brought into the fleet in 2011 have been specified with this system and the initial results show a distinct reduction in fuel usage which vastly outweighs the cost of the technology. The whole fleet will be re-equipped by the end of 2012. We anticipate achieving significant savings in fuel usage by these means.

Strategy and acquisitions

The strategy of the group remains focused on the areas in which we have invested so far. We are the number two operator in both the West Midlands and the South West and one of the leading operators in the Heathrow area. Early in the year we established a new hub for the business in the North West by acquiring Preston Bus Limited ("PBL") from Stagecoach Group plc. PBL's services are operated largely on a commercial basis in a deregulated market, with some contracted services in addition carried out for local authorities and other public bodies.

The acquisition of PBL provides Rotala with a significant expansion of its activities into a new geographical area. This area is approximately the same distance from Birmingham as the existing activities of the group to the south west of Bristol. PBL operates like any current depot in the group network, with all central administrative and support services provided by the Birmingham headquarters of the group. PBL has made an encouraging start under Rotala ownership: we have already both extended and improved the service offered to Preston customers. Furthermore Preston sits in a region which has a historically high level of bus usage. The Board of Rotala therefore regards the future development of the Preston hub with optimism.

Competition Commission

Just after the end of our financial year, the Competition Commission produced their final report following an extensive investigation into local bus services. We are pleased to note that the Commission accepted most of our suggestions. These included a limit on the frequency with which timetables can be changed and the closing of a loophole which allowed certain types of bus routes to be flooded with buses without notice. Both these measures will prevent unfair competition. Furthermore we requested that access to bus stations should be on a mandatory fair, reasonable and non-discriminatory basis and again the Commission has agreed with our point of view. These measures are technical changes, important though they may be, which will rarely come to the notice of the bus user.

However the change which will most benefit the customer is in the area of multi-operator ticketing. With these schemes bus users can buy tickets which do not tie them to a particular operator but which are valid on the services of all operators within that multi-operator ticket area. In this way the customers are not constrained by the structure of any particular operator's network, but can use the network of bus services in any area to suit themselves with total flexibility. This can only serve to promote bus usage and improve passenger volumes.

The existence of multi-operator ticketing schemes varies around the country. In the South West negotiations between operators about a scheme have only just commenced. But in the West Midlands there has been such a scheme for many years running under the name of "nBus". However the pricing and coverage of the scheme is such that historically it has provided only weak and patchy competition to the network card schemes offered by the dominant operator, National Express West Midlands ("NXWM"). NXWM has been able to retain an iron grip on its market share, which, according to Centro's 2011 statistical publication, stood at 76% of bus servicekilometresoperated in the region. For comparison, Rotala's share by the same measure was 11%. (By the way it was zero in 2005, so you can see how far we have come).

The Competition Commission was, in our view rightly, severely critical of the governance, pricing and market penetration of the nBus scheme in their report. In our opinion the changes which the Commission has demanded will make the nBus scheme tickets much more attractive to the travelling public and ensure that the recent successes achieved by the scheme in increasing the volume of its tickets sold are greatly extended. In this way much more of the West Midlands bus market will be opened up to Rotala's bus services. We are confident that we will continue to attract market share away from NXWM.

Financial review

In the Consolidated Income Statement on page 9 the impact on the group's results of credit and expense in relation to intangibles, share based payments, acquisition expenses and debt finance costs has been shown separately, as these are not normal trading items. These items are analysed in detail in note 3. Considering therefore the group's performance before these latter items, I have already highlighted the 26% increase in revenues year on year. Cost of Sales was up 30%, the bulk of this increase deriving from the acquisition of PBL. Gross Profits rose by 7% compared to the previous year, though the overall gross profit margin declined slightly from 18% to 16% because of the year on year impact of increased fuel prices. Administrative Expenses were 12% higher than those of the previous year. The principal reason for this increase lay in the inclusion of the overhead costs brought in with the Preston acquisition, though some benefit was derived from the closure of the Droitwich depot half way through the year. The Profit from Operations at £3.6million was much the same as that recorded in 2010. Finance expense was down overall by about 10% even though the PBL acquisition created £2.4 million of new hire purchase debt for the group. Profit before taxation, credit and expense in relation to intangibles, share based payments, acquisition expenses and debt finance costs, therefore rose by 9% when compared to the previous year to £2.1 million (2010: £1.9 million). Basic earnings per share (benefiting from a one-off tax credit for the year) increased by 24% to 6.22p per share (2010: 5.00p).

The gross assets of the group stood at £48.4 million at 30 November 2011 (2010: £44.3 million), reflecting the addition of the assets of PBL. The vehicle fleet, which stood at 480 at the end of 2010, with the addition of PBL reached 560 by 30 November 2011. The book value of property, vehicles, debtors and stocks all increased compared to the previous year. The loans and borrowings of the group fell by about £800,000 in the year, very largely because of the loan stock repayments made in the accounting period. Obligations under hire purchase contracts, which totalled £14.1 million at the end of 2010, fell by 7% to £13.2 million by 30 November 2011, even though, as I have already mentioned, the acquisition of PBL created a further £2.4 million of hire purchase obligations new to the group. An analysis of the maturity profile of the hire purchase debt is included in note 5. Net assets reached £21.1 million at the year end (2010: £19.1 million).

The group showed a further increase in its cash flows from operating activities before changes in working capital. These rose by 14% to £6.7 million. In 2010 the cash inflow from working capital of £801,000 was abnormal and reflected the unwinding of a matching absorption of cash by working capital in 2009. In 2009 and 2010 the average figure for cash generated from operations was about £5.4 million, and so the £6.5 million recorded for 2011 actually represented a considerable underlying improvement. Investment in property, plant and equipment fell this year to £0.6 million (2010: £1.2 million). However the principal investment of the year was the acquisition of PBL for a figure, net of cash acquired with the company, of £2.6 million. This was facilitated by a £2.4 million refinancing of the Preston Bus vehicle fleet and a share issue of £0.6 million. Sale of vehicles, after taking account of the related hire purchase settlements, produced £0.7 million for the group (2010: £0.3 million). During the year a total of £775,000 of the convertible unsecured loan stock was repaid; in addition the capital element of payments on hire purchase agreements reached £4.5 million (2010: £3.8 million), the increase partly being caused by the method of financing the PBL acquisition. After taking account of rising dividend but falling interest payments, the closing figure for cash and cash equivalents, at £869,000 was only £259,000 lower than that of the previous year.

CHAIRMAN'S STATEMENT AND REVIEW OF OPERATIONS (continued)

Banking facilities and finance

Following the acquisition of PBL we managed to obtain increased overdraft facilities of £3.0 million from the group's principal bankers, the Royal Bank of Scotland. The increased size of the group has also enabled us to attract more providers of vehicle finance facilities. At the end of the year unused facilities, which are so vital in underpinning the further expansion of the group, stood at more than £4 million.

On 31 December 2011 the convertible unsecured loan stock issued in 2008 was due for repayment or conversion. Well before the year end the company contacted all loan stock holders to ascertain their intentions. In the event 60% of the loan stock holders, equating to holdings of £2,315,850, elected to extend the life of the loan stock for a further three years to 31 December 2014. For these holders the loan stock coupon remains at 8% per annum and the conversion price into ordinary shares (based on the price of an ordinary share on 27 April 2011) has been reset to 45p. The remaining £1,571,650 of loan stock fell due for repayment on 31 December 2011 and was duly dealt with in accordance with the original loan stock terms. For this reason this sum has been included within current liabilities at the balance sheet date, with the remaining balance shown within non-current loans and borrowings.

The acquisition of PBL also brought with it a defined benefit pension scheme. This scheme has been closed for some years and is not accruing any current service cost. In the pertaining interest rate and investment environment the balance sheet liability accorded to this fund can be expected to fluctuate considerably. However this has no bearing on the group's contribution to the fund. This is fixed for the next three years at £400,000 per annum. The actuarial advice we took before making the PBL acquisition provided considerable assurance that this is a well funded scheme which over the longer term will show improvement in its financial condition. The next actuarial valuation will be received in 2015 and the group's contribution to the fund will be reset at that time for a further three year period.

Dividend

The Company paid an interim dividend of 0.40 pence per share in December 2011. At the forthcoming Annual General Meeting the Board will recommend a final dividend in respect of 2011 of 0.80p per share, making 1.20p for the year as a whole. 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

Following the acquisition of Preston Bus, more than 50% of the group's revenues derive from commercial bus services. We intend to continue the expansion of our revenues from this business stream. I have already highlighted how this is happening in the West Midlands. The introduction of smart card ticketing operation in the West Midlands later in the year should make bus usage easier, cheaper and more attractive for the user. Once again the aim is by this means to increase bus patronage. We are also confident that we can further expand our commercial services throughout the business. Thus overall we expect the percentage of the group's revenues from commercial bus services to increase further in the current year.

Given the downward pressure on local authority transport budgets it is unlikely that contracted revenues from this source will increase in 2012. But there is still encouraging activity in private bus network tenders. The focus of government on the reduction of pollution and congestion will help to provide further opportunities for growth. In addition many private bus tenders derive from the drive by the private sector to outsource those activities (like transport) which lie outside their core areas of expertise. We are confident that we will secure further wins in this area of business, which is one of our specialisms.

The bus industry continues to be in a period of considerable change. This is a challenging environment within which to operate. In April this year the Bus Services Operators' Grant, which shields bus operators from fuel duty, will be reduced by 20%. We have already increased some fares in anticipation and further fare increases will be implemented, where necessary, to pass on the increased operating costs. I should point out at this juncture that about a fifth of the group's operations do not qualify for the fuel duty relief anyway and so are unaffected by this change. This volatile atmosphere produces uncertainty but also opportunity. Some of these opportunities will result from the Competition Commission report, but some will continue to come from the financial pressures generated by the current economic conditions. Most of our larger competitors are trimming and optimising their own operations for yield and efficiency. Rotala is well positioned to take advantage of any opportunities to expand our market share. In the current economic environment investors are concerned about leverage in all businesses. As a consequence the board is particularly conscious of the need to maintain downward pressure on the key ratio of total debt to earnings before interest, depreciation and amortisation ("EBITDA"). The EBITDA ratio stood at 3.3 times in 2009, 3.1 times in 2010 and came down to 2.4 times in 2011. As the overall level of debt continues to fall, the ratio will further improve.

The group is founded on a solid base with sound finances and a strong balance sheet well backed by tangible assets. Rotala has a good reputation and a high profile in the bus industry; it is well placed to capitalise in an industry subject to continuing change. Trading for the current year has also started well and is broadly in line with budget. Therefore the Board feels confident about the Company's prospects. I hope to be able to report favourably to you throughout the current year on further positive developments.

John Gunn

Non-Executive Chairman

12 April 2012

CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 30 NOVEMBER 2011

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 NOVEMBER 2011

.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 NOVEMBER 2011

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 NOVEMBER 2011

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 NOVEMBER 2011 (continued)

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 NOVEMBER 2011

Notes to the Preliminary Announcement of results for the year ended 30 November 2011

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 2011. 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. Management monitors revenue across the following business streams: contracted services, commercial services and charter services.

3. Profit before tax:

Profit before taxation includes the following:

Notes to the Preliminary Announcement of results for the year ended 30 November 2011 (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

Notes to the Preliminary Announcement of results for the year ended 30 November 2011 (continued)

4. Earnings per share: (continued)

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 and warrants, in order to compute the necessary adjustments in the above table. 

5. 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 2011 (continued)

6. Acquisitions:

As set out in the Chairman's Statement, on 25 January 2011 the company acquired 100% of the share capital of Preston Bus Limited ("PBL") from Stagecoach 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 £3.1 million in cash.

Statutory accounts were drawn up for PBL for the period ended 24 January 2011 and then audited by Grant Thornton UK LLP; these accounts, represented by the column headed "Book value" in the above table have been filed at Companies House.

The following fair value adjustments have been made:

·; Freehold land and buildings were valued as at 25 January 2011 by external valuerson the basis of open market value. A deferred taxation liability of £150,000 arising on revaluation gains has been recognised.

·; A deferred taxation asset of £130,000 has been recognised on the defined benefit pension scheme liability of £518,000.

Notes to the Preliminary Announcement of results for the year ended 30 November 2011 (continued)

6. Acquisitions: (continued)

The directors have followed the requirements of IFRS 3 Business Combinations and considered all available information in respect of the acquisition. There are no intangible assets that require inclusion because the business of the acquired company was largely that of commercial bus operations. Any contracts that the business did possess were close to their dates of expiry. The transaction resulted in a gain because of the circumstances of the sale. The seller was not a willing seller but was obligated by a Competition Commission ruling to effect a sale. In these circumstances the number of bidders for the business was limited. Therefore recognition of a gain on acquisition is appropriate. PBL generated post-acquisition revenues of £9,615,000 and an operating profit of £489,000. If the acquisition had been made on 1 December 2010, revenues of £11,136,000 and an operating profit of £447,000 would have been recorded.

7. Financial Information:

The Financial Statements for the year ended 30 November 2011 were approved by the Board of Directors on 11 April 2012. 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 2011 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The auditors have reported on the 2011 accounts; the auditors' opinion is unqualified and does not include a statement under section 496 of the Companies Act 2006.

8. 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.